Recently a lot of my writing has focused on the issue of externalities, and how they contribute to a corporation’s profitability. What I’ve neglected is the flip side: that just as corporations should pay the full costs of their activities, so should you and I.
Not sure what I’m on about? Well in essence the issue of externalities is about paying for what you use. In business, externalities result from a fairly simple relationship between costs and profits: minimal the former in an effort to maximise the latter. However things get messy when those costs aren’t “minimised” so much as conveniently left off the balance sheet.
A neat illustration? BP’s 2007 decision to invest in extracting oil from the Canadian wilderness. Producing oil in this manner generates two to four times more greenhouse gas emissions than the production of “conventional” oil1. Furthermore processing the oil sands involves clearing vast areas of wilderness and topsoil. It takes about 2 tons of the raw sands to produce one barrel of oil. BP has reportedly said that it will use a method that is less invasive, and has accepted that an increased carbon footprint is unavoidable.
The question is whether the pollution, soil degradation, habitat destruction, and greenhouse gas emissions will be included in the production costs of each barrel, or simply ignored. Will the increased carbon footprint be paid for, or just left behind? Because if these costs to society and the environment are left off the balance sheet, then this oil looks a whole lot more cost-effective than it should.
According to a recent United Nations study, if the world’s biggest companies actually paid for the environmental harm they cause, the bill would come to $2.2 trillion a year and profits would be reduced by one-third.
But companies such as these are only part of the problem.
I say this because it’s important we keep in mind that while costs directly affect profit margins, ultimately we consumers keep companies in business. Every purchase we make is a tacit vote in the market place, a signal we send out about what we are willing to pay for, and what we aren’t. Choosing to buy pesticide-ridden veggies over the organic option simply because they are cheaper, says that you aren’t willing to pay for sustainably produced food — or that you don’t mind what the chemicals are doing to the ecosystem. Similarly, when you choose cheaper clothes produced in a sweatshop over those with a fair trade endorsement, you condone sweatshop practices and wages. Externalities generated in production, become our own through consumption. Our purchases legitimate what went into (and came out of) what we buy.
Obviously I’m simplifying things here. Often we aren’t entirely aware of the externalities we encourage through our purchases. There are also cases where buying responsibly is almost impossible (buying shoes springs to mind). In such cases, however, it’s important we speak up and inform ourselves about our purchases; choosing not to know is plain cowardice.
It’s time we realise that our lifestyles are costing a whole lot more than simply what we spend each month. Driving and flying around only cost what they do money-wise, because so much of the total cost is being left out (like the pollution and carbon emissions caused). Calculating the true cost of flying, for example, is tricky — and where to pay, or even what to pay with, is a problem in itself. But the point is that we need to be more aware that these costs do in fact exist — and they are accruing, regardless of whether we acknowledge them or not.
So while it’s imperative we pressure corporations to start paying for their externalities, we also need to become more aware of, and start paying for our own. If we want “being green” and “saving the planet” to mean more than catchy marketing phrases or token gestures, we need to start living up to what we expect from corporations. And if paying the full cost for something means that it becomes too expensive, perhaps it’s time you asked yourself if it’s really worth having at all.