In energy production, what is an externality?

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Multiple Choice

In energy production, what is an externality?

An externality is a cost or benefit of energy production that affects people who aren’t directly involved in the transaction and isn’t reflected in the market price. In energy production, pollution from emitting pollutants imposes health costs, environmental damage, and cleanup expenses on society, yet these costs aren’t paid by the energy producer or included in the electricity price. Because the market fails to capture these social costs, the true cost of energy from polluting sources is higher than the price suggests. This describes an externality well. The other statements don’t fit: if costs were fully reflected in market prices, there wouldn’t be an externality; externalities can be either costs or benefits, not just benefits; and externalities can arise from any energy source, not only renewable energy.

An externality is a cost or benefit of energy production that affects people who aren’t directly involved in the transaction and isn’t reflected in the market price. In energy production, pollution from emitting pollutants imposes health costs, environmental damage, and cleanup expenses on society, yet these costs aren’t paid by the energy producer or included in the electricity price. Because the market fails to capture these social costs, the true cost of energy from polluting sources is higher than the price suggests. This describes an externality well.

The other statements don’t fit: if costs were fully reflected in market prices, there wouldn’t be an externality; externalities can be either costs or benefits, not just benefits; and externalities can arise from any energy source, not only renewable energy.

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