Environmental Accounting for Pollution in the United States Economy: One Sided View
I came across this report from the American Economic Association (AEA) as I am following a bunch of really interesting people on twitter. The people I follow don’t always agree on subjects; but why would you follow people who believe what you believe. Where is the fun in this? How will you get color and perspective following the people who believe the same thing? This report was done by academics from Yale and Middlebury College. My qualifications certainly do not match them, but at some point common sense and reason should prevail.
The report was to analyze the cost of externalities, and apply that to each industry to get the gross external damages (GED) from pollution and to compare the “value-add”(VA) from each industry. The purpose of the ratio of GED/VA in their own words “The purpose of this comparison is to determine whether correcting for external costs has a substantial effect on the net economic impact of different industries”. They further point out on the same page when the ratio is greater than 1 “This indicates that the air pollution damages from these industries are greater than their net contribution to output”. They are indicating industry such as coal plants, sewage treatment, etc… may not be worth the value for the harm they produce.
The report did a great job going over the details of how they were going to compute the GED. In fact the majority of the report was to describe and show the GED calculation. Once again they use a controversial adder to put a value on pollution – mortality rates as a result of pollution. Overall, I am willing to agree upon their GED calculations, but the problem I feel is that they have one-sided the ratio.
Their only reference to how the value add was computed came from two sentences – “The VA of an industry is the market value of output minus the market value of inputs, not including the factors of production—labor, land, and capital. The VA data are gathered from the BEA and from the US Census Department Economic Census.” Adding mortality consequences to pollution is essential, how about adding value for mortality increases as a result of electrification and sewage treatments?
Many sectors produced a ratio greater than one which could lead the layman to believe those sectors should be destroyed. In the report, they note this should not be the case. However they make a point to say that the high ratios would indicate these sectors should be further regulated. Therefore, I believe it is important they put the same amount of work in the denominator (value add) as they did with the numerator (GED). The oddity of the ratios can be accounted for by their one sided calculation.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias is what we offer to our clients. Please consider and contact All Energy Consulting when you need consulting services.
Your Energy Consultant,
