Markets, Economics, and Property in U.S. & International Environmental Policy

1. Markets, Economics, and Property in U.S. & International Environmental Policy

2. The rise of automobile led to the exhaustion of oil supplies in Pennsylvania and Ohio. By 1920, a major “energy crisis” had developed • Conservationists warned of resource depletion -- economic slow-down. Called for public policies to reduce energy use • But resource scarcity -- increased oil prices. Incentives to discover/develop new oil fields • Major finds in Texas & California. Cheap oil supported economic boom in 1940s-1960s • The market mechanism: • Led to the discovery of oil & oil-using technologies • Found a solution to the scarcity crisis of 1920s

3. A second energy crisis occurred in 1970s • Although the U.S. was once the world’s leading oil exporter, production peaked c. 1970 -- increased dependence on imported oil (especially from the Persian Gulf) • In 1973, the Organization of Oil Exporting Nations (OPEC) embargoed the U.S. market. Arab member states felt that the U.S. was favoring Israel in the Arab-Israeli War • Oil prices shot up explosively -- gas lines + economic chaos. Combination of inflation + high unemployment • Oil prices peaked again following the 1978-1979 Iran-Iraq War

4. Tarr Farm, Oil Creek, Pa – 1861 Today

5. Source: Energy Information Agency, Annual Energy Review (www.eia.doe.gov/aer)

6. Presidents Ford and Carter called for ambitious energy policies. Carter said that the energy crisis was the “moral equivalent of war.” This approach gained only limited support in Congress • Laws were passed to: • Increase automobile fuel economy • Deregulate domestic oil production • Implement the Strategic Petroleum Reserve - America’s Oil Stockpile • Meanwhile, high oil prices led to: • Widespread energy conservation • The development of alternative oil supplies (e.g., Norway, Great Britain, Mexico, Indonesia, and Nigeria – see reading) • By 1990s, oil prices had receded to pre-shock levels, mainly because of the influence of market forces

7. Understanding (Environmental) Public Policy • How the structures of politics and government drive policy (environmental and otherwise) outcomes • Public policy – a course of government action or inaction in response to a social problem. Includes: • Goals articulated by political leaders • Formal statutes and regulations • Practices of administrative agencies + courts charged with implementing or overseeing programs • There are many factors that aid or hinder the development of effective environmental policies in democratic societies • Success or failure is intimately related to the system of checks and balances that adjudicates the interplay between stakeholder interests

8. BEGIN with POLITICS… • Toward Environmental Politics • Merriam-Webster Collegiate Dictionary – “Politics” is: • “The art or science of government” • Governing for the environment = environmental politics or… • Environmental politics = resolving conflicts over natural resources + environmental quality; & • Balancing needs/interests of different stakeholders, and competing visions of what a “sustainable” society might look like.

9. Origins of Contemporary Environmental Policy • A “utilitarian” philosophy of resource management closely tied to Teddy Roosevelt, came from: Gifford Pinchot. (One of Roosevelt’s closest advisors. Architect of the US’s earliest conservation initiatives in forestry and water resources.) • WHY: 1. Politics soiled by influence pedaling outcomes that favor special interests • 2. Public policy should promote public interest • 3. Efficiency in resource use of prime importance Pinchot’s inspiration: “Philosopher kings” of Plato’s Republic. The people (lacking wisdom) must be ruled by intellectual elite with the skills/knowledge needed to govern Approach in tension with democratic self-governance. In the US, there was a firm belief that conservation efforts directed by a scientific elite would also = equitable distribution of benefits of resource exploitation But we need to go back even further…

10. … Medieval period • State authority sanctioned by Church. • Power defined (and limited) by moral rules of religious traditions Religious skepticism resulted in new conceptions of government. Grounded in notions of individual autonomy Thomas Hobbes’Leviathan (1651): In absence of political institutions,THE STATE, people would live in “state of nature” where life was “nasty, brutish, and short” Resource scarcity necessitates state intervention. A rational person would freely relinquish autonomy to attain social harmony under the rule of a benevolent sovereign “Thomas Hobbes…argu[ed] that without the Leviathan state there could be no property as we (all of you) in (y)our savagery would have no regard for entitlements of any kind.” (Bell, and Lowe, “Regulated Freedom: The Market and the State, Agriculture and the Environment,” Journal of Rural Studies, Vol. 16, Issue 3, pp. 285-294 (2000) )

11. Checks and Balance in the U.S. Government • The Legislative Branch (Congress) • Textbook role is to define the “public interest” = policies + institutions that promote the general welfare • Focuses on the social values behind public policy + defining “rules of the game” • Late 1960s + early 1970s: Congress passed major laws = basic structure of environmental policy (National Environmental Policy Act, Clean Air Act, Clean Water Act, Endangered Species Act) • Congress has “Hobbesian” powers – setting limits on individual autonomy to protect the environment. But accountable to popular will through biennial elections

12. 2. The Executive Branch (White House + administrative agencies) • Textbook role is to “implement the law.” Reality is more complex • Statutes (acts of Congress) provide only a blueprint of regulatory policy. Define policy goals + process through which agencies work out details • Clean Air Act – air quality standards for particulates, hydrocarbons, nitrogen oxides, sulfur dioxide, ozone, and lead must be set at level required to “protect public health” • The Environmental Protection Agency is charged with “promulgating” regulations regarding emissions standards + implementation strategy

13. Why does Congress delegate rule-making power to the executive branch? • Congress represents popular will (people’s preferences) but lacks knowledge of nitty-gritty details. Trusts that technical experts (with suitable oversight) will faithfully fulfill Congressional mandate • The Judicial Branch (the courts) • Textbook role is to “interpret” the law. Reality is again more complex • The U.S. Constitution defines basic civil rights – free speech, freedom of religion, security of one’s property, etc. • Courts defend these rights against abuse by a “Hobbesian” state, providing a check against “tyranny of the majority” • Long-standing controversy: Can Congress impose regulatory costs on private landowners in order to save endangered species?

14. Civil Society (citizens + nongovernmental organizations) • Role is to elect the President + members of Congress and hold them accountable • Citizen groups can serve as “policy entrepreneurs” or create “advocacy coalitions”= develop new ideas + build political support • The anti-tax policies of the Reagan Presidency were preceded by Proposition 13 – a California ballot initiative that rolled back property taxes • Proposition 13 was sponsored and championed by private citizens outside the normal political process • It illustrates how – when the people lead – elected officials sometimes follow

15. The Policy Process Model • Textbook (ideal type) description of the policy process: • Agenda setting -- policy formation -- policy legitimation – budgeting – implementation – evaluation -- continuation/adjustment/termination • If citizens, Congress, the executive branch, and the courts all did their jobs then outcome should be “good” policy • In reality, the government machine is not always well-tuned. Politics involves conflict between individuals + groups with incompatible interests • The traditional paradigm – environmental policy is reacts to each new environmental problem as it occurs by focusing on the result (not the cause) • Self-seeking behavior by political actors leads to “government failure.” Occurs when policies lead to misuse of scarce resources – e.g. wasted tax dollars + needless regulations

16. The Tellico Dam Case Study • The Tellico Dam was built by the Tennessee Valley Authority in the 1970s • Goal = industrial development + recreation opportunities on the Little Tennessee River • The project was opposed by community groups favoring conservation of agricultural land, wild river amenities, and sacred Cherokee sites • The project failed to pass a cost-benefit test. The river was more valuable in its natural state than as a large-scale water project • But TVA administrators, business groups, and local Congressional representatives all favored the project • Enhanced prestige + budgets for administrators. Construction contracts for businesses. “Pork barrel” project for elected officials

17. The project was nearly blocked by the Endangered Species Act (ESA) • A rare fish – the “snail darter” – was discovered at the site when construction was 90% complete • The ESA requires the strict protection of endangered species • Congress (led by Senator Howard Baker of Tennessee) passed a special exemption to the ESA as a “rider” to a Department of Interior appropriations bill • The Tellico Dam was completed in November 1979 • In subsequent years, a surviving population of the snail darter was discovered in a different part of the watershed

18. TVA v. Hill - 1978 V.

19. The “Iron Triangle” U.S. Bureau of Reclamation Army Corps of Engineers TVA Federal Agency Congressional Representative Private Business Constructions firms Cement industry House and Senate members

20. Two Challenges for Environmental Policy • What forces perpetuate the Iron Triangle in a democratic society? • The costs of environmental regulations often fall narrowly on particular industries, while the benefits are broadly diffused across society • It’s hard for citizens to mobilize around problems that affect them in relatively modest ways. 75% of Americans are “environmentalists.” Yet the environment ranks low relative to other priorities • Businesses, though, have powerful incentives to fight costly regulations (what Carter calls the “power of producers”) • End result: Action is most likely on high-profile issues with modest control costs. It’s more difficult to resolve issues involving complex science + steep regulatory costs

21. The Role of the Market Economy:The “Invisible Hand” • A “market” is a setting where goods and services are bought and sold • Institutional context: People hold claims (“property rights”) to goods that they may voluntarily exchange. These claims are backed up by legal and/or moral authority • Institutions = rules of the game that order the relationships between members of society. Examples = laws, regulations, moral codes, and social norms • Adam Smith’s Wealth of Nations (1776) described the fundamental worldview that guides modern economics • Smith’s argument: The market mechanism, through which people engage in self-seeking behavior, is an effective method for promoting collective welfare • Key assumption: People are rational – they systematically seek to maximize their well-being or “utility”

22. Critiques of the Market Mechanism • Despite the power of Smith’s reasoning, modern economics provides several arguments against relying on markets in decisions that relate to the environment • The “invisible hand” assumes that markets exist for every good. Yet no markets exist for environmental quality = need for environmental policies • This lies at heart of “commons dilemmas” which we discussed in Unit 1 and will again • Economic rationality = strong assumption. Markets work well when people understand their options and know their preferences • From Marsh to the present, environmentalists have worried that the lack of scientific understanding leads to the abuse of natural resources

23. Markets do not ensure fairness. They do not guarantee that income or economic benefits are equitably shared • Market proponents state that 18th century miners are better off working the mine than facing unemployment • Social critics like Dickens and Marx, however, deplored the harsh working conditions associated with early capitalism • In the 20th century, governments responded with worker safety regulations and public education to provide workers with better economic opportunities • The bottom line – while improved working conditions might be seen as socially desirable, the market mechanism would not result in this outcome

24. Other Market Shortcomings…Externalities • An externality exists when one person’s actions affect someone else without consent or compensation • Negative externality: A polluter’s actions impose costs on society that are not reflected in market prices. No incentive to control pollution = “too much” pollution • Positive externality: My efforts to maintain my home make my neighborhood a nicer place. My neighbors benefit but do not compensate me for my time • Externalities exist because (1) Markets are incomplete; (2) Property rights aren’t well-defined. (3) Problems of enforcement • How to “internalize” environmental externalities? • Regulate pollution emissions or polluting technologies • Tax pollution to account for external costs •  Create and Enforce well-specified property rights

25. The Role of Property Rights, One example… • Año Nuevo State Park– Marine reserve on central California coast. Elephant seal calving area in January through March. 1-hour drive from San Francisco (6-million person metropolis) • Park employs quota system + entrance fees to keep visitor volumes within reasonable limits (creates a market for the experience of “nature”). Restrictions necessary both to protect seals and aesthetic enjoyment of park • What if there were no restrictions on park visits? Site might be overrun with visitors from all parts of Bay Area Theoretical role of property rights in a market economy: Efficiency + equity -- Well structured property rights essential to efficient markets. -- Fairness requires equitable distribution of rights between social groups: Rights to education, basic material needs, a healthy environment.

26. Market Rhetoric “invisibility”…

27. …and competition in “free markets”… Bell & Lowe wonder: What are the implications of market rhetoric & absolutism?

28. Hardin’s “Tragedy of the Commons” • Garrett Hardin’s 1968 essay addresses main points in this lecture from physical scientist’s perspective • Hardin = geneticist at U.C. Santa Barbara concerned about population growth + environmental degradation. Specific arguments on this point remain controversial • Environmental problems: • 1.   Are caused by rational choices of individuals • 2.   Demand moral/behavioral, not technical, solutions • Does Hardin’s argument favor state or market interventions in environmental politics?

29. Consider a grazing land (a “commons”) that is open for use by all members of society. • No rules restrict its use   • Historically, “commons” = shared public lands managed by complex rules + social arrangements. Pre-industrial societies often managed such lands efficiently and sustainably   • So…what Hardin terms a “commons” is a misnomer; today’s social scientists term what he describes as a state of “open access” Each person owns a herd of cattle, choosing between two herd sizes – “low” and “high.” Individuals earn incomes that depend on the state of the resource If all herdsman choose “low,” then each earns a good income. Resource is managed sustainably = shared benefits for community Vs. If all herdsman choose “high,” then the rangeland is damaged =poor incomes. Too many cattle = ecological degradation

30. Hardin’s insight: Although small herd sizes are best for society as a whole, individuals face strong incentives to overexploit the resource. If I choose “high” while others choose “low,” then I will earn an excellent (rather than just good) income If I choose “low” while others choose “high,” then I will achieve a very poor (rather than just poor) outcome • Hardin’s argument: •  “Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all” • Reasoning applies to both resource depletion (fisheries) and environmental degradation (pollution). Constitutes powerful argument against “invisible hand” rhetoric • Hardin’s Solution…?

32. International Environmental Conventions, Treaties, & Protocols • Basel Convention Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, Basel, 1989; • United Nations Convention to Combat Desertification; • Protocol on Environmental Protection to the Antarctic Treaty; • Convention on the International Trade in Endangered Species of Wild Flora and Fauna, (CITES); • Convention on Long-Range Transboundary Air Pollution;   • Convention on Biological Diversity; • Convention on the Conservation of Migratory Species of Wild Animals; • Montreal Protocol on Substances That Deplete the Ozone Layer; • Convention on Fishing and Conservation of Living Resources of the High Seas; • International Treaty on Plant Genetic Resources for Food and Agriculture;   • International Tropical Timber Agreement, (ITTA), Geneva, 1994.

33. International Environmental Law - Foundation • See Principle 21 of the Stockholm Declaration (1972): States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to the their environmental principles, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of the other states or areas beyond the limits of national jurisdiction.

34. Lessons from Ozone Depletion – Montreal Protocol • Ozone depletion became an a major issue in the mid-1980s • By 1987, a global agreement (the Montreal Protocol) had been signed to begin phasing out ozone-depleting substances • So ozone depletion is a case study of successful international cooperation, utilizing the precautionary principle through a doctrine of common but differentiated responsibilities. • Both positive and negative lessons emerge for other environmental issues

35. Chlorofluorocarbons (CFCs) were introduced in the postwar period as refrigerants, aerosol propellants, and industrial solvents • They were perceived as “safe” chemicals that resolved the toxicity and corrossivity problems raised by previous technologies • 1974: A study by F.S. Rowland and M.J. Molina concluded that CFCs might deplete the ozone layer • CFCs migrate to the upper atmosphere (the “stratosphere”). Intense sunlight releases chlorine free radicals that attack ozone • Ozone depletion  increased ultraviolet radiation at the Earth’s surface  skin cancers + ecological impacts. Rowland and Molina predicted that this process would be gradual • Initial policy response: Congress banned the use of CFCs as aerosol propellants (1978). Similar measures were adopted in Canada and Scandinavia

36. October 1984: British scientists detected a 40% ozone depletion in the Antarctic atmosphere (the “ozone hole”) • This effect was far greater than scientists believed possible • A review of old satellite data found that severe ozone depletion had been occurring over Antarctica for a number of years • The computer used to process these data had been programmed to ignore such large effects as observational error • Subsequent research found that ozone depletion is magnified by special ice crystals found in Antarctic clouds. Less severe ozone depletion is observed in the Arctic and Northern Europe

37. In 1987, the international community adopted the Protocol on Substances That Deplete the Ozone Layer (the “Montreal Protocol”) • This agreement was updated and strengthened in subsequent meetings held in London (1990), Copenhagen (1992), Montreal (1997) and Beijing (1999) • Industrial countries agreed to phase out all CFC production by 2000. This target date was later rolled back to 1995 for the U.S. and Europe • Developing countries agreed to phase-out CFCs by 2010. A “Multilateral Fund” was created to help developing countries make the transition

38. Why did the Montreal Protocol succeed? • The “Ozone Hole” was a major focusing event - e.g., Issue Attention Cycle • Substitutes for CFCs were readily developed. The costs of the CFC phase-out were therefore modest • The world’s largest producer of CFCs (DuPont) took the lead in developing and marketing substitutes