The Value of Species by Edward L. McCord

Author:Edward L. McCord
Language: eng
Format: epub
Publisher: Yale University Press
Published: 2012-04-14T04:00:00+00:00

SIX

Free Market Environmentalism Places Profits Above the Public Interest

It may be tempting to conclude that the only way to rescue the earth’s living heritage from competition with money is to coopt money and the free market into its service. Proposals to do just that under the rubric of “free market environmentalism” have gained a following among varied constituencies in recent years. These constituencies include individuals at opposite poles of the values spectrum, which may not augur well for the integrity of markets as arbiters of the public interest. As the economist Thomas Power has explained, at issue is the world of difference between having markets determine the values we maintain, and having markets serve the values we maintain.1

Consider the Clean Air Act passed by the U.S. Congress in 1990.2 This act is designed in part to reduce sulfur-dioxide emissions into the air from coal-fired electric generators. The quantity of sulfur dioxide emitted from a smokestack is measurable. The goal is to decrease the annual nationwide emissions of sulfur dioxide from utility units to no more than a certain ceiling by a particular year. This means reducing the annual emissions by specified millions of tons during that time.

The Clean Air Act defines an “allowance” as an emission of one ton of sulfur dioxide per year. It provides for an automatic distribution to generators nationwide of a fixed number of allowances, equaling the amount needed to achieve the reductions; the allowances vary according to each generator’s characteristics. A generator is permitted to emit only its assigned allowances of sulfur dioxide. The act also provides for the U.S. government to withhold a percentage of allowances from distribution to make available a reserve of allowances to distribute at market prices in a public auction.

It follows that under the Clean Air Act the annual sulfur-dioxide emissions by the target year should total no more than the designated ceiling even if generators buy and use all the additional allowances from the reserve. That result would meet America’s goal. The act does not dictate the means by which generators must meet their emissions limit, and generators can transfer their allotted allowances from one plant to another, thus exploiting a surplus of allowances in a clean plant to fill a deficit in a dirtier plant. Companies appreciate this flexibility, and that favors their compliance. Further, every generator has an incentive to be cleaner than its permitted allotment of allowances because a cleaner generator can sell its unused allowances on the open market. That is a big improvement over former U.S. laws, which merely set standards to be met, with no incentives to exceed them.

So here we have a market mechanism serving the goal of cleaner air with improved incentives to achieve compliance. That is a good thing.3 On the other hand, although the market serves the goal of reducing sulfur-dioxide emissions to a designated ceiling per year, the market does not determine that goal. That would be absurd. We do not let markets determine permissible pollution.

We do not allow markets to decide everything.

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