A Sustainable True-Cost Economy Promises an Escape from Massive Water Pollution

by Brent Blackwelder

Brent Blackwelder

A year ago, I wrote about how a true-cost steady state economy would deal with water pollution. Last August, the alarming green slime at the west end of Lake Erie was so bad that it shut down Toledo’s water supply for half a million people. Who would pay the tremendous damages caused by the green slime? Certainly not the industrial agricultural interests who were responsible for about two-thirds of the problem!

Our current U.S. economy routinely lets polluters off the hook and even rewards them with subsidies, and the same is generally true for the global economy. During the past twelve months, water pollution has gone from bad to worse as exploding rail freight trains loaded with tar sands oil have caught on fire, causing derailments and spilling contaminants into rivers.

Many people are under the mistaken impression that violations of the Clean Water Act are rare. The Potomac Riverkeeper Network has just completed an analysis of water pollution violators in a section of the Potomac River Basin. (full report forthcoming; for background, see the Potomac Riverkeeper Network’s Upper Potomac River Basin campaigns.) Basin wide, there are over 2000 facilities with permits to discharge pollutants into the Potomac River. Of the 293 facilities in the Upper Potomac region, more than 10% had violated their permit conditions during the last three years! Just think of the increased enforcement costs if a region jumps from 5% to 10% non-compliance. The enforcement workload doubles!

Reports from the Pacific coast, from California to Alaska, are disturbing because they indicate that some fisheries and shell fisheries may be on the tipping point of collapse. Worldwide, we are seeing industrial civilization screw up clean water through nutrient loading from gigantic crop monocultures and animal factory slums. It’s a recipe for catastrophe. Several dead zones at the mouths of great rivers like the Mississippi have gained notoriety, but the public is not aware that there are now hundreds of such zones worldwide.

Animas River.Schatzl and Pickles

The Animas River before the toxic metals of the Gold King Mine spill turned it bright orange. Photo Credit: Schatzl and Pickles.

The latest water pollution debacle occurred just this month (August 2015) in the Colorado Rockies. A state of emergency was declared as the Animas River turned orange when millions of gallons of toxic heavy metals and carcinogens from the Gold King Mine spilled and created a hazardous mess at the very peak of summer recreation.

Recreation in this part of Colorado is a crucial component of the economy. One river outfitter has had to lay off over twenty employees. Agencies have allowed the leakage at gold mines like the Gold King Mine to persist for years without being cleaned up.

These accidents would be far less likely to occur in a sustainable steady state economy. A steady state economy would not incentivize pollution. It would not allow externalization of pollution and health costs, and it would eliminate subsidies for extraction of hardrock minerals and fossil fuels. Globally, an estimated $600 billion per year in subsidies is provided annually to the fossil fuels industry, in contrast to $100 billion for wind, solar, and other renewable energies.

A sustainable economy would place genuine value on the many benefits provided by clean water and free flowing rivers, including diverse fisheries, a variety of recreation activities, beautiful scenery, and a healthy water supply. The global economy looks upon water more as a commodity, and trade agreements attempt to facilitate the privatization of water. A sustainable true-cost economy, on the other hand, does not externalize pollution impacts or exclude from economic calculation the numerous but less tangible benefits obtained from free-flowing rivers.

A sustainable true-cost economy holds so much promise, but the immense challenge of transitioning to such an economy can seem daunting. Tackling our water pollution crisis illuminates some highly actionable steps we could take immediately to start making a steady state economy a reality.

The Securities and Exchange Commission (SEC) could take an initial step toward a true-cost economy by requiring the many companies reporting to it to disclose their pollution impacts (externalities). Impossible you say? A few years ago it seemed impossible to get the SEC to require disclosure of CEO salaries. But guess what? It just happened—thanks to leadership by Senator Elizabeth Warren (D-Mass) along with tremendous grassroots pressure.

The SEC will now require publicly-owned corporations to disclose how much their CEOs make compared with the median wage of their workers. The Washington Post reported that the pay gap between executives and unskilled workers is about 300 to 1, not 30 to 1 as most Americans think. This precedent-setting action by the SEC should be followed by other campaigns directed at the SEC, starting with action on externalities.

In a true-cost economy, the price tag for goods and services that cause serious damage to life support systems would be so high that such products would not be produced. We would do well to recall that there is no economy on a dead planet. Critics who say that civilizations are nowhere close to causing ecosystem collapses do not consider the scientific evidence on planetary boundaries, nor the lessons from past collapses of societies. I think we should seize on the outrage over all the water pollution disasters in 2014 and 2015 and push for new economic structures that will provide long-term solutions.

An Economic Game Plan to Prevent Water Pollution

by Brent Blackwelder

BlackwelderEven though the Clean Water Act is more than 40 years old, its goals have not been met, and America is still beset with chronic water ailments and acute pollution incidents. Already this year major toxic spills from coal operations in West Virginia and North Carolina have provided grounds for demanding comprehensive changes to a broken system of pollution control.

On January 9, 2014, people in Charleston, the capital of West Virginia, began vomiting while others complained of a strange pervasive licorice odor. The problem was traced to chemicals from a malfunctioning chemical/coal facility just upstream from the city’s water supply intake. A state of emergency was declared to provide after-the-fact protection to the 300,000 people who get their drinking water from this system. Both the water supply company and the chemical company allowed the emergency to unfold despite repeated warnings over the years about unsafe structures and operations.

On February 5, 2014, a spill from a coal ash impoundment unleashed 78 million pounds of arsenic-laden sludge into the Dan River, the source of drinking water for cities and towns in Virginia and North Carolina. Duke Energy, a giant utility, operates fourteen coal-fired power plants in North Carolina, and it dumps the toxic combustion byproduct, coal ash, into unlined ponds. The result: groundwater contamination and toxic spills into drinking water supplies. The Duke Energy spill comes with a sad, but familiar footnote. Pat McCrory, the governor of North Carolina, used to work for Duke Energy and has been on a crusade to weaken pollution controls ever since he took office.

Ongoing experience with such grotesque toxic spills, and even growing awareness of global water shortages have failed to generate sufficient responses. Today’s economic framework blocks significant progress on such crucial problems because it props up extractive and highly polluting industries.

Governments are stuck in a business-as-usual, growth-at-all-costs mindset, and they face constant pressure to deregulate industries. Since industry is fixated on profits and growth, it attempts to pay as few costs as possible; cost externalization is a built-in feature of the economic system. But someone always pays — just look at the people downstream or the species and ecosystems where spills occur.

The key to preventing and cleaning up water pollution is to shift the economy from the pursuit of unending growth to the pursuit of stability. Why would water pollution decline in a steady-state economy? Here are three reasons.

Coal ash in the Dan River

Coal ash in the Dan River from the Duke Energy spill in North Carolina (photo credit: Dan River Basin Association).

(1) Changing the macroeconomic goal away from growth and toward maintenance of life-support systems would change the way businesses and other institutions behave. The goal of a true-cost economy is sustainable and equitable well-being, rather than continuous growth. Actors in such an economy would care more about the medium and long-term future than quarterly returns.  For example, in a true-cost economy, chemical companies would engage in green chemistry, and utilities would produce renewable energy. The costs of using fossil fuels and other toxic substances would simply be too high to pay. Regarding the outrageous scenario of having decaying storage tanks full of dangerous chemicals directly upstream from the water supply intake for a state capital: it would never happen in a true-cost economy.

(2) Companies would be required to have eco-auditors just as they are now required to have financial auditors. Such eco-auditors would assess whether a company was externalizing costs and whether the company’s production was harming life-support systems. Eco-auditors could also show businesses how to avoid pollution. Companies would disclose their ecological impacts in an annual report just as they do with financial audits.

(3) There would be consequences for repeat polluters. For example, in the decade prior to its gigantic oil spill in the Gulf of Mexico in 2010, BP had been responsible for a refinery fire in Texas with significant loss of life and two oil spills in the Arctic Ocean from the Trans-Alaskan Pipeline. Why not three strikes and you’re out? Why not deny BP the right to do business in the U.S.? Instead, the Obama administration has done the opposite by giving BP the go-ahead to drill again in the Gulf of Mexico!

Another example: given the repeated incidents of pollution oozing from Duke Energy’s numerous coal ash ponds, despite years of complaints and penalties, shouldn’t it be denied the right to do business in North Carolina? Shouldn’t its facilities be turned over to more responsible utilities? After all, the vulnerability of coal ash impoundments has been making headlines since December of 2008 when a TVA storage pond in East Tennessee burst and contaminated the Clinch River. Clean-up efforts continue to this day, and costs have exceeded $1.5 billion. TVA said it could never happen again, but in January of 2009, not even a full month later, another coal ash pond failed, this time in Alabama.

We need to adopt a broader, transformative economic approach and stop thinking that pleading with companies and government agencies will suffice. We need to (1) change the goal from growth to sustainability, (2) change company reporting to include ecological audits, and (3) change incentives by denying companies the right to operate when they dodge their responsibilities. Under the current economic paradigm, pollution will persist and natural resources, including soils, waters, forests, and oceans, will continue to decline. Only a new economic game plan can protect our shared water resources and prevent pollution.

Where Infinite Growth Meets Biophysical Limit

by Eric Zencey

Eric Zencey is the author of the recently released book The Other Road to Serfdom and the Path to Sustainable Democracy. This essay is adapted from Zencey’s forthcoming history of Vermont’s environmental movement, Greening Vermont: The Search for a Sustainable State, which he co-authored with Elizabeth Courtney.

To achieve a sustainable, steady-state economy, we’re going to have to limit matter-and-energy throughput in the economy to what the planet can sustainably give to us and what it can sustainably absorb from us. Against that physical limit, though, the economy continually exerts pressure: it’s structured for continual expansion of its matter-and-energy throughput, as we are encouraged to want, to seek, to produce and to own more and more and more. What we need are adaptive mechanisms that can reconcile the two.

One such policy adaptation is in place but hasn’t been fully developed or conscientiously applied.

The Clean Water Act (CWA) of 1972 instituted a national cleanup of the nation’s waterways, which had too long been treated as an open-access sink into which anyone could freely dump wastes and pollutants. Under the CWA, wastewater treatment facilities were built or upgraded and point source discharges — those coming from a single facility — were regulated and controlled. Water bodies that were considered dead in 1972 made remarkable recoveries.

Even so, by 2002 the Environmental Protection Agency (EPA) had categorized over 20,000 bodies of water (more than 40% of all those it assessed) as “impaired” — too polluted to be used for their “designated beneficial uses.” Clearly, if water quality was to be fully restored, more needed to be done.

The main problem was and continues to be “non-point” discharges — the diffuse pollution that is carried into waterways by runoff from land. Anything that is put on land can and will find its way into our waterways. The most problematic pollutants vary from basin to basin. Some of the most troublesome: the oil, gasoline, and road salt that find their way into our soils, streets, and parking lots as we use automobiles; untreated animal waste, including the burdens produced in some areas by farm animals and in others by pets; and fertilizers and pesticides, used by suburbanites to feed their lawns and by farmers to increase their yields in order to feed us.

The CWA outlined the manner in which non-point pollution was to be judged and limited: states were to identify impaired bodies of water and then set water quality standards for them. EPA rules written in 1985 and 1992 offered further guidance: states were to identify the pollutants that cause the impairment, and for each of those pollutants they were to identify the Total Maximum Daily Load (TMDL) that the body of water could absorb without being impaired. Their work would be reported to and reviewed by the EPA. How TMDLs would be enforced — how the scarce capacity of waterbodies to absorb effluents would be rationed — was left to state discretion.

Behind the notion of TMDL is sound, steady-state thinking: the capacity of bodies of water to absorb pollutants isn’t infinite, and the limits need to be discovered and respected.

Implementation and enforcement of the new rules wasn’t immediate. Some states, faced with significant expense, declined to comply with the law. Some sued to have the EPA do the job. The scientific work has been slow going. Between 1996 and 2003, a total of 7,327 TMDLs were approved nationwide, representing just 17% of the 42,193 bodies of water listed as impaired.

In Vermont, the issue of TMDLs came to a head in 1999, and experience there may be a guide to promoting the implementation of this finite-planet idea elsewhere. The controversy began with an application from Lowe’s, Inc. to build a store in South Burlington. The company received the necessary stormwater permits from the state in July of 2001, despite the fact that the store and its parking lot would force acres of runoff into Potash Brook, an impaired waterway. The Conservation Law Foundation (CLF) immediately appealed the permit decision. The appeal said that under the CWA, additional pollutants could not be discharged into the brook unless a mitigation and cleanup strategy were in place — a strategy that would require determination of the appropriate TMDLs, which hadn’t been prepared.

There were no TMDLs for Potash Brook for a simple reason: despite its carefully protected (and generally well-deserved) image as an environmentally aware state, Vermont hadn’t calculated any TMDLs at all. Meanwhile, well over 1,000 state-issued stormwater discharge permits had expired and were up for review. The Conservation Law Foundation had brought to light a major problem in the way that Vermont was managing its water resources and had revealed that the state was violating laws established under the Clean Water Act. “Vermont’s Agency of Natural Resources,” said Chris Kilian, the CLF’s Natural Resources Project Director, “can no longer turn a blind eye to our serious water pollution problems. Rubber-stamping permits that will add more pollution is not acceptable.”

CLF appeals of the Lowe’s decision were pending when the two sides announced a settlement in May 2006. Lowe’s agreed to implement higher cleanup standards than the state had required. Measures included stormwater retention ponds and filtration systems for runoff not only for Lowe’s 12-acre site, but the entire commercial plaza of which the new store was a part. Taken together these remedies were designed to eliminate all impact on Potash Brook. As part of the agreement, Lowe’s agreed to monitor stream conditions both upstream and downstream of its discharge, to ensure that the “zero harm” standard would be met.

If the CWA can continue to encode finite-planet assumptions through its call for discovery of TMDLs of pollutants in the country’s bodies of water, and if those limits can be enforced through state action or by citizen lawsuits, one key element of a steady-state economy will be in place.

But it’s not going to be easy to reach that point. TMDLs remain a controversial and difficult topic, as might be expected of a regulatory device that operates at the intersection of human ambition and biophysical limit. And the state-by-state foundation of the law may hamper its effectiveness. For instance, of the fifty water bodies in Vermont that are officially classified as impaired because of acidification, the source of the pollutant — acid raid — is well beyond the power of the state to control. And much non-point-source water pollution in Vermont has its origin in agricultural practices, which Vermont legislators and regulators are loathe to tackle. As the strong base of the state’s economy and as a prime preserver of the working landscape, farming provides all Vermonters with many benefits, and the environmental movement is unanimous in wanting to see a healthy agricultural economy in the state. But farming practices are responsible for 38% of the phosphate pollution that leads to regular algae blooms in Lake Champlain (making it the second largest category, after urbanization at 46%). The blooms can be toxic to wildlife, humans, and domestic pets, and they prevent recreational use of the parts of the lake that are affected. If Vermont is to achieve its water quality goals, it will have to enforce TMDLs for all waters that drain into its lakes, even if those limits require changes in agricultural practice. By 2012, Vermont had established TMDLs for roughly 60% of the waters that had been identified as needing them.

The concept of TMDLs can be extended to other sinks and pollutants. A TMDL could be set for diesel exhaust from trucks, limiting the amount to what a particular airshed can absorb without ill effect. Paired with a similar understanding of the limits of source services — like the maximum sustainable yield figures that can be calculated for forests and fisheries — TMDLs point to one way of achieving a balance between human activity and planetary systems.

The research necessary to determine a TMDL is costly, and comes at a time when public budgets are already being strained (by, among other causes, a declining energy return on investment for oil that means more and more of our economy’s energy is dedicated to getting that energy). If we don’t like the expense of government regulation, if it looks like we can’t afford all that governmental overhead, then we’ve basically got three choices: retreat into an infinite-planet state of denial and let our economy destroy our habitat; require private enterprise to fund the necessary research as part of the cost of doing business on what is undeniably a finite planet; or find ways (like a carbon tax or other uptake and throughput taxes) to meter inputs sufficiently to bring economic activity well within biophysical limit, thereby making the regulatory burden and research expense of TMDL enforcement less needed.

Negative Externalities Are the Norm

by Rob Dietz

Here’s a crazy but true fact: negative externalities are the norm — not the exception — in our current economic setup. Failure to recognize this fact has created a wild divergence between theory and practice when it comes to managing harm caused by economic activity.

The Backstory

When I was a kid, my family took a one-week vacation each summer. In the middle of August, we always went to the same place — the beach at Nags Head, North Carolina. The trip was a yearly highlight, and I could always tell it was approaching by the heap of towels, beach toys, and fishing gear that would accumulate by the door that led to the garage. On the day of departure, my dad would come home early from work, and my sister and I would wedge ourselves into the backseat of the car, which was already close to full capacity on account of the cooler hogging half of the seat space and the bags of food and sundries on the floor.

I had to steel myself for the ten- to twelve-hour drive from Atlanta to Nags Head. Although fighting for real estate with my sister in the cramped backseat was bad, the boredom of highway travel was worse. But worst of all, both of my parents smoked — Marlboro Lights for mom and Dutchmaster cigars for dad. When one of them would light up, I’d let out an overly dramatic sigh and ask them to open the window. They’d comply by cracking the window ever so slightly, trying to maintain the air conditioner’s advantage in its battle against the late-summer heat of the South. The haze that hung inside the car made it seem like one of those “designated smoking areas” in an airport.

It was a rough journey, but it was well worth it. The Outer Banks of North Carolina held a mystical quality in my childhood mind. It was the land of endless waves, the Wright Brothers, towering dunes, and pirate stories, all steeped in the smells of salt air and sunscreen. When I was eleven years old, something happened to sweeten the deal. My father invited me to attend the early morning fishing expeditions with the men. That was hallowed ground. Prior to the invitation, I had been relegated to the inspection crew. I’d wait for the crusty fishermen to return at mid-morning from their trip to the secret fishing hole, and I’d rush to the car when they arrived to survey their catch, which often included speckled trout, croaker, flounder, red drum, bluefish, and spot.

That invitation was the start of improved relations between me and my dad. We developed a better understanding of one another through the easy conversations that fill the downtime during a slow morning of fishing. We also developed a shared attachment to place — a mostly unspoken appreciation for where we were and what we were able to do there. Like many other fathers and sons, I bonded with my dad during the simple act of throwing a line in the water and hoping to catch a fish.

The Negative Externality


I get visibly upset when I see a sign that warns about the dangers of eating a fish caught from a given body of water. A fish consumption advisory has an uncanny ability to launch me into a scathing diatribe. Really? Have we become so reckless and so complacent that we accept polluted waters and toxic fish — that our best course of action is to stick a warning sign in the ground?

These days I live near the banks of the Willamette River, which tumbles down from central Oregon’s Cascade Mountains and flows gently north to its confluence with the Columbia River in Portland. The Oregon Department of Human Services issues the following warnings about resident fish in the Willamette:

Children 6 years of age or younger should not eat more than one 4-ounce fish meal every 7 weeks.  Women of childbearing age, especially those who are pregnant or planning to become pregnant and breastfeeding mothers, should not eat more than one 8-ounce fish meal per month.  Women past the age of childbearing, children older than 6 years and all other healthy adults may safely consume up to one 8-ounce fish meal per week.

The agency issues these warnings because the fish store dangerous levels of mercury, PCBs, dioxins, and chlorinated pesticide residues in their bodies. Given one word to summarize why these fish are contaminated, I’d say, “externalities.”

The Definition

N. Gregory Mankiw, a prominent professor of economics and textbook author, writes that an externality “arises when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect” (Mankiw, Principles of Economics, Fourth Edition, p. 204). So a negative externality occurs when an economic activity produces harm, and the people suffering from that harm receive no compensation. A good synonym for “negative externality” is “side effect” — an unintended but unmitigated consequence.

Toxic fish in the Willamette River are the result of externalities from a host of economic activities, including mining, electricity production, farming, manufacturing, and urban development. These activities (at least the way we do them today) generate pollution, a cost that is externalized by the polluters, and that pollution finds its way into the river and into the bodies of the fish. As a result, I’m less inclined to fish in the Willamette, less inclined to take my daughter fishing there, and less likely to have the same bonding experience with her that I had with my dad.

The Theory for Managing Externalities

Economists tend to cast negative externalities as an unfortunate, but fixable, part of the market economy. The standard suggestion for fixing them is to impose taxes on externality-producing activities. For example, burning coal in a power plant causes mercury pollution. The cost of this mercury pollution is externalized by the power company and born by society (e.g., those of us who want to go fishing with our children). If the government places a tax on the amount of coal burned, the power company will burn less, and depending on the size of the tax, the government can force the power company to internalize the full costs associated with burning coal (assuming we can put a cost on the pollution, and that’s a BIG assumption).

Another possible fix is to arrange for the polluter to compensate those who bear the cost of the pollution. In the example of the power plant causing mercury pollution, the power company would pay compensation to my family (in theory, the compensation should be equal to the dollar amount at which my daughter and I value the experience of catching clean fish from a clean river). The compensation acts in the same way as the tax to internalize the costs for the polluter.  In an economics textbook, you’d see something like the following diagram, which shows how supply shifts in response to a tax.

MSB = marginal social benefit; MPC = marginal private cost; MSC = marginal social cost. A tax or compensation scheme moves supply from MPC to MSC, which increases price and lowers the quantity supplied.

Theory and Reality Diverge

The theory sounds good, but it rarely makes its way into reality. In the market, as firms work to maximize their profits, they strive to maximize revenues while minimizing costs. A sure-fire way to minimize costs is to externalize as many of them as possible. In practice, if a corporation wants to minimize the costs of environmental protection, it can move its operation to a nation with lax environmental laws. It can do the same or find various “innovative” ways to avoid paying other costs, while passing them on to the rest of society. In the context of today’s economic game, this is a sound strategy. If the objective of the game is profit maximization, then a winning player will externalize as many costs as possible.

As corporations have gotten better and better at this game, they have accrued higher and higher profits, and gained more and more influence. This influence often extends into the legislative bodies and regulatory agencies that could, in theory, prevent the inefficiency and injustice associated with negative externalities. It has become politically challenging, to say the least, for a government to place an externality-correcting tax on a corporate activity.

What about the other path proposed by economists — the path of compensation? This path falls apart for several reasons when trying to make the leap from the classroom to the real world. First and foremost, a profit-maximizing firm has a strong incentive to avoid paying such compensation. Even if a “good corporate citizen” wanted to pay compensation, it would be taking a risk — its competitors would be able to charge a lower price and potentially outcompete it in the quest for market share and profits.

Second, think about the complexity of tracing a negative externality back to its source. In the case of the river and fish, many economic entities have played a role in causing the pollution. Which ones should offer compensation? Which people should receive compensation?

Third, compensation may do very little to solve the problem. Even if the power company offered me monetary compensation, I’d still be upset that I can’t take my daughter fishing. I’m one of those people (the 99% in my estimation) who would rather have a modest income coupled with full opportunities for health and happiness, instead of a huge income coupled with degraded environmental and social conditions.

The Real Solution

In today’s cultural setting, my parents never would have smoked in the car on our trip to Nags Head. The external costs of their habit (i.e., increased odds of health problems for their children) have become much more present in the public consciousness. The dangers of secondhand smoke are now well known, and smoking, especially around children, has become frowned upon. Cultural change, therefore, can play a role in curbing negative externalities, but it is often slow to arrive and incomplete. For example, when society got fed up with the worst cases of water pollution (e.g., rivers catching on fire), the culture of environmentalism generated the political will to pass new water quality laws. Over the years, the cultural change and laws have prompted big improvements to water quality, but we still have plenty of waterways that are unsafe for swimming and fishing.

So the question is “What can we do besides wait for the culture to evolve?” For starters, let’s stop viewing externalization of costs as a small flaw that can be fixed with a few taxes or minor governmental interventions. It’s a huge flaw that’s built into the system. And that means we need to change the system.

In the boardroom, instead of working to minimize private costs, business leaders need to be working to minimize social costs. It doesn’t strengthen the economy or society when a company inflicts long-term environmental or social harm to maximize short-term profits. The game needs to be revised, therefore, to free businesses from this constraint of profit maximization. A vast accounting infrastructure exists to measure profits — there are rules, highly paid accountants, and entire corporate departments dedicated to counting up revenues and costs. But there is no such infrastructure for counting up a firm’s social and environmental impacts. We need to rethink the basic model of commerce to prevent and clean up the negative externalities that flow from today’s model.  This rethinking process is more important now than ever before — negative externalities are piling up and becoming increasingly threatening (e.g., global warming) as nations and corporations continue their pursuit of unending economic growth on our finite planet.

I hope we can speed up the cultural shift and change the economic framework. I really want to go fishing with my daughter.