A popular argument in the “environmentalist” community is that pollution is a moral wrong. By extension this belief holds that using “market-type” instruments such as taxes and tradable permits to control pollution are no different than allowing burglars to pay for the privilege of burgling houses. What is wrong with this analogy?
Pollution is a COST, not a moral wrong. What does it mean to be a cost? It means that pollution is a by-product of a socially beneficial activity. And to reduce pollution therefore requires that we get less of the things that we like (remember there is no such thing as a free lunch). A tax or a marketable permit is simply an instrument that induces “polluters” to internalize the full costs of their actions, rather than have those costs borne by unwilling participants. A “fee” paid by a burglar is not simply a cost of doing something we want – that is because burgling a house is an economically harmful activity. Ignoring the moral aspect for a moment, even if you view the burgling as a pure transfer from homeowner to burglar, the burglar expends valuable resources on these actions when they could have devoted their time to actions that were socially beneficial.
Note that one reason economists prefer market-type pollution policies to direct regulatory approaches is because market-type policies have a superior incentive structure built into them, typically allowing us to get to an efficient pollution level at the lowest cost, and without the need for government bureaucrats to have to figure out who the low cost pollution reducers are. Furthermore, market-based instruments are less subject to public choice problems than direct regulatory policies.
However, in theory, in a world of low transactions costs, easy to obtain information and no public choice issues, direct environmental regulation could get us to an efficient level (and distribution) of pollution.In fact, that is the goal of direct regulation – exactly the same as the market instrument approaches. Given this goal, could you apply the same environmentalist argument to direct regulations?
It might seem odd that environmentalists do not also criticize the direct regulation of the environment. Since efficient regulation (in theory) should get us the same amount of pollution reduction, clean air, clean water, etc. as a well designed tax or permit system. In other words, efficient regulation does not bring us down to a zero pollution level as well. For example, regulating an industry so that it must reduce emissions by 80% is the SAME THING as arguing that it is “allowed” to continue polluting with the other 20%.
It seems odd to criticize some methods for doing this and not others. Perhaps much of environmentalism is actually NOT about the environment. That we subsequently do not see many environmentalists indict direct government on the same terms seems to indicate that the goal of these environmentalists is not to get an efficient amount of pollution, but something altogether different.
The moral “wrongness” of both burglary and pollution stem from the same source: the violation of people’s notion of property rights. Property rights are a social construct that most of the time everyone agrees on. When one person disagrees (such as the burglar) and takes something that another person thinks they have property rights to (a TV), we treat that as a moral failing. Similarly, you would probably claim that your rights were violated if someone broke into your house and dumped toxic waste in your kitchen. In a world with high transactions costs and income effects, who has rights to the common pool resource has profound effects on the usage of that resource. If you gave the hunting rights of whales to Greenpeace, far fewer whales would be killed than if you gave those rights to a whaling firm.
On a different note, I find you can avoid a lot of trouble with environmentalists by using the word “fine” instead of “tax”, even though they are functionally the same. Very few environmentalists will answer no to the question “Do you think corporations should be fined for polluting?”