Capitalism, not Socialism, will protect the planet

Published by freemarketconservatives on

BY JAKE WATERFIELD

Global warming, caused by the human-induced increase in greenhouse gases such as carbon dioxide, methane and nitrous oxide is destabilising the world’s climate. According to the Copernicus Climate Change Service, 2019 was the second hottest year on record across the world after 2016. The same report wrote that global average temperatures over the last 5 years were 1.2 degrees above the Earth’s pre-industrial average. Perhaps more worryingly, and as acknowledged by socialists and capitalists alike, climate change occurs in a non-linear fashion meaning our climate problems will only continue to accelerate – and devastate.

One of the most devastating impacts of global warming is sea level rises. In 2019, the National Ocean Service suggested that 2014 global sea levels were 2.6 inches above the 1993 average and continue to rise at a rate of about one-eighth of an inch per year. Worryingly, sea levels will likely rise for many centuries at rates higher than that of the current century. Global warming causes sea levels to rise in two ways. Firstly, it melts the huge land-based ice sheets across Greenland and the Antarctic. Data from NASA’s GRACE satellites show that both ice sheets have been losing mass since 2002 and at an accelerating rate since 2009. This causes the previously locked-away water to pour into the oceans. Secondly, as water expands when it warms, global warming causes thermal expansion to occur and thus sea levels rise. It is estimated that between 1993 and 2013, 42% of the rise in sea level was attributed to thermal expansion. 

Rising sea levels will have catastrophic global impacts. In the United States, around 40% of the population live in high-population-density coastal areas, where sea level rising could cause potentially catastrophic flooding, shoreline erosion, and other hazards. On a more global scale, eight of the world’s 10 largest cities are near a coast. Moreover, whole island nations have their very existence threatened by rising sea levels. At current sea level rising rates, it is projected that the Maldives could be completely uninhabitable by 2100.

Global warming is also causing the extinction of species and ecosystems on a scale never seen during the Anthropocene. This is to such an extent that we are now in the world’s sixth extinction event which, according to scientists, is the only one to be caused by human activity. Reports around this extinction event make for grim reading, approximating that 1/8th of the 8 million plant and animal species are threatened with extinction.

So what do we do now? Fighting over control of environmental measures are two well established and globally popular fighters. In the red corner – socialism. Trained by the now redundant Jeremy Corbyn and his American fidus Achates Bernie Saunders, the socialist narrative suggests that by reclaiming the means of production, we would be able to avoid some of the environmental disasters outlined above and instead, propel the Earth into a socially-just green utopia. In the blue corner – capitalism, not just any old capitalism but a more environmentally aware breed of capitalism that hopes to utilise the power of incentives and the free markets to correct our collision course.

But what are these eco-friendly capitalist alterations? Here I discuss two; emission trading and the valuation of natural resources, but be under no illusions, there exists a smorgasbord of viable capitalist modifications.

Emissions Trading

Emissions trading is at the forefront of neoliberal eco-capitalist thought. The most popular of these schemes is the oft-mentioned ‘cap and trade’. To demonstrate how a typical cap and trade system works, one only has to look as far as the European Union Emissions Trading System (EUETS).

Launched in 2005, the EUETS is the largest emission trading system in the world. The programme caps the amount of carbon dioxide that can be emitted, with companies receiving emission allowances (known as EUAs) which they are able to buy and sell amongst each other. The cap and the number of allowances is reduced over time (so they become much more expensive) causing total emissions to fall.

Of course, there is lots of debate on the effectiveness of cap and trade. Reports from across the pond suggests that California’s cap and trade system has just received a 10-year extension (through to 2030) after making the state nearly one billion dollars. Not only is it forcing companies to pay ever increasing amounts to pollute, the proceeds of which can go to lessening the effects of climate change and contributing to society, but it has also provided the incentive for Californian businesses to be on track to reduce greenhouse gas emissions to 40% below 1990 levels by 2030.

These results are consistent with the results of empirical tests by economists that indicate emission trading systems have caused our levels of pollution to nosedive, and have done so for about 1/5th of the originally estimated cost. Economist Andrew McAfee has cited this example as proof the notion that capitalist systems have no way of effectively dealing with pollution is “just dead-flat wrong”.

Despite the proven benefits of these schemes, some socialist writers have doubted the morality of such schemes, speculating that emission trading programmes unfairly pass the responsibility of emission reduction to poorer countries. Economists have fought back however, noting that since many international emission trading programmes are voluntary and do benefit both nations, it is simply not the case that one nation is imposing its will on another.

Valuation of the Amazon

One of the major current controversial environmental developments is the destruction of the Amazon rainforest by South American Governments. As well as its breath-taking biodiversity, the Amazon contains over half of the world’s remaining rainforests. Because of this, the Amazon rainforest locks up massive amounts of carbon, cleaning the air for the world. A 2007 study published in Global Change Biology estimated the forest stores some 86 billion tons of carbon – more than 1/3rd of all carbon stored by tropical forests worldwide. Moreover, the Amazon’s precipitation helps to maintain the water cycle and has been found to influence rainfall as far away as the western US and Central America.

Despite these global benefits, most of the costs of the rainforest are incurred by only the nine countries which it occupies, the most significant being Brazil (58.4%), Peru (12.8%), Bolivia (7.7%) and Columbia (7.1%). Of course, this does not refer necessarily to direct costs, but instead to the opportunity cost of having millions of km2 of land from which no economic gain, through means such as agriculture, can be made. Because of this, instead of retaining its trees, countries like Brazil could, and are, harvesting the timber and utilising the newfound space. It is simple to understand why, it is the rational choice for these countries. Obviously however, this is extremely bad from a global environmental perspective.

There is however a potential solution to this issue which is based on the Nobel Prize winning work of Ronald Coase known as Coase bargaining which was first outlined in his article The Problem of Social Cost (1960). The theorem states that when property rights are clearly defined, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. What needs to be introduced therefore is the notion of bargaining, that is foreign governments paying the Brazilian government to keep the rainforest. 

The minimum the Brazilian government will accept will be based on the amount they could generate from selling the timber and using the land for agriculture, minus their own benefit for cleaner air. The maximum foreign governments would offer is equal to the monetary benefit of the clean air the amazon provides.

This proposal is best understood by analysing a hypothetical two-state society. One state is covered in trees which provides clean air that both states need to survive, however, due to the vast forests, the country has little agricultural land and is subsequently poor. By contrast, the second state has no trees; they were removed, the timber processed and the agricultural land used to produce goods and services. Because of this, the second state is comparatively rich and has a much higher standard of living. The poorer state realises that its problems lie in having not enough agricultural land and starts to remove its forests, indirectly harming the air quality in the richer nation. In this scenario, Coase bargaining would suggest the richer state should compensate the poor state with money and the goods and services it produces so the latter has an incentive to keep its trees and continue to provide clean air for both nations.

By applying the Coase Theorem to the environmental question, there is potential to completely change the landscape between the countries that have and the countries that have not. For the first time, countries that hold resources that benefit the global ecosystem will be pushed up the international pecking order as countries with aggressive industrialisation policies are forced to fairly remunerate them. 

As well as the advances in so-called ‘Environmental Capitalism’ that makes a strong case for remaining within the capitalist paradigm, there are countless reasons why some of the common centrally-planned socialist proposals are not fit for purpose from an environmental standpoint. In fact, there are numerous articles written by researchers who, with the aid of modern examples, can eviscerate the myth of socialist superiority over capitalism in less than 1500 words.

When, in 1992, Feshbach and Friendly declared the Soviet Union’s downfall a ‘death by ecocide’, they were not exaggerating. In the late 1980’s, particulate air pollution was 13 times higher per unit of GDP in Central and Eastern Europe that Western Europe. Gaseous air pollution and wastewater pollution was two and three times higher respectively. Why? That’s simple, it was the central planners profound ability to misallocate resources. This misallocation meant that energy production in the socialist sphere was far more energy intensive (up to 10x higher) than in the capitalist western Europe and therefore produced far more pollution.

Socialist governments’ prevalence to misallocate resources and over-pollute the environment is the culmination of an intrinsic inability for central planners to efficiently coordinate an economy. The lack of an invisible hand guiding prices from changes in supply and demand means a central planner would find it impossible to predict the demand for goods and services. Moreover, a lack of property rights means companies cannot be held to account for environmental damages as they have no incentive to conserve. The case study below highlights the real-world environmental devastation the actions a poorly run, property-rights-free central planning system can cause.  

Between 1960 and 1997, and whilst under Soviet Control, the previously fourth largest lake in the world, the Aral Sea, shrunk by 90%. An image by NASA in 2014 showed that the lake was now even smaller in what has been infamously known as ‘one of the planet’s worst environmental disasters’, a phrase coined by the ex UN Secretary-General, Ban Ki-Moon. The cause of this eco-catastrophe? Soviet 5-year plans for cotton to become a major export. The diversion of the two major rivers that fed into the Aral Sea, the Amu Darya and the Syr Darya, to irrigate the nearby desert stopped all inflows to the Sea. Moreover, most of these irrigation canals were so poorly built that most of the water diverted had either leaked away or evaporated before it reached its intended destination. The reason for the poor infrastructure? A lack of property rights. Under a planned system in which there is a lack of property rights, companies cannot be held to account for environmental damages so they have no incentive to conserve or built responsibly.

The above highlights how the green socialist utopia that is oft-evoked but ill-defined by the left could have disastrous impacts on the environment. Instead, the world needs to utilise the free markets and incentivise nations to save the planet.

Jake Waterfield an incoming graduate analyst at a European investment bank.


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