Friday, August 17, 2012

Decreased Carbon Emissions & How Capitalism Helped the Environment, Again!

Earlier this month, the US Energy Information Administration (EIA) came out with a finding saying that America's carbon emissions haven't been this low since 1992. It might seem as if I'm a bit behind on the news. However, this response is not because of the EIA, but rather because of an article that AP published yesterday evening that I found on NPR. The second paragraph is what particularly caught my eye:

Many of the world's climate scientists didn't see the drop coming, in large part because it happened as a result of market forces rather than government action against carbon dioxide, a greenhouse that traps heat in the atmosphere. 

It'd be a safe bet that reading that would cause a gag reflex for many environmentalists because "government wasn't the solution." The main "culprit" was that the natural gas market opened up through technology and innovation. As the article points out, there are other factors such as methane emission or effects of drilling. Without going into the whole fracking debate, the markets have provided what can be categorized as a short-term solution to the problem. Although environmental policy has to be envisioned on the long-term, there is still reason to be optimistic for two reasons. One is that the trend shows a retardation in carbon emissions. The second is that with this extra time, the private sector can continue to innovate within that time period and come up with more green technology.

This begs a more fundamental question: how is it that the "free market" system succeeded and the government failed on this one? I thought businesses, especially those corporations, were exploitative and whose sole purpose was to maximize profit. That's part of the problem: letting the anti-capitalists on the Left dictate the narrative on capitalism.

Capitalism produces more good than harm because of its conservationist ethos. Choice theory is the idea that people respond based on incentives and maximizing benefits. Although it does not explain all of behavior, especially given the irrationality behind the thought processes of many individuals, it is nevertheless a solid foundation upon which one can explain much of behavior. In this scenario, we can look at both the individual and the business to figure out why from a microeconomic standpoint, individuals are incentivized to conserve resources.

The basic premise behind economics is that there are a limited amount of resources, and thus, we need to figure out the best way to allocate those scarcities. In a capitalist society, there is adequate information to determine the prices via supply and demand. Businesses have an incentive to use as few resources as possible, largely due to the fact that it cost more money. Let's use the Coca Cola company as an example. There was a time where they used glass bottles. However, when the aluminum can came along, the company used those. Why? Although saving the environment ends up being a wonderful by-product in any example I can give, the truth is that it takes less energy to produce, re-use, and recycle aluminum than it does glass. A business is incentivized to be efficient, whereas the government, for a myriad of reasons, does not face the same incentive scheme.

Even with individuals, the idea of providing property rights is better than communal property or some less extreme variant thereof. Again, it boils down to incentives. Some might like wallowing in filth, but a clear majority of individuals like a more pristine place to own. Since it's the individual's property, the incentive to maintain its overall quality is much higher. That means a better use of resources, especially since the individual is bearing the costs. Without that cost-bearing, the individual's incentives are distorted, which more often than not leads to overconsumption and inefficient use of resources. If the goal is environmental preservation, capitalism is a superior option.

I want to conclude my thoughts here because at this time, I only wanted to provide a primary overview of "capitalism and environmentalism." There are many sub-topics that can be addressed separately.

Capitalism is normally not seen as a solution because capitalism is not portrayed positively. By using a different way to conceptualize capitalism, it can be at the forefront in the marketplace of ideas, and thus bring viable solutions to our environmental issues.

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