"True Cost" Pricing

The argument

This argument accepts the charge that markets as currently constituted drive environmental destruction, and locates the fault in a specific feature that can be corrected. Contemporary capitalism treats damage to the planet as external to market dynamics. Phenomena like pollution have no monetary value attached to them, which means they do not appear in any firm's accounts: a company that pollutes incurs no cost for doing so, and a company that avoids polluting receives no credit. Because prices are the signals on which market decisions are made, a cost that never enters a price is a cost that never enters a decision. The market therefore has no incentive to reduce environmental damage, not because firms are indifferent to the damage, but because the information about it has been stripped out of the only variable they respond to. This diagnosis points to its own remedy. If the problem is that the price is wrong, the solution is to correct the price rather than to dismantle the mechanism that acts on it. Governments can introduce policies which reorient the market in favourable directions: taxes on harmful goods like coal, set to match their social cost, and tax breaks on sustainable technologies. The effect is to put the environmental consequence back into the number a firm actually sees when it chooses between two investments. Once that correction is made, the market's own logic does the rest of the work. Firms pursuing profit move toward whatever is most profitable, and once green development is more profitable than fossil fuels, the pursuit of profit and the reduction of environmental harm point in the same direction. The market will then naturally produce environmentally-friendly outcomes without any individual firm needing to intend them. Capitalism can adapt, which is why proponents argue that ending climate change does not mean the end of capitalism.

Context

Climate Change and the “Green” movement emerged within Western discourse in the 1970s and 80s. It was largely understood that intervention would be undertaken by national governments. With the collapse of the Soviet Union and the ascendancy of Reaganite economics, the 1990s saw the focus shift to the private sector as the driver for necessary change. True Cost pricing challenges Neoclassical Economics, broadening the scope of what we would consider "capital" to include land, global temperatures and other natural resources.

Premises

Counter-arguments

Policies like the Carbon Tax are regressive - they hit all consumers equally, so in relative terms hit poorer people hardest. It is very difficult to correctly measure something’s “social cost” accurately or proportionately - for example, with food, would you measure the carbon emitted from fertilising it, from harvesting it, from transporting it, from maintaining the land? On an international level, there is a material advantage in not introducing price controls. If you are the only country imposing price controls, your goods will be less competitive. Profits made by green businesses will still go into expansion and accumulation on a finite planet; all of which will use space, resources and labour. Solving the climate crisis will mean challenging the motive for profit and growth.

Rejecting the premises

[1] The market, and the profit motive, are not the sole drivers of innovation. Many of our everyday technologies originate in the public sector [2] Government intervention in the market is limited if the government is limited geographically or politically. [2] Government intervention robs consumers of their freedom to choose environmentally friendly options.