The price of everything - free-market environmentalism

Sierra, Nov-Dec, 1993 by Thomas Michael Power, Paul Rauber

MAYBE IT HAS SOMETHING TO DOWITH THE APPROACHING MILLENNIUM: the lion will lie down with the lamb, and toxic polluters will drink herbal tea with environmental activists. The wonderful new development is lauded in the press and preached from scores of think tanks. No longer, we are told, do we have to rely on threats of fines or jail time in order to get industry to do the right thing. The business leaders of today, working together with enlightened environmentalists, have discovered in the magic of the marketplace a cheaper, more effective, and less contentious remedy to just about any environmental ailment.

The debate over environmental protection in the 1990s fills the ideological vacuum left by the end of the Cold War. It is now fashionable, for instance, to compare government regulation to the "command-and-control" economic arrangements of the former Soviet Union. As the Soviet system failed, the analogy suggests, so too will a regulatory system based on the diktat of federal bureaucrats telling industry how much pollution to reduce and how to reduce it. "Command and control" is said to cost U.S. businesses $140 billion a year, handicapping the economy, hobbling the recovery, and unfairly vilifying many environmentally concerned Americans who just happen to own polluting industries.

The alternative to this clumsy, old-fashioned, and vaguely unpatriotic-sounding system is "free-market environmentalism" (a.k.a. "new resource economics"), which promises to harness the vigor and inventiveness of capitalism to heal the earth. To do so, it proposes to vastly expand our present notion of private property, to sell that property to the highest bidder, and then to let the logic of the market sort things out.

Already a new property right has been created: the right to pollute. One section of the 1990 Clean Air Act allows plants that pollute below certain levels to sell pollution "credits" to dirtier concerns; innovative, clean industries profit from their cleanliness, while the dirty industries pay for their sins until they can get around to cleaning up their acts. A market in these "pollution credits" has been established at the Chicago Board of Trade, where rights to emit tons of sulfur dioxide are bought and sold like pork bellies or soybean futures.

Having set prices on pollution, free marketeers are also trying to figure out what those who enjoy environmental quality should be made to pay for it. What will the market bear for the use of a regional park? Hopefully the public will pay more for Sunday hikes than the local developer will for condos, because if not, farewell forest. And if people want wolves in Yellowstone National Park, free marketeers argue, they should be willing to pay for them, cash on the barrelhead. It's just a question of settling on the price.

Not all proponents of free-market environmentalism subscribe to all of its logical but occasionally wacky conclusions. Every ideology has its ideo1ogues; in this case, they are the libertarian-minded think tanks and academics who have provided the theoretical spadework for the new discipline. More common, however, are those who seek to pick and choose at the free-market table, ignoring dishes that don't coincide with their interests. Many businesses, for example, are enthusiastic about market solutions, but only when they result in a further giveaway of public resources. Contrarily, some environmentalists advocate market mechanisms in the name of efficiency, reasoning that making environmental responsibility cheaper will result in a corollary reduction of political opposition, the end result being the possibility of greater protection.

This, crudely put, is the position of the Environmental Defense Fund, the most market-oriented of the major environmental groups, as well as of some individuals within the Sierra Club. "We're finally getting past the debate about whose position is morally superior and moving on to a point where we will accomplish real reductions in pollution and resource use," says Dan Dudek, a senior economist at the EDF. His organization, which helped write the pollution-credit section in the Clean Air Act, looks forward to the establishment of national markets for nitrogen oxides, and perhaps even global markets for CFCs and carbon dioxide.

A big plus for free-market environmentalism has been its bipartisan support; neo-liberal Clintonian Democrats and anti-regulatory Bob Dole Republicans embrace it with equal enthusiasm. Mandate for Change, candidate Clinton's policy blueprint, contained a chapter ("The Greening of the Market") calling for a harnessing of the "daily self-interest" of firms and individuals to replace "command-and-control" regulations. During the campaign, Clinton himself said that we must "recognize that Adam Smith's invisible hand can have a green thumb," and called for a "market-based environmental-protection strategy."

This is a bitter draught for many environmental activists, weaned on regulatory triumphs like the National Environmental Policy Act and practiced in lobbying the government to toughen environmental laws, not abandon them. Most environmentalists are innately suspicious of economists anyway. They are the ones, after all, who tend to portray environmental quality as an expensive frivolity; who tell us that pollution controls hamper productivity and threaten private property; that zero levels of toxic releases are a naively impossible goal; and that protecting endangered species without regard for the economic consequences is irrational--as, perhaps, are many environmentalists.