In a free market economic system the cost of goods and services greatly influences consumer choices and behaviors. A significant problem with our current economic model is that it does not account for the actual costs of many products.
Two examples prompted me to write this piece. First is fracked fossil fuel. The technological breakthrough that has allowed for the extraction of oil and natural gas from unconventional sources has certainly reshaped the U.S. energy picture. Despite the additional energy and equipment required for the fracking process, these fossil fuels remains relatively inexpensive.
But are they really? Consider California. Suffering its worst drought in 50 years and perhaps history, few things are more precious in the Golden State than water. And yet, each fracking operation in California pumps approximately 150,000 gallons of potable water into the wells. That water is so contaminated by fracking chemicals that it is no longer usable.
The current price of fracked oil and gas does not include the value of the water it destroys. And yet, California's farms are drying up. Its forests are ablaze. Food prices will escalate and millions will be spent fighting fires that are made far worse by drought conditions. The sad double irony is that in the pursuit of "cheap" fossil fuel millions of gallons of freshwater are destroyed and those very same fossil hydrocarbons will be burned, adding to climate pollution and further exacerbating the drought problems.
Another example of the danger of externalized costs is throw-away plastic goods (think soda bottles, disposable lighters, drinking straws and all the plastic packaging). Single use, disposable plastics are ubiquitous in our world today. Only a tiny fraction of these items are recycled. Millions of tons of such items get washed down rivers and blown across shorelines to make their way into the oceans. There they join the plastic debris that falls off cargo container ships on a regular basis (thousands of full containers are lost at sea each year).
This problem really struck me during the search for the missing Malaysian Airlines flight 370. I found it troubling that time after time what searchers thought might be wreckage turned out to be plastic trash in the ocean. How much money was wasted deploying ships only to find, instead of the missing plane, masses of plastic waste? Yet at no time during the relentless media coverage did I hear, see or read any mention of the problem of plastics in the ocean. It was treated as if it were a normal condition.
There is no dumping fee for pouring our trash into the ocean but there is a price. A recent report, the UN Environment Programme Year Book, estimates that plastic waste costs $13 billion annually in direct damage to marine ecosystems. This figure does not include the additional costs of fishing equipment fouled by plastic material and reduced tourism due to polluted beaches. During a recent visit to the intensely plastic-polluted beaches of Rio de Janeiro I watched people walk out of the surf with plastic trash stuck to their bodies. I went for a run on that beach but I didn't swim there and I didn't stay very long.
Our economic decisions are not just about money flow and fiscal capital. They are also inextricably connected to natural resources, our natural capital accounts if you will. In the case of fracked oil and gas we're generating fiscal activity by drawing down natural capital stocks, in this case water supplies. Because plastic is very cheap at the point of purchase we use, and throw away, a lot of it only to have it degrade marine habitats, foul fishing equipment and detract from some of our most attractive tourist destinations.
On a finite planet there really is no "away" to throw things into. It's a little like the first law of thermodynamics, energy is never created or destroyed; it merely changes form. The full costs of our energy, economic and consumer decisions are always present somewhere in the system. Failing to make the full costs clear at the point of purchase prevents people from understanding the true costs and consequences of behaviors and product choices.
A growing movement of ecological economists is developing innovative tools that provide a more accurate and complete picture of the outcomes of our economic decisions. And entrepreneurs are developing innovative business models that generate fiscal profits without depleting natural capital. Growing numbers of socially responsible investors are supporting these smart, forward thinking business leaders. It's a hopeful development because even a free market isn't really free.