Politicians like to argue that only they can guide effective energy and environmental policy for the future. The record, however, is quite different.
Nothing demonstrates the contrast between energy policy run by politicians and one guided by a free market than the tale of the electric car versus the hybrid.
In an effort to push electric car technology, California passed a requirement in 1990 that ten percent of cars meet “zero emission” standards. Recognizing that technology wasn’t emerging, the state changed the rule in 1996 to allow a slower “ramp up” to the target. The state changed the rule again in 2001, “recognizing constraints due to cost, lead-time, and technical challenges.” Passing a law requiring a technology to exist wasn’t going to make it real.
That continued to be the case. The law was changed again in 2002, and 2003, 2006, 2007, 2008, 2009, 2010 and 2012.
In the late 1990s, Toyota and Honda went a different route, releasing hybrid vehicles. They became so popular that the Prius is now the symbol of environmental consciousness.
The contrast is clear. Politicians pushed a failed technology while companies that had to deliver a viable technology created the car that came to personify environmentalism. The irony is that many who drive hybrids support policies that failed while opposing the very approach that created the car they love.
This isn’t a unique story.
While many hotels encourage guests to reuse towels, saving water and energy, Westin hotels use a different approach. Guests who decide not to have their room made up receive a certificate for five dollars or Starwood rewards points. By sharing the financial benefits of reducing resource use, Westin significantly reduced its water use. Westin provided a personal incentive that paid off significantly – financially and for the environment.
As these examples demonstrate, free-market environmentalism is more effective because it takes advantage of millions of personalized decisions that are more effective at delivering environmental benefits. There are several reasons why.
First, free-market approaches make people accountable for the success or failure of their actions. When people waste energy, they pay the price and can work to avoid those costs.
Politicians, on the other hand, can blame others for failure. They can claim success where none exists. They manipulate the rules to favor political interests over environmental effectiveness. Prior to the massive economic slowdown, most European countries were above the carbon reduction targets set in the Kyoto Protocol in part because free credits had been granted to politically favored industries.
In my home state of Washington, more than 30 cities signed a promise to meet the Kyoto targets. By 2012, none had met their promised targets and fewer than half had taken any steps to achieve that goal. For politicians, the press release mattered more than environmental results.
Individuals don’t have that luxury. Waste resources and pay the price.
Second, free-market approaches are more sustainable.
Political approaches rely on large government budgets for big programs. Neither of these is sustainable. Budgets are limited and subsidizing wind, solar and other politically popular approaches cannot continue forever.
The free-market, however, is focused on doing more with less. While some sneer at the word “efficiency,” equating it with “greed,” they should really recognize it for what it is – minimizing resource use. Would people prefer inefficiency and waste?
What’s more, technological gains can’t be repealed. As more efficient approaches are developed, they raise all boats.
Some argue that such improvements create Jevon’s Paradox, where the ease of resource use encourages more resource use. Recent experience, however, demonstrates that it is not entirely correct. England, for example, uses fewer total resources today than a decade ago even though people are wealthier on average.
Finally, the free market has the advantage of diversity that government approaches can never match. For some, energy efficiency means buying a smaller car. For others it means telecommuting. For others more insulation. Only individuals know which approach will work for them. Only they have the information, and incentives, to make the incremental changes that are most effective, reducing resource use over time.
Politicians, however, like big, flashy projects. Those one-size-fits-all solutions are rarely effective and they spend huge sums of money for small environmental benefits.
Some respond that markets don’t capture all costs, especially where there is a tragedy of the commons. They argue that such circumstances require politicians to intervene.
While such situations must be addressed, political approaches often fail. As Nobel Prizewinning economist Elinor Ostrom noted, the best solutions are often collaborative approaches among interested parties rather than imposed by politicians.
Political solutions are seductive. It is simple and emotionally satisfying to require others do what you think is best. In the real world, however, political solutions frequently fail, prioritizing image over results.
Free market solutions, are more effective because they punish failure, provide incentives to do more with less and use localized information that politicians can never have. Unleashing the power of the market is critical if we are truly to make progress on energy and the environment.
Todd Myers, Director of Environment, This oped was published on Global Affairs Initiative’s website on November 19, 2013