Social Cost & Ecosystems – Typologies

Accounting for Externalities > Ecosystem > Social Cost & Ecosystems – Typologies

In the Easter Islands, several theses defend that the disappearance of the matamua civilization would be linked to an ecocide: a change in the environment (internal, wood production to raise the Moais). This ecocide (unverified, but often taken as an example to show the capacity of civilization to destroy itself) questions the origin of such problems generating extreme social costs:

  • What are the elements that will generate damage?
  • What are their characteristics?
  • What will enable us to extract a social cost?

In this article, we propose to make a first qualification of the characteristics of the resources at our disposal, with a view to subsequently defining common evaluation rules by typology.

When we speak of natural resources / or nuisances, we must consider 2 characteristics (to be attributed according to the type of resources), which will have an impact on the method of evaluation of social cost:

  • Primary resources,
  • Processed products.

This first characteristic has an interest, which is to be able to focus on the company’s value chain:

  • What does the company charge? in which case, its social cost will be evaluated in relation to its capacity to rebuild the available stocks, or if impossible, to
  • What the company transforms: in which case, its social cost will be evaluated according to the capacity to recycle its finished products to re-inject them into the production cycle,

Concerning this first characteristic, it should be noted that it is not specific to the company, but to the types of purchases it makes. Two examples to convince ourselves of this:

  • Electricity is a resource that all companies use: it is the result of the transformation of a type of energy (mechanical, chemical, photovoltaic, …) into electrical energy,
  • The land surface is a primary resource, used by all companies,

This first characteristic also has an impact on the second characteristic, which is associated with the product cycle. Thus for raw materials, it is important to distinguish between renewable materials (the rate of withdrawal is covered by the natural rate of production, e.g. renewable energy), and non-renewable resources (the rate of withdrawal is higher than the natural rate of production, e.g. fossil fuels).
This distinction is necessary because the social cost of a renewable resource can be calculated (considering the first level of the production chain). For a non-renewable resource, the elements are more complex, and a substitute resource must be found.

The second characteristic of processed products is similar to the characteristic of raw materials, but in the method of valuation implies a change. Thus for processed products, the social cost will correspond to the ability of the company to go back from the finished products, we will speak of reversibility (e.g. automotive industry, can recycle cars sold at a cost) or irreversibility (electrical energy, once consumed is irreversible, 2nd law of thermodynamics).

Concerning this characteristic of reversibility (for secondary products), it should be noted that not everything will be reversible (entropic principle applied to objects). Indeed, in any recycling process, there is a percentage of loss, irreversible, related to:

  • Collection: objects that get lost or are not redirected to the right collection centers,
  • Wear and tear: objects that can only be recycled a certain number of times (clothing),
  • Property alteration during recycling (recycled paper, for example, must have a minimum percentage of new cellulose to guarantee the grain and the holding power of the sheets).

For the nuisances the characteristics are simpler. Indeed a nuisance is already the result of a transformation. Thus we can use the characteristics only for the finished products, i.e. for the finished products:

  • Reversible nuisance (noise, local pollution, …)
  • Irreversible nuisance (climate change, biodiversity, …).

We have a typology, which will allow us to guide our choices in the evaluation of social costs:

  • Raw material: renewable or nonrenewable,
  • Processed products and nuisances: reversible or irreversible

This typology, built on the capacity of the environment to return to an initial state, will allow us to define evaluation rules later on. It is also anticipated that the problem of evaluation will be more concerned with irreversible and nonrenewable effects, due to the unknown factors in the substitution of these resources.

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