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The world’s top industries would be unprofitable with externalities priced in
- iwwr 14y agoHow are "natural capital costs" calculated?
- praptak 14y agoThis 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.
- ams6110 14y agoWhoever is doing it makes up a number to support their narrative.
- rayiner 14y agoSee, e.g. http://www.esa.org/ecoservices/comm/body.comm.fact.ecos.html http://www.esa.org/ecoservices/comm/body.comm.fact.ecos.html 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?
- robryan 14y agoIf they were forced to price all this in things would just cost more and they would go on being profitable. Also there would be a ton of innovation in negating these costs.
- praptak 14y ago> things would just cost more and they would go on being profitable Unless they got replaced by something other that is currently unprofitable due to the de facto dumping prices of those industries.
- dagw 14y agoFood 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.
- patrickk 14y agoWhat 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. [1] http://www.globalpost.com/dispatch/news/business/technology/130307/freaked-out-horse-meat-try-vitro-beef-burger http://www.globalpost.com/dispatch/news/business/technology/...
- king_jester 14y ago
- sbanach 14y agoSensationalist headline. "Top industries" - when ranked by environmental impact. Kinda renders the article a tautology?
- podperson 14y agoTrue, although measuring industries by environmental impact is just as valid as using, say, revenue or profit or number of people employed.
- oroup 14y agoI 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.
- geon 14y agoEntropy can/will decrease in a system with a flow of energy.
- RyanMcGreal 14y agoBear in mind that the earth isn't a closed energy system. We get a constant input of energy from the sun.
- bornonmars 14y agoWait a second, we need a revolution? 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.
- AndrewDucker 14y agoExcept that other, more sustainable, systems would be financially viable _now_ if they were competing with the true cost of the current ones.
- rayiner 14y agoThat'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.
- ams6110 14y agoIf 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?
- spenrose 14y agoThe 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.
- rayiner 14y agoThe 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.
- robrenaud 14y agoI 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.
- rayiner 14y agoWhat 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.
- RyanMcGreal 14y agoThere'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.
- crusso 14y agoensure that energy prices continue to increase 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.
- RyanMcGreal 14y agoCheap 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.
- crusso 14y agowithout negative externalities is great 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?
- ef4 14y agoEconomic behavior is not static. 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.
- rayiner 14y agoA study I found incredible was The Harvard study on the external costs of coal: http://cleantechnica.com/2011/02/17/cost-of-coal-500-billion-year-in-u-s-harvard-study-finds http://cleantechnica.com/2011/02/17/cost-of-coal-500-billion.... Half a trillion in external costs in the U.S. alone. 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.
- zeteo 14y ago>coal is the enemy of the human race 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.
- jbooth 14y agoTrue 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).
- protomyth 14y agoNot 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.
- geebee 14y ago"Every third world country will use the exact path the 1st world used" Really? They'll do this without the internet? without anesthesia? without antibiotics? or will they re-invent these things themselves? No, of course they won't take the same path. There are far better paths.
- protomyth 14y agoI was talking about energy and China seems to think there aren't better paths.
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- fpp 14y agoSome 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
- benbou09 14y agoIt 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.
- dllthomas 14y agoHaven'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.
- mcherm 14y agoThe 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.