Closing the loop : accounting for development's hidden environmental costs

The existence of pollution externalities hinders the market from signaling the true costs of transactions within the economy. Several authors have theoretically modeled the flow of materials and value between the human economy and the environment, but to date empirical input-output models have failed to fully account for pollution externalities. Regional development organizations have not included environmental costs in their decision making process because information on emissions is hard to find and value.

This project develops and uses an input-output model of the East Tennessee economy in conjunction with sectoral pollution output data, a toxic risk index, and sectoral abatement costs to attempt to estimate the cost of four different development industry choices to East Tennessee. The target industries are auto part manufacturing, boat manufacturing , furniture manufacturing, and paper production. Multiple economic and environmental criteria are used to rank these industries. Paper production is found to be the least beneficial industry of the four to East Tennessee. Furniture is the next least beneficial. Boat and auto part manufacturing are ranked the most beneficial of the four for East Tennessee.

The existence of pervasive externalities, future discounting, and uncertainty makes accounting for the total cost of pollution externalities an impossible task. This should not detour development organizations from ranking alternative industries by collecting as much available information on pollution output and its effects.