NOVEMBER 2005 :: ECONOMICS

Natural Balance
Environmental Groups Use Economics to Achieve Their Goals

By Jessica E. Vascellaro
Staff Reporter of The Wall Street Journal

Many economists dream of getting high-paying jobs on Wall Street, at prestigious research firms and universities or at powerful government agencies.

But a growing number are choosing to use their skills not to track inflation or interest rates but to rescue rivers and trees. These are the "green economists," or environmental economists, who use economic arguments and systems to persuade companies to clean up pollution and to help conserve natural areas.

Working at dozens of advocacy groups and various state and federal environmental agencies, they are helping to formulate the intellectual framework behind approaches to protecting endangered species, reducing pollution and preventing climate change. They also are becoming a link between left-leaning advocacy groups and the public and private sectors.

"In the past, many advocacy groups interpreted economics as how to make a profit or maximize income," says Lawrence Goulder, a professor of environmental economics at Stanford University. "More economists are realizing that it offers a framework for resource allocation, where resources are not only labor and capital but natural resources as well."

'Play That Card'

You'll find environmental economists on the payrolls of government agencies (the Environmental Protection Agency had about 164 in 2004) and groups like the Wilderness Society, a conservation group, which has four of them to work on projects such as assessing the economic impact of building off-road driving trails. Environmental Defense, another advocacy group, has about eight economists, who do such things as develop market incentives to tackle environmental problems.

Environmentalists consider themselves careful watchdogs of government policy and protest what they see as the Bush administration's inaction on issues such as protecting wetlands and curbing global warming. President Bush faced the wrath of protesters when, in 2001, he rejected the Kyoto Protocol, a treaty on global warming.

But frustrated by their slow progress and turning increasingly pragmatic, environmental groups are finding economics a powerful tool. As state and federal governments face pressure to cut spending, officials are weighing environmental measures against other priorities such as welfare and health care, and environmentalists are realizing that their policies have to be cost-effective to be feasible.

"There used to be this idea that we shouldn't have to monetize the environment because it is invaluable," says Caroline Alkire, an economist at the Wilderness Society. "But if we are going to engage in debate on the Hill about drilling in the Arctic we need to be able to combat the financial arguments. We have to play that card or we are going to lose."

Environmental economics began to take form in the 1960s when academics started to apply the tools of economics to the green movement. The field grew more popular throughout the 1980s when the EPA adopted a system of tradable permits for phasing out leaded gasoline. It wasn't until the 1990 amendment to the Clean Air Act, however, that most environmentalists started to take economics seriously.

The 1990 amendment implemented a system of tradable pollution allowances for acid rain, a program pushed by Environmental Defense. Under the law, plants that can reduce their emissions more cost-effectively may sell their allowances to heavier polluters. The program has exceeded its goal of reducing acid rain to half its 1980 level and is seen as evidence that markets can help achieve environmental goals.

Its success has convinced its former critics, who used to see environmental regulation as a matter of ethics, not economics, and favored installing expensive acid-rain removal technology in all power plants instead.

Greenpeace, the international environmental giant, was one of the leading opponents of the 1990 amendment. But Kert Davies, research director for Greenpeace USA, said its success and the lack of any significant action on climate policy in the early 1990s brought the organization around to the concept. "We now believe that [tradable permits] are the most straightforward system of reducing emissions and creating the incentives necessary for massive reductions," he says.

Powerful Ally

Environmental activists are finding economics a powerful ally on the federal level, too. In 2001, the American Council for an Energy Efficient Economy, an advocacy group that promotes utility regulation, successfully pushed through a law mandating higher efficiency standards for residential central air conditioners by pointing out that the additional $300 consumers would have to spend for a more efficient unit would be more than offset by the money they would save on electricity over the product's lifetime.

Organizations are also applying economic reasoning toward saving wildlife. In response to arguments that undeveloped land hurts economic growth, Defenders of Wildlife founded a conservation-economics program in 1999 and recently oversaw a study of how much tourists would be willing to pay to visit a red-wolf reservation and educational center in Columbia, N.C. The finding that the center's $2 million price tag would be paid by tourism revenue in five to 10 years is helping raise money for the center.

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