The Utility of External Costs as an Indicator

External costs valuation is a powerful instrument of knowledge: the measure of the external costs is an indicator that encloses selected and processed information at the highest qualitative value.

• It allows to convert a broad range of different impacts to a single unit of measure, for example the costs of health effects, those of losses of time due to congestion and damages to natural resources.

• Its unit of measure (the economic value) is fully understandable by everyone because economics it’s one of the basic dimensions of modern societies as it is religion, esthetic or technology

• In environmental policy it allows to compare the different health effects by using epidemiological state of the art, from simple simptoms to serious diseases, thus making decision making more consistent

• It helps to spread rational arguments in environmental conflicts and to better manage the decision making process: impacts that cannot be reduced should be compensated to those impaired.

• It is the basis for a proper valuation of the costs and benefits of public investments. National and Regional Authorities cannot go on ignoring cost benefit analysis: proper valuation and priority making instruments are available.

• It is the basis of reliable incentive schemes and of a consistent environmentally driven taxation: too many times National Authorities establish incentive schemes on new (renewable) technologies or fix the level of “environmental taxes” without an external costs assessment of those technologies or of the activities to be charged.

• It is based on the same indicators that a strategic impact assessment should consider, connecting the driving forces of environmental pressures to the their final effects

The appraisal of the external costs is the best available instrument in order to address an economic system towards a sustainable development. For those who still have ethical reserves towards monetary valuation, just have a look around them: life is implicitly valued when driving, when working, when buying home electric systems… so why not to elicit these values in a complete and systematic way?

© 2006 - Andrea Molocchi