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Lynn Scarlett Talks with Terry Anderson About FME

Tech Central
March 12, 2001

By Lynn Scarlett

“Free market environmentalism … can bring the ingenuity of entrepreneurs and individuals to environmental quality,” Terry L. Anderson, author of Free Market Environmentalism, tells TechCentralStation’s New Environmentalism Host Lynn Scarlett. The executive director the Political Economy Research Center and professor of economics at Montana State University says the market approach can’t solve all problems; but “incentives matter, and … private property rights provide the best incentives.” Critics of property rights often cite problems that are really “examples of a lack of property rights,” he says, the so-called “tragedy of the commons.” Where such problems are not amenable to free market or common law answers, the government closest to the people affected should deal them, he argues. “If national regulation is bad, international regulation is even worse and therefore to be avoided at virtually all cost.”

Lynn Scarlett: Your second edition of Free Market Environmentalism was released in January and is now available. What is that book all about?

Terry Anderson: Free Market Environmentalism is an approach to environmental policy that focuses on the simple principle that incentives matter, and it takes it one step further by saying that where possible, private property rights provide the best incentives. It also suggests that where those can’t be used, we should do everything we can to provide positive incentives for providing environmental quality.

Scarlett: What comes to mind is, how do private property rights provide incentives. Typical environmental activists out there will say, “Wait a minute. Private property rights are a problem.” Isn’t it industry, after all, that causes the pollution we have? Isn’t it loggers, for example, who have chopped all the trees down. So what’s the connection between property grights and incentives and environmental performance?

Anderson: In the simplest cases, property rights work best for such resources as land, where property rights can be clearly defined, and where the owner is held accountable for his or her actions and reaps the benefits from good stewardship. I think that needs to be recognized more and more by the environmental community. Certainly, it was recognized by (the late) Aldo Leopold , the great conservationist who understood that private landowners were the best stewards in part because they do the most and in part because they have the right incentives.

Scarlett: Can you give us some concrete examples of where private property rights did in fact yield that stewardship that you’re talking about?

Anderson: First let me switch from land to water for a minute and point out that water rights, which are a form of property rights, give the owner of the water an incentive to conserve on water, to market it to other people if they had a higher valued use, to guard against water quality intrusion, to make sure that the quality of water that he or she owns stays in tact. As water markets have expanded in that area, we’ve seen more conservation, more stewardship, and more efficiency. That results in less pressure on the environmental resources that had been degraded by dams and other federally subsidized projects.

Scarlett: Now, won’t the devil’s advocate come back here and say, “Well, OK, Terry, maybe you can show some examples here, but for every example you show I can show a counter-example.” What about, let’s say, the early loggers in the Northwest that came in and just basically cut everything down, leaving a blight of land, not only in the public land where perhaps you can argue it was the lack of ownership, but also to some extent even in privately-owned land you saw that kind of logging. So, how do you respond to the devil’s advocate that says that?

Anderson: Environmentalism needs to be put in the proper historical context. Looking back at what loggers did in the late 19th Century, or even what is going on in the rainforest today, requires that we understand that until you get full belly and shirt on your back and decent housing, you don’t start thinking about the environment. But the second point, and the most important, is that many of the bad examples are examples of what is called the tragedy of the commons. In other words, they are examples of a lack of property rights, where the incentive is to cut now and run because, if you don’t, someone else will. And that is particularly a problem today in the rainforest of the Amazon where it is well documented that it is a lack of property rights leading to the kind of rape and pillage of the environment that people point toward.

Scarlett: But what about problems like air pollution. What do you say to the person who says,” I don’t understand the connection between property rights and air pollution.” Are you talking about creating a way to own the air? What do you say to that person?

Anderson: Another side of the property rights approach is that people cannot foul the property of others. In the case of, say, a well, if I dump my waste into the ground and it seeps into your well, I should — and free market environmentalists will advocate strongly that I should — be held accountable for that pollution. And I would quickly add that there’s a good long history of common law showing that the common law took into account these kinds of pollution. The problem, of course, arises with resources such as air, where you would need to prove that harm was done, that people had rights to clean air, and that their rights were violated. Free Market Environmentalism has a chapter about that, and it’s proper problem for concern. And I think in those cases that most free market environmentalists would at least entertain forms of regulation or collective action to solve the problem.

Scarlett: Sticking with the air thing, because it’s a tough challenge, one of the reasons that some industries decades ago actually supported the move to use statutes and regulations as opposed to common law was that they feared, in some instances, it might set too difficult standards to meet? So they thought maybe they’d get a better general operating context out of the statutes that would say, “OK, you can emit some stuff but not above a certain amount.” How do you respond to that view?

Anderson: I recently had a book for the Hoover Institution entitled Political Environmentalism. Many of those chapters focused on precisely the problem of industry saying, “We don’t want a property rights approach; it would be too strict and we would be held too accountable, so let’s turn to regulations, over which we can have more control.” And the result in many cases in the Clear Air Act has been higher cost solutions and less environmental quality. And the farther those regulations get pushed up to the national level and away from the local level, the more likely these political results will lend themselves to concentrated interests that say we don’t want to clean up.

Scarlett: Well, let’s pick up on that point, how does one, in your free market environmentalism concept, respond to the challenges of how clean is clean enough, how pure is pure, just what is a harm? Who decides how it is decided? These are really some of the prevailing questions in the air pollution role.

Anderson: In a free market environmentalism, property rights context, pollution would be controlled between two parties bargaining with one another as to how much pollution is tolerable. I come to you and say, “ will pay you for an alternative well source or an alternative water source if I can avoid having to pay you damages for any stuff that I may put into the ground that enters your well.”

Scarlett: I can imagine that occurring for the well that you’re talking about. But what about, let’s say, the Los Angeles air basin and you’re an electric utility producer spewing out nitrogen oxides and so forth, so that material is spewed out and touches the lives of 18 million Southern Californians. In the case of ozone it can migrate all the way to the Grand Canyon, so whom am I going to negotiate with?

Anderson: The important point is again that a property rights approach won’t solve all of the problems that involve multi-polluters and multi-citizens who are harmed in a very broad concept. And it is in those cases that we turn toward regulation. But the regulations have tended to move away from an optimal level of pollution to a zero level, which might be the zero amount if we’re talking about a pollutant that would kill everybody in a 20-mile radius instantly. But in most cases, it does not make good sense. And I think again that what we have in the regulatory context when done at the national level is a competition, a conflict between those who want zero pollution and those who would rather have more emissions. And in that conflict we end up with very high costs of solving the problem and a great deal of acrimony that tears at the social fabric.

Scarlett: What needs to be done in those cases?

Anderson: The key then is to ask in those cases if there is a halfway house that may work better. Now, the pure libertarian free-market environmentalist would probably say, “Well, you know, we’ve privatized all the roads, and then the cars will be accounted for by the owner of the road, etc.” But in between the pure libertarian free-market environmentalism and the pure regulatory environmentalism are such things as tradable emission permits. Such permits move in the direction of a market, though a created market by the government, but at least get more efficient results to the pollution cleanup.

Scarlett: We just have a minute or two more and I really want to turn to a very difficult challenging problem. What about all these discussions of carbon dioxide (CO2) emissions, so-called greenhouse gases and climate change? First, what does science have to offer here and, from a second angle, what does free market environmentalism have to tell us about how to think about that issue? In a free-market environmental concept, how does one even decide it is an issue to be addressed? When is an emission a pollutant and when is it you decide to engage in some emission control? Does Free Market Environmentalism give us any enlightenment on something like that?

Anderson: I don’t think Free Market Environmentalism has a lot of advice about how we sort out the question of whether global warming is real or not. I think that what it does say is, that as these problems cross border space, international boundaries, they become far more intractable to attack forthrightly. But they do suggest still that economic growth, rules of law and property rights within countries are a better way of addressing them than any kind of international solutions we have. If national regulation is bad, international regulation is even worse and therefore to be avoided at virtually all cost.

Scarlett: I think our time is just about up. I’ve seen many critics of free market environmentalism say that the whole concept is an oxymoron; how can you pair those two concepts together? What would you conclude by saying to folks who make that challenge?

Anderson: Free market environmentalism, when you and I and others started working on the ideas 20 years or more ago, had not much of a following. Today, it’s firmly on the policy stage, and it is there because there are so many pragmatic results that show free market environmentalism can work. It won’t solve every problem. It won’t solve the global warming problem. But it does not mean it can’t solve a lot of other issues that lend themselves easily to property rights problems. Free market environmentalism, by getting government out of the way, can bring the ingenuity of entrepreneurs and individuals to environmental quality.

Scarlett: Thanks a lot, Terry.

Scarlett is the Assitant Secretary of Interior and the former President of Reason Foundation.

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