Since the Industrial Revolution, human society has had an incredible impact on the environment. Anthropogenic overexploitation and pollution have undoubtedly led to global climate change, environmental degradation, and biodiversity loss. These problems pose serious threats to the future of humanity on a catastrophic level. The impact of these phenomena is observable now and is estimated to worsen in the near future. 

 

For these reasons, developing policy to tackle environmental problems is as important as ever. When it comes to solving any large-scale problem, there are two primary philosophies of governance. These are free-market solutions and government solutions, which rely on a neoclassical understanding of economics and regulatory policy, respectively. This paper will analyze these two major governance philosophies when it comes to developing effective environmental policy and make recommendations on developing environmental policy in the future.

 

While some scholars, such as David Pearse, have argued that environmental issues such as climate change are “not ‘special’” (Hepburn, 2010), there are certain specific considerations that one must make when developing policy for environmental issues. First, environmental issues have a significant degree of irreversibility that is nonexistent in other policy areas (Hepburn, 2010). For example, extinct species cannot be returned into existence, sea levels cannot be reduced, melted sea ice will never return, volatile weather patterns will not become moderate, and the world’s acidified oceans will not alkalize. Second, environmental issues are intergenerational in their nature. Hepburn argues that it is difficult “to anticipate the preferences of humans in the distant future, which are highly uncertain from today’s vantage point” (Hepburn, 2010). Third, all environmental issues exist within a greater scheme of an integral earth system. It is thus important for policymakers and scientists to analyze environmental issues with an interdisciplinary approach and on a planetary scale (Boston & Schneider, 1992). Fourth, the environment does not respect human-made borders. Rather, nations and states share rivers and mountains, and the condition of the oceans and atmosphere impact everyone. Thus, effective environmental policies should have international coordination and cooperation (Hepburn, 2010). Finally, developing environmental policy relies on complex scientific research and development. 

 

These specific aspects of environmental issues suggest that environmental policy requires a “more cautious, long-term, nuanced, and sophisticated approach than in some other policy areas” (Hepburn, 2010). Because the environment is such a complex and intricate system and environmental issues are so pressing, it is important to keep these considerations in mind when developing environmental policy. 

 

Free-Market Governance Solutions

 

Some laissez-faire economists have argued that a free-market system, which is reliant on private ownership and the forces of supply and demand, can address and help solve environmental problems. Specifically, some scholars have argued that when it comes to resource management, private property owners “have an incentive to protect and make investments in [their property] because they can be assured that they, and only they, receive the benefits” (Acheson, 2006). Thus, these property owners would use their resources efficiently and sustainably. Common-pool resources, on the other hand, are quickly overexploited because “no one has any incentive to invest in those resources or conserve them in the future” (Acheson, 2006). 

 

While private property rights are a promising way to control resource management in some ways, there are several pitfalls and drawbacks to this laissez-faire philosophy of governance. Foremost, many important environmental resources, such as air, ocean water, and migratory fish species, cannot be privatized (Acheson, 2006). Second, markets are oftentimes inefficient and have the potential to fail. In addition, a private property-based governance system does not consider externalities, positive nor negative. Perhaps most importantly, in a market setting, individuals are interested in maximizing profits more than anything else. This means that these individuals would likely rather overexploit their resources than cultivate them over time. Acheson demonstrates this reality with the example of forests. He writes that “economic analyses of forests demonstrate that forests grow so slowly that money invested in them would get a far better return put into other industries. Regardless of what discount rate is used, the future value of forests is quite low” (Acheson, 2006). 

 

Beyond private property and resource management, other free-market proponents believe that consumer-driven environmental action is possible. These individuals argue that the market does not have to be an adversary for environmental change. Rather, “if customers are well-informed about environmental problems and are altruistically willing to internalize environmental costs, then firms can address environmental problems by simply serving their customers and satisfying these preferences” (Hepburn, 2010). Thus, for consumers, “the best private choice can be made to coincide with the best social choice” (Tietenberg, 1990). As Hepburn points out, consumer-driven (or firm-driven) environmental action is completely dependent on three prerequisites – consumers must be informed on environmental issues, eager to help make environmental change, and willing to pay for added costs (Hepburn, 2010). Unfortunately, these conditions are unlikely to occur. While public discourse on environmental issues has significantly increased in the last decade, it is unlikely that there will be enough concerned individuals to create change through their desires and the markets alone. And if there were to be a consensus on the importance of environmental issues, it is unlikely that most consumers would want to take on additional costs. While it is certainly possible for firms to choose to sacrifice their profits for environmental protection rather than increase prices for consumers, this is also unlikely to occur.

 

While free-market mechanisms have the potential to create environmental change, they ultimately rely too heavily on having a citizenry that is well-informed on environmental issues and sustainability. As Hepburn points out, “voluntary markets for environmental protection are likely to remain marginal compared to government incentives without a major culture shift, which seems unlikely to occur” (Hepburn, 2010). Without this culture shift and change in education on environmental issues, one cannot rely on only free-market mechanisms to create economic change.

 

 Regulatory Governance Solutions

 

In the second half of the 20th Century, the United States passed multiple pieces of large-scale environmental legislation, which have had a significant impact on the environment. Since the Clean Air Act was passed, water pollution has decreased by 12% (Keiser & Shapiro, 2018). The Endangered Species Act has helped 99% of listed species avoid extinction (World Wildlife Fund, 2021) and the Clean Air Act and its amendments have prevented an estimated 230,000 premature deaths (EPA, 2021). While these federal laws have certainly made a difference in the environment since the 1970s, government programs are not always efficient nor are they effective at producing their intended outcomes. 

 

First, in a large bureaucratic environment, such as the federal government, data and information is often “simplified and distorted” between the bottom of the bureaucratic hierarchy to the top (Acheson, 2006). This means that those who make policy and program decisions do not necessarily have the best intelligence to make those decisions. Secondly, government decisions are subject to politicization. Especially in today’s hyper-polarized environment, politics can distract government figures from creating policies that benefit the public good. Third, government programs are often run in a top-down fashion. Acheson argues that “centralized, hierarchical government units have a number of traits that in the long run work against effective resource management” (Acheson, 2006). This means that government programs are often so large-scale that government agencies can easily ignore the needs of local individuals, culture, and ecology. This disconnect between policymakers and those that the policy directly impacts can “often have a negative effect on the resource and impose huge costs on the resource users as well” (Acheson, 2006). 

            

Australia’s Oceans Policy provides an excellent example of a large-scale environmental policy failure by government. Unfortunately, the marine environment has been severely impacted by climate change. These impacts include ocean acidification, ocean warming, sea level rise, fisheries food security, unregulated and unreported fishing, and pollution, which includes nutrient, chemical, waste, garbage, and microplastic pollution. Because these issues are all complicated and overlapping, Australia sought to create a large-scale integrated marine policy, known as Australia’s Ocean Policy (AOP) in 1995. According to Joanna Vince, Professor of Politics and Policy at the University of Tasmania, “by approaching a problem holistically rather than sectorally, integrated policies can be the drivers for overcoming policy overlap, conflict, inefficiencies, and inconsistencies” (Vince, 2015). Australia sought to fully integrate individual sectors involving marine issues vertically across Australia’s states, territories, and the commonwealth (which is equivalent to the United States’ federal government), and horizontally across the commonwealth’s various departments (Vince, 2015). 

            

The AOP was fundamentally flawed from its development stages. First, while the commonwealth originally sought input from “stakeholders, stakes, and the wider community,” the commonwealth was having difficulty developing a plan to integrate AOP across the different jurisdictions (Vince, 2015). As a result, by mid-1998, the commonwealth dropped the states and territories from their policy-making process. When two stakeholder groups developed and published their reports with recommendations on AOP, the commonwealth dissolved the two groups. Ultimately, none of the stakeholders’ insights made it into AOP (Vince, 2015). Secondly, AOP responsibilities were simply “layered” on top of existing legislative agendas and departments rather than adjusting and updating existing arrangements. Third, over time, as political regimes changed, parliament lost interest in AOP, ultimately leading to diminished public interest in the project. According to Vince, eventually, parliament and the Environment Department chose to work on individual ocean issues such as whaling and marine biodiversity rather than develop the integrated AOP. Finally, and perhaps most importantly, Senator Brian Harradine compromised AOP by moving the location of the Nation Oceans Office (NOO), the primary administrator of the integrated program, to his home state of Tasmania. As a result, the NOO was isolated and had a limited ability to facilitate policy integration and make decisions (Vince, 2015). 

            

Unfortunately, large-scale policy failure, such as Australia’s Oceans Policy, is not a rare occurrence. AOP serves as an example of government failing to adequately incorporate stakeholders in the policy-making process, layering new programs on top of existing institutions rather than updating them, dwindling government interest in a program over time, and government officials sacrificing the public’s interest for personal gain. As Vince put it, “until there is a government that is willing, has the capacity, and the drive to tackle large scale integration in Australia, and a public that wants better oceans governance [the calls for an integrated oceans policy] will go unanswered” (Vince, 2015). The same goes for any sweeping environmental policy project developed by any large government body. 

 

Lessons Learned from Governance Solution Analysis 

 

Ultimately, the two primary systems of governance, a laissez-faire approach and a hands-on regulatory approach, are both flawed. However, one can use the lessons learned from analyzing these two governance systems to develop and implement more effective environmental policy in the future. Cap-and-trade systems and environmental taxes are two programs that take advantage of the benefits of both regulatory and free-market approaches. In a cap-and-trade scenario, for example, “government sets the overall objectives, and leaves it to the market to deliver” (Hepburn, 2010). This system has been extremely successful in the United States. Rather than using standard regulation to enforce and administer the 1990 Clean Air Act Amendments, the federal government developed a cap-and-trade system for sulfur dioxide and nitrogen oxide emissions, the two primary causes of acid rain. Between 1990 and 2007, emissions of these gasses decreased by 43% (Chan, Stavins, Stowe, Sweeney, 2012). According to Tietenberg, this system “works especially well for uniformly mixed pollutants” (Tietenberg, 1990). Thus, this system can be very effective for reducing greenhouse gasses and combating climate change. In addition, cap-and-trade systems have the potential to work on an international level. If individual nations are each given emissions budgets and can trade their allowances with other nations, global atmospheric pollutants can be reduced. This is especially true if each nation enacts a cap-and-trade system for its domestic polluters. This is just one example of how a government-managed free-market system can make environmental change. 

 

As for purely regulatory environmental policy, governments must rely on local knowledge for their programs to be effective. This concept, known as “congruence between appropriation and provision rules with local conditions,” is part of Elinor Ostrom’s eight design principles for resource management (Ostrom, 1990). If federal and state governments choose to work with local authorities and knowledge when developing environmental policy, the programs would be significantly more effective for both groups.

 

Finally, for both free-market and regulatory approaches to environmental change to be effective, policymakers should invest in education on environmental issues. As discussed in the previous sections of this paper, free-market environmental progress is completely dependent on consumers and businesses that are well-informed on environmental issues and sustainability. If individuals are not well-informed on these issues, they will not consider the environment when making economic decisions, let alone be willing to pay for added costs. As for regulatory policy, if individuals are educated on environmental issues, they will be more willing to accept environmental regulation.

 

Conclusion

 

As this paper demonstrates, one cannot rely on the free-market or government regulation alone to create environmental change. Rather, policymakers should analyze and understand the benefits and drawbacks of these two governance systems. These lessons can be used to develop and implement more effective environmental policy in the future. As the climate crisis progresses, developing effective environmental policy is more important than ever. At this point, there is little room for waste, error, or failure.