Why incentives matter more than ever this Earth Day.

Guest column by Hannah Downey and Holly Fretwell

It is sobering that much of the world will be celebrating the 50th anniversary of Earth Day sheltered inside. Rather than wandering in nature, we are wondering what comes next. In the midst of this uncertainty, politicians and interest groups are still finding time to push for environmental regulations. In passing the most recent coronavirus-response legislation, intended for emergency economic relief, hold-ups occurred over whether to include carbon emission caps for airlines receiving federal bailouts or to extend tax credits for the renewable energy sector.

Environmental Regulations

Ultimately, the disputed provisions were cut from the deal, but activists continue to push for future bills to address environmental problems. Presidential candidate Joe Biden even commented:

We’re going to have an opportunity, I believe, in the next round [of economic aid] here to use … my Green Deal.

Efforts to conserve and improve the environment are worth celebrating. But as the US government expands its role to address the current economic and public health crisis, conservationists must not give in to the political moment’s desperation for government action. In the environmental context, government action tends to start with command-and-control-style regulation, an approach that has a history of backfiring.

From the Endangered Species Act to the Clean Water Act, environmental “solutions” have become synonymous with government policy and regulation. As the forthcoming book Green Market Revolution describes, more government does not necessarily mean a healthier environment. It is market incentives, not command and control political approaches, that align human actions with lasting conservation outcomes.

As humans, we rely on natural resources for a wide variety of wants and needs, placing competing demands on scarce resources. How a resource is used is a question of allocation. Any answer should consider the trade-offs and values of alternate uses. With a heavy-handed political approach to environmentalism, we routinely defer to government actors to make decisions about those trade-offs and regulate how resources are used. More often than not, this results in arbitrary limits that fail to incentivize conservation.

The Trade-Offs of Regulations

Ocean fisheries provide an example of the shortcomings of command and control restrictions in the name of conservation. Because the ocean is an open-access resource, a single fisherman has the incentive to catch as many fish as possible because he knows that fish left uncaught are likely to be landed by someone else. The result is that all fishermen try to maximize their catch, leaving too few fish in the ocean to reproduce and sustain future fish populations.

In response, government regulations shortened fishing seasons, but fishermen bought bigger boats, improved their fishing technology, and took to the seas even in risky weather to protect their livelihoods. The result was a wasteful “race to fish” that was bad for both fish and the fishermen, who expended great costs to catch as many fish as possible before season closures set in.

The regulations may have been well-intentioned for conservation, but the results failed because they created incentives to fish harder and riskier rather than to leave enough fish to repopulate for next year. Ultimately, trying to restrict “the bad” rather than encouraging opportunities to “do good” encouraged the use of loopholes or avoidance rather than actual conservation outcomes.

In comparison, market environmentalism aligns incentives so that we can fully understand the trade-offs of and maximize the benefits that come from conservation. Market environmentalism means solving environmental problems with approaches that rely on property rights and voluntary trade to achieve environmental outcomes.

In the example of overfishing, market environmentalism has emerged as a lasting solution. Rather than enacting blanket restrictions, some fisheries around the world have instead adopted market approaches. With a system of individual transferable quotas, fishermen have a right to catch a share of a total sustainable catch limit, which fishery managers determine each season. Fishermen can buy, sell, or lease quota from each other, and they no longer have to race to fish because they know they’ll be permitted to keep fishing until they fill their quota. There is also more accountability for harvests and an incentive for stewardship. Fishermen can be assured no one will take their share of fish, and they know that, collectively, they will leave enough fish in the sea to repopulate for future catches.

Innovative Market-Based Conservation

The results have been impressive. Rights-based fishing reforms have reduced overfishing, led to higher incomes and safer fishing, and allowed consumers to buy fresh fish throughout the year. Today, there are nearly 200 catch-share programs worldwide, including more than a dozen in the United States. 

So what can this lesson of the fisheries teach us about the environmental concerns in the era of coronavirus? It’s time to think outside the box for conservation. Political regulations aimed at stopping destructive behaviors struggle to fully incorporate knowledge about the nature of environmental problems. Often, therefore, they muddle efforts to allocate resources and get the incentives wrong for conservation.

Market approaches based in property rights and trade can align incentives in ways that create environmental benefits. Rather than fighting over tax credits or emission standards, our efforts are better spent supporting innovation and efficiency through markets. This Earth Day, it’s time to get creative with conservation and look to market approaches that reward lasting outcomes that are good for the environment.

This article was first published by the Foundation for Economic Education and is reproduced here by permission.