Who pays the environmental costs that nobody pays?

Who pays the environmental costs that nobody pays?

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Who pays the cost of the resources used in the production of a good, plus the loss of well-being that the project causes by modifying the environment?

"The polluter pays" is a phrase that is often used to assign morally the responsibility of damaging the environment to the culprit, the laws of several countries adopt this position, even the so-called green parties that exist in various countries. This position is based on the writings of Arthur C. Pigou (1877-1959), who said that the State must protect the common good, forcing those responsible for environmental damage to include repair costs in production costs. Nothing is further from reality; If this were true, the mining processes would not exist, since by measuring the environmental and social damages and being obliged to repair them, the projects would be economically unviable.

The idea of ​​Pigou in his conception is brilliant, it is in practice where limitations have been found due to lack of honesty of human beings. Pigou presented in 1920 his studies that showed the importance of private well-being over the common well-being, writings that are taken up in 1992 by the United Nations Organization.

Derived from the fault found by Ronald Coase inPigouvian taxes, writes in 1961The problem of social cost, which refers to the environmental and social costs that are not listed in the projects and for which no one pays.

Coase's essay is a frontal criticism of Pigou's theory. Ronald Coase argues the following:

The analysis error of economists lies basically in considering the government as a corrective force for market failures that has no costs, which is very far from reality.

Coase is very clear in his position, although efforts are made to list all environmental and social costs, he emphasizes the costs that have a zero exchange price, that is, they are costs that the market does not recognize but that exist. For example, the group of researchers from the Polytechnic University of Valencia to which Dr. Jerónimo Aznar and Vicente Estruch belong, among others, has detected in their doctoral studies on the valuation of environmental assets that only 35% of the Total Economic Value of a resource is recognized by the market, there are 65% of social or higher values ​​that are not recognized by the market, that is, they have no price, which does not mean that they have no value. On the contrary, they are higher values. This is what Coase refers to when he says that no matter how much a State lists the values ​​that are going to be lost after the execution of a project, all the costs will never be determined, and even less to pay for its remediation.

Example: City Hall vs. the citizenship

Take, for example, the case of the city that became a metropolis; Today there are many cities that 20 or 30 years ago were provincial cities, they had relative traffic problems, less than 500,000 inhabitants, their avenues and roads were sufficient. After a few years they have become metropolises, they have joined with neighboring cities, and now they face similar problems to the big cities.

The problem that we will take as an example is the following: an urban tree system must be cut down in the interests of progress, modernity and a better quality of life in terms of traffic. The part of society that lives in that area of ​​the city rejects the arguments of the State, that is, these justifications do not reach it, the citizens know that the tree system represents many more values ​​than those recognized by the government. Citizens may not recognize in detail what these values ​​are, but they know that they exist and that they go through the order of: sense of belonging to the neighborhood, landscape, environmental services, cultural values, and above all the value of passing it on to future generations. The value that their descendants experience the same benefits.

The party that seeks to implement the road axes in favor of modernity and progress presents a remediation plan that does not satisfy the affected party: it argues that trees of equal quantity and species will be planted in a reservoir to replace environmental services. This is the peak of the problem, since the public knows or perceives that this solution does not cover all the damages. In other words, the party that supports the project argues solely based on replacement costs and therefore environmental services, but the affected party knows that there are higher values ​​that will be lost and for which no one will pay.

Julio Torres Coto, in his article "How much is an urban tree worth?", Places special emphasis on the differences between urban trees, fruit trees and timber trees. It is not the same in a tree within a reserve than within a city. We can say that all the superior values ​​that are lost after the execution of the project are the social cost, the values ​​or elements that produce well-being and that no one is going to replace.

Who pays for the environmental damages that nobody pays after the execution of a public or private project?

The answer is society, that's the social cost.


Aznar, Jerónimo. (2012) Valuation of Environmental Assets.
Coase, Ronald. (1961) The problem of social cost.
Pigou, Arthur. (1920). The Economics of Welfare [4a. ed.].
Torres, Julio (2019]) Review Professional Appraiser.

By Eco Maxei

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