Market system has significant effects on quality and quantity of priced resources. However, it has not been directing firms and institutions for effective utilization of non-priced resources like environmental goods and services. In institutional perspective, utilization of non-priced resources might cause the degradation of environmental resources. The extra costs are not implied on their generated products. In fact this process could create environmental costs that never integrated in marginal price of the products.
In energy sector of Iran, externality costs are those kinds of costs that are to be imposed on community and environment without integrating in marginal price of electricity. Lack of consideration of environmental costs of power generation will cause adverse effects on utilization of resources.
Estimation of environmental costs and their integration in marginal pricing of electricity indicates that electricity-pricing process goes toward transparent phase and hope to create a background for moving to market-based pricing in this sector in Iran.
The present study applies two approaches for estimating environmental costs in the country that are Direct Estimation Approach (DEA) and Adjusted Estimation Approach (AEA). In the first approach that is a customary one in the country, estimation exchange rate is usually used. AEA is a guideline that is advised by Asian Development Bank for estimation of any given cost like environmental ones ,considering power purchase parity (PPP) of currency.
It is necessary to mention that DEA does not give reality-based estimation. Because it considers only one conversion factor for estimation of measured results (in the country that the related studies have been carried out) into estimated results in the country is being studied. For dealing with the aforementioned issues in developing countries, ADB formulated guidelines for estimation of environmental costs, aiding the results of studies carried out in developed countries be easily applied in developing countries.
The results revealed that there are drastic differences in estimation carried out through DEA and AEA in Iran. Standpoint of three major pollutants like SO2, NOx and CO2 for steam, gas turbine and diesel power plant are about 6.2 to 6.5 time of AEA estimation. External costs of the aforementioned pollutants in steam power plant were estimated at 0.053, 0.09 and 0.23 US Cent/Kwh respectively. These measures for gas power plant are 0.0088, 0.12 and
0.3 US Cent/Kwh respectively. For gas turbines power plant they might be referred to 0.005,
0.07, and 0.18 US Cent/Kwh and for diesel power plant 0.064,0.15 and 0.30 US Cent/Kwh.