Can Environmentalism Be Compatible with Capitalism?

 |  Includes: PBW, PUW
by: Cleantechblog

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.