Recently I've been writting a lot about externalities, and how they contribute to a corporation's profitability. What I've neglected is the flip side: that just as corporations should pay the full costs of their activities, so to should you and I.

Not sure what I'm on about? Well in essence the issue of externalities is about paying for what you use. In business, externalities result from a fairly simple relationshihp between costs and profits: minimise the former in an effrot to maximise the latter. However things get messy when those costs aren't "minimised" so much as conveniently left off the balance sheet.

A neat illustration? Shell's decision to invest in extracting oil from the Canadian tar sands. Producing oil in this manner generates two to four times more greenhouse gas emissions than the production of 'conventional' oil1. Furthermore processing the oil sands involves clearing vast areas of wilderness and topsoil. It takes about 2 tonnes of the raw sands to produce one barrel of oil. BP has reportedly said that it will use a method that is less invasive, and has accepted that an increased carbon footprint is unavoidable2.

The question is whether the pollution, soil degradation, habitat destruction, and greenhouse gas emissions will be included in the production costs of each barrel, or simply ignored. Will the increased carbon footprint be paid for, or just left behind? Because if these costs to society and the environment are left off the balance sheet, then this oil looks a whole lot more cost-effective than it should.

According to a recent United Nations study, if the world's biggest companies actually paid for the environmental harm they cause, the bill would come to $2.2 trillion a year and profits would be reduced by one-third.

But companies such as these are only part of the problem.

Working in a Jeans Workshop

This boy is working with his parents at a small jeans workshop in Dadun Village in Xintang. He earns 0.15 yuan for snipping loose thread ends off one pair of jeans; in one day he can do about 200 pairs.

I say this because its important we keep in mind that while costs directly affect profit margins, ultimately we consumers keep companies in business. Every purchase we make is a tacit vote in the market place, a signal we send out about what we are willing to pay for, and what we aren't. Being able to afford organic, but choosing to buy pesticide-ridden veggies simply because they are cheaper, says that you aren't willing to pay for sustainably produced food - or that you don't mind what the chemicals are doing to the ecosystem. Similarly, when you choose cheaper clothes produced in a sweatshop over those with a fair trade endorsement, you condone sweatshop practices and wages. Externalities generated in production, become our own through consumption. Our purchases legitimate what went into (and came out of) what we buy.

Obviously I'm simplyfying things here. Often we aren't entirely aware of the externalites we encourage through our purchases. There are also cases where buying responsibly is almost impossible (buying shoes springs to mind). In such cases, however, its important we speak up and inform ourselves about our purchases; choosing not to know is plain cowardice.

Its time we realise that our lifestyles are costing a whole lot more than simply what we spend each month. Driving and flying around only cost what they do money-wise, because so much of the total cost is being left out (like the pollution and carbon emissions caused). Calculating the true cost of flying, for example, is tricky - and where to pay, or even what to pay with, is a problem in itself. But the point is that we need to be more aware that these costs do in fact exist -- and they are accruing, regardless of whether we acknowledge them or not.

So while its imperative we pressure corporations to start paying for their externalities, we also need to become more aware of, and start paying for our own. If we want 'being green' and 'saving the planet' to mean more than catchy marketing phrases or token gestures, we need to start living up to what we expect from corporations. And if paying the full cost for something means that it becomes too expensive, perhaps its time you asked yourself if its really worth having at all.


1^ Joseph J. Romm (2008). Hell and High Water: The Global Warming Solution. New York: Harper Perrenial. pp. 181–82. ISBN 9780061172137