[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/renene/v129y2018ipap237-244.html
   My bibliography  Save this article

Economic trade-offs between hydroelectricity production and environmental externalities: A case for local externality mitigation fund

Author

Listed:
  • Rayamajhee, Veeshan
  • Joshi, Aakrit
Abstract
Many proposed solutions for mitigating environmental externalities from hydroelectricity generation raise equity concerns and do not adequately address uncertainties and fluctuations in energy production. To balance the disparity caused by locally concentrated negative externalities and nationally or globally dispersed benefits, this study makes a case for the adoption of a locally negotiated endogenous externality mitigation fund (EMF) – one that directly compensates individuals for the specific environmental externality – as a policy alternative to lump-sum taxation and/or indirect measures such as integrating externality costs into energy prices. Using downstream crop damage due to the restricted flow of water as a representative externality, we employ optimal control framework to conduct comparative analyses of exogenous and endogenous EMFs relative to the base case with no EMF. Our findings show that endogenous EMF, when compared to the base case, reduces crop loss by 87.5% with a corresponding energy production trade-off of 11.8%. On the other hand, exogenous EMF, contrary to its purported intent, exacerbates externality by incentivizing the firm to increase production to self-compensate for the payment towards the fund. Results indicate that endogenizing the EMF is preferable because the consequential reduction in energy production is economically outweighed by the externality damages avoided.

Suggested Citation

  • Rayamajhee, Veeshan & Joshi, Aakrit, 2018. "Economic trade-offs between hydroelectricity production and environmental externalities: A case for local externality mitigation fund," Renewable Energy, Elsevier, vol. 129(PA), pages 237-244.
    • Handle: RePEc:eee:renene:v:129:y:2018:i:pa:p:237-244
    DOI: 10.1016/j.renene.2018.06.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0960148118306396
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.renene.2018.06.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jesús Gastélum & Juan Valdés & Steven Stewart, 2009. "A Decision Support System to Improve Water Resources Management in the Conchos Basin," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(8), pages 1519-1548, June.
    2. Zerbe, Richard Jr. & Bauman, Yoram & Finkle, Aaron, 2006. "An aggregate measure for benefit-cost analysis," Ecological Economics, Elsevier, vol. 58(3), pages 449-461, June.
    3. Matthew J. Kotchen & Michael R. Moore & Frank Lupi & Edward S. Rutherford, 2006. "Environmental Constraints on Hydropower: An Ex Post Benefit-Cost Analysis of Dam Relicensing in Michigan," Land Economics, University of Wisconsin Press, vol. 82(3), pages 384-403.
    4. Uddin, Sk Noim & Taplin, Ros & Yu, Xiaojiang, 2007. "Energy, environment and development in Bhutan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(9), pages 2083-2103, December.
    5. Ostrom,Elinor, 2015. "Governing the Commons," Cambridge Books, Cambridge University Press, number 9781107569782, September.
    6. Kaldellis, J. K. & Vlachou, D. S. & Korbakis, G., 2005. "Techno-economic evaluation of small hydro power plants in Greece: a complete sensitivity analysis," Energy Policy, Elsevier, vol. 33(15), pages 1969-1985, October.
    7. Reiche, Danyel & Bechberger, Mischa, 2004. "Policy differences in the promotion of renewable energies in the EU member states," Energy Policy, Elsevier, vol. 32(7), pages 843-849, May.
    8. Zhang, Jin & Xu, Linyu & Yu, Bing & Li, Xiaojin, 2014. "Environmentally feasible potential for hydropower development regarding environmental constraints," Energy Policy, Elsevier, vol. 73(C), pages 552-562.
    9. Niu, Shilei & Insley, Margaret, 2013. "On the economics of ramping rate restrictions at hydro power plants: Balancing profitability and environmental costs," Energy Economics, Elsevier, vol. 39(C), pages 39-52.
    10. Gunawardena, U.A.D. Prasanthi, 2010. "Inequalities and externalities of power sector: A case of Broadlands hydropower project in Sri Lanka," Energy Policy, Elsevier, vol. 38(2), pages 726-734, February.
    11. Dincer, Ibrahim, 2000. "Renewable energy and sustainable development: a crucial review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 4(2), pages 157-175, June.
    12. Zhao, Guangzhi & Davison, Matt, 2009. "Optimal control of hydroelectric facility incorporating pump storage," Renewable Energy, Elsevier, vol. 34(4), pages 1064-1077.
    13. David A. Harpman, 1999. "Assessing the Short-Run Economic Cost of Environmental Constraints on Hydropower Operations at Glen Canyon Dam," Land Economics, University of Wisconsin Press, vol. 75(3), pages 390-401.
    14. Hanley, Nick & Craig, Stephen, 1991. "Wilderness development decisions and the Krutilla-Fisher model: The case of Scotland's 'flow country'," Ecological Economics, Elsevier, vol. 4(2), pages 145-164, November.
    15. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    16. Brian K. Edwards & Silvio J. Flaim & Richard E. Howitt, 1999. "Optimal Provision of Hydroelectric Power under Environmental and Regulatory Constraints," Land Economics, University of Wisconsin Press, vol. 75(2), pages 267-283.
    17. Trussart, Serge & Messier, Danielle & Roquet, Vincent & Aki, Shuichi, 2002. "Hydropower projects: a review of most effective mitigation measures," Energy Policy, Elsevier, vol. 30(14), pages 1251-1259, November.
    18. Batley, S. L. & Colbourne, D. & Fleming, P. D. & Urwin, P., 2001. "Citizen versus consumer: challenges in the UK green power market," Energy Policy, Elsevier, vol. 29(6), pages 479-487, May.
    19. Chatterjee, Bishu & Howitt, Richard E. & Sexton, Richard J., 1998. "The Optimal Joint Provision of Water for Irrigation and Hydropower," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 295-313, November.
    20. James Randall Kahn & Carlos Edwar Freitas & Miguel Petrere, 2014. "False Shades of Green: The Case of Brazilian Amazonian Hydropower," Energies, MDPI, vol. 7(9), pages 1-20, September.
    21. Morimoto, Risako, 2013. "Incorporating socio-environmental considerations into project assessment models using multi-criteria analysis: A case study of Sri Lankan hydropower projects," Energy Policy, Elsevier, vol. 59(C), pages 643-653.
    22. Abbasi, S. A. & Abbasi, Naseema, 2000. "The likely adverse environmental impacts of renewable energy sources," Applied Energy, Elsevier, vol. 65(1-4), pages 121-144, April.
    23. Stefan Ambec & Joseph A. Doucet, 2003. "Decentralizing hydro power production," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(3), pages 587-607, August.
    24. Spalding-Fecher, Randall & Matibe, David Khorommbi, 2003. "Electricity and externalities in South Africa," Energy Policy, Elsevier, vol. 31(8), pages 721-734, June.
    25. Brian K. Edwards, 2003. "The Economics of Hydroelectric Power," Books, Edward Elgar Publishing, number 2244.
    26. Reddy, V. Ratna & Uitto, Juha I. & Frans, Dirk R. & Matin, Nilufar, 2006. "Achieving global environmental benefits through local development of clean energy? The case of small hilly hydel in India," Energy Policy, Elsevier, vol. 34(18), pages 4069-4080, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Choi, Jihye & Kim, Justine Jihyun & Lee, Jongsu, 2024. "Public willingness to pay for mitigating local conflicts over the construction of renewable energy facilities: A contingent valuation study in South Korea," Energy Policy, Elsevier, vol. 185(C).
    2. Deng Xu & Yong Long, 2019. "The Impact of Government Subsidy on Renewable Microgrid Investment Considering Double Externalities," Sustainability, MDPI, vol. 11(11), pages 1-15, June.
    3. Hans Westlund & Mats Wilhelmsson, 2021. "The Socio-Economic Cost of Wind Turbines: A Swedish Case Study," Sustainability, MDPI, vol. 13(12), pages 1-16, June.
    4. Houeida Hedfi & Ahlem Dakhlaoui & Abdessalem Abbassi, 2020. "Dynamic Behaviour of Hydro/Thermal Electrical Operators Under an Environmental Policy Targeting to Preserve Ecosystems Integrity and Air Quality," Working Papers halshs-02523330, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gunawardena, U.A.D. Prasanthi, 2010. "Inequalities and externalities of power sector: A case of Broadlands hydropower project in Sri Lanka," Energy Policy, Elsevier, vol. 38(2), pages 726-734, February.
    2. Sichilalu, Sam & Wamalwa, Fhazhil & Akinlabi, Esther T., 2019. "Optimal control of wind-hydrokinetic pumpback hydropower plant constrained with ecological water flows," Renewable Energy, Elsevier, vol. 138(C), pages 54-69.
    3. Niu, Shilei & Insley, Margaret, 2013. "On the economics of ramping rate restrictions at hydro power plants: Balancing profitability and environmental costs," Energy Economics, Elsevier, vol. 39(C), pages 39-52.
    4. Kern, Jordan D. & Characklis, Gregory W., 2017. "Low natural gas prices and the financial cost of ramp rate restrictions at hydroelectric dams," Energy Economics, Elsevier, vol. 61(C), pages 340-350.
    5. Yu, Bing & Xu, Linyu, 2016. "Review of ecological compensation in hydropower development," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 729-738.
    6. Lea Kosnik, 2010. "Balancing Environmental Protection and Energy Production in the Federal Hydropower Licensing Process," Land Economics, University of Wisconsin Press, vol. 86(3).
    7. Guisández, Ignacio & Pérez-Díaz, Juan I. & Wilhelmi, José R., 2016. "Approximate formulae for the assessment of the long-term economic impact of environmental constraints on hydropeaking," Energy, Elsevier, vol. 112(C), pages 629-641.
    8. Niu, Shilei & Insley, Margaret, 2016. "An options pricing approach to ramping rate restrictions at hydro power plants," Journal of Economic Dynamics and Control, Elsevier, vol. 63(C), pages 25-52.
    9. Pérez-Díaz, Juan I. & Wilhelmi, José R., 2010. "Assessment of the economic impact of environmental constraints on short-term hydropower plant operation," Energy Policy, Elsevier, vol. 38(12), pages 7960-7970, December.
    10. Guisández, Ignacio & Pérez-Díaz, Juan I. & Wilhelmi, José R., 2013. "Assessment of the economic impact of environmental constraints on annual hydropower plant operation," Energy Policy, Elsevier, vol. 61(C), pages 1332-1343.
    11. Bielsa, Jorge & Duarte, Rosa, 2003. "Modelling water resource allocation: a case study on agriculture versus hydropower production," MPRA Paper 36923, University Library of Munich, Germany.
    12. Pérez-Díaz, J.I. & Millán, R. & García, D. & Guisández, I. & Wilhelmi, J.R., 2012. "Contribution of re-regulation reservoirs considering pumping capability to environmentally friendly hydropower operation," Energy, Elsevier, vol. 48(1), pages 144-152.
    13. Alexandre Stamford da Silva & Fernando Campello de Souza, 2008. "The economics of water resources for the generation of electricity and other uses," Annals of Operations Research, Springer, vol. 164(1), pages 41-61, November.
    14. Sebestyén, Viktor, 2021. "Renewable and Sustainable Energy Reviews: Environmental impact networks of renewable energy power plants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 151(C).
    15. Kumar, Deepak & Katoch, S.S., 2015. "Sustainability suspense of small hydropower projects: A study from western Himalayan region of India," Renewable Energy, Elsevier, vol. 76(C), pages 220-233.
    16. Kumar, Deepak & Katoch, S.S., 2014. "Harnessing ‘water tower’ into ‘power tower’: A small hydropower development study from an Indian prefecture in western Himalayas," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 87-101.
    17. Aleksandra Matuszewska-Janica & Dorota Żebrowska-Suchodolska & Urszula Ala-Karvia & Marta Hozer-Koćmiel, 2021. "Changes in Electricity Production from Renewable Energy Sources in the European Union Countries in 2005–2019," Energies, MDPI, vol. 14(19), pages 1-27, October.
    18. Roma, Antonio & Pirino, Davide, 2009. "The extraction of natural resources: The role of thermodynamic efficiency," Ecological Economics, Elsevier, vol. 68(10), pages 2594-2606, August.
    19. Manel Kamoun & Ines Abdelkafi & Abdelfetah Ghorbel, 2019. "The Impact of Renewable Energy on Sustainable Growth: Evidence from a Panel of OECD Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 221-237, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:renene:v:129:y:2018:i:pa:p:237-244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/renewable-energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.