NCPA - National Center for Policy Analysis


February 17, 2009

The financial meltdown has led many to blame the problem on market failure and to jump on the regulatory bandwagon.  Despite the evidence that property rights and markets help the private sector improve environmental quality, three forces are likely to work against "free market environmentalism," says Terry Anderson of the Property and Environment Research Center.

  • First, reduced wealth and incomes resulting from the global economic downturn will lower the demand for many goods, and the environment will be no exception.
  • Second, free market environmentalism is currently facing a rough road because the mother of all environmental problems -- global warming -- does not have easy market solutions.
  • Third, the Obama administration is all about "change," especially change from the Bush administration.

Though these three forces suggest rough seas for free market environmentalism, there are two good reasons not to abandon the market ship, says Anderson:

  • First, government resources for regulation are going to be strapped in the current regulatory environment; subsidies for everything from alternative energy to national parks are not likely to get top billing, and environmental regulatory bureaucracies are not likely to grow.
  • Second, free market environmentalism has a proven track record of getting the incentives right.

For example, between 1998 and 2007, more than a thousand water market transactions were implemented to increase stream flows in the western United States; with fewer than 90 transactions, California and Idaho have restored more than 3.4 million acre-feet to streams and rivers.  Furthermore, environmental entrepreneurs are finding ways to make the environment an asset to be husbanded by private owners.  Now is not the time to stifle entrepreneurship by shifting back to command-and-control environmental regulations.

Source: Terry Anderson, "Don't Abandon Market Ship," Property and Environment Research Center Reports, Vol. 26, No. 4, December 2008.

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