What do declining oyster and crab stocks in the Chesapeake Bay have in common with excessive commercial and residential development, degraded streams and rivers and overabundant carbon in the atmosphere?
Obviously, they all represent troubled environmental assets. They are largely caused by things that people do. There is feedback between them, wherein degraded habitat leads to fewer oysters and fewer oysters lead to more degraded habitat, and so on.
But, as obvious as these connections and commonalities are, there is a more significant characteristic that these problems share. Unfortunately, it is less apparent to most observers.
All of these environmental problems derive from market failures.
A market failure is what it sounds like. Markets usually do a wonderful job of allocating goods and services between suppliers and people who want them. It is often the best way to allocate things. But this proposition is predicated on a number of expectations about how the market works and, sometimes, those expectations are not met. And when the underlying expectations are not met, markets do not move us toward outcomes that we desire, but away from them.
Take oyster stocks in the Chesapeake Bay. In much of Virginia's waters and almost all of Maryland's waters, oysters are an "open-access capture resource," so called because they go to the person who gets there first and captures them. Before they are captured, no one owns them.
One of the things that we expect in efficient markets is that all the factors of production (or, at least the ones that are scarce) are owned. Clearly, if no one owns the oysters in the water, that expectation is not satisfied.
Not only do efficient markets require owners of production factors, they need owners who behave in predictable ways. Specific to the oyster example, if someone owned the oysters while they were still in the water, that owner would be expected to try to maximize the long-term value of his or her asset. If some problem arose, such as disease or degraded habitat, the owner is expected to respond in a way that would preserve as much value as possible.
Under current arrangements, harvesters and available oyster stocks determine the supply of oysters from the Chesapeake Bay. But harvesters do not have the same incentives that owners would. Their incentive is to take as many oysters as possible. Now. Until it is no longer profitable. Because if they don't, someone else will.
The resource consequence of this is that oyster stocks can't outgrow the combination of disease and harvest mortality, and stocks decline toward zero.
Or take excessive development in a community. People often move to less-developed communities because they prefer the absence of congestion that such areas offer. Yet in moving there, they undermine the very thing that attracted them.
No one owns the low-density characteristic of rural communities, so it does not get fully counted in any of the economic decisions-the farmers' to cash out, the developers' to make the thing happen, the consumers' to buy the new house-in the market for new subdivisions and shopping malls.
Similar economic explanations can be given for the other environmental problems mentioned in the first paragraph. But the point is, there are often failures in markets affecting our natural environment. These have been extensively studied in the subdiscipline of natural resource and environmental economics.
Policies for mitigating the problems that ensue from market failures have been put forward. Occasionally, these suggestions have been put to the test (tradable SO2 emissions quotas, fishing ITQs [individual transferable quotas], carbon offsets) and found to work pretty much as advertised.
But, too often, those ideas languish in academia or somewhere else, outside the policy circle.
We speak of making the protection and restoration of the Chesapeake Bay more forceful-of compelling behavior change to achieve environmental goals. We talk about making our elected officials and public staff more accountable for delivering the environmental protection that we want.
Yet it doesn't happen. One reason is that we are all operating in an economy that does not take financial account of many environmental assets. And nobody is asking the government to fix that.
The recent rise in the cost of gasoline caused a much larger change in driving behavior than all of the millions of education and advertising dollars that have been spent over the years aiming to get people to drive less. This was-briefly-an economic solution to the problem of excessive fossil fuel consumption.
We let the money that was raised by the runup in fuel prices go to the owners of the resource and to the speculators who facilitated the transactions. It could have gone to the public sector to pay carbon mitigation costs, but the public sector did not ask for it.
If we were serious about getting people to use less fossil carbon, why would we not jack up its price? We have already done the experiment and we know that it works.
Could it be that we do not want reduced atmospheric carbon that much? Not if we all have to pay for it? That is certainly a possibility.
But we will never know if that is how people feel until we bring currently unvalued environmental assets into the day-to-day economic decision-making of each and every polluter-all of us.
More attention to the market failures that generate our environmental problems would be a start.