· 10 min read
I recently met Terry L. Anderson at Hoover’s International Seminar, the annual gathering curated by H. R. McMaster that brings together a cohort of diplomats and practitioners from the worlds of security, defense, and public policy. This year’s edition included representatives from over twenty nations—a true Babel of accents, each reflecting distinct, often deeply insightful interpretations of today’s global challenges.
In his opening remarks, McMaster joked that the ranch-baron patriarch John Dutton III from Yellowstone “could just as well have been modeled on Terry.” The quip landed; even Anderson’s bronze-rimmed glasses seemed to smile.
Moments later, Anderson opened his presentation with a blend of humor, sharp insight, and depth, delivering a brisk and thought-provoking reflection on why ecosystems—like economies—thrive on incentives.
To hammer home the gospel of trade-offs, he reached for a cocktail-party memory: when he asked his friend Milton Friedman how Rose, the Nobel laureate’s wife, was doing, Friedman fired back, “Compared to what?”
The hall detonated in laughter, proof that a single joke can carry more intellectual voltage than a dozen PowerPoint slides.
Now the John and Jean DeNault Senior Fellow at Hoover, Anderson has spent four decades advancing a radical premise: that markets, anchored by secure property rights and the rule of law, can do more for rivers, forests, and endangered species than battalions of regulators ever could. His landmark Free Market Environmentalism (co-written with Donald Leal and now in its third edition) reframed the conservation debate; The Wall Street Journal once dubbed him “the godfather of free-market environmentalism,” while The Economist called the book “a wonderfully stimulating read for those willing to have their beliefs on conservation challenged.”
We meet during a coffee break in the light-splashed atrium of Hoover’s new Shultz Building, just as pandemics, geopolitical rifts, and “green inflation” scramble every certainty about globalization and climate policy. Anderson, ever eager to test orthodoxies, ranges from lithium mines and carbon tariffs to blockchain-verified water rights, always circling back to a deceptively simple question: can price signals save the planet where politics has stalled? What follows is a transcript of our exchange.
AA: Professor Anderson, you’ve long advocated for market-based environmental solutions. In a world shaken by pandemics, wars, and geopolitical rifts, do markets still offer the most effective path to environmental protection?
TLA: Considering these disruptions, market-based environmental solutions are all the more important because these issue capture the attention of politicians and world leaders and divert them from environmental problems. Markets don’t depend on political support. In countries with a strong rule of law—i.e. secure property rights—owners of environmental assets can resist ignoring environmental quality in the name of political protections against pandemics, wars, and geopolitical rifts.
AA: As many countries push for energy security through nearshoring and the local extraction of critical minerals, how can we balance strategic urgency with the need for long-term ecological stewardship?
TLA: Most objections to mineral extraction are backward looking, claiming that past extraction techniques left the earth scared. The problem with this focus is that past extraction took place when production and wealth were more important than environmental protection. We now live in a world where wealthy, democratic citizens demand environmental protection and they get them. Today’s world has environmental regulations together with improved technologies. In that very different world, we can protect water and air quality and reclaim the land.
AA: ESG frameworks have sparked intense debate—between critics who see them as ideological overreach and defenders who call them essential for sustainable capitalism. What’s your take on the current state of ESG?
TLA: ESG is the imposition of preferences by managers and non-owners on owners who care about profits. Sustainable capitalism depends on sustainable profit,s and research by Sanjai Bhagat, University of Colorado, shows that strict adherence to ESG reduces stock prices at the cost of owners. The more that this happens, the less sustainable capitalism is.
AA: Should ESG standards apply equally to defense-related mining—such as rare earths or lithium extraction—or should there be an “ESG exception” when national security is at stake?
TLA: ESG comes with tradeoffs, namely less focus on profits generated by efficiency including efficiency in producing environmental quality. Market-based environmentalism forces owners/decision makers to weigh these tradeoffs. If we can find ways to make production of environmental quality and services more profitable, we will get more E. The same is true for G. The problem with S is that it is too vague to make operational.
One way to make the concept of ESG more productive is to add “F” to the letters, with F representing policies that promote freedom and democracy. Global freedom indeses produced by the Heritage Foundation and the Fraser Institute offer a way for companies to objectively seek profitable relationships with firms in countries with a higher freedom index. In this way, free market environmentalism can dovetail with profits and with freedom.
AA: Looking back, what have been the most common failures of top-down environmental policy? And which examples of decentralized or property-rights-based approaches stand out to you today?
TLA: In general, successful mandates (top-down political policies) are more likely to be successful when the source of environmental degradation is easily identifiable and localized. The U.S. Clear Air Act and Clean Water Act were successful in the early stages because they focused on such sources. The Endangered Species Act was similarly successful when it focused on specific species, such as the bald eagle, rather than on subspecies and ecosystem health because measuring the success of top-down regulation is more difficult. This is why top-down climate regulations have been less successful. Carbon emissions and their consequences are ubiquitous. Add to this the nature of cross-border emissions, and top-down regulations tend to be ineffective. Property-rights based approaches to environmental problems also work best when the property rights to land, water, and ecosystems are clearly defined and enforced and the results are measurable. A strong and stable rule of law that promotes freedom and transparency is crucial for environmental stewardship.
AA: The rise of community-led conservation, especially among indigenous populations in Latin America and Africa, is reshaping environmental governance. How do you view the role of local communities in effectively driving conservation?
TLA: With the major exception of climate change, environmental problems tend to be local thus allowing community customs and norms helpful in solving environmental problems. Indigenous populations evolved with such customs norms and, in many cases had clear property rights that encouraged stewardship. A perfect example were the salmon fisheries in the Pacific Northwest of North America. Families and clams owned spawning streams and carefully stewarded them. The bounty that resulted was shared in “potlatch” ceremonies that served as social insurance within and between tribes. Community levels have and can continue to be effective forces for conservation.
AA: With “green inflation,” carbon tariffs, and environmental protectionism on the rise, are we turning climate policy into economic warfare? What guardrails are needed to avoid this trap?
TLA: The recent “Trump tariffs” illustrate just how hard it is to build guardrails to harness tariffs. Most economists agree that free trade not only enhances wealth, and increased wealth leads to a cleaner environment. But regulations, including tariffs, become the enemy by creating winners and losers. Jeff Immelt, former CEO of General Electric, summarized this problem when he defended why his company should receive carbon credits because his company was a good environmental steward: “If you aren’t at the table, you are on the menu.” Proponents of green tariffs are the people at the table, and consumers or small businesses and the environment tend to be the main course. The guardrail is to reduce the power for both the executive and legislative branches of government to use tariff policy under the guise of good intensions.
AA: You’ve argued that markets can internalize externalities more effectively than government mandates. Could technologies like blockchain and AI enhance market-driven transparency in sustainable supply chains?
TLA: First, let me emphasize that markets don’t produce better environmental results than mandates, but they are more likely to do so when demanders and suppliers for environmental goods and services can be connected. Blockchain and AI are all about connecting people and reducing the costs of transacting. Blockchain is especially important for clarifying title to land and water rights. At the Hoover Institution we bring together a group of “Enviropreneurs”—environmental entrepreneurs—looking for ways to use markets to solve environmental problems. One of those is using satellite data to identify degraded land in the U.S. and Mexico, identify the owners, and contract with the owners to buy or lease the land, improve it, and make a profit. It doesn’t take much imagination to see how blockchain and AI can help facilitate such markets.
AA: What’s your assessment of how environmental concerns are being managed in water-scarce regions, especially in the American West, where rights-based approaches have clashed with new climate realities?
TLA: Water markets are flourishing in the American West where water rights are quite clear and well documented. Fishers wanting to maintain instream flows for fish habitat contract with farmers to reduce irrigation—the motto is “buy that fish a drink.” Housing developers who are short of water around Denver are paying farmers in western Colorado to reduce irrigation and pumping the saved water to the east side of the mountains. Water markets are starting to reallocate water is arid parts of Australia. And cities are paying upstream landowners to change land management to improve water quality and reduce treatment costs.
AA: If you were advising a developing country eager to grow without depleting its natural capital, what would be your top three policy priorities?
TLA:
1. Clarify and enforce rules of law—property rights—pertaining to natural capital, e.g. water, land, wildlife habitat, and coastal areas so that enviropreneurs can buy and sell those property rights to produce ecosystem services
2. Reduce and eliminate subsidies that have the unintended consequence of depleting natural capital, e.g. eliminate subsidies to crops that require pesticides and consume water, eliminate subsidies to deforestation, and eliminate subsidies to development in coastal areas where flooding may increase because of climate change
3. Deregulate insurance markets so that risks associated with climate change, e.g. coastal flooding, reduced precipitation, and wildfire, reflect the real cost of development. Doing so will not eliminate climate change, but it will encourage adaptation and resilience.
As we wrap, Anderson gestures across the quad toward Hoover’s historic tower, where a new experiment in “enviropreneurship” is quietly taking shape.
Earlier this spring the Institution announced its inaugural Enviropreneur Fellowship, a non-residential, project-based program tucked inside the Markets vs. Mandates research initiative that he co-directs with economist Dominic Parker.
Six mid-career conservationists—each with at least five years of on-the-ground experience—will spend time at Hoover in 2025 refining market-driven fixes to problems as varied as water scarcity, critical-mineral finance, and climate-proofing housing. Across three in-person modules (the first was timed to Hoover’s annual Markets vs. Mandates conference in May) and virtual workshops, fellows will trade ideas with Hoover scholars and Stanford faculty, testing the wager that price signals can outpace regulation in both speed and thrift.
The cohort Anderson helped select reads like a ledger of applied ingenuity. There’s Shawn Andrews, a private-credit veteran whose BridgePeak Energy Capital has already funneled $3.5 billion toward renewables; Connor Coleman, whose Resiliency Lands advises ranchers on conservation easements from Colorado to the Carolinas; Colter DeVries, a fifth-generation Montana rancher-broker translating Wall Street metrics into rangeland health; Michael Iberkleid Szainrok brings flood-mitigation tech to homes on the climate front lines; London-based Manuel Piñuela—an “Innovator under 35” in MIT Tech Review—scales nature-restoration finance at Cultivo;.and water-rights maverick Jamie Workman’s company, AquaShares, facilitates digital trade of “water savings credits” the way others swap carbon.
Each, Anderson says, “embodies that fusion of entrepreneurial zeal and conservationist principles” he has championed since Free Market Environmentalism first rattled the policy world three decades ago.
Come October, the fellows will return to Stanford to debut their final projects—proof-of-concept deals that aim to make ecosystems, and balance sheets, greener in tandem. If they succeed, Anderson predicts, they’ll extend the same lesson he’s pressed in our conversation: that, where clear property rights meet creative finance, the invisible hand can leave a very visible wilderness behind.
Greener than Thou: Are You Really An Environmentalist? (Hoover Institution Press Publication, 2008) by Terry L. Anderson, Laura E. Huggins
Free Market Environmentalism (Routledge, 2019) by Terry L. Anderson, Donald R. Leal
Tapping Water Markets (Routledge, 2012) by Terry L. Andersson, Brandon Scarborough, Lawrence R. Watson
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