The libertarian in me asks, "Why not internalize the costs and allow market forces to inspire sufficient environmental responsibility?" Scientists have devoted their careers to estimate the value, in dollars, that a particular ecosystem is worth to society. The commonly cited "economic trivia", if you will, is that the biosphere provides twice the global economy in services such as water filtration, pollution management, and crop pollination (among thousands if not millions of others). So the value is there, but how do we internalize it?
So the question becomes a "How do we represent these costs in our prices?" And where I'm stuck is exactly how marginalization breaks down regarding an ecosystem service. Ecology would suggest that a certain amount of exploitation can be sustained before a threshold is reached, though ecologists argue that knowledge of that threshold is unattainable. The overall value of the ecosystem can be gaged, though I'm skeptical that approximating average total cost as the marginal cost would work with many key issues. For example, carbon emissions might contribute only a minor environmental cost early on but eventually reach infinite environmental cost (and for those non-math majors, the average cost is going to end up being "infinity over total units", or... infinity). How can this be resolved?
7 comments:
yes, i read your article. it's wonderful.
At the end of your second paragraph, you wrote "their" instead of "there".
you're welcome. from lindsay.
No I didn't
You just changed it. Obviously.
If one wants to internalize the costs of environmental damages, then you have to find the "socially optimum" level of environmental damage (yes, it is weird to think of a desired amount of damage, but it exists). From there, the government must tax the product so that the price of the item is at the point where the marginal cost + tax equals the marginal cost to society. Obviously, the problem lies in determining the social cost as separate from the private cost. Unfortunately, it is up to politicians to determine this level and they have way too many political influences to perform an objective, scientific treatment of the situation.
On top of the difficulty of allowing the government to select a tax rate, the effects of reducing domestic demand of environmentally damaging goods may have unintended consequences around the globe. For example, if the United States imposes a tax that decreases the demand of oil, then the world price of oil will drop. With this drop in oil prices, a developing country such as India may buy more. In sum, the environmental damage shifts from the United States to India, perhaps increasing if India has inferior technology that creates more pollution per unit of oil used.
One could argue that environmental damage is taken into account by consumers far more than assumed. For example, someone shopping around for a car will value a high MPG car and thus pay for fuel economy even when it is more "rational" to buy a cheaper car with lower fuel economy. Studies have shown that consumers value MPG more than the actual savings in gasoline. Therefore, it would be false to assume that there exists no workings in the market to allow for the cost of environmental damage to be accounted for.
Bottom line, I am not sure of the best way to internalize costs other than a Pigovian-style tax, but I am also not sure that it would be beneficial for the environment or our economy to reflect this cost in our current prices.
trm21@pitt.edu
sorry, i meant to put this email at the end of the last one: trmoreland@gmail.com
What if doing nothing isn't an option? You rather consistently argue for laissez faire, and I'm supportive of that in most situations. But it relies on the assumption that thing are fine the way they are going, which most environmentalists would staunchly disagree with. The facts are pretty simple regarding climate change, so I'm going to take a very small "leap of faith" (by which I'm saying, not a leap at all, but rather shuffling along with my argument firmly grounded) and say that doing nothing is not an option.
I very much like the point that lowering our demand causes prices to drop, which in turn rising Asian demand precipitously. I'm hoping someone with a bit more knowledge can predict the net result of such a heterogeneous demand.
I don't want to go into the slippery slope of interventionism, but someone come up with a better solution than the following: "Buy, but not consume, as much oil as we can possibly store, thereby rising the price of the commodity but decreasing it's consumption". And of course I'm not truly suggesting this, but playing Devil's advocate.
In the perfect fantasy world that is my imagination, the best thing we could possibly do is develop renewable energy technologies quickly, then mass-produce them so that using them will be cheaper than using oil for countries such as India and China. That's really the only way to ensure that American progress is not offset by increased consumption elsewhere in the world.
To make this happen, what we would essentially be creating is a huge American subsidy of the developing world. Sound expensive? Well, I guess we could just keep throwing trillions of dollars at takeovers of small countries...
Sorry for the political commentary there. But such a subsidy does make sense if you believe that much of the environmental damage that exists today is the result of American, I won't call it irresponsibility, but growth and development. If you believe that because of America's choices in the past, we simply cannot allow India and China to develop using the same methods and technologies we did (because the environmental damage would be irreversible), then you supporting a campaign to increase renewable energy technology paid for by Americans makes a lot of sense.
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