Op-Ed: Externality 101, Understanding Hidden Costs of Fossil Fuel

During a freshman economics course at Princeton we learned about "externalities" -- the costs of production that are not reflected in the purchase price of the output.

Externalities distort our economy, pollute the environment, and damage public health. Too bad more of our state's energy policymakers seem not to have learned the lessons of those long-ago lectures that have stayed with me.

If they had, they would know that "price" is not the same as "cost" -- especially when it comes to energy policy. When externalities are factored into the equation, we would gladly pay more for electricity produced in ways that minimize social and environmental impacts. They might also see why paying higher utility rates to promote solar is not a subsidy but a valid payment for the externality services that solar renders to New Jersey.

Here's why.

Ideally, the price of all goods and services would account for their negative impacts, making them show up as pricing signals. Thus, the greater the harm the higher the price. The marketplace would provide a level playing field and consumers would tend to prefer "externality lite" products, inducing makers of dirtier and more harmful stuff to clean up their acts.

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