GreenYes Digest V97 #98

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GreenYes Digest Sun, 4 May 97 Volume 97 : Issue 98

Today's Topics:
Please help with internalized costs argument (2 msgs)

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Date: Sat, 3 May 1997 14:04:47 -0400 (EDT)
Subject: Please help with internalized costs argument

To: All
Fm: Amy Perry, MASSPIRG

I spoke as part of a roundtable discussion on the future of recycling at the
New England Envionmental Expo last week. Joining me on the panel were:

Earl Gorman, Container Recycling Alliance (glass)
Paul Thompson, Steel Recycling Institute
Ron Perkins, American Plastics Council
MA state recycling director (Robin Ingenthron)
a local recycling hauler/processor (Ben Harvey)
Jon Gold, Newark Group (recycled paper manufacturer)
John Stutz, Tellus Institute
Steve Anderson from RRS (MRF operator)

The session was organized and moderated by Edgar Miller, NRC.

Key questions discussed:
What is an achievable national recycling rate, what are the major barriers to
increasing recycling, commodity-specific problems/difficulties, what
steps/strategies are needed to increase recycling.

Needless to say, I was the radical of the bunch. But I was not nearly as
compelling as I should have been on one point: that of internalized costs.
This is what I mean:

The conversation continually returned to the cost issue -- recycled
feedstocks cost more, recycling economics are tough, etc. While we of course
talked about minimum content standards, procurement, and other market
improvement tactics to improve recycling's economics, I did not say, nor did
anyone else, that the root problem is that society has not yet figured out
how to "price" the value of clean air, etc. so all of the costs being
discussed were not true, full costs.

Does anyone on this list have a simple way of explaining this argument, like
1 or 2 paragprahs, that they have written or read, that I and possibly others
who, although experienced in the field, could learn from??

Thanks so much.



Date: Sat, 3 May 1997 17:03:03 -0400 (EDT)
From: Frank Ackerman <>
Subject: Please help with internalized costs argument

The argument about environmental costs that should be internalized is a
complicated one. Of course, environmental costs should be taken into
account; these costs appear to me to be much larger in production of
virgin materials than in disposal. If environmental costs were
internalized, then virgin materials would be more expensive relative to
recycled materials.

BUT...mainstream economics has obfuscated and diminished this issue, like
so many others. The problem is that in order to internalize environmental
costs, you have to put a monetary value on them -- and the process of
doing so is difficult to justify, or to perform in a sensible manner.
Economists are doing it; they're just not doing a sensible job of it.

Increasingly, there are economists who try to put specific prices on
environmental values, typically using "contingent valuation" studies.
This is essentially a public opinion poll, asking a random sample of
people how much they think some aspect of the environment is worth, or
what they would be willing to pay to get or keep it. E.g., how much would
you pay to avoid a reduction in visibility in the Grand Canyon that might
be caused by air pollution from a nearby power plant? (A real example!)
Naturally no one knows, and different studies value visibility at the
Grand Canyon at wildly different rates. This type of study is largely
what mainstream environmental economics consists of these days. (Contact
me if you're interested in this issue; I can supply lots more information
about these techniques and their limitations, based on recent research and

Even if the myriad problems with these economists' studies could be
overcome, what would you do with the results -- the monetary "values" of
various forms of environmental harm? You would probably try to design
market incentives, incorporating those values via taxes, fees, etc. I
believe that this agenda is destined to fail; the problems we're
interested in just are not responsive enough to feasible (i.e., small)
market incentives. (See chapter 2 of "Why Do We Recycle?" for elaboration
and documentation.)

What does this mean for the argument about environmental costs and
recycling? On the one hand, the longterm environmental impacts of
profligate use of virgin materials are THE reason for recycling. On the
other hand, there is no obvious way to incorporate this conclusion into
market incentives. My conclusion is that there are some things much too
important to leave to the market; deciding how much recycling, or
environmental protection in general, we should have is a social and
political choice, and should not be determined by markets alone. (See
chapter 3 of "Why Do We Recycle?" for elaboration and documentation.)
Once we decide how much to have, of course it's desirable to make it as
cost-effective as possible -- but cost-effectiveness should be the
servant, not the master, of society's decision-making process.

Having heard most of the panel you referred to, Amy, I would have said
that John Stutz, Robin Ingenthron, and you all made remarks quite
consistent with this perspective -- and that you collectively did quite
well in defending the legitimacy of a broader view of recycling, in the
face of the "markets, markets, markets" mantra. The mistake may lie in
thinking that there is a deeper economic analysis lurking out there
somewhere, that would solve all our problems. Actually, economics is
shallower than you think, and can't be trusted to make public policy
decisions on its own, without some grownups in the room to supervise the

Frank Ackerman
(a professional economist)
Global Development and Environment Institute
Tufts University


End of GreenYes Digest V97 #98