Friday Fact Check: Free Economies Are Clean Economies

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Cleaned by Capitalism: How Economic Freedom Creates a Healthier Environment
Jeff Luse, C3 Newsmag, April 20, 2021

In the United States, and around the globe, there is a growing consensus that climate change is real. While many conservative are looking to address this issue through free markets, a growing faction of the Left is turning to big government spending to reduce emissions all while painting capitalism as a villain to the health of the planet.  

The attack on capitalism is not only misplaced, but it is also counterproductive. In a study released today by C3 Solutions authored by Nick Loris of The Heritage Foundation, titled Free Economies are Clean Economies, Loris outlines the many ways in which capitalism and free markets benefit the environment.

“Free and competitive markets have reduced emissions, brought millions of people out of poverty, and have led to innovations that have benefitted the health of the planet and its people,” said Loris in the C3 Solutions press release. “While global environmental issues like climate change are incredibly complex, economic freedom is the best solution to reduce emissions and promote economic prosperity.”

Specifically, the report found that open markets double the environmental health of countries. “Mostly free” economies, as determined by The Heritage Foundation’s Index of Economic Freedom, had a higher score on Yale University’s Environmental Performance Index, than “mostly unfree” economies—with scores of 71.72 and 35.17 respectively.

This makes sense. As markets open and economies of countries grow, efficiency becomes prioritized, and consumers have the ability to invest in making the environment cleaner. This purchasing power allows for people to make buildings more energy efficient, and for companies to choose materials that have a lower carbon footprint. As economist Donald Boudreaux succinctly put it, we are “cleaned by capitalism.” 

In addition to open markets, private property rights play an important role in environmental well-being. Ownership of property incentivizes stewardship and environmental responsibility. As a 2020 report from the National Academies of Science found, “territories with full property rights show a significant decrease in deforestation, while the effect does not exist in territories without full property rights.”

Perhaps the greatest example of this is seen in the cases of Venezuela and the United States. In Venezuela, Loris points out, the government’s ownership of industry and property decreased foreign investments and prosperity, while increasing corruption and environmental degradation. In contrast, private property rights in America made the fracking revolution possible, which substantively lowered our domestic emissions.

In the same way that government ownership hurts the environment, overregulation can stifle environmental prosperity. Overregulating businesses slows down the innovations that are needed to reduce emissions. As seen in the case of nuclear energy, regulations have increased construction costs by 200%, leading in part to the shrinking of America’s nuclear energy fleet.

Allowing businesses to freely operate greatly improves the health of the economy and the environment. To analyze this, Loris looks to the World Banks’ Ease of Doing Business Index where he found “a strong, positive correlation between the Ease of Doing Business Index and EPI” (Environmental Performance Index). Specifically, countries with the “Most Ease” of doing business had an EPI score twice that of countries with the “Least Ease” of doing business.

With a growing number of people looking to the government to solve climate and environmental issues, it is important to realize that free markets are the best way to lower emissions. As seen in “Free Economies,” open markets, limited government, private property rights, and rule of law are the best ways in which we can improve the health of the planet.

While global issues such as climate change are complex, the best way to tackle it is through economic freedom.

Read the full report here.