Save the environment, give it a market price

An old insult directed against economists is a reprise of Oscar Wilde’s pithy putdown of cynics – they know the price of everything, and the value of nothing. Like so many glib one-liners, it is both manifestly unfair and hinting at a kernel of truth.

Prices are subjects that occupy a great deal of economists’ time, it is true, but that’s because they are the primary quantification of value in a market. What is the value of an apple to me? The highest price I would pay for one.

Markets don’t deal very well with things that have value, but no prices (it’s one of the reasons why I advocate a carbon tax, in order to put a price on polluting the atmosphere). Many environmental problems originate in this disconnect between value and price, which is why I’m very pleased to see a new study is out trying to quantify the benefits of biological diversity and the benefits that flow from that:

Setting up and running a comprehensive network of protected areas would cost $45 billion a year globally, according to one estimate, but the benefits of preserving the species richness within these zones would be worth $4-5 trillion a year.

The economy, both its market and hidden forms, rest on a natural foundation, and cannot exist without the ecological goods and services provided to us by nature. Destroying that foundation would sign our death warrant, and although we’re a long way from that scenario, we have been plundering natural capital in an unsustainable manner.

Greenies would conclude that we should outlaw destructive practices, and for a few things that is feasible. It’s not something we can accomplish in its entirety, however, without wreaking enormous damage on our society. So why not use what we have at our disposal? A magnificent system for evaluating value and allocating and preserving resources – the market. As long as we give it something to work with, that is – prices.

Forests, or whatever natural resource you care to name, have tremendous value on all sorts of levels. But unless that value can be compared with other things we value, through prices, people won’t make decisions that reflect its true value. For instance:

  • The subsistence farmer wants to feed his family, and without a way of showing him that we value the forest he wants to slash and burn more than what he can get out of doing so, nothing short of shackling him will stop its destruction.
  • The logging company wants to earn a profit, and without a way of showing it that it can earn more from the biodiversity, soil- and water-creating abilities, medicinal prospecting opportunities, etc, than what it can get out of cutting the forest down, even banning the practice will do little to stop it.

We should be bringing more of our world into the market system, not less. We should be harnessing market forces to preserve our environmental heritage, not demanding they leave it alone. We should be moving environmental assets to private ownership, not idly watching collective ownership destroy them.

UPDATE 28/5/10:

Today’s SMH had this example of a partial pricing of forests, though one dependent on philanthropy and therefore inadequate as a total solution:

INDONESIA’S President, Susilo Bambang Yudhoyono, has announced a two-year moratorium on new logging concessions, part of a deal with Norway in which Indonesia will receive up to $US1 billion ($1.2 billion) if it adheres to a letter of intent signed by the two countries yesterday.

The initiative was warmly welcomed by environmentalists. It will put curbs on Indonesian’s lucrative palm oil industry and could delay or slow plans for the creation of a huge agricultural estate in Papua province.

Addressing reporters on his way to Oslo, where the deal was signed, Dr Yudhoyono said Indonesia had to balance its needs for economic development with its responsibilities to prevent a rise in carbon emissions, which the majority of scientists say are responsible for global warming.

”Indonesia is really able to maintain its tropical forests, meaning that we maintain the lungs of the world,” Dr Yudhoyono said, according to the official Antara news agency.

”It is not merely Indonesia but also the rest of the world which will enjoy the fruit.”

This entry was posted in economics, environment and tagged , , , , , . Bookmark the permalink.

6 Responses to Save the environment, give it a market price

  1. Ruja says:

    Merry MorrisI am so tired of hearing phrsaes like “Environmental sustainability and “sustainable growth with equity.” What do those phrsaes even mean? Do any of the members of the various councils, groups, and organizations who keep saying them really know?The words everyone can understand are: Meanwhile, Indonesia’s forests continue to burn. I don’t think it is enough for a zoo to be focused on saving species while individual animals of that species are suffering and dying. I always thought of zoos as the only true safe haven for animals in danger or in need, whether or not they were members of an endangered species. So I think the Philadelphia Zoo has gotten way off track with this Unless Campaign.You can send out ten million thank-you cards to companies who say they will no longer deal with suppliers unless the suppliers sell only sustainable palm oil. And maybe that will help in the long run. But right now, I would be happier if I knew the Philadelphia Zoo was directly involved with saving even one orangutan from dying in a fire. So if the Philadelphia Zoo is doing something to help rescue individual Sumatran orangutans in immediate need of rescuing, please post something about that here, too.

  2. Touchdown! That’s a really cool way of putting it!

  3. about feeling stupid and then the day to day witnessing of her life alone. I can tell she felt satisfaction with sharing her stories with you,a remarkable relationship. My best to Virginia and you… the ant:)

  4. Hey nevdin í eigarafelagnum Undir Kongavarða,hvussu skal ein fyrihalda seg um man ynskir ein fund við tykkum, og tað hastar rættiliga nógv við einum svari.?HeilsanJohn Eysturoy

  5. "…If you own a site that’s on a subdomain (such as googlewebmastercentral.blogspot.com) or in a subfolder (www.google.com/support/webmasters/) and don’t own the root domain, you’ll still only see links from URLs starting with that subdomain or subfolder in your internal links, and all others will be categorized as external links. We’ve made a few backend changes so that these numbers should be even more accurate for you…."Does that not answer your question?

  6. Man, wouldn’t i wish to have such a desk, well atleast webber will have a nice look in his desk besides some dull white color in his face.

Leave a Reply

Your email address will not be published. Required fields are marked *