Economic Incentives for Environmental Sustainability

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Economic Incentives for Environmental
Sustainability

• 29 April 2005

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Getting People to do the Right Thing

• We can classify the ways of persuading people to
  conserve the natural environment in three
  categories. One, people may make choices that
  conserve the environment because society
  instructs them to do so and will penalize them if
  they disobey. This is the regulatory approach,
  the one most widely used to date. Two, people may
  make choices that conserve the environment
  because they believe as a matter of principle
  that this is how they should act it is
  consistent with their views on what matters in
  life and how one should run ones life.
  Environmental activists are usually in this
  category. (continued )

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Getting People to do the Right Thing

• Three, people may choose environmentally
  friendly strategies because these options are in
  their economic self-interest. The prices they
  face fully reflect the social costs of their
  actions, and they are naturally led by the
  invisible hand of the market to make the right
  choices. (Geoffrey Heal, Nature and the
  Marketplace, 2000)
• HOWEVER, people now know the price of everything
  but the TRUE COST of nothing. Price is what the
  person pays. Cost is what society pays, here,
  now, elsewhere, and into the future. A pesticide
  may sell for thirty-five dollars a gallon, but
  what does it cost society as it makes its way
  into wells, rivers, and bloodstreams? (Hawken,
  Lovins, and Lovins, 1999)

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Imagine two people talking in 1890. Lets
create an industry that will employ millions of
people, sell a copy of its product every two
seconds, and provide personal mobility to nearly
all Americans. However, it will also do the
following

• Pave an area equal to all the arable land in
  Ohio, Indiana, and Pennsylvania, requiring
  maintenance costs of 200 million/day.
• Maim or injure 250 million people, and kill more
  Americans than have died in all wars in the
  countrys history.
• Combust 8 million barrels of oil every day,
  making the U.S. increasingly dependent on foreign
  oil at a cost of over 100 billion a year, and
  requiring the U.S. to maintain a substantial
  military presence in one of the most hostile and
  volatile regions of the world.
• Kill a million wild animals per week, from deer
  and elk to birds, frogs, and opossums, plus tens
  of thousands of domestic pets.
• Make the air so unbreathable in metropolitan
  areas that children and the elderly should not
  venture outside on certain days.
• Cause spectacular increases in asthma, emphysema,
  heart disease and bronchial infections.
• Create 7 billion pounds of unrecycled scrap and
  waste every year.

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The Most Heavily Subsidized Industries in America

• Automobiles / Oil / Energy 464 billion/year in
  corporate welfare. New energy bill includes
  over 80 billion in subsidies to oil, coal and
  gas industries at a time of record high prices
  and profits.
• Mining / Mineral Extraction because of
  provisions in the 1872 Mining Act, 16 billion in
  minerals from public lands was sold to mining
  companies in 1996 for 19, 190 in royalties.
  Taxpayers then have to pay millions in clean-up
  costs after mines are abandoned.
• Forest Products the Forest Service regularly
  spends more to build and maintain roads in the
  national forest than they take in through timber
  sales.
• Agriculture subsidies of 50 billion/year 84
  of subsidies go to farmers with annual incomes
  over 100,000/year 70 of subsidies go to the
  richest 10 of farmers.

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Correcting Market Distortions Or, How to Invest
in Natural Capital

• 1. Reduce or eliminate wasteful subsidies that
  lead to natural capital depletion
  http//www.greenscissors.org/ Since 1994, the
  Green Scissors Campaign, led by Friends of the
  Earth, Taxpayers for Common Sense and U.S. Public
  Interest Research Group, has been working with
  Congress and the Administration to end
  environmentally harmful and wasteful spending.
  Working to breach party lines, the Green Scissors
  Campaign has helped cut more than 26 billion in
  environmental wasteful programs from the federal
  budget.

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Correcting Market Distortions Or, How to Invest
in Natural Capital

• 2. Ecological Tax Reform taxes and subsidies
  are a form of information, and everybody in the
  world, whether rich or poor, acts on price
  information every day. Taxes make things more
  expensive, subsidies lower prices. Ecological tax
  reform would shift taxes away from labor and
  income, and toward pollution, waste, carbon fuels
  and resource exploitation, all of which are
  presently subsidized. A tax shift is not intended
  to redefine who pays the taxes but only what is
  taxed.

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A Final Thought

• For many, the prospect of an economic system
  based on increasing the productivity with which
  we use natural capital, eliminating the concept
  of waste, and reinvesting in the earths living
  systems and its people is so upbeat that it calls
  into question its economic viability. To answer
  that question, just reverse it and ask How is it
  that we have created an economic system that
  tells us it is cheaper to destroy the earth and
  exhaust its people than to nurture them both? Is
  it rational to have a pricing system that
  discounts the future and sells off its past? How
  did we create an economic system that confuses
  capital liquidation with income? Wasting
  resources to achieve profits is far from fair,
  wasting people to achieve higher GDP doesnt
  raise standards of living, and wasting the
  environment to achieve economic growth is neither
  economic nor growth. (Hawken, Lovins, and
  Lovins, 1999)