Ecology of Commerce and Valuation
April 10, 2008 by Emily Ryan and jsarkis | Filed under: Environmental Valuation and Accounting [1]
In Paul Hawken’s book, “The Ecology of Commerce”, he discusses ways to add unrecognized environmental costs to the free market. He mentions options for this such as producer responsibility and Pigovian taxes which, when working together, could enhance our valuation ability.
If the producer is forced to bear all of the costs associated with the product, then there are a couple of areas that need to be focused on. The internalized costs that currently are no included in product/service valuation are the spillover effect and the future generation cost.
For the spillover effect, that measures (or should measure) the impact of the production system on other systems, people, and places. The damage caused by any stage of manufacture should be included in the total spillover cost of an item.
For the cost to future generations, the calculation is even trickier. Examples include deforestation, global warming, and other resource depletion. This is where the Pigovian “sin tax” comes in – allowing producers to pay for their impact and hopefully increasing their desire to innovate away from their harmful activities.
Hawken makes the great point that the people and systems are already paying the costs in our health insurance, non-profit donations for clean-ups, etc.. By forcing the industries to pay we are truly representing the cost of our consumerism. “Integrating cost with price does not ‘raise’ the over-all expenditures of the consumers of the society, but rather places them where they belong, so that consumer and producer can respond intelligently.” (Hawken, p.83)
A major issue in trying to implement these types of costs into standard organizational financial statements is the tracking of specific costs to activities or products within an organization. Will management be willing to adapt its systems to measure the true environmental costs internally. There are currently winners and losers (products or processes) within an organization when costs are internalized. How will managers of former ‘winners’ that turn to ‘losers’ overnight be willing to accept changes in the costing structures?