issue 203 - January 1990
The price of the future
Driving your car when you could have walked is like cheating at
cards - you do it because you can get away with it. So how can
protecting the environment be left to individual conscience?
Michael Jacobs suggests a better way.
Joke: How many therapists does it take to change a light bulb? Answer: Six - one to do it and five to share the experience. Another joke: How much does it cost to change a light bulb? Answer: A few cents for the new bulb plus - the odd tree killed by acid rain; a small rise in global temperatures from carbon dioxide emissions; a share of the ecological disasters caused by oil spillages; and the occasional nuclear accident.
Not very funny admittedly - but true. All this damage is caused by the use of non-renewable fuels which provide electricity; it is the real cost of a light bulb. Similar kinds of costs are inflicted by other electricity-guzzling household items such as stoves, fridges, washing machines and hot-water systems.
This light-bulb joke has many variations. For example, what does it cost to make a battery? Answer: manufacturing a battery uses 50 times more energy than it generates and the mercury it contains is an atmospheric toxin, especially if the battery is incinerated after disposal. Even an innocent-looking cup of coffee creates soil erosion because of over-production on coffee plantations and chronic water pollution during processing. Oh, and plantation workers sometimes earn as little as 25 cents a day...
These are sick jokes at the expense of people who have nothing to do with the production or consumption of a product - but who end up paying the costs.
The hidden costs of electricity, for example, are paid by the foresters and fishing communities whose livelihoods depend on trees and fish destroyed by acid rain. The hidden costs of hamburgers are paid by people with skin cancer - because the trays hamburgers are packed in emit a gas that depletes the ozone layer. The greenhouse effect and radioactivity from nuclear waste hurt people not even born.
So next time you complain about high prices in the supermarket, remember what you don't have to pay for. Perhaps every coffee jar should carry a label: 'Special Offer - 10,000 per cent off!'.
Economists call these hidden costs 'externalities': costs which are external to the consumer and the producer. Imagine that products are like boxes. When a firm sells something, all the production costs should be inside the box with the consumer paying the full amount that it has cost to make the product. But in fact the box has holes: many of the costs spill out, falling onto other people.
The invisible elbow
Sometimes these external costs are paid in money. The West German timber industry loses around $800 million each year from the effects of acid rain. And agriculture pays further costs of $600 million in the loss of soil fertility which is also the fault of acid rain? But often the costs are not quantifiable. How do you measure the cost of brain damage to a child? And what price do you place on the species made extinct in the rainforest?
Nearly all environmental problems are 'externalities'. If consumers had to suffer all the pollution caused by the products they bought, they wouldn't buy them in such damaging quantities. It is precisely because costs are passed on to third parties that we let them occur. Environmental degradation is a genuine case of passing the muck.
There is an exception - the contamination of food and water by chemicals is an externality. If you buy a fruit or vegetable coated with pesticide residues then you are the person being poisoned. You are paying the cost of the pollution yourself - although lots of other people may pay too, such as the workers spraying the pesticides and future generations whose water is polluted. This is why there has been such a boom in organic foods and mineral waters. Consumers may not care what happens to others but they are certainly worried about the costs they pay themselves.
But all the other environmental problems affect people too indirectly to make them act. How many people will voluntarily give up driving cars to prevent acid rain or global warming? If I act alone it won't have any significant effect on the problem. So if I don't know that you will co-operate with me, why should I lose out by cutting down on my consumption?
Because only co-operative action can tackle environmental problems, they will not be' resolved by unhampered market forces. Indeed, it is precisely market forces which bring them about. Environmental problems occur through the combination of millions of individual economic decisions. These decisions are taken privately, without reference to what everyone else is doing, because nobody can know what everyone else is doing. Added together, market forces generate an overall result which no-one can predict.
This is the 'invisible hand' which the economist Adam Smith argued brought general prosperity. But it can equally be an 'invisible elbow' which brings the earth's precarious ecological balance crashing down like a pile of cans in a supermarket.
Bronzed, rich and dying
To protect the environment we must force consumers and producers to make decisions which take wider interests into account. We need to 'internalize the externalities' - to bring all the costs back into the box so that the consumer pays the full price. Market forces have to be controlled and there are two main mechanisms for doing it.
The first is regulation. Consider the case of the stereotypical Californian - tall, fit, bronzed, driving carefree down the freeway. In fact 98 per cent of Southern Californians suffer from the effects of photochemical smog - the thick pall of carbon monoxide, nitrogen dioxides and ozone which hangs over the area around Los Angeles. Stinging eyes, heart attacks and respiratory diseases are common; Southern Californians have one of the highest premature-death rates in the US. Autopsies have revealed teenagers with the lungs of 50-year-old smokers. On two days out of three in 1988 the air exceeded national health standards. On 75 days the smog was so bad that schoolchildren were advised to stay indoors.
Why? Because Southern Californians drive nearly 100 million miles every day in their cars. Exhaust emissions are mainly responsible for the smog, exacerbated by the area's famous sunshine - which reacts chemically with the pollutants - and its geography, which traps the air above the main cities.
By last year the crisis had reached such proportions that Southern California introduced radical new regulations to control air pollution. The new Air Quality Management Plan is the most comprehensive of its kind: perhaps not in its approach to tree conservation - the paper it is written on stacks three feet high - but in its determination to force producers and consumers to stop passing on their muck by law.
The new regulations cover every source of air pollution from barbecue lighter fuel - which is now banned - to pesticides. Their main thrust is against motor vehicles. It is now compulsory for all firms with more than 25 employees to have a 'car journey reduction plan', cutting down on the use of cars to get to work. Firms can comply however they like - setting up car pools, introducing a four-day week, moving nearer to residential areas. But failure to do so brings fines of up to $25,000 a day.
The scheme offers incentives too. Highways are being split down the middle, with special 'car pool lanes' for vehicles carrying more than two passengers, allowing them to cruise past the traffic jams. A whole new car-pool road is even being built in Orange County.
The regulations are forcing people to stop using petrol as the major vehicle fuel. Within ten years 40 per cent of cars, 70 per cent of trucks and all buses will be forced to run on methanol, natural gas or electricity. And new drive-in establishments like banks and fast-food bars are to be banned.
California has decided that the way to control pollution is by law. But other places are experimenting with a different mechanism: controlling the market.
In West Germany, France and the Netherlands, factories which emit pollutants into rivers are taxed according to the volume and strength of their emissions. This gives them a direct financial incentive to reduce pollution: doing so means lower taxes. In some areas of the US, 'pollution permits' are sold, allowing the owner to discharge a certain volume of pollutants. By controlling the total number of permits available, the authorities can determine the overall amount of waste discharged.
Some economists believe that this kind of market mechanism is the most effective way of reducing pollution. One such is the 'carbon tax' whereby fossil fuels are taxed according to their carbon content. This raises the cost of coal, oil, and gas, encouraging energy efficiency and the development of renewable alternatives. Such a tax would be levied internationally.
The cost of happiness
Another possible scheme is the pollution-added tax whereby products would be taxed according to their environmental unfriendliness. Throwaway products would be heavily penalized, while recycled items would be tax-free. When such a scheme was introduced in Oregon in the 1970s it resulted in 90 per cent of bottles being saved for recycling.
Both mechanisms mean that prices will rise: we will be paying the full cost of the things we buy. And because higher prices would hurt the poor more than the rich, it is essential that environmental problems are not seen in isolation from social ones. The 'cost of greening' must be fairly shared - by reducing taxes and increasing welfare benefits for the poor, and by subsidizing essential items like electricity, water and transport.
This is all very well, you might say, but what effect would it have on living standards? Does 'green' mean less?
In terms of the consumption of material things, the answer is probably yes. But the quality of people's lives will improve in other ways. They will be healthier. They won't have to travel so far to work. They will have more leisure and less stress. Expenditure patterns will shift to services instead of goods: education, arts, leisure, communal activities and personal development will all play a bigger part in our lives. And who knows, people might even be happier.
Michael Jacobs is co-author (with Victor Adamson) of The Green Economy: On Environment, Work and the Future, shortly to be published by Pluto Press.
1 How to be Green, John Button (Century Hutchinson, 1989).
3 The Gaia Atlas of Planet Management, edited by Norman Myers (Pan, 1985).
4 The Observer. UK, 3 Sept 1989.
· Lobby for change. Join political and environmental groups that are trying to introduce environmental protection measures by law.
· Make the rich pay. If environmental-protection legislation is introduced, taxes and prices will rise. The danger is that poor people will not be protected; vigilance and campaigning are needed to ensure that they are.