Solving Environmental Problems Through Economics

While my passion lies with Austrian Economics, I also find Environmental Economics fascinating.  (Of course, these two areas are not mutually exclusive and are often quite compatible,)  The reason why I like environmental economics so much is because it is so different from the normal use of economics.  It forces one to think (sometimes radically) out of one's comfort zone.

One of the major problems in environmental economics is non-point source pollution.  In other words, it is a type of pollution where the source is hard to identify.  A smoke stack or a drain pipe are examples of point-source pollution.  You can see the "point" where the pollution emanates from.  However, when it comes to some things such as agricultural spraying, determining which farm is causing the run-off pollution down-stream is much more difficult.

When I have been asked by my students how a market society would handle these problems without government regulation,  I would say that technology would find a way.  For example, when explosives are manufactured an inert identifier is added to the mix.  This way bomb residue experts can trace the manufacturer and lot number of the exploded material.  So why not employ similar technology to pesticides and other sprays?  That way, we can monitor down-stream and say that x% of the pollution is coming from Y's farm, and so on.

An unexpected development has arisen along these lines.  

Many people are worried about hydraulic fracturing or "fracking."  This is a process where shale is layered underground.  Between these many, tiny, thin layers is oil and natural gas.  The problem is how to extract the oil and natural gas because the layers are so thin that pumping from a single layer is inefficient.  The answer is to pump water into the area so that the layers are broken up and the oil  and natural gas can be profitably extracted.  The process mostly uses water to break up the shale layers, but an amount of hydraulic fluid is also used in the drilling process.  The worry is that this fluid along with the oil and gas might leach into the ground water.  While the science shows that this possibility has low risk, the fear is real.

And now the market solution.

A company, BaseTrace--which is based in the Research Triangle Park, NC, has developed an inert material that can be added to the hydraulic fluid so that if any leaching into the water table occurs, we can trace it back to the specific well.  That means that if there is a problem, we can identify where the problem is occurring and who is responsible.  For this to work, the amount of tracer needed is about a thimble full.  Amazing.

And possibly the most remarkable thing about this company is that it is run by 2 full-time and 3 part-time employees, all in their 20's.  I am encouraged that theories that could only imagine happening are being developed and employed by recent college graduates.