A Third Kind of Green Libertarians Should Care About

The environment is a tricky issue for libertarianism, in many ways environmental issues are “ideologically inconvenient” for libertarians – life would be easier if they didn’t exist.  Of course that’s not sufficient reason to actually act as if they didn’t exist, something I don’t think enough libertarians are willing to recognise.

So given that the environment creates complications for libertarian thought, it is incumbent on libertarians to find a way to reconcile libertarianism with environmental issues.  Since my own brand of libertarianism is influenced heavily by my study of economics, my thoughts on how to create libertarian environmental policy are heavily influenced by environmental economics and therefore an understanding of what markets can an cannot do.  As I mentioned in an earlier post, I think there are proper justifications for the government intervening when it comes to the environment.  In this post I intend to be more specific, looking specifically at pollution.

Pollution is perhaps the classic case of an environmental issue requiring government intervention.  The theory behind externalities goes back to an economist named Pigou in the 1930s, significantly before the modern environmental movement even existed.  The basic principle here is that when an activity (say running a smoke-belching power plant) inflicts harm on others that cost is not borne by the owners of the factory, so they have no incentive to account for it when deciding whether to run the factory, or how they run the factory.  This is a market failure in the formal sense in that it means the market is not properly accounting for all the costs of benefits of the activity.  The economic prescription is a tax equal to the marginal cost to society of the pollution, these are known as Pigouvian Taxes, after Pigou.  This tax realigns the factory owner’s incentives with wider society’s thereby restoring the market’s ability to manage the issue efficiently.

I think this is also a legitimate approach from a libertarian standpoint.  What, a tax?  You might object.  Well, why not?  First off, let me be clear that we are discussing a situation where one person’s action inflicts a tangible harm to others.  By the standards of any non-anarchist libertarian this is a legitimate reason for the government to get involved.  But what about the courts I hear you ask?  Those of you conversant with the literature might even cite Coase’s work suggesting that private bargaining can substitute for direct government intervention.  The important thing to bear in mind here is transaction costs.  Sure when we’re talking about neighbours we can probably let people bargain, and let the government just adjudicate as necessary.  But that’s not going to fly for a situation where thousands (or millions, or billions) are affected.  If you require every affected party to sue for damages then in practice you have placed no restriction on a wide range of pollution, and if you require the polluter to get permission from every affected party then you have created an effective ban.  By contrast, a Pigouvian tax scales the degree of intervention to the harm caused.  Surely we libertarians care about proportionality?

As an aside, it is probably worth discussing climate change as it’s a big enough issue to be worth mentioning separately.  First off, while I understand that a lot of people feel they are in a position to dispute the scientific consensus on this issue, I’m going to suggest that unless you actually are a climatologist you are not qualified to do so.  In any case I’d rather not have that debate, so I’m just going to take it as given here.  I’ll let them deal with the science, and I’ll take care of the policy implications: my side, your side.

While what I said in part 1 might lead you to think I support carbon taxes, this isn’t entirely true.  Sure, my ideal first-best solution would be a global carbon tax starting small and then slowly ramping up over 20 years or so, I know full well that’s not going to happen.  The level of coordination required (getting 100+ nations to sign up to an agreement and then continue to abide by it for decades) is simply beyond our global political structure.  Even Europe has done less than you might think in dealing with climate change, and I still doubt it is possible to China to agree to any sort of abatement at all.

The best solution I can think of is government support for research into alternative energy (at the theoretical end, let’s not have a repeat of Solyndra), which I feel can be justified because of the positive externalities such research tends to generate.  If necessary we may need to use geoengineering to buy ourselves some time, but we can hold off on that for now.  This is not a great solution, but given the real world constraints it’s the best I can come up with.  Ironically, the best technology we currently have to replace fossil fuels, nuclear fission, has been stymied by the very environmental groups that are loudest in their concern over climate change.  Now that’s the law of unintended consequences.

In summary, I think there is a legitimate basis for the government intervening to restrain polluters.  Libertarians should focus on pushing policy makers toward Pigouvian taxation and away from more direct regulations instead of claiming that there is no problem to solve because this is one case where the market won’t sole the problem by itself.