Free-market environmentalism

By Michael Parrish, Environmental News Network, Tuesday 16 November 1999

Money matters. So what better way to protect imperiled resources than to make their protection affect your pocketbook?

Many environmentalists now advocate the use of market forces to achieve environmental goals set two decades ago. Instead of relying on government alone to mandate environmental progress, they have devised clever ways to use the basic power of markets—the incentive of profit—to effect change.

In recent years, various market-based strategies have validated this approach. Market-based strategies are now a key tool for environmentalists, said Jane Shaw, a senior associate at the Political Economy Research Center, an environmental public-policy institute based in Bozeman, Montana. PERC was one of the earliest and strongest advocates of free-market environmentalism, a phrase the company uses for strategies linked to private property rights, personal and community initiative and minimal dependence on government agencies.

We realize that there is always going to be a role for government in protecting the environment, said Shaw. But there could be much more reliance on markets than there is now—much more.

Successful market-based programs are abundant:

• The return of the wolf to Yellowstone was achieved in part through the efforts of Defenders of Wildlife. The environmental group used rock concerts, among other ideas, to set up an insurance fund. The fund compensates ranchers who lose livestock to the wolves, so that the ranchers don’t feel as if they’re paying the cost of someone else’s crusade. Both sides, in this case, found middle ground by way of commerce.
• Housing developers in Southern California now routinely use conservation banks by which they can buy permission to develop land in an area otherwise protected by species-preservation laws. In turn, the developers are required to donate equivalent habitat elsewhere.
• Environmental groups and government agencies have both begun to buy water rights from farmers along the Columbia River and other waterways—and leaving that water in the rivers to enhance fish populations.
• Another unique idea, air-pollution permit trading, has also caught on. Such a program encourages businesses to reduce emissions such as acid rain through a permit system. Initial permits are issued based on emissions records of a factory. Factories that reduce their emissions further than levels called for by the permit are awarded credits. These credits can then be sold to other companies. This model has been particularly successful on the East Coast in reducing acid rain and with various air pollutants in Southern California.

Not all environmental problems lend themselves to market mechanisms. Some studies, for instance, have shown that timber from Latin American forests is worth so little commercially that sales wouldn’t generate enough money to fund forest-management projects. Such projects are vital to keep those forests healthy over the long term.

Some traditional environmentalists worry that market schemes, while sometimes making it easier for polluters to make a profit and still comply with environmental rules, don’t always offer the best solution for specific problems.

Yet, the list of successes is impressive. Salt-water commercial fishing programs are a good example.

They’ve been tried successfully all around the world, said Doug Hopkins, program manager of the Environmental Defense Fund’s Oceans Program. Participating countries include Iceland, Canada, New Zealand and the United States.

Traditionally, commercial fishing has been regulated by limiting the length of the season. Biologists estimate how long a fleet can catch fish without having an adverse impact on the species’ ability to restock over the next year. But this method has often failed and many species have drastically declined, leading to increasingly shorter fishing seasons and, in some cases, to frantic, wasteful and dangerous fishing. Sometimes the year’s catch must be taken in a matter of days, or even hours, with boats essentially competing in so-called derby fishing.

Derby fishing, which rewards those who fish the fastest, has encouraged fishermen to buy bigger and bigger boats and more gear. Some of the extra fishing tackle is inevitably lost during a derby season, killing fish that are never harvested, a phenomenon called ghost fishing. All of this has dramatically depleted commercial fish species.

New Zealand has pioneered better fishing management. In 1986, it adopted a market scheme to save dwindling stocks of rock lobster and scallop in its coastal fishing grounds. Officials implemented Individual Transferable Quotas, or ITQs, to regulate its rock lobster and scallop catches. The country has since expanded the program to other fish species.

ITQs entitle each fisherman to a share of the total allowable catch that year. The fish can be taken at any time, which means that fishermen can choose the most economical way to catch their quota. They don’t have to compete in a derby, fair weather or foul. The quotas, issued only to long-time fishermen in the fleet, may also be traded. This means a fisherman who doesn’t have enough of a quota to make a profit on his or her boat can either buy more or sell to other fishermen. Environmental groups can also buy quotas and simply retire them, leaving more fish in the sea each year.

The upshot is that fewer, better-run boats remain in the fleet, dangerous and wasteful fishing is significantly reduced and fish populations improve. A U.S. National Research Council report released last spring found that New Zealand’s ITQs had been a big success. It showed that of the 149 categories of commercial fish pursued by new Zealand boats—in deep trouble a decade ago—only 11 were still below the target levels for a healthy fish population.

Fishermen in the United States tried ITQs in Alaska’s halibut and sablefish fisheries. Hopkins notes that these ITQs also brought improvements, including, for consumers, a new market in fresh halibut. But a group of what Hopkins describes as very disgruntled fishermen who joined these fishing fleets only recently—and felt they didn’t get a fair share of quotas—complained to members of Congress. In 1996, Congress banned new ITQs for U.S. fishing fleets. Hopkins and other environmentalists hope that the new National Research Council report will help to lift that ban.

Proponents of market environmentalism remain optimistic.

We have a long way to go to apply free markets to the environment, said Shaw, but the market-based approach is certainly much more important to environmentalists than ever before.

Take action

There is a wealth of information on the web about alternative economic and marketing strategies. For more details, visit [45]Free-market.com, [46]The Political Economy Research Center, [47]The Center for Market Processes or [48]The Pacific Research Institute. The Environmental Protection Agency also provides general information about [49]Economy and Environment on their site.

Read [50]Something for Everyone: A Climate Policy That Both Environmentalists and Industry Can Live With to learn about another interesting cooperative effort to reducing emissions. For more useful links, visit [51]About.com: Environmental Issues.

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45. http://www.free-market.com/
46. http://www.perc.org/
47. http://web.gmu.edu/departments/cmp/CMBM/CMBM2.html
48. http://www.pacificresearch.org/
49. http://www.epa.gov/docs/oppe/eaed/home4.htm
50. http://www.weathervane.rff.org/features/feature015.html
51. http://environment.about.com/culture/environment/msubecon.htm?iam