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  • Writer's pictureArielle Kouyoumdjian

The Environment Through An Economist's Eyes

As an environmentalist, I’m concerned about the state of our Earth. As a Potomac school student, I’m concerned about our own stewardship of our campus ecosystem, and what I see as our profligate use of resources and unfettered carbon emissions. As a teenager, I’m impatient to see some change (other than climate change.) Last year, I wrote about how our cafeteria strives to reduce food waste and finding a home for the leftovers, delved in the economics of sustainability, and spoke to Potomac’s resident environmental experts, Mr. Pingree and Mr. Conroy. I also traveled to Morocco, where I observed the real-world impacts of climate change on marginalized communities. This spring, the New York Times published a feature on “The Most Important Person You’ve Never Heard Of”, a.k.a Partha Dasgupta, a Cambridge University economist. In a groundbreaking study commissioned by the British government, Dasgupta devised a method to calculate the combined monetary value of every environmental asset in the biosphere (Earth is worth $54 trillion a year, in case you’re saving up.)--and he suggests that we pay for what we consume. According to Dasgupta, a nation can’t claim economic growth without taking into account what we owe the earth for its unpaid ecosystem services. From this perspective, our nation’s GDP has hardly budged since the industrial revolution.

I naively believed that if the school just swallowed the admittedly steep upfront costs, and invested in sustainability once and for all, it’d be a win-win in the long run for the planet and Potomac. Turns out it’s not that simple. This article is a result of a phone interview with Dr. Secondi, Potomac’s Upper School economics teacher, who generously took time out of his summer to help me reframe the issue from an economic perspective and educate me on “externalities.” I plan to draw on the knowledge he shared in our interview in my future articles for the Current on the environment.

Arielle: You mentioned that you could speak to how economists generally approach environmental issues. Could you tell me about this concept of an externality?

Dr. Secondi: We know that there are a lot of activities that impose environmental costs of some sort. We think about this concept of externality. That's the idea that a firm is producing a good, to make money and sell it, but in the process they pollute the environment. Therefore, the firm is imposing a cost on society that they don't pay for themselves. For example, secondhand smoke is a negative externality. Smoking makes you happy, so that's why you do it. But in the process, someone else has to breathe the smoke and their health deteriorates.

There are a number of approaches to taking these costs into account. You have a carbon tax, which a lot of economists favor. That’s the idea that we can impose a tax on goods that pollute the environment in the process of production and tax the polluters themselves. By doing that, we “internalize the externality.”And so, implicitly, we are forcing them to pay for and account for this cost. For example, if you drive a car, you pay some of that carbon tax, so you account for the cost you’re imposing on society by burning fossil fuels. Of course in the process, money is raised by the government and that can also be used to restore some of these environmental problems.

Arielle: Do you believe that “internalizing the externalities” and imposing some sort of tax would be the most promising incentive for global efforts towards mitigating carbon emissions?

Dr. Secondi: Well, what makes it really tricky from a practical point of view is the fact that this is not something you can do at the national level. Pollution travels across borders, but tax laws do not. That's the practical reality. Most economists still favor carbon taxes at the national level as a way to mitigate some of these costs.

The other thing I would say, just in terms of how economists look at the issue of climate change or environmental degradation in general is to keep in mind that all these environmental problems are costly. They make society worse off, but cleaning up these problems is also costly. So you must ask yourself, “Why do you first pollute instead of not polluting?” Companies pollute because it's cheaper for them to pollute than not to. At least, that's true for them and in the short term. On the other hand, it's costly to pollute less to begin with. So in a way, we always need to compare the cost of pollution to the cost of cleaning up pollution as opposed to assuming that it's always better to minimize the impacts on the environment.

To make this a bit more concrete: think about all the pollution that driving causes. We saw during Covid that when people stopped commuting to the office, all of a sudden air quality improved dramatically. It was kind of a natural experiment, how good for the environment it was for people not to drive.

But if you take that kind of thinking to an extreme, if nobody ever drove their car, there would be an enormous improvement in air quality. So does that mean that that's the solution? Well, obviously no. Because if we did that, then there would be a very significant cost in terms of what we're not able to do.

So a lot of what economic analysis does in a way is to compare cost and benefit, to basically say, “We do want to decrease the impact of pollution. But there's a point at which it becomes so costly to do that, it's probably not worth it, because we're forced to face other costs.”

Arielle: Do you think that kind of cost/benefit reasoning could be behind our school's hesitancy to invest in expensive but sustainable technology, like solar panels or electric buses?

Dr. Secondi: I can't really talk about that. I don't know how those decisions are made, but certainly this school has to balance their budget. At the level of any one school or one firm, there's always the reality of what you can afford to do while still being viable in the business that you run.

Arielle: I do wish there was some way that our school could put at least a little bit more money towards sustainability.

Dr. Secondi: One of the tricky parts of making decisions like that is the changes tend to have very long-run impacts, good and bad. That makes those kinds of cost and benefit calculations very difficult to do because realistically, we don't know where the technology is going to be 20 years from now. That makes the calculation more complicated. And yet, if you don't take into account long term impact, you really cannot do this work at all. Because that's the whole issue with climate change– it happens over a long period of time. So you have to be willing to look at projections.

Arielle: Thank you so much for explaining these ideas to me. It’s easy for me to get frustrated when I see that the school isn’t investing in this technology, but now I understand how delicate that cost-benefit balance is, and how difficult these types of decisions are to make given how rapidly both the climate and the technology are changing.

I’m still not satisfied with Potomac’s relative dearth of effort to mitigate our carbon emissions, but I do understand where the hesitancy to invest in costly technology stems from. There has to be a balance between financial sensibility and environmental sustainability, and I’m determined to find it.

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