Magazine article Teaching Business & Economics

What Externalities?

Magazine article Teaching Business & Economics

What Externalities?

Article excerpt

As an economics teacher turned educator with a strong commitment to an ecologically sustainable future it has always been a puzzle to me that we insist on talking about 'externalities' - whether positive or negative.

External to what, exactly? Of course it might appear to be a matter of abstraction, a useful tool. But as these practical examples suggest, some of our useful tools may be inappropriate within a different set of assumptions about how the world works.

The context is familiar excess carbon dioxide emissions from the burning of fossil fuels.

The steps below show how you might introduce this context and develop discussion. The briefing sheet can be photocopied for students.


Ask students to read Briefing 1, then investigate the Climate Care web site.


Discussion might centre on how effective students feel this scheme might be in reducing carbon dioxide emissions. Would they themselves sign up? Or should schools? Is this likely to be a popular scheme? Might the scheme encourage citizens to pay and forget - their conscience salved?


Briefing 2 leads students to the Future Forests web site. Having looked at it, students can consider how the costs and benefits of Climate Care might compare with Future Forests, or other alternatives such as:

a) compulsory charging to internalise these costs within the price of the fuels;

b) doing nothing, as the figures in Climate Care and Future Forests are just estimates and the science of storing carbon in trees is undeveloped and controversial;

c) leaving it to governments to regulate emissions as in the Kyoto protocol.


Now ask students to consider a USA scheme for carbon sequestration. It has new features. The information is in Briefing 3. Encourage discussion and introduce the following ideas as appropriate.

The USA is one of the leading producers of carbon dioxide emissions and it has not ratified the Kyoto agreement, but this proposal seems to offer a cheap offset option. The trouble is that there are scientific arguments against it. In the Observer article on which Briefing 3 is based, Prof Andrew Watson of East Anglia University is quoted saying:

'It is not just that this project may be dangerous; it is also unethical. What right has one group or country to use the world's oceans to resolve its domestic problems?'

Two key issues arise. First, if the ecosphere is a complex, iterative and pretty open system in which human kind participates and within which we do not control even a fraction of the possible variables, it surely follows that certain choices are ruled out in principle, that principle being the precautionary principle.

Under this principle, the onus of proof has to be on those who propose changes that appear to put at risk the integrity of the whole system. The onus does not lie on those systems 'external' to private decision making to prove that there is a problem, for once the problems are known and their significance established the situation may already be irreversible.

Secondly, if another principle were to be added - that of extended producer responsibility [EPR] - the firm would not be making arbitrary decisions about materials and waste. It would accept that ecological design and EPR (including take back for 'end of life' items) made a nonsense of terms such as 'externalities' because systemically designing out waste, making all of it internal, is the more efficient approach overall as it transfers fewer costs to another part of the system. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.