The “Four E’s” of environmental improvement
I recently attended a conference on common property resources where the majority of participants were skeptical, if not downright antagonistic, to free market principles.
During one lengthy exchange in which I challenged the presenters to provide clear evidence that common property ownership led to superior environmental and social outcomes than private ownership, the moderator turned to me and asked what recommendations I, as an economist, had for improving the environment.
It was an interesting moment, because the participants had by now realized that I was somewhat of an anomaly at the conference (since I do believe in free market principles) and they were genuinely curious as to what I considered solutions to environmental problems.
After I laid out the four points summarized below, it struck me that most people involved in environmental work are largely unaware of the public policies that hold the greatest promise for environmental improvement. It is not because they are ignorant or incurious, but because of a general aversion to economic theory among many environmentalists, as well as a general failure by economists to clearly articulate the key policy levers that will deliver the greatest environmental bang for our collective buck.
My hope is that these four points will eventually seep into the minds of all environmentalists and the greater public. When this happens, we can look forward to a much-improved public discussion on environmental policy and greatly improve our chances of making substantial gains in environmental protection.
The “Four E’s” of Environmental Improvement:
1. Eliminate all natural-resource subsidies
Subsidies to timber companies, fisherman, farmers, and the oil and gas industry are by far the most damaging environmental policies engaged in by governments around the world. Not only do these subsidies directly increase environmental degradation, but by artificially lowering the prices of natural resources, they spur over-consumption, decrease conservation, and make it harder for substitute resources to compete.
In addition, they cost taxpayers hundreds of billions of dollars a year — money that could be used instead for improving human welfare in myriad ways. Many economists refer to these types of subsidies as “perverse subsidies” because they actually exacerbate bad behavior instead of encouraging good behavior.
2. Expand property rights in areas where they are weak or non-existent
The areas in the world where we witness the greatest levels of environmental degradation (the oceans, many large tropical forests, and the atmosphere) are those where property rights are absent, unclear, or poorly enforced. Without property rights, resources are almost always treated as “open access,” which leads to a “tragedy of the commons.”
While in many instances private property may be the best form of property rights from an environmental standpoint, property rights can also be held by the government (public property) or collectively by groups of individuals. They key is creating transparent and enforceable property rights for all of the world’s resources, so that individuals, groups, governments, and corporations have the incentive to use the resources wisely and invest in their preservation.
3. Empower society with information
Basic environmental science is something that will be underfunded in a pure “free market,” because it is rarely profitable; therefore, governments should do more to support scientific research that helps us better understand the links between our actions and environmental outcomes. In addition, laws mandating that companies disclose their pollution emissions and environmental impacts provide individuals, politicians, non-governmental organizations, and investors with information that can help gauge a company’s environmental performance and differentiate “green” companies from “brown” companies.
4. Enlarge green markets through government purchases
Since governments are some of the largest buyers of natural resources in the world (e.g. paper, power, food), their purchases have a huge impact on markets and the environment. If governments can increase their demand for “green” products (e.g. chlorine-free paper, power from renewable energy, pesticide-free food) they can push businesses towards much more environmentally friendly practices at a greatly accelerated pace. In addition, governments can both save money and improve the environment by investing in state-of-the-art efficiency for all government buildings and infrastructure.