Ecosystem Services At The Global Scale

Consider first ecosystem services at the global scale. I believe these should often be analogized not to economic goods to which prices may be attached but to the conditions - like liberty, property rights, the enforcement of contract, and so on - that make production possible. No one suggests that liberty should be "priced" though everyone knows it must be protected. To ask how a market would settle prices on legal, political, and social institutions is to pose a foolish question since no market could function without them. It is the same with biospheric processes on which life depends.

Once a political authority has "capped" or limited the amount of pollution that can be emitted and has established initial "allowances" among polluters - a very tall order in itself - these allowances could trade to encourage their efficient use. Such a regulatory market, if it could ever exist, would not represent voluntary exchange between willing buyers and sellers of ecosystem services. Regulatory markets represent command-and-control regulation made more consumer-friendly.7 Barton Thompson has written, "Governments superimpose market structures onto these regulatory systems primarily to ensure that the limited rights to pollute, develop wetlands, and divert water are used efficiently, thus minimizing the cost of regulation to the economy."8

Governments may create "regulatory markets" - sulfur dioxide under the Clean Air Act provides the usual example - to make command-and-control regulations more cost effective. Thompson comments, "Beyond the odd anecdote, unfortunately, the actual value of pure regulatory markets to environmental preservation remains questionable."9 So far, experience with attempts to "cap" carbon and trade "allowances" have been fraught with corruption as each player has insisted on having a supersized initial endowment. It would be one thing if carbon "allowances" were sold to the highest bidders and the money invested in clean technologies. It is another thing that the "allowances" are constructed from political whole cloth and allocated accordingly.

Those who propose a "cap-and-trade" policy for carbon emissions might be analogized to the mice in Aesop's fable. In their Council, one mouse proposed "that a small bell be procured, and attached by a ribbon round the neck of the Cat. By this means we should always know when she was about, and could easily retire while she was in the neighbourhood." When a wise old mouse inquired, "But which of us shall bell the cat?" no one had an answer. The old mouse declared, "It is easy to propose impossible remedies." In the same vein, a commentator has observed of carbon "markets," "The problem . . . is that it is anyone's guess whether such trading can work on a global scale."10

The principal difficulty that defeats efforts to impose a regulatory market on "greenhouse" emissions lies in finding a suitable, meaningful, and acceptable principle for setting initial allowances.11 It is now apparent that nations in the European Union emissions "market," for example, gave themselves such huge initial entitlements (the technical term is "hot air") that they have had difficulty enforcing limits. As a result, the supply of "carbon emission rights" exceeds the demand, and as I write this chapter, the price of a one-ton unit plummeted from 30 to 8 euros in two or three days.12 Economists "assume the can-opener" if they suppose that interested parties can agree on a formula to establish a "cap" and allocate initial allowances.13

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