True cost

True Cost

It can be more expensive to be green – organic food, photovoltaic cells and biofuels are more expensive than factory-farm-food, coal-generated electricity and fossil fuels. Why is this the case?

It is because the latter items do not reflect their true cost which includes external costs such as the cost of climate change, biodiversity loss, degradation of habitats, soils and waterways and associated health and social costs. The cost of these are borne by society both now and in the future. If the use of fossil fuels causes climate change, pollution and human suffering shouldn’t that be where the cost is borne?

The fact that external costs are not paid by the businesses who create them means that those businesses are unfairly advantaged relative to the more sustainable alternatives that do effectively include (by mitigating) external costs.

For years the businesses who built cars and sold petrol have been subsidised by society because they do not pay all their costs. Of course it would be naïve to think that these companies would assimilate these external costs and not pass them on to their customers – so the end user still ends up paying.

The point is that by moving the costs to their source and effectively making those particular products more costly it means that sustainable alternatives can properly compete in terms of price.

An emission trading scheme is a mechanism that redresses this imbalance. It effectively ‘taxes’ the businesses responsible for emissions. Through a system of buying and selling emission credits the income from the emitters is transferred to businesses that mitigate emissions. An emitter buys credits and a mitigator sells them.