Free-market environmentalism

From Academic Kids

Free market environmentalism is an ideology that argues the free market is the best tool to preserve the health and sustainability of the environment. This is in sharp contrast to the most common modern approach of looking to government intervention to help prevent excessive destruction of the environment.


Economics of environmental destruction

Economists view many environmental problems as arising from the negative externalities of industrial production and other activities. An industry may receive the full benefit of producing a pollutant but, in general, they do not pay the full social costs of polluting the environment. This leads to a situation analogous to the tragedy of the commons where the industry keeps all the benefits of an activity itself but shares the costs with all the other members of society. In such a situation it is rational to pollute. As the elementary economics text book by Baumol and Blinder observes When a firm pollutes a river, it uses some of society's resources just as surely as when it burns coal. However, if the firm pays for coal but not for the use of clean water, it is expected that management will be economical in its use of coal and wasteful in its use of water.

A conventional strategy to try to solve such a commons problem is by governmental regulation to proscribe polluting activities. Free market economists have criticized this approach as being at best inefficient and at worst ineffective. By allowing industries to pollute up to a specified limit, regulators effectively set the value of a clean environment at zero. Research at Amoco concluded that were the money that is currently spent on meeting regulations instead spent on reducing pollution, in ways that the company itself was already able to identify, the net benefits to the environment would be greater. Furthermore, the demands of regulation seldom appeal to the social conscience of industries or individuals and violation is often seen as legitimate business practice.

Property rights

Economists argue from the Coase Theorem that, were industries compelled to internalize the costs of their negative externalities they would face an overwhelming incentive to reduce them, perhaps even becoming enthusiastic about taking advantage of opportunities to improve profitability through lower costs. Moreover, this would strike the optimal balance between the benefits of pursuing an activity and its environmental consequences. One well-known means of internalizing a negative consequence is to establish a property right over some phenomenon formerly in the public domain. This requires a little abstract thinking in the case of environmental problems as we are talking about a right to pollute or to exploit some limited natural phenomenon. This is a sophisticated variant of the polluter pays principle. There are a number of problems for which such solutions have already been proposed or implemented.

An example is the recent destruction of the once prosperous Grand Banks fishery off Newfoundland. Once one of the world's most abundant fisheries it has been almost completely depleted of fish. If the fishery had been owned by a corporation it would have had an engrained interest in keeping a renewable supply of fish to maintain profits over the long term. They would thus have charged high fees to fish in the area sharply reducing how many fish were caught. They also would have closely enforced rules on not catching young fish. Instead ships from around the world raced to get the fish out of the water before competitors could include catching fish that had not yet reproduced.

Another example is in the 19th century early gold miners in California developed a trade in rights to draw from water courses based on the doctrine of prior appropriation. This was curtailed in 1902 by the Newlands Reclamation Act which introduced subsidies for irrigation projects. This had the effect of sending a signal to farmers that water was inexpensive and abundant, leading to uneconomic use of a scarce resource. Increasing difficulties in meeting demand for water in the western United States have been blamed on the continuing establishment of governmental control and a return to tradable property rights proposed.

Regulator capture

Many free market environmentalists argue that the problem of regulator capture whereby large companies play a large role in setting regulations has created a system where things are far to biased in favour of large companies. For instance in the United States lands that could be more valuably used for tourism are often used for resource extraction because the many disorganized tourists cannot have the same impact on government as the few organized corporations. If the land was privately held the land owner would realize that tourism would make more of a profit than logging and nature would be preserved.


The implementation of property rights provides governments with an opportunity to raise revenues. This has been illustrated by recent auctions of bands of the electromagnetic spectrum for telephony, another example of an attempt to manage a scarce resource through property rights rather than regulation. Such auctions offer an alternative to conventional taxation for funding public spending. Some economists, most notably Henry George in the 1870s, have argued that taxes on income and profits represent taxes on productivity, innovation and creativity and that we should rather tax bads such as pollution, consumption of fossil fuels and road congestion. Environmental property rights offer a means to shift taxation from goods to bads.

Nature preserves

One example of free market attempt to protect the environment is The Nature Conservancy organization. It has been successful in protecting many sensitive, ecologically important places by simply purchasing them, although this practice has met with controversy in some areas. In some cases the lands are donated or sold to government agencies for management, while in others the Nature Conservancy itself manages these preserves.

Billionaire Ted Turner has a similar private program that has seen him buy up ten of thousands of acres of wilderness around the United States.


There are a number of arguments against free market environmentalism. It is impossible to have some times controlled by a company. It would be impossible to charge access to breathable air or to the climate so stopping air pollution or global warming would be very difficult. For issues like this free market environmentalists often support carbon trading schemes advocated by other environmentalist movements. The US Clean Air Act of 1990, for instance, set up a system of emissions trading for sulfur dioxide. The Kyoto protocol also seeks to establish a system of emissions trading for carbon dioxide and other greenhouse gases.

Other issues, especially that of endangered species are far harder to solve using a free market. There is only a very limited profit to owning a piece of land with a rare beetle, and it is likely that building a parking lot would make more money.

A more philosophical objection is that free market environmentalism is entirely anthropocentric and ignores the innate value of nature outside of human use of it. (see ecocentrism)

Free-market environmentalists

Economists who have written on free-market environmentalism include:

See also

External Links


  • Anderson, T L & Leal, D R (1991) Free-market environmentalism ISBN 0813311012
  • Krugman, Paul (1999) Earth in the balance sheet: economists go for the green and Taxes and traffic jams reprinted in The Accidental Theorist ISBN 0140286861
  • Ridley, M & Low, B S(1993) Can selfishness save the environment? (, The Atlantic Monthly vol 272, pp76-86
  • Simon, Julian (1998) The Ultimate Resource 2 ISBN 0691003815
  • Free Market Environmentalism Bibliography on The Commons Blog.


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