All of us who have studied economics have heard the term “externalities”. Conceptually it’s pretty simple - as defined in Wikipedia, an externality is “an impact (positive or negative) on any party not involved in a given economic transaction.” You can read more about it on http://en.wikipedia.org/wiki/Externalities. The word itself has a sort of dismissive feel about it, but in fact this term has come front and center in the new eco-aware economy.

Natural Capitalism talks about how externalities - both in the form of valuable resources that are consumed in the production of goods as well as pollution, waste, and other by-products of industrial processes - somehow got lost in the “story of capitalism”. In other words, as amazing and powerful as capitalism is, capitalism as we have known it over the past 100 years somehow manages to disregard the huge toll we take on our planet when we consume valuable resources (trees, clean water) and dispose of products at end of life (toxic chemicals, non-recycled paper and metal).

So the new capitalism will need to incorporate these externalities into the true cost of doing business. We will see a rapid rise in the cost of resources. We will see a price tag placed on pollution. We will see companies forced to incorporate the cost of handling their products at end of life. Once market forces begin to incorporate these costs, we will be on the fast-track towards a sustainable economic system.

A few months ago I wrote about the possibility of a carbon tax in California in my post “What Gets Measured Gets managed”. You can check it out at http://www.ecounit.com/blog/?p=17. Well, the speculation is over and it’s now official - northern california will impose a carbon tax on its largest corporate carbon emitters. For more info you can read this overview: http://www.treehugger.com/files/2008/05/bay-area-carbon-tax.php

I am naturally suspicious of government regulations, but I’m willing to chalk this up to “a step in the right direction” given the immediacy of the climate crisis. Let’s watch this one closely…

During my quest to understand where all this is headed, I ran across Natural Capitalism which is essentially a manifesto for the new green economy. I will not endorse the entire book until I’ve read it in its entirety, but the first couple chapters have me intrigued. Clearly, others have thought about how capitalism - and all of the positive energy that it unleashes - can co-exist with a healthy respect for our environment.

Similar to my thoughts on the less is more economy, the authors of Natural Capitalism discuss how “resource productivity” will be the force that drives the next industrial revolution. Whereas human productivity (making the same amount of things with fewer people) was the primary source of progress thus far, the new economy will be driven by our ability to do more with the same amount of raw inputs. In other words, in the new economy we will be able to do more with less - make more, faster, better, safer products with the finite resources available to us.

They support this line of thinking with some interesting facts, namely the almost disgusting level of waste/inefficiency in the current economy. The evidence is everywhere (the U.S. economy actually utilizes something like 37% of the energy that is produced…the rest is wasted at various points of storage, distribution, etc…). A factoid from the book that I found interesting is that in the U.S. economy, the weight of all materials used to produce the goods that the average American consumes in 1 year is 2 million pounds! I’m not sure how much weight I actually consume, but it’s certainly not 2 million pounds…making the rest waste.

There is more to the story, and I intend to uncover it and share the key points on this blog. In the meantime, take a look around you and become more aware of the waste that you produce even at a personal level. Many new opportunities will come to those who help make our use of resources more efficient.

I prefer to keep the eco-discussion apolitical, but I want to make a couple observations from the political scene. First, though not a huge McCain fan myself, I am proud of him for taking a stance on the importance of climate change and the need to address it at a global, multi-national level. Certainly the proof and the devil are in the details - and I will withhold judgement until I’ve had a chance to delve into them - but McCain clearly went against the conservative base in his republican party…and for that I applaud him.

Observation #2 flows directly from #1 - I am stumped by the fact that staunch conservatives are unable to accept the reality of climate change. Why is that? The response I usually hear is that conservatism is closely aligned with big business, and big business is threatened by climate change and the likely responses to it. But there are plenty of big businesses that see huge opportunity in climate change…and increasingly big businesses are at least *recognizing* that it’s a threat that represents real business risks. So I can understand differences of opinion in terms of *how to deal* with climate change…and I can see how preferred approaches could differ along conservative & liberal, republican & democratic lines…but I still can’t understand why one group would be unable to accept that climate change even *exists*.

Yet I hear folks like Sean Hannity on the radio - who while considered to be conservative, typically bases his positions on reason - continue to speak about climate change as a “hoax”. In my view these folks are really shooting themselves - and their positions on a variety of issues - in the foot. With such wide acceptance that climate change is a real threat, what is the purpose in denying its very existence?

For those of you who read about the “less is more” economy, I found a great example. Check out TerraCycle at www.terracycle.net. They are a product company whose raw materials are empty juice packs and power bar wrappers. They recruit average consumers to collect and send in this “trash” which they turn into saleable products and containers. Very cool. As consumer begin to *prefer* these types of products, then we’ll truly be in the less is more economy.