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The Economist vs the Green Mantra

By Darryl D'Monte

Market forces could prove the environment's best friend -- if only greens could learn to love them, says The Economist in a recent cover story. Rubbish, says Darryl D'Monte. Economics and ecology have always been uneasy bedfellows

I occasionally read The Economist for the same reasons and with the same scepticism that I read columns by Swaminathan Anklesaria Aiyar and Gurcharan Das -- they are iconoclastic and eminently readable but, in the final analysis, too far right for my comfort. You might call them 'radical conservatives'. This sums up the British magazine's April 23 cover story entitled 'Rescuing Environmentalism'. Not surprisingly, it makes a strong plea for market forces -- Adam Smith's 'invisible hand' of profit, a panacea for all economic problems -- when it comes to valuing natural resources.

It cites an essay called 'The Death of Environmentalism' by two unnamed greens "with impeccable credentials," who allege that environmentalists are "politically adrift and dreadfully out of touch". It is hardly news that a magazine which represents the views of The City (the financial hub of London, which gives the metropolis its power as the world's leading financial centre) derides greens for espousing what is known as the 'precautionary principle'.

Under this tenet, greens oppose the introduction of a new technology whose harmful effects are not yet known. Two typical examples are genetically modified organisms (GMOs) and nuclear power. In sharp contrast to the US, Australia, Argentina and Japan, Europe has decided for the time being not to allow genetically modified seeds to enter its consumer foodchain simply because not enough is known about them.

Proponents of both genetically modified organisms and nuclear power make exaggerated claims regarding their productivity. In the case of GM crops, for instance , global biotechnology giant Monsanto, which has its subsidiary in Maharashtra known as Mahyco, claims that its Bt cotton seeds will not only earn farmers better yields but also cut down on the use of pesticides (cotton is the biggest user in the country). This has bound farmers who have switched to GM varieties into buying the more expensive seeds on the market. What Monsanto doesn't reveal is that its Bt seeds are only resistant to Monsanto's own brand of pesticide, which makes farmers perennially dependent on this chemical.

This is both bad economics as well as bad science. Also, not least, bad morality. All votaries of free market principles must be aware that monopolies of any kind distort the market. The introduction of this and other new seed hybrids has witnessed suicides by farmers in India's peninsular states, which partly caused two chief ministers, Chandrababu Naidu in Andhra Pradesh and S M Krishna in Karnataka, to lose state elections exactly a year ago.

Without sounding vituperative against a magazine that stands out as an exemplar of lucid writing, displaying an ability to tackle ponderous subjects in an easily accessible manner, one wonders what stand The Economist took on another thorny issue -- cigarette smoking -- say 20 years ago. The archives might prove this columnist wrong but he would wager that it argued that the anti-smoking lobby was a lunatic fringe, denying that smoking was a health hazard. It would have called this "bad economics" due to the enormous taxes that cigarettes yield to the treasury. And, as a parting shot, it might have made out the ultimate case for its rigid dogma -- laissez faire -- which would be to allow each person to decide whether or not to kill himself as a matter of free choice. This is what the industry argues!

As for nuclear technology, its votaries once claimed that it would be "too cheap to metre" -- meaning that it would be so abundantly cheap that it would provide a limitless source of power. What a tempting illusion, especially to a power-starved country like ours! However, throughout the industrial world nuclear power is on the retreat. This is surprisingly because of economic costs, as pointed out by the greens. The radioactive waste produced by nuclear power stations remains dangerous for thousands of years. Although the industry claims it has a foolproof method of storing such toxic material (it was once suggested at the bottom of the ocean!) the cost of doing so is prohibitive. Add to this the cost of running a plant without accidents ( India 's nuclear establishment has not exactly distinguished itself in this regard) and this power suddenly becomes very expensive. Even in the US there is a ban on any new atomic power plants -- not a single one has been built in the past several years. In Germany , experts are grappling with the tricky problem of how to decommission such stations.

Not that any of this well-documented critique has an effect on the mikados who run The Economist , which editorialises: "A more sensible green analysis of nuclear power would weigh its (very high) economic costs and (fairly low) safety risks against the important benefit of generating electricity with no greenhouse gas emissions [original parentheses]." This is a complete parody of global warming: proponents of nuclear power are citing its green potential as a USP! Needless to say, the erudite magazine shirks from applying yet another impeccable free market diktat here: the 'polluter pays' principle. If all countries, starting with those that changed the world's climate, paid around $ 50 a tonne of carbon emitted, as the Worldwatch Institute in Washington advocates, it would not only restrict greenhouse gas emissions but yield sufficient funds to drag the world's poorest nations out of poverty (something The Economist isn't particularly concerned about).

The cover story has a tag: "Market forces could prove the environment's best friend -- if only greens could learn to love them." Unfortunately, economics and ecology have always been uneasy bedfellows. Both economics and ecology owe their origin to the Greek word oikos , meaning 'house'. Economics refers, metaphorically, to 'housekeeping' and making correct choices, while ecology loosely refers to 'husbanding natural resources in a household'. The two concepts are intimately related but have, ever since the Industrial Revolution, become diametrically opposed.

At a meeting of international environmental journalists in Tuscany last November, Professor Giuliana Martirani from Naples University cited how, instead of a dialogue between society and nature, there was now a dictatorship where industrial societies were trying to dominate nature and change the world we live in. As a Greek thinker put it, there ought to be a "dance of life", epitomising both competition and co-operation with nature. Some wondered whether with the impending global warming crisis the more appropriate expression wouldn't be a "last tango".

According to Lester Brown, founder of Worldwatch, the World Bank had plotted a grim future for Bangladesh : if ocean levels rose by a metre, with polar ice caps melting, half its rice lands and 40 million people would be displaced. He wondered who would accept these ecological refugees and what would be the cost, which would be much higher than acceptable. This has been brought home with a vengeance in the aftermath of the tsunami: low-lying coastal areas are most vulnerable to rises in ocean levels -- whether sudden or gradual.

The organisers of the meet, the second held by Forum Greenaccord, sought to bridge the divide by brokering a marriage between the two concepts: 'eco-economy'. The speakers however were distinguished by their ideologies, with the Americans not thinking out of the box and the Europeans more radical in their approach. Typical of the former was Jonathan Lash, president of the World Resources Institute (WRI) in Washington , who endorsed market solutions to global environmental problems. There are thus mechanisms to tackle sulphur dioxide emissions and acid rain in the US . Instead of requiring all plants to reduce their pollution, one that is extra-efficient can sell its 'quota' of reduced gas to a plant that has exceeded its permissible limit. This is a typical example of using the market to tackle pollution, where inefficient companies are able to buy their way out.

In the US , the Green Power Market Development Group was promoting the purchase of green (environmentally benign) electricity through competitive pricing as against compulsion. It is expected that by 2010 there will be a corporate market for 1,000 megawatts (MW) of new cost-competitive power, including that produced by manufacturers of other goods, like multinationals Cargill, Dow and Delphi Corporation. Alternative energy sources include wind, solar, methane from landfill sites and biomass. This is power produced from unconventional sources, which are renewable, as distinct from fossil fuels that are fast being depleted. Companies like Dow, which is one the world's biggest manufacturers of chemicals (it has bought Union Carbide and inherited the Bhopal scandal), is producing such power simply because there are financial incentives to do so, and it finds a ready market for this electricity.

Asked how this power would compete in price with conventional fuels, Lash pointed out that in the future there would be such large buyers (for global environmental reasons) that sheer scale would reduce costs. Furthermore, producers of renewable energy didn't face such imponderables as the ever-escalating price of oil and therefore were freer to make larger investments for the future. There would be 'fixed price contracts' so that both seller and buyer would know the future price of energy. Instead of compelling companies or utilities to buy a certain proportion of alternative energy to give clean sources a fillip, as is done in some countries, the US prefers to let the market arbitrate.

The Economist repeats this refrain, stressing that the most promising aspect of the Kyoto Protocol on greenhouse gas emissions is its innovative use of market-based instruments such as carbon-emissions trading. "If environmental groups continue to reject pragmatic solutions and instead drift towards Utopian (or dystopian) visions of the future, they will lose the battle of ideas," it pontificates. And adds patronisingly: "And that would be a pity, for the world would benefit from having a thoughtful green movement...changes that add up to a different kind of green revolution. This could yet save the greens (as well as doing the planet a world of good)."

The problem, as repeatedly mentioned by critics like the late Anil Agarwal of the Centre for Science and Environment in New Delhi, and its current director Sunita Narain, is that carbon trading (a favourite of the World Bank) has ethical and environmental difficulties however 'efficient' it may sound in making polluters pay. Actually, they are buying their way out of the problem. They are paying a relatively small sum at current costs -- said to approximate just $ 3 a tonne of carbon -- to finance green projects in a developing country, to absorb its excess emissions. When developing countries, in particular China and India , join the Kyoto Protocol and have to curb their emissions too, the cost per tonne of doing so will have considerably risen. Who has caused the problem in the first place, and who is paying for it?

The Economist remains allergic to what it encapsulates as the "green mantra" of "mandate, regulate, litigate". Its editorial then sets out several caveats. One is that prices must be set correctly. Does this apply to carbon trading, when seen in the light of future costs payable by developing countries? The second, in good free market parlance, is proper information. Here it surely suffers from foot-in-mouth disease. Take the case of tobacco. Lester Brown believes that the market is "not telling the ecological truth" in this respect. It costs $ 1-2 to grow the tobacco and produce a pack of cigarettes in the US , but the smoker and others bear the cost to society, which totals $ 7.18 per pack. Who's going to provide all the information? Certainly not the tobacco industry; certainly not weak-kneed governments in the South that are dependent on tobacco taxes.

The third requirement would be a cost-benefit analysis, where economists are treading on even more dangerous territory. For instance, the 'worth' of preserving a forest, particularly one that has its biodiversity intact, may actually be greater than cutting it down for a dam reservoir. To its credit, the magazine concedes: "Valuation is only ever part of the answer, because not everything is for sale." It quotes the head of ForestRe, a London-based forestry insurance company that is using financial markets to arrange for companies dependent on the Panama Canal for the transportation of their goods (Wal-Mart and Asian car manufacturers, for example) to pay for reforestation which would ensure that sufficient water flows throughout the year. This head believes that Panamanians would earn much more by shutting down the canal and bottling the water, but that wouldn't amuse the US which has invaded Panama in the past...

At last year's Tuscany meeting, Professor Martirani cited how it would cost $ 40 billion a year to address the minimal needs of the world's poor, while the 0.05% tax on all the world's speculative transactions on goods and services advocated by the US Nobel laureate economist, Professor James Tobin, would yield some $ 180 billion per year. Indeed, a French economist asked pointedly whether endless growth was compatible with equitable development and advocated its opposite -- decrement, or decreasing -- instead. Maybe it will take another 20 years for The Economist to come to terms with that.

InfoChange News & Features, June 2005