Market News

 June 15, 2010
The Law of Unintended Consequences

 The Winnipeg-based Centre for Public Policy released a report last month on the often unintended consequences of environmental policies.

The study, Envionmental Policy and Unintended Consequences, from Ben Eisen and Kenneth Green,  examines a series of case studies drawn from around the world. Those case studies demonstrate how the law of unintended consequences has often frustrated policymakers in the area of environmental policy.

"However beautiful the strategy, you should occasionally look at the results." Winston Churchill

Specifically, these case studies demonstrate how well-meaning efforts by governments to protect the environment have, on occasion, backfired, resulting in severe harm to human beings and, in some instances, to the natural environment regulators sought to protect.

Examples of unintended consequences include:

An environmental disaster on Macquarie Island
How the Australian government's effort to protect local vegetation by destroying the rabbit population on an island near Antarctica backfired and brought the island to the brink of an "ecosystem meltdown" and threatened local bird species with extinction.
The great golf cart boom of 2009
An American subsidy designed to promote the purchase of electric vehicles for the sake of energy conservation was exploited by clever golf cart salesmen who recognized that their products fit under the government's definition of an electric car. The salesmen began to give away "free" golf carts to consumers, with the entire bill being passed along to the government.
Biofuel subsidies
The subsidization of biofuels such as ethanol have led to the destruction of rainforests, increased greenhouse gas emissions, a wasteful use of freshwater resources, and increases in the price of food that hurt the world's poor. Fuel economy standards, highway fatalities, and increased driving. This case study looks at how fuel economy standards for cars increased driving and helped create the SUV boom.

How energy-efficiency appliance subsidies create GHG emissions Rebates and subsidies that encourage the purchase of new, energy-efficient refrigerators often lead to increased energy consumption, as many consumers keep the older machine as a "beer fridge" and run two refrigerators in their homes rather than one.

The ban on DDT and the resurgence of malaria
A ban on DDT has had tragic unintended consequences in poor countries, leading to the resurgence of malaria and thousands of unnecessary deaths.

Perverse incentives and the Endangered Species Act
The presence of endangered animals on one's property can greatly restrict an individual's freedom to use that property for commercial purposes. Some landowners go to great lengths to prevent the animals from coming onto the property in the first place-including destroying any habitat that may be suitable for them.

How forest fire prevention policies backfired
Aggressive fire management policies in the United States led to the rapid buildup of "forest fuel," causing bigger and more destructive forest fires.

Fuel economy standards, highway fatalities and increased driving
How fuel economy standards increased driving, created the SUV boom and killed thousands on our highways.


"Sometimes, these consequences have been a distortion of economic incentives leading to lost economic production or wasted government resources. In other cases, the consequences were much more severe, leading to illness and death for thousands of human beings," write the study's authors.
"Policymakers need to incorporate the  law of unintended consequences in the development of environmental policy; that law demonstrate the need for humility and caution on the part of policymakers when they consider interventions in enormously complex social, economic and ecological systems for the sake of environmental protection."
The policy series, Environmental Policy and Unintended Consequences-Eight Case Studies from Around the World, can be found HERE.

Source: www.fcpp.org