Why We Should All Be Paying More at the Pump


Photo via Wired

This is doomed to be an unpopular post, I'm afraid. So let's just come right out with it: You should be paying more for gasoline. And you should be paying more for a number of other goods and services as well, like electricity generated from coal-fired power plants. We all should. Why? Because of a simple economic concept that, frankly, we should hear way more about than we do. I'm talking about externalities, and in the wake of the BP Gulf spill, it's high time we take a closer look at how and why we're underpaying for goods that have hidden costs every day. According to the About Economics definition, an externality "is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account." Of course, the longstanding, classic example of a negative externality -- and why you've probably heard the term before -- is pollution. For example, a factory that releases particulate matter as a polluting byproduct, or a company that dumps refuse in a body of water, can both have serious adverse effects (health or otherwise) on people who don't purchase goods from either, and have no say in the matter.

Which means whoever is buying products from that polluting factory and river-dumping company is not paying the true cost of the product.

The greenhouse gas pollution of coal-fired power plants is another huge cost that is not factored into the price of electricity (even though 50% of our power in the US comes from coal), and the same goes for the air pollution caused by the burning of petroleum. Here's Ezra Klein on how externalities factor into the BP Gulf spill:

The BP spill is going to cost fishermen, it's going to cost the gulf's ecosystem, and it's going to cost the region's tourism industry. But that cost won't be paid by the people who wanted that oil for their cars. It'll fall on taxpayers, on Gulf Coast residents who need new jobs, on the poisoned wildlife on the seafloor.
And those costs are the result of a catastrophic oil spill -- the negative externalities of oil are far greater than that, and are present every day, not just in the event of a disaster. They include the aforementioned cost of air pollution, the cost of waging geopolitical campaigns to secure reserves in foreign lands, the cost of exacerbating climate change, the cost of regular seepage and environmental contamination, and so on.

Klein cites one policy expert who says that if you tally up only the quantifiable externalities we aren't paying in the gas price, and add them in, the true cost would be around $1.65 more a gallon. Since gas prices have been hovering just below $3, that means that we should all be paying closer to $5 a gallon -- though Klein himself admits that this probably low balls the true number.

This is extremely important stuff, for some pretty obvious reasons -- first of all, if polluting companies and energy sources were properly held financially accountable for environmental degradation and damaging human health, there would be a pretty strong interest in cleaning up some of those practices. Duh. But it would also make the price of polluting fossil fuels more 'fair' and encourage investment in cleaner sources of energy, and serve to level the playing field.

The hard part is, it's tough to get folks galvanized around a seemingly wonky economics issue that's not only awkward to rally around, but poses the steepest uphill political battle imaginable: Try telling Americans that we should be paying more for gasoline (whether through a tax or a result of stricter environmental regulations), and you've just written your own Republican attack ad. But one way or another, negative externalities absolutely must be reigned in.

More on Externalities
Pay As You Drive (PAYD) Insurance: A Way to Address Negative Externalities
Why We Need to Reset Capitalism to Put the Environment at the Center

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