My apologies for my absence! This post has taken a month and a half in coming and I know you missed me:)...I hope!Life is an interesting phenomena. Someone hit it right on the head when he opined that life is what happens when you are busy planning other things! So true man!! Little had I realized when I started this blog that I will not write a post for 6 weeks!:)
Anyway, life has changed a lot in the interim, Energy wise, politically and otherwise too, and we will take things one by one from here. We shall limit our discussion to the Energy domain, and the related political matters that come along with it! Its interesting to note how much Energy is intertwined with Politics, pretty much like siamese twins! The last technological revolution thing to have been embroiled in the political quagmire would be Biotechnology, or Nanotechnology, possibly!
Anyway, the US Energy Bill was introduced in the House recently. The one that promised to radically alter so many ways in which we do things here,and possibly around the world too! We shall deal with this in greater detail at a later post. Today, I want to talk about a concept in Economics that keeps coming up, time and again! This is called the concept of Externality, and I was completely ignorant of it until recently.
Externality is the concept by which an impact is caused on an entity not party to any economic transaction. So, if you own a power plant and emit gunk into the atmosphere and if there is a laundry next to it, the laundry is facing an externality as the poor quality of air affects its operational efficiency. Externality can be of 2 types, positive and negative. The example I stated above is one of negative externality where the laundry is facing a negative impact of your power producing operation, and it is not a party to it. A positive externality would be one where you fireproof your house and increase the safety of your neighbors as a result of which!
This concept is at the core of free market philosophy, for you are not operating under a free market until you include the cost of any such externality. The interactions are not properly valued if the externalities are not internalized. Hence, the laundry and the power plant will have to sort it out among themselves, either voluntarily or through regulations.
The above concept basically summarizes the entire debate about Climate Change. That we have not priced things right for the last 259 years, since the Industrial Revolution! We never included the cost of harming the environment in the profit calculations! I guess some bright MBA grad might have missed it in his valuations model:) My apologies if I hurt any sentiments out here....It is cool to take a dig at Management grads lately, and who doesn't want to sound cool!:P
Environment was always considered a Public Good and that everyone has a right to it. When we buy petrol or gasoline at a gas station, we pay the cost of a litre of it which takes into account only the manufacturing cost and the profit margin of the fuel. That is, the cost of extraction, refining and delivery and the profit margin. And yes, if the fuel comes from Alaska, an overhead that goes into surveillance of Russia personally ensured by Sarah Palin:) Btw, an inside info you might find useful. It is a must to have a few political jokes in your armor when you are working in the energy field! It makes you sound so possessed:)
Anyway, so the cost of removing the pollutant you put in the environment as a result of the combustion of that fuel is not included here. This concept is ought to change, when you should buy fuel at a gas station, you should be paying not only for the cost of fuel, but also for the cleanup. As one cannot expect the industries to do this voluntarily, we will have to take refuge in regulations to achieve this. This argument lies at the heart of the Climate Change debate.We need to undo the wrong we have unleashed on the environment for the last 259 years! And we must pay a price for not doing it effectively since then.
Undoing a historical wrong is not going to be easy, believe me:) Try not excercising for a long period of time and then try to lose the excess flab in one go! Take it from me, it is one HELL OF A JOB! But then , we are not supposed to talk personal stuff here, right?:) Until the next one....Keep saving the planet!
