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This is a classical example of a market failure. The issue is that today, when you you are buying any good, you are not paying for the full end-to-end cost of the item, which includes the cost of disposal (collection, sorting, recycling) and the cost of fixing the issues caused by for example, CO2 emitted during the production process. In other words, everyone of us is enjoying now a large subsidy/handout paid by future generations. This is called a negative externality.

The straightforward - but not easy - solution is to ask governments to assess a charge on each sold item that brings the price in line with the full cost to society.

Note that market failure does not mean that the “market” mechanism is the cause of the failure - rather the issue is the incompleteness of information. Markets would solve this allocation problem very efficiently once the subsidy is removed. I imagine for example that most packaging using non recyclable plastics would become entirely uneconomical, and the full price of gas would be so high that industry will be incentivized to look for alternative technologies and sources of energy.

This would work, but could only be implemented for longer than a political mandate if all politicians agreed it were a good thing. Today we have politicians that run their campaign promising to cut taxes on gas, and it works, because the average person doesn't care about long term effect on the environment. There are good reasons for this:

- super rich people have super large footprint (extremely large houses, gas guzler vehicles, private jets, etc.... Since humans are humans, they try to imitate people from the top.

- the whole SUV thing (restriction on gas consumption -> people buying trucks with sit in them -> manufacturers started to charge premium for those -> manufacturers made insane profit from those (under 1% profit on a car, up to 50% profit on large SUV) -> manufacturer using ridiculously inefficient vehicles in all their product placement and increase product placements -> people started to buy those exclusively to the point that one manufacturer completely stopped selling car)

- Industries typically pollute a lot than individual, and get away with ridiculously low fines when they do get caught.

Depending on your country, there are usually ways of implementing laws that cannot be overturned with a simple majority. Things like ballot initiatives and constitutional amendments come to mind. Obviously carbon tax bills would be tricky to enact this way since they are fairly technical, but you could set up an agency with it's own authority, ability to appoint it's own executive, etc, if there was a real mandate to have an agency that was beyond political control.

And what really burns is that certain segments of our society are aggressively exploiting this externality.

I can't tell if you mean 'rich people' or 'poor people' by that, because depending on how you look at it, I could argue both. But doesn't that mean that everyone is at fault?

They presumably mean people who profit from the extraction and use of fossil fuels.

Yes, that’s approximately what I mean.

More to the point, the ones that are fighting tooth and claw to maintain the fossil fuel status quo, including blocking consideration of a carbon tax, which would be the market-based remedy to the externality in the GP comment. But also those fighting legitimate scientific inquiry into climate change, emission regulation, better fuel efficiency standards, etc.

But the point is that that's all of us.

OK, sure. But most of us aren't "aggressively exploiting this externality". We're just impressionable, and along for the ride.

I don’t think OP is segmenting explicitly by income (read: singling our rich people); better segmentation could be developing vs developed country per capita, which is what I assume is more like what OP is thinking of.

Has any politician ever campaigned on this though? I don't think I've ever had the opportunity to vote for a cap and trade

I agree 100% with your comment.

> The straightforward - but not easy - solution is to ask governments to assess a charge on each sold item that brings the price in line with the full cost to society.

Sadly, the first blip in GDP growth and this is out the window.

I think the problem is not really a blip on GDP, because it could be done in a revenue neutral way. The problem is that it will change the winners and losers

you are not paying for the full end-to-end cost of the item

Dirty little secret: this is deliberate. Why do you think the West closed all its heavily regulated factories and shifted manufacturing to China where environmental protection and workers rights don’t exist?

We should impose tariffs to punish imports from anywhere that isn’t up to Western standards of regulation. That’s the only way for the market to fix this.

“Imports” are just things, they can’t be punished. The punishment would be for poor workers in China who would see their living standards rise more slowly, and poor citizens in the West, for whom the tariffs would be a highly regressive tax on many of their purchases.

poor workers in China who would see their living standards rise more slowly

So we destroy the planet so the CCP can cling to power for a few more years? Because that’s what that is.

And no one in the West will really suffer if their consumer tat costs more. Maybe we don’t need a new phone every year or maybe we could buy locally made clothes that last a few years?

I agree this happens for the vast majority of goods today. But does anyone have an example of where end-to-end societal cost is included in an item's purchase price?


Nope, the financial costs of cigarettes related diseases is actually beared by healthcare systems. And nothing accounts for pain and suffering, comorbidity and impact on families having to live with members being ill or unable to work or prematurely dead. This is not something money can alleviates.

In recent years, and in some countries, maybe so. At least, to some extent. But not fully, I think.


Thanks. Great summary. Wish I'd said it so clearly.

The hard part has obviously been justifying government intervention when there's still uncertainty. Or at least, when those with vested short-term interests can make a strong case about uncertainty. I thought at one point that the insurance industry was going to make a difference, but haven't seen much about that lately.

I think my biggest problem with the idea of pricing in end to end cost of products is that unless it starts meaningfully impacting the quality of peoples lives then it is not nearly doing enough. I don't think there is a way forward against climate change which allows us to continue to consider the current western quality of life as non-negotiable.

Even when people talk about electric cars (deliberately ignoring the potential end-to-end cost here) they will talk about how they sometimes drive cross country to their parents house, or that they tow their travel trailer huge distances that they couldn't possibly do with an electric vehicle.

Then you consider that to make a meaningful change in carbon emissions they probably would need to move to an aerodynamic recumbent electric bicycle for most of their day to day trips you can see how far away we are from making progress.

Indeed. I don't see how it could work with the US being so suburban. We could arguably have a high-tech life if we all lived in cities. If we worked at home, walked to work, or used efficient short-haul mass transit. But yeah, long distance travel only for long-term purposes.

But hey, look at the bright side. Parts of northern Europe aren't far from that ideal. And most of suburban North America will be abandoned, and with any luck we'll get sanely designed cities in habitable areas.

> In other words, everyone of us is enjoying now a large subsidy/handout paid by future generations.

Are future generations going to pay same price we would today? Or are they going to get a discount due to more advanced technology?

or are they going to be scrounging up remnants of technology as the last million humans clustered around the arctic circle.

Nuclear plants are a good example of this mentality, cheap power until you have to decommission the plant and suddenly costs goes through the roof.

But I would not say this is market failure, to me this is market working exactly as intended and expected: maximizing profit without caring for the rest.

On the other hand, it is not a question of subsidy/handout paid by future generation anymore, we're now at the point where it is a matter of going over the threshold effect where the consequence will be no human life possible on earth in a matter of decades.

> ... the consequence will be no human life possible on earth in a matter of decades.

That is very unlikely. People could have survived just fine during the Eocene Optimum, ~50 Myr ago. When the entire planet was tropical. Assuming that they knew what to eat, anyway.

It's not a question of whether humans could exist in a much hotter climate, clearly that's possible (although perhaps not in the same numbers as in the current era). The risk is how much damage we'll do to ecosystems in a world of dwindling resources. To take one example, when mass hunger is widespread can fishing quotas be enforced effectively?

Widespread ecosystem collapse is a plausible risk.

OK, perhaps. But what will mainly collapse is human civilization, and populations, and then ecosystems will more-or-less recover. Not the same, for sure. But that's not such a big deal, in the long term.

I think it's the only deal. It's obviously not the planet that we should be protecting, as it'll be fine here with or without us. It's not also the habitability that we should worry about, because it would be really, really hard to damage the world to such an extent all humans would go extinct.

The thing that matters is keeping our current technological civilization together. If it collapses, it'll undo all the things humanity has achieved, and will prevent the next couple hundred generations from achieving them again. All the advancements in our understanding of the universe, our capabilities, our quality of life - and all the hopes of further advances, ending aging, leaving Earth - poof, gone, not coming back in a while.

(Yes, I'm of a view that there's little difference between humanity 500 years ago and 5000 years ago; everything that's interesting started happening with the printing press and industrial revolution.)

I'm all for "keeping our current technological civilization together". It's just that I'm not sure it's possible, given the cliff we've already walked off of. Actually, there's a reasonable chance that it's our "AI" (for lack of a better yet interpretable word) children that will endure. But it's impossible to predict.

Well, you can take a gun and shoot schoolchildren and in the US and it will demonstrably not be a big deal in less than about two weeks. But I don't see that as a good argument in favour of ignoring school shootings.

That is mere pedantry however. Clearly the main point was that the effects will be undesirable because they will come at the cost of a lot of human life. Whether humanity as a species will survive is, arguably, of lesser importance.

Trust me, predicting the extinction of the human race is going to backfire. Maybe "can't exclude the possibility that the human race will go extinct" is defensible. But still, it's not a useful thing to be saying.

I don't know... It can certainly backfire if even the claim "many humans will die or suffer greatly" is false, then sure. But otherwise, I don't see anyone claiming "well, technically, only 90% of humans will die" would dampen mitigating measures. But of course, I could be wrong.

Look, I get what you say. But consider how skeptics have used extreme predictions from Hanson, Gore and various NGOs to create doubt about the reality of anthropogenic climate change.

Mmm...if the effects are merely "undesirable" and not existential than I dare say that the status quo is unlikely to change. I'd go as far as saying that whatever efforts are being done now might simply be lip-service or at best token gestures. Perhaps it is the case that there is a considerable asymmetry in the impact of the effects...

"Undesirable" and "come at the cost of a lot of human life" is technically correct, but is also a pretty sterile description, that doesn't communicate the full picture.

The worst-case scenario is a collapse of civilization, which - with or without wars - means mass starvation (if you live in a large city, you'll die in the first week). Your grandchildren - or more likely, someone else's grandchildren - will be living in Mad Max hellscape, desperately trying to stave off reverting to pre-industrial levels of life and technology.

(And with all the easily accessible energy sources already mined out and gone, I suspect the next industrial revolution won't be possible for many, many millennia.)

Undesirable is here merely a mild manner of saying: "you and your family in are extremely likely to suffer devastating climate related loss of life and property damage".

> this is market working exactly as intended

This is why we regulate the market. The market will seek to maximize its profit within the bounds of the law. Make the above suggestion compulsory, and the market will adjust to it.

I believe GP was using "market failure" in the sense that the market is not allocating resources in a (Pareto) efficient manner, because of said externalities.


I took part is such a scheme as a youngster.

Pop bottles carried a .05 charge on each bottle, refunded when the empty bottle was returned to the store. Careless consumers (litterers) might just throw the bottles out. Likewise lazy consumers might decide it's 'beneath them' to bring back the empties. But for hungry young scavengers like myself (had to pay for 'Space Invaders' somehow) it was a great source of income.

I'd be glad to see the same idea scaled up.

Pretty much everything bought in the UK, for example, has a 20% tax. How is that a subsidy and how isn't it an example of what you are talking about?

Externalities must be accounted for individually. If the tax is flat then products that pollute more get effectively subsidized by those who pollute less.

Does it accurately capture the environmental costs? I'd expect counting in emissions would make the tax more like 200% on everything.

Except I also lay significant other taxes generated as economic benefit to the nation, including taxes specific to waste disposal as well as the now expanding pot of "general" taxation.

Ultimately the greatest "burden" on environmental pressure is people having more children. Perhaps children should be taxed specific to their effectual "impact".

I don't agree with you. Let's take Apple products. You are saying that the apple products' price wouldn't cover'the full end-to-end cost of the item, which includes the cost of disposal (collection, sorting, recycling) and the cost of fixing the issues caused by for example, CO2 emitted during the production process'? I doubt it.

Apple's profit margins may be high enough to cover external costs, but is Apple fully compensating rare-earth mining communities in developing countries for the environmental effects of sourcing iPhone materials? Is Apple helping communities deal with mountains of disposed Apple-brand electronics? I imagine not, or at least not fully.

The government would have to assess a tax or fee that covers those externalities, and then Apple would be forced to deal with it. Either pass the tax to consumers to save the profit margin, or control externalities to remove the tax at the cost of profit margin.

Presently, Apple products, like all electronic products (and indeed, most products of any kind), are priced without regard to external costs. That the profit margins may high enough to pay for these external costs is only a coincidence due to Apple's silly-high prices.

Something I wonder is if changing the rules around money could help align the short term incentives with long term outcomes.

So we'd keep the "decentralized resource allocation" part of capitalism, but with hopefully better sustainability...

I think this is a major arguement for folks who criticize currencies. For example an energy based currency could be intrinsically ecologically conservative.

Another example is continuous inflation of fiat currency (exponential growth), whereas all things that experience exponential growth in nature eventually run into a limit or another correcting factor.

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