Market is environment friendly

My article titled "Market is environment friendly" was published in the newsletter of the Liberty Institute in May 1999.

The market is not necessarily the enemy of the environment, as is generally made out to be. A competitive market is actually the best friend of the environment. That was the conclusion of the study the Liberty Institute carried out to find out about the lack of enthusiasm for a government scheme introduced in 1991to promote environment friendly products.

The Ecomark scheme was initiated in 14 product categories. Standards were set for these products in terms of efficiency, biodegradability, recycle levels, etc. The idea was that if the products met these standards, then they could receive the Ecomark label, and thus, helping consumers to make better decisions.

The underlying assumption for such a scheme was that though the consumer wanted products that had less impact on the environment, there was no mechanism to communicate that information to him, which he could use to make his purchases. Yet, the market can and does provide a wide range of product information through advertising, price and labeling, brand names, etc., to communicate to the buyer various aspects of the products.

More significantly, the study found that there were serious problem involved with standardization and labeling regulations. For instance, in case of electrical lighting, the Ecomark provided standards for the filament lamp, and the tube light, but did not do so for the most efficient lighting devices available today - the compact fluroscent lamps. These clearly suggests that rather than encourage the development of more efficient products, the standards actually set a ceiling on product performance. Apart from technology lock-in, such an approach actually provided a disincentive to growth of new knowledge.

Determining the relevance of some standards under Indian conditions is also problematic. For instance, phosphate free detergents are to be encouraged, but phosphate run-offs from soap is estimated to be only 1% of the total phosphate released into the environment, which mainly comes from agro-chemicals. So a technologically valid standard is defeated by the ground realities.
Also, the incentive structure is weak, leading to lax monitoring and prosecution in case of spurious use of the mark, as can been in case of ISI mark.

The report concludes that improvements in environmental quality can be seen as a value-added product that becomes economically affordable and technologically feasible with economic growth. And when the consumer is able to afford such benefits free markets have many ways of communicating that information. Free trade and open markets, therefore provides a win-win situation for the consumer, the producer and the environment. The report also found that quite a bit of the demand for such schemes come from the developed world, which was seeking to use the environment to introduce a new form of protectionism.