I first learned the word “externalities in my first year of law school, but the concept is well known to everyone. If you’re doing something that has an unintended effect on others who are not involved in what you’re doing – that’s an externality.
Externalities can be positive or negative. For example, in order for bees to produce honey they pollinate nearby plants, which is a positive externality benefiting farmers and all living creatures that rely on those plants to survive. On the other hand, a classic example of a negative externality occurs when a factory produces goods for their own profit while emitting pollution that contaminates surrounding air and water.
Another example of a negative externality is packaging. When companies sell packaged goods to consumers, consumers (and the municipalities where those consumers live) are left with the responsibility of disposing of the waste. But if a manufacturing company benefits from the sale of goods, they, and not the consumers, should be held responsible for the externality they created in order to make their profit. Extended Producer Responsibility (EPR) is a strategy that keeps manufacturers on the hook for the end-life of what they sell. If companies are the ones responsible for clean up, they have a real incentive to deliver goods sustainably.
In New York State, for example, manufacturers of electronic equipment are required to accept (take back) their own devices free of charge. (http://www.dec.ny.gov/chemical/66872.html) Europe has an even more robust system of Extended Producer Responsibility, which accounts for their far higher rates of recycling.
Extended Producer Responsibility is a tremendously important solution that should be creatively implemented all across the United States. Doing so will encourage companies to design packaging that has a benign or productive end-life and will help reduce the amount of waste accumulating in landfills.