Environmental degradation costs in electricity generation: The case of the Brazilian electrical matrix

The main purpose of this paper is to emphasize the importance of including environmental degradation costs in the long-term planning of the Brazilian electricity sector. To this aim, environmental external costs associated to both hydro-power and thermal-power electricity generation are investigated. Monetary valuation methodologies are applied and environmental degradation costs, expressed in per kWh of generated energy, are obtained for the main types of generation sources of the Brazilian electricity matrix. Both local pollution due to particulate matter emissions and global warming effects are assessed. A classification of the sources from the point of view of their impact on the environment is given. Degradation costs associated to the installed capacity expansion in the Brazilian electricity sector during the time horizon 2007–2016 are estimated. These resulting costs represent lower boundary damage estimates associated only with the energy to be generated during the period. Results indicate that local pollution caused by a small number of plants could be even more costly to society than global warming and, also, show the importance of considering not only unitary damage costs but the participation of each source on the generated energy during the time horizon, as a guide to planning and policy making.