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Incorporating Environmental Concerns Into Power Sector Decisionmaking Incorporating Environmental Concerns Into Power Sector Decisionmaking Incorporating Environmental Concerns into Power Sector Decisionmaking Incorporating Environmental Concerns into Power Sector Decisionmaking Incorporating Environmental Concerns into Power Sector Decisionmaking A Case Study of Sri Lanka WORLD BANK ENVIRONMENT PAPER NUMBER 6 Peter Meier and Mohan Munasinghe The World Bank Washington, D.C. Copyright © 1994 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing March 1994 Environment Papers are published to communicate the latest results of the Bank's environmental work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910,222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Incorporating Environmental Concerns into Power Sector Decisionmaking 1 Incorporating Environmental Concerns into Power Sector Decisionmaking The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iéna, 75116 Paris, France. Peter Meier is chief economist, IDEA, Inc. Mohan Munasinghe is Chief, Environmental Economics Division, Environment Department, World Bank. Library of Congress Cataloging−in−Publication Data Meier, Peter, 1942− Incorporating environmental concerns into power sector decision− making : a case study of Sri Lanka / Peter Meier, Mohan Munasinghe p. cm. — (World Bank environment paper ; no. 6) ISBN 0−8213−2746−1 1. Environmental policy. 2. Energy development—Environmental aspects. 3. Energy policy—Sri Lanka—Decision making—Case studies. I. Munasinghe, Mohan, 1945− . II. Title. III. Series. GE170.M45 1993 333.79'15—dc20 93−45458 CIP Contents Abbreviations link Foreword link Acknowledgements link Abstract link 1. Background link 2. Methodology link 3. Development options link 4. Environmental issues link 5. Economic valuation of environmental impacts link 6. Multi−attribute analysis link 7. Applications of multi−attribute analysis link 8. Attribute definition link 9. Results link 10. Policy Implications link References link Annex: The model link Contents 2 Incorporating Environmental Concerns into Power Sector Decisionmaking Abbreviations ADAB Australian Development Assistance Bureau AFBC Atmospheric fluidized bed combustion AIC Average incremental cost ADB Asian Development Bank CBA Cost−benefit analysis CEA Central Environment Authority CEB Ceylon Electricity Board DSM Demand side management EA Environmental assessment EIS Environmental impact statement EPRI Electric Power Research Institute ESP Electrostatic precipitator FBC Fluidized bed combustion FGD Flue gas desulfurization GEF Global Environment Facility GTZ Gesellschaft fur Technische Zusammenarbeit (German Agency for Technical Assistance) IRP Integrated resource planning IRR Integrated rate of return LP Linear programming LECO Lanka Electricity Company ODA Overseas Development Administration(of the United Kingdom) MEIP Metropolitan Environment Improvement Program NARA National Aquatic Resources Agency NPV Net present value NBRO National Building Research Organization PFBC Pressurized fluidized bed combustion Abbreviations 3 Incorporating Environmental Concerns into Power Sector Decisionmaking SLF System load factor T&D Transmission and distribution USAID United States Agency for International Development Foreword The decade of the 1980s witnessed a fundamental change in the way governments and development agencies think about environment and development. The two are no longer regarded as mutually exclusive. It is now recognized that a healthy environment is essential to sustainable development and a healthy economy. Moreover, economists and planners are beginning to recognize that economic development that erodes natural capital is often not successful. In fact, development strategies and programs that do not take into adequate account of the state of critical resources—forests, soils, grasslands, freshwater, coastal areas, and fisheries—may degrade the resource base upon which future growth is dependent. Since its creation, the Vice Presidency for Environmentally Sustainable Development (ESD) has placed the highest priority on the analysis of these important issues. Within ESD, the Environment Department's work, in particular, has focussed on the links between environment and development and the implications of these links for development policy in general. The objective of the Environment Paper Series is to make the results of our work available to the general public. Increasing environmental awareness and concerns over sustainability have broadened the range of issues that need to be examined in the assessment of the potential impacts of proposed projects and programs. Three different concepts of sustainable development may be identified; based on economic, ecological, and sociocultural criteria. Reconciling these concepts and integrating them into operations will be a formidable task, which is only now getting underway. In the meantime, those making decisions have to find ways of introducing such concerns into their analysis in a practical way. Nowhere is the incorporation of environmental externalities into decisionmaking more important than in the power sector where environmental concerns—ranging from greenhouse gas emissions of fossil fueled power plants to the impacts of inundation at hydro plants—have posed increasingly difficult constraints to project implementation. Although great progress has been made in improving environmental assessment procedures at the project level, it has become increasingly evident that these must be complemented with procedures to incorporate environmental concerns at the long−range planning and siting stage as well. Sustainable energy development cannot be achieved by project level mitigation measures alone but require that environmental concerns be integrated into decisions about the appropriate mix of supply and demand side measures, the mix of generation (and the role of renewable energy sources in particular), and the policy environment in which sector development occurs. For example, a pricing policy that provides the right signals to consumers to use electricity more efficiently is as important to sustainable development as plant level mitigation measures to minimize particulate emissions, or appropriate policies for resettlement at hydro plants. This paper examines ways to achieve such integration of environmental concerns at an early stage of sector planning, using the specific example of Sri Lanka. It seeks to help analysis, practitioners, and policymakers in the field by developing practical procedures to assist decisionmaking. It does this not just by extending conventional cost−benefit analysis but by making use of other methods such as multicriteria decision analysis. Foreword 4 Incorporating Environmental Concerns into Power Sector Decisionmaking MOHAMMED T. EL−ASHRY CHIEF ENVIRONMENTAL ADVISOR TO THE PRESIDENT AND DIRECTOR, ENVIRONMENT DEPARTMENT. Acknowledgements This study could not have been prepared without the invaluable assistance of a team of distinguished individuals who served as consultants under the overall direction of Prof. K. K. Y. W. Perera, Dean of the Engineering Faculty, Moratuwa University (and Former Secretary of the Ministry of Power and Energy). The members of this group included: Mr. H. S. Subasinghe, currently Chairman of LECO(Pvt), and former General Manager of the Ceylon Electricity Board (CEB). Mr. P. Illangovan, National Programme Coordinator of the Metropolitan Environmental Improvement Program (MEIP) in the area of Air Quality. Professor K. D. Arudpragasam, former Chairman of the Central Environment Authority. Dr. L. R. Sally, Head of the Environment Division of
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