Environmentalists tend to be suspicious of capitalism. In some cases, this suspicion bleeds over into outright hostility. Capitalism is often seen as the source of environmental problems such as pollution, resource depletion or blights on the landscape. And certainly the early stages of economic development have sometimes seen an increase in some environmental problems.

Yet the relationship between capitalism and the environment is not so simple. In fact, as a new report by the Conservative Coalition for Climate Solutions demonstrates, countries with more economic freedom tend to have better environmental performance than countries where economic freedom is highly restricted.

Economists have long noted that environmental indicators tend to follow what’s known as a “Kuznet’s curve.” When a society is poor and first starting to develop, markets will tend to exacerbate environmental problems. As a society grows richer, however, industrial processes become more efficient, and people begin to care more about things like environmental quality. As a result, beyond a certain threshold level of development, the trend toward great environmental problems reverses, and market-led growth is associated with declines in pollution and improvements to the natural environment. Economic growth also brings innovation and newer, cleaner technologies that can help to restore the environment to a more pristine state.

In addition to providing growth, other elements of economic freedom can be beneficial for the environment. For example, property rights themselves help to improve environmental outcomes. People tend to take more care with things they own than with things that they don’t. When a person owns a piece of property, they have a strong incentive to preserve its value over the long term and to oppose environmental damage to it caused by third parties.

To say this isn’t to dismiss the real environmental challenges that our world faces today. But if we are going to meet these challenges, we need to be smart about using the best tools for the job. And as another Earth Day comes and goes, markets continue to have the potential to be a major force for environmental good.

Image credit: ismagination