Welcome to part two in an ongoing series examining our connections and impact on the environment, sustainability, and our changing climate.

Part 1 through roughly 9 will focus on laying the groundwork for understanding these complicated issues from a variety of perspectives, while parts 10 through 20 or so will place the first half into real-world context, examining issues and controversies surrounding Deforestation, Overfishing, Recycling, and E-Waste.

If you haven’t read part 1, you can do so here

The Market Response Model suggests that scarcity, the thing we’re all afraid of, will be handled and managed by the ebb and flow of supply and demand. 

But how does that work?

The scarcity of a resource causes prices to rise, right? At least in a basic, simplified sense. When something begins to run out, its value rises. It takes time for demand to adjust. It doesn’t just happen overnight.

When prices rise, one of two things will happen. Let’s use peanut butter as an example.

Let’s imagine the world’s peanut butter supply is dwindling which causes the price of peanut butter to rise. People aren’t just going to continue paying higher and higher prices, right?

You might decide to substitute your peanut butter for almond butter, or cashew butter.

Or maybe society collectively realizes it’s using far too much peanut butter and it could be using it more efficiently, or maybe we find a way to recycle peanut butter.

That’s where the metaphor stops sticking.

Point is, any of those options (substitution, enhanced efficiency, or recycling) will allow for demand, and price, to lower.

Something else that may happen is that the increased price and profit opens up new doors for you to obtain the resource. Maybe now you can afford to make peanut butter at grander scales, or maybe you can extract more from a single peanut plant. I don’t know. Again, the metaphor starts to get weird, but I’m sure you get the point.

It’s just cause and effect.

Of course, very few of these options involve cutting down on consumption, but rather shifting it. We’re still extracting finite resources. So, how do we manage that? How do we account for the possible bad outcomes?

Can we use the market to protect it from itself?

That’s where Market Environmentalism comes in.

But first, some things to consider:

Externalities – those exist where costs or benefits of an activity are not figured into the cost for the consumer (i.e., pollution isn’t factored into the cost of a product or even that products production) 

Transaction costs – costs associated with making an exchange, including negotiating, travel, time, and monetary costs. What has to be given up for the gain?  

The World is Complex – complex systems are comprised of many actors with different interests. 

Cost of Negotiation – the costs for each individual to negotiate for their interests (wants and needs) are usually too high, which often leads to either their exclusion or the need for regulation as a way of representation.

Uneven Power in Determining Value and Cost such as in Monopoly’s and Monopsonies.

The bottom line is this: it simply isn’t feasible or probable to include everyone who might be affected by environmental problems in the decision-making process. How would you? How could you incorporate the thoughts, beliefs, and needs of hundreds, thousands, or even billions of individuals?

What about future generations? How accurate are our predictions?

None of this to mention the fact that marginalized peoples are actively, systemically, excluded from such decision making, and have been throughout history.

Ronald H. Coase, a British economist from way back, suggested that externalities like pollution are most efficiently controlled through contracts and bargaining with involved parties.

The Coase Theorem says this: bargaining between individuals or groups related to property rights will lead to an optimal and efficient outcome, no matter what that outcome is.

Thing is, the Coase theorem assumes that property rights are exclusive and that people can buy or sell property freely. 

Problem: property rights cannot always be assigned. How do you assign such rights to, say, the atmosphere, for example?

It also assumes there are no transaction costs for bargaining and contracts. 

Problem: there are always costs in time and money to create and enforce contracts (e.g., lawyers, police, courthouses). 

So, what do we do?

Market-Based Solutions to Environmental Problems 

Market-based solutions are those that use the concepts of incentives, ownership, pricing, and trading to solve environmental problems, and there are tons of examples. Here are just a few:

Green taxes aim to reduce the use of resources and to drive innovation and substitution by raising prices and taxes on polluting products so that people will opt for a greener choice.

Cap and Trade is a method of reducing pollution by instating regulations that set a maximum for pollution emissions, but individuals or firms may trade the right to pollute with others.

Imagine company A, a large, industrious company, knows it will easily surpass its allotted amount of credits– let’s say, 10 red M&M’s.

Company B has been allotted 10 red M&M’s, too, but they are much smaller and only really need 4.

Company A can purchase the additional 6 red M&M’s from Company B.

The result is the same: only 20 total red M&M’s were used.

Such a system is intended to efficiently reduce emissions without excessive cost.

But there are some problems: Cap and Trade does not consider local effects from concentrated pollution because the only concern is overall emissions. 

Higher polluting companies are disproportionately located in fence-line communities surrounded by people of color and individuals from low-incomes. Neither of these demographics has much of a say at the table in terms of policy or how their communities are being impacted, and so the marginalized in society continue to bare the brunt of our pollution.

Cap and Trade also does not address the issue of determining how much pollution should be allowed in the first place, which is a highly political issue. 

Now, there are other approaches under the umbrella of banking programs that are designed to allow for no net loss such as wetland restoration programs in one place to account for wetland destruction in another.

Problems: You have to be sure that the same ecosystem services are functional in the new place, and ecosystems are incredibly complex. Restoration of one does not necessarily make up for the loss of another in terms of ecological function or even biodiversity. Again, many natural areas that become destroyed or developed are often those in proximity to or belonging to lower-income communities while wealthier communities have their ecosystems restored.

Green consumption 

Green consumption relies on consumer demand to change environmental conditions.

What’s the idea?

Consumers can drive certain production practices and innovation by choosing to buy products made with more environmentally-friendly practices. 

It’s supply and demand.

It’s simple, but not without its own whole set of problems. For one, there is greenwashing.

Claims about green production practices do not always correspond to actual reality.

Plus, terminology like “organic”, “sustainable”, “all-natural”, and others are quickly convoluted into such obscurity that consumers often cannot clearly define what each of these things means, providing room for companies to expand the label to a wide umbrella of practices.

Green certification is one way to address greenwashing by establishing systems to verify green practices. However, this process becomes super confusing for consumers when they suddenly have to navigate the validities and meanings behind so many different certification systems, and there may be distrust depending on who does the certifying. They work best when there is a third party making the certifications, approving applications, or reviewing standards rather than the issuer of the label.

The Gap

Using economics to address environmental issues presents a new set of problems that derive from differences between economic and environmental systems as well as barriers to social and environmental justice. 

Sometimes markets are slow to adjust to declining resources, which can lead to the disappearance of resources.  

Some things also just can’t be easily assigned market values. How do quantify the value of things like air?

The crisis of equity: turning economic injustice into environmental injustice

Applying market-based thinking to environmental problems means that the ability of individuals and groups to participate in environmental markets is limited by the amount of money they have. 

People may have the willingness to pay for clean skies and water, but not the income.

If money is what does the talking, those without are robbed of a voice.

Green products and more eco-friendly alternatives tend to cost more than conventional products, limiting the ability of the poor to participate in green consumption. 

After all, if economic systems are the primary producers of environmental problems, can they also be expected to solve those problems?

I’ll let you decide.