The Market’s Natural Path to Environmental Protection: Lessons from Counterproductive Administrative Interventions

Abstract：Market solutions to environmental issues can often be more effective than administrative interventions. In the U.S., factories preferred low-sulfur western coal for efficiency and reduced pollution. However, government-mandated expensive filters increased costs, driving factories to purchase cheaper, high-sulfur eastern coal, worsening air quality. Similarly, the debate between cloth and paper napkins highlights the need for balance. While cloth napkins are resource-intensive, their use in meaningful moments, such as special dinners, can justify the trade-offs. According to the Coase Theorem, harm is mutual, and decisions should weigh environmental impact against the value of experiences, aiming for a thoughtful equilibrium.

Sometimes the market itself can find better solutions for environmental protection. Imposing administrative measures, however, can backfire.

Take the case of industrial coal in the United States. There were two main types of coal used: one produced in the eastern U.S., which had a higher sulfur content, more impurities, and a lower price; and another from the western U.S., which had lower sulfur content, fewer impurities, and was more expensive.

Many factories, aiming to improve efficiency, were willing to purchase the western coal. Using this lower-sulfur coal caused less environmental pollution, which seemed like a positive outcome.

However, eastern coal miners united to lobby the government to enforce stricter environmental regulations.

In response, the government mandated that all factories install expensive filters. After spending the money and installing these costly filters, production costs increased significantly for factories. Consequently, they lost the incentive to buy the cleaner but more expensive western coal. Instead, they opted for the cheaper, higher-sulfur eastern coal. The result? Worse air quality.

Balancing Different Uses: Cloth vs. Paper Napkins

When discussing the balance between different purposes, I like to use the example of cloth napkins in upscale restaurants. Which is more environmentally friendly—cloth napkins or paper napkins? There are four common answers to this question.

The least thought-out answer is: “Cloth is obviously more eco-friendly because it’s reusable.”

Yes, cloth can be reused, but it requires washing. Doesn’t that waste water? Doesn’t it involve the use of detergents? Moreover, cloth napkins need to be dried, sometimes starched, and pressed to maintain their crispness. They must also be replaced regularly—no patched-up napkins in fine dining—so slightly worn napkins are discarded. All of this involves costs and environmental burdens.

A second-level answer is better: “We need to measure and calculate the impact.”

A third, more insightful answer is: “No need to calculate—it’s clear that cloth napkins cause more environmental damage. Cloth napkins are more expensive, and higher cost implies greater resource consumption—whatever those resources may be. Paper napkins are cheaper, which indicates less environmental impact.”

However, I believe there’s an even better answer. Even if cloth napkins are more resource-intensive, their use isn’t necessarily wasteful. Why? Consider this: when we dine at a high-end restaurant and use cloth napkins, there’s usually a reason. Perhaps we’re catching up with a friend we haven’t seen in 20 years, sharing a memorable candlelit dinner.

According to the Coase Theorem, we can understand this trade-off: using cloth napkins for one evening does harm the environment. However, all harm is mutual. Skipping this dinner and avoiding the use of cloth napkins might harm our friendship instead.

Admittedly, environmental damage is irreversible, but so is life itself—once moments pass, they’re gone forever. What’s crucial, then, is balance: determining whether something is worthwhile.