A basic premise in economics is that companies should pay all of the costs that are incurred in the process of producing their goods and services. The reason? By incurring all of the costs in production, the price charged by the company will reflect those costs. The price consumers pay, then, will also reflect all of the costs incurred in production. This leads to price efficiency, a major goal in free-market economic principles.

Unfortunately we don’t always include the costs to the environment in the production process. Take, for example, electricity generation, which can be accomplished using different inputs. Coal-burning power plants, using coal as the "energy input," burn coal to heat water to create steam. The steam turns the turbine creating electricity. Natural gas plants burn gas as the input. Hydroelectric power plants use water. Wind turbines use wind as the input to directly turn a turbine. Solar power generators are a bit different. The sun excites electrons on the solar panel creating electricity. Depending on the inputs used, the costs to the environment, and thus human well-being, vary. Some inputs have environmental costs that are not considered in the production process, while others capture most, if not all, environmental costs.