One economic myth is that all it takes to control the environmental crisis is a system for trading carbon credits. Sharon Beder debunks this myth in "Environmental Principles and Policies." Beder is a well-known environmental expert who is a professor at University of Wollongong, Australia.
"Environmental Principles and Policies" starts off slowly with excellent background chapters on the environmental principles of sustainability, polluter pays, precaution, participation, equity, and human rights. Following this is an outline of the use by economists of cost-benefit analysis as a rationale for the trading of environmental emissions such as carbon credits. Beder's distinct message comes out in the remaining chapters where she evaluates contemporary economic instruments in terms of her environmental principles.
According to neo-liberal and neo-conservative economists, systems for the trading of environmental emissions are based on the economic principle that society should only pay for the level of pollution control that cost-benefit analysis determines to be optimal. This optimum is reached by increasing pollution controls up to the level where environmental damage costs equal pollution control costs. Sharon Beder sees this economic analysis as faulty. She shoots holes through it in her discussion of the following Principles.
1. Sustainability Principle
The sustainability principle recognizes the limitations of the planet earth in its ability to absorb pollution and provide materials for the consumption of society. Environmental sustainability is more likely to be achieved through legislation than with emissions trading systems. For example, Germany achieved 90% reduction in acid rain through legislation; whereas, the United States achieved much less reduction in acid rain through their emissions trading program.
2. Polluter Pays Principle
In a system of environmental damage control that supports the polluter pays principle, a corporation either pays to prevent pollution or pays for remediating the damage done by pollution. This principle fails in emissions trading systems since research has found that the equilibrium price is much lower than the actual costs of remediating pollution. A related drawback of emissions trading systems is that there is no motive to innovate. Instead, firms fix pollution that is easy to fix and sell their credits to companies that need to endure the higher costs of innovation to fix their pollution. For example, innovative methods of reducing nitrous oxide were developed in California under a legislative system, but these were not widely implemented when an emissions trading system was introduced at a later date.
3. Precautionary Principle
The precautionary principle is followed when a system takes into account the uncertain level of risk that irreversible damage will be the end result of specific actions. Under the precautionary principle, decisions about developing or preserving an environmentally sensitive plot of land, need to deal with the risks of not being able to reverse a decision to develop. An emissions trading systems does not account for this uncertain risk. Instead, it assumes that it has certain and irrefutable knowledge about the economic potential of preserving or developing the plot of land.
4. Human Rights Principle
Beder lists three social principles in "Environmental Principles and Policies": human rights, equity, and participation. One human right is the right to an environment that is conducive to one's well-being. Emissions trading systems are not as effective at following this human rights principle since the level of pollution is generally higher under emissions trading systems than under those enforced by legislation.
5. Equity principle
The equity principle emphasizes the needs to have social justice for all - an entitlement of everyone to an acceptable quality and standard of living. Emissions trading systems fail to have equity since they tend to have spotty pollution after pollution controls are only installed in those factories where they are cheapest. The end result is that a valley is polluted when it has a factory for which the installation of pollution controls would be very expensive. Under a legislative system, the pollution control equipment would either be installed or the factory would be closed.
6. Participation Principle
The participation principle engenders the rights of citizens to participate in decisions affecting them. Such participation is not part of emissions trading systems, but is a part of the development of much legislation to control environmental damage.
Sharon Beder cites many more examples in "Environmental Principles and Policies." These demonstrate that government legislation can follow her six environmental principles; whereas, these principles are violated by emissions trading systems. The economic justification of emissions trading systems emphasizes their economic efficiency, but fails to account for their lack of effectiveness in truly controlling pollution. Sharon Beder points to these and other false assumptions of economic cost-benefit analysis in "Environmental Principles and Policies."