Can Environmentalism Be Compatible with Capitalism?

Perhaps the pivotal challenge facing the environmental community is resolving the apparent conflict between the need to reduce emissions and the widely-held desire for continuing economic growth.

This issue came directly to the fore in reading a recent Business Week article entitled "Little Green Lies", profiling how the green initiatives of Aspen Skiing Company were often bumping into, and in fact prevented by, commercial realities of the business. I was particularly provoked by the reader comments to the article. One respondent said that the contents of the article did not surprise him because (in his view) reduced consumption is ultimately the only environmental solution, which means reduced travel and reduced skiing, which runs against the profit motive of Aspen Skiing Company.

This posting confirmed for another reader that (in his view) environmentalists are inherently anti-capitalism, viewing capitalism as the evil force that has led to climate change and other environmental ills. To quote Rodney King, "can't we all get along?" The answer, I think, is yes -- and the path for squaring the circle is to note that capitalism is not to be confused with materialism or consumerism.

Capitalism is a social system that provides clear price signals and unfettered ability to undertake transactions, thereby enabling economic actors to make individual profit/utility-maximizing decisions, which in turn promotes efficient allocation of capital, maximizes liberty of citizens and businesses, and facilitates private wealth-creation.

We aspire to free-market capitalism in the United States, and we come pretty close to achieving it, closer than most countries in the world. And, because we are very capitalistic, it is easy to make the leap that American consumerism is inextricably a co-product of capitalism. It is not.

For instance, look at the leaders on the list of The Economist's rankings of national economic competitiveness. Sure, the U.S. is well above average. But the top two countries on the list are Denmark and Finland -- countries that, unlike the U.S., are not known for their excessive materialism. It is also noteworthy that Denmark is arguably the world leader in actually tackling climate change head-on by minimizing emissions through the mass-adoption of renewable energy and energy efficiency.

Capitalism and environmentalism can be reconciled -- theoretically, at least -- once energy price signals more accurately reflect their environmental costs. Right now, each unit of fossil fuel burned generates greenhouse gas emissions, which have a societal cost, but the consumer faces no burden in their wallet associated with this societal cost.

It is because energy prices do not currently include their full environmental costs that Aspen Skiing (and other companies) can't increase their profitability by pursuing as many green initiatives as they would philosophically like to do. If energy prices were to fully reflect all environmental costs, then the capitalist system would be freed to work its magic in motivating capital and behavioral shifts in the economy to significantly reduce emissions.

Alas, here's the dilemma: many environmentalists have qualms about letting markets work to reduce emissions, and most free-marketer capitalists are leery of policymakers adding environmental externality factors (a euphemism for "taxes") to energy prices. Unless this bridge can be gapped, we've got trouble.

Oh, yes, customers in Denmark and Finland face much higher energy prices (especially for transportation fuels), including much higher energy taxes, than we do here in the U.S. While Danes and Finns don't perhaps live la vida loca like Americans do, neither do they seem to be collapsing in existential angst or economic depression. The question for us Americans is: do we have the courage to elect leaders that would put us on a deliberate/planned march towards higher energy prices?

A first step for we Americans to make that shift is to better appreciate that reduction of consumption to preserve our planet is not necessarily anti-capitalist, but rather anti-materialism. Because, as the renowned Jared Diamond recently argued in a compelling New York Times oped, it is excessive human consumption of resources that is at the root of continued viability for life on Earth.

Comments

[Tom B]

A huge problem with getting companies to be "green" is that companies rarely bear the costs of NOT being green. The idiots that mine coal in general do not pay for the pollution and destruction they cause. maybe with proper tax credits, it would profit them to build mountain top wind mills instead of doing mountain top removal. Corn for ethanol farmers don't bear the full costs of the water they use or the pollution from the fertilizer runoff.

[sonya]

Aspen Skiing Company can't afford not to go green. If they don't and global warming continues, it'll be too warm for snow to fall or stay (if they made their own snow). If anything, the ski season will be drastically shortened. Did they think of that?

[absolute-right]

Hmmm. Environmental hot air. They will never be compatible. Like you said Capitalism promotes almost "unfettered" freedom, only restrained (persuasively, not complusively) by market forces.

Environmentalism on the other hand can only be mandated or forced.

And why? Man is basically selfish. Anyone who says otherwise is delusional. Capitalism is an invisible hand that manages that selfishness. Environmentalism can only be imposed like Communism but it will cost anyone who tries - - - that is what crashed the Berlin Wall, the countries behind the iron curtain just went bankrupt. But see, a war was not fought, it was market forces that brought the wall down.

That is why the US Auto industry is down, it is subjected to environmental constraints that the rest of the world is subjected to. Try imposing more environmental rules on US companies and we will witness the rest of the world making the money and still abusing the environment.

[absolute-right]

Sorry, I meant,

That is why the US Auto industry is down, it is subjected to environmental constraints that the rest of the world is NOT subjected to

[BKR]

This article provides an excellent perspective on the problem. We all need to accept the fact that there is a limit. Global warming and energy shotages are just early signs. Isn't anyone concerned about the future of our children and grandchildren?

[rich311]

The list you linked to on the economist was their prediction for the 2008-2012 market. It's misleading to already call Denmark and Finland #1-2 when it's just one source's prediction for coming years.

I do agree with your analysis though.

[rich311]

The Economist list you linked to is their *prediction* of the economic climate from 2008-12. I don't think it's fair to call Demark and Finland #1-2 when it's just one source's prediction.

I do agree with your analysis though.

[huangjin]

Capitalist countries are the cleanest in the world. It is the heavily socialist countries, especially those like China that still lack property rights, who have the most pollution.

Why would we WANT higher energy prices? Isn't that kind of idiotic? If you say we're running out of energy, why not let the price rise naturally? What's the point in jumping the gun?

The point of solar energy and others is to produce cheap energy. Once man harnesses the power of the Sun, 20th Century growth will look like the 15th Century.

[huangjin]

Also, it is incorrect to say that the free market does nothing about emissions. This is an issue of property rights and fully compatible with capitalism. The problem, as stated above, is that environmentalists do not want to reduce emissions, they want to reduce growth. We can have a pro-growth policy to reduce emissions, if we want it, but right now environmentalism is led by people who are pushing a socialist agenda clothed in green.

[MichaelLofrano]

Of course they can be reconciled. Look at the politicians associated with environmentalism, in particular Al Gore who is supporting capitalism by Tipper and he living in a 50,000 sq ft house in support of the building trades and unfettered conspicuous consumption; or Ted Kennedy, a staunch environmental supporter who opposes wind generation off of Hyannis Port because it will ruin his million dollar view, and his nephew, Robert Jr. whose deep concern for the effects of pollution has him flying all about the country in a private jet thereby showing his deep, deep sincerity and his support for having a small co-2 footprint while remaining a friend to big oil by consuming copious amounts of their products. What about John Kerry's simultaneous support of the environment and Detroit with his fleet of SUVs?

Take a look around. Most environmentalists support capitalism. The reason that escapes people is a defect in perception: most people haven't mastered the art of following both sides of the environmentalist preacher's mouthes.

[frflyer]

Wow! I've been talking up the problems of materialism and very few have gotten what I've been saying. Your point about Denmark is noteworthy, as someone just did a study that concluded that Danes were the happiest nation. There is a diminishing return to more wealth, it does not bring more happiness. Americans need to realize that.

Your comment that "environmental externality factors (a euphemism for "taxes") to energy prices. Unless this bridge can be gapped, we've got trouble."
misses the point that it isn't an added tax, it is ending tax breaks already enjoyed by the oil and gas industries. Why should we subsidize such highly profitable corporations?
And you're right about consumerism vs real capitalism.
That is really what those on the left don't like about our current brand of capitalism. That, and subsidies to huge, extremely profitable corporations that in no way need to be subsidized. What we are subsidizing is killing our economy not helping it. A change to clean energy would do wonders for our economy.

www.setamericafree.org...
"The total of all oil-related external or “hidden” costs of $825 billion per year. This total is nearly twice the figure authorized for the Department of Defense in 2006.
To put the figure in further perspective, it is equivalent to adding $8.35 to the price of a gallon of gasoline refined from Persian Gulf oil. This would raise that figure to
$10.73, making the cost of filling the gasoline tank of a sedan $214.60, and of an SUV $321.90."

"WE ARE FIGHTING a war against terror and paying for both sides of the war. "

Oil and gas company tax credits and susidies are over $80 billion per year. We spend about $100 billion for our military to protect oil shipments annually.

"Should the government
continue subsidizing the petroleum industry at the rate
of $125.6 to $273.2 billion annually in the form of tax
breaks, program subsidies, and uncompensated protection
services? Given that our burning, spilling, and
leaking petroleum products combined with other effects
of our reliance on the internal combustion engine
cost an additional $423.1 billion to $1.4 trillion each
year, would it not make more sense to devote a greater
share of these resources to researching, developing,
and implementing transportation policies and technologies
that are cleaner, safer, and less socially destructive?"

"According to estimates by"
the Union of Concerned Scientists (UCS), federal
corporate income tax credits and deductions result in
an effective income tax rate of 11 percent for the oil
industry as compared to a non-oil industry average of
18 percent"

"The average effective tax rate on integrated
oil operations has fallen from 21.5 percent in
the early 1980s to only 8.7 percent in the 1990s (both
figures are significantly below the statutory rate of 35"
These are older reports, but I doubt that much has changed.

This is what is keeping our economy from working. Any subsidies paid for alternative energy will pay for itself a thousand times over. And the subsidies are miniscule compared to the ones for oil.

Scientific America Solar Grand Plan
www.sciam.com/article....

This is what we should be doing. Using less than 1/4 the amount of public money now given to oil companies, about 1/40 of the hidden costs of oil, we could have a solar elecric grid in the U.S. Then we could have all electric cars.

This article shows how to achieve 65% solar grid by 2050 and nearly 100% solar grid by 2100.

To read about what is already happening in California, go the Green Wombat which has several articles on solar thermal plants being built or in the planning stages.

blogs.business2.com/gr.../

Here's what one of the companies involved has to say.

"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."

"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."

"Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."