BP Oil Spill - NASA image
I am going to return to something of interest to me – sustainability and economics – listening to this week’s Planet Money podcast which covers the contrast between growth and sustainability, where they try to answer whether economic growth is bad for the environment.
GDP, or gross domestic product, is an asymmetric measure economic activity often used to measure growth – meaning that it only captures the positive, but not all the negative effects such as environmental degradation across the economy. For example, with the BP oil spill, the financial costs of cleaning up the spill – a negative impact on the environment – is added to GDP and could actually have been good for the local economy.
BP estimated they spent +$40 billion in clean up (expenses in and around the Gulf…)
Oil lost in the spill: 5 million barrels x $100/bbl = -$500 million
Oil industry lost value: -$2.5 billion
Fishing industry in Gulf ~ -$600+ million, and 2/3 remained open…
Tourism losses: -$20 billion ? (probably a high estimate… especially since occupancy at hotels was very high in some areas for clean up crews)
The net effect is that the BP oil spill may have added to the economic activity in the Gulf, as measured by GDP, as JP Morgan reported a few months after the spill, illustrating plainly how economic growth could be bad for the environment. (This excludes possible long term effects from degraded environments and health considerations). Essentially, GDP, and often the price of many products (such as oil or coal), do not capture all of the “costs” to society and the world, such as quality of life losses, health losses, environmental damage, and so on. These are called “externalities“.
Planet Money interviewed Robert Mendelson, an economist at Yale University and Hermann Daly. Mendelson argues that economic growth is good for the earth and for society as long as we quantify the major externalities and price them into the cost of the good or service. Hermann Daly argues that pricing in all the externalities for a product is too complicated and difficult, so we should abandon our focus on growth. It appears from the interview that abandoning growth may leave large parts of the world without the means to increase their standard of living (health, food availability, shelter) – and since this is not desirable – the conclusion of the podcast seems to be our best choice is Mendelson’s. We need to continue to work to price into products the full costs of a product in resources and in environmental impact. As these costs are slowly added to product costs over time, the value of sustainable design will increase.
