Externalities are the unintended effects (either positive or negative) of a certain economic activity.

When you burn fossil fuels (for electricity production or internal combustion for cars) there are many negative byproducts- most of the pollutants emitted cause disease & health problems and environmental degradation.

The World Health Organization (WHO) states that the combustion of fossil fuels in motor vehicles accounts for more air pollution than any other single human activity. Pollutants from burning fossil fuels include carbon monoxide, hydrocarbons, nitrogen oxides, ozone, lead and volatile organic compounds.

Global climate change is another externality of fossil fuel combustion. Climate change is caused by an excess accumulation of greenhouse gases (GHG) in the atmosphere. Carbon dioxide is the primary GHG and is emitted in enormous quantities when we use electricity and fuel transportation. Climate change will affect everyone- changing agricultural patterns, increasing the prevalence of disease around the globe, raising ocean levels to submerge islands and coastlines and causing extreme economic disruption.

Failing to account for externalities, no one pays to clean up the air or land due to the byproducts of energy production. In order to protect our health and environment, we must include the estimated cost of social ills into the costs for oil companies, utilities and car manufacturers. Thereby, the producer pays and society doesn't suffer through disease, environmental clean up and much more.

Energy Information Administration:

"There are byproducts of electricity production that have an undesirable effect on the environment. Most of these are emissions introduced by the combustion of fossil fuels, which accounts for nearly 70 percent of the total electricity generated in the United States. The environmental impacts (or damages) caused by these emissions are labeled environmental "externalities." Included in the generic term "externality" are benefits or costs resulting as an unintended byproduct of an economic activity that accrue to someone other than the parties involved in the activity. "