Earth Day & Free Market Environmentalism in the Bahamas

by Larry Smith

"I get upset every Earth Day," says Laura Huggins, a political scientist at the Hoover Institution in California who describes herself as a free market environmentalist. "I get upset because of all those catastrophic claims that have been made about the environment for the past 40 years."

What "outrageous" claims is she referring to? The link between industrial pollutants and cancer made by Rachel Carson; the suggestions by Paul Ehrlich that population growth poses major problems for humanity; and the idea that we are plundering the planet at a pace which will outstrip its capacity to support life, to name a few.

Huggins was speaking at a public meeting last week organised by the Nassau Institute, which advocates libertarian free market policies for the Bahamas. She is a director of the Property and Environment Research Centre in Montana, and the author of books and articles that promote market principles to help solve environmental dilemmas.

"Are resources really finite?" she asked. "That depends on how you look at it, because our ultimate resource is the mind. Every generation has underestimated the potential for finding new recipes and ideas. The sky is not falling, and the end of the world is no closer today than it was in 1970."

But that too depends on how you look at it.

Before the first Earth Day in the United States - April 22 1970 -  small groups of people around the country were battling massive environmental degradation. Things were bad and, in some cases, they were spectacularly bad, and getting worse.

In the US especially, the decades following World War II were a period of unprecedented economic development, accompanied by big environmental changes. Lakes were being poisoned, rivers were catching fire, the Grand Canyon was about to be dammed and flooded, and a big chunk of the Everglades was being paved over for a jetport.

Earth Day mobilised these disparate groups of citizens into a widespread popular movement that was able to persuade politicians to take action. The US Congress passed aggressive legislation to curb air and water pollution, and to change the way government and business treated the environment.

Those reforms grew out of the first Earth Day, and in the years since then trillions of dollars have been spent differently than they would have if this new regulatory framework did not exist. And environmental impact assessments became the standard tool around the world to evaluate the impacts of development.

But Huggins is a free market environmentalist, so she does not accept these outcomes uncritically: "At what cost are things improving as a result of regulation?" she asked, before concluding that "red tape won't fix green problems."

So what's the alternative? Well, Huggins says incentives and property rights are the answer. And she gave a few examples. In the US, a group called Defenders of Wildlife has been compensating ranchers for livestock losses due to  wolves and grizzly bears. The goal is to share the economic responsibility for preserving these endangered animals.

Some green groups - like The Nature Conservancy - have been actively buying up private land in order to preserve special wilderness areas. And some commercial fisheries have benefited from rights-based management, which gives exclusive catch shares to fishermen that can be bought and sold.

There are more than a hundred such programmes around the world, but Huggins cited the case of the Alaska halibut fishery, which had been reduced to a 48-hour season by the mid-1990s. At that point, the authorities allocated catch shares to individual fishermen, based on scientific estimates of the sustainable fish catch. And the results were striking.

The halibut season eventually stretched to nine months, meaning that fish hit the market in smaller numbers, but over a sustained period. This meant that the per-pound price of halibut increased and consumers enjoyed better access to year-round fresh fish. According to some proponents, rights-based management can halt and reverse fishery collapse.

But implementing such a system in the Bahamas would not be not easy, as you can imagine. How would rights be allocated? Could shares be consolidated, sold or traded? And how would fish populations, and catches, be monitored? It is unclear whether this approach would ever be feasible here, where enforcement of any rule is almost impossible.

That is not to say the current approach is necessarily better. Our conch, lobster and reef fisheries are under heavy commercial pressure, yet we continue to underwrite the fisheries sector with subsidies (boats, engines and equipment are duty-free), by paying the costs of fisheries management, and through depletion of capital (read over-exploitation of fish stocks). This means that while the benefits of fishing accrue to a few, the costs of over-exploitation are shared by all of us - a concept known as perverse incentive.

According to Huggins, resources that are un-owned are subject to the tragedy of the commons - which means we scrabble over the spoils until they are all gone. A good example of this was the northern Caribbean sponge fishery, which - at its peak before the Second World War - removed 47 million pounds of live sponge annually and employed thousands of people and hundreds of ships in the Bahamas alone.

But over-exploitation and disease wiped out the sponge beds in 1939, leaving the fishermen destitute. And only a tiny remnant of this once thriving industry exists today. Could we have escaped this consequence if settlements had joined together to protect their exclusive fishing zones and set harvesting rules?

One of Huggins' main arguments is that our treatment of the environment improves as we get wealthier - in other words, respect for the environmental increases as gross domestic product goes up. Well, it is comforting to know that all we have to do is make enough money, repeal every regulation, and get rid of all public resources for everything to be right with the world.

But regulations that tax pollution are aimed at making the hidden costs (known as externalities) part of the decision-making. Laws can force polluters to take notice of these external social costs by prescribing limits to what can be discharged or emitted. The optimal level of pollution, for example, then becomes the level at which the extra costs of cleaning up equal the cost of environmental damage caused by that pollution.

Regulations that offer incentives for alternative technologies - like electric vehicles or solar panels or mass transit - are aimed at offsetting some of the external costs associated with the entrenched and highly polluting transportation and power generating industries. Currently, these costs are avoided by the polluters.

It is a fact that if you build too close to the sea and destroy the dune, you will eventually lose the beach, which is what attracted you to the area in the first place. But there are any number of examples of wealthy, well-informed individuals and companies that have done exactly that throughout the Bahamas and the rest of the world. Just look at the former Crystal Palace Hotel on Cable Beach.

Would clear government regulations setting out building requirements along our coastline fix this problem? I believe so. Will we be able to benefit from electric car and renewable power technologies unless tax policies are adjusted? Clearly not within a reasonable time frame. Can we prevent the destruction of wetlands by making them privately owned? Look at SandyPort and the south coast of New Providence, where developers are filling them in as we speak. Can we trade air pollution rights? For some reason, that's a big no-no for free marketers.

The phase out of lead in gasoline and paint that began in 1973 in the US is one of the most successful environmental health initiatives of the last century.  Yet, despite the fact that the harmful effects of lead to health were increasingly well known, industry continued to fight mandatory emissions controls for years. Through government regulation, the percentage of US children with elevated blood-lead levels dropped from almost 90 per cent to less than 5 per cent.

This brings me to the nagging concern I kept coming back to while listening to Huggins speak last week. As a political scientist, everything she said was based strictly on her strongly-held ideological views. And if something doesn't fit in with that ideology, then it must be discarded. This is the same approach taken by Marxists at the opposite extreme.

I can't buy that anymore. What we want are workable solutions to the very real challenges that we face, whether they involve private or public sector approaches. In the case of environmental impact assessments, the lesson is not that development must be halted, but that the consequences must be studied to weigh the pros against the cons, and to incorporate appropriate safeguards. Yes, that has a cost, but so does construction of poorly planned developments. The cost of the EIA is borne by the developer, but the cost of environmental disaster is shared by all of us.

It is easy to poke fun at environmental scenarios by saying the sky is always falling, but what about the never-ending assertions of free market thinkers that financial catastrophe is just around the corner due to Keynesian over-spending by governments. We seem to be able to put off that disaster, which nevertheless still might come to pass. And the same is true for the consequences of rising populations, over-exploitation of resources, and industrial pollution.

Like Huggins, I get upset every Earth Day. Especially when I consider how we have wasted most of the past 30 years after the dismantling of America's nascent renewable energy programme in 1980. The ultimate symbol of those lost years was the well-publicised removal by President Ronald Reagan of solar water heaters installed by President Jimmy Carter on the roof of the White House .

Solar panels  - producing power and hot water - did not return to the White House until the early 2000s, when they were installed by the National Park Service. And now we are all scrambling to find ways to implement non-polluting renewable technologies to save the planet.

Comments

[Rick Lowe]

Thanks Larry.
I'm not sure why your belief is so strong that government subsidies will make conservation or green energy work, particularly as you lay out where it's failing here at home.
Often we look to government to solve the problem, when 1, citizens can do so themselves, and 2. Government solutions usually make things worse.
I like to see things like environmentalists like Sam Duncombe selling solar panels for example. Human action at its best.
And if there is merit/value in what she is doing, people will buy it.
As Laura points out, creating an economic environment where ideas can flourish without an over burdensome regulatory apparatus is key to improving a societies wealth, which will improve our desire for a cleaner environment.

[larry smith]

That's the point I was trying to make - I don't have a "belief" in one approach over the other.

Further, incentives do not necessarily mean subsidies. Yet we are already subsidizing fossil fuel industries - the object is to level the playing field to support a desirable outcome.

[Rick Lowe]

You are predisposed to a position on this subject, not unlike the rest of us.
The difficulty with giving someone a break on import taxes (incentive) is that someone else is denied.
I do not think we should be subsidizing fossil fuels if that's the case.
Care to detail that please?

[larry smith]

But I don't run ideological litmus tests on every idea that comes my way. If catch shares work - fine with me.

Governments around the world are spending half a trillion dollars a year subsidizing fossil fuel industries according to a study by the International Institute for Sustainable Development.

In many countries fossil fuel subsidies outweigh renewable energy subsidies.

Between 2002 and 2008 the United States spent $72 billion on fossil fuel subsidies, but only 29 billion dollars on renewable energy resources—nearly $17 billion of which went to corn-based ethanol, a crop which has been linked to deforestation and food crises.

The US also does not tax fossil fuels at the level needed to offset the costs of burning them - the externalities I mentioned in my article.

The more that consumers pay the full price for burning fossil fuel—a price that reflects the true cost to the economy and the environment—the easier it will be for market forces to encourage more secure and cleaner energy supplies.

These external costs include human health problems caused by air pollution; damage to land from coal mining and to miners from black lung disease; environmental degradation; and national security costs, such as protecting foreign sources of oil.

Subsidies to the US oil industry include:

# Construction bonds at low interest rates or tax-free
# Research-and-development programmes at low cost
# Government assuming the legal risks of exploration and development
# Below-cost loans with lenient repayment conditions
# Income tax and sales tax breaks
# Funding institutions like US Export-Import Bank to encourage oil production internationally
# The US Strategic Petroleum Reserve
# Construction and protection of the nation's highway system
# Allowing the industry to pollute
# Relaxing the amount of royalties to be paid

What would oil cost if the industry had to pay to protect its shipments, and clean up its spills? If the environmental impact of burning petroleum were considered a cost? Or if it were held responsible for the particulate matter in people's lungs, in liability similar to that being asserted in the tobacco industry?

[Rick Lowe]

Maybe you don't "run ideological litmus tests" but your solutions and recommendations tend to fall with a certain ideological leaning.
Unintended consequences maybe?
One excellent point Mrs. Huggins made is there is obviously a market for green products, so why don't entrepreneurs invest in what they believe in, like many of them do, and slowly build the market rather than want other taxpayers to make their entry easier.
Or is the sky really falling so urgent action is necessary?

[Laura Huggins]

Mr. Smith seems to be suffering from a slight case of dementia. At first he fully understands how market systems work to avoid “tragedy of the commons” scenarios (collapse of the sponge fishery) and to improve environmental quality. As Smith explains in his excellent description of rights-based management systems, allocating exclusive “catch shares” to fishers to be bought and sold works well for fishers and fish populations. To elaborate, in the 5 years after catch share implementation in the U.S., per boat revenues increased an average of 80 percent. Today, catch shares have been implemented in more than 300 fisheries around the world from New Zealand to Namibia, in fisheries large and small. I have even heard that Cuba is exploring the option of catch share systems.

So why does Smith then do an about-face and seem to argue that this type of system would not be feasible in the Bahamas? Is your government so big that you can’t see beyond an old school regulatory approach? It is time to move fisheries management (and energy, forestry, waste, etc.) in the Bahamas into the 21st century.

As Rick Lowe pointed out, there is a market for green products with environmental entrepreneurs ready to invest in them. But with government trying to clumsily perform these tasks at the taxpayers expense “enviropreneurs” get crowded out.

Elinor Ostrom won the 2009 Nobel Prize in economics for her work recognizing the role that local entrepreneurs play in eliminating the tragedy of the commons. Whether it is fisheries, forests, oil fields, or irrigation systems she provides plenty of examples.

Smith argues that “externalities” are a justification for government. To entrepreneurs there are not environmental problems caused by externalities, but environmental opportunities enhanced by strong property rights and markets. Indeed, entrepreneurs thrive in the space where there are impacts not accounted for in market transactions. The more they can replace externalities with entrepreneurship, the more we will see conflict replaced with cooperation and environmental rhetoric (yes that includes “claims about overpopulation threatening humanity) replaced with real environmental improvement.

The first Earth Day (22 April 1970) was organized by Democrat congressman Gaylord Nelson. It was set upon the 100th birthday of Vladimir Lenin, who led the Communist Revolution in 1917. I bring this up as it serves as a yearly reminder that the world’s biggest environmental catastrophes took place in the USSR and many environmental problems can be seen in North Korea today. I too want workable solutions for real problems and that is why the Property and Environment Research Center works with groups such as the Nature Conservancy, Environmental Defense Fund, and even the World Bank and that is also why we take no government money and why we don’t look to government to solve environmental problems.

With that said, I hope Mr. Smith authors more books such as /The Bahamas: Portrait of an Archipelago./ It serves as a beautiful introduction to the treasure of natural resources found in the Bahamas.

[Chandra]

Great points on both sides! I attended the meeting and though I didn't agree with many of Ms. Huggins points, it was interesting and I'm glad to have heard them. It is always valuable reexamine our beliefs and why we hold them.

The best approach is most likely a combination of both views... we need market pressures for sure, but in their absence, government regulations can play an important role in safeguarding the environment and sustaining natural resources. That said, I am increasingly disillusioned with the ability of our government to be proactive and effective, and so we really do need to act for ourselves here more than in most places.

Thanks to the Nassau Institute for opening this dialogue and Larry for expanding upon it!

[larry smith]

I am glad to hear that the scale of my dementia is limited.

As I said earlier, I have no ideological presets in these matters. If catch shares work - fine with me. I do not need a lecture on communism to persuade me.

Neither was I arguing against catch shares - just raising questions that need to be addressed in the local context.

I am not sure how you could exclude Bahamian fishermen from fishing in Bahamian waters. But perhaps there is an entrepeneur out there with the answer.

[larry smith]

I agree Chandra - a combination of approaches would be most effective.

[amy core]

How about putting solar panels on Government House to provide the power for air conditioning and its electrical needs?
Amy Core