Using economics to protect the environment

Abstract

For some years policy makers, including conservative politicians, have argued that we need to use rigorous economic analysis to evaluate the yes importance of environmental problems, and that the best policies are those that rely on "economic instruments". It turns out that by taking account of "external effects" and "public goods" conventional economic analysis can indeed often be used to support much higher levels of environmental protection. This paper considers a number of economic studies of environmental values that have a direct bearing on public policy decisions - the value of old-growth forests, the Kakadu contingent valuation study, the economic value of koalas, ecological tax reform, and the Genuine Progress Indicator, an alternative to GDP as a measure of national progress. The lessons are not encouraging. When economic analysis is used to support greater environmental protection, conservative politicians find reasons to ignore the economic evidence and cleave to their "pro-development" preconceptions. Nevertheless, economic analysis can be a powerful means of strengthening support for those who are already predisposed to protecting the environment. It helps if people can be persuaded that what they want to do is not only "the right thing to do" but makes sense economically as well. Perhaps the greatest value of economic analysis that supports more environmental protection is simply to neutralise the economic arguments used by industry and governments in favour of unrestricted development.