How government failure and the free market each impact climate change

Climate change is without a doubt one of the most pressing concerns of our time. From ocean deadzones, large-scale deforestation and mass species extinction to the perpetuation of world hunger and the spread of disease, our contribution as a species to this unfortunate phenomenon cannot be understated. Yet despite vast international coordination, protocols and events from the 1972 Stockholm conference, the 1992 Earth Summit and the 2002 World Summit on Sustainable Development, all the way to the Paris Summit in 2015, governments have failed to meet the most basic and arbitrary targets. Contrary to popular belief, a government approach is not the best at dealing with environmental issues.

Environmentalists demand taxes on fossil fuels and investment in green transport technology. Many of those who sit to the left ideologically would want more regulation and nationalisation in a last-ditch attempt to fix the environment. And yet robust scientific evidence increasingly demonstrates the role that global Agribusiness plays as a primary net contributor of greenhouse gas (GHG) emissions. The UN’s Food and Agriculture Organisation found that the GHG contributions that are directly attributable to livestock are greater than the entire transport sector, and the USDA estimated that, as the leading cause of climate change, 30% of all global emissions can be attributed to pastoral agriculture. Ongoing analysis has since found that livestock and their byproducts may actually account for 51% of annual worldwide GHG emissions. What often drags the estimates down is that they are implicitly based on CO₂ contributions, when the omitted chemicals such as methane and nitrous oxide are as much as 100 and 256 times more destructive than CO₂ over a 20-year period respectively.

Despite these damning conclusions, the majority of the academic and policy literature considering the relationship between agriculture and the environment looks at agribusiness as the victim, rather than the cause of climate change. Even worse, agriculture is generally excluded from the discussion all together.

When it comes to dealing with this issue, a free market approach that incentivises innovation may hold the solution, and is already responsible for the incredible growth of a more environmentally conscious yet staggeringly profitable industry in plant-based alternative foods. Where consumers want ethical or environmental alternatives the market, when free from restraint, will deliver.

This is evidenced across a variety of sectors. With the exception of pastoral agriculture, global industries that have enjoyed freedom from, and reductions in, regulations and subsidies have been able to innovate to meet consumer demands.  Even within agribusiness, the technology for organic, localised vertical farming of fruit, vegetables and crops has been around for years, with massive positive consequences for the environment. This emergent technology is being held back by two major factors: 1) consumers tend to be initially sceptical of scientific breakthroughs in industries, and 2) there is not enough incentive for traditional farmers to move to innovative alternatives so long as they are heavily subsidised. Consider that the age of the average farmer in the US and the UK is between 55 and 59, and every year less people enter the sector, and it becomes clear that this is an industry stuck in the past, falling behind as we see incredible innovations in transport, energy, manufacturing, and even the mining of fossil fuels.

The crux of this problem is the lack of incentive to innovate, perpetuated primarily by the role that government plays in funding and controlling agriculture. Red tape restrictions on technology, the subsidisation of struggling farms, and decreasing welfare standards for animals have all contributed to a major government failure. Furthermore the historic obsession with maintaining produce autonomy nationally, the reason for the bulk of subsidies, no longer makes sense in a world where comparative advantage allows us to import goods more effectively produced elsewhere. In fact, over half of those surveyed by DEFRA disagreed with the statement “It’s important to support British farmers”.

A free market approach can help to reduce the contribution of agriculture to climate change in several key ways:

• As it stands, pastoral farmers make more money from subsidies than they do from produce. This is not tolerated in any other industry. By reducing or removing regulation and funding farmers start to face incentives to be more efficient and innovate. This may include moving to different, more profitable produce, or switching to a new industry.

• Without subsidies, the price of animal products will absolutely increase to reflect their real value. It is estimated that the price of even just a McDonald’s Big Mac would more than double once the rest of society stops paying for it through taxation, and that’s barely even real meat. Whilst it is true that innovation can bring the price of goods down once subsidisation is removed, it is unlikely to happen in meat and dairy industries when general consumer awareness of animal welfare is consistently on the rise.

• Consumer sovereignty means that where people demand more ethical or “green” alternatives, the market will surely deliver with new technology and innovative products. Just look at the incredible increase in profit for plant-based companies and restaurants in the UK.

• In the US as much as $40 billion goes to subsidising meat and dairy (0.04% of that goes to arable agriculture). In the UK, the overall industry is subsidised as much as $3 billion a year, with Brexit presenting a great opportunity to change the amount of direct payments and bursaries going to failing farms. In both cases, that is an incredible amount of taxpayer’s money going largely to meat and dairy farms, regardless of how much you as a consumer may choose to engage with those industries.

A free market approach means waking up to the reality of climate change without expanding the government failure. You still get to keep eating your favourite burger, steak, and other animal products, but at a price that more accurately reflects the cost incurred along the way. You might find that this approach makes meat and dairy less appealing to those consumers who are motivated primarily by preferences for cost and convenience, which is a positive outcome for the environment. The invisible hand, when left to work its magic, may lead us to a food revolution that saves the planet.

Niamh Kingsley is an IEA intern and studies Economics and Politics at Kings College London

As with all IEA publications, the views expressed are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff