Externalities occur when economic decisions create costs or benefits for parties other than the decision maker (Visser, 2014). Both negative and positive externalities exist. A positive externalities arises when an action by a party results in benefits to others thus the social benefit is greater than private benefit. A negative externality occurs when an action by a party yields harmful effects on the other. In terms of negative externalities the social cost is greater than private cost. Market failure occurs when the private costs are not equal to the social costs.
The electricity sector in developing countries is increasing rapidly, however, there are a number of externalities linked with energy generation and the price of energy does not reflect all the associated costs. These externalities include effects on human health, the environment, climate, subsidies, agriculture as well as reactor accidents and economic effects (Bernal-Agustin & Dufo-Lopez, 2006) (Friedrich & Voss, 1993) (Edkins, Winkler, Marquard, & Spalding-Fecher, 2010). In the uncontrolled market, there is a inclination to produce more energy and produce a larger waste fuel supply than is socially optimal (Aronsson, Backlund, & Lofgren, 1998) therefore economic instruments are necessary to internalize the cost of externalities for optimal pollution.
In this paper the externalities of three types of power-generation will be discussed: coal-fired, nuclear and photovoltaic (PV). The economic instruments to internalize the externalities will also be examined.
Coal-fired energy generation
In South Africa, Eskom provides 95% of the electricity, of which coal-fired electricity accounts for 86% (Pegels, 2010). Eskom’s coal-fired power stations have high...
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...tainable and non-carbon energy sources. However, FIT is not pro-poor because even with subsidies the price of electricity will increase and subsidies distort market prices (Visser, 2014).
Other ways to internalize external costs include; integrated resource planning, using resources within the Southern African Development Community, which include hydropower and natural gas (Spalding-Fecher & Matibe, 2003)l as well as using the Clean Development Mechanism (Spalding-Fecher & Matibe, 2003).
South Africa has a long way to go before externalities associated with energy generation are internalized into the cost or eliminated completely. The entire electricity supply sector needs to be restructured towards the renewable energy sector. However, economic instruments need to be implemented before the sector can move away from coal-intensive electricity production.
Nuclear power has grown to be a big percentage of the world’s energy. As of January 18, 2013 in 31 countries 437 nuclear power plant units with an installed electric net capacity of about 372 GW are in operation and 68 plants with an installed capacity of 65 GW are in 15 countries under construction. As of end 2011 the total electricity production since 1951 amounts to 69,760 billion kWh. The cumulative operating experience amounted to 15, 15,080 years by end of 2012. (European Nuclear Society) The change that nuclear power has brought to the world has led to benefits in today’s energy’s usage.
Some provided examples of externalities were second-hand smoking, pesticide, and the post-antibiotic crisis. One of the remedies for a negative externality was compensation, which for one of the examples--the banana plantation owners and fishermen--I felt was unrealistic and weak. The idea was to reduce the negative externalities or the marginal social cost of polluting the fishing waters by reducing the output of bananas, which is compensated with money. It eventually reduces the output of bananas to the point in which the marginal social cost equals the market price for bananas. The transaction would work if both groups are in agreement and there are no barriers to information. That’s just unrealistic. Since the pesticide for growing bananas is legal and the fishermen are asking the plantation owners for help, the fishermen have considerably less bargaining power, making compensation difficult to execute. In addition, the pesticide is also a destroyer of environments, fishermen industries, and human health, so I would expect the the marginal social cost to be way higher. No bother placing a tax on it for monetary gain or for Pareto efficiency; rather, it’s better to ban it due to huge long-term negative
Since various members of society are affected by this negative externality, this next graph displays the surplus between the Equilibrium conditions and the optimum conditions.
Externalities are an economic activity where the effect of production of goods and services can be effected which will cause the costs or benefits to be forcefully accepted. There would not be a legitimate measure of a good’s value, anytime externalities occur. In externalities, there are social and private costs. There are two types of externalities which is positive and negative externality. Negative externality is a decision made by a firm that can increase cost to society more than it can for private cost. It also creates market failure. An example would be pollution. Positive externality is a production of any goods and services which will give benefits towards a third party. An example would be education and less
We need justification for our beliefs. The idea is that where do these justifications come from. Are they based on good reasoning, evidence, personal experiences, or etc.? The broader question is whether justification is something internal or external? I believe one should be externalist about justification.
Here’s an article discussing the recent US BP oil Spill off the Gulf of Mexico as a classic example of a negative externality. After reading it, try recalling the concepts of Marginal Cost, Marginal Social Benefit , Marginal Personal Cost and Marginal Personal Benefit. Then remember the concepts of Allocative, Productive and Distributive efficiency. The exercise should be a fairly good proxy indicator your familiarity with the topic.
The future of the United States solar energy industry will be shaped not only by economic growth, but also by the rate of declining oil resources and the global realization of the consequences of human induced climate change. Political responses to this realization in the United States include; new policies, legislature, and tax incentives to both businesses and private households to promote growth and investment in the solar power industry.
External factors are usually beyond the control of the business. The best way for a business to deal with these external changes is to be pro-active. A successful business would be ahead of these changes rather than hurriedly making knee-jerk reactions. There are six main external factors which would possibly affect the performance of a small business :Political, Economic, Social, Technological , Legal and Environmental (PESTLE Analysis)
In addition to the fact that solar, wind, and hydro power are local resources, they are also emission free resources. Emissions and pollution are a key concern with traditional power sources. The coal-fired plants that dominate U.S. energy production also produce more emissions than any other energy source. “Em...
Negative externalities refer to the additional costs towards third parties from the economic activity is activity that people are affected indirectly, the cause is an incremental cost by the price of the market did not have to share the costs incurred by the other parties and make the economic system is the quantity of goods and services produced more than expected. Producer and consumer are the first and second parties do not affected. Many negative externalities are about the environmental consequences of production and use. Most of a negative externality is waste and pollution. For example, a mine producing firm might release air pollution. While the industry has to pay for materials equipment and labor. People who living around or near
Today our society is using more energy than ever. With the increase in demand for energy, problems are presented that have to be addressed. One of the biggest and most prevalent problems is the need for clean, renewable, sustainable energy. On the forefront of these problems comes the following solutions: nuclear energy, hydro-electric energy, and photovoltaic energy. With the need of energy in today’s current world, exploring different ways of producing power are necessary. The differences and similarities of nuclear energy and alternative energy are important to look over and examine in depth, so that it is plain to see the positive and negative effects of energy production.
...acing strain on our resources. Eskom have struggled to meet demand and it is up to the consumers to help in the energy race. The key is to start somewhere, be it big or small the changes one makes today could lead to greater tomorrow.
Per year South Africa uses 1.3 % of the world’s total energy. South Africa’s main energy comes from coal, but one quarter of the coal we mine is exported to other countries. In 2009 71.1% of the total energy sources in South Africa were coal and hydroelectric energy had 0,1%. The one major reason hydroelectric energy in South Africa is so low is because this country is a water scarce one, which means that the hydroelectric power stations don’t have enough water to produce electricity efficiently. Eskom produces 95% of the electricity in South Africa and about half the electricity in Africa. Most of the electricity that is produced is from coal, but not all of it, other sources include gas, wind, hydroelectric and nuclear energy.
Regarding solar power, Mistry claims that although the solar power does not generate pollution, it has a lot of costs. Building solar panels with photovoltaic equipment has high costs. For instance, a photovoltaic system for a home can cost around $35,000 (Kumar, 2012). However, if our goal for the future is to create a healthy environment, switching fossil fuels for solar power might be the best choice to achieve that goal. According to Kumar (2012), Solar power is a clean and renewable energy so, it decreases the dependency on fossil fuel and also reduces the air pollution.
The world that we live into today affords us the expectation that the flip a switch will turn the lights on. As populations increase and developing nations undergo dramatic economic growth, this energy demand will only continue to grow. The International Energy Agency (IEA) believes that “the world’s energy needs could be 50% higher in 2030 than they are today” (ElBaradei). Given this projected growth, it is necessary for world leaders must take action to secure the energy supply. Meaning that world leaders need to start seriously considering an alternative to non-renewable energy sources. “In 2012, the United States generated about 4,054 billion kilowatt-hours of electricity. About 68% of the electricity generated was from fossil fuel (coal, natural gas, and petroleum), with 37% attributed from coal” (U.S. Energy Information Administration). The fossil fuels that are used to supply over half of our country’s energy are in finite supply and are increasing in price to astronomical heights.