Pollution has a price, just not for the polluter

Burning oil or coal causes more in external damages than it adds value to GDP

We’ve known at least since Robert F. Kennedy’s first speech as a presidential candidate that gross domestic product “measures everything…except that which makes life worth living”. While it’s tough to quantify the beauty of our poetry or the strength of our marriages, we do have ways to quantify the impact of pollution and could, in theory, amend GDP to account for its costs.

Now Nick Muller, Rob Mendelsohn, and Bill Nordhaus have done just that in practice. They also do a huge favor to all of us pollution gawkers out there and rank industries by the ratio of total damages they cause divided by how much value they add to the economy.

Spoiler alert: Burning oil or coal causes a lot more damage than it adds value to GDP. The only two activities quite as bad are burning trash and treating sewage. Nothing, however, matches burning coal in terms of total socialized damages.

Gross External Damages

High ratios by themselves don’t say that these industries shouldn’t exist in the first place. I appreciate the fact that we have reliable electricity supplies and don’t have sewage ponds in our backyard.

But the analysis makes it painfully obvious that none of these sectors is paying its fair share of the cost of doing business. That falls on the rest of us.

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