Don Willmott , Forecast Earth Correspondent
Ready for a deep think as the year comes to an end. Head to Grist for a crash course on environmental economics that makes one very important point: "The difference between the market prices for fossil fuels and the prices that also incorporate their environmental costs to society are huge." That's the conclusion of Lester R. Brown, who is concerned that the free market continues to operate on 19th-century assumptions that resources are limitless and consuming them has no environmental effect.
"The roots of our current dilemma lie in the enormous growth of the human enterprise over the last century. Since 1900, the world economy has expanded 20-fold, and world population has increased fourfold. Although there were places in 1900 where local demand exceeded the capacity of natural systems, this was not a global issue. There was some deforestation, but overpumping of water was virtually unheard of, overfishing was rare, and carbon emissions were so low that there was no serious effect on climate. The indirect costs of these early excesses were negligible. Now with the economy as large as it is, the indirect costs of burning coal -- the costs of air pollution, acid rain, devastated ecosystems, and climate change -- can exceed the direct costs, those of mining the coal and transporting it to the power plant. As a result of neglecting to account for these indirect costs, the market is undervaluing many goods and services, creating economic distortions."
And economic distortions are a problem. Says Brown, "One of the best examples of this massive market failure can be seen in the United States, where the gasoline pump price in mid 2007 was $3 per gallon. But this price reflects only the cost of discovering the oil, pumping it to the surface, refining it into gasoline, and delivering the gas to service stations. It overlooks the costs of climate change as well as the costs of tax subsidies to the oil industry (such as the oil depletion allowance), the burgeoning military costs of protecting access to oil in the politically unstable Middle East, and the health care costs for treating respiratory illnesses from breathing polluted air. Based on a study by the International Center for Technology Assessment, these costs now total nearly $12 per gallon ($3.17 per liter) of gasoline burned in the United States. If these were added to the $3 cost of the gasoline itself, motorists would pay $15 a gallon for gas at the pump."
See the problem? "In reality, burning gasoline is very costly, but the market tells us it is cheap, thus grossly distorting the structure of the economy. So the challenge facing governments is to restructure tax systems by systematically incorporating indirect costs as a tax to make sure the price of products reflects their full costs to society and by offsetting this with a reduction in income taxes." Perhaps. President-elect Obama, it's your move!