Externalities involved in the fuel market

By John Dudovskiy

externalitiesExternalities relate to an economic side effect of a good or service that generates benefits or costs to someone other than person deciding how much to produce or consume. Generally, externalities occur when firms or people impose costs or benefits on others outside the marketplace. As with any market activity, of course, fuel market carries a number of positive and negative externalities. Following are major external costs associated with oil:


Positive Externalities:

·         Economic Benefits –increased employment, business activity

·         Increased Productivity – use of oil accelerated efficient production in many industries

·         Means of Globalisation – increased trade between countries


Negative Externalities

·         Environmental Damage – environmental damages from oil production, distribution and consumption

·         Health Risks – injuries and illnesses from fuel production and distribution

·         Economic Costs – economic impact of importing fuel

·         Security Risks – political and military costs of maintaining access to oil recourses

·         Limitation of Recourses – depriving future generations from non-renewable recourses

·         Financial Subsidies – different financial subsidies to oil producers

The most public attention focused on environmental damages as resource exploration, extraction, processing and distribution cause environmental damages, including wildlife habitat disruption, and release of air, noise and water pollution, both chronic and through spills (VTPI, 2010).


Category: Economics