Power generation and pollutant emissions in the European Union: A mean-variance model

Abstract

Abstract In this work, portfolio theory is applied to efficient electricity generation from both an economic and environmental point of view. The proposed model includes all the generation costs for different technologies, including externalities; the risk derived from them, and a set of constraints on the emission of pollutant gases, such as carbon dioxide, sulphur dioxide, nitrogen oxides and particulate matter. Our results show that the EU technology portfolio, as proposed by the International Energy Agency for the 2030 horizon, is far from efficient. The joint cost-risk-environmental perspective confirms the need to increase the share of renewable energy technologies in the European energy mix, including photovoltaic energy, and to promote wind power as much as possible, to reduce the environmental impact. It is also necessary to continue to rely on hydro, CCS and nuclear technologies, in order to optimize the cost-risk tradeoff and the security of supply. In addition, it is concluded that restrictions on other pollutant gases should be also imposed, because they would contribute to reducing the environmental impact, with a relatively small increase in terms of cost-risk.