What Is True Cost Thinking?

Julia Mickenberg recently found the perfect gift for her husband: an elegant tabletop fountain made of natural stones. The University of Texas American Studies professor elected to pay, in addition to the standard shipping fees, an optional $2 charge, which covered the company’s cost of planting a tree to offset the greenhouse gases emitted from trucking it to her Austin, Texas, home.

Mickenberg, like a growing number of consumers, says she is comfortable paying such fees – and paying more for environmentally responsible products and services in general – because she sees it as a way of more completely covering the “true cost” of her consumer choices.

True-cost thinking is actually an extension of true-cost accounting, a method that expands conventional fiscal considerations of profit and loss to include what might otherwise be easy-to-overlook (but inherently important and potentially very expensive) environmental and social factors.

A variety of true-cost accounting concepts and metrics are now being embraced by individuals, companies, municipalities and governmental bodies of all sorts (including the EPA) as a way of better factoring in ancillary and long-term “life cycle” impacts that may previously have been largely ignored, underestimated – or simply covered up.

Consider, for example, an industrial dumping ground that once qualified as the cheapest available waste-disposal option – but that a generation later becomes a taxpayer-financed hazardous Superfund site. The site also negatively affects an entire region’s ability to support future human or business activity and destroys valuable natural resources. Once the true cost of the dumping is figured in, it looks prohibitively expensive. Or consider things like trans fats, cigarettes, junk foods, and “cheap” energy from fossil-fuel sources: There are lots of options that can seem appealing, convenient and affordable on the front end, but wind up costing billions in hidden costs and damages down the road. Such choices may also ultimately cost millions of people their lives (or their quality of life) in the process.

Ironically, these sometimes appear to be “no-brainer” solutions that look so practical and cost efficient on the front end that we never fully calculate their back-end costs, nor fully investigate or accurately assess potential alternatives. Thus, such solutions may contribute to economic profit and growth initially, only to later leave us wondering: “Was that really worth it?”

How True-Cost Thinking Shifts Perspectives on Environmental and Social Responsibility

True-cost thinking actively considers the positive and negative impacts to ecology and social welfare right alongside conventional, purely fiscal profit-minded concerns. It considers the “three Ps” (planet, people and profit) in an integrated way, recognizing that the only way to responsibly and sustainably do business is to treat these concerns as the interlocking and globally interdependent factors they are.

True-cost thinking encourages us to evaluate the return on our investments – as individuals, communities, societies and as a planet – in a more comprehensive and discerning way. It also offers us a way to consider the type of future in which we want to invest not just our fiscal resources, but also our time, energy and collective focus.

There’s not yet any single agreed-upon formula for precisely calculating the true costs and long-term impacts of the wide range of goods and services we consume daily. Nor is there any one unified way of expressing those costs on paper. But there does appear to be a growing sense of agreement that it’s a good idea to connect our economic decisions to broader social and environmental issues, considering the indirect, hidden and long-term impacts (as well as direct, obvious and short-term impacts) of the paths we choose to pursue.

In 2007, some very large U.S. industrial and utility companies signed a petition asking for governmental limits on greenhouse gas emissions, advocating for a “cap and trade” program that would recognize at least a portion of the environmental costs associated with fossil-fuel burning.

Meanwhile, consumer interest in free trade, organic, carbon-neutral, and other environmentally and socially responsible products has been growing. And many businesses and communities are realizing that they stand to benefit – economically and otherwise – as a result.

There is a simple but powerful paradigm shift behind all this. One important aspect involves recognizing that if the methods we’re using to create wealth ultimately endanger our ability to continue producing and enjoying that wealth, then those methods are not in our long-term common interest.

This is what the term “sustainability” is all about. Unfortunately, it’s not a concept that is ingrained in our conventional modes of thinking about economic development and growth – or even about our own well-being.

Progress With a Purpose

“If you take a broad view, our current national accounting systems make no sense,” says Robert Costanza, PhD, director of the Gund Institute for Ecological Economics at the University of Vermont in Burlington. Traditional measures of economic health, like the gross national product (GNP), which charts the market value of a country’s goods and services, are notoriously poor measures of well-being because they often treat as unconsidered “externalities” things that have an enormous and central impact on our quality of life.

“GNP counts everything as a positive,” Costanza explains. “If millions of people get sick and spend money at the hospital, our GNP goes up. If there’s more crime and people are buying security systems and building prisons, the GNP goes up. Our quality of life [in these scenarios], however, is not going up.”

True-cost thinking aims to correct this disconnect between the economy and quality of life.

True-cost thinking aims to correct this disconnect between the economy and quality of life. Some economic experts are now also advocating the use of a new economic measure – the Genuine Progress Indicator, or GPI – as a better, more realistic metric for economic growth.

Advocates of the GPI (learn more at www.rprogress.org) suggest that we should count economic gains as positives only when their net impacts on human and ecological welfare are neutral or beneficial.

Here’s an example of true cost:

The GNP counts ecological disasters as a net gain for the economy (because the capital expenditures required to mitigate the ecological damage result in economic growth). By contrast, the GPI would count such events as a net loss (because their short-term economic “benefits” don’t begin to compensate for the terrible toll on people, or for the damage to the communities and ecosystems on which future economic stability depends).

A Win-Win Situation

When policymakers and business leaders adopt true-cost thinking, the impact can be dramatic. But ordinary consumers can also make a big difference, both by adopting true-cost thinking in their own daily decisions (see below) and by calling more attention to the win-win scenarios true-cost evaluations can produce.

With the emerging clarity about the potential ramifications of human-caused impacts to the planet’s climate, among other things, more inclusive true-cost perceptions are gaining ground. We’re learning that while what’s bad for the planet eventually proves lousy for all its inhabitants, what’s good for the planet and its people can also be a boon to our triple bottom line (planet, people, profit), and our quality of life.

The great news: If enough of us can get our heads around true-cost thinking, it has the potential to improve not just the state of the planet, but the health of our economies and communities, and our collective peace of mind.

True-Cost Thinking

Want to begin building true-cost perspectives into your own everyday decisions? Start with these two user-friendly websites:

www.rprogress.org– The Redefining Progress site offers a variety of tools and resources (including an in-depth explanation of the economic metrics behind the Genuine Progress Indicator, or GPI) to help you make more informed, true-cost consumer and business decisions.

www.natcap.org – The Natural Capitalism site (published by the Rocky Mountain Institute and inspired by the book Natural Capitalism: Creating the Next Industrial Revolution by Paul Hawken, Amory B. Lovins and L. Hunter Lovins) offers excerpts and downloadable chapters of the book, plus helpful “Beyond the Book” links and discussion groups.

This article has been updated and originally appeared as “True Cost” in the May 2007 issue of Experience Life.