The editorial seeks to compare and contrast the “mandate, regulate, litigate” approach of the traditional environmental movement and the market-based approaches offered by innovative environmental thinkers. Whereas the traditional green thinker would say “you can’t do things which hurt the planet and the Government will punish you if you do”, the innovative green thinker would say “you can do things which hurt the planet, but so long as you’re willing to pay for the environmental consequences of your actions”.
However, the idea that government regulation and market-based solutions are somehow polar opposites is quite misleading. Markets only work because they have rules governing them. The sharemarket only functions because there are piles of statute books regulating what you are and aren’t allowed to do. And the environmental trading of which the Economist speaks – such as tradable fishing quotas or carbon emissions trading – are only possible if someone (i.e. government) sets the rules of the game.
One example is the issue of the fuel efficiency in cars. One way you can deal with the issue of polluting cars (which cause air pollution, and thus respiratory disease and global warming) is implement an average fuel efficiency standard that all cars importers have to abide by. That is, the average efficiency of all the vehicles each dealer imports would have to reach a certain standard. You could then allow car importers to buy and sell emissions allowances between themselves: so a dealer which wants to bring in lots of gas guzzlers could buy the right to do so from a car dealer who wants to bring in only cars which have very good fuel efficiency. That’s a perfectly reasonable way of tackling the problem of fuel emissions, and it is market-based. But the point is that this only works if you have a government setting up the trading system in the first place.
The Economist talks about a similar idea: companies that want to degrade wetlands paying money to environmental groups who preserve wetlands. Again, this is a nice idea: but it only happens if there is a regulatory framework which compels businesses to constrain the environmental effects of what they do.
The Economist‘s cover story discusses the idea of externalities – where the costs of a particular economic decision are not borne by those who make it:
When a piece of natural habitat is ploughed, for example, the conversion may make sense to the land owner, but it may also damage fisheries downstream, increase flooding and clog rivers with sediment. This makes those who lose out angry. It can also, in some circumstances, subtract from, rather than add to, a country’s total wealth.
This interconnectedness is the core of the Green message. What a business on that side of the road does affects a business on this side of the road. If by “the market”, you mean, “anyone can do what they want”, then what you get is an incentive for everyone to pursue profit and an incentive for no-one to ensure that we don’t trash the planet in the process. However, if you mean “we’ll set up frameworks whose overall purpose is to ensure we don’t trash the planet but within which people have latitude to act as they please and pursue self-enrichment”, then you have one credible strand of green thought.
Consider this extract from the Economist piece :
Public goods are those which are in everybody’s interest to have, but in no one’s interest to provide. Clean air, for example, or, more controversially, the preservation of rare species of plant or animal.
This is precisely the Green message: the Government should be providing a regulatory framework which ensures that it’s in everyone’s interest – businesses’, individuals’, government agencies’ – to act sustainably, to ensure that we have clean air, that we preserve biodiversity, etc.
The great worry is that, without this government involvement, we’ll be left with a pile of dollar bills but no clean water to drink. I, for one, would like people to have both.