Here you go, just under deadline. :-)

Candidates Question Litigious Environmental Policy

Some prominent Libertarian candidates have recently expressed misgivings about the traditional anarcho-capitalist idea that torts -- i.e. private lawsuits -- would be sufficient for protecting the environment in a libertarian utopia. Their concerns are justified, but fortunately a market-oriented alternative is available that more efficiently achieves the goal of protecting the environment.

In the Presidential debate at the LP convention in Atlanta, Aaron Russo said: "I think the Libertarian Party has never had a good policy on the environment. I've never heard a good one, and I've been looking for one for months, and I'm hoping to find new ideas on how we can handle the environment. On this issue, to tell you the truth, there's a bit of confusion in my mind. But the stock answer that I've been hearing about the environment is not good in my view. Sue your neighbor, sue this one, sue that one, those aren't good answers for me."

In a recent interview, California LP Senate candidate Jim Gray said: "Just last week we were in Atlanta [for] the Libertarian convention. Carl Pope, head of the Sierra Club, addressed us. Very well received. He brought up one area: What if you have a pond, and the pond is a stop for migratory birds? And you pour DDT into your pond. Is it your pond to mess up if you want to? Yes, under libertarian thought. But all of the birds that stop there die. So, who owns the migratory birds? That’s one that I cannot answer."

Both candidates have the intuition that completely unregulated markets poorly address the issue of transactions that impose costs on parties external to the transaction. Their intuition is justified, as every introductory economics textbook notes this kind of market imperfection, and calls it "negative externalities".

In economics, an externality is a cost imposed or benefit bestowed on a person other than those who agreed to the transaction that created the cost or benefit. Negative externalities are costs such as pollution or overconsumption of natural resources. (Positive externalities are benefits such as scientific discoveries or publicly-visible private landscaping.)

In economics, a natural resource is defined as any rival non-excludable good. Excludability is the ability of producers to detect and prevent uncompensated consumption of their products. Rivalry is the inability of multiple consumers to consume the same good. Examples of natural resources include the atmosphere, bodies and streams of water, sunlight, wind, scenic views, fish, game, orbits, and electromagnetic spectrum. Because natural resources are not excludable but still rival, they are subject to negative externalities that cannot be efficiently managed by either unregulated markets or even by torts.

Polluting a natural resource is aggression, and libertarians believe that policing aggression is a duty of the state. The smart way to police aggression involving natural resources is to place a cost on the release of pollutants. In the words of Duncan Austin of the World Resources Institute:

--------------------
Economic instruments, which aim to control pollution by harnessing the power of market incentives, offer a more cost-effective, flexible and dynamic form of regulation than conventional command-and-control measures.

The underlying premise for economic instruments is to correct negative externalities by placing a cost on the release of pollutants. This will internalize the externalities into the decision making process. Placing a charge, or a fee, on every unit of effluent transforms the manufacturer’s decisions regarding how much he will produce, and how he will produce it. Now, the manufacturer must minimize total production costs that consist not only of labor, material, machinery and energy inputs, but also of the effluent output. By adjusting the charge level, or the cost attached to effluent outputs, the regulator can induce a different degree of response from manufacturers, and hence control the overall level of pollution. By changing the charge level over time, the regulator has a relatively simple way of ratcheting up standards.

The key benefit of economic instruments is that they would allow a given pollution target to be met for lower overall cost than traditional regulations. Economic instruments grant firms and individuals greater autonomy in deciding how to meet targets; they create ongoing incentives for firms to design new and improved abatement technologies ensuring that pollution control becomes ever cheaper; they reduce the information burden on regulators; and they provide potential revenue sources for state or federal governments. In addition, economic instruments may provide greater flexibility in dealing with smaller and diffuse emissions sources which collectively contribute large amounts of pollution, but which until now have been largely ignored in favor of controlling the pollution from more obvious sources.

Economic instruments can create a system for pollution reduction that achieves the same level of environmental protection for a lower overall cost (or achieves more for the same cost). Under a command and control approach, industries invest to meet the standard and then stop. In contrast, placing a price on effluents creates a permanent incentive for environmental improvement. Because every emission, or effluent, effectively has a price attached to it, any profit-maximizing entity has an ongoing incentive to make further reductions over time.
--------------------

For more information, see Austin's article "Economic Instruments for Pollution Control and Prevention – A Brief Overview" at http://www.wri.org/wri/incentives/pdf/austin.pdf.