A New Approach to Protecting the Environment
The key
to protecting the environment is a different approach from the current system
of regulations and forced compliance. The protection of the environment needs
to be based upon a solid "business case" instead of ideals. The
Millenium Ecosystem Assessment
(http://news.bbc.co.uk/2/hi/science/nature/4391835.stm) is a revolutionary
approach to protecting the environment: it quantified the services provided to
us by the environment, such as clean air to breathe or wild fish to eat.
Currently,
environmental protection falls into what economists and game theorists call a
moral hazard. There are no consequences to the individual firm for polluting or
depleting natural resources. Therefore, every firm’s dominant strategy is to
ignore environmental effects. In order to encourage environmental protection,
these public costs need to be levied on all firms. Under this situation, firms
will have an incentive to protect the environment.
However,
it would be infeasible to implement this solution immediately for all firms in
an effort to cut pollution. Instead, a policy of emissions quotas should be
implemented. Each year, a firm will receive a quota. These quotas will be
allowed to be traded. The first year, this will not incur any additional
expense on firms. However, each year, the quotas issued will be reduced
slightly, say 1-2% a year. Then, the firm has the choice to either reduce its
pollution or purchase unused quotas from other firms.
Similarly,
quotas for catching fish, or draining water from a river, or cutting down a
tree need to be auctioned off. The auction price will be, set at a minimum, to
the public cost that depleting the resource incurs on society. This will
encourage conservation of resources.
The
key to protection of the environment is to move towards a market-based system
that includes the public costs of either depleting the resource or polluting
the environment. It is only when it is economically feasible to protect the
environment, that any progress will be made.
