A GOOD LESSON FROM A BAD YEAR

The big lesson of 1990, first year of the Decade of the Environment, is this: Markets work.

Environment? Markets? What's the connection? Precisely.

The petroleum industry closed out 1989 popularly regarded as a price-gouging despoiler of nature. Exxon Valdez had spilled 260,000 bbl of Alaskan crude into Prince William Sound in March. December had been bitterly cold in North America, causing heating fuel prices to jump.

But this year began with a month as unusual for warmth as its predecessor had been for cold. Outraged state attorneys general didn't even have their knee-jerk conspiracy investigations under way before heating fuel prices slumped. The world had witnessed a market at work. Prices rose when heating fuel demand increased and supplies fell. Prices fell when demand fell and supplies increased. Simple.

MARKET AT WORK

And after the warm January supplies continued to rise. Demand continued to fall. And prices-guess what? They fell. Members of the Organization of Petroleum Exporting Countries were producing too much crude in relation to demand. In late July the group tried to restore discipline, but on Aug. 2 Iraqi troops overran Kuwait.

Suddenly and sharply, supplies fell.

And prices-guess what? They jumped. State attorneys general sharpened their pencils and tongues again. And because prices jumped, OPEC members and other producers brought new supplies on stream. Because prices jumped, demand fell. Then prices-guess what? They fell-not all the way back to their depressed levels of earlier in the year, but they fell nevertheless. Markets work.

While all this was going on, Exxon was spending upwards of a couple of billion dollars cleaning up its spill mess.

And Prince William Sound-guess what? It didn't die, like some said it would. And guess what else? The oil and shipping industries were putting together a spill response network for North America. On other fronts, oil companies were electing environmental experts to their boards of directors, making environmental principles part of their operating policies, introducing transportation fuels they believed would reduce air pollution, voluntarily reducing hazardous emissions, and requiring double hulls on some or all of their crude oil tankers.

Skeptics will say they were just trying to escape regulation. But passage by Congress of a stiff oil spill liability law didn't stop progress toward the voluntary spill response network. Enactment of reformulated fuel mandates didn't derail an unprecedented study by the auto and oil industries of vehicle fuel emissions.

Companies took the environmental initiative in 1990 because-guess why? It's good business.

Put another way, companies that don't conduct business in environmentally responsible ways will have trouble conducting any business at all. The market works.

WHAT THE PLANET SAID

And in 1990, recession threatened and voters-guess what? They said no to nutty, all-or-nothing environmental initiatives in California and several other states. They didn't quit caring about the environment. But they made a clear statement that hadn't been made before: Costs matter, even where the environment is concerned. The market works.

No year that raises the threat of war can be called a good year. But it was a year when economics and environmentalism began acting less like repulsive forces and more like parts of a whole. Maybe the planet did cry out in 1989. Maybe in 1990 earthlings began to understand what it said.