I am stuck in Public Economics please help me with the following question

QUESTION

Please help evaluate the South African externalities problem in the energy sector considering the case study above and please propose relevant intervention measures to address these externalities.

HERE IS A CASE STUDY FOR INFORMATION BELOW

Energy system externalities in South Africa: Report prepared for the Department of Energy and Shell

The energy sector is a major source of externalities, both positive and negative. For instance, in Europe the energy sector is responsible for approximately two thirds of industrial GHG and air pollution externality costs (EEA, 2011). Negative energy system externalities: - climate change: GHG emissions, which primarily come from the combustion of hydrocarbons, such as coal, gas, petrol and diesel, cause climate change. Climate change affects people across the globe and also in the future.

It imposes costs on people as they adapt to the changing climate or if they suffer from increased extreme weather events, among other costs. - air pollution: sulphur dioxide (SO2), nitrogen oxides (NOx) and particulate matter (PM) all cause respiratory problems and are among the most damaging air pollutants from energy (EEA, 2011); electricity generation, residential fuel use and road transport results in air pollution, primarily due to the combustion of hydrocarbons; - water pollution and over-use: the energy system pollutes water if, for example, mine tailings leach into it. Water is also rarely, if ever, priced such that the costs and benefits of its use are equal, which results in an externality. The cost of water use is often less than the benefit and this leads to over-use. The energy sector uses water during extraction and supply. Positive energy system externalities: - switching to electricity: 8 per cent of households in South Africa use paraffin for cooking, which can cause fires and burns and results in some air pollution; 13 and 1 per cent of households use wood and coal respectively (StatsSA, 2011).

Use of these solid fuels causes air pollution and, as this pollution is often released indoors, the harm it can do is high relative to outdoor air pollution. If households can switch to electricity then these external costs of residential fuel use will decrease; - innovation spill-overs: investment in the energy system may require dedicated R&D or provide learning by-doing; both of these activities can provide an opportunity for innovation spill-overs, that is to say they will provide knowledge that others can build upon; - localisation: investment in the energy system will require the employment and training of local labour; the benefits of this may be internalised through the wage that is paid, but other benefits from localisation, such as the greater likelihood of future work and support of the wider local economy could be external benefits. Climate change and air pollution externalities are both produced from combustion of hydrocarbon fuels; so, reducing one reduces the other. This inter-linkage means that a policy that targets one of the negative externalities has additional value as it will also control the other. This is known as a co-benefit and these should be considered when deciding upon the stringency of a policy, as co-benefits increase the value of policy action.

Source: http://www.energy.gov.za