We founded the True Price Foundation with the purpose of introducing the True Price. We aim to develop together with producers and other stakeholders a methodology to calculate the social and environmental external costs of products. This entails tracing all externalities and monetizing them (in terms of compensation costs measured by ‘the willingness to accept’ the externality).
In this way producers and consumers can know the true costs and the true price of products along the entire value chain. The true costs are the internal costs + net external costs, whereas the true price is the selling price + net external costs.
The beauty is that if the selling price of a product exceeds its true costs, then a transacion truly creates value. If all selling prices equal the true prices, then net external costs are zero and we have a sustainable economy.
How will knowing true prices lead to a sustainable economy?
We provide a frame in which the consequences on society and the environment of the choices producers and consumer take becomes simple (a price), sound (internalizing externalities) and impossible to ignore (it will be on the package). Together with people’s well-considered preference to act responsibly, this will lead (most of) them to act sustainably.
Responsible and smart producers will want to know the true price of their products, so that they can, firstly, trace and reduce the external costs along their value chain and, secondly, credibly communicate the sustainability of their products to their customers. (The vast array of labels cannot fulfil this role, as they are all based on arbitrary criteria rather than an economic principle and are not quantitative.)
Responsible consumers will shop for those products with the lowest external costs. This will create competition for sustainable products and make investments in sustainable technology more profitable. Increased competition, enhanced efficiency along the value chain and more investments will reduce internal and external costs of products. This will increase the marketshare and variety of sustainable products further. As soon as it becomes a social norm, all but the staunchest anti-sustainability people will buy sustainable products. Lagging producers will be forced by mere competition to follow the trend.
How far are we?
Just starting, but progressing fast.