On the Foundations of Environmental Policy
∗ with John Proops and Jakob de Swaan Arons 3.1 Introduction As the joint products of some desired good are often undesired and harmful to the natural environment, why don’t we just avoid their occurrence? One possible answer to this question that most economists will give is that the occurrence of waste by-products and their disposal in many instances constitute an ineﬃciency due to an externality, that is, the consequences of producing and disposing of waste are not internalised in market prices. In this economic view the occurrence of waste is due to a market failure, which could, in principle, be cured by imposing suitable policy measures, such as, for example, Pigouvian taxes or tradable permits on waste. While the problem indeed is to some extent due to a market (and policy) failure, taking a thermodynamic point of view reveals a diﬀerent relevant aspect. For, from a thermodynamic point of view, the occurrence of joint outputs appears as an unavoidable necessity of industrial production. This view is presented in detail in this chapter. It has been argued, based on the thermodynamic laws of mass conservation and entropy generation, that in industrial production processes the occurrence of joint outputs is as necessary as the use of material resources (Ayres and Kneese 1969, Faber et al. 1998, Georgescu-Roegen 1971). On the other hand, it seems to be quite obvious that the sheer amount of waste currently generated in modern industrial economies1 is to some extent due to various ineﬃciencies and...
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