Environmental Economics

Extracted from
Green Groups See Potent Tool In Economics
by Jessica E. Vascellaro for The Wall Street Journal
August 23, 2005
Many economists dream of getting high-paying jobs on Wall Street ... but a growing number are choosing to use their skills not to track inflation or interest rates but to rescue rivers and trees.

These are the "green economists," more formally known as environmental economists, who use economic arguments and systems to persuade companies to clean up pollution and to help conserve natural areas.

"Advocacy groups are realizing that [economics] offers a framework for resource allocation where resources are not only labor and capital but natural resources as well."

Environmental economists are on the payroll of government agencies (the Environmental Protection Agency had about 164 on staff in 2004, up 36% from 1995) and groups like the Wilderness Society, a Washington-based conservation group, which has four of them to work on projects such as assessing the economic impact of building off-road driving trails. Environmental Defense, also based in Washington, was one of the first environmental-advocacy groups to hire economists and now has about eight, who do such things as develop market incentives to address environmental problems like climate change and water shortages.

Environmentalists consider themselves careful watchdogs of government policy and continue to protest what they see as the Bush administration's inaction on issues such as protecting wetlands and curbing global warming.

But frustrated by their slow progress and turning increasingly pragmatic, environmental groups are finding economics a powerful tool [and] realizing that their policies have to be cost-effective to be feasible.

In 2001, the American Council for an Energy Efficient Economy ... pushed through a law mandating higher efficiency standards for residential central air conditioners by pointing out that the additional $300 consumers would have to spend for a more efficient unit would be more than offset by the money they would save on electricity over the product's lifetime.

Organizations are also applying economic reasoning toward saving wildlife. In response to arguments that undeveloped land hurts economic growth, Defenders of Wildlife founded a conservation-economics program in 1999 and recently oversaw a study of how much tourists would be willing to pay to visit a red-wolf reservation and educational center in Columbia, N.C. The finding that the center's $2 million price tag would be paid by tourism revenue in five to 10 years is helping raise money for the center and being used by advocacy groups attempting to reintroduce the population in the area.

Environmentalists have also come to recognize that if they can couch their arguments in economic terms, not only governments but also corporations are more likely to listen. Since 2001, the San Francisco-based Rainforest Action Network has persuaded J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp. to account for the cost of pollution in their loan-underwriting processes and, in some cases, to avoid investing in industrial logging companies [by] highlighting the double-digit growth rates in renewable-energy industries and the exorbitant costs of pollution-related litigation.

"Companies are looking for certainty and stability," says Michael Brune, executive director of the Rainforest Action Network. "They can do that by investing in sustainable energy, where they don't run the risk of lawsuits or federal regulation or the reputation of being associated with environmentally controversial projects."

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