Market-based Environmental Conservation

Carlos Rymer NTRES 431

March 15, 2007 Professor Steven Wolf Restructuring Markets for Environmental Conservation

The world faces a difficult challenge that it must fully address during the 21st century. The environmental crisis, as predicted, will worsen during the first half of the 21st century as the human population continues growing, ecosystems and biogeochemical cycles are changed and degraded, the global climate is altered, permanent toxic chemicals are made more widespread, biodiversity is lost, and natural resources become scarcer (WorldWatch Institute, 2003). It is now recognized that this challenge will only be met if society addresses the social, economic, and environmental dimensions of these different problems, and uses each dimension to enhance the others (Vlek and Steg, 2007). With the unpopularity of government regulation of environmental harm, market restructuring has been recognized as essential to solving environmental problems through the competitive motive. In a realistic market, aggressive competition and efficiency are promoted in order to reduce total costs and increase the value of products and services (Hawkens, Lovins, and Lovins, 1999). In today’s market, however, major flaws exist because the profit motive only treats extractable products as valuable and therefore has led to widespread environmental degradation. The market does not account for the value of ecosystem services that sustain life and lead to extractable products (Daily and Ellison, 2002). This is why the market needs to be restructured. Market logic, when applied to environmental conservation, aims to incorporate everything that is known to be valuable into the actual costs of products and services. In this way, aggressive competition among enterprises leads to efficient and sustainable use of natural resources and ecosystem services, thus promoting environmental protection, not degradation (Brown, 2001). Not only does it lead to environmental protection, but it also eventually lowers

the total cost of products and services, which includes environmental and social values, because a market promotes efficiency over time. An excellent example of how the incorporation of all environmental and social costs into markets works is fair trade, which includes products such as coffee, cocoa, and tea. These products come from practices that are environmentally sound and protect human health. In exchange, the cost of protecting human health and environmental services is incorporated into the products, thereby reflecting the actual costs of those products. Part of the extra cost goes to paying laborers the appropriate price of their work, and the rest goes into technical assistance to continue sustainable practices (TransFair USA, 2006). Although the portion in this market that incorporates the environmental and human costs is still very small, it is becoming increasingly recognized as a way to meet environmental and human challenges. This logic offers widespread opportunities ranging from reductions in greenhouse gas emissions to sustainable use of forest resources to poverty alleviation. In theory, valuing ecosystem services is the most effective way to address the environmental crisis through social, economic, and environmental dimensions. However, there are constraints for the market to actually begin valuing ecosystem services at a full scale. Today’s markets have largely continued leaving external costs out of the price of products and services. The major constraint to this is that there are no incentives for enterprises to do this, especially because the world population is largely apathetic to environmental problems. In order for enterprises to value ecosystem services, there must be incentives across all markets for intense competition with these values (Hawkens, Lovins, and Lovins, 1999). Restructuring the market across the board is therefore highly necessary and must involve either government orientation or consumer demand.

In order to restructure the market to include the real cost of ecosystem services into products and services, government must intervene to either mandate that the cost be included to allow enterprises to protect environmental resources or change tax policies to ensure that the price of products and services reflects the costs of ecosystem services (Brown, 2001). We cannot expect the market to do this by itself because education is not at a level at which people can drive the market towards large-scale changes to reflect the costs of ecosystem services. Instead, government and the market must work together to incorporate such costs in a fair way in order to ensure environmental protection (Brown, 2001). Given that this already happens to some extent, such as through government subsidies and tax breaks for industrial agriculture or fossil fuel companies, it cannot be considered as government regulation, where a mandate tells the enterprise how it must change (Hawkens, Lovins, and Lovins, 1999). Market restructuring will involve taxes that raise the costs of products and services to reflect real costs; it will also involve distributing such revenues in a way that meets social, economic, and environmental dimensions. Although the taxes should cover all products and services regardless of fairness, as this is the competitive nature of markets, it should not mean that people will be economically affected. Revenues from such taxes, as already hinted at, should be used to conserve and sustainably use ecosystem services and promote improved life quality for the entire population. Because such extra costs will include the price of ecosystem services and human capital, as in the fair trade example, distribution of revenues should both account for environmental protection and the socioeconomic needs of people, especially those who would be most affected. This is different from other suggestions, such as a shift in the income tax (Brown, 2001), in that it makes full use of revenues rather than cutting funding for other needs.

Today, the market is the main cause of environmental problems because it brings products and services to people that originated from environmental degradation and that cause it in the form of waste or pollution. Government mandate may not be the most effective way to solve environmental problems, especially because government cannot effectively enforce markets and because such a strategy would be biased towards the environmental dimension of this crisis. It would be unfair to the social and economic dimensions. Steering the market in a preferable direction through the incorporation of external costs would make it account for ecosystem services through their real value. In effect, such a restructuring of the market would create a state where environmental protection and human growth are profitable and economically reasonable. Instead of extracting and leaving destroyed ecosystem services, markets would work to protect and enhance ecosystem services while sustainably extracting products. This would affect society by changing consumer behavior, raising the education bar about environmental goods and services, and promoting a world that fully recognizes that environmental growth is economic and human growth.

Cited Literature Gardner, Gary et al. 2003. State of the World 2003. WorldWatch Institute. W.W. Norton & Company: New York. Available at: http://www.worldwatch.org/system/files/ESW300.pdf. Hawkens, Paul, Lovins, Amory, and Lovins, Hunter L. 1999. Natural Capitalism: Creating The Next Industrial Revolution. Little, Brown and Company: New York. Lester R. Brown. 2001. Eco-Economy: Building an Economy for the Earth. Earth Policy Institute. W.W. Norton & Co: New York. TransFair USA. 2006. Environmental Benefits of Fair Trade Coffee, Cocoa & Tea. Available at: http://www.transfairusa.org/pdfs/env.ben_coffee.cocoa.tea.pdf. Last Accessed: March 10, 2007. Vlek, Charles and Steg, Linda. 2007. Human Behavior and Environmental Sustainability: Problems, Driving Forces, and Research Topics. Journal of Social Issues, Vol. 63 (1): 119.