All Commentary
Saturday, July 1, 1995

Is Environmental Pollution the Principal Environmental Problem?

Markets Should Allocate Scarce Environmental Assets

Dr. Macaulay is Alumni Professor Emeritus of Economics at Clemson University.

Ever since Rachel Carson published Silent Spring in 1962, Americans have been actively concerned about environmental pollution. Congress has enacted laws requiring clean water and clean air, and the Environmental Protection Agency has been established to enforce these laws. Activist environmental groups, such as the Sierra Club and the Natural Resources Defense Council, were organized to prevent pollution and to ensure that laws prohibiting it are vigorously enforced. To accuse someone of polluting the environment is akin to a charge of racism; each is considered a sin against society.

When the push for purity began soon after Miss Carson’s book was published, the field was dominated by biologists and engineers who saw the problem as simply measuring impurities and then devising ways to remove them. A few economists argued that a better solution would be to charge for the emission of impurities and then allow the polluters either to decide best how to eliminate the emissions or to pay for any impurities they discharged into the environment. Early environmentalists argued that charging for emissions was merely paying to inflict injury on innocent parties and was immoral.

The environmentalists have largely prevailed. With cleanliness next to godliness, who could support dirty water, unclean air, or any variation on these themes? Consequently, the Federal Water Pollution Control Act Amendments of 1972 required a zero level of waste discharged into the nation’s waterways by 1984, and the Clean Air Act of 1970 forbade the discharge of any emission that would cause harm to citizens. Further, in many cases, the government prescribed just how these requirements would be met, such as by mandating scrubbers on the smokestacks of electric utility power plants.

We are likely, however, to see the situation differently and to arrive at a more efficient and acceptable solution if we think of environmental pollution as an economic problem. Economics deals with scarce resources and how we may best use them. Water and air quality are scarce resources with many parties wanting to use them in different and mutually exclusive ways. Some people want to use these assets to carry away the smoke from their fires, the exhaust from their cars, the carbon dioxide from their breathing, the sewage from their homes, and the discharges from their factories, while other persons want to breathe fresher air, see more distant mountains on more days, and swim and fish in streams and lakes. The problem is not one of pollution but of who will be able to use the environment in his preferred way. Choosing among alternative uses of the environment, not pollution of the environment, is the principal environmental problem.

We gain considerable insight by casting the problem in terms of another natural asset with conflicting desirable uses: land. Many people want to use land as a site for their homes, gardens, parks, and hiking trails, while others seek places for their factories, hospitals, schools, and garbage dumps. Each of these uses competes with every other use. We solve the problem by asking each demander how much he will pay for his preferred use. Each particular site of land goes to that user whose offer exceeds those of other bidders. The decision is not made on the political popularity of a particular use but on the basis of its greater value to one user than to any other potential user.

Ardent environmentalists, and many citizens less concerned with environmental questions, continue to see pollution as the principal problem and will argue that the aim is to prevent emissions and discharges that are inimical to the good health of the population. Clean air and water have been concerns of the Public Health Service since early in this century, and it has effectively reduced water-borne pathogens and fatal air conditions such as that in Donora, Pennsylvania, in 1948. Public health is no longer seriously threatened by environmental quality. Still we have been concerned with the consequences of red dye no. 2, Chilean grapes, Alar on apples, acid rain, and asbestos in ceiling tiles, none of which can he characterized as a health problem, either public or private, of any consequence.

Clean, Cleaner, or Cleanest?

The question of environmental cleanliness raises an important economic principle. All economic decisions are made at the margin. Thus, the proper question is not whether we shall have clean air, but whether or not we shall have cleaner air. We practice this principle of marginalism in our daily decisions. Each of us wants a clean home. The real question is whether we should have our home cleaned more thoroughly, or perhaps relax our standards. Will an additional visit by a home-cleaning service each week or month be worth its cost? Because few of us use such a service daily, most of us have decided that additional cleanliness in the home is less valuable than the other things we could buy with the money daily home cleaning would cost. For a more recognizable case, we would all like our garage floors to be clean, but not to the extent that we could eat food placed on the floor. We do not seek perfection in our other public expenditures on national defense, education, crime prevention, public welfare, or highways. Nor should we seek perfection in the environment.

There is another economic lesson in deciding on how to use the environment. We know that the more of any good we produce, the more costly are additional units. Producing additional wheat requires more land, labor, and capital than was required to produce earlier bushels. Stated differently, we would have to give up more corn, soybeans, shirts, and parking lots for each additional bushel of wheat produced. The things we give up for more wheat may be more valuable than the added wheat we get.

The Law of Diminishing Marginal Utility also tells us that as we get more wheat, shirts, television sets, or anything else, the less valuable another one of any of these things is to us. Sometimes at restaurants we do not eat all the food on our plates; another bite of the food has now fallen below zero in value and is, literally, garbage. Once the water in our homes is clean enough to drink, there is little benefit from having it distilled. Our steam irons may prefer distilled water, but the human body finds the improvement of zero benefit.

The two forces just described give us our supply and demand curves and tell us that there is a point beyond which it is not worth producing more of a good. This principle is also true of environmental purity: we can have air and water that are wastefully clean. For most of us, common examples in other goods, such as watches, cars, and haircuts, are Rolex, Rolls Royce, and Mr. Clinton’s clipping on the Los Angeles airport tarmac. These are all good products, indeed very good products, but most of us do not buy them because the extra quality is not worth the extra cost. Walter Williams astutely observes that while we love genuine diamonds of superior clarity, we more often choose to buy costume jewelry. We should apply this jewel of wisdom to our purchases of environmental quality as well. There is a best level of environmental cleanliness, and it is not perfect purity.

The most important question in determining environmental quality involves the price we pay for the use we enjoy. Environmentalists have taken 25 years to agree that emissions charges should be levied on polluters. Many environmentalists, however, argue that the charge should be set so high that there would be no emissions at all. This is not the price that most economists have in mind.

A system of charges on polluters has several advantages. Polluters are willing to pay because they benefit from their use of the environment. They will reduce emissions because each unit they discharge is costly to them. They will reduce these emissions in the most economical way, thus lowering the costs of greater cleanliness, There is less ill will and animosity toward government and environmentalists because polluters face a price for a service they use rather than an arbitrary and inflexible standard of purity imposed by politicians.

If we ask who uses the environment, rather than who pollutes it, we must recognize that those who desire a cleaner environment are also users, no less than are polluters. Environmentalists want to enjoy cleanliness, as much as those who buy air filters for their homes, bottled water for their tables, and yard services to make their lawns more attractive. In hundreds of ways every day we pay for greater cleanliness of our homes, cars, stores, and parks. The environment is no different. Those who want a cleaner environment should pay for the additional cleanliness they get, use, and enjoy.

As it did for the polluters, a system of charges on users enjoying greater cleanliness promises many advantages. If those desiring increased purity must pay for this benefit, they will conserve on their demand for it. Their love of purity and their moral superiority in publicly pressing for it would pale as it does for additional units of every other good they buy. Second, lovers of purity may find more efficient substitutes for environmental cleanliness. Community and private swimming pools may be much cheaper than making every stream swimmable. Third, environmental activists could devote more time to producing saleable goods desired by others so they could earn money to buy a cleaner environment. They would then spend less time lobbying politicians, organizing demonstrations, and supporting political pressure groups, none of which produces goods being bought by others. We have no assurance, and we have many reasons to doubt, that these activities result in environmental improvements that are worth their costs. Adam Smith’s invisible hand again will guide us to a society with more goods, including environmental cleanliness, that people value highly. The lobbyist’s visible foot, extended to the politician, results in fewer goods that, also, are of questionable value.

We earlier noted that land is also an environmental resource. If we treated land as we now treat air and water, we would price all land at zero and invite homeowners to take all they want. Any land left over would be allocated, or sold for a user charge, to business firms, but each firm would be restricted in the amount it received. Buildings and factories erected on the land would be designed by government to minimize land use. These buildings would be small in area and tall in height. We might produce steel in a factory occupying only one hundred square feet at ground level but rising forty-two stories. The cost might be exorbitant, but it would provide cleaner land—meaning more land without the impurity of factories—for use by homesite lovers.

The lesson is clear. The environment is a scarce, natural asset. Markets have been used for centuries to allocate scarce assets and they can be used to allocate the use of the environment as well. The public-good nature of environmental purity is similar to that confronting providers of lighthouses, television programs, music rights, church services, fireworks displays, and hundreds of other goods. If we apply market principles to environmental quality we can have a more efficiently used environment and citizens who are happier with the uses they voluntarily pay for and enjoy.[1] Free markets can be extended to this new area to bless the population with the same benefits delivered in more common applications. We need only see that the problem is not the pollution of the environment, but the use of the environment. []

1.   For a more detailed discussion, see Hugh H. Macaulay and Bruce Yandle, Environmental Use and the Market (Lexington. Mass.: Lexington Books, 1977).