EconomicsListsStudent contributions

7 Free Market Policies to Help the Environment

Written by John Hajek, IPA Campus Coordinator — Melbourne University

1. Protect private property rights


There is no better tool to protect the environment than the free market and its most important element: private property rights. It is often posited that proponents of capitalism would love nothing more than to see the landscape filled with smokestacks, the Great Barrier Reef dredged and the Amazon Rainforest logged out of existence.

However, it is actually a key element of a free market system, private ownership, that helps achieve the core aim of environmentalism—conserving and economising on the planet’s natural resources and benefiting humanity while minimising the environmental footprint.

You have probably heard of ‘the tragedy of the commons’. It refers to the phenomenon whereby collective ownership (or no ownership) of a resource leads to the neglect of that resource, and ultimately the destruction of its capital value.

Why is it, for example, that global fish stocks worsen every year? Because nobody owns exclusive rights to those fish stocks, nobody has an incentive to restrain fishing in order to ensure they can regenerate. Instead, trawlers catch any fish they come across, because if they refrain, someone else will.

Compare this to a privately-owned lake: here, the owner, who would profit from maintaining the fish stock in the long term, would have a strong incentive to hold back on fishing, for if they did not, not only could they not continue to reap the income from selling fish, but would see the resale value of their lake plummet.

Similar incentives exist with many other natural resources: on tracts of land that are not privately owned, each individual has an incentive to plant as many crops or graze as much livestock as possible, destroying the health of soil and the ability of the land to bear fruit in the future, whereas farmers with property rights must carefully limit how much they farm in one year to preserve the health of the land.

Similarly, private owners of forests must limit how many trees they lumber so the forest can regenerate and provide the owner with wood in the future. Moreover, companies that dump waste on private land may still do so, but are constrained by loss in land value that they will suffer from doing so, or the compensation they must pay to other landowners for the right to do so.

If you still doubt the superior ability of private over public ownership to keep the environment pristine, ask yourself the following question: what countries in the world have the worst environments and suffer the most unnecessary environmental degradation?

Overwhelming, they are former or current socialist states, such as the former USSR or China, or societies with poor rule of law and little regard for private property, such as Sierra Leone or Haiti. Even in Australia, where is the most unnecessary pollution? Do you often see garbage pile up on private lawns, or is most litter strewn on public footpaths?

Private owners have a selfish incentive to keep land and natural resources healthy. Government, run by bureaucrats who cannot profit from the long-term maintenance of a natural resource’s capital value, do not.


2. Enable entrepreneurship and innovation through the free market

If you were asked which human being has saved more whales than any other in human history, who would come to mind? Perhaps Paul Watson, or some other bearded activist who owns no shoes and commits his life to tirelessly harassing Japanese whalers. But you would be wrong.

Sea Shepherd and Greenpeace combined are simply not a patch on the greatest defender of whale-kind the world has ever seen: John D Rockefeller, oil tycoon, so-called ‘robber baron’, and the richest person in history.

To understand why, it is important to know how Rockefeller became such an industrial giant. He managed to improve the process of refining oil so much that he reduced the price of kerosene by about 90%. The effects were two-fold.

Firstly, fuel became affordable for nearly everyone. Even ordinary people could now enjoy lighting at night. Secondly, it rendered obsolete the fuel on which consumers had relied before: whale oil. Thanks to Rockefeller and his development of far cheaper fuel, the market for whale oil has been pretty sluggish ever since. Had it not been for Rockefeller, we would likely not have any whales left.

Similarly, Greenpeace’s efforts to protect the world’s forests simply pale in comparison to Ajay Bhatt, inventor of the USB drive, who, along with other Silicon Valley giants, has saved millions of acres by reducing our need for paper.

And while the automobile certainly poses its own environmental problems, let us not forget that before Henry Ford made cars affordable to the average person, with the Model T, the streets of every major city in the world were piled high with manure and horse carcasses, both of which pose more pressing risks to human wellbeing.

The market system is excellent at finding ways of producing goods with as few resource inputs as possible, and for this reason, should be encouraged. Consumers and firms want to save money, so will opt for USB drives if it means they no longer have to buy paper. It means entrepreneurs can make billions from serving this preference. That is why each generation of cars produces more power with lower fuel consumption (and therefore lower emissions) than the last, even aside from government emissions standards. It is why we can produce far more food with far less land and therefore less deforestation with the help of modern fertilisers and GMOs. And you know those kinks at the top and bottom of your Coca Cola can? They are the main reason why soft-drink cans use 56% less aluminium than they did a few decades ago.

By the late 1980s a car produced in the Soviet Union used about four times as many raw materials than a comparably sized (and undoubtedly better quality) car produced in Japan, and thus exacted four times the toll on the environment. This reflects the natural drive of the market to do more with less.

The biggest environmental benefits come from private sector innovation and entrepreneurship. We can help the environment by cutting red tape, abolishing regulations, lowering taxes and removing barriers to business expansion. This is the best way to encourage the next generation of environmental heroes, following in the footsteps of Henry Ford and John D Rockefeller.

3. Abolish white elephant environmental subsidies and regulations.

3Well-intentioned government environmental intervention often backfires, causing more damage than good.

For example, car emissions requirements. These restrictions sound like an effective way to reduce CO2 emissions but, being a government initiative, there are loopholes big enough to drive a truck through, literally. Trucks and SUVs are exempt from the standards. Carmakers are, as a consequence, incentivised to produce more SUVs and trucks; consumers are induced to buy these more gas-guzzling vehicles. The net result is higher CO2 emissions.

In another case, the US government offered rebates in excess of $6,500 for electric cars. Some genius then worked out that the golf carts he manufactured met the criteria for an electric vehicle and that, given golf carts are fairly cheap, people could now get golf carts for free with the tax rebate! The result? Many people bought unnecessary golf carts, drove their kids around the neighbourhood for fun, while not being able to properly substitute them for a car, therefore increasing energy use and emissions. Pouring resources into making golf carts is probably not an effective way of saving the planet.

In another concerning case, government regulations restrict landowners’ use of their property if endangered species are found on it. This means that landowners, upon finding a rare animal, often resort to killing it, burying it and not telling anybody, to avoid the onerous cost of the land restrictions that they would incur if the species were discovered by the authorities. The practice is known as ‘shoot, shovel and shut up’, and has worsened the conservation status of many endangered species.

One could go on with government-mandated halogen light bulbs, which contain mercury and so can’t be recycled and can’t go into landfill, or subsidised biofuels, which achieve nothing but an increase global food prices, or agricultural price floors, which encourage the pointless use of land for produce that if often simply left to rot, but the point is simple .

Government bureaucrats are less intelligent than they think, and their efforts to help the environment by micromanaging the economy and our lives often do more harm than good. If governments want to help the environment, they should repeal complicated, burdensome and arbitrary programs and replace them with simple taxes and straightforward regulations.

4. Stop subsidising recycling


Recycling, when it uses up more resources in the process than are saved, is counterproductive to the environment. If it took one million barrels of oil to clean a used bottle, melt it down, refined it and shape it into a new bottle, it would obviously be more environmentally friendly just to fashion a new bottle out of petroleum or glass.

This may be an exaggerated example, however often recycling does indeed use more of the earth’s resources than producing an item from scratch. This is because recycling requires extensive resources and energy to sort, sterilise, clean, break down, treat and fashion old material into new goods. So, how do we know whether it’s more efficient to recycle or to simply use fresh materials? Simple: do whatever is cheapest. And there’s a very good, and universal, metric to determine what is the cheapest: prices.

If it costs more to crush up a glass bottle, separate it, purify it, and mould it into a new bottle than it does to simply make a new bottle from virgin glass, that means it uses more resources, and that means unnecessary harm to the environment. After all, glass is just made from sand, and we are not running out of that. It is simply not worth it to expend any resources (including toxic chemicals) trying to salvage old sand—to do so is gratuitous harm to the environment.

The definition of a resource is that you have to pay someone for it. The definition of garbage is that you must pay someone to take it away. Market prices force consumers to conserve valuable resources. If we were really facing a scarcity of paper and glass, you would feel it. That is why nobody throws out their old jewellery when they no longer want it, and it is why companies will pay you for your old mobile phone—because it is worthwhile to mine them for gold and other rare earths. However, the fact that firms refuse to pay you for your old newspapers is telling. It uses fewer resources to make paper straight from trees than it does to remove the print using chemical fat, bleach it and reconstitute it into new paper, and that places less strain on the environment.

The solution is to only recycle if you get paid for it. Indeed, the free market is excellent at recycling when it is efficient. John D Rockefeller made millions out of finding uses for seemingly worthless by-products of petroleum—everything from plastic to carpet. But the free market is also good at recognising when it is more efficient to simply throw things away.

When governments subsidise (or mandate) recycling, they remove the signal that tells people when it is not worth the resources to recycle: that is, the market price or lack thereof for their garbage. It may sound counterintuitive, but we could save more resources if only governments stopped encouraging recycling.

And if you are worried about us running out of landfill space, relax: all of the garbage that will be produced by the USA in the next 100 years will fit in Ted Turner’s ranch in Montana, with 50,000 acres to spare.

5. Deregulate fracking


There is one salient fact to tell people suffering from anti-fracking hysteria: we have been doing it for over sixty years, and we are still here. All that has happened is that geologists recently worked out how to do it sideways, causing environmentalists to lose their minds.

Fracking—or hydraulic fracturing—is the process of injecting a mixture of sand, water and various chemicals into shale bed to “fracture” the rock and release natural gas. It has been used commercially since 1950.

The process became notorious following the release of the 2010 documentary Gasland, which depicted disturbing footage of people setting their tap water on fire, allegedly as a result of contamination due to fracking.

These allegations have been widely discredited and revealed as fraudulent. Sure, some people can ignite their tap water, but this is the case even where fracking is non-existent or banned, such as Alaska or New York State. It’s quite natural and perfectly harmless for natural gas in the ground to seep into pipes and create flammable water. In fact, if you can set your tap water on fire you should rejoice because you might be able to make a fortune leasing your land to a gas company.

No significant water contamination can be attributed to fracking. Even the US Environmental Protection Agency has stated that “in no case have we made a definitive determination that the fracking process has caused chemicals to enter ground water.”

As for the charge that fracking causes earthquakes by disrupting tectonic plates, the US Geological Survey has also concluded that no significant increase in seismic activity can be attributed to hydraulic fracturing.

It is true that the process is quite water intensive, but then again, the average fracking project uses less water than an 18-hole golf courses uses every few weeks.

On the other hand, the natural gas obtained from fracking produces abundant and reliable energy with about half as many CO2 emissions as fossil fuel alternatives and with no particulate air pollution (the kind that causes smog and associated health problems). As a consequence of a boom in shale gas caused by fracking, the US has managed to beat the European Union’s emission reduction targets. This was done largely by accident, and without the expensive investment in renewable energy.

In fact, even the ultra-environmentalist Sierra Club has admitted the fracking is the main reason that US CO2 emissions are at a 27-year low (though not the only reason—economic downturn is also a factor). The abundance of natural gas due to fracking is also one of the main reasons that air quality around major US cities is the best in decades.

Fracking gives us cheap, reliable energy with fewer emissions and cleaner air. It has transformed the US energy industry, and there is no reason not to embrace it here.


6. Support nuclear energy and uranium exports


Nuclear energy is one of the biggest anathemas to the environmentalist. Using nuclear fission to produce power, according to them, is a sure-fire way to ensure that we all die agonising deaths as we sprout extra limbs, all while our rivers glow green with radioactive waste. Nothing could be further from the truth.

In fact, nuclear fission is perhaps the safest form of energy production. Economist Thomas Sowell found that living within 5 miles of a nuclear power plant for 50 years is statistically less dangerous than spending 30 minutes in a canoe. Even twenty years after the Chernobyl meltdown, the most catastrophic in history, the United Nations Chernobyl Forum concluded that there was “no clearly demonstrated increase in the incidence of solid cancers or leukaemia due to radiation.”

And if you were turned off by the Fukushima Daiichi disaster, don’t be. The total death toll from the earthquake and tsunami? About 16,000. The total death toll from the Fukushima plant? Three: one from falling equipment and two from drowning. Predictions that thousands would die from radiation poisoning have proven laughable. This was the worst-case scenario: a nuclear power plant, using relatively old technology, was struck by a massive earthquake and then a devastating tsunami, all while safety procedures were not properly followed, and yet almost nobody was killed.

In fact, nuclear energy is a net life saver. Far more people die mining coal and drilling oil than they do extracting uranium, as its extreme energy density means that far less of it must be mined than fossil fuels.

There is also an environmental benefit of nuclear power: it means that we don’t need as many large, dirty, open cut mines to get reliable base-load electricity. Unlike renewables, it also means we do not have to use obscene amounts of land to produce the power we need.

To get the same amount of power as one 250-acre nuclear power plant, you would need to cover 512,000 acres with wind turbines. In fact, according to energy economist Robert P Murphy of the Institute for Energy Research, if the USA wanted to rely on wind for consistent, base-load power, it would have to set aside an area the size of Italy. That is not sustainable. Uranium can produce all the power we need with virtually no land use.

But the most important environmental benefit of nuclear power is its complete lack of CO2 and particulate emissions. If we want to reduce the emissions of huge emerging economies such as China and India, while tackling the smog over their major cities, we should liberalise the export of uranium as well as allow the development of commercial nuclear energy in Australia. If you are in favour of dramatically reducing CO2 emissions, you are in favour of nuclear energy.


7. Abolish tariffs, quotes, subsidies and other barriers to free trade

7You will often hear from “environmentally aware” people that buying local is a great way to reduce your footprint on the environment. After all, it vitiates the need to ship products around the globe, thus reducing pollution and resource consumption.

It is true that locally produced goods do require less fuel for shipping purposes (although this ignores that there is every chance that imported components such as steel simply have to be shipped that distance anyway). However, shipping is clearly not the only factor that determines a product’s environmental impact. One must also consider land use, as well as efficiency of the resources in that product.

For example, many countries and states have seen the damaging effects artificially encouraging the growth of highly water-intensive crops, such as rice and cotton in dry areas (this is partly responsible for California’s drought, and for the Soviet Union’s draining of the Aral Sea). With high enough tariffs, quotas or subsidies, we could grow far more rice and cotton in Australia too. But it is economic and environmental lunacy for us to do so when we could specialise in less water-intensive crops of which we can grow far more per acre of land, such as wheat, and trade with countries that can specialise in rice and cotton.

Around the world, government protection of agricultural industry means that huge tracts of land and enormous quantities of water are wasted, imposing an unnecessary cost on the environment. In addition, unnecessary government subsidies to protect domestic agriculture overwhelmingly support the meat and dairy industries, agriculture that is the most land, water and greenhouse gas intensive, as opposed to fruit and vegetables.

Similarly, tariffs on manufactured goods artificially incentivises consumers to buy goods that are unnecessarily expensive. These locally manufactured goods often use resources less efficiently than their imported counterparts. Although car tariffs have been cut in Australia and the US in recent decades, their continued existence encourages consumers, on the margin, to buy cars that use more raw materials and guzzle more fuel than otherwise.

Barriers to free international trade have also meant domestic industries are subject to less competition, and therefore have less incentive to make their products in an efficient and thus more environmentally friendly. Not only have restrictions on car imports prevented US consumers from buying smaller, lighter, Japanese cars in favour of large, gas-guzzling Chevrolets; they have also insulated Detroit from competition and therefore reduced the automakers’ incentives to develop greener cars.

Remember, whatever product is cheaper generally uses the fewest resources, which is a fairly good barometer of its environmental impact. The environmental impact of shipping is often quite small.

If an imported good is cheaper, it means that, even accounting for shipping, it uses fewer resources than the domestic alternative, be it land, water, oil, steel or anything. Barriers to foreign trade incentivise consumers to buy less efficient products. Abolishing these barriers would be good for the environment.


John Hajek

John Hajek is the IPA Campus Coordinator at the University of Melbourne.

Leave a Reply

Your email address will not be published. Required fields are marked *