The Rationale Of Burning Profits

Posted on October 31, 2009 by Markus Stocker, Recommended 0 | Recommend

Today I have yet another post on external costs and how they may lead to potentially irrational decisions with disastrous effects. The discussion is based on the flaring of natural gas by Shell in Nigeria. BBC reported on this awhile ago.

In a nutshell. The natural gas — a by-product of crude oil extraction — is burnt off to mimic the Old Faithful Geyser. The gas could be stored, distributed (e.g. to a needy local market) and be profitable but Shell’s answer is: Not profitable. The local market would require an investment (e.g. infrastructure, security) which Shell argues is an assignment for the government. The government blames Shell saying it ought to act responsibly.

I’m sure, Shell did the maths and the decision is certainly rational w.r.t their best interest. Unethical? Perhaps. Should Shell act more responsibly? Probably. So, why don’t they care? I’m sure they do care; they just care for some dimensions a lot more than probably you and me do. For obvious reasons.

Provided there is an association between the flaring and social, human health and/or environmental damage what we have here are billions of external costs no one is accounting for. Let’s assume there is an association between the flaring and higher rates of cancer, children with asthma, infertility, noise and environmental damage. Would it still be rational, in their best interest, to burn the natural gas if Shell would have to account for the cost of the damage associated with the practice? Unlikely. Would it decide to invest now in storage and distribution of the natural gas? You bet.

Come on, you creative minds out there: How can we fully internalize social, health and environmental costs in every human action?

Post to Twitter Post to Yahoo Buzz Post to Delicious Post to Digg Post to Facebook Post to Reddit Post to StumbleUpon

Category: Economics, Environment, Ethics, Politics, Thoughts
Tags: > > > >

Comments

2 Responses to “The Rationale Of Burning Profits”

  1. Breathe Private Quality Air : Markus Stocker
    November 6th, 2009 @ 8:24 pm

    [...] One of the problems with open access resources is unconstrained exploitation. For instance, according to Tucker [1] “the unconstrained exploitation associated with open access has been a notable factor in deforestation.” Polluting habits is an example for the atmosphere. Belonging it to everybody — and no one — I infringe no one’s rights if I pollute more than everybody else, or more than the average, nor am I rewarded if I pollute less than you. There is no incentive. Individuals enjoy the benefits and we all externalize the costs. [...]

  2. Do Conventional Plastics Internalize Costs? : Markus Stocker
    November 27th, 2009 @ 2:19 am

    [...] to landfills — more about the plastic — and raises a similar question as for some practices of burning natural gas and stamps: Would biodegradable platics already be competitive with conventional plastics if goods [...]

Share Your Thoughts - We'd Like To Learn From You!





Before you send your comment, make sure to enter the two words displayed
below in the input field. If you can't read the two words, use the reload icon
to get a new pair.

 

You need to log in to vote

The blog owner requires users to be logged in to be able to vote for this post.

Alternatively, if you do not have an account yet you can create one here.

Powered by Vote It Up