Economic and Ethical Approaches to Environmental Protection
Dr. Ross McKitrick

The following remarks were given in at "God Is Great. Is God Green? A Conference on Evangelicals and the Environmental Task."  The conference took place in Washington, DC on November 14, 2008.

Approaches to environmental protection should follow certain basic principles. First, humans matter. If humans are just part of nature then everything they do is natural, so there is no ecological crisis. There is only an ‘environmental problem’ if humans are discontinuous with nature in some way. Are they greater, equal or lesser? We must beware of environmentalist view that humans are separate from and lesser than nature. The Christian view is that humans are separate from and greater than nature, but this also implies moral duties towards nature. This is the basis for action, and indeed is the only coherent basis for action that does not collapse into anti-humanism.

Second, policy must be specific and reality-based. What is the environment? In a sense, it is everything but you. So is it even possible not to be interested in preserving the environment? But when we say we are concerned about the environment, we need to specify what aspect, since not everything is in need of attention. For instance, someone interested in air pollution should specify what contaminant hey are worried about, where and when. Otherwise a concern for air pollution can simply become a general, non-specific intolerance for industrial activity even if it does not cause any real harm.

Third, policy should try to achieve objectives at the lowest possible cost. The reason this becomes hard to achieve in practice is greed. Policy interventions create opportunities for rent-seeking and distorting economic outcomes for private gain. The political process susceptible to this influence. Christians must be prepared to advocate for least-cost policy approaches.

Finally, objectives should be set so as to achieve the greatest net benefits. This implies equating marginal benefits and marginal costs, and also implies, in turn, that we don’t get all of one thing or all of another. We mustn’t lose sight of other conflicting aims.

After discussing each item in more detail I will talk about how they might guide our thinking about the global warming issue.

Humans Matter
The word nature lives a strange double life. Some environmentalists tell us that humans have no right to dominate the planet since we, too, are a product of random evolution and hence are “just another part of nature” with no special right to run the place. Philosopher Elliott Sober has pointed out the contradiction this creates, since, he notes, if humans are merely a part of nature then everything humans do is part of nature. Crowded freeways—on this reasoning—are just as natural as caribou migration routes: cities dumping untreated sewage into waterways are as “environmental” as schools of fish doing the same.

Secular environmentalists would, of course, recoil at these ideas. But if one believes that everything is part of nature, there can be no ecological crisis. We don’t think that nature needs to be protected from, say, blue whales, or volcanoes, since these are themselves part of nature. To justify the call to protect nature from human activity, one must see a qualitative distinction between humans and nature. Christians do that when we assert that humans are more important than nature, by virtue of uniquely bearing the image of God. By saying humans are more important than nature, Christian theology does not deny the importance or value of nature. Far from it—Christian thought establishes the goodness of the natural world as the handiwork and glory of God, and prescribes moral duties towards nature, under the doctrine of stewardship. But these considerations are bounded by the recognition that a man is worth much more to God than a sparrow.

Deep ecologists, if they take their own philosophy seriously, construct a qualitative distinction between humans and nature, thereby justifying the need for environmental protection, by saying that humans are less important than the rest of nature. Those environmentalists who resist this conclusion betray an attachment to the inherited anthropocentric and humane philosophies of our civilization. But these remnants contradict the environmentalist position, and over time, the anti-human premise must emerge as essential for environmental thought; otherwise they risk anthropocentrism.

It seems to me the humane, and  Christian, position is that Nature matters, but humans matter more. The human being is the crown of nature, bearing the image of God, and only humans hold a moral awareness of an obligation to esteem the created world and take proper care of it.

This anthropocentric view is embodied in mainstream environmental economics. Value, in economics, is subjective. Something has value because somebody values it. Philosophers might debate if something can be said to have intrinsic value, i.e. a value that would exist even if nobody perceived it, but economists have little use for this concept. For something to have economic value, it has to matter to someone. People place a value on environmental quality and protection of nature. But they also place value on many other things: take-out food, museums, rap music, lawn ornaments, process cheese slices, schools, dental care, libraries, and re-runs of Gilligan’s Island, to name a few.

There is no benevolent dictator who can tell us exactly how much of each thing ought to be produced, instead the free market works it out through countless millions of voluntary transactions each day. Where markets do not exist, such as for environmental protection, public policy needs to step in. But the intervention assumes that the subjective valuations expressed by people through market transactions also matter, and that environmental protection is valuable because people want it.

Public Policy Must Be specific and Reality-Based
We would do well to try to eliminate the word “environment” from our vocabulary. Someone who is concerned about the “environment” needs to specify if the concern is about air quality, water quality, land management, etc. And within categories we also need to get specific. In the case of air pollution, which contaminant is the concern, and where? In Canada and the US, it is very hard to generalize. Some cities have elevated particulate levels, many don’t. Some have higher ozone levels, others only during summertime, and some don’t have to worry about it. The “environment” is many things, some of which are getting better over time and others needing action.

Taking the attitude that the “environment” as a whole needs protection leads to a risk of diluting efforts and wasting resources by trying to address every challenge at once. I don’t believe in the phrase “Think Globally, Act Locally.” I think that is a recipe for pointless anxiety and unfocused, ineffective remedies. We would do better to “Think Specifically and Act Effectively.”

Action also needs to be reality-based. When politicians say they want to reduce smog levels, I am always interested in their ideas on how this is to be done. Smog is largely a product of ground-level ozone, which in turn is cooked up in the air by nitrogen oxides (NOx) and volatile organic compounds (VOCs) reacting under intense UV radiation. But the recipe is nonlinear, so simply reducing NOx or VOCs doesn’t guarantee reduced ozone, nor do increases guarantee increased ozone formation. If you plot the combinations of NOx and VOCs that yield specific ozone concentrations, the graph would look like a contour plot of a mountain ridge. The backward-bending segments indicate regions in which reductions of NOx or VOCs can actually increase ozone formation, or increases in emissions can decrease ozone formation. Furthermore, the speed of ozone formation is reduced in urban areas because other contaminants deplete the ozone, which is why rural areas in Ontario often record higher ozone levels than downtown Toronto. The conditions that govern ozone formation can change from hour to hour during the day, such that NOx reductions might work for reducing ozone in the morning, but in the afternoon VOCs control ozone formation. And conditions change over space: NOx emissions might contribute to ozone locally, but as they are carried by the wind to far-away locations they might enter regions that are VOC-limited, where they have no effect.

Reality-based policies must involve measurement and reference to the historical context. A few years ago in Canada, there was a debate about how to reduce sulphur emissions from motor vehicles. Refineries said automakers ought to install emission controls on cars; automakers said refineries should remove the sulphur from the fuel. What puzzled me was why the issue was even being discussed. Canadian cities typically have sulphur dioxide levels of below 5 parts per billion (ppb). In western cities their air has always been free of sulphur. In the east, cities like Toronto had sulphur dioxide levels of over 125 ppb in the 1960s, which have since fallen by well over 95 percent. Removing 95 percent of urban sulphur levels was quite a feat. Trying to remove the last 5 percent of sulphur will be very costly and largely pointless. But in all the public discussion of this issue, I never once heard politicians or industry raise the question of whether it was simply not worth doing, considering how far they had already fallen.

Policy Should Try to Achieve Objectives at the Lowest Possible Cost
For any chosen objective, there may be numerous options for how to achieve the target. If the goal is to reduce manure run-off into rivers, options can include simple measures, such as fences that prevent cattle from walking in the water, or large and draconian ones such as abolishing all farming activity in the region. Each one might have the same effect on the pollution, but the latter would obviously be more costly to society.

Economists have spent many years looking at how policies can be designed so that they achieve the desired outcome with the minimum economic cost. To do this requires introducing a price signal into the mechanism. Take, for example, air pollution. There might be 100 different plants emitting particulates into the air. But not all of them can reduce their pollution at the same cost. If we want to achieve emission reductions at the lowest economic cost, the policy should lead to the firms with the cheapest abatement options doing the most abatement. This will happen if, rather than confronting firms with a uniform abatement requirement, we confront firms with a uniform emissions cost. If all firms are asked to pay a fee of, say, $25 per tonne of particulate matter, then they will begin looking for inexpensive ways to reduce emissions. One firm might have very few inexpensive abatement options, whereas another one might be able to cut its emissions a lot for that price. The outcome will be cost-effective, in the sense that the low-cost abatements were done first. After all polluters have responded to the emissions fee, there would be no way for a regulator to rearrange the outcome so as to maintain the same emissions level but reduce the overall abatement costs. The policy already got us to the minimum-cost point.  

While this approach is fine in theory, we never observe it in practice. The reason often comes down to greed. Policy interventions create opportunities for lobbying, rent-seeking and distorting new laws for private gain. The political process is susceptible to this influence.

Many people have heard of the idea of “Baptist-bootlegger” coalitions. During prohibition, bootleggers could get rich by smuggling alcohol into a city. If prohibition were repealed, the opportunities for exploiting the black market would have been eliminated, since people would be able to buy alcohol legally. So bootleggers wanted prohibition to be maintained, and therefore their interests aligned with temperance activists. Whether or not bootleggers actively funded temperance unions, it would turn out that prohibitionists supported bootleggers by giving their cause public moral respectability.

In the case of climate change policy we see the same thing arise with the coalition between environmental groups and industries lobbying for cap and trade, ethanol mandates, and other such measures. Cap and trade refers to a system of tradable emission quotas, that work much like taxi licenses or agricultural marketing boards. While cap and trade systems reduce pollution, they also boost consumer costs, transfer public wealth to the shareholders in polluting firms and block new competition. In other words, they do everything that a cartel would do. Forming a cartel is illegal, but in the case of cap and trade, environmentalists step in to lobby for it as serving the public interest, in the name of carbon emission reductions. Firms openly subsidize environmental NGO’s  to lobby for policies that mandate practices that would be illegal if they were to undertake them on their own.

Ethanol mandates likewise push up consumer costs, while profiting a few large industries, while the scientific evidence of the benefits for air quality or greenhouse gas reductions is very weak. Moreover, any improvements that do occur are much costlier than could be obtained through other measures. People who are genuinely interested in environmental policy should be clearly opposed to wasteful measures like ethanol mandates and subsidies.

Objectives Should Be Set So as to Achieve the Greatest Net Benefits
The term “net benefits” means the benefits minus the costs. “Net” is an important word. There is no value in talking about the benefits of a policy, such as air pollution emission reductions, without also considering the costs. The right policy maximizes net benefits, which works out to be the same as equating marginal benefits and marginal costs. This typically implies that we don’t get all of one thing or all of another. The optimal pollution policy does not involve banning pollution (except in cases of extreme hazard), instead it pushes us to the point where further emission reductions cost more than they are worth.

Putting this principle into practice requires that we think about what pollution really costs. If a factory makes a thousand bricks, and releases a ton of smoke in the process, it has generated benefits and costs. The bricks are valuable to society, while the smoke is costly to society. The bricks are not infinitely valuable, nor is the smoke infinitely costly. We can use market data to tell us how valuable the bricks are to society. Perhaps they sell for $10 each, and the production costs are $8 each. Society is saying, through the market, that it prefers the bricks to the inputs used up in making them. It is saying, in effect, that the activity had a value of $2,000. Now suppose the smoke causes damages that can be valued at $3,000 per ton. In this case the activity generated less value than the damages it caused. We would have been better off if the factory had not undertaken the production. But if the damages were only $1,000, we would say we benefited from the production. The difference comes down to how the damages are valued.

When economists look at environmental issues we are concerned with how to say something meaningful about the price issue. If we have no understanding of the value of damages, we cannot say anything meaningful about whether, and how much, to reduce emissions. Policy makers can play around with targets and timetables, but good policy decisions are unlikely to result.

Application to Climate Change
In this section I will discuss how these ideas might guide our thinking about one of the major environmental policy challenges of our time, global warming.

1. Humans Matter: Why are we concerned with global warming? Because of our obligations for stewardship, and our concern for fellow humans. What do these concerns imply? Not that we should cut emissions to zero, but that we should consider cuts up to the point where the marginal costs of further abatement begin to exceed the marginal benefits. By framing the issue this way we keep in view the value humans place on environmental quality as well as all the other things we value, and which compete for limited public resources.
2. Specificity: What are we trying to accomplish? Nobody should be under the illusion that government action can control the weather. We should not ask governments to guarantee a future free of storms or heatwaves. The climate models used for the Intergovernmental Panel on Climate Change’s recent Fourth Assessment Report (AR4) tell us an interesting thing, that if greenhouse gases warm the climate, their first and strongest effect will be in the tropical troposphere (see AR4 Figures 9.1 and 10.7). The tropical troposphere is a large region of the atmosphere, centered about 8 miles above the equator, stretching thirty degrees latitude north and south. It makes up half the earth’s lower atmosphere. And only greenhouse gases are found to have a focused influence there. There is little agreement among models about what else greenhouse gases can do, but they all say that if greenhouse gases cause global warming, that is where they will have their biggest effect.
    
   So it is very noteworthy that the IPCC report (Figure 3.18, page 269) also tells us that almost all the available satellite and weather balloon data sets show no significant warming taking place there. There is at most a small trend since 1979, but it is not distinguishable from natural variability.
    
   Policy that is specific and reality-based ought to focus on the measurable effects of greenhouse gas emissions, and ought to be concerned with the things we actually have control over, not the many things we don’t.
3. Achieving Objectives at the Lowest Cost: Under the heading of “climate policy,” advocates have been pushing a bewildering array of ideas, ranging from new taxes to bans on certain kinds of TVs and light bulbs. Economists instinctively ask of each one, what will this accomplish, and how much will it cost? In many cases, the costs of abatement amount to thousands of dollars per tonne of carbon emission reductions. There are some potential policies that cost far less, but they tend to have relatively few advocates. From an economic point of view, the best way to achieve an emissions cut at the lowest overall economic cost is to impose a uniform carbon tax on emissions, and use the revenue to cut other taxes. That so few politicians talk about this option is due to the intense lobby for ideas like capo and trade, ethanol, subsidies for alternative energy, and other such measures that reflect the influence of rent-seeking, rather than careful analysis.
4. Maximizing Net Benefits: In principle, we ought to be talking about finding the right price for carbon emissions, rather than going through the charade of announcing arbitrary emission targets for 30 to 50 years from now. In a recent survey of over one hundred estimates of the costs of greenhouse gas emissions, economist Richard Tol  concluded that the cost per tonne of carbon—assuming the warming models are correct—is likely low, on the order of $10 US or less. Suppose a policy maker imposes that charge on emissions, and no one cuts emissions? That would be OK. It would merely indicate that, for the emitting firms and households, the value of the emitting activity exceeds the damages. It would also be OK if some did cut emissions and some didn’t. That would mean the policy is working, by identifying those who can cut emissions more than others. It would also be OK if such a charge led to large emission cuts, and even some bankruptcies. It would mean that the value of the emitting activity was low compared to the value of the damages.

I have also begun to advocate  the idea that carbon taxes ought to be tied to the mean temperature of the tropical troposphere. We could calibrate a tax for carbon that would take a current value of about $5 per tonne, and would go up or down in response to changes in the tropical troposphere. That way, if greenhouse gases have a strong effect, the tax would rise rapidly, forcing emissions down quickly. But if greenhouse gases do not affect temperatures, the tax would not go up, avoiding imposing unnecessary policy costs.

Dr. McKitrick is a professor of economics at the University of Guleph.