With debates about coastal insurance and highway funding heating up in Raleigh this week, I started to write a column about the two issues — until I realized that I’d already covered similar ground back in August. Here’s that piece, and you can expect more from CJ next week on the Beach Plan.
RALEIGH – My colleagues and I give environmental activists in North Carolina and beyond a lot of grief. It stems from significant disagreements on some major issues such as air-quality trends and whether the benefits of government action against greenhouse-gas emissions exceed its costs.
But there is no inherent conflict between the principles of limited, constitutional government and the goal of ensuring public health, safety, and environmental protection. Indeed, the freest industrialized countries on Earth tend to have cleaner environments than authoritarian governments such as Russia and China do. One reason is that wealthier countries can better afford to mitigate or prevent environmental degradation. Another is that a well-defined and enforced system of property rights is essential to achieving environmental protection with the least-intrusive means at the lowest-possible cost.
There are a number of specific areas where free-market conservatives and environmentalists can and do work together to improve public-policy outcomes. At the federal level, they form common cause against farm subsidies that needlessly boost development, runoff, and the cost of food. They oppose wasteful federal earmarks for programs that denude public lands or induce development in the path of natural disasters. And they have collaborated on innovative permit-trading systems for enforcing property rights in fisheries and river basins to ensure that resources held “in common” – in practice, by no one – are not ruinously mismanaged.
Let me offer two concrete examples where free-marketeers and environmentalists can cooperate here in North Carolina.
One is the case of the state’s troubled Beach Plan, which offers subsidized coverage to property owners in 18 counties along the North Carolina coast. One private company, Farmers Insurance, has just announced that it is exiting the state insurance market altogether because it does not want to be on the hook in case the Beach Plan’s existing resources prove inadequate in the aftermath of a major tropical storm or hurricane. Farmers faces the risk even though it only insures a handful of homes along the coast, because all firms who sell homeowners insurance in the state are compelled to participate to cover costs of the Beach Plan.
The Insurance Federation of North Carolina says that the current Beach Plan is grossly underfunded, setting up businesses and customers across the state for tens of billions of dollars in losses if such a storm hits. Even if its figures are unduly pessimistic, everyone grants that the plan’s current assets are insufficient. Most recognize that coastal property owners don’t pay anything close to reasonable rates for the insurance coverage they receive.
Holding homeowners premiums artificially low encourages new residential and commercial development in environmentally sensitive areas. Both conservatives and conservationists should favor abolishing the premium subsidy and allowing insurance rates to reflect real risk.
Another area where market-friendly policies can have both fiscal and environmental benefits is in traffic-congestion management. While some activists oppose all road pricing on egalitarian grounds, others recognize that unless drivers have financial incentives to stagger their travel times, use alternative routes or modes of transportation, or make different land-use decisions, most won’t take these actions merely out of good intentions.
Traffic congestion is, in fact, a way of charging drivers for using scarce roadways at inopportune times. But it’s denominated in wasted minutes and frustration, rather than bankable dollars. In such cities as Singapore, London, and Stockholm, officials have learned that it makes much more sense to convert these in-kind travel charges into currency. One way is to charge drivers a flat amount each day for a permit to enter downtown or some other highly traveled part of town. The other is not just to toll limited-access highways in urban areas but to vary the electronically collected toll according to congestion levels, charging motorists more during rush hour just as utilities charge higher prices during periods of peak demand.
Fiscal conservatives favor congestion pricing, if used carefully and thoughtfully, to encourage efficient use of highways while at the same time rising revenue for transportation infrastructure in a better way than via general taxes. Environmentalists favor congestion pricing because it encourages “choice” commuters to use public transit and discourages far-flung development.
The common denominator in both cases is allowing prices to compare information. High insurance premiums are a signal to would-be developers and customers that a low-lying plot of land in a coastal river basin may not be the best place to site new homes and businesses. Congestion charges and time-of-day tolling are a signal that commuters ought to shift their travel to off-peak times, ride the bus, telecommute, or move closer to where they work.
When governments suppress prices, people make poorer decisions. Arm them with better information, and both the economy and the environment will prosper.
Hood is president of the John Locke Foundation.