From “externalities” to global binding markets for “Planetary Boundary” resources

July 11, 2026

Overture

Within economics you can find the concept of an “externality“.

“In economics, an externality is a cost or benefit to an uninvolved third party that arises as an effect of another party’s (or parties’) activity. Many externalities can be considered as unpriced components that are involved in either consumer or producer consumption.”
Wikipedia (https://en.wikipedia.org/wiki/Externality, July 11, 2026)

Within management theory, there are two key perspectives for producing a good or delivering a service:

Revenue perspective:
What is the maximum price I can generate for my product or service?
Cost perspective:
What are my minimum costs for producing the product or delivering the service?

The gap between “price” and “cost” is called “profit”, and a corporation intends to maximise its “profit margin“. Without going into any details in terms of e.g., management accounting and book keeping, this correlation seems to be simple and obvious.

(I.) The “price” theory

Looking deeper into the concept of “price” or “revenue“, economic theory explains the “price” as a result of the relation between “supply” and “demand“:

high supply and low demand -> low prices
low supply and high demand -> high prices

Economists refer to this correlation as the “market” or “marketplace“. The so-call “perfect market” is supposed to deliver the optimal price for a product or service, requiring “perfect competition“. To reach this, idealised conditions are necessary – one of which is the absence of externalities.

(II.) The “cost” theory

Looking deeper into the concept of “cost“, the simple and obvious understanding of “cost” is that it represents the “money” paid or the “payment” for “goods and services“. To maximise the “profit margin” of a product/good or service, a company has to reduce the payments for producing or delivering the service while maximising the revenue/payments for the product/good and service. To generate a “profit”, a gap between price/revenue/payment and cost has to be developed – a process that may seem almost a bit like a miracle.

While concepts such as

“economies of scale” (mostly generated by the “division of labour” and according organisational learning and specialisation),
“economies of scope” (mostly generated by the optimised use of available cost structures – e.g., infrastructure), and
“intangible assets“

help to better understand this gap between “price” and “cost”, the role of “externalities” is also significant. The better a profit-driven corporation is able to externalise production or service costs, the higher the profit margin.

(III.) The “limited resources” theory

Economics is based on the concept of “limited resources” or “non-renewable resources”, which assumes that the amount of resources available is finite. Due to this assumption of “limited resources”, “cost efficiency” seems to be most eligible. To reach “cost efficiency” in the production of goods/products or the delivery of services, economies of scale and scope have to be optimised. One significant possibility to do that is to externalise production or service costs.

On the other hand, thinking about “limited resources” and “profit maximisation“, a corporation will aim to intensify the scarcity of those resources. This means achieving minimal supply while driving maximal demand in order to push the prices for goods/products or services as high as pssible.

This maximisation is possible through:

“resource scarcity”:
achieved by privatising and incorporating resources (e.g., water, the island of “Greenland“).
“resource depletion“:
possible by consuming limited resources faster than their natural regeneration. This can be facilitated by maximising externalities.

(IV.) The “planetary boundary” theory

So far, there was no clear concept within economics for addressing the so called “externalities” associated with producing goods/products or delivering services. This gap began to close with the invention of the “Planetary Boundaries” framework.

Developed through natural sciences – such as physics and chemistry – and led by the “Stockholm Resilience Centre” together with the “PIK – Potsdam Institute for Climate Impact Research“, this framework provides a specific understanding of resource limitations within the “ecosystem” of our planet Earth.

“The planetary boundaries framework highlights the rising security risks from human pressure on nine critical global processes that regulate the stability and resilience of the Earth.”
Stockholm Resilience Center (https://www.stockholmresilience.org/research/planetary-boundaries.html, July 11, 2026)

The “Planetary Boundaries” describe critical thresholds for specific resources and environmental processes. Staying within these limits ensures that humanity can maintain a healthy life on planet Earth without relying on technological fixes – this is often referred to as the “safe operating space” or the “corridor of life.”

So, the “Planetary Boundaries” are no “physical constants” (e.g., speed of light). They are the limits for an ecosystem that is inhabitable for us humans. The assumption within the “Planetary Boundaries” framework is that crossing these certain limits or thresholds, the ecosystem of our planet Earth has a more or less chance to change into one that is unhealthy or even inhabitable for us humans.

For example, humans cannot survive on Mars without technological support – such as systems for oxygen production, temperature regulation, and protection from radiation – because the planet’s environment is outside the habitable corridor, specified by the “Planetary Boundaries” framework for Earth’s ecological limits.

On our current planet Earth, staying within the proposed “Planetary Boundaries” allows for instance oxygen to be produced naturally by the ecosystem of our planet Earth. Going beyond these “Planetary Boundaries”, resource limitations might significantly reduce the ability of Earth’s ecosystem to naturally produce oxygen. Since we humans depend on oxygen for survival, human life without e.g., technological support would become extinct in such a scenario.

(V.) From “externality” to “planetary boundary”

So far, the “Planetary Boundary” framework concept is rooted in natural sciences. Let us assume now, it actually describes the “limited resources” available on our planet Earth for a healthy ecosystem, healthy habitats, and healthy livelihoods for us humans.

Then, it seems possible and legitimate to transfer the “Planetary Boundary” framework into economic theory by replacing the concept of “externality” with the concept of “Planetary Boundary”. The “Planetary Boundaries” explain the “limited resources” we have on our planet Earth for a healthy and thus sustainable economy, society, and entire humanity.

This step develops economic thinking by grounding it in the physical realities of our planet’s ecological limits.

(VI.) From “planarity boundary” to global binding markets for common goods

So, if we want to develop a healthy and thus sustainable economy, we better include the “externalities” within our “price” and “cost” conception. By understanding “externalities” as “Planetary Boundary” resources, we gain a highly specific understanding of the finite ecological limits that underpin our economy.

This allows us to include these resources directly in the “price” and “cost” calculations of goods/products or services and develop healthy and thus sustainable market conditions.

To achieve this, we have to incorporate all the “Planetary Boundary” resources into the pricing and cost calculations of all the goods/products and services. From an economic and management theory perspective, this can best be reached by transferring each single “Planetary Boundary” resource into a global binding market (e.g., for “greenhous gas” emissions).

These global binding markets will then generate the corresponding prices for each single “Planetary Boundary” resource, ensuring that the use of these limited resources remains within the healthy ecological limits, the “safe operating space” or the “corridor of life.”

References

Rockström, J., et al. (2009): “Planetary boundaries: Exploring the safe operating space for humanity.”, Ecology and Society, 14(2).
(https://www.ecologyandsociety.org/vol14/iss2/art32/)
Steffen, W., et al. (2015): “Planetary boundaries: Guiding human development on a changing planet.”, Science, 347(6223).
(https://www.science.org/doi/10.1126/science.1259855)
OECD (2017): “Internalising Externalities: Practical Steps for Policy Design.”, OECD Environment Working Papers.
(https://www.oecd.org/environment/tools-evaluation/Internalising-externalities.pdf)
World Bank (2021): “State and Trends of Carbon Pricing 2021.”
(https://hdl.handle.net/10986/35620)
IPCC (2022): “Climate Change 2022: Mitigation of Climate Change.”, Sixth Assessment Report, Working Group III: Mitigation of Climate Change.
(https://www.ipcc.ch/report/ar6/wg3/)