An environmental group our law school worked with (ELPC) lobbied hard to get two coal in the middle of Chicagoland (Fisk and Crawford) shut down. They did a study estimating the negative externalitiesmofnthe two century old plants at $127 million, the majority of which fell on working class people in the areas around the plants.
A related phenomenon I found interesting is an LSE paper (can't find the link offhand) arguing that the GDP calculation vastly overstated the GDP of countries built on resource extraction. Income is change in wealth, but when $100 of coal is sold, it is counted as $100 to GDP. But the bulk of that price is offset by the decreased value of coal reserves in the ground, which isn't counted in GDP even though its part of the change in wealth.
There's quite a bit of evidence for induced innovation from energy prices. As the cost of energy goes up, so does the rate of innovation in finding more economical ways to use it.
Of course, a corollary is the Jevons paradox: as energy efficiency goes up, demand for products that use energy also goes up when energy price is held steady. A popular example is the home refrigerator, which has gotten bigger at about the same rate that it has gotten more efficient.
One way around this is to ensure that energy prices continue to increase so that efficiency gains don't lead to increased overall energy consumption. That means some kind of green tax - preferably something designed to be revenue neutral via equivalent cuts to, say, income tax.
>One way around this is to ensure that energy prices continue to increase so that efficiency gains don't lead to increased overall energy consumption. That means some kind of green tax - preferably something designed to be revenue neutral via equivalent cuts to, say, income tax.
The key is that it doesn't have to be "energy prices" but only "unsustainable energy" prices, i.e. fossil fuels. And then you have your method of making the tax revenue neutral: Tax fossil fuel, use the money to subsidize non-fossil energy. Result is that net energy prices don't rise by very much, but they shift away from fossil fuels and toward sustainable energy.
You can control how fast this happens just by adjusting the amount of the tax. And yes, imposing an immediate 10000% tax on oil would get people to stop using it very quickly indeed, but a somewhat more gradual phase out may be less disruptive -- a 50% tax, for example, with a promise to raise it even more as time passes to encourage people to buy electric cars and corporations to stop wasting money looking for new deposits of fossil fuels.
Why? There are huge benefits to society from allowing things like energy to become dirt cheap.
The mother of 100+ years ago had no option to pursue a career beyond keeping the house and making meals because she had to venture out every day to get fresh food because she had no way to store it.
She had no options for flash frozen meals that she could prepare quickly. Every dish had to be painstakingly prepared from scratch, which dominated her day.
That's just one example. There are thousands of others out there. Those thousands of other advancements have built upon each other in a cascade that has changed human existence for the better in most measurable ways.
Cheap energy without negative externalities is great. Unfortunately, the cheap energy sources we have available to us today come with horrible negative externalities - not only air pollution that causes 50,000 premature deaths a year in the United States, but also greenhouse gas emissions that are producing global warming and the devastating climatic changes that are already starting to happen.
Articles that ignore positive externalities are not meaningful.
air pollution that causes 50,000 premature deaths a year in the United States
Versus how many millions of lives that have been saved per year because of modern medicine predicated upon cheap power for the last 60 years?
greenhouse gas emissions that are producing global warming and the devastating climatic changes
Please back away from the global warming alarmist hysteria as a means for pushing governmental change. Hasn't the last 15 years of no further increase in mean temperature (despite predictions to the contrary) at least taught a little humility on the subject to believers in AGW?
We're at the end of a natural long-term cyclic temperature increase, tending to rise fast then drift down, repeating every 125,000 years or so. If AGW is significant, we may consider it beneficial to counteract trending toward the next ice age.
Yeah, they show that temperatures have plateaued for the last 15 years despite models that the IPCC was 90% certain said that temperatures would continue to increase.
We know so little about how the earth will react to higher CO2 levels. It seems that we don't at all factor in solar and other cyclical factors that may just show that we're in a typical warming period.
As a developer who has worked with physical world models before, if a model doesn't predict the future better than random guessing then it is worse than useless. In RF modeling, if we showed a customer software that predicted signal strength the way that the IPCC predicts temperature gains - we'd be laughed out the door.
More CO2 --> warmer is understood pretty well. What is not understood where else the gas can go and what feedback mechanisms there are.
A climate model is very complex, and it is build on basic premises, which can all be tested separately (like the CO2 part). Some points remain unclear:
For example, a great part of the CO2 that has already been emitted has apparently gone into the ocean (which will lead to acidification, another problem). The ocean has a turn-over time of about 1000 years, so we can expect more uptake. On the other hand, a warmer ocean can dissolve less gas. ..it's a very long list of interleaved issues, and small changes of parameters (whose values are not known precisely) can change big things. Great care is taken in making these models. Scientists are usually not interested in politics very much. Even if a few had an agenda, they wouldn't manage to push a made-up idea.
Btw, the solar influence is also factored in (see [1]). The next ice age would be due soon, but it won't happen due to the CO2 (a good thing, I reckon).
Looking at the climate history of our planet is a scary thing since it is far from stable. It appears that there are periods where the whole globe was covered in ice, and periods where it was very much warmer than today. It's ok for life, but not for individual species such as us who have build their civilisation on one specific situation (precipitation patterns!). In the long run, we will have to manage/stabilize the climate anyway, so research is needed either way.
disclaimer:
I study and do research in this area. If I could show there was no problem, I'd be a hero; nobody of us wants this. My professors seem to have given up on the issue at this point.
Can I answer some questions or is this a lost battle as it is so very often?
> they show that temperatures have plateaued for the last 15 years
No, they really don't. The variation over the past 15 years, like the variation over the previous 120 years, is entirely consistent with a steady upward trend. Cherry-picking start and end dates is bad data analysis, period.
What a spoiled, Western-centric, historically ignorant point of view. Without coal mining in England, there would have been no steam engine, no railways, and no modern economy. Preaching to the Chinese about the evilness of coal is a classic case of pulling up the ladder after you've climbed on it.
I disagree on both counts. Just because something is an enemy now doesn't mean it always has been; the scale of coal use is the problem, and early industrial levels happening today would have far less detrimental effect.
Second, coal is not the desirable thing of modernization: energy is, and energy is available through many means. China seems to be very fond of solar, for example. Also the Chinese pay the externalities just as we all do; and if you've visited China your aware that they see perhaps more pollution than the rest of the world. I have no doubt that these externalities made visible will influence the nation to take them realistically, which we in the western world are not.
Even a wealthy economy like the US still draws almost half of its electricity from coal [1]. If Americans couldn't afford to switch to solar already, how are the Chinese supposed to?
>the Chinese pay the externalities just as we all do
And so did the US. The first (very weak) Clean Air Act was not passed until 1963 [2], at which point the economy was already very energy intensive, very wealthy, and could afford to take an economic hit by implementing more stringent environmental regulations. The holier-than-thou crowd expects China to hobble itself with environmental regulations in advance of the US, while developing an economy that is still decades behind. All this preaching is of course done from countries that have gone through centuries of unrestricted industrial development, and while taking full advantage of the benefits thereof.
Your implicit argument seems to be that not using coal is just too expensive in some sense. The question is not yes/ no to coal, but rather how much coal. This is a numerical argument, that the free market would solve automatically if the price of coal were nearer to its cost.
But how do you calculate such a cost - keeping in mind that you would also need to factor in non-environmental benefits like new inventions, more free time for education, higher quality of life, etc.
I'm all for a system that's fair. I just object to environmentalists deciding what the true cost/benefit analysis is. Their squeaky wheel one-issue outlook has heavily biased the discussion.
Nobody ever seems to realize how un-economic arguments like these are. Say there had been a coal tax from day 1 in England that internalize the external costs of coal. Saying the market wouldn't have still gone through the industrial revolution is tantamount to saying that industrial society is not economically efficient! Because that's exactly what things like coal taxes do--let the market manage the externality to allow an efficient equilibrium to be reached.
Exactly, he externality argument is about economic efficiency, and does not value environmentalism at all. It's about discovering the dollar cost that a single entity is extracting from others property. Many environmentalists hate it because of that; it's an argument that inherently trusts in free markets, instead of environmental purity.
A lot of environmentalists hate it not because of the trust in the markets per se, but because they see policy makers tend to discount the economic value of the environment. If you show that something is causing $100m in externalized costs, even if the government acts to mitigate it might only shift $20m in costs (because "jobs"). Which is un-economic, of course.
Saying the market wouldn't have still gone through the industrial revolution is tantamount to saying that industrial society is not economically efficient!
Isn't that rather like saying that there wouldn't have been a strictly monotonic route from the pre-industrial society maximum to the industrial society maximum? There might have been, or might have not been, but a priori it's not absurd to postulate that with coal tax from day 1 the road to a more efficient final state wouldn't have been blocked.
It's not absurd, it's uneconomic. Under conventional economic theory, internalizing an externality will lead to a better final equillibrium, not block the achievement of that equillibrum.
There are multiple equilibria, the question is whether they are efficient. Whether or not you internalize the environmental costs of say coal power, the economy will reach an equillibrium. If the negative externalities of coal are not internalized, that equillibrium will involve a higher than efficient level of coal usage.
There are often situations where people benefit from doing something that is later revealed to be very destructive. It's important to recognize advantages that may have arisen from that first mover position, and make sure that later legislation doesn't lock in that advantage. I get it. And the US in particular has fallen far short of this standard, and is in no position to preach. However, my big problem with the US is that we want to deny someone else a ladder while we're still climbing on it, not because we did in the past.
However, this argument has limits. Clearly China doesn't intend to limit themselves to the technologies that existed when the best way to get from London to San Francisco was by coal powered ship and train. Will they also use asbestos insulation? Will they perform surgeries without anesthesia? Will they treat infections with primitive or no antibiotics?
Fortunately, China's leaders are scientists and engineers, and I don't believe for a second that they are unaware of the environmental catastrophe that could result from a stupid energy policy. When they have a drought, they won't lead their state in a prayer for rain. China's leadership is well aware that the survival of their nation depends on getting to clean energy first - and that this may in fact be the best way to become the dominant power of the next century. I think the whole "you used coal in 1850, so now we get to" is more a point of argument to get the west to make concessions (which is a reasonable demand) rather than something they'd actually do.
The technical education of China's unaccountable governing elite has not prevented them from causing the greatest environmental catastrophe in living memory, nor does it guarantee that they will be at all motivated to clean up the mess.
China's leaders may be engineers, but they are also an unaccountable elite whose primary goal is and continues to be their own aggrandizement and enrichment. Who do you think causes environmental damage in the US? Populist governors leading prayer meetings or the technical and economic elites who actually build, own, and operate polluting entities? Mock the U.S. political system all you like, but it contains mechanisms that allowed popular pressure to produce a tremendous environmental turnaround and a raft of effective environmental legislation. That China's political system will do the same is by no means guaranteed.
I'm going to guess that it was my statement about praying for rain that caused you to feel I was mocking the US political system. I actually intended to mock a US politician who mocked the political system. Which wasn't a good idea, I'm a little disappointed with myself for doing that. It's not helpful at all in a discussion, but since it's out there, I may as well explain.
In this specific case, I think there probably is an alliance between this particular politician and the business interests that pollute and who would like to dismantle the political mechanisms you mentioned. My biggest problem with the "prayer for rain" was that it came from someone who tends to mock the US political system (though he was unable to specify the third govt agency he would like to replace, he did reassure us that he didn't want to eliminate the EPA, he just wanted it "rebuilt", and I can only imagine who he'd put on that panel). He also rejected the conclusions of the vast majority of the scientific community about what might be causing and/or exacerbating chronic droughts.
England had coal so that's what they used, but there where other options. For example England has plenty of hydro power capacity to easily meet the needs of the early industrial revolution. Perhaps offsetting with some wind power in remote areas. Electric railways are slightly more infrastructure, but no more difficult than a steam engine. Considering the amount of disease related to coal mining and burning I don't think it's clear they would have been worse off. The real issue was home cooking / heating, but they did use gas streetlamps demonstrating natural gas may have been a viable alternative if England lacked coal reserves.
The real issue would have been ships, but considering how much coal was used for home heating that's a tiny fraction of overall demand.
Clearly, England had coal AND found it more useful in large part because they did not pay for external costs. However, if hypothetically they did not have coal they would not have simply given up. Which is what your suggesting by saying the industrial revolution required coal.
The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday. His basic method is still used today: electricity is generated by the movement of a loop of wire, or disc of copper between the poles of a magnet.[1] So the time period was not quite consistent. But, they where also still using hydro power in the industrial revolution 1760-1840 and could have kept going at a larger scale after switching to electrical power.
PS: Without electricity or large scale dam's coal is ridiculously easier to use in a city, however most factory's use electricity not coal today for a reason.
Hydroelectricity took a century and a half of industrial development (1712: first steam engine 1880s: first hydroelectric plant) to become practical, and even then it couldn't power railways or ocean freighters. The history of the Industrial Revolution in the 19th century pretty much follows the geography of where the coal and iron deposits were.
I don't disagree with that, but it's like OS lock-in once you start developing steam power that's where you focus most of your efforts. For the most part England was developing steam power not importing it, so while the US with massive coal reserves may have been interested in developing coal power presumably England would have focused it's R&D on other things.
The development of the stationary steam engine was an important element of the Industrial Revolution; however, for most of the period of the Industrial Revolution, the majority of industrial power was supplied by water and wind. In Britain by 1800 an estimated 10,000 horsepower was being supplied by steam. By 1815 steam power had grown to 210,000 hp.[38] Note: The industrial revolution started in 1760 and ended between 1820 and 1840. So, in my hypothetical situation England may have imported coal for shipping and railways but industry would have probably looked at imported coal as to expensive and used alternatives. Edit: Another possible exception iron / steel production.
PS: There where steam engines before the industrial revolution, but they gained prominence because of design improvements and as a drop in replacement for other power sources.
True about England, false about the ladder. We can do better with a combination of renewables and nuclear, and the Chinese would be better off for it as well (depending on how much you like the smell of sulfur).
Not at the cost they are paying. A coal plant is an order of magnitude cheaper than nuclear, and storage of wind energy isn't exactly a solved problem compared to coal / gas.
Every third world country will use the exact path the 1st world used to get to where we are because it is proven reliable, doesn't cause political turmoil (nuclear), and is cheap to implement. If the 1st world wants it to be different then we have to provide the game changing technology. That has not been done.
I understand you were talking about energy. My point is that an argument that boils down to "you did this in the past, so I get to do it now" loses its consistency if the person (or country) making it is so clearly willing to benefit from the fact that they are not industrializing in the 1800s. Clearly they don't plan to do everything the same way England did in the 1800s.
China is industrializing in an era when we have technologies that can increase survival rates and extend lifetimes dramatically, when we have greater awareness of the negative externalities of dirty fossil fuel technology, and we have far greater options for generating energy. This leads to a different set of obligations and opportunities.
I don't think that the "west", or the US in particular, has come close to meeting those obligations. But that's a different issue. My point here is a more narrow one - if you're going to pick and choose which technologies you're going to use, the claim that you get to do this the 1800s way loses almost all its moral force. Instead, this is "if it benefits us to do things the old way, we will remind you that you did it this way and insist that we get to do it that way too. If it benefits us to do things the new way, hey, we're a modern country, why on earth should we be shacked to the crappy old way you used to do things"
No, it boils down to "I did it this way and nothing has come along to replace this way". There is no energy revolution at scale, reliability, and continuous 24x7 (through the night / in the calm) production.
"China is industrializing in an era when we have technologies that can increase survival rates and extend lifetimes dramatically, when we have greater awareness of the negative externalities of dirty fossil fuel technology, and we have far greater options for generating energy. This leads to a different set of obligations and opportunities."
Yet, they still use coal to an excess. It is simple economics. Nuclear has been demonized, and coal is cheap, easy, and well understood. The 1800's way is the 1900's way is the 2000's way. Coal and oil are still the way.
Until someone beats coal and oil on all features, it won't change. It is that way in a lot of human activities.
It's not simple economics, accounting for externalities is really complex and fraught with subjectivity.
What price on early deaths, reductions in labor force and increased medical bills? I've been to China a couple times, the pollution is bad. Any place where hello kitty surgical masks are a fashion item, that should tell you something about the air quality.
This is why China is actually investing a ton in renewables now -- it's not about the US pulling up a ladder behind us (as if we could), it's about what's best for Chinese and for the world.
They are not obligated to use coal for 100 years before moving up the ladder -- heck, they can beat us up it, since they're actually willing to invest in infrastructure and we're not.
This is the saving grace of the situation. China's leadership must be aware of what will happen if they try to meet the energy needs of a billion people through dirty coal.
China's challenges are very different from what England faced in the 1850s. But in that sense, perhaps their path will be similar - they will face unprecedented challenges, and will have to innovate to solve them. And if they do solve them, they will now have a massive first-mover advantage.
Which is why I'm heavily in favour of German subsity of renewable energy, even if we end up paying more for electricity and our companies are broke because China copied the technologies. (I'm from Germany, so yes, I'm paying.)
Just count it as foreign aid, and a good way to get everyone to do what you want. (Could be done better, but it's the best way there is, IMHO.)
If you are going to try to account for the costs of "externalities" you also need to make at least the same effort to account for the benefits. How many people live longer, healthier lives due to the availability of cheap, abundant energy?
The difference is that the benefits of electricity are generally priced in, either through taxes (for public lights and whatnot) or through utility bills.
Here is an illustration. Would you rather live next to a coal plant or a solar farm? Would you rather get electricity from a coal plant at 2 dollars, or a solar plant at 3? Note how in the first case, the price of electricity is irrelevant because the external effect of the plant on you is the same no matter the price of electiricty. You can't decrease it by using less. In the second case, price is the only relevant consideration. The coal electricity doesn't have any positive benefit to you not accounted for in the price.
"cheap" by definition can't be a positive externality because the definition of externality is costs and benefits not accounted for in price.
The societal benefits of cheap electricity are no more "priced in" than the negative environmental externalities of coal use.
You can't put a benefits dollar value to society on all the women in the work force who would otherwise be preparing a lot more meals from scratch. You can't put a benefits dollar value to society on the productivity gains from all the people who would have died of childhood diseases that we have cures for thanks to western medicine.
You're obviously in favor of accounting for one factor in the cost/benefit analysis of coal power and ignoring the others. I think it's hubris and folly to do so.
The exercise here is accounting for costs and benefits external to the power producer/consumer transaction. Any costs and benefits arising from the transaction are factored into the price of electricity. If electricity allows women to participate in the work force instead of making meals from scratch, that presumably increases demand for electricity, which affects the price. In theory, the benefits that stem from people having electrical service should be reflected in the price of that service.
Accounting for externalized costs is a wholly different exercise. It's an accounting of the costs that do not arise out of the producer/consumer transaction and thus cannot affect the price of electricity through bargaining. Health costs of coal are one such cost. People bear that cost whether or not they even have electric service, and their level of usage does not affect the level of the costs they incur. This kind of cost is not priced into the price of electricity from coal. The benefit that would be relevant in this accounting is a benefit from electricity that you get whether or not you directly or indirectly pay for electricity. Your wife being able to work is not such a benefit--you only get that benefit if you pay for electricity.
Note the wiggle word both you and the poster above use: "cheap electricity" not just "electricity." It's not "electricity versus no electricity" its "cheap electricity versus more expensive electricity." The benefits from cheaper versus more expensive electricity are entirely internal to the producer/consumer relationship an are thus priced in to the price of electricity. They're not the same as external environmental costs which are not priced in to the price of electricity.
"Any costs and benefits arising from the transaction are factored into the price of electricity."
You are assuming a perfectly competitive market for electricity, in which there is no consumer or producer surplus. The parent you are replying to is essentially asserting that this is not the case in the real world - The pricing of electricity is based on a comparison of marginal values and costs, not absolute values, and thus misses the entirety of the consumer surplus (by definition). This is a positive value that belongs on the ledger next to any positive and negative externalities that is not taken into account by the price of electricity.
People bear that cost whether or not they even have electric service
Just like a child cured by Western medicine gets the benefit without having to necessarily be a consumer of electricity. When I mentioned women in the work force as a benefit, I didn't mean to the individual. I was talking about the societal advantage to having a more productive work force. That is not factored into the purchase of a KWh of electricity.
No, "cheap electricity" aren't wiggle words that describe an internal relationship. Cheap electricity was a necessary condition for the cascade of advancements we've made over the last 60 years. In this thread, I've seen the argument, "If only we had charged for externalities from the beginning of electrical generation" - as though we would be where we are today in all other areas of Western life if we had stalled the production of CHEAP electricity for 80 years while we waited to develop alternatives that were themselves predicated upon the cheap electricity we got from coal in the first place.
> I was talking about the societal advantage to having a more productive work force. That is not factored into the purchase of a KWh of electricity.
But it is. If society as a whole benefits more from electricity, their demand goes up, which raises the price of electricity. You're just trying to double-count the benefit.
> as though we would be where we are today in all other areas of Western life if we had stalled the production of CHEAP electricity for 80 years while we waited to develop alternatives that were themselves predicated upon the cheap electricity we got from coal in the first place.
The situation isn't banning the use of coal from the beginning. It's forcing the external costs of coal to be accounted for from the beginning. Economic theory tells us that this wouldn't have stalled our development.
their demand goes up, which raises the price of electricity
If that were true, then electricity should be astonishingly expensive because we use astonishingly more of it than we did 60 years ago, yet the last time I looked, inflation adjusted prices for electricity were remarkably flat.
Economic theory tells us that this wouldn't have stalled our development
What economic theory is that? Plus, if you want to compare Economic theory vs History; I'll take History. History is filled with discoveries and technology advancements that were the results of cascading advances which were the result of an advancement that made due to some basic resource becoming available and/or cheap. Advances are in no way inevitable. Advances are in no way unhindered by prices of resources.
Really what we did early on was to trade our environmental resources for cheap power. From that tradeoff, we have reaped extraordinary benefits. Why are those benefits so hard to recognize in this discussion?
> If that were true, then electricity should be astonishingly expensive because we use astonishingly more of it than we did 60 years ago, yet the last time I looked, inflation adjusted prices for electricity were remarkably flat.
So, the price of computers has gone down even with skyrocketing computer use. But nobody would say that the benefits of computers are a positive externality that isn't priced into their price.
> Advances are in no way inevitable. Advances are in no way unhindered by prices of resources.
There is a "right price" for resources. If the actual price for the resources is too high, that will retard development. If the actual price for that resources is too low, development will happen in a way that uses an inefficiently high amount of the cheap resource. The market will generally arrive at the "right price" for resources, except in the presence of externalities.
> From that tradeoff, we have reaped extraordinary benefits. Why are those benefits so hard to recognize in this discussion?
It's not a matter of recognizing those benefits, it's a matter of not double-counting those benefits.
nobody would say that the benefits of computers are a positive externality that isn't priced into their price
You're the one who said that the increase in price of a resource already accounted for its benefit to the producer. You can't use the fact that I broke your argument to then construct a straw man. Besides, if someone used the same one dimensional environmental argument against the pricing of computers (which they sometimes do), then I would be consistent in the defense of the beneficial externalities of computers.
Right there they mention "invention". My claim is that inexpensive electricity has led to many inventions because people have more time to invent and more resources with which to invent. Because of cheap electricity, we have more people alive because they could afford air conditioning and well refrigerated foods. Some of those people have invented things.
If "Invention" is a beneficial externality (or more properly has positive externalities), then the predicate of invention, "cheap electricity" is also a beneficial externality.
If the actual price for the resources is too high, that will retard development
Use of a resources normally has a critical minimum price before it's used commonly or at all. Why do you think the title of this article is "Cost of Gene Sequencing Falls Raising Hopes for Medical Advances"?
Gene sequencing has negative externalities too. There's a loss of privacy. There is a possibility that terrorists could release gene-based biological agents that could wipe out segments of societies. Should we price that into gene sequencing now "just in case"?
it's a matter of not double-counting those benefits
I could just as easily say you're double-counting the costs of electricity since society (to a small and appropriate degree) views its generation as harmful to the environment and so they already have less of a demand for it. That would be a nonsense argument to since consumers don't typically factor in non-sequitor benefits and negativities during price negotiation.
I pay $50/month for electricity in my apartment. If I had no other options, I am pretty sure I'd be willing to pay something like $5000/month for that electricity. The economic surplus for electricity is enormous, the price comes no where near measuring the utility it provides.
What you're talking about is consumer surplus, which is the difference between the vslue of a product to you and the price you pay. It is not an externality, because you don't benefit unless you buy (at presumably a market price).
We're not talking about the value of electricity, we're talking about the value of "cheap electricity." Attempting to assign a value to cheap electricity beyond its price is just double counting. There is no value to "cheap electricity" that isn't accounted for in the price and therefore it's not a positive externality. Put another way, the value you get from one unit of electricity is the same no matter whether it comes from coal or wind power. Any difference between the two is merely the incremental benefit of getting it at a cheaper price, which is entirely accounted for by the price.
Externalities are economic items that are not reflected in the market price of a good or service. Thus, there are both negative and positive externalities.
A proper discussion of externalities discuss both types, however, positive externalities are usually factored into the cost of goods or services relatively easily and quickly, and so are generally not ripe for discussion in mature markets.
The benefits are accounted for by GDP. You are right that GDP doesn't measure well-being directly, but if anything it is normally over- rather than under-credited for well being.
Some of these estimates are certainly on the very conservative side.
Example: NUCLEAR ELECTRIC POWER GENERATION (page 59 bottom table) all estimating an impact ratio of 0.1 (cost of waste / revenues)
Actual cost of nuclear waste and other related cost are more likely about 100 times or more than estimated in this study - they are pushed to future generations or just passed over to tax payers globally by subsidies or cost covers e.g. cost for dismantling / building back a nuclear power plant after its commercial lifetime - from 3 Billion to 20+ Billion depending on the power plant etc. - power company will only cover a marginal amount of that, majority is paid from taxes. Storage cost for nuclear waste (thousands of years - most likely hundreds if not 1000s of Billions in cost)
About 2 years ago in Europe an in-depth scientific study into the actual cost of (uranium based) nuclear power has been undertaken (paid by various European institutions) including all subsidies provided to the power companies for building these nuclear power plants (in Europe hundreds of Billions) and (as far as I remember) also parts of the actual cost for waste - the outcome: true cost per KWh ~1.20 EUR - cost base used in business / profit calculations about 0.02 EUR
Haven't read the article (not loading), but with regards to the headline:
In a competitive market, this is precisely what we should expect. The price is driven toward the cost of production by competition. This doesn't include the externalities (it's not a part of the cost of production paid by the individual firms), so when you add them in the price is too low.
Food and Electricity aren't really things that can be replaced. Sure the details of the particular methods currently used to produce them would change, as would the level at which their consumed, but the underlying companies and industries would simply adapt to these new realities.
What food is consumed and how electricity is generated can be changed though.
If for instance, you wanted to reduce the impact of cattle farming in South America, you could encourage people to eat alternative sources of meat and protein (substitutes) or tackle the problem by pouring more funding into research into synthetic beef[1].
For electricity generation, you could gradually ramp up taxes on the dirtiest sources of power generation, coupled with economic incentives for individuals and companies, which would guarantee lower monthly bills for those who switch, and guarantee a certain price for excess power that is generated to sweeten the deal. You could also introduce heavier taxes on inefficient home appliances, and subsidise LED bulbs (for example) to encourage adoption.
It's not that these problems are insurmountable, it's people's attitudes and entrenched interests.
(a thought experiment- if you could say for certain that sea levels would rise by some amount within say 50 years, and this would guarantee that many major coastal cities would be flooded within our lifetime unless we do x within the next decade, do you think people would do x?) Again, it's attitudes. No one wants to be out of pocket, and many people just don't see any visible downside to continue eating beef or getting their electricity from a coal fired power source.
It's not that food or electricity would be replaced, but rather the source of food and electricity may be different or there may be different practices for using current sources of food and electricity if those industries had to pay for the externalities they generate.
The article title made a very interesting point. It would be surprising and interesting if the most biggest or most profitable industries all had such huge externalities that they would be unprofitable if those were taken into account.
But the headline does not match what the TEXT of the article says. The text of the article says:
> Trucost’s third big finding is the coup de grace. Of the top 20 region-sectors ranked by environmental impacts, none would be profitable if environmental costs were fully integrated. Ponder that for a moment. None of the world’s top industrial sectors would be profitable if they were paying their full freight. None!
In other words, the industries THAT HAVE THE MOST EXTERNALITIES have externalities greater than their profits. No longer surprising at all. And the entire frenzy the article is trying to whip us up into is based on this one misstatement of their actual results.
Industries use lots of free resources because they're free.
It is not possible to say a priori whether they could be profitable with different input prices, because there are myriad complex ways to economize and substitute.
This is complicated and will probably always be the area that is most prone to critique. The authors of the report put some effort to explain their methods - see p. 3.2.2, Valuation, pages 18-27 of the report.
They seem to have used abatement costs (how much for removing the damage?) where available. For other factors like air pollution, estimates on increased health costs, crops, water, increased corrosion, etc. were used.
IMHO the most tricky is the part on "opportunity costs" of things like land use - it's hard to put an uncontroversial price tag on the fact that you cannot go hiking on parts of land used by some industries.
In this case, New York avoided $6-8 billion in costs for constructing filtration plants by actively managing the Catskills watershed. Like with any "free" service, you can price it by asking: what would I have to pay to replace it?
We all agree on the negative effects of those externalities, but pricing them in before completing the transition to sustainable systems would only make resources MUCH less affordable for the end-consumer - you, me and everyone else, given the basic needs those goods fulfill.
That's the point. When people in rich parts of states can get artificially cheaper power through coal plants that poison the poor people in the state, the incentive to move to alternatives is diminished.
I wonder if there's some economic equivalent to the second law of thermodynamics. If entropy is always increasing, perhaps the environmental costs of a system can never be non-positive. Entropy can only increase. I haven't fully thought it through but it's an intriguing idea.
It would be nice to pass a law forcing companies to publish their profit and loss accounts amended with the externalities costs (or gains). It would be just for information but the psychological impact would be great.
An environmental group our law school worked with (ELPC) lobbied hard to get two coal in the middle of Chicagoland (Fisk and Crawford) shut down. They did a study estimating the negative externalitiesmofnthe two century old plants at $127 million, the majority of which fell on working class people in the areas around the plants.
A related phenomenon I found interesting is an LSE paper (can't find the link offhand) arguing that the GDP calculation vastly overstated the GDP of countries built on resource extraction. Income is change in wealth, but when $100 of coal is sold, it is counted as $100 to GDP. But the bulk of that price is offset by the decreased value of coal reserves in the ground, which isn't counted in GDP even though its part of the change in wealth.