Free Market Environmentalism for the Next Generation This page intentionally left blank  Environmentalism for the Next Generation

Terry L. Anderson and Donald R. Leal  FREE MARKET ENVIRONMENTALISM FOR THE NEXT GENERATION Copyright © Terry L. Anderson and Donald R. Leal, 2015. All rights reserved. First published in 2015 by PALGRAVE MACMILLAN® in the —a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-137-44814-9 ISBN 978-1-137-44339-7 (eBook) DOI 10.1057/9781137443397 Library of Congress Cataloging-in-Publication Data is available from the Library of Congress. A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: February 2015 10 9 8 7 6 5 4 3 2 1

 To Monica, the heart and soul of PERC, and to Annie and Dianna, with special thanks This page intentionally left blank  Contents

List of Figures and Table ix Foreword xi

Chapter 1 Visions of Environmentalism 1 with Katy Hansen Chapter 2 Rethinking the Way We Think 15 with Shawn Regan Chapter 3 Who Owns the Environment? 29 with Shawn Regan Chapter 4 This Land Is Whose Land? 47 with Holly Lippke Fretwell Chapter 5 Prospecting for Energy and the Environment 67 with Brandon Scarborough Chapter 6 Tapping Water Markets 85 with Brandon Scarborough and Lawrence Reed Watson Chapter 7 Fencing the Fishery 105 Chapter 8 Calling on Communities 123 with Laura Huggins Chapter 9 Enviropreneurship in Action 139 with Lawrence Reed Watson Chapter 10 Frontiers of Free Market Environmentalism 151

Notes 165 References 171 Notes on Contributors 191 Index 193 This page intentionally left blank  Figures and Table

Figures 2.1 Yosemite Valley changes 16 2.2 Yosemite Valley from Union Point 17 4.1 Federal land ownership in the western states, 2010 49 5.1 Trends in US oil production and reserves 69 5.2 Trends in world oil production and reserves 70 5.3 Emissions per Btu 70 5.4 Federal energy subsidies ($, 2010) 71 5.5 Subsidies and energy production 72

Table 4.1 Federal vs. state land management (1998–2001 average) 62 This page intentionally left blank  Foreword

t was almost 30 years ago when Don and I decided to write the first edition of Free Market Environmentalism. Then most of our ideas were more steeped in  I economic theories of property rights than in real-world examples. Economists such as Ronald Coase, James Buchanan, Douglass North, and Elinor Ostrom were causing us to reconsider how we thought about environmental problems. Instead of focusing on market failure and the potential for political solutions, we began focus- ing on property rights, prices, and markets. Because there were few actual examples of free market environmentalism, however, we mostly provided a theoretical frame- work with plenty of “what-if” stories. Of course, we thought our arguments were flawless and convincing, until a reviewer of the 1991 edition wrote, “Free market environmentalism is an oxymoron, and the authors of the book are the moron part.” In retrospect, we should not have been surprised by the critique. Property rights was still in its infancy, our application of property rights to environmental issues was only a bit beyond the gestation stage, and our examples featured more government failure than market success. When the second edition was published ten years later in 2001, some review- ers were still critical, but there was no way they could call the idea of free market environmentalism oxymoronic. Over that decade, practical environmentalists were beginning to see the power of markets as solutions to, not causes of, environmental problems. Using the principles of free market environmentalism, the late Thomas Graff, a lawyer for the Environmental Defense Fund and truly an environmen- tal entrepreneur, helped defeat a fiscal and environmental boondoggle to build the peripheral canal to divert water around California’s Central Valley to southern California. Writing in the Los Angeles Times (1982), he asked (and hoped), “Has all future water project development been choked off by the new conservationist- conservative alliance . . . ?” The potential for building such alliances is what can make free market environmentalism a powerful force. Change in environmental thinking did not come about because environmental- ists had somehow discovered Adam Smith or because Don’s and my ideas were nec- essarily so powerful, but rather because environmentalists were “finding the ways that work,” to use the Environmental Defense Fund’s motto. Hank Fischer had xii M Foreword set up a compensation fund to pay ranchers for wolf predation; water trusts were leasing or purchasing water to enhance instream flows; and the Audubon Society was searching for and producing oil using environmentally sensitive techniques on its privately owned bird sanctuaries. As a result, the 2001 edition of Free Market Environmentalism contained more examples and case studies and less theory. In some ways, Free Market Environmentalism for the Next Generation returns to a new theoretical foundation. That foundation is still built on property rights, but we have moved away from the static notions of economics and ecology. Our new think- ing incorporates “dynamic economics” based on entrepreneurship and economic processes with “dynamic ecology” based on, what ecologist Daniel Botkin calls, dis- cordant harmonies (see Daniel Botkin’s Discordant Harmonies 1992 and the revised edition, The Moon in a Nautilus Shell: Discordant Harmonies Reconsidered 2013). As Botkin argues, “nature undisturbed is not constant in form, structure, or propor- tion, but changes at every scale of time and space.” In other words, the environment is not a “Kodachrome still-life” but rather is a “moving picture show.” Similarly, human action is never in a constant equilibrium, but is continually changing. The new insights in this edition, which should be obvious to environmental students of Charles Darwin or Daniel Botkin or economics students of or Matt Ridley, is that free market environmentalism is a process in which environmental entrepreneurs discover new demands on nature and new constraints from nature. Dynamic ecology and dynamic economics are linked through prop- erty rights and exchange that produce price signals reflecting the value of nature. Like evolving species, environmental entrepreneurs fill market niches by putting resources to higher-valued uses. Weak property rights and faulty price signals can lead to market failure, but such failure is an opportunity for the entrepreneur who can improve property rights. Those who succeed do good for the environment while doing well for themselves. Unlike the 1991 and 2001 editions of Free Market Environmentalism, this book carries a subtitle, “for the Next Generation.” That phrase is a double entendre. First, viewing ecology and economics through a dynamic lens offers a refreshing new approach for the next generation of free market environmentalists. The early gen- erations of free market environmentalists tackled problems, which when solved, seemed to have simple and obvious solutions, mainly because we have the benefit of 20/20 hindsight. Even with that hindsight, however, the next generation of envi- ronmental entrepreneurs has bigger challenges applying property rights and markets to migratory wildlife, open ocean fisheries, and the global atmosphere. The many new examples in this book are an indication of how vibrant free market environ- mentalism is and of what the next generation of environmental entrepreneurs can accomplish. Second, recognizing that this is our last edition of Free Market Environmentalism, Don and I invited the next generation of thinkers to join us on most of the chapters. They are the intellectual entrepreneurs who will continue to generate ideas that will improve environmental quality through property rights and markets. We believe that their ideas will be beacons for the next generation of environmental leaders. We raise our hats to our coauthors, whose biographies are provided at the end of the book. Foreword M xiii

Finally, Don and I wish to thank many people whose names do not appear in the book. Without the institutional support of the Property and Environment Research Center (PERC), we would never have been able to carry off this proj- ect, and that institutional support would not have been possible without the indi- viduals and foundations willing to invest in ideas. At the top of that list is Bill Dunn, truly an investor in ideas and a friend of liberty. With him are John and Jean DeNault, who have funded my fellowship at the Hoover Institution and allowed me to think and write about free market environmentalism. We also thank the Calvin K. Kazanjian Economics Foundation, Randolph Foundation, Earhart Foundation, Helen I. Graham Charitable Foundation, and Carthage Foundation for their gener- ous financial support. Of the numerous individuals who have commented on and edited early drafts, there are three who deserve as much credit as any of the authors. Shawn Regan is a coauthor of chapters 2 and 3, but his input goes much deeper. As much as anyone, he opened our eyes to the importance of dynamic ecology and dynamic economics. A special thanks to Annie Ireland! She has spent untold hours blending the writing styles across the chapters, completing references, and generally making this a complete book as opposed to a collection of chapters. Her expertise was always accompanied by a smile and giggle, which made completing the book much more fun. Finally, as with all of my writing, Monica Lane Guenther gets credit for finding the typos, fixing the grammatical errors, and critiquing the content. More impor- tantly, as my wife, she is my fan club and my inspiration. May the next generation have an even greater influence on improving environ- mental quality using the principles of free market environmentalism and have as much fun doing so as Don and I have. Terry L. Anderson 2014