—This is part one of a two-part series by Laurence Hayward, EcoMyths board member and founder/partner of Independence Equity & VentureLab
I hate to think about how long it has been since I was a hopeful freshman anxious to fill my brain with everything I could cram in there.
I had developed an interest in environmental preservation in high school when our debate team took on the issue of water quality. In debate competitions you have to argue both sides of an issue, called the affirmative and the negative. I didn’t enjoy being on the negative side of the environment. I found myself feverishly researching environmental problems and technologies that could solve them, partly to win the debate, but it was more than that. Something took over, I was compelled.
I recall my economics 101 professor explaining to our class why businesses pollute the environment. In short, there was no economic incentive not to pollute. Pollution was something known as an externality, which is defined as a consequence of economic activity that is felt by unrelated third parties. Pollution was mainly thought of as a cost to society, but little cost to the business producing it, and in many cases, it was cheaper to produce such pollution than to take measures to stop or reduce it. So, “pollute away” for economic growth was the thinking.
We see this playing out in dramatic effect today in China as the goal of industrial output takes priority over environmental consequences. In industrial regions, the smog is so bad that people buy air filters just to make the air in their homes breathable. Of course, we have plenty of cases of pollution here at home.
While I was anxious to cram this new term “externality” into my brain as that eager freshman, it never quite sat right with me. Externality was a strange word.
Later, it came to me, one doesn’t need to be a greenie to realize that pollution does not need to be, nor should be, an externality. Just think like an engineer. When one builds a process to make something, one desires that the energy inputs are used efficiently, else they are wasted. Waste is bad. For example, the natural gas that is burned in your water heater should be transferred into the water. Any heat that is not transferred is waste and costs it owner in higher gas bills. Today’s water heaters that are Energy Star certified are at least 67 percent efficient, and there are water heaters on the market today that are more than 90 percent efficient.
Likewise, the pollution that leaves a factory is waste, and if not used, is something that was not efficiently converted. It costs the producer money; there is nothing external about that. Take that same water heater on an industrial scale. Industries such as food processing and hospitality use significant amounts of hot water. Any inefficiency in the process of creating hot water or any disposal of heated water (including the increasingly value of the water itself) is a cost that could be reduced. It directly impacts the bottom line of the producing company; what is external about that? Hence, technologies such as condensing water heaters have emerged that recapture flue gas to heat the water rather than waste that heat to the outside air. In addition, there are now recycling programs that recapture wastewater for other uses. There is a strong economic incentive to implement these approaches.
So the question often comes down to whether the cost of implementing the change, such as installing a more efficient water heater, is worth the savings derived from being more efficient. And there is another important question, how are we approaching this calculation? Part two of this blog will examine these questions.