This is a final version submitted for publication. Minor editorial changes may have subsequently been made.
Sustainable development literature and government policy documents are dominated by neo-classical economic concepts and generally promote the free market as the best way of allocating environmental resources. This is no accident but is a consequence of the persistent advocacy of free market solutions by influential corporate-funded think tanks.
The environmental crisis of the late 1980s drew attention to the inadequacies of existing political, economic and regulatory structures. There were increasing demands from environmental and citizens groups for tightened environmental standards and increased government control of private firms and corporations.
This heightening of public anxiety in response to scientific confirmation of environmental deterioration induced a wave of corporate political activity. Corporations were able to take advantage of PR techniques and information technologies available for raising money, building coalitions, manipulating public opinion and lobbying politicians.
The Chief Executive Officer for Phillips Petroleum Company, C.J. Silas, wrote in Public Affairs Journal at the beginning of 1990, having observed the rise in environmental consciousness and the defensiveness of US industry: "Theres no reason we cant make the environmental issue our issue. If we wait to be told what to doif we offer no initiatives of our own and react defensivelywere playing not to lose, and thats not good enough" (his emphasis).
Exxon spent over a million dollars in the early 1990s on US congressional candidates in its efforts to prevent the Clean Air Act being strengthened. Dow Chemical and its affiliates also gave over a million dollars and opposed the strengthening of the Clean Air Act as well as pushing for cost-benefit analysis to be incorporated into the Clean Water Act. Chevron, Exxon and Dow Chemical all gave financial support to a range of front groups, including Alliance to Keep Americans Working, American Council on Science and Health and the National Wetlands Coalition.
It was at this time that conservative think tanks, having been instrumental in bringing Ronald Reagan to power in the US and Margaret Thatcher to power in the UK, turned their attention to environmental issues and the defeat of environmental regulations. With an eye to the interests of their corporate supporters they sought to cast doubt on the very features of the environmental crisis that had heightened public concerns at the end of the 1980s including ozone depletion, greenhouse warming and industrial pollution.
Many think tanks that are funded by corporations are also ideologically committed to promoting free enterprise and small government so they were particularly concerned that environmental problems might be interpreted as resulting from a failure of the market system and lead to increased government intervention through legislation to prevent environmental problems. In the face of this threat, they promoted market solutions to environmental problems that had long been advocated by neoclassical economists. Market solutions included tradeable property and pollution rights as well as pricing mechanisms and tax incentives.
The promotion of market-based instruments was viewed by many advocates as a way of resurrecting the role of the market in the face of environmental failure. The Washington-based Cato Institute, for example, states that one of its main focuses in the area of natural resources is "dismantling the morass of centralized command-and-control environmental regulation and substituting in its place market-oriented regulatory structures..."
According to Heritage Foundations policy analyst, John Shanahan, the free market is a conservation mechanism. In 1993 Shanahan wrote to President-elect Clinton urging him to use markets and property rights "where possible to distribute environmental goods efficiently and equitably" rather than legislation. He argued that "the longer the list of environmental regulations, the longer the unemployment lines."
In Australia, the infiltration and domination of the Canberra bureaucracy by economic rationalists pushing neoclassical economic solutions was particularly influential in the framing of sustainable development policy. But think tanks, such as the Tasman Institute, have also played a major role in influencing the Canberra bureaucracy, as have key economists from US-based think tanks.
Anderson and Leal from the San Francisco-based think tank, the Pacific Research Institute for Public Policy, argue in their book Free Market Environmentalism, that even if legislation improves environmental quality it is at the expense of "individual freedom and liberty". Anderson and Leal juxtapose the market with the political process as a means of allocating environmental resources and argue that the political process is inefficient, that is it doesnt reach the optimal level of pollution where costs are minimised:
If markets produce "too
little" clean water because dischargers do not have to pay for its
use, then political solutions are equally likely to produce "too much" clean water because those who enjoy the benefits do not pay the cost...
Just as pollution externalities can generate too much dirty air, political
externalities can generate too much water storage, clear-cutting, wilderness,
or water quality.
Free market environmentalism emphasises the importance of market processes in determining optimal amounts of resource use.
Anderson and Leal are perhaps more blunt about it than other economists, but the ideas they express are representative of the rationale behind economic instruments. Economic instruments, such as taxes and charges, are supposed to make external costs (externalities) part of the polluters decision. Laws can also force the polluter to take notice of these external costs by prescribing limits to what can be discharged or emitted. Advocates of economic instruments argue that the market is better able to find the optimal level of damage, the one that is most economically efficient.
The optimal level of pollution, for example, is supposed to be the level at which the extra costs to the company of cleaning up the pollution further equal the cost of environmental damage caused by that pollution. If the polluter spends any more than this the costs (to the firm) of extra controls will outweigh the benefits (to those suffering the adverse affects of the pollution) and so beyond this level of optimum pollution it is argued to be more cost effective for the company to pay a pollution charge. The charge, which goes into government coffers, is supposed to compensate the community for the pollution.
The assumption is that environmental damage can be paid for and that this is as good as, or even preferable, to avoiding the damage in the first place. However, the money collected from pollution charges is seldom used to correct environmental damage. Economists argue that if the money is spent on something equally worthwhile then the community is still no worse off; a view that those who suffer from the pollution might find hard to accept. This also assumes that the benefits that arise from the environment can be substituted for by other benefits that can be bought on the market. However, environmental quality is not something that can be swapped for other goods without a loss of welfare.
Given the workings of the market in reality, and the well-elaborated imperfections and problems associated with it, what is surprising is that neoclassical economics has not only dominated environmental economics but has also increasingly dominated the whole public discussion of sustainable development.
Nor is the push for free-market environmentalism confined to the Liberal Party in Australia or the Republican party in the US. Democrat Bill Clinton, in 1992 prior to becoming President, said he believed that it was "time for a new era in environmental protection which used the market to help us get our environment on track - to recognize that Adam Smiths invisible hand can have a green thumb...." 
In 1991 the OECD issued guidelines for applying economic instruments and an Economic Incentives Task force was established by the US EPA "to identify new areas in which to apply market-based approaches". Similar units have been established in regulatory agencies in other countries including Australia. At the Earth Summit in Rio in 1992 business groups pushed for the wider use of economic instruments in conjunction with self-regulation.
Such thinking has spread throughout the world and some environmental groups have embraced the free market environmental rhetoric. Others, such as the Australian Conservation Foundation (ACF), have hired economists to enable them to talk the language of neoclassical economics in their negotiations with government over sustainable development policies. Few question the conservative ideology and corporate interests behind the promotion of economic instruments but accept them as neutral tools in the arsenal against environmental destruction.
The assumptions and language of neoclassical economists is found clearly in Agenda 21, the Action Plan for Sustainable Development, signed by over 100 nations at the Earth Summit. In its chapter on integrating environment and development in decision-making it posits three fundamental objectives:
(a) To incorporate environmental costs in the decisions of producers and consumers, to reverse the tendency to treat the environment as a "free good" and to pass these costs on to other parts of society, other countries, or to future generations;
(b) To move more fully towards integration of social and environmental costs into economic activities, so that prices will appropriately reflect the relative scarcity and total value of resources and contribute towards the prevention of environmental degradation;
(c) To include, wherever appropriate, the use of market principles in the framing of economic instruments and policies to pursue sustainable development.(Section 8.2)
Corporations prefer economic instruments to legislation because a market system gives power to those most able to pay. Corporations and firms rather than citizens or environmentalists have the choice about whether to pollute (and pay the charges) or clean up. Very polluting or dirty industries can stay in business if they can afford the pollution charges or the tradeable pollution rights. In this way, companies can choose whether or not to change production processes or introduce innovations to reduce their emissions.
Market solutions such as economic instruments and pricing of the environment make a virtue out of the profit motive and the pursuit of self-interest. Free market environmentalism perpetuates the central problems that caused environmental degradation in the first place. They ensure priority is still given to economic goals and they enable individuals and firms to make decisions that affect others on the basis of their own economic interests. The primacy of free markets in environmental decision-making ensures that power remains in the hands of those who direct and control financial resources; the wealthy, the corporations and the economists they employ. This will ensure that business can go on as usual and the environment will continue to deteriorate.
The imperative that environmental deterioration might once have had for social and political change has been dissipated by this clever hijacking of the notion of sustainable development. Whilst the public is led to believe that neoclassical economic solutions can achieve environmental protection, opportunities to discuss possible alternative futures are minimised. Why look for something else if you think the existing system can be adapted to solve the problem? It is the lack of discussion about possible futures that reinforces the idea that the present system is the only feasible option in the minds of many people. It means that few people are willing or able to envisage alternative futures.
An alternative vision of the future cannot be developed without wide discussion and that discussion will not happen until there is a general acceptance that the prevailing paradigm represents an undesirable future. This means facing up to the reality that sustainable development has been taken over by business groups, and their think tanks and economists, so that its purpose has become the perpetuation of an outdated paradigm. Sustainable development policies today rest on the assumption that the quest for profit is socially beneficial, that those who are best able to make money should be the ones who decide what technology is used and what is produced and that corporate efforts to satisfy their self-interest in the market place can be utilised to protect the environment.