Winter is here, and the Washington area is stocking up on rock salt. Nationwide some 10 million tons will be used to prevent icy roads this year. Highway departments will buy the salt for 1 to 2 cents a pound. But the cost to the communities they serve will be much, much higher.
The price of something is what the individual pays. The cost is what society pays. We buy on the basis of price. But when the cost is significantly higher than the price, our decisions can cost society billions of dollars.
Rock salt is dirt cheap, but it has some nasty side effects. It corrodes car bodies and bridges. It pollutes ground water and destroys vegetation. Where electric utilities put cables underground, salt runoff eats away at the insulation, "generating a neoprene gas that stays underground," says Martin Gitten, assistant director of public information for New York's Consolidated Edison. The corroded insulation bares the wire, and a spark can lead to explosions and flying manhole covers. A 1976 Environmental Protection Agency study estimated rock salt's corrosion costs alone at about 40 cents a pound. Larry Hudson, senior project manager of the New York State Energy Research and Development Authority, recently updated that estimate, including pollution damages. His conclusion? Rock salt really costs about 80 cents per pound.
Maryland used about 100,000 tons of rock salt last year. Its highway department paid only $3 million to buy it, but the community will suffer damages of as much as $150 million. The District, which used about 25,000 tons last year, will suffer more than $35 million in damages for a product for which its highway department and citizens paid less than a million dollars.
An alternative to rock salt exists: calcium magnesium acetate has similar de-icing characteristics. It can be made from organic materials or natural gas. Highway tests in several states have been very promising. The problem is its high price. Chevron Chemical Corp., the only domestic manufacturer, makes small quantities of CMA from natural gas and charges 25 cents a pound, 10 to 20 times the price of rock salt. Dynatech Scientific Corp. estimates the price would drop to 14 cents per pound if CMA were made from organic wastes, a cost still several times higher than rock salt. Though the price seems high, CMA is not corrosive or polluting -- thus its cost is about equal to its price.
No highway department, homeowner or business would purchase large quantities of CMA today even if it were widely available, because the individual doesn't care about cost, only price. Yet by Hudson's calculations, for every ton of rock salt an individual buys for $30, the community as a whole pays about $1,600.
What can be done? Individuals should pay the full cost of a product. Price and costs could be brought into line by imposing taxes. The effect would be to raise prices and reduce costs because, in the long run, the higher prices would encourage entrepreneurs to develop products and techniques that reduce both cost and price. This has happened before. When we raised the price of nuclear power to reflect the costs of protection, insurance, waste disposal, pollution and de-commissioning power plants, we spurred conservation. Industry learned how to become more efficient, and conservation became less expensive. Today we can conserve electricity for less than the price of nuclear power in 1975.
The full-cost principle should be applied throughout the economy. For example, the congressional Office of Technology Assessment estimates the social costs of cigarette smoking at more than $2 per pack. The individual pays about $12 per carton of cigarettes, but society pays $20. Cigarette subsidies, like rock salt subsidies, should be abolished. When price includes only production expenses plus profit and excludes the costs to the entire community, the market encourages economically harmful decisions. Cost, not price, should govern our actions in preventing icy roads this winter. -- David Morris is codirector of the Institute for Local Self-Reliance, a nonpartisan public policy research group in Washington.