The methodology involves, for each pollutant, a site-specific impact pathway analysis (IPA). This picture illustrates the main steps of an IPA

To calculate the damage cost of a pollutant emitted by a source, the impacts are summed over the entire region that is affected (in most cases the entire continent) and over all damage types that can be quantified:     

* health 

* loss of agricultural production

* damage to buildings and materials 

* ecosystem

* etc

Result of an IPA: damage cost in €/kg of pollutant.

For many persistent pollutants (dioxins, As, Cd, Cr, Hg, Ni, Pb, etc) the ingestion dose can be about two orders of magnitude higher than the inhalation dose. For the ingestion dose, the transfers through these compartments need to be calculated

To get €/kWh multiply by kg/kWh for each pollutant and sum over pollutants emitted during power production. Likewise you can calculate the damage cost per km driven by a vehicle if you multiply by the kg/km for each pollutant. 

For policy applications one must pay attention to some complications, in particular site-dependence and nonlinearities. The damage cost depends on the site and height of the source: a kg of PM2.5 emitted by cars in a large city cause much more harm than the same kg emitted by a tall stack in a rural zone. Great care is required in the calculation of representative damage costs to make sure that they are appropriate for the policy choice under consideration. Because of nonlinearities of atmospheric chemistry the damage costs of SO2 and NOx depend on the total amount that is emitted. Since environmental policies involve significant changes in the total emissions, the damage costs should be calculated for the changes under consideration.

For processes or products that involve several stages, the IPA is combined with a life cycle assessment (LCA)

For example to determine the total damage cost of electricity, one needs an LCA of the fuel chain. 

The relation between IPA and LCA is illustrated in this matrix, for the example of electricity production by coal or oil. Ideally each element of the matrix should be evaluated by a site-specific IPA, but most conventional LCA studies first  sum the emissions (of each pollutant) over all stages and then multiply the sum (of each pollutant) by indices of "potential impact". The "potential impact" indices of conventional LCA have not been very realistic because they did not model the environmental pathways and dose-response functions - however, LCA methods are evolving and some now include pathway models and dose-response functions. By contrast, the methodology of the ExternE project series [] has always tried to calculate the impacts as realistically as possible.


For a quick overview of methodology and some results, perhaps this ppt can be helpful, even without my spoken explanations:

Invited lecture “Environmental Impacts and Costs of Energy - How Much is Clean Air Worth?“ on the occasion of being given the Frank Kreith Energy award, 2008 ASME Engineering Conference, Boston, MA, Nov.4, 2008:  ExtCostsEnergy Rabl08.ppt.pdf

For a detailed explanation of the methodology the ExternE team published this report in 2005: 


Note that the damage cost estimates in the various publications are not always the same because the methodology has been evolving. There is a profound difference before and after 1996, due to the publication of a major epidemiological study in 1995 in the US of the chronic impacts of air pollution on mortality, and due to a change in the valuation of air pollution mortality (loss of life expectancy, rather than number of deaths).