Pricing failures

The first issue concerns the efficiency of the market mechanism itself. The ecological modernisation approach to sustainable consumption is predicated upon a free market system where rational self-interested actors aim to maximise utility (satisfaction). The present economic system is abstracted to a neo-classical model of limitless frontiers, insatiable wants, and optimal resource allocation through the market. Crucially, this system will only work to protect the environment when full social and ecological costs are included in market prices, yet it externalises (i.e. does not account for) the environment and society, and so sends producers and consumers the wrong signals. For example, fuel prices do not account for the costs of climate change caused by the resulting carbon emissions, and indeed aviation fuel is subsidised further as it is not taxed at all. In essence, the environment (and society) is unpriced and so value-less in the economic market - a free good to be exploited to the maximum - with severe consequences (Princen, 2002b; Daly and Cobb, 1990). Indeed, climate change is the 'greatest example of market failure we have ever seen' (Stern, 2007, p. 1).

One study examining the externalities of agriculture in the USA found that the negative impacts of crop and livestock production onto water, air, soil, wildlife and human health amounted to $5.7-$16.9 billion (£3.3-£9.7 billion) a year at a conservative estimate (Tegtmeier and Duffy, 2004). In the UK, Pretty et al. (2005) estimate the externalised costs (not including subsidies) of a typical weekly per capita food basket (costing £24.79) to be to £1.98, totalling £5.04 billion a year. In contrast with the much-vaunted cheapness of food available in supermarket, this cost is borne by consumer, both implicitly through declining ecological services, and explicitly through regulation, taxation and cleaning-up activities. This unwitting subsidy that the environment makes to the economy ensures that particular activities, such as current industrial agricultural practices, or transporting food around the world by air freight, or maintaining a transport infrastructure geared for private motor cars, appears economically rational despite its attendant costs (Pretty, 2001).

The UK strategy for sustainable consumption and production does recognise the externality problem and indicates some areas where full-cost pricing is being introduced, for example through the landfill tax or climate change levy on energy (DEFRA, 2003b). However, even these measures are politically fraught and easily derailed, with unpredictable social impacts as shown by the disruptive fuel protests in the UK, triggered by a small tax increase for petrol and diesel in

2000. Furthermore, by failing to put a premium on carbon throughout the market, one of the key externalities of climate change remains unaddressed (Stern, 2007). Until the full social and environmental costs of economic activity are internalised, a market mechanism will inevitably send the wrong price signals to both producers and consumers, resulting in sub-optimal efficiency and 'rational' over-consumption of resources and public goods.

Getting Started With Solar

Getting Started With Solar

Do we really want the one thing that gives us its resources unconditionally to suffer even more than it is suffering now? Nature, is a part of our being from the earliest human days. We respect Nature and it gives us its bounty, but in the recent past greedy money hungry corporations have made us all so destructive, so wasteful.

Get My Free Ebook


Post a comment