(Excerpted from This Place on Earth 2001.)

Because they tap the expertise of millions of people, markets are brilliant at distributing commodities. Harnessing this potential–instead of fighting against it–could serve as powerful remedies for environmental and social ills.

A model of righting market failings with new markets is the US Environmental Protection Agency’s sulfur dioxide program. Every year since 1995, the agency has issued pollution permits in declining numbers to regulated facilities.

Each permit gives its owner the right to emit one ton of sulfur, and companies can trade permits like so many pork bellies. The program, which has helped halve emissions from these facilities, has stimulated a cheap cleanup.

Northwesterners are forging similar markets to respond to challenges as diverse as reducing climate change and restoring dewatered rivers, overgrazed valleys, and depleted fisheries.

Water trusts in Oregon and Washington, for example, have begun prying open a market for water rights, braving the most convoluted, anticonservation thickets in all of Northwest resource law. Farmers do not own river water, only the right to use it, and they cannot sell water they save through improved efficiency. Worse, if they fail to use their full quota, they risk losing it.

Predictably, many Northwest rivers run dry: in 80 percent of Oregon’s watersheds, landowners’ rights exceed what rivers can provide in late summer without sacrificing the minimum flows needed by fish and wildlife. The water trusts have found ways to pay landowners to leave water in streams.

But only opening true water markets-by safeguarding minimum in-stream flows and allowing water users to trade rights above this threshold-would break the vicious circle of wasted water and dying rivers.

Similarly, transferable grazing permits would turbocharge the emerging market for rangeland conservation. Holders of grazing permits for federal lands in the Northwest states also operate under a use-it-or-lose-it policy. For decades, conservationists have asked the federal government for grazing reforms on federal land, to no avail.

Siding with ranchers, who view their long-held grazing permits as something close to property rights, conservationists could push instead to institute the principle that permits, though not true property rights, should nonetheless be tradable-and retirable-through transactions between willing buyers and willing sellers, at fair market value. Because the estimated value of all such permits in the region is small, public and private funds could readily free federal lands of livestock-if such an extreme change is ecologically warranted-without the controversy of mandatory range reform.

Urban policymakers are also using new markets to concentrate development in urban centers, allowing rural landowners to sell their development rights to urban developers who want to exceed zoning caps.

Meanwhile, the partial deregulation of electricity markets, whatever its downside, has at least created new niches for renewable power: more than a dozen cities, companies, and utilities are now buying certified green power from the Bonneville Environmental Foundation in Portland, and many others are selling sustainable energy too. These instances remain exceptions to the rule, but they demonstrate the impact of the entering throw.

They show how the Northwest can tame capitalism’s environmental excesses with a well-executed embrace of its principles.

April 9, 2001