Accounting for Externalities > Ecosystem > Processed products and social cost

The second law of thermodynamics specifies that any transformation is irreversible: entropic principle.
It also specifies that the yields are higher when the operations are reversible (when the caloric losses induced by the transformation are minimal).

Any transformation includes an irreversible part and thus induces an irreversible loss for the environment. This irreversible part has an impact on the economy. Recycling is a means of optimizing the usefulness of a resource, and therefore its yield.

Let’s look at possible methods to evaluate the social cost of these transformations, and integrate this notion of reversibility in its evaluation.

The transformed products are either reversible (recycling is possible) or irreversible (generally imposed by physics). Reversibility is also a characteristic to be taken into account in the evaluation of nuisances (with an identical treatment), but we will first deal with the reversibility of transformed objects.

The social cost of a transformation chain corresponds to the return to the original state of the products used.
If the elements are recyclable, then the cost of recycling corresponds to the social cost (cost that society will have to bear when it has to be restored to a normal state). In its value chain, a company can integrate recycling.
This recycling has a social cost and generally corresponds to:

  • Costs of disassembling, dismantling, reconditioning, …
  • Logistical costs (recovery costs),
  • Degradation factor/exit of recycled materials from the cycle,

These recycling costs (when evaluating standard costs) must (strictly speaking) be evaluated with renewable resources. Thus the energy necessary for recycling (generally first item), must be taken at the cost of renewable energy and not at the standard cost of a fossil energy for example. For reasons of simplification (which we argue in another chapter), we propose to remain at the standard cost of energy, and not at the standard cost of renewable energy.
Finally, how can we evaluate the share of element that leaves the recycling cycle (because of material degradation or uncontrolled pollution)? For this part, we must take the case of irreversible value (irreversible transformations or nuisances).

In the case of irreversible transformations (e.g. energy), and therefore in the absence of a reversibility scenario, how can we assess the social cost? Indeed, there is no substitution value as for primary resources (it is not possible to substitute a fundamental value such as energy). The only a priori way is therefore to convert this value into a renewable equivalent and to deduce a social cost. In this case, the transformation chain intervenes (but no other choice).

The social costs correspond to the consequences of a scarcity of resources, to the innovations to be implemented to find substitutable resources (through recycling, or via another resource). There are many unknowns to be taken into account: the proposal is therefore to substitute each levy by its marginal recycling cost (which is known to it).
The social cost is therefore the quantity of non-renewable resource removed x marginal recycling cost.

It should be noted that when substituting a value by a renewable equivalent, this element must be put into a micro-economic (and not macro) context: namely, how the firm evolves in its environment, and not how the economy can switch to a totally renewable consumption.
The agents are thus evaluated according to what they take from or return to the environment.

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