Monday, March 06, 2006

Free market and the environment

Some proposed answers I gave to a friend a year ago in her school assignment...

(1) On requiring polluters to install the latest technologies:

"Requiring polluters to install latest technologies" is not exactly along free-market philosophy. The state can just institute "polluter pays" law and implement it. So, adoption of modern technologies will become "a natural thing to do" for firms, especially the heavy polluters. The state is not exactly telling them what technologies to use, but telling them "these are the penalties if you exceed this particular pollution level".

Of course, consumers should be ready to pay higher price for the products and services of environment-friendly firms. They reap the benefits in terms of cleaner air, grounds and waters.

Mandating that companies "install the latest technology" is too dictatorial. The fact is, what constitutes "the latest technology" is often in dispute. We should not let the politicians and government bureaucrats make that decisions for us. Themore government mandates, the more inflexible and rigid the economy becomes. A far better approach (though not necessarily the very best among market alternatives) is to simply define the required, reasonable,science-based outcome and within those constraints, let private entities figure out how each can do their part in their own way. That's the origin of the "tradeable permits" concept that many market proponents have advocated for dealing with environmental problems that often have their root in pollution of commonly-held or already-socialized resources like the air or a large body of water.

(2) Are the goals of economic efficiency and distributional equity, at odds with one another?

Over the short- and medium-term, Yes, equity and efficiency are at odds with one another. Take coastal resource environment preservation. Under a "public ownership of the coastlines", huge fisherfolk communities flock on it and since "the ocean belongs to everybody", anybody can harvest from its resources, and anyone can use it as wide garbage dumping ground. Since anyone can come in anytime to harvest the fish, some guys would beat their neighbors and get the fish whilethey're not mature yet since their neighbors might beat them in catching the fish later on if they postpone harvesting the fish now. There's equity here, but no efficiency.

The coastlines under "private ownership and stewardship", like the thousands of resort owners fronting white sand beaches of Boracay, Puerto Galera, Pagudpud, Panglao Island (Bohol), etc. Not everyone can come in anytime, anywhere, and harvest the fish or throw their garbage on the coastlines. Result is a cleaner ocean, rehabilitating corals, expanding the stock of colorful and diverse marine life, attractingtourists, creating jobs (resort/hotel cooks, waiters, sweepers), boatmen, etc. Here, equity is sacrificed in exchange for efficiency in preserving coastal resources.

(3) On imposing emission standards on greenhouse gases from new automobiles sold in the state.

That ruling is too limiting, and too statist.Although it will help attain the stated goal -- to minimize greenhouse gases and pollution from vehicles, both old and new -- there are other options that can help attain the same objective. Among them:
(1) high petroleum tax -- the more gas-guzzler a vehicle, the more taxes the owner of that vehicle will pay. Compare a compact car that runs on 15 kms/liter vs. an SUV that runs on 5 kms/liter. Here, the latter will pay 3x petrol tax than the former.
(2) civil society or citizen action -- private/residential villages, private schools and campuses, country clubs and recreational places, can ban smoke-belchers from entering their vicinity. This is currently being done by some villages and schools here in Manila.

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