Environmental Economics

Motivated by this windy picture of me spending some quality time in the nature and my Monday's decision to finally stop buying plastic bags for my groceries, I want to talk about the environment. I have to state, that my first impression of the people talking about the environment are the extreme-activists of Greenpeace and the so called "viherpiipertäjät" always whining about pollution and discriminating the daily choices of other not-so-green-people.

Just recently I started to think that yes, our collective behavior indeed has consequences and it is going to have negative consequences in the long-run if nothing is going to change. Look, I'm not saying that I'm going to save the planet with my choices, and I'm not forcing you all to change your habits. I just started to think about my daily carbon footprint. Whether you want to decrease yours or not, it's just up to you.

The basic theme and question of this text is that if free-market capitalism with its multinational corporations and industries is designed to create welfare, why it is still considered to harm the environment? Is there anything that could be done to make things good for the environment as well?

One explanation can be found from the tragedy of the commons. According to the theory, basically everything that's free, for example water, air or public fish population, is over-consumed. In a shared-resource system where individual users acting independently according to their own self-interest behave against the common good of all users by depleting that resource through their collective action. If the water you use for drinking and showering isn't billed according to the amount of liters used per month, you tend to keep the shower on while you soap yourself.

That offers us one explanation on the growing problem of over-fishing and the decreasing fish population. If fishing in the oceans is considered as free for all, the self-interest drives individuals to consume more the ocean's resources in order to gain profit by selling fish as much as possible, for instance. If it is not considered as free, regulation and monitoring are difficult and costly to maintain and could allow illegal and undocumented fishing.

Also the pollution of the water systems by different factories, for instance has been a problem partly due because of the tragedy of the commons. But could this be avoided?

Let us consider an example. In a place far far away, there's a fishermen's village near to a beautiful lake. Near to a lake is also a large coal plant. The fishermen need the lake in order to get fish, and the plant needs the lake for sewage purposes.

What do you think will happen if the lake is considered as a shared resource? A conflict of course: The plant will keep on using the lake for sewage and pollutes the lake, thus decreasing the fish population. The fishermen would be probably angry and would sabotage the plant or cause some other major damages.

But what if the lake was owned by either of the parties? If the village would own the lake, the plant would be required to provide monetary compensation on the amount of lost catch due to the pollution for the fishermen. Vice versa, if the plant owns the lake, the fishermen would have the incentive to invest to a refinery to be build for the plant, on the amount of gained catch from more clean water.

So should this suggest that everything needs to be owned by someone? It is a radical conclusion, but yes. That's why for example I'm not against communism, IF the ownership and capital are free to move inside the economy. That was not what was going on in the Soviet Union unfortunately. Everything could be privately owned or governmentally owned to offer a solution for the tragedy of the commons. That's why for example the chairman of Nestlé, Peter Brabeck suggested the privatization of water in 2013. That perfectly shows the difference between the economic theory and real life. Some things such as nature and environment are hard and almost impossible to express in monetary terms.

That is actually what is happening at the moment. Oil refineries have been polluting the ecosystem around them because of different kinds of errors and faults, without providing any major compensation. But the production of oil is not going to stop, since the humanity is already extremely dependent on oil. OPEC has continued the production of oil lately without introducing any new cuts to be seen soon.

Some day oil is going to run out. Only what is going to left from John D. Rockefeller's heritage is destroyed ecosystems and questions to be raised in 50 years on why the hell were people sailing around the Baltic Ocean in a can consuming ridiculous amounts of fossil fuels, just to buy cheap liquor. So could there be any alternative for the production itself?

Nuclear power is a hot topic in every part of the world. It is proven to create less emissions than traditional coal plants and to be proven to be more efficiency. Many countries like France have been investing heavily in nuclear power, providing over half of the produced energy in the country from nuclear power. The only downsides however are the existence of extremely toxic nuclear waste, and the anxiety of the people towards Chernobyl-like reactor meltdowns.

Another, more popular alternative are investments on renewable energy. Germany has been a pioneer in green energy in such a way that it has already managed to produce a day-worth of nation-wide energy from renewable energy sources. Especially the investments on biomass and wind power have been popular. Similarly in Finland, Neste Oil and ST1 are constantly developing more environmentally friendly bio-diesel fuels out of ethanol produced from waste, for instance.

In the near of the becoming energy-crisis, everything I just wrote about ownership and type of energy production will become important. The alternatives for production and the solutions to reduce pollution rising from the negative externalities of production and consumption are going to be more rigorously under research and fiercely under lobbying from the oil companies in the following years. During these times, we all can think about the effects of our own individual daily choices for the economy, for the environment and for ourselves. The next time you're going to drink a cup of coffee from a take-away cup, spend a brief moment to explain to yourself, how that coffee and the cup got there.

Test: SW