Externalities: An impact or affect that is caused by an unconnected event or process. Externalities can be both positive or negative. For example a new factory being built may create extra business for a local shop when staff buy there lunch (positive externality), but it may also create congestion and pollution in the local area (negative externality).

Negative externalities usually affect poor people the most. Poor people tend to be people who are forced to live near polluting factories because they can’t afford to live anywhere else. It is also poor countries that polluting TNCs tend to locate in, because either environmental regulations do not exist or they are not enforced. The old/young and sick are also vulnerable to pollution caused by industry.

Depending on the type of externality, some can just have local impacts on the surrounding houses and communities or others can have much bigger impacts covering whole countries or even the globe. The Chernobyl Nuclear accident in the Ukraine has created long-tern negative externalities, but it also greater much wider temporary negative externalities across much of Europe.

Local Externality – TS2 Postcode, UK

  • One postcode with 17 major polluting factories (chemicals, oil, iron and steel)
  • Average income about $10,000 (64% below national average)
  • One residential area (Grangetown) has 70 tonnes of pollutants fall on it annually.
  • Death rates from asthma and bronchitis three times national average
  • Life expectancy 10 years below national average

Local Externality – Bhopal, India

  • Bhopal is a city is central India.
  • On December 3rd 1984 a huge chemical explosion at the Union Carbide (US TNC) factory killed an estimated 3,800 and left thousands more permanently disabled.
external image sentencia-bhopal-L-2.jpeg

Regional Externality – BP Gulf of Mexico Oil Spill

  • Largest accidental oil spill in history
  • 20th April 2010 – Deepwater Horizon oil rig exploded killing 11 and starting leak
  • Leak stopped on 15th July by capping oil well
  • About 4.9 million barrels escaped in the 3 months
  • 19th September a relief well permanently stopped leak
  • Tourism and fishing industries severely effected in southern states of US.
  • Wildlife badly effected (birdlife and marine life)
  • BP are paying all clean up costs.
  • $20 billion fund set up to compensate industries effected.
bp oil spill.png

Global Externality – Greenhouse Effect

The greenhouse effect is caused by greenhouse gases being released into the atmosphere (many of them come from industry). The greenhouse effect causes global warming which is a global negative externality. Although the greenhouse effect is a natural process, it is being enhanced by human activity i.e. the release of greenhouse gases from factories, cars, houses, power stations, etc.

Global Externality – Acid Rain


Acid Rain is caused by pollutants (carbon monoxide, sulphur dioxide, nitrous oxide, etc.) being released into the atmosphere and then falling to ground either as dry or wet deposition. The pollution can blow anywhere so is known as tarns-frontier pollutant.

Dry deposition: Pollution falling directly to the surface.

Wet deposition: Pollution mixing with rain and falling to the earth.

Causes of Acid Rain

  • Industrial pollution
  • Transport fumes (cars and airplanes)
  • Power stations

Problems Caused by Acid Rain

  • Damage to buildings
  • Changing pH of lakes and rivers and killing plant and animal life
  • Changing pH of soil and damaging agriculture
  • Damage to vegetation
external image The_Greenhouse_Effect_Diagram_Pic.jpg

Acid Rain Damage
Acid Rain Damage


external image 0647MC30.gif

The closure of an industry can cause many externalities to the local area and the country. These problems may include:

  • Unemployment amongst workers at the factory
  • The government receiving less income and corporation tax and having to pay benefits instead
  • Suppliers going bankrupt because they have lost their main customer. This causes unemployment amongst suppliers.
  • Local shops and businesses may also see a decline in business and may suffer bankruptcy or redundancies (negative multiplier effect)
  • Old factories may become derelict leaving polluted brownfield sites
  • Locals may migrate out of the area to try and find work.
  • There maybe inflation for the product produced because demand exceeds supply
  • There maybe a reduction in the choice for customers if a certain product was only made in the one factory.


Possible Solutions to Negative Externalities

  • Renewable Energy: If industries use renewable energy they will reduce the amount of greenhouse gases released into the atmosphere.
  • International Agreements: International agreements like the Kyoto Protocol limit the amount of pollution that countries (and therefore companies) can make.
  • Government Regulations: Governments creating laws to limit noise, air and water pollution and just as importantly enforcing the regulations and punish non-compliance.
  • Corporate Responsibility: Companies can make their own steps to reduce pollution e.g. recycling, using energy saving light bulbs, using materials from sustainable sources and using low emission vehicles.
  • Appropriate Technology and Industries: Industries only locating in areas where the technology and regulations are in place to minimse externalities e.g. it is no point a chemical factory locating in a country where there is not the technology to clean waste water. Also companies should use technology appropriate to the local area, if people is the abundant local resource, use people rather than polluting equipment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s