Externalizing The Costs Of Our Modern Life

Some thoughts on the costs of western society

You are the reason for climate change

Disclaimer: This is all opinion. I’ll try and get back to more of my regular writing by Friday, but this is something that has been bugging me for awhile. I hope that by writing it I’ll be able to focus back on my regular scheduled programming of attempting to explain the chemistry news, some light opinion, and publishing interviews with people. If you liked this let me know in the comments or reply to the email.

I am a somewhat conflicted person. On one hand I am a polymer chemist who is good at research, capable of launching new products, and I know how to make stuff work either in the field or in a factory. On the other hand I am someone who grew up in the country and thinks about a more simple life that involves no research, growing vegetables, and trying to do good in the world. When I got my PhD I had this notion that I could do good by doing research on how to make the polymers from biomass. I went into the chemical industry thinking that if I could take what I learned from my PhD I could get change at scale. After five years of being in the chemical industry since my thesis defense my goal is a bit more complex than what I initially thought.

There are really two problems that I see in the chemical industry that hold us back from achieving societal and economic success. The first is The Nylon Problem or a problem of our incumbent technology being difficult to displace. The second is externalizing costs of our incumbent technologies across fragile global supply chains that are prone to breaking. I see these two problems as being barriers to disruption from start-ups and even large incumbent companies seeking to take first mover advantage.

“The Nylon Problem” or the Incumbent Technology Problem

The first time I heard about the Nylon problem was from my coworker Elizabeth Burns who forwarded an Industry Matters story about one of her former coworkers, Jon Sidall:

The issue we face in mature industries like the chemical industry is that we are capability rich and target poor. There is a material solution for almost all large applications. We can make almost any molecule you can draw – for a price. Please don’t misunderstand - it is certainly not time to close the patent office! What we need is new applications for materials and not so much new materials for existing applications. Because of this maturity, the opportunities to make truly new materials are less at this point in history. There is a simple reason for this, and it is due, to all things, a simple dimensional analysis or the Square-Cube law. This makes large scale processes win every time and in turn limits materials innovation.

Equipment that can process 100 times as much material usually is only around 100^0.6 or 16 times as much cost to build. A new material is made on a small scale and cannot compete with a large-scale incumbent on price. With each advance in materials, it is more difficult for the next generation of materials to be enough more valuable to overcome this cost disadvantage. I have worked on materials that are superior in many ways to what you use today, but they cannot grow commercially for this reason. It’s not a technical problem as much as a business problem. And today’s materials are mostly “good enough” When’s the last time a plastic object unexpectedly let you down? Globalization makes this even more daunting since production of existing materials moves to low cost places, making them even harder to displace.

Jon offers 4 ways to overcome the Nylon Problem:

1. Make a new material that supports an entirely new industry

2. Find niche applications for the new material

3. Sell at a loss until you have enough sales to justify a large enough plant to get economies of scale and profitability

4. Gamble on going big and hope that the industry will follow

Most chemists dream of doing route 1, but often it is route number 2 that occurs. Specialty polymers are essentially about doing route 2 and chemists spend a lot of time on slight tweaks to existing technologies to fit applications most of the time (polyaramides, polyimides, benzoxazines, phenolics, epoxy resins). We wouldn’t have wind turbines without epoxy resins and you don’t have epoxy resins if you cannot refine oil. Current issues in Texas means price increases for key wind turbine epoxy resin raw materials.

Route 3 is what companies like Avantium, Origin, Novomer, and most chemical start-ups are doing. They typically have a technology that is well understood, but unproven at scale, and are attempting to launch it in a world where consumers might actually be willing to pay slightly more for something that in theory is going to be better for our planet. Elevance has been attempting to do cross metathesis of plant oils with a Grubbs catalyst for about 14 years now and from what I can tell has been struggling. This is not easy.

Route 4 is something really big companies can do like Eastman’s $250 million dollar investment into their own PET methanolysis plant (also old technology). The United States does not have a robust plastics recycling program across the whole country and our absolute best was 9% of consumed plastics being recycled. This is not solely a criticism of chemical companies and people unwilling to recycle.

One thing I would add to Jon’s discussion of The Nylon Problem is the externalized costs of our incumbent technologies. Emissions from production and transportation of goods such as fertilizer, steel, cement, plastics/polymers, glass, textiles, and wood are all paid through the environment. Spent plastic, packaging, paper, aluminum, glass is typically foisted upon municipalities and ultimately taxpayers. We as consumers benefit from the luxuries that these materials provide and we pay for them later—or will be paying for them later.

I write about circular materials economies a lot here, but from what I’ve seen since I started in graduate school till now the economics of companies attempting to make these circular economies work never seem to take off. It’s easy to be a cynic and think nothing will work.

I’m hopeful for a company in the space to succeed, but it feels more like the hunger games than capitalism. While these companies are seeking to solve some of the externalized costs that their incumbents do not seek to pay for it is typically unbeknownst to consumers.

Consumers typically do not know about these externalized costs of their modern lives. Nor are they aware that there have been chemical companies trying for decades to solve the problems they don’t know about. Thus, consumers cannot even hope to reward these companies and thus materials aimed at circularity are often thought of as a marketing ploy to sell more products. In the rare chance they do get into the market like polylactide (PLA) there are no composting waste streams for them to even be disposed of properly. If Avantium succeeds in launching their polyethylene furanoate plastic with partnerships from all the brands its likely it will make supply chains for mechanical recycling even more complex and diffuclt.

Based on my conversations with some founders and executive leaders of companies focused on circularity and doing well by doing good I do have hope for the space. I’ll be attempting from frame these conversations here. The solutions to our problems are less fancy than we might think, but require difficult to change behaviors.

Externalized Costs

Annie Leonard published a great piece in the Huffington Post back in 2010 talking about this issue of externalized costs. Yes, this concept has been around for a long time. She frames her whole article around a little radio from Radio Shack that costed her $4.99 ($6.00 in 2021 money) She writes about how our immense globalized supply chain has made this low cost radio possible through externalizing costs.

A study currently underway for the United Nations is calculating the cost of pollution and other environmental damage caused by the 3,000 largest publicly held corporations in the world. The study, which will be published this summer, has found that the cost of environmental damage by these companies is $2.2 trillion, or more than one-third of their profits if they were held financially accountable. This includes greenhouse gas emissions, other pollution, and water degradation. The final amount is likely to increase once additional costs — like toxic waste — are incorporated.

The Guardian newspaper wrote: “The report comes amid growing concern that no one is made to pay for most of the use, loss and damage of the environment, which is reaching crisis proportions in the form of pollution and the rapid loss of freshwater, fisheries and fertile soils.” Economists call that externalizing costs, and it’s how corporations hide the true cost of making and selling cheap stuff — costs that are never recorded on the balance sheets and consumers never see. As David Korten writes in When Corporations Rule the World, “Externalized costs don’t go away — they are simply ignored by those who benefit from making the decisions that result in others incurring them.”

Our global supply chains are insane. When I worked in making glue for shoe construction we would make our products in Nashua, New Hampshire. Then they would get shipped to places like China, Vietnam, or the Dominican Republic where the glue was used to make shoes. The shoes then get shipped back to the US to be sold to consumers at an insanely high markup. The major brands like Nike, Adidas, and Timberland outsource the majority of their manufacturing to these countries where labor and raw materials (except some of the glues) are cheap and they reap gigantic margins off of consumers.

Look at a pair of Red Wing boots compared to a pair of boots from Timberland. One pair is made in the Dominican Republic or the Philippines while another is made in Red Wing Minnesota. The price of the iconic Timberland boot is about $200/pair while a pair of Red Wings is at minimum about $279/pair or higher. The externalized costs of Red Wing are probably overall lower than that of Timberland due to localization supply chains (Last time I checked they were).

Oftentimes as consumers we are thinking we are getting a great deal like Annie’s $4.99 radio, but I would bet the margin on that radio was at least 30% or higher. RadioShack was probably making money on each radio sold, but likely losing money in the larger picture due to lack of volume when retail shifted to being online. Low cost products like Annie’s radio make money due to economies of scale.

Annie’s article reminds me of my favorite scene from the movie Margin Call. The quote from the character Will Emerson starts around 1:00. I’ll summarize below for those who don’t want to watch.

If you really want to do this with your life you have to believe that you're necessary, and you are. People want to live like this with their cars and their big fucking houses they can't even pay for - then you're necessary. The only reason people get to continue living like kings is because we've got our fingers on the scales and we're tipping in their favor. I take my hand off, well then the whole world gets really fucking fair really fucking quick and nobody actually wants that. They say they do, but they really don't. They want what we have to give but they also want to play innocent and pretend they have no idea where it actually came from; and that's more hypocrisy than I'm willing to swallow, so fuck 'em.

I think this quote resonates with me because people in the United States do live like kings in a lot of ways. Food is relatively cheap and abundant. Material goods are cheap and abundant. Energy and connectivity is readily available. And costs for a lot of things tend to go down as economies of scale are reached. These lifestyles have externalized costs that we tend not to think about. When we do think about them we feel really guilty. We try to alleviate that guilt by recycling, composting, reusing things, and reducing conspicuous consumption.

Margin Call was based on the financial crisis of 2008, but I think Will’s quote can be applied to essentially any industry where the consumer gets advantageous pricing versus the externalized cost. In the movie he is talking about offering loans for houses that people know they cannot afford, but believed that they would figure out a way to make it work. These loans were predatory, dangerous, and plunged us into a global economic crisis, but it wasn’t against the law. The externalized costs of these loans was homelessness, lost careers, and suicide primarily borne by the regular people that Will Emerson calls hypocrites.

To expand on the issue if you work in any industry that generates goods and services there are likely externalized costs. When those costs are evident in industrialized food, chemicals, finance, or fashion those externalized costs typically need rationalization for the worker. If you really want to do this with your life you have to believe that you're necessary.

I have to believe that I am necessary because I am making things marginally better for consumers through sustainability. If I can eliminate a million pounds of waste somewhere that is a million less pounds of waste going to a landfill. If I can improve the energy efficiency of a building by 0.5% and this occurs across 50% of new buildings then we use a fraction less energy year after year. Think about someone who designs clothes or someone in finance where the externalized costs are currently in the conversation. How do they believe they are necessary?

The consequences of our externalized costs are damage to the planet, other humans, and wildlife. Our society needs to go through fundamental changes on how we think about our economy. Economic growth has come for a select few with costs that will be paid by everyone. I am hopeful that our societies can change and I hope to help enact the circular economy that lives in my dreams both through by day job and here in this newsletter.

If anyone is doing some renovations to their house this year think about installing an air barrier. A more efficient house uses less energy and thus generates less emissions. Have you been thinking about composting, but you don’t have the space or a service to do so? Consider Bokashi composting.

In Conclusion

I started with The Nylon Problem and ended up with Bokashi composting with a little side track into the movie Margin Call. It was a bit of an intentional ramble because I consider a lot of these things to be related.

Could we start charging people for their carbon use and stop people from commuting over an hour a day here in the US?

Sure, but it would probably effect people who cannot afford to live close to their jobs due to housing costs.

Could we just stop making plastics and just stop our consumption of fossil fuels?

Sure we could, but a sudden stop would cause a massive economic depression.

A lot of the problems we face today are complex. I’m trying to show how chemistry is central to many of these issues here. We need collaborative multi-faceted solutions that can work now and as our needs change.

My hope is we can overcome The Nylon Problem and figure out a way to make externalized costs available to consumers. Would you be more likely to buy something locally made with a relatively low carbon footprint that was 2x the price of something with a significantly higher carbon footprint? I hope to see labels on product detailing their carbon footprint, maybe through a QR code. A global harmonized system might give consumers enough information to make better choices and with those choices help companies trying to solve these problems profitable and successful.

If we cannot then I just favorited a house up in Maine as a hedge.

Talk to you Friday,

Tony

PS. If I ever seem derisive of environmental groups its because I don’t think they are attacking the problems in the right way. Also, I think reporters are great.

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The views here are my own and do not represent those of my employer nor should they be considered investment advice.

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