An observation on Harper, the market, and environment policy

The current discussion on ways to tackle industrial emissions demonstrates the right’s hot and cold relationship with the market. The Harper government is looking to a series of environmental regulations that will place a cap on air pollutants and greenhouse gasses, and will introduce motor vehicle, fuel and energy efficiency standards. I’m not interested in criticizing the regulations themselves, except to say that they are weak and won’t achieve the level of industrial emission reductions necessary. What is far more interesting is the Conservative decision to go the regulatory route rather than adopting a market based approach.

Under the neo-classical framework, environmental problems like climate change and smog are viewed as market failures. Simply put, no market exists for pollution because property rights are not assigned to the air we breath. I couldn’t sell my allocation of clean air to the car driving neighbour next door, because there would be no reason for her to buy it – polluting is effectively free. The policy solution leading from this framework, of course, is to create a market where one doesn’t exist. Under this solution, the cost of pollution on all “economic agents” is estimated, and a tax is set such that the marginal benefit of pollution (i.e., industrial production) equals the marginal cost of production plus the marginal costs of pollution (i.e., environmental impact of smog). In plain language, demand equals (adjusted) supply.

For all intents and purposes, Kyoto does exactly this, but uses a slightly different market instrument (tradeable permits). In other words, the Harper government has dismissed the market policy approach in favour of what the Conservative Party would normally describe as “heavy handed regulation”. But it’s clear that market friendly environmental policies aren’t market friendly — this isn’t a case of Harper forgetting everything he learned in econ grad school — he’s concerned about the impact on his friends in Alberta’s oil patch. So, I guess the market is wonderful… when it’s profitable. This point isn’t exactly a stunning revelation – more like an amusing observation.

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5 thoughts on “An observation on Harper, the market, and environment policy

  1. The deep flaw in Kyoto is of course that a polluter pay system would enable oil companies with deep pockets to simply buy credits and continue polluting. Similarly an emissions tax on petrol would allow wealthier drivers to continue polluting while forcing poorer drivers off the road. I suspect this is the reason why developing countries wanted and got an exemption to the pay as you go pollution scheme that is Kyoto. It is for this basic reason that I think Kyoto should be shelved in favour of real targets and real regulations that provide both carrots and sticks for (non) compliance.

    None of this of course is to say that the irony of the Conservatives reaching for fiat regulation versus the internalisation of full cost (which Kyoto says it is) via the creation of a market in pollution is lost on me. Yep once again the Cons have found, in principle, it takes a Big Daddy State to get the job done.

  2. Which is what makes more interesting, is thus his acquisation that ‘Kyoto is essentially a socialist scheme.’ It was the opposite and why he said the opposite. Kyoto was about: you polute, you pay. More socialist would be you pollute and everybody pays. Thus, environmental regulations that will place a cap on air pollutants and greenhouse gasses, and will introduce motor vehicle, fuel and energy efficiency standards, is a way ‘to make everyone pay’. If you (everyone) don’t want to pay, just ignore Kyoto.

  3. An interesting and informative post. I supported the Kyoto Accord when it came out but with one caveat: I wanted money (cost of emmissions/polution) collected to remain in Canada for environment cleanup. Now that we are 3+ years beyond Canada’s acceptance of Kyoto, the need for climate change management is even more critical – and more clearly understood. And, 3+ years after my first conclusion I think it even more critical that cost collection be directly allocated to harm reduction and that general revenue suppliment that effort. The collection and allocation of resources to harm reduction (to below 1990) needs to be global. Kyoto was essentially on the right track, still is. What is missing is more direct allocation to harm reduction.

  4. Travis, I disagree with your statement that “The deep flaw in Kyoto is of course that a polluter pay system would enable oil companies with deep pockets to simply by credits and continue polluting.” If oil companies are prepared to pay this tax (assuming the tax is optimally set), it implies that the benefit of this industry polluting exceeds the benefit to other industries of polluting. That’s efficient, not a flaw.

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