By Skip Pruss
This article is excerpted from the final of four policy briefs by former FLOW board chair, and former director of the Michigan Department of Energy, Labor, and Economic Growth, Skip Pruss, that make the economic case for government’s role in protecting the environment. The fourth policy brief, “Resetting Expectations: Accounting for Environmental, Health, and Climate Impacts in the Energy Sector” is available here to read or download.
Pruss’ first policy brief in the series, “Resetting Expectations: Government’s Role in Protecting Human Health and the Environment,” is available here in executive summary and in full.
The second policy brief, “Resetting Expectations: The Value of Natural Systems and Government’s Role in Protecting Water,” is available here to read or download as an executive summary or full report.
The third brief, “Resetting Expectations: The Multifaceted Benefits of Regulation for the Economy and Environment,” is available here in executive summary and in full.
FLOW will convene an environmental economics public listening session on Dec. 5 in Grand Rapids. We convened our first listening session on Nov. 13 in Traverse City (click this link to watch a live video feed of the event; blog coverage also available here).
Natural systems provide trillions of dollars of economic value annually but are largely unacknowledged as essential to our economic well-being. Government plays a critical role in protecting natural systems that provide wide-ranging economic benefits to industry, commerce, agriculture, recreation, and tourism, for present and future generations.
At the same time, perverse incentives remain in law and policy that are profoundly disruptive to the environment, the economy, social welfare, and a stable climate. Government subsidies for the development and use of fossil fuels undermine and negate the very protections and safeguards sound environmental regulations aim to preserve. These subsidies, some of which date back a full century, are harmful anachronisms that are contrary to the public interest and sound economic policy.
Environmental standards can also be a strong force for innovation within business and industry by reducing waste and production inefficiencies, inducing technological improvements, lowering costs, and mitigating environmental vulnerabilities. Environmental regulations can level the playing field within business sectors by setting industry-wide standards for protection and safeguards and by fostering competition for improvements among competitors.
This fourth brief—”Resetting Expectations: Toward a Full Accounting of Environmental, Health and Climate Impacts in the Energy Sector”—is the last in a series of policy briefs that examines the economic costs associated with government policies that do the opposite—imposing unnecessary and unaccounted for burdens on the environment, public health and the economy. Obsolete and inefficient government policies and programs impose additional costs on society and taxpayers by directly supporting activities that result in environmental degradation and diminishment of the ecological services provided by healthy and robust natural systems.
Fossil fuel subsidies persist in policy despite being demonstrably inefficient and more costly than clean energy alternatives because they serve powerful, deeply embedded, and influential special interests in global energy markets. The adverse environmental and climate consequences and associated economic costs from the production and use of fossil fuels are “negative externalities” unaccounted for in the price of goods and services. In economic theory, negative externalities are indicators of “market failure.”
An optimal regulatory framework would, consistent with established tenets of economics, assess the full range of costs and impacts of competing energy technologies. A rational regulatory framework would quantify and monetize the environmental, public health and economic costs and impacts from the production and combustion of oil, natural gas, and coal, and compare them against clean energy alternatives.
Full accounting of the direct and indirect economic effects of energy subsidies would enable government to make more rational, evidence-based decisions regarding the impacts of energy policy on the environment, the economy, public health, and the climate. It would also align with the fundamental purposes of the Public Trust Doctrine in advancing the most environmentally beneficial, healthful, and economically efficient policies to safeguard present and future generations.
Environmental protections and safeguards, implemented through government regulations, provide overwhelming economic and health-related benefits for society at large. Maintaining the functionality, vitality, and resilience of natural systems provides cascading economic benefits to industry, commerce, agriculture, recreation, and tourism, helping to assure these benefits for future generations. The environmental protections afforded by government regulations are substantial but are marginalized and, at times, negated by competing policies that cause environmental and economic harm.
Incentives are deeply embedded in economic policies in the form of subsidies provided to business and industry that degrade and diminish natural systems, resulting in substantial and permanent economic loss. Long established, yet function- ally obsolete, energy subsidies produce wide-ranging insidious and harmful effects on the environment, public welfare, and the economy. Despite this, demonstrably inefficient and detrimental subsidies for fossil fuels are pervasive both domestically and globally, and supported by long-standing powerful economic interests that are firmly integrated into our politics and our economy.