Definition – Internal costs refer to the direct monetised costs (planning, construction, management, maintenance, disposal) for a person or organisation undertaking an activity. External costs (also known as externalities) refer to the economic concept of uncompensated social or environmental effects. For example, when people buy fuel for a car, they pay for the production of that fuel (an internal cost), but not for the costs of burning that fuel, such as air pollution. The aim of the “polluter pays” principle and environmental taxes is that these externalities are internalised (e.g. by putting an eco-tax on fuels).
Relevance to SUMP – When measures are appraised, both their internal and external costs and benefits should be considered. This process can strengthen horizontal integration by ensuring that the wider environmental, safety, security and health effects of transport measures can be considered and valued alongside benefits in terms of accessibility and mobility.
Source: OECD Glossary (online)