MONETIZATION OF ENVIRONMENTAL AND SOCIO-ECONOMIC EXTERNALITIES FROM BIOENERGY Isabelle Brose1 Business Administration Department (cid:150)University of Namur Abstract: Bioenergy from agriculture is today in the heart of sustainable development, integrating its key components: environment and climate change, energy economics and energy supply, agriculture, rural and social development. Each bioenergy production route presents positive and/or negative externalities: GreenHouse Gases and other emissions, soil and water quality, agrochemicals, biodiversity, land-use change, health, local prosperity and well-being, property rights and working conditions... These externalities must be assessed in order to compare one bioenergy route to another (bio)energy route. The lack of primary and reliable data on externalities is, nevertheless, an important non-technological barrier to the implementation of the best (bio)energy routes. In this paper, we want to monetize environmental and socio-economic externalities from bioenergy. When monetization of externalities is not possible, another quantitative or a qualitative assessment is proposed. Monetization and other assessment results will be gathered, weighted, and incorporated in states and firms(cid:146) decision-making tools. They would enhance capacity of policy makers and managers to chose the best (bio)energy routes. Key words: Sustainable development, bioenergy, externalities, monetization 1 Corresponding author: Rempart de la Vierge, 8, 5000 Namur, Belgium, Tel: +32-81-725315, Fax: +32-81-724840, email: [email protected] 1 Introduction Bioenergy from agriculture is today in the heart of sustainable development, integrating its key components: environment and climate change, energy economics and energy supply, agriculture, rural and social development. Fighting against climate change imposes the mitigation of greenhouse gases. Considerable efforts have to be pursued, especially in the field of energy production and use. Each bioenergy production route2 presents positive and/or negative environmental and socio- economic impacts or externalities3. These externalities must be assessed in order to compare one bioenergy route to another (bio)energy route. The lack of primary and reliable data on externalities is, nevertheless, an important non-technological barrier to the implementation of the best (bio)energy. In this report, we describe the relevant externalities and indicators for the TEXBIAG4 project. These externalities must fit the biomass and bioenergy sustainability criteria. Retained externalities and indicators are derived from our literature review and from our assessment of sustainability criteria initiatives and certification systems. If there is a consensus, among initiatives and certification systems, on a list of externalities (or criteria) to take into account, there is little information on indicators to measure these externalities. Several indicators and their methodologies still need to be described accurately. Our proposition is to take part in this exploratory process. Some of the retained externalities are already measurable by well-defined indicators: – GreenHouse Gases (GHG) emissions, – Carbon stocks, – Air quality. They can be quantified and, probably, monetized on the basis of their impacts on health, global warming and soil and water quality. We give to these externalities a green light. Some other externalities still need well-defined indicators to be measured: – Land-use change, – Health (to monetize emissions impacts), – Soil quality, – Water quality, – Agrochemicals, – Biodiversity, – Genetically Modified Organism (GMO), 2 For example: rapeseed, soybean, grass, cereals, sugar beet, maize, miscanthus, potato, hemp, flax, animal by-products(cid:133) 3 (cid:147)An externality is present whenever the well-being of a consumer or the production possibilities of a firm are directly affected by the actions of another agent in the economy.(cid:148) (Mas-Colell et al, 1995). Externalities are goods which have positive or negative interest for economic agents but that are not sold on market. As externalities are market imperfections, they can prevent Pareto efficient allocation of resources (Varian, 1994). 4 TEXBIAG project: (cid:147)Decision Making Tools to Support the Development of Bioenergy in Agriculture(cid:148). This project is sponsored by the BELgian Science POlicy and led by Walloon Agricultural Research Center, University of Namur, Vrije Universiteit Brussel and Katholieke Universiteit Leuven. – Local prosperity. We give an orange light to these externalities and we propose to organise brainstorming sessions, with three or four experts. Experts will have to define indicators to measure these externalities. Their indicators definitions will then be validated by, for example, a Delphi method. On the basis of these brainstorming sessions, we will know if it is possible and relevant to monetize these externalities. Finally, some externalities cannot get better indicator than a go/no go or a traffic lights colour: – Working conditions, – Property rights, – Local well-being. We give a red light to these externalities and develop qualitative indicators that can be used by policy makers and managers to assess them. Two last externalities seem interesting to study but their impact assessment is beyond the scope of the TEXBIAG project: – Competition with food, – Energy security. Both get a red light. Nevertheless, we give some information on them at the end of this paper. Monetized indicators will be introduced in System Perturbation Analysis (SPA) from VUB to enhance policy makers(cid:146) choice of the best bioenergy routes. Monetized and non-monetized indicators will be introduced in tables which will contain all monetized, quantitative and qualitative information (Adams et al, 2006) on each bioenergy route retained (one table by bioenergy route). These tables will allow policy makers and managers to take into account all dimensions5 of sustainable development in their choice of the best bioenergy routes to support. Section 2 focuses on the sustainability criteria developed by sustainability criteria initiatives and certification systems. In Section 3, we describe the indicators developed or to be developed by TEXBIAG project for the externalities retained. Section 4 concludes. 2 Externalities considered by sustainability criteria initiatives and certification systems The aim of this paper is to define a list of externalities (and their indicators) that fits TEXBIAG partners and Belgian Federal Public Service (FPS) (cid:150) Health, Food Chain Safety and Environment requirements. TEXBIAG partners need externalities that can be monetized and then introduced in decision-making tools to support bioenergy. FPS needs sustainability criteria to develop a certification system of bioenergy or biomass. Sustainability criteria initiatives and certification systems on biomass and /or bioenergy already exist. Some are relevant for TEXBIAG externalities selection. We consider a panel of 5 Policy makers can give different weights to different dimensions (criteria, externalities) of sustainable development. initiatives led by different stakeholders (consultants, government representatives, distributors, social and/or environmental NGOs(cid:133)) on different agricultural products (soy, palm oil, fruits and vegetables, coffee, wood(cid:133)). Table 1 presents the relevant sustainability criteria initiatives and certification systems, their acronyms, and the sources where can be found a complete table of their criteria. Table 1 - Sustainability criteria initiatives and certification systems Initiatives Acronyms Sources Cramer Commission SenterNovem, 2005; Cramer et al, 2006 Renewable Transport Fuel Obligation RTFO Tipper et al, 2006 ; Dehue et al, 2007 Round table on Sustainable Palm Oil RSPO Denruyter, 2007; WWF Germany, 2007 Basel Criteria for Responsible Soy Proforest, 2004; RTRS, 2006; Cert ID, Production 2006 Utz Codes of Conduct Utz Certified, 2007 Eurep or Global Good Agricultural EurepGAP- GLOBALG.A.P.(EUREPGAP), 2007; Practices GlobalGAP ACCS, 2007 International Federation of Organic IFOAM IFOAM, 2002 Agriculture Movements Sustainable Agricultural Network / SAN/RA Smeets et al, 2006; SAN/RA, 2008 Rainforest Alliance Forest Stewardship Council FSC Forest Stewardship Council, 2002; Stupak, 2007 Pan-European Forest Council PEFC PEFC, 1998; Stupak, 2007 American Tree Farm System ATFS Fritsche et al, 2006 Sustainable Forestry Initiative SFIS Fritsche et al, 2006 Standard EUropean Green Electricity NEtwork Eugene Van Dam et al, 2006; Fritsche et al, 2006 Green Gold Label program GGL Van Dam et al, 2006; Fritsche et al, 2006 (cid:214)ko-institut Fritsche et al, 2006 These initiatives and certification systems take different sustainability criteria into account. Table 2 briefly presents the list of sustainability criteria retained by initiatives and certification systems. (cid:214)ko-inst +++ 0 ++ 0 +++ +++ ++ +++ + + ++ ++ 0 + GGL 0 0 0 0 + + ++ + 0 0 0 0 0 0 e n gŁ 0 0 0 0 + + + 0 0 0 0 0 0 0 u E FIS 0 0 0 0 ++ + ++ ++ 0 0 0 0 0 0 S ms TFS 0 0 0 + + + ++ ++ 0 0 0 0 0 0 e A t s y tion s PEFC 0 0 0 0 ++ ++ ++ +++ 0 0 0 0 0 0 a c i certif FSC 0 0 0 0 ++ ++ ++ +++ + 0 ++ + ++ 0 0 ves andSAN/RA 0 0 0 + ++ ++ ++ ++ + + ++ 0 ++ 0 s lacking: ti a i by initia IFOAM 0 0 0 0 ++ ++ +++ ++ ++ 0 ++ 0 0 0 +, if criteri d ++ taineEurepGAP 0 0 0 0 + + +++ + + 0 ++ 0 0 0 given : e s eria r Utz 0 0 0 + ++ ++ ++ ++ + 0 0 0 0 0 dology i t o cri eth bility Basel 0 0 0 + +++ +++ +++ +++ +++ 0 +++ ++ ++ 0 some m na d if (cid:150) Sustai RSPO 0 + 0 +++ +++ +++ +++ +++ 0 + +++ +++ +++ 0 ed : ++, an b Table 2 RTFO ++ ++ 0 +++ +++ +++ ++ +++ 0 0 +++ +++ + 0 a is descri Cramer Environmental criteria Global warming 67GHG +++ Carbon ++ 8 stocks9Land-use change ++ Environment quality Air quality +++ Soil quality +++ Water quality +++ Agrochemicals + Biodiversity Biodiversity +++ 10GMO 0 Socio-economic criteria Local prosperity ++ Working conditions +++ Property rights ++ 11Local well-being + 12Competition with food ++ 6 GreenHouse Gases 7 If the criteria is selected : +, if the criteri8 Under development 9 Monitoring by Government 10 Genetically Modified Organism 11 Participation, respect(cid:133) 12 Monitoring by Government From our literature review, we can see that Cramer Commission and RTFO initiatives cover the greatest number of sustainability criteria and describe them with lots of details (and methodologies). Moreover the Cramer Commission initiative seems to guide European Union work on sustainability criteria. Thus, Cramer Commission and RTFO, which are commissioned by public authorities and developed by consultants in collaboration with stakeholders (industries, NGOs(cid:133)), should also inspire our own selection of externalities. Section 3 describes how TEXBIAG project defines externalities retained, and how it develops (or expects to develop) indicators for measuring these externalities quantitatively and / or qualitatively. These indicators should be: – Operational at reasonable cost, – Checkable regularly at reasonable cost, – Relevant for all types of produced or imported energy, – Compatible with international measures (a special attention must be paid to WTO acceptance if these externalities are considered as compulsory (Biomass Technology Group, 2008)). 3 Externalities considered by TEXBIAG project For each environmental or socio-economic externality retained, TEXBIAG project proposes, below, quantitative (quantification, monetization) and/or qualitative (reporting, quotation) indicators. A traffic lights color (green, orange or red) is attached to each externality considered according to the present state of development of its quantitative indicators and monetization methodology. 3.1 Environmental externalities 3.1.1 Global warming 3.1.1.1 GreenHouse Gases For each bioenergy route selected, TEXBIAG project will study: – CO 13, 2 – CH 14, 4 – N O15, 2 – and O 16 emissions. 3 13 Carbon dioxide 14 Methane 15 Nitrous oxide 16 Ozone Quantitative assessment Quantification GHG emissions will be quantified from feedstock production down to waste management by Life-Cycle Analysis (LCA) through ECOINVENT database. Calculation methodology is derived from Fuel Quality and Renewable European Directives (EC, 2007; EC, 200817)18. Emissions during cultivation, transport, processing, distribution and end-use steps are considered. Method for accounting co-products is allocation by energy. When values are missing, default values (conservative) are available. E = eec + el + ep + etd + eu (cid:150) eccs - eccr (cid:150) eee where E = total emissions, eec = emissions from extraction or cultivation of raw material, el = annualised emissions from carbon stock change caused by land-use change, ep = emissions from processing, etd = emissions from transport and distribution, eu = emissions from use, eccs = emission savings from carbon capture and sequestration, eccr = emission savings from carbon capture and replacement, eee = emission savings from excess electricity from cogeneration. Quantification will give us net emissions (gCO eq19/MJ20). 2 Direct land-use change impacts on GHG emissions are considered (see section 3.1.1.3). If bioenergy crop replaces another crop, direct land-use change impacts on GHG emissions are taken into account one time (one-shot). If bioenergy crop is cultivated on land that wasn(cid:146)t cultivated before (forests, grasslands, wetlands(cid:133)), we have a change in carbon stocks (see section 3.1.1.2) that must be assessed during a number of years (20 years). Calculation of annualised emissions from carbon stock change: (CSR (cid:150) CSA) x MWCO /MWC x 1/20 x 1/P 2 where CSR = Carbon stock reference (January 2008, ton carbon/ha), CSA = Carbon stock when raw material was taken (ton carbon/ha), MWCO = 44.010 (Molecular Weight of CO ), 2 2 MWC = 12.011 (Molecular Weight of C), P = yield/hectare Emissions from bioenergy will then be compared to emissions from fossil energy references. GHG emission savings targets can also be defined on the basis of the European Directives (a minimum requirement of 35 % emission savings from fossil fuel comparator). Emissions can also be compared between bioenergy routes. 17 Annex VII 18 Methodologies are also described in Perrin et al (2008) and in Vanstappen et al (2008). 19 Correspondences between CO and other GHG are available. 2 20 Efficiency of processing (from raw material to energy) is taken into account. Monetization Quantified emissions can then be monetized on the basis of their impacts on health, global warming, and soil and water quality21. To monetize emissions impacts on health, we can calculate the incremental health cost due to emissions22. The choice of illnesses to consider is difficult as specific illnesses are rarely linked with certainty to specific pollutants. However we can focus on: – Respiratory problems (asthma, Chronic Obstructive Pulmonary Disease (COPD)(cid:133)), – Cancers, – Cardiac problems, – Hypertension, – Allergies, – Children(cid:146)s problems, – Symptoms not severe. The link between one ton of emission and the number of life expectancy years lost and/or the number of ill persons is the more difficult part of the evaluation. Health externality can be assessed on the basis of the sum of all individuals(cid:146) Willingness To Pay (WTP) to avoid it. Individuals are ready to pay to see their health risk from emissions reduced but also to see their relatives(cid:146) and the whole society(cid:146)s health risk reduced. As there is no real market for health, we cannot use market price. The multiplicity of health service payers23 doesn(cid:146)t facilitate the evaluation of WTP to avoid health externality. There is also a disjunction between large part of payments24 and medical goods or services received. Payments are global and made by groups and purchases of medical goods or services are illness specific and made by individuals. To evaluate WTP to reduce mortality25 risk from emissions, we can multiply the number of life expectancy years lost due to premature deaths by a Value Of Life Year (VOLY) 26. To evaluate WTP to reduce morbidity risk from emissions, the best way is to multiply the number of ill persons by their Cost Of Illness (COI). COI is composed by all direct, medical or not, and indirect costs tied to a specific disease from diagnosis to cure or death: – Hospital admissions, – Emergency room visits, – Treatments (medicine), – Symptom days, – Restricted activity days. We can find data on number of life expectancy years lost and on number of ill persons in 21 We don(cid:146)t investigate impacts on material, landscape, noise, odor, visibility(cid:133) In literature, monetization of these impacts is negligible when compared to impacts on health and global warming. 22 (cid:147)((cid:133)) medical cost avoided due to pollution prevention or costs incurred due to a lack of pollution control.(cid:148) (ABT ASSOCIATES, 2003, p. 3) 23 Patients, public administration, mutual and private insurances, etc. 24 Taxes, insurance provision, etc. 25 (cid:147)((cid:133)) people dying earlier than they would in the absence of air pollution.(cid:148) (Holland et al, 2002, p. 3) 26 Other possibilities are the Value Of Statistical Life (VOSL) and the human capital approach. medical mortality and morbidity databases. VOLY and cost of standard treatments can be obtained by Benefits Transfers27 and experts(cid:146) advices. In order to assess accurately emissions impacts on health, we propose to lead a brainstorming session with three or four experts to define indicators and methodologies. To monetize emissions externalities, we also need to take into account emissions impacts on global warming. GHG have impacts on global warming which itself has worldwide impacts: mortality, morbidity, sea level, energy demand, migrations, agricultural and economic impacts... As assessing costs of global warming is beyond the scope of this project, we can use Benefits Transfers method. A great number of studies (CASES, 2007; Kuik et al, 2007) try to assess GHG cost, in particular, CO cost. The cost by ton of CO emitted varies a lot between 2 2 studies. We can find information on global warming costs in the Stern review (Stern, 2006) and in its numerous critics. To monetize emissions externalities, we can finally consider emissions impacts on soil and water quality. We need to identify and quantify the link between soil and water quality and emissions due to agricultural practices used in bioenergy conversion routes (see sections 3.1.2.2 and 3.1.2.3). GHG externality gets a green light but some parts of its monetization deserve more information (for example, brainstorming session on health impacts of GHG emissions). 3.1.1.2 Carbon stocks Quantitative assessment For each selected bioenergy route, the role of bioenergy production as carbon sinks and sources will be considered in GHG emissions quantification (see section 3.1.1.1). Direct land- use change will be taken into account. Qualitative assessment Carbon sinks, above (vegetation) and below (soil) ground, must be maintained. Conversion of wetlands, forests(cid:133)is not allowed because GHG released during the conversion of these areas cannot be compensated by bioenergy GHG savings in a reasonable period. Evidence of carbon sinks conservation compared to a reference date (to be defined) must be reported. Carbon stocks externality gets a green light as necessary information to assess it is present in GHG and land-use change externalities. 3.1.1.3 Land-use change For each selected bioenergy route, TEXBIAG project proposes to study the impacts of land- use change. Land-use change has direct and indirect impacts. Direct impacts arise when a crop is replaced, 27 Another possibility is the Contingent Valuation. on a specific parcel, by a bioenergy crop. Indirect impacts arise because what is no more produced on this parcel must be produced elsewhere at the expense of other land. Land-use change has different impacts on emissions (Searchinger et al, 2008), biodiversity (Riedacker, 2007), competition with other land-uses, and so on. Here, we focus on direct and indirect impacts of land-use change on GHG emissions. Direct land-use change impacts are taken into account in GHG emissions calculation (see section 3.1.1.1). Indirect land-use change impacts must be studied and reported at national level. Quantitative assessment Direct impacts of land-use change on GHG emissions are considered in GHG calculation method (see section 3.1.1.1). It(cid:146)s important to note that impacts of land-use change on GHG emissions are linked to the mass plant and to the soil. If the mass plant change can be assessed, the change in Soil Organic Carbon (SOC) is more difficult to evaluate. It is a slow process which depends on numerous factors. Qualitative assessment Indirect impacts of land-use change must be reported by governments and compared to a reference date (to be defined). A brainstorming session, with three or four experts, seems necessary to ensure the adequate definition of the indicators to measure land-use change externality. For this reason, we give an orange light to land-use change externality. 3.1.2 Environment quality Environment quality externalities depend on Good Agricultural Practices (GAP). These GAP are described by cross-compliance rules (EC, 2003) of Common Agricultural Policy (CAP). These rules only apply to European farmers but we are looking for a common set of sustainability criteria for biomass and bioenergy produced in European Union (EU) or imported from outside EU. Nevertheless, we can recommend a qualitative assessment of agricultural practices to produce biomass and bioenergy within or outside EU. 3.1.2.1 Air quality For each selected bioenergy route, TEXBIAG project will study: – CO28, – NO 29, x – SO 30, 2 – metal emissions, – and PM31. 28 Oxide of carbon 29 Oxides of nitrogen 30 Sulphur dioxide 31 Particulate Matter of different sizes