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Everyday Economics: Environmental Externalities

The discourse surrounding the environment has blown up over the last year, and not without reason. We’re moving past the point of no return and we’ve all seen the terrifying photos of Australian wildfires, the Californian sky following a gender reveal party, and the Amazon burning down, amongst others. That should be enough to instil a sense of urgency in any human being with a degree of common sense.

There is equally a lot of resistance towards the narrative that the burden of the environment rests on individuals; a recent study found that 100 companies are responsible for 71% of global emissions since 1988. Statistically, the individual is blameless.

But this constant attempt to shift blame is useless. There is a cycle, and one that we, as consumers, have the power to change. Our choices – what we buy, from who, for what purpose – can cumulatively alter the way an entire company functions. From this perspective, it does become our responsibility to do what we can.

The choice of using bike lanes will, of course, depend on the particular situation. Cycling is faster than walking, but it’s most likely slower than driving in your car. If it were raining, you’d rather turn on some loud music and the heating in your Ford Fiesta. If it’s too hot, you might prefer the option of air-conditioning to sticky, damp clothes at the end of the journey. If you have to cycle through some busy roads – Magdalen roundabout, this one’s for you – that might similarly dissuade you from taking the cycle route.

But, as I’m sure you know unless you’ve been living under a rock for the past few years, cycling has many environmental advantages; advantages which are, in economic terms, positive externalities. Externalities can be either positive or negative, and occur when there is a cost or benefit caused by a producer or consumer that is not incurred or received by that respective producer or consumer.

However, externalities often alleviate responsibility from the policies that are implemented, instead sending a message that the impacts of such policies are merely side-effects. This is not the case. We know that smoking holds some serious negative externalities, the main one being passive smoking and by extension the worsening public health. By using the term ‘externality’, the full responsibility of this inevitable consequence is removed from the action and viewed instead as an accidental side-effect – even though we are well aware that by smoking, this absolutely will happen.

Environmental degradation from car emissions is, indeed, a negative consumption externality; the production of fossil fuels entails a similar negative production externality. The problem is that the negative externality theory assumes that you can compensate for this externality. With climate change constantly worsening, we can’t just compensate for the externality arising from fossil fuels and private transport usage – we need to actively reverse it.

Each of us, therefore, has a role to play. We can choose to travel by foot, bike, or even public transport instead of by car. What are the incentives (other than saving the environment and preventing a global catastrophe) that could push us towards greener transport?

Bicycle lanes act as good compensation for the negative ‘externalities’ produced by fossil fuel-powered cars. Cyclists will feel safer on roads. Oxfordshire County council has asked for millions of pounds from the government to improve walking, cycling and public transport infrastructure. To reduce emissions, this is a necessary step and is a nod of recognition towards the fact that climate change is a direct impact of our use of fossil fuels.

The positive ‘externalities’ that an investment in greener modes of transport would be numerous, given that there would be societal benefits not felt by the personal user.  Congestion – which is most definitely an issue in Oxford’s one-way system – would be hugely reduced, as would pollution. And general public health, a prevalent concern for the current government, would also be improved both as a result of the lower pollution levels and the increased rate of exercise.

Economists are shifting towards the idea that environmental externalities are in fact direct consequences of policies, and that such policies must be created with the purpose of affecting these externalities. Taxing the consumer in order to correct the negative externality of car usage (also known as “making the polluter pay”) is simply aiming to correct the externality and continues to treat it as a side-effect, whilst also monetising – and therefore reducing the guilt associated with consumption – environmental degradation.

Thankfully, a Green New Deal, in which thousands of new jobs will be created, is now a genuine point of discussion. No longer is the sole consideration on how to cancel out pollution, but instead how to reverse it completely. There is no sweeping, one-day solution, but changes to our daily lives are inevitable; we should start them as soon as we can.

Oxfordshire, and on a wider level the government, is offering incentives for individuals to play their part in reducing emissions. Where possible and affordable, it is our absolute duty to do so, if not for our own benefit then for the benefit of future generations to come.

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Flora is studying French and Italian at Christ Church. She would like someone to believe her when she says the scar on her knee came from a shark and hopes this biography will make it happen.