China pumps diesel and gasoline prices

Script by Mark Hertsgaard
Marketplace, Aug 24, 2004

(Host intro) For the first time since May, China is about to hike prices for diesel and gasoline. Though Beijing is pretty heavy handed when it comes to price controls, this move just goes to show that not even a state-run economy can insulate itself from world markets. Commentator and writer Mark Hertsgaard thinks China — and the rest of the world for that matter — can learn a lesson or two from this.

(Mark Hertsgaard): Double-digit annual growth rates have lifted millions of Chinese out of absolute poverty and created a middle class larger than entire European nations.

But a time bomb is ticking inside China that threatens to undo all this. Worse, the same bomb lurks within most of the world's economies, including ours.

Standard ways of calculating market prices are environmentally blind. They measure economic output and consumption but ignore the associated environmental costs.

China is growing at the expense of truly awesome environmental sacrifice. Factories and highways have blanketed farmland and forests. Coal makes electricity to power new refrigerators but also creates the world's worst pollution.

The World Bank has calculated the costs of China's air and water pollution at 7 percent of its GNP. Other estimates put those costs at 10 to 15 percent of China's GNP.

In short, China's economic growth is being cancelled out by its environmental damages. Sure, the economy is running hard, but it's poisoning its own future. And since market prices don't reflect these costs, most people think everything is fine.

We use the same flawed accounting system here in the United States. In California, for example, consumers pay about $2 a gallon for gasoline.

But Terry Tamminen, the state's Secretary of the Environment, says that's a false price. It leaves out the health care costs related to the pollution gasoline causes and the lost productivity due to traffic jams.

Secretary Tamminen estimates the social costs of gasoline in California at between $20 and $50 billion a year. If the market price reflected those costs, he says, consumers and producers would act differently—by driving less, by producing more fuel-efficient vehicles.

Yes, prices at the pump would be higher, but they would be environmentally honest prices.

And that would spark the market's genius to help society as a whole, whether in China or the United States, to avoid unprecedented peril.

In San Francisco, this is Mark Hertsgaard for Marketplace.