Quantcast
Environmental News for a Healthier Planet and Life

Help Support EcoWatch

Getting the Market to Tell the Truth

Energy
Getting the Market to Tell the Truth

Lester Brown

Moving the global economy off its current decline-and-collapse path depends on reaching four goals: stabilizing climate, stabilizing population, eradicating poverty and restoring the economy’s natural support systems. These goals—comprising what the Earth Policy Institute calls “Plan B” to save civilization—are mutually dependent. All are essential to feeding the world’s people. It is unlikely that we can reach any one goal without reaching the others. 

The key to restructuring the economy is to get the market to tell the truth through full-cost pricing. If the world is to move onto a sustainable path, we need economists who will calculate indirect costs and work with political leaders to incorporate them into market prices by restructuring taxes. This will require help from other disciplines, including ecology, meteorology, agronomy, hydrology and demography. Full-cost pricing that will create an honest market is essential to building an economy that can sustain civilization and progress. 

For energy specifically, full-cost pricing means putting a tax on carbon to reflect the full cost of burning fossil fuels and offsetting it with a reduction in the tax on income. Some 2,500 economists, including nine Nobel Prize winners in economics, have endorsed the concept of tax shifts. Harvard economics professor and former chairman of George W. Bush’s Council of Economic Advisors N. Gregory Mankiw wrote in Fortune magazine: “Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming—all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.”

The failure of the market to reflect total costs can readily be seen with gasoline. The most detailed analysis available of gasoline’s indirect costs is by the International Center for Technology Assessment. When added together, the many indirect costs to society—including climate change, oil industry tax breaks, military protection of the oil supply, oil industry subsidies, oil spills and treatment of auto exhaust-related respiratory illnesses—total roughly $12 per gallon. That is on top of the price paid at the pump. These are real costs. Someone bears them. If not us, our children. 

If we can get the market to tell the truth, to have market prices that reflect the full cost of burning gasoline or coal, of deforestation, of overpumping aquifers, and of overfishing, then we can begin to create a rational economy. If we can create an honest market, then market forces will rapidly restructure the world energy economy. Phasing in full-cost pricing will quickly reduce oil and coal use. Suddenly wind, solar and geothermal will become much cheaper than climate-disrupting fossil fuels. 

If we leave costs off the books, we risk bankruptcy. A decade ago, a phenomenally successful company named Enron was frequently on the covers of business magazines. It was, at one point, the seventh most valuable corporation in the U.S. But when some investors began raising questions, Enron’s books were audited by outside accountants. Their audit showed that Enron was bankrupt—worthless. Its stock that had been trading for more than $90 a share was suddenly trading for pennies. 

Enron had devised some ingenious techniques for leaving costs off the books. We are doing exactly the same thing, but on a global scale. If we continue with this practice, we too will face bankruptcy.

Another major flaw in our market economy is that it neither recognizes nor respects sustainable yield limits of natural systems. Consider, for example, the overpumping of aquifers. Once there is evidence that a water table is starting to fall, the first step should be to ban the drilling of new wells. If the water table continues to fall, then water should be priced at a rate that will reduce its use and stabilize the aquifer. Otherwise, there is a “race to the bottom” as wells are drilled ever deeper. When the aquifer is depleted, the water-based food bubble will burst, reducing harvests and driving up food prices

Or consider deforestation. Proper incentives, such as a stumpage tax for each tree cut, would automatically shift harvesting from clearcutting to selective cutting, taking only the mature trees and protecting the forests. 

Not only do we distort reality when we omit costs associated with burning fossil fuels from their prices, but governments actually subsidize their use, distorting reality even further. Worldwide, subsidies that encourage the production and use of fossil fuels add up to roughly $500 billion per year, compared with less than $70 billion for renewable energy, including wind, solar and biofuels. Governments are shelling out nearly $1.4 billion per day to further destabilize the earth’s climate.

Shifting subsidies to the development of climate-benign energy sources such as wind, solar and geothermal power will help stabilize the earth’s climate. Moving subsidies from road construction to high-speed intercity rail construction could increase mobility, reduce travel costs and lower carbon emissions.

We are economic decisionmakers, whether as corporate planners, government policymakers, investment bankers or consumers. And we rely on the market for price signals to guide our behavior. But if the market gives us bad information, we make bad decisions, and that is exactly what has been happening. 

We are currently being blindsided by a faulty accounting system, one that will lead to bankruptcy. As Øystein Dahle, former vice president of Exxon for Norway and the North Sea, has observed: “Socialism collapsed because it did not allow the market to tell the economic truth. Capitalism may collapse because it does not allow the market to tell the ecological truth.”

Project goal: To create an environmentally friendly and sustainable alternative to leather, in this case using fungi.

Read More Show Less

EcoWatch Daily Newsletter

Plastic waste is bulldozed at a landfill. Needpix

The plastic recycling model was never economically viable, but oil and gas companies still touted it as a magic solution to waste, selling the American public a lie so the companies could keep pushing new plastic.

Read More Show Less

Trending

54% of parents with school-age children expressed concern that their children could fall behind academically, according to a poll conducted over the summer of 2020. Maria Symchych-Navrotska / Getty Images

By Pamela Davis-Kean

With in-person instruction becoming the exception rather than the norm, 54% of parents with school-age children expressed concern that their children could fall behind academically, according to a poll conducted over the summer of 2020. Initial projections from the Northwest Evaluation Association, which conducts research and creates commonly used standardized tests, suggest that these fears are well-grounded, especially for children from low-income families.

Read More Show Less
A teenager reads a school English assignment at home after her school shut down because of the COVID-19 pandemic on March 22, 2020 in Brooklyn, New York. Andrew Lichtenstein / Corbis via Getty Images

The pandemic has affected everyone, but mental health experts warn that youth and teens are suffering disproportionately and that depression and suicide rates are increasing.

Read More Show Less
In an ad released by Republican Voters Against Trump, former coronavirus task force member Olivia Troye roasted the president for his response. Republican Voters Against Trump / YouTube

Yet another former Trump administration staffer has come out with an endorsement for former Vice President Joe Biden, this time in response to President Donald Trump's handling of the coronavirus pandemic.

Read More Show Less

Support Ecowatch