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Environmental economics

Rescuing
environmentalism

Apr 21st 2005
From The Economist print
edition

Market forces could prove the environment's best friend—if only
greens could learn to love them

“THE environmental
movement's foundational concepts, its method for framing legislative
proposals, and its very institutions are outmoded. Today environmentalism
is just another special interest.” Those damning words come not from any
industry lobby or right-wing think-tank. They are drawn from “The Death of
Environmentalism”, an influential essay published recently by two greens
with impeccable credentials. They claim that environmental groups are
politically adrift and dreadfully out of touch.

They are right. In
America, greens have suffered a string of defeats on high-profile issues.
They are losing the battle to prevent oil drilling in Alaska's wild lands,
and have failed to spark the public's imagination over global warming.
Even the stridently ungreen George Bush has failed to galvanise the
environmental movement. The solution, argue many elders of the sect, is to
step back from day-to-day politics and policies and “energise” ordinary
punters with talk of global-warming calamities and a radical “vision of
the future commensurate with the magnitude of the crisis”.

The
growing field of environmental economics
Apr
21st 2005
How
to make treaties stick
Apr
17th 2003

Economics

The
environment

The White House outlines its environmental policies. The European Commission
has news of its own initiatives. The UN has information about the Kyoto Protocol. See also “The Death of Environmentalism”.

Europe's green
groups, while politically stronger, are also starting to lose their way
intellectually. Consider, for example, their invocation of the woolly
“precautionary principle” to demonise any complex technology
(next-generation nuclear plants, say, or genetically modified crops) that
they do not like the look of. A more sensible green analysis of nuclear
power would weigh its (very high) economic costs and (fairly low) safety
risks against the important benefit of generating electricity with no
greenhouse-gas emissions.

Small victories and bigger
defeats

The coming into
force of the UN's Kyoto protocol on climate change
might seem a victory for Europe's greens, but it actually masks a larger
failure. The most promising aspect of the treaty—its innovative use of
market-based instruments such as carbon-emissions trading—was resisted
tooth and nail by Europe's greens. With courageous exceptions, American
green groups also remain deeply suspicious of market forces.

If environmental
groups continue to reject pragmatic solutions and instead drift toward
Utopian (or dystopian) visions of the future, they will lose the battle of
ideas. And that would be a pity, for the world would benefit from having a
thoughtful green movement. It would also be ironic, because far-reaching
advances are already under way in the management of the world's natural
resources—changes that add up to a different kind of green revolution.
This could yet save the greens (as well as doing the planet a world of
good).

“Mandate,
regulate, litigate.” That has been the green mantra. And it explains the
world's top-down, command-and-control approach to environmental
policymaking. Slowly, this is changing. Yesterday's failed hopes, today's
heavy costs and tomorrow's demanding ambitions have been driving public
policy quietly towards market-based approaches. One example lies in the
assignment of property rights over “commons”, such as fisheries, that are
abused because they belong at once to everyone and no one. Where tradable
fishing quotas have been issued, the result has been a drop in
over-fishing. Emissions trading is also taking off. America led the way
with its sulphur-dioxide trading scheme, and today the EU is pioneering carbon-dioxide trading with the (albeit
still controversial) goal of slowing down climate change.

These, however,
are obvious targets. What is really intriguing are efforts to value
previously ignored “ecological services”, both basic ones such as water
filtration and flood prevention, and luxuries such as preserving wildlife.
At the same time, advances in environmental science are making those
valuation studies more accurate. Market mechanisms can then be employed to
achieve these goals at the lowest cost. Today, countries from Panama to
Papua New Guinea are investigating ways to price nature in this way (see
article).

Rachel Carson meets Adam
Smith

If this new green
revolution is to succeed, however, three things must happen. The most
important is that prices must be set correctly. The best way to do this is
through liquid markets, as in the case of emissions trading. Here,
politics merely sets the goal. How that goal is achieved is up to the
traders.

A proper price,
however, requires proper information. So the second goal must be to
provide it. The tendency to regard the environment as a “free good” must
be tempered with an understanding of what it does for humanity and how.
Thanks to the recent Millennium Ecosystem Assessment and the World Bank's
annual “Little Green Data Book” (released this week), that is happening.
More work is needed, but thanks to technologies such as satellite
observation, computing and the internet, green accounting is getting
cheaper and easier.

Which leads
naturally to the third goal, the embrace of cost-benefit analysis. At
this, greens roll their eyes, complaining that it reduces nature to
dollars and cents. In one sense, they are right. Some things in nature are
irreplaceable—literally priceless. Even so, it is essential to consider
trade-offs when analysing almost all green problems. The marginal cost of
removing the last 5% of a given pollutant is often far higher than
removing the first 5% or even 50%: for public policy to ignore such facts
would be inexcusable.

If governments
invest seriously in green data acquisition and co-ordination, they will no
longer be flying blind. And by advocating data-based, analytically
rigorous policies rather than pious appeals to “save the planet”, the
green movement could overcome the scepticism of the ordinary voter. It
might even move from the fringes of politics to the middle ground where
most voters reside.

Whether the big
environmental groups join or not, the next green revolution is already
under way. Rachel Carson, the crusading journalist who inspired greens in
the 1950s and 60s, is joining hands with Adam Smith, the hero of
free-marketeers. The world may yet leapfrog from the dark ages of clumsy,
costly, command-and-control regulations to an enlightened age of informed,
innovative, incentive-based greenery.

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