Endangered Species Act Redux

Once again the Bush administration has set its sights on the Endangered Species Act (ESA). Rather than challenge this hallmark of environmental legislation outright, the Administration's preferred method of attack is executive rule change. The ESA is responsible for savings hundreds of species from extinction over its 30 year history, including the iconic bald eagle. This latest change, which doesn't require the approval of Congress, mirrors similar attempts in 2003 and 2005 to weaken ESA's effectiveness by reducing mandatory, independent scientific reviews of the impacts of new projects on endangered species and their habitats. Under current laws, experts with Fish and Wildlife Services and National Marine Services evaluate projects for their potential impacts, recommend necessary accommodations, and determine if more extensive formal analysis is warranted. Under the new rules, federal agencies will be able to decide for themselves whether their projects endanger the 1,353 animals and plants currently protected by the ESA. The consequences of shifting review from government scientists to the federal agencies that will benefit from building mines, dams, and roadways in critical habitats are clear. As environmental groups have rightly surmised, the foxes now guard the chicken coops.

Of course this is not the first time that conservative forces have succeeded in dismantling effective environmental legislation. But progressives should not dismiss this latest attempt as merely par for the course for a lame-duck administration that has long boasted of its contempt for environmental protection. The rigor with which conservatives have attacked the ESA over the years testifies to its symbolism in the ideological battle that is raging over environmental policy and over questions of equity and distribution of resources more generally. This battle began long before the current Bush administration and it remains to be seen what side the next administration - even if it is a democratic administration - will take.

Conservatives loathe the ESA for fundamental reasons: it affirms the government's right to regulate private property for the betterment of the public good, it acknowledges the inherent value of species beyond their direct use-value to humans, and it prescribes a precautionary approach to environmental management in situations of potential irreparable harms. The ESA prohibits the use of cost-benefit analysis in determining which species to protect and what restrictions should be placed on the habitats that support them, while conservatives want to subject increasingly more environmental and health and safety regulations to cost-benefit analysis as part of their strategy for undermining regulatory efforts. Finally, conservatives despise the ESA because it actually works and it is widely popular with voters.

The demise of the ESA would signify the end of an era in environmental policy, one in which government regulation plays a necessary role in correcting the inefficiencies of the marketplace. The controversy surrounding the ESA reflects a discernible shift in the discourse over environmental policy - a shift that is rooted in economic interpretations of the causes of, and solutions to, environmental problems. Environmental economics began with Alfred Pigou's early twentieth century analysis of externalities and market failure. As Pigou noted, the inability of markets to account for the costs of economic activities on parties external to the market exchange leads to market prices that are not reflective of the full social costs of production and consumption, and quantities that do not maximize welfare for society as a whole. The traditional policy solution to externalities, aptly named 'Pigouvian taxes", entails correcting market prices by setting a tax on the polluting activity equivalent to the value of its social harm.

Many have rightly noted that Pigou's analysis over-simplifies the problem. His analysis of a single externality implied that environmental damages occur one at a time, and that they are rare enough to allow the creation of individual taxes to address each one. The complexity of real world environmental problems, which often involve multiple interacting health and environmental damages, challenge this narrow vision of environmental policy aimed at "getting the prices right" and then letting markets work their magic. Nevertheless, Pigou's analysis defined economists' understanding of environmental problems and their solutions for most of the twentieth century.

By the end of the twentieth century, however, new trends in environmental policy emerged. First, more and more market-oriented policy instruments such as tradable pollution allowances emerged as alternatives to government "command-and-control" style regulation. This market-based critique of command-and-control regulation originally advocated for Pigouvian taxes and tradable allowances as equivalent mechanisms for correcting market failures; now it more frequently rejects taxes in favor of tradable emissions allowances. Not so coincidentally, one difference between tradable allowances over taxes is that it is easier to obscure who pays for the costs of environmental damage. It has become common practice for polluting industries to receive almost all of their allowances for free - our gift to the industries that have profited from harming us. Pigouvian taxes, in contrast, embody the principle that the "polluter pays" for societal harms. Market-based policies can play a useful role in reducing the costs of environmental protection, and can in principle be reconciled with equity concerns, but in recent years the adoption of market-based policies has disguised a further redistribution of resources in favor of corporate polluters.

As a sign of the times, however, an even more conservative analysis of environmental problems now permeates the debate over environmental policy. Often referred to as "New Environmentalism" or "Free Market Environmentalism" after Terry Anderson and Donald Leal's seminal book of the same name, this movement argues that Pigouvian taxes and regulation might be unnecessary, as polluters and their victims can engage in private negotiation to determine the appropriate compensation. This movement provides the theoretical justification for moving environmental and resource management out of the public realm and into the hands of private entities and their profit dictates. This movement typically rejects environmental regulation as poorly designed, inflexible, costly, and subject to capture by special interests. According to this view, markets "fail" when property rights are ill-defined, and the solution lies in clarifying property rights and letting the profit incentive protect people and nature.

The policy prescriptions which flow from free market environmentalism mark a serious departure from how environmental policy has evolved over the last 35 years. First, it prescribes a minimal role for government. Government is unnecessary beyond the initial assignment of property rights, and the issue of who is assigned the property right is shrugged-off as irrelevant. Second, it advocates privatizing the natural commons: the air we breathe, the water we drink, our planet's biodiversity, our natural parks and scenic areas. Once privately owned, access to these resources and amenities would be made available only to those willing and able to afford them; limiting access would allow owners to profit from their resources and would provide them with the incentives to manage their resources "sustainably".

It is the "free market environmentalism" mindset that has posed the most serious challenges to ESA.

It is only appropriate, then, to use wildlife protection as an instructive example for evaluating free market environmentalism. Under current laws, landowners control access to their land, but the state regulates the taking of wildlife on the land. If that land is habitat for a threatened or endangered species, the private landowner's ability to develop that land is severely limited. This decrease in the landowners property value amount to a "takings" by the government for which the landowner is not presently compensated. Without compensation, the presence of wildlife on private land, particularly if it is endangered wildlife, is seen as a liability, not an asset. Economists of all stripes have long recognized this weakness of the ESA - it is too much stick, not enough carrot. Upon discovering endangered wildlife on their property, landowners allegedly adopt a "shoot, shovel, and shut-up" strategy since the penalties for damaging that species' habitat once it is discovered are so severe. While evidence for this strategy appears to be mostly anecdotal, its revelatory of the antagonism between private property owners and government wildlife agencies.

Free market environmentalism contends that private provision of wildlife is a more effective approach to wildlife management. Private owners retain control over their land and the plants and animals that live on it. If owners can restrict access to their land to only those recreationists who are willing to pay to hunt, fish, or wildlife watch, owners will profit from their wildlife and will have an incentive to protect, improve, and expand their habitat.

The re-introduction of wolves to Yellowstone National Park is hailed as one of the great conservation stories of the last 35 years. Free market environmentalists view it as validation of their approach to wildlife management. Wolves were exterminated in the lower 48 states back in the early part of last century. (It's worth noting that this extermination was carried out at public expense for the private benefit of ranchers. The public never demanded compensation from the private landowners who benefited from the public expenditure) Until very recently, wolves were protected in the lower 48 states by the ESA. In the mid 1990s, the U.S. Fish and Wildlife service decided to re-introduce wolves to Yellowstone, citing the slow pace of natural recovery efforts and the ecological value of restoring an apex predator to the Yellowstone ecosystem. Not surprisingly, the re-introduction was strongly opposed by ranchers in the area, fearing for their loss of livestock should the wolves stray from park boundaries. The opposition posed a serious obstacle to re-introduction efforts, until the Defenders of Wildlife (DOW), a non-profit environmental organization, established a private fund to compensate ranchers for any documented loss of their livestock to wolves. Ranchers reluctantly agreed to this program, and the howl of wolves can once again be heard throughout Yellowstone valley.

Free market environmentalists have applauded this strategy as one that successfully merged the interests of both ranchers and environmentalists. Indeed, it is hard to criticize the success of the re-introduction efforts and the positive role monetary incentives may have played in removing political opposition to the program. Free market environmentalists would like us to believe that the program can be replicated in other areas where large predator re-introductions have been proposed (e.g. grizzly bears in Washington State). But it remains unlikely that this program can be replicated on a scale large enough to satisfy our needs and demands for wildlife protection.

The DOW financed this program through private donation. The publicity surrounding this program and public support for wolves was so great that DOW was able to raise the necessary funds. But as more of these programs are proposed, and if they grow to involve species of plants and animals that most Americans aren't particularly aware of or fond of, it is likely that donations to these programs will wane. A solution of this sort might work to protect signature species like bears, wolves, and eagles, or the species that recreationists like to hunt or fish. It will not provide adequate protection for the hundreds of federally listed threatened or endangered plant and animal species for which the public knows little about and has little direct use for. These species - which are of important ecological value - are currently protected, however imperfectly, by the ESA.

In truth, it is inaccurate to view the wolf re-introduction program as a form of free market environmentalism. The research, execution, and monitoring costs for this program were all paid for by U.S. Fish and Wildlife Service, using funds from the ESA. Wolves could never have been successfully re-introduced, had Yellowstone National Park not existed to provide adequate safe habitat. Though monetary incentives financed through private donations may have helped guaranteed the success of this program, government was critical in every other stage of the process. At best, this is an example of the value of private-public partnerships. It is not an example of free market environmentalism. Indeed, very few examples exist of pure free market solutions to environmental problems.

The Endangered Species Act is unfortunately just one example of increasing pressure to change our nation's most significant environmental laws in ways that benefit developers and property owners at the expense of the public at large. Increasingly, the mainstream environmental economics perspective has been labeled as environmental extremism. Its policy recommendations are dismissed as market distorting, rather than what they are - market correcting. This is particularly bad news for those of us who tend to view mainstream environmental economics as too narrow and modest in its approach to sustainability. But rather than spend our energies pushing the envelope on economic thinking on the environment in new and progressive ways, we've been forced to retreat to defend what's long been established.