Common Tragedies

Thoughts on Environmental Economics

An introductory post/rant from a new contributor

Posted by Tim Kidman on April 16, 2009

To all of you in the Common Tragedies community I would like to introduce one more tragedy: my presence here as a contributor. My name is Tim Kidman, and I currently work at the Climate Action Reserve – an organization whose views and ideas I make no claim to represent in my posts here. What you read here are my thoughts alone, and do not represent my employer. This post has nothing at all to do with the Reserve. Of course, the Reserve has some pretty great ideas too, so I’d encourage everyone to check out our program. But you know the deal, so the above is my disclaimer.

When my friend Danny asked me to join the blog I immediately jumped at the opportunity. I am constantly intrigued by the power of economic theory to explain behavior and environmental issues, but I am far more amazed by the ingenuity and creativity of thinkers to employ these same theories to develop innovative remedies and policy mechanisms for the very same problems.

Now, none of what follows is to say that environmental economics is not one of the most valuable and powerful tools we have available to us today. I truly believe it is. What follows is simply to say that we need to always ask the question: are we trying to fit a square problem into a round solution? Because the truth is, no matter how many problems are round, a few are definitely square.

So, in my introductory post/rant I would like to echo a cautionary sentiment about market mechanisms, or at least our relationship with them, that Danny posted yesterday: “They are not a panacea, however, so don’t be afraid to be a little skeptical now and then.” The neatness and coherence of viewing environmental issues through a purely economic lens has immense intellectual appeal. It is scientific, structured, and at first glance offers a utopian vision of freedom, choice, environmental integrity, and that ever-present word – efficiency.

In grad school I definitely fell into this optimistic, almost religious faith in the ability of economics to explain and fix environmental problems as disparate as over-fishing and climate change – two that I actually believe it is particularly well suited for. In that context, I believe it served me and my classmates well; it allowed us to dig deeper, learn more, and think creatively without the constraints of the “real world.” But now that I am back in the real world, that optimism has been tempered. I still have faith in market mechanisms and am a strong believer in a cap-and-trade system. However, and this brings me back to Danny’s point, I think it’s important to recognize that certain issues, or certain aspects of issues, simply do not lend themselves to market mechanisms.

At a carbon conference a few weeks ago, Carl Pope of the Sierra Club stood up in front of a room of 850 attendees, and told us all that markets were not the only answer. It was, in my opinion, the best speech of the event. This was a room full of offset project developers, brokers, investors, regulators, and non-profits, all of whom had a vested interest in seeing the carbon market mature (myself included). It took courage to stand up as a keynote speaker and speak openly to this audience, but more than that it highlighted a paradigm shift that I think has gone largely unnoticed.

For decades, the environmental community and certain groups in particular have had the reputation of being idealistic, stubborn, and unwilling to place pragmatism over righteousness. In contrast, industry and investor advocates have cautioned against unbridled idealism and regulation– often very transparently – arguing instead that a pragmatic approach which balances societal and environmental goals should be considered. (I by no means condone the industry lobbying that has taken place, or the often disingenuous opinions proffered, but instead use this only to illustrate a point)

So back to Pope. The new environmental community, the one founded on economic theory, market mechanisms, pragmatism, and which has aligned itself much more closely with industry, risks falling into the same traps as past movements if we are not vigilant. Unbridled optimism and commitment to a single framework is risky. Whether that is a call for regulation, boycotts and protests, or a call for markets, no single framework provides all the answers. It may provide many, and I’d say most, but not all. Interestingly, it was an outspoken advocate of more traditional conservation that most recently brought this consideration into relief, grounding all of us and reminding us that results may be more important than the means.

Markets are great, and economics is a useful lens. But in the name of our ultimate goals, pragmatism and reality require that we recognize certain limitations. There are some issues that markets are simply ill-suited to solve. True, markets may not work because of imperfect information, too many players, etc. (not the theory itself, but rather its implementation), but if we really want to get something done then it is important to recognize that a different mechanism may be more appropriate. Skepticism of market mechanisms is important not just when considering the details of their implementation, but I would argue, even at the level of assessing their very appropriateness.

I recognize that this is a bit of a downer, especially for a first post, but I don’t intend it that way. There are more problems that can be and should be solved by employing and considering environmental economics than I can list. And because of that, it is important that as practitioners we focus our energy on those.

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6 Responses to “An introductory post/rant from a new contributor”

  1. Treat Williams said

    I’m sort of confused by this recent string of posts. It’s not that anything in them is hugely controversial — I doubt that very many people think markets are the only answer to environmental problems — it’s just that I can’t quite figure out what’s motivating them. Do we really live in a world where environmentalists are overly enthralled with economics, or excessively reliant on market-based solutions? From where I sit, the broader environmental community is mostly looking for any reason to bolt from market-based solutions. I sort of get the sense that RFF and CAR folks are living in a rarefied world where environmental economics is widely discussed and generally respected. Most folks — across a broad ideological spectrum — still have a pretty touchy relationship with this stuff. Believe me, “markets are not the answer to everything” is hardly a boldly contrarian position these days. Nor does it seem particularly constructive, given the urgency around passing a good climate bill.

  2. Danny Morris said

    Treat,

    I can’t speak for Tim, but I can tell explain my motivations a little bit. You are correct in saying that we CT kids do live in a rarefied world where environmental economics is respected and constantly discussed. That’s actually why this blog exists: to give us an outlet to express our thinking on these issues. My post was initially motivated by the Robert Stavins post I discussed, but it seemed like a decent avenue through which I could express the tension I see and feel by straddling the worlds of environment and economics. I didn’t do as good a job as I could have articulating my thoughts, but I think both Tim and I would say we’re trying to point out that there are no silver bullets and we need a portfolio of solutions, and markets are a major component of that portfolio.

    Secondly, this is an environmental/economics blog, so we get a lot of economist readers. Sometimes it’s nice to give/receive a reality check. As far as climate goes, market-based solutions are the only solutions to discuss, but climate change can easily consume all other environmental concerns, and in high-level policy discussions, markets can consume other reasonable approaches just as easily. We’re just providing a tiny bit of perspective. And at no cost, so that’s exciting.

    P.S. Where are you sitting that everyone is ready to bolt from market-based solutions?

  3. Tim Kidman said

    Well said Danny. Treat, I completely agree with you that these ideas are not controversial in most circles. But as Danny says, the folks who read this blog are a self-selected group. And to me, more striking than the point itself (no silver bullet), is the fact that people like Danny and I have to be reminded of this point. As you expressed, it seems like a no-brainer. But to many of us with nothing but the best intentions, it’s a point that gets overlooked too often, and that’s a shame.

  4. Rich Sweeney said

    tim,

    welcome to ct.

    while i get your general point (and danny’s too), i’d like to hear a bit more about what specific environmental situations you’re referring to where market mechanisms aren’t sufficient. you wrote ten paragraphs and only provided one quick glimpse (imperfect information?) as to what prompted you to write this rant.

    i totally agree that market mechanisms aren’t always optimal (and can’t actually imagine that anyone reasonable would disagree), but defining when and when not to use them is the tricky part. even if market failures are present, its important to compare the market mechanism to the non-market alternatives. to me, the notion that we can regulate/ mandate our way out of an environmental problem often seems much more utopian than relying on markets. prices are the single most powerful informational tool we have. casting them aside could institutionaliz imperfect information.

  5. Hydra said

    “….it’s important to recognize that certain issues, or certain aspects of issues, simply do not lend themselves to market mechanisms. ”

    Nonsense.

    This is another way of claiming a superior proerty right: something that is worth more than anything else, as a means to justify an argument that otherwise won’t play out in free market.

    There are various versions of this as in ” We have to spend any amount necessary to fix global warming (or your other favorite cause) because the costs of not doing so might be infinite.

    I think this is a well known logical fallacy.

  6. Hydra said

    “…the broader environmental community is mostly looking for any reason to bolt from market-based solutions. ”

    I agree.

    I think the reason is that environmental economics teaches that sooner or later thaey will have to pay for what they get: might as well make the correct tradeoffs up front.

    They hate that idea and prefer to think that they environmental solutions not only have no cost but result in green jobs, and a bigger better economy. At the same time, some of these are ideals driven people who think that they can pay for their goals by taxing “the polluters”, “execss profits”, or the hyper rich – free, no cost.

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