Carlos Rymer March 15, 2007

NTRES 431 Professor Steven Wolf

Restructuring Markets for Environmental Conservation

The world faces a difficult challenge that it must fully address during the 21st century. The

environmental crisis, as predicted, will worsen during the first half of the 21st century as the

human population continues growing, ecosystems and biogeochemical cycles are changed and

degraded, the global climate is altered, permanent toxic chemicals are made more widespread,

biodiversity is lost, and natural resources become scarcer (WorldWatch Institute, 2003). It is now

recognized that this challenge will only be met if society addresses the social, economic, and

environmental dimensions of these different problems, and uses each dimension to enhance the

others (Vlek and Steg, 2007). With the unpopularity of government regulation of environmental

harm, market restructuring has been recognized as essential to solving environmental problems

through the competitive motive.

In a realistic market, aggressive competition and efficiency are promoted in order to

reduce total costs and increase the value of products and services (Hawkens, Lovins, and Lovins,

1999). In today’s market, however, major flaws exist because the profit motive only treats

extractable products as valuable and therefore has led to widespread environmental degradation.

The market does not account for the value of ecosystem services that sustain life and lead to

extractable products (Daily and Ellison, 2002). This is why the market needs to be restructured.

Market logic, when applied to environmental conservation, aims to incorporate

everything that is known to be valuable into the actual costs of products and services. In this

way, aggressive competition among enterprises leads to efficient and sustainable use of natural

resources and ecosystem services, thus promoting environmental protection, not degradation

(Brown, 2001). Not only does it lead to environmental protection, but it also eventually lowers
the total cost of products and services, which includes environmental and social values, because

a market promotes efficiency over time.

An excellent example of how the incorporation of all environmental and social costs into

markets works is fair trade, which includes products such as coffee, cocoa, and tea. These

products come from practices that are environmentally sound and protect human health. In

exchange, the cost of protecting human health and environmental services is incorporated into

the products, thereby reflecting the actual costs of those products. Part of the extra cost goes to

paying laborers the appropriate price of their work, and the rest goes into technical assistance to

continue sustainable practices (TransFair USA, 2006). Although the portion in this market that

incorporates the environmental and human costs is still very small, it is becoming increasingly

recognized as a way to meet environmental and human challenges.

This logic offers widespread opportunities ranging from reductions in greenhouse gas

emissions to sustainable use of forest resources to poverty alleviation. In theory, valuing

ecosystem services is the most effective way to address the environmental crisis through social,

economic, and environmental dimensions. However, there are constraints for the market to

actually begin valuing ecosystem services at a full scale.

Today’s markets have largely continued leaving external costs out of the price of products

and services. The major constraint to this is that there are no incentives for enterprises to do this,

especially because the world population is largely apathetic to environmental problems. In order

for enterprises to value ecosystem services, there must be incentives across all markets for

intense competition with these values (Hawkens, Lovins, and Lovins, 1999). Restructuring the

market across the board is therefore highly necessary and must involve either government

orientation or consumer demand.

 In order to restructure the market to include the real cost of ecosystem services into

products and services, government must intervene to either mandate that the cost be included to

allow enterprises to protect environmental resources or change tax policies to ensure that the

price of products and services reflects the costs of ecosystem services (Brown, 2001). We cannot

expect the market to do this by itself because education is not at a level at which people can drive

the market towards large-scale changes to reflect the costs of ecosystem services. Instead,

government and the market must work together to incorporate such costs in a fair way in order to

ensure environmental protection (Brown, 2001). Given that this already happens to some extent,

such as through government subsidies and tax breaks for industrial agriculture or fossil fuel

companies, it cannot be considered as government regulation, where a mandate tells the

enterprise how it must change (Hawkens, Lovins, and Lovins, 1999).

Market restructuring will involve taxes that raise the costs of products and services to

reflect real costs; it will also involve distributing such revenues in a way that meets social,

economic, and environmental dimensions. Although the taxes should cover all products and

services regardless of fairness, as this is the competitive nature of markets, it should not mean

that people will be economically affected. Revenues from such taxes, as already hinted at, should

be used to conserve and sustainably use ecosystem services and promote improved life quality

for the entire population. Because such extra costs will include the price of ecosystem services

and human capital, as in the fair trade example, distribution of revenues should both account for

environmental protection and the socioeconomic needs of people, especially those who would be

most affected. This is different from other suggestions, such as a shift in the income tax (Brown,

2001), in that it makes full use of revenues rather than cutting funding for other needs.
 Today, the market is the main cause of environmental problems because it brings

products and services to people that originated from environmental degradation and that cause it

in the form of waste or pollution. Government mandate may not be the most effective way to

solve environmental problems, especially because government cannot effectively enforce

markets and because such a strategy would be biased towards the environmental dimension of

this crisis. It would be unfair to the social and economic dimensions.

Steering the market in a preferable direction through the incorporation of external costs

would make it account for ecosystem services through their real value. In effect, such a

restructuring of the market would create a state where environmental protection and human

growth are profitable and economically reasonable. Instead of extracting and leaving destroyed

ecosystem services, markets would work to protect and enhance ecosystem services while

sustainably extracting products. This would affect society by changing consumer behavior,

raising the education bar about environmental goods and services, and promoting a world that

fully recognizes that environmental growth is economic and human growth.

 Cited Literature

Gardner, Gary et al. 2003. State of the World 2003. WorldWatch Institute. W.W. Norton &
Company: New York. Available at: http://www.worldwatch.org/system/files/ESW300.pdf.

Hawkens, Paul, Lovins, Amory, and Lovins, Hunter L. 1999. Natural Capitalism: Creating The
Next Industrial Revolution. Little, Brown and Company: New York.

Lester R. Brown. 2001. Eco-Economy: Building an Economy for the Earth. Earth Policy
Institute. W.W. Norton & Co: New York.

TransFair USA. 2006. Environmental Benefits of Fair Trade Coffee, Cocoa & Tea. Available at:
http://www.transfairusa.org/pdfs/env.ben_coffee.cocoa.tea.pdf. Last Accessed: March 10,
2007.

Vlek, Charles and Steg, Linda. 2007. Human Behavior and Environmental Sustainability:
Problems, Driving Forces, and Research Topics. Journal of Social Issues, Vol. 63 (1): 1-
19.