Economics and environmentalism

My husband is annoyed at how Green I have become. Those of you who know us will likely not find this surprising. Part of it, however, is his fault, albeit indirectly, due to his economics class and the ensuing conversations. I somehow escaped high school and college without a single economics class and was intrigued with some of the concepts he was learning such as the concepts of a ‘public good’ and ‘private good’. Specifically his example that air was a public good as breathing air does not decrease the air available for others (so it is non-rivalrous) and breathing air does not prevent others from breathing it (it is non-excludable). From a scientific standpoint that is factually incorrect: if I breath the oxygen out of the air, you can’t breath it. I’m sure an economist would wave their hands at the issue and say “but plants just convert the carbon dioxide we exhale into oxygen — your example is too narrow” and he or she may well be right if they discounted environmental issues. That did get me wondering how economists calculate environmental impacts into their evaluations.

Fast forward to the article The Economist Has No Clothes by Robert Nadeau in the April 2008 edition of Scientific American. In the article the author asserts that the current formulas being used by economists, by definition, do not include environmental impact:

Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threads to the planet.

Ah – so the answer to my question is that they don’t — economic reports just ignore environmental impacts.

Later in the class Benjamin did a report showing how online music purchases has increased public good. This, in particular, opened up to me a fascinating line of thought. The general logic was that if people downloaded music instead of purchasing physical copies of CDs it would decrease the manufacture of CDs and free up resources for other purposes. During our conversation it occurred to me that downloading music, and other media like movies, is more environmentally friendly than borrowing or buying physical copies be they new or used. Not only does it save in physical media (less end-of-life costs due to landfill) but in the amount of greenhouse gas released due to gas. Yes, gasoline. If demand for physical CDs decreases, manufacturers will create fewer CDs which will decrease the amount of merchandise shipped to stores resulting in either fewer trips or the use of smaller, more fuel-efficient vehicles for the transportation. Not to mention the obvious savings of gas for people making trips to their favorite box store to purchase one.

That got me thinking about other things like DVDs: should I feel good or bad about my Netflix subscription? On the plus side I’m not purchasing a copy (reduce and reuse) but it still has to be mailed to me (transportation costs and mailer waste). After some thought I decided that, in general, I should feel good about Netflix. Yes, the mailman has to deliver it to me but he’s coming to my house every day regardless if there is a movie in the mail or not so while it doesn’t have a zero cost it has a near-zero cost compared to me getting in a car and driving to Blockbuster, for example. Even better would be to stream the videos directly from their website (the lack of Linux-compatible video player notwithstanding). This resulted in the creation of a list containing possible movie-watching options from most environmentally friendly to least:

  • Netflix Instant Watching
  • Netflix DVD rentals
  • Borrowing DVDs from friends that live closer to you than the local video store
  • Driving to local video store to rent DVD
  • Buying DVD from online retailer who ships via USPS
  • Driving to local box store to buy DVD

Note that “Buying DVD from online retailer who ships via UPS/Fedex” didn’t make the list. If the driver was already going to be in your neighborhood to deliver something else, it probably ranks around “Driving to local video store”. If they have to drive much further than the distance between your place and the box store, it probably comes in dead last.

I came up with a slew of others, all of which are obvious after you think about it. Like for produce:

  • Growing your own produce
  • Buying produce grown locally
  • Buying produce grown regionally
  • Buying produce grown nationally
  • Buying produce grown internationally

Or commuting:

  • Telecommuting
  • Commuting via walking or biking
  • Commuting via public transportation
  • Commuting via car pool
  • Driving by yourself

Or music:

  • Buying music via the internet (iTunes, Amazon, etc)
  • Borrowing CDs from friends
  • Buying used CDs
  • Buying new CDs

See, not rocket science but I never considered the environmental benefit from buying music online prior to the economics conversation. This seems like an under-marketed area for online retailers.

I predict that we’ll see a Tipping Point for digital vs physical media in the next few years after which physical DVDs and CDs will go the way of the 8-track yielding both economic and environmental benefits. I just hope the movie and music providers get past their shortsighted DRM tactics prior to the Tipping Point or it will be a step backwards for consumers (although part of me wonders if the Tipping Point can even occur until content is provided DRM-free).

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I'm a gay geek living in Seattle, WA.

9 thoughts on “Economics and environmentalism”

  1. Your analysis has a few flaws. :-)

    1) There is a carbon, or at least energy, cost in downloads. I’m not sure how it compares to physical moving of CDs but it has a cost.

    2) Buying local produce may not be that good — it is in the long term, but in the short term what happens is that you (and others) drive 10+ miles to the farmer’s market, which is a lot more driving than the 3 miles ot the grocery store. The food traveled farther to the grocery store but that gets amortized over all the shoppers going to that store. Now, long term, what you’d like is for the grocery store to sell local produce and meat; then the food didn’t travel far to get to the store and you didn’t travel far to get to the food.

    Figuring environmental impacts into economics is “hard” — there’s no immediate price on e.g. polluting (except maybe getting caught and fined) so since it generally costs less to buy the more polluting device, guess which one is popular? Making environmental impact have a direct, easy-to-calculate financial cost is the easiest way to “force” companies to stop polluting. Fines via the clean air act did this but only if it’s enforced and the fines are high enough that the likelihood of getting caught * fine (plus any loss of good will, also hard to calculate) is more expensive than the savings of not trying.


    1. I’m sure it has more than just a few flaws :)

      Indeed downloading content does have a non-zero cost and it’s hard to compare the environmental cost of that with driving somewhere to purchase something. The download cost likely relates to the energy used in the form of electricity — energy that is more efficiently generated at an electrical plant than the energy cost required to move the vehicles moving the media.

      As far as buying local produce – many grocers stock local (or regional) produce without resorting to a Farmers Market allowing the populace to purchase it where the do the rest of their groceries. During the summer our neighborhood has a Farmers Market in the area that is within walking or biking distance for many people including us taking the car out of the picture altogether.

      I agree that the best way to incorporate an environmental cost is to pass the dollar amount onto the corporations generating the pollution. Doing so will require regulatory changes that are unlikely to come until people demand that they do. It seems obvious to me that working from the top down is failing — we need to drive the change from the bottom up. I think the rising cost of gas and food will help drive the issue home for the average consumer.


      1. Passing the dollar amount (billing?) to the corporations is only a minor short term approach. In the long run, they’ll just pass the charges onto the consumers. Unfortunately, not all consumers are well educated about the charges, so they may not know what they’re demanding for aside from lower bills. But, even if the producers change their environmental costs, the producers won’t necessarily lower the consumer charges, unless it’s in a true free market instead of an oligopoly or monopoly. In the end, we, the consumers, just get stuck with it.


      2. If I’m understanding what you’re saying correctly, it’s this: producers will pass charges along to consumers (agreed. this is desirable. otherwise the decision makers, ie, the consumers, aren’t getting message), and if producers change their behavior to a more ecofriendly (less taxed) alternative, they won’t pass the savings along to consumers (which I doubt. How else are they going to encourage people to start consuming the cheaper/easier to make alternatives?)

        Additionally, if bad company fails to mend its ways and good company starts up with mended ways from the get go, the tax scheme would favor the good company, which is desirable, no?


      3. Yes, you got it, for the most part.

        >> which I doubt. How else are they going to encourage people to start consuming the cheaper/easier to make alternatives?

        In a free market, yes, they would reduce their prices to do so. In an oligopoly or monopoly, their focus still remains on maximizing their profit margins rather than lowering their prices to gain more customers. If they already have the lion’s share, their customer numbers wouldn’t shift much in the price changes.


      4. Oh, and your second point. Yes, if the good company startup has the mended ways from the get go, the tax would favor the startup. This would be favorable to them and their customers, until the “good company” begins to participate in the oligopoly.


  2. There are some economists who have thought about environmental impacts (they call them by the fancy name of “externalities”, though). If I’m remembering correctly, the following books have interesting treatments of almost exactly your line of thought:

    – No One Makes You Shop At Wallmart (especially good for this type of discussion)
    – Undercover Economist (I think where I first heard of externalities)

    There’s also, of course, Freakonomics, the grandaddy of these types of books, but I think it doesn’t talk as much about externalities as others.


    1. Freakonomics is waiting for me to pick up from the library tomorrow in fact. I’ve added both of your recommendations to my “to read” queue (if only Netflix would handle queuing at my local library!).


  3. one thing that is often forgotten in these discussions is that shipping by water is absurdly more energy efficient than semi-shipping. So it may be more energy efficient for me to get something shipped from europe across the great lakes to chicago than it would be to have it hauled up from texas by truck.


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