Unaccounted Externalities
Adam Kall, Co-Founder and Director of Science
7 minute read
Troy M. Morris (left), Adam Kall (middle), Austin Morris (right)
KMI was founded in 2019 by a young team of three co-founders with an average age of 24 years old, which is actually an important part of our origin story. We saw a distressing problem in space debris that, while tolerable in 2019, was going to grow exponentially and reach a critical point of no return in the 2030s. For individuals already in the space industry in their late 30s and 40s at the time, this coincided with their planned retirement dates anyway. However, for the founders of KMI, the 2030s would be the very middle of our hopeful space careers. Space debris represented an existential risk to our futures, and yet junk in orbit is also the result of past and current human actions. While it may seem like it sometimes, we don’t actually live in a cruel society where the older generations act like villains to purposefully destroy the future for the younger generation but instead suffer together as a society from a concept known as unaccounted externalities.
If I were an older gentleman walking down the street with a cane (apparently a well-dressed gentleman), and I suddenly used that cane to smash a window, society would have many ways to punish me for my actions. Pedestrians on the street would step in to stop the mindless destruction, the police would be called to arrest me and put me in jail to protect society, and my friends would avoid associating with me, calling me a jerk. All of these reactions are exactly what a society should do in a situation when a member of that society acts out in a violent and destructive manner putting others at risk. However, the key is that the action, damage, and punishment all occurred in the present. If instead my cane was infested with termites and I chose to rest it against a telephone pole, then the termites jumped across to the telephone pole, and 20 years later they sufficiently chewed through the pole for it to collapse and crush a building, causing far more damage than just breaking a window, I would suffer no consequences unless society properly understood the long-term consequences of termite infested canes, and handled both eliminating the canes and repairing the damage that was caused prior to understanding the danger. For clarity, while I used property damage in this example, more often than not it is the health and safety of the younger generation that is impacted by these externalities.
While an improbable example, the termites in the cane represent an unaccounted externality, and there are a plethora of very real and serious examples of this scenario happening. Back when cities started to grow, people would empty their waste into the same rivers from which the community drew their drinking water, because the association with sewage and illness wasn’t well linked until Dr. John Snow (look it up) made the association. For a long time, we used lead in both water pipes and gasoline until we learned of the awful effects the invisible metal causes when ingested, even in tiny amounts. Asbestos is a type of insulation which, over a long time, damages and causes cancer if inhaled and we used it everywhere as a cheap and easy material to manufacture insulation. Finally, although not last because there are endless more examples, human society continues to burn fossil fuels, releasing greenhouse gasses into the atmosphere and threatening future life as we know it on this planet.
I’ll get back to space debris in a couple of paragraphs, because this is a KMI column after all, but I want to focus on climate change for a moment as it highlights many of the same issues and should be more familiar to most of us. With climate change, the root cause is using fossil fuels to do things that, in nearly every case, can be accomplished via different techniques that produce less greenhouse gasses but cost more money. Standard business sense tells us that when two actions with equal outcomes have different costs, go with the cheaper option. But fossil fuels have only maintained a measure of affordability because the very real and expensive costs of climate change were not factored into the calculations, and how could they be when the cost includes a total collapse of economic activity in the absolute worst-case scenario?
There is another way to think about this dilemma, and to explain it I’ll use the example I recently encountered in trying to make my home net-zero. The motivation and goal were simple enough: my power bill feels very expensive and keeps getting more expensive, so if I install solar panels my costs would become fixed to paying off the financing of the panels and I’d get the added benefit of not using power from a grid that is still 50% supplied by fossil fuels. However, I encountered two major issues in my plan; I plan to move to a bigger home in a few years when my family outgrows our current home and so we only have a few years to directly benefit from the panels, and solar panels plus batteries are still quite an expensive option and would end up costing me more than continuing to use grid-supplied power. Before I even get started, I run into the classic economic problem and normal logic tells me to just keep using the grid, keep being a part of polluting the environment, and hope that one day the future generations will forgive me when they have to deal with the consequences.
As that didn’t sit well with me, I decided to change my view. Instead of needing solar panels to be cheaper than the current solution with all its unaccounted externalities, I wanted to ask how much value was I creating in exchange for polluting the future. The answer is my household's take-home income, which for simple math we can say is $76K per year, divided by the greenhouse gas production for the household, about 19 metric tons of CO2 equivalent per year. So I should be willing to pay up to $4K per metric ton of CO2e removed per year because that is the externality that will ruin my ability to create value in the future. Looking at the battery and solar panel system, which came in at an estimated cost of $34K, it doesn’t appear to be worth it if it is only removing the 2.5 tonnes of CO2e from my power generation, but that’s just in one year. With the panels and batteries I’d eliminate that amount every year, and since I plan to be in the house for at least four years, suddenly removing 10 tonnes of CO2e for less than $40K matches my parameters for protecting the future.
This approach does not mean I should just immediately spend the money on solar panels. While they were my original project plan for the goal of saving money, this new calculation has the new goal of maximizing my efficiency of reducing CO2e for the lowest cost possible. It was through this lens that I realized I could replace my natural gas stove, water heater, and furnace with convection and heat pump equivalents, all for less than $8K, and I would eliminate 4.5 tonnes of CO2e per year. This means that over the 4 years I remain in the house I will eliminate 18 metric tonnes of CO2e for less than $500 per tonne, making that an amazing value. In case you’re interested, my next order of action by value for the future is an electric car, although an electric bike would be orders of magnitude better in terms of cost, true reduction in emission, and personal health, followed by solar panels. My wife and I already garden, but I highly recommend that along with a less-meat diet to start having an immediate impact on emissions and actually save money doing so.
My pursuit of emission-free living on Earth may feel unrelated to the ongoing fight against space debris in orbit, but the same logic still applies. If the goal of the space industry is the maximization of profit above all else, paying extra for debris removal won’t make sense except in very rare and dangerous circumstances. However, whether by a change of perspective towards preserving the business case of space for more than the next 10 years, or due to government regulations forcing a more responsible mindset, the space industry will need to begin removing debris, and has several options to compare to do so. The first would be doing nothing and letting the atmosphere naturally deorbit the objects, but this only works for objects below about 300 miles of altitude in the near-term. The second strategy is to improve new missions so they don’t generate debris as often, and while no procedure will ever be perfect, this will make a useful impact on the future debris risk at varying levels of cost. Unfortunately it won’t be enough, as even if no debris were ever again created from human activities, the debris already up in space is smashing into other debris and creating thousands more objects each year.
So it is necessary to take a multifaceted approach and both minimize the new generation of debris and employ methods to actively remove already existing debris. Using the second technique to calculate the ceiling of how much these services could cost and still be worth it, the global space industry generated more than $500 billion in revenue in 2022 and also created about 5,000 pieces of new space debris. This means the cost per debris object for removal should be worth up to $100 million, since without that the full revenue-generating potential of space, not just profit potential, is threatened for the present and future. Thankfully, KMI currently offers an average cost closer to $8 million for the removal of an average debris object, and so the path of active debris removal is available for the space industry to deploy and finally take responsibility for their externality, and begin keeping space clear for all, especially for the next generation.
Recommended column to read next: The Elliptical Economy