New pricing for a sustainable economy

Here is a radical suggestion to reduce global warming, over-consumption, the over-use of natural resources, and the excessive creation of detritus and pollution. We should change the pay we price things to reflect what it would cost to return to the point before the object was created. This means including 'replenishment', disposal, and environmental impact expenses in an item's cost. I call this 'comprehensive' pricing.

For example, bottled water would include the cost of re-creating the water (not just extracting more of it), plastic and paper that go into the bottle, the cost of disposing of the plastic bottle, and shipping expenses. Shipping expenses would take into account the cost of replacing the gas consumed and clearing the air pollution created in the process.
Wow! You say. Oil is not replaceable and the water cycle takes years to seep through the earth and come out in a source. Water bottles will cost a fortune. Yes, that's the point. Prices should reflect the fact that a resource is irreplaceable or hard to replace. Prices should also reflect transportation costs. If a bottle of Poland Spring is shipped from Maine to California, it should not be priced the same in both states. Reflecting the true cost of consumption will alter behavior, so that people are no longer indifferent between filling a re-usable water bottle and buying bottled water.

But, this will put the brakes on the economy, which is agonizing enough as it is! Yes, that is true. I'm looking for suggestions on how to deal with this. My first retort is that even if my suggestion were to be widely accepted, it would take a while before it is implemented. By that time, we will hopefully be out of the recession and better able to absorb the shock. The other answer is that since this recession is creating huge economic dislocation anyway, and since the economy that emerges at the other end will be quite different from the one we started with, why not make it better? This suggestion will create a new economy that reflects the true cost of making and selling things. (Quick adoption would be quite a surprise! Unfortunately, if taken seriously, this discussion will keep every lobbying firm in Washington gainfully employed for a number of years-- a completely unintended and unwelcome consequence.)

So, to recap, current pricing reflects the costs of obtaining resources. New pricing would reflect the cost of REPLACING/REPLENISHING/RE-CREATING the resources AND the cost of RESTITUTING the environment to the pre-production phase. The environmental impact also includes DISPOSAL costs. A manufacturing process that pollutes the air or water would have to include the cost of cleaning up that pollution. Anything that is transported would take into account the cost of replacing the energy consumed in transport and cleaning up the environmental impact of the transportation process. Styrofoam plates that clutter landfills should reflect the cost of dumping them, vs. cardboard plates or re-using plates.

The same applies to services. If a service involves transportation, it would reflect the consumption & restitution costs involved. Even storage would reflect the use of the land. From manufacturing to sale, every step in the value chain would reflect, in addition to the normal acquisition costs, the costs of replenishing this product/service and the cost of restituting the environment to its pre-product/service phase. Each step in the value chain would only add the cost of the impact it has created.

How far back do we go when calculating environmental impact? To the original tall tree forests in the Northeast? To the newer forests? We have to be reasonable. For fairness and expediency, I suggest we only look at the state of things before the immediate activity took place. This will reward bad behavior before the change becomes effective, but it is the only manageable approach. We cannot recreate the old growth forests the settlers took down. We cannot decide on an arbitrary historical comparison point. Today, a developer weighs the cost of building vs. the cost of land. I argue the equation should also take into account the opportunity cost of the land being developed. A shopping mall spread out on acres will entail cutting down forests that could have absorbed CO2, furnished shade, filtered water, etc. The price of land should also include the price of what grows on it and what is filtered underneath it.

I have not studied the price of wood, but I would venture to guess that since the founding of this country, the price of wood has been shifting from reflecting the cost of cutting down a tree, to reflecting today the cost of replacing that tree. That is, the many years required to replant & grow the cut tree. That is what I call restitution: returning to the original point.

Similar thinking needs to be applied to coal and the materials used in cement, for example. It is not just the cost of buying the land and extracting the resources that matters, but also the price of replenishing them. And when they are irreplaceable, then the price should reflect that.

Why does this matter? Businesses are rational. They make cost/benefit decisions all the time. If new equipment costs more, but pollutes less, vs. older equipment that costs less and pollutes more, a defensible position is to buy the equipment that costs less and pollutes more. Decisions such as these are made in the immediate shareholders' interest.

Consumers are similarly rational. If they had to pay for the garbage they generate, they would be more wary of disposable items. If it costs me more to wash a water bottle than to buy a new one, I will buy new ones.

If the law changes to require every economic activity to take into account its environmental impact, then every cost/benefit analysis changes radically. More expensive equipment that pollutes less, becomes the right one to purchase. The disposable culture, with all its pre-packaged, single-use emphasis, comes into question. By revealing the real cost of consuming resources, comprehensive pricing would let every one of us make enlightened purchasing decisions. It is the right thing to do on a moral, environmental and economic basis. That is the change we need. Align rational self-interest with our larger interest in making sure our consumption is sustainable.


Questions for further discussion:

• how to mitigate the impact on consumption and the economy?
• how do we price irreplaceables, like coal, petroleum, minerals; and hard to replace items like water? [for water, the cost of land through which the water has to seep to emerge or to pool at the source; plus the time value of money for the years required)