Defenders' Experts
Washington Marketplace: What is Market-based Public Policy?
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The history of natural resource management in the United States, and public conservation efforts in specific, includes a wide range of public policy approaches. By briefly considering this history, and how we arrived at our current state of affairs, the origins of market-based policies and why they have become an attractive alternative becomes clearer. Initial public policy efforts behind natural resource conservation and management date back over a hundred years. The originally favored method for the preservation of them involved public ownership. Through either a declaration of intent regarding land already owned by the government, or the purchase of it, the public sector came to own and manage a vast amount of land and resources. As these natural resources became increasingly rare, more expensive to buy and manage, and were pressured by the competing demands of growing populations, the government embraced a more regulatory approach to managing natural resources. Many citizens found this new approach intrusive, and as this body of regulation grew, so did their resistance to it. Less controversial approaches then emerged, partially as a reaction to the public's unhappiness, which promoted the voluntary participation of private natural resource owners in achieving conservation goals. Under this advancement of policy, public resources, like technical assistance, were offered to willing private participants to reach desired public ends. Incentives-based policies common in the agricultural industry, like the Conservation Reserve Program, are representative of this approach. Incentive programs pay for certain actions to be taken on private lands that, in turn, produce public benefits. The market-based policy approach represents the latest step in conservation policy's evolution. Generally speaking, market-based policies flip the logic of incentives around by rewarding the outcomes of certain actions taken on private lands (not the actions themselves).
Governments now use all of these policy approaches, with varying degrees of success, to achieve national, state, and local conservation goals. The relationships between these distinct approaches can be complementary, neutral, or conflicting. An investigation into how they all interact exceeds the scope of this paper, but what is important to remember is that any new market-based policy must operate harmoniously within the older public policy matrix. Developing market-based policy outside this matrix could lead to complications that negatively affect their ability to execute the public will. After all, the end goal of these newer policies is not to replace ones that already work well, but to support them by focusing efforts on performance instead of compliance.
The federal government began achieving general conservation goals with market-based policies decades ago. The policies have become increasingly refined over the last twenty years to the point at which they now play an essential role in a variety of natural resource management programs. Nearly everyone is familiar with some kind of market-based policy, like cap and trade air quality programs or carbon trading markets. As mentioned before, their use to expressly conserve biodiversity is limited, but examples of how they work towards other conservation goals may provide valuable insight into how such an application might work. These policies include a wide-ranging assortment of tools that makes categorizing them difficult. Even with this being the case, most of them do share three key characteristics. First, they all generally seek to define a natural asset, service, or output. Second, they all seek to measure that which they have defined. And third, they all arrange for quantities of what is being measured to be paid for, or invested in, through market forces (The Katoomba Group). Market-based policies therefore create opportunities for the owners of natural resources to profit by preserving them in, or restoring them to, their natural condition. It is tempting to define these outcomes as commodities (like a bushel of wheat), as they can often be traded like one. However, these outcomes are sufficiently more complex and diverse than the simple commodities we are accustomed to. This makes the label of commodity somewhat misleading — and counterproductive in many instances. With this in mind, these policies do use other elements and concepts that are readily transferable from traditional markets.
Market-based policies rely on buyers, sellers, and a market through which transactions can take place. They also rely on a motive. In traditional markets this motive is profit. For most of the markets created through public policy the motive may still be profit (if the seller is a private entity). Yet, unlike a free market, this ability to profit is created directly through the external application of government regulation. So, in some ways, these policies are no different than traditional regulatory approaches. In each case the government allows, prohibits, or demands action. What makes market-based policy different is in the "how." More traditional policy uses the force of law to ensure compliance and achieve its goals. Market-based policy takes a different approach. It allows market forces, like supply and demand, to determine the most economical way for compliance to be achieved. This flexibility is manifested in a number of ways. For instance, the decision to participate in a market created by these policies often remains optional for the owners of natural resources, whereas traditional regulation rarely allows for such flexibility.
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Read how property rights are being established for things that have historically been public goods, such as air, water or biodiversity.
