Command-and-control regulation or market-orientated: which is the solution to our environmental woes?

The environmental crisis is only getting worse. This we know, beyond a shadow of doubt. The U.S. Government’s recent rollback of environmental regulations and the weakening of the EPA have only served to worsen the current state of affairs. Polluting behaviors, deforestation on a greater scale than ever before and the overconsumption of natural resources are exacerbating an already critical situation, with governments, lobbyists, NGOs, environmentalists and other individuals around the world increasingly desperate to find a solution. Over 70 percent of Americans want to U.S. to urgently act on climate change, with 56 percent in opposition to the U.S. withdrawal from the Paris Treaty and with 76 percent believing carbon dioxide should be regulated as a pollutant. The issue is only going to worsen, with many believing the next era will be one of regulation by litigation, and largely due to the growing number of environmentally damaging behaviors we are seeing today all over the world.

So far, two different approaches to dealing with environment problems have been successfully established. Command-and-control regulation, which sets specific limits for pollution emissions, or the market-based approach(MBIs), which uses markets, price, and other economic variables to incentivize polluters to reduce environmental externalities. Overwhelmingly, command-and-control regulation is the chosen method for dealing with environmental “crime” – for lack of a better word – for example government bans on polluting processes or emissions standards. To date, command-and-control regulations have been successful in protecting the environment, with specialized government departments set up right around the world specifically to design, implement and monitor those regulations. The Environmental Protection Agency is a good example. But command-and-control systems are incredibly expensive, difficult to implement and even more difficult to manage long-term.

Market-based tools on the other hand started to make inroads back in the 1980s, when the EPA began to recognize they could be useful in the face of more complex situations. Pollution charges, marketable permits and better-defined property rights are brilliant examples of market-based policy instruments. The goal is simple: to give profit-maximizing companies the incentive to innovate and design ways to better reduce their emissions – within budget – by giving all eligible companies permits enabling them to emit a capped amount of pollution, with those permits tradable or saleable. This approach, however, comes with its own flaws. The first is it provides no added incentive to minimize environmental damage beyond the limits the permits demand, and the second is that this approach often comes with loopholes subject to corruption by politically-motivated parties. Tradable permits also mean limited accountability in terms of who is engaging in which polluting behaviors. Critics of the market-orientated approach argue they are for show only; a cover-up by governments seeking to weaken existing environmental regulation, thereby enabling multinational giants to continue emitting similar if not greater levels of pollution with no consequence.

At the same time, stricter command-and-control environmental regulations come with their own weaknesses and are often subject to fierce opposition by industry, governments and economists worldwide. So, the question we need to ask to be able to better deal with the looming environmental crisis is: which is the best approach?

In countries where the implementation and management of command-and-control environmental regulations are incredibly difficult as well as subject to corruption, for example in China, this particular approach has been spurned by the people. In China, lax environmental regulations have been held accountable for excessive lead poisoning in children and innocent civilians for many years. In 2012, dozens of children living near a lead refinery plant in the Guangdong province were diagnosed with excessive lead poisoning – the result of weak implementation and upkeep of environmental regulations by the local government. It’s incidents like these that earn command-and-control regulations a reputation for being “weak”. Civil society in China is growing outraged by the swelling number of environmental atrocities committed by powerful companies under the watch of the government, with many victims now resorting to the third-party support of personal injury lawyers and nonprofit law firms to file class action lawsuits against those companies and individuals responsible.

Command-and-control environmental regulations are also often rejected as futile because they directly contravene the very paradigm in which the developed world functions – a capitalist one. New York Times article ‘The Climate Crisis? It’s Capitalism, stupid explores exactly this, concluding that the real culprit of the climate crisis is not a particular form in which we consume, produce or regulate, rather it is that we consume, full stop. No matter how many recyclable bags we use, or how well we adhere to our moral green consciousness, unless the very paradigm in which we live, work, produce and consume becomes vastly different overnight – there is no real hope for change. And so, by merely legalizing an ‘upper limit’ to the amount of pollutants we emit or waste we dispose of we are not properly dealing with the root of the problem, which is the inherent nature of capitalism. From this perspective, market-based incentives seem to be the better solution since they leverage the capacity of capitalism to influence behavioral change on a global scale.

But the market policy instruments commonly used today are not having the intended impact. We must find newer and more unique ways to leverage the market to attack the problem with the impact it deserves.

Already we are seeing innovation in newer market-oriented policy approaches, with regulation and rules aimed at increasing transparency. In June last year, India’s Maharashtra government launched the first program of its kind in the country – one that could potentially transform the way the entire population thinks about environmental regulation. And it couldn’t come a moment too soon, what with the country’s alarming spike in dangerous pollution levels in recent years. The ‘Maharashtra Star Rating Program’ allows for large industrial plants to be publically rated based on the amount of pollution being emitted from their smoke stacks, with those rated the worst earning just one star. The program is not all that dissimilar from a cohort of new programs cropping up around the world seeking to address pollution problems in unique and innovative ways.

It seems to me embracing the market offers the most potential for impacting effective environmental change – but as mentioned, it needs to be done better than it has in the past. Given the limited amount society is actually willing to spend on command-and-control environmental protection, the market provides the motivation needed for individuals, businesses and governments around the world to at last become involved in investing in a greener, healthier future. But this must go hand-in-hand with close government regulation so as the ensure those market solutions are having the intended effect and lessening our impact upon the planet. In time, this might well save us.

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