Question

In 2018, the electricity generation in Australia was about 261 TWh. The percentage contribution of the fuels used was Coal (60 %), Natural gas (19 %), Oil (2 %), and Renewable energy (19 %)

Determine the annual external cost of burning fossil fuels in Australia for electricity generation in 2018 if the average external costs of using coal, oil and natural gas are 6.4 cents/kWh, 4.5 cents/kWh and 1.6 cents/kWh, respectively. Estimate the corresponding percentage loss of Australia’s GDP. Assume Australia’s GDP was 1.4 trillion AUD by 2018.

Answer 1

Total amount of electical energy generated in Australia per year = 261TWh = 261 x 10¹²Wh = 261 x 10⁹KWh

Energy produced using coal = 60% of annual production = 261x10⁹x0.60 = 156.6x10⁹KWh

External cost due to coal = 156.6x10⁹x0.064 dollars = 10.0224x10⁹ dollars

Energy produced using Natural gas = 19% of annual prooduction = 261x10⁹x0.19 = 49.59x10⁹KWh

External cost due to Naural gas = 49.59x10⁹x0.045 = 2.23155x10⁹ dollars

Energy produced using Oil = 2% of annual production = 261x10⁹x0.02 = 5.22x10⁹KWh

External cost due to Oil = 5.22x10⁹x0.016 = 0.08352x10⁹ dollars

Total external cost for eletricity production = (10.0224 + 2.23155 + 0.08352) x10⁹ = 12.33747x10⁹ dollars

Total GDP of Australia = 1.4 trillion dollars = 1.4x10¹² dollars = 1400x10⁹ dollars

Percentage loss = 12.33747/1400 x100 =0.8812%