The production of heat and electricity can cause large environmental impacts and, hence, large costs for society. Those are costs that are seldom taken into consideration. An important question is how the future technical energy systems should be formed if environmental costs were considered as any other good or service, such as raw material, capital and labour. This study comprises cost-effective technical measures when monetary values of external effects are included in an energy system analysis. It is an analysis of how the present energy system can for society be cost-effectively reconstructed to be more sustainable. A regional energy system model has been developed to perform the study and it concentrates upon production of heat in single-family houses, multi-dwelling buildings, non-residential promises and district heating systems. The analysis adopts a business economic perspective, using present prices of energy carriers, and a more socio-economic perspective, in which external costs are included. The result of the analysis is the optimal mix of energy carriers as well as new and existing heating plants that minimizes the costs of satisfying a demand for heat. The results show that it is profitable to invest in new heating plants fuelled with woody biomass. Furthermore, the external costs arising with satisfying the demand for heat can decrease substantially, 60%, by carrying through with the investments that are cost-effective according to the institutional rules valid today. When monetary values of external costs are taken into consideration, this number is additional 5-percentage points lower. It is shown that if environmental costs are included it is more expensive to continue with business as usual than it is to reconstruct and run a more sustainable energy system.

This is an analysis of the effect on the technical solution when monetary values of externalities are included in a model for optimising energy systems. The focus of the study is on heating in domestic houses, non-residential premises, multi-dwelling buildings and district heating systems. The included monetary values of damage to the environment and health are those resulting from atmospheric emissions Of CO2, NOx, SO2 and particulates. The estimates are taken from the literature. An optimising method based on linear programming is used and the result is an optimal mix of energy carriers as well as new and existing heating plants that minimise the costs of satisfying a demand for heat. Furthermore, a calculation is made of the externality cost resulting from the energy system. The analysis makes it possible to compare the technical and economic differences of an energy system based on business economics to a system with greater emphasis on socio-economics. Generally speaking, it is cost-effective to take externality costs into consideration at the planning stage instead of correcting the damage later. The results show that by considering externality costs the total discounted cost of the energy system would be approximately 30% lower than today. Furthermore, the use of pellets and wood chips should be substantially larger in all of the studied regions. (C) 2002 Elsevier Science Ltd. All rights reserved.

Global warming is one of the most important environmental issues today. One step for the European Union to fulfil the Kyoto protocol, stating a worldwide decrease of emissions of greenhouse gases, is to treat the environment as a scarce resource by attributing costs for environmental impact. This accompanied with considering the European electricity market as one common market, where coal condensing power is the marginal production, lead to the possibility to reduce CO2-emissions in Europe by reconstructing energy systems at a local scale in Sweden. A regional energy system model is used to study possibilities to replace electricity and fossil fuel used for heating with biomass and how a reconstruction can affect the emissions of CO2. An economic approach is used where cost-effective technical measures are analysed using present conditions and by including monetary values of externalities. The analysis shows that, by acting economically rational, a large amount of electricity and fossil fuel should, in three Out Of four cases, be replaced leading to a substantial reduction of CO2 emissions. (C) 2002 Elsevier Science Ltd. All rights reserved.