The Environment Needs a Free Market; Not the EPA

In short time, the Environmental Protection Agency will release new standards for chemical plants and refineries to measure volatile organic compounds in their flares. The new regulations come in response to a past lawsuit that claims the EPA failed to enforce existing regulations under the Clean Air Act. This comes as no surprise because government is inherently motivated to fail. How else will they claim they need more funding?

However altruistic the regulators may be, their endeavor will not produce any meaningful benefit. The environment needs market freedom, not an intrusive regulatory body. There is no better way to conserve scarce resources and reduce pollution than via free markets.

There are multiple pieces of evidence confirming that economic freedom and strong property rights results in better environmental quality. The Fraser Institute studied over 100 countries from 2000 to 2010 to identify the relationship between economic freedom and environmental quality.

Fraser concluded that “a permanent one-point increase in the Economic Freedom of the World index results in a 71.5% decrease in concentrations of fine particulate matter in the long-run”. They also found that, while property rights and freedom aid reduction in overall pollution, regulatory bodies do very little to reduce pollution.

Additionally, researchers at Iowa State studied 12 centrally planned economies as they began privatization reforms. They found a strong relationship between market liberalization and improvements in overall environmental quality. Countries that continued central planning, however, experienced net declines. Their research supports that minor pollution regulation, but, like all regulation, can regulatory benefit is subject to diminishing returns.

Low levels of environmental regulation are not synonymous with environmental destruction, nor are high levels with environmental improvements.

For example, a quantitative assessment of the Clean Water Act examined water quality from 1975 to 2011. Has anything changed? On aggregate, national fresh water quality has not changed and more closely tracks with the business cycle. This suggests environmental quality tracks with economic growth.

Nobel Prize winner Simon Kuznets developed a u-shaped curve now known as the Environmental Kuznets Curve. It illustrates that increasing incomes result in the increase of overall environmental quality, specifically in pollution and material waste. Environmental improvements are not immediately realized during the initial growth stage, but follow shortly after with the resulting income growth.

Economists have found the Kuznets Curve is a reliable and accurate illustration of environmental trends. Trade liberalization, for example, benefits multiple measurements of environmental quality, particularly so with air pollution. At low levels of income, this may not always be the case until experiencing income gains, which is consistent with Kuznets’s theory. In the words of NBER researchers, “Trade helps promote economic growth which in turn is an indirect channel of the effect on the environment”.

Markets also maintain sustainability of natural resources via the price mechanism. If a producer believes their resource (i.e. trees) will be worth more in the future, they will hold onto to it and accept the higher price. If their trees are worth more today, then they will increase output for the present price. As a result, privatization results in the conservation of the resource.

This has especially been the case for the North American tree population, which is 70% privately owned. Since the early 20th century, there has never been a net decrease in the tree population. For example, all species of trees increased from 17,430,000 cubic meters in 1953 to 23,650,000 in 1997. At least two million cubic meters were added every ten years. Growth far surpasses removals even during a rise in the demand for paper.

According to the FAO United Nations, the U.S. ranks near the top for forest biomass growth. Property rights and overall economic freedom are the distinguishing characteristics between a top rated country like the U.S., which added 400,000 hectares of trees from 2005-2010. Lower ranked countries, such as Brazil and much of Africa, do not have a similar respect for property rights and lack economic freedom, hence they have net depletions in their tree population.

Many economists support limited regulation to address pollution. There is no need, however, for an $8 billion bureaucracy that barely enforces their own rules. Besides the EPA, there are a litany of federal agencies with some kind of environmental agenda. While their plans maybe grandiose, they ultimately prove ineffective. We can effectively protect the environment by protecting property rights and the free market.


One comment

  1. Fantastic. I am just turning in a paper where I make the same argument. Unfortunately we’re not allowed to use outside sources, so my argument is just the logic, not any empirical evidence.


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