Picture this. You're in a store, staring at two competing products on the shelf. One is really cheap, but you're aware that it has a terrible environmental footprint. The other is bit more expensive, but you know it was manufactured with virtually no negative impact on the environment. Which one do you choose?
It's a moral dilemma for anyone who likes saving money yet wants to be eco-friendly — and it's a good example of why a price on carbon is needed, in this country and around the world.
The unfortunate reality is that, in the scenario above, most of us — even those who profess to care deeply for the environment — would turn a blind eye and choose the cheaper product. It's just human nature.
Most of us will follow the money compass every time.
True, we all have an internal moral compass, that little voice telling us to do the right thing — but we also have an internal money compass that steers us in the direction of deals, savings and cheapness.
And when faced with a situation where the two conflict, most of us will follow the money compass every time. We buy cheap. Never mind all the compelling arguments about starving polar bears, melting glaciers or consequences for our grandkids. The strength of our money compass is the foundation of our economic system.
Why would an environmentally offensive product on the store shelf be cheaper than a sustainably manufactured one in the first place?
The reason is that, in the world of economics, the environment is what's called an externality.
Here's a quick explanation. In our free-market system, the price we pay for a product reflects the cost of everything that goes into that product, plus a bit of profit for everyone at each step of the way.
But our economic system doesn't account for the pollution produced in the manufacture and use of a product. Air and water have long been regarded as limitless, so we've gotten into the habit of using our waterways, oceans and atmosphere as free dumps. When it comes to calculating product prices, environmental impacts are largely ignored — hence they're called "externalities."
For example, the price we pay for gasoline covers the costs of everything from oil exploration to refining to retailing, plus profit for all involved. But it does not account for the climate change consequences of emissions produced from our own tailpipes — consequences such as extreme weather events (like the present global heat wave), rising sea levels in our coastal communities, or the spread of Lyme Disease-carrying ticks.
Producing things cheaply is a worthy goal — but it's a short-term gain when in the process we ruin the environment we depend upon for our air, food and water.
Reconciling our compasses
So how can the conflict between our money and moral compasses be reconciled? By putting a price on externalities, those negative environmental impacts, so those costs become part of every product's price. That would make sustainable choices the cheapest choices, and we always buy cheap.
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And most economists agree that a starting point is to put a price on carbon, so we have an incentive to use less fossil fuel and turn increasingly to renewable energy. An extensive MIT analysis published earlier this year concluded that greenhouse gas emissions could be significantly reduced by a well-designed carbon tax, where all revenues are returned back to taxpayers as tax breaks.
Clearly, economists don't need to be persuaded of the power of carbon pricing — but we voters do. As soon as we are, our elected leaders will have the confidence they need to put the necessary policies in place.
And then acting on climate change will be as easy as each of us simply following our money and moral compasses.
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