18 November 2021

If we want to go green, ditch the hair shirt and embrace the market

By Fiona Townsley

Much of the modern environmentalist movement seems to consist of ‘watermelons’ – people who are green on the outside, but red on the side, who see climate change not just as an evil in itself, but as a vital means of promoting the ‘system change’ they have always wanted.

The problem for them is that the best system to drive environmental improvement already exists – the free market. Today, as throughout history, the profit motive is every bit as important as government support when it comes to cleaner, greener tech.

This isn’t a fringe view either. Last week in Glasgow we saw the launch of the International Declaration on Market Environmentalism, signed by representatives from over 130 international groups in over 60 countries. It argues that governments can and should encourage environmentally friendly actions while maintaining the free market framework.

You don’t have to look far for examples of free market green innovation. From resuable battery technology to carbon capture and smart water networks, private companies are doing all manner of exciting, environmentally friendly things. One great example is the Smog Free Tower, the largest air-purifier in the world, invented by Dutch designer Daan Roosegaarde. It sucks in polluted air and emits clean air into the immediate surroundings, the smog collected is then used to make jewellery.

It’s not just about inventions though – property rights are arguably the most powerful tool the free market has in improving the environment. Without them, common goods are continuously overused as no one directly faces the consequences of their degradation, a phenomenon known as the ‘tragedy of the commons’. By allocating ownership, someone has a vested interest in maintaining the quality of the resource, which in turn means it is more sustainably used. A farmer who owns a field will not allow it to be excessively grazed, as it will reduce future returns. Therefore, the prevalence of property rights intrinsically promotes sustainability.

Even when property rights cannot be allocated, quasi-property right solutions, such as tradeable, permits are more effective than government regulation. These are permits for the right to undertake a certain behaviour. While they need to be distributed by the government at first, they are then traded according to market forces.

Take fishing – both tradeable permit systems and heavy-handed regulations have been used to control supply and prevent the depletion of fish stocks. Alaska went down the regulatory route by shortening the fishing season. This encouraged fishers to invest in larger boats with more sophisticated equipment to circumvent the regulation. People fished more dangerously, regularly lost equipment, caused significant spoilage to their catches and the recorded catch still exceeded the target each season. It was a lose-lose approach all round – for consumers, fishermen and the environment.

In contrast, Iceland introduced a quota management system to prevent overfishing. For the past decade allowable catches have been in line with advice from the Marine Research Institute, having been far higher previously, and there are no longer any commercially harvested species considered threatened due to overfishing. Rather than trying to control the actions of individuals, the introduction of mechanisms through which the market can continue to operate proved far more effective.

The ultimate market mechanism, however, is a Pigouvian carbon tax which internalises the costs of carbon dioxide emissions to the climate, agriculture, property and health. Such a levy would incentivise both individuals and companies to use and develop low-carbon energy products, simply because it is more economical. That kind of approach, based on common sense, personal benefit and financial prudence would be far more effective than the hair-shirt doom-mongering peddled by the likes of Extinction Rebellion.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Fiona Townsley is a Research Associate at the Adam Smith Institute.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.