Free Market Environmentalism
One other version of privatism is worth considering. Its
premise is that nature can be preserved, and pollution
reduced, by expanding private property rights. This line
of thought is called free market environmentalism, and
it’s favored by libertarian think tanks such as the
Cato Institute.
The origins of free market environmentalism go back to
an influential paper by University of Chicago economist
Ronald Coase. Writing in 1960, Coase challenged the
then-prevailing orthodoxy that government regulation is
the only way to protect nature. In fact, he argued,
nature can be protected through property rights, provided
they’re clearly defined and the cost of enforcing
them is low.
In Coase’s model, pollution is a two-sided
problem involving a polluter and a pollutee. If one side
has clear property rights (for instance, if the polluter
has a right to emit, or the pollutee has a right not to
be emitted upon), and transaction costs are low, the two
sides will come to a deal that reduces pollution.
How will this happen? Let’s say the pollutee has
a right to clean air. He could, under common law, sue the
polluter for damages. To avoid such potential losses, the
polluter is willing to pay the pollutee a sum of money up
front. The pollutee is willing to accept compensation for
the inconvenience and discomfort caused by the pollution.
They agree on a level of pollution and a payment
that’s satisfactory to both.
It works the other way, too. If the polluter has the
right to pollute, the pollutee offers him money to
pollute less, and the same deal is reached. This
pollution level — which is greater than zero but
less than the polluter would emit if pollution were free
— is, in the language of economists, optimal.
(Whether it’s best for nature is another matter.)
It’s arrived at because the polluter’s
externalities have been internalized.
For fans of privatism, Coase’s theorem was an
intellectual breakthrough. It gave theoretical credence
to the idea that the marketplace, not government, is the
place to tackle pollution. Instead of burdening business
with page after page of regulations, all government has
to do is assign property rights and let markets handle
the rest.
There’s much that’s attractive in free
market environmentalism. Anything that makes the lives of
business managers simpler is, to my mind, a good thing
— not just for business, but for nature and society
as a whole. It’s good because things that are
simple for managers to do will get done, and often
quickly, while things that are complicated may never get
done. Right now, we need to get our economic activity in
harmony with nature. We need to do that quickly, and at
the lowest possible cost. If it’s easiest for
managers to act when they have prices, then let’s
give them prices, not regulations and exhortations.
At the same time, there are critical pieces missing in
free market environmentalism. First and foremost, it
lacks a solid rationale for how property rights to nature
should be assigned. Coase argued that pollution levels
will be the same no matter how those rights are
apportioned. Although this may be true in the world of
theory, it makes a big difference to people’s
pocketbooks whether pollutees pay polluters, or vice
versa.
Most free marketers seem to think pollution rights
should be given free to polluters. In their view, the
citizen’s right to be free of pollution is trumped
by the polluter’s right to pollute. Taking the
opposite tack, Robert F. Kennedy Jr., an attorney for the
Natural Resources Defense Council, argues that polluters
have long been trespassing on common property and that
this trespass is a form of subsidy that ought to end.
The question for me is, what’s the best way to
assign property rights when our goal is to protect a
birthright shared by everyone? It turns out this is a
complicated matter, but one we need to explore.
There’s no textbook way to “propertize”
nature. (When I say to propertize, I mean to treat an
aspect of nature as property, thus making it ownable.
Privatization goes further and assigns that property to
corporate owners.) In fact, there are different ways to
propertize nature, with dramatically different
consequences. And since we’ll be living with these
new property rights — and paying rent to their
owners — for a long time, it behooves us to get
them right.
Consider the matter of who represents pollutees. Coase
presented his model in its simplest form: a single
polluter and a single pollutee. In the real world, there
are usually a few large polluters and millions of people
who are polluted upon. It’s prohibitively expensive
for individual pollutees to sue large polluters, just as
it is for large polluters to negotiate individually with
pollutees.
For the Coasian model to work, the class of pollutees
as a whole needs to be represented by an agent.
What’s more, it matters to whom that agent is
accountable, and what principles drive its actions. If
either the accountability or the principles are wrong,
the agent will sooner or later do the wrong things. But
if the agent’s accountability and principles are
right, we may actually have a fix for capitalism’s
predisposition to pollute. The key is to make each agent
a trustee for future generations and all living citizens
equally.
Then there’s the matter of who gets the initial
property rights, and whether or not they have to pay for
them. Consider pollution trading as
it’s been put into practice so far.
Government issues permits to dump a particular
pollutant into the commons. It gives the permits —
for free — to large polluters, based on how much
they polluted in the past. Past polluters who reduce
their future pollution can benefit by selling permits
they no longer need.
This kind of pollution trading involves both
propertization and privatization. First, a new kind of
property is created — a right to emit a particular
chemical into the commons. Then, this piece of property
is given to private corporations. I have no problem with
the first part of this process, propertization. What
troubles me is the second part,
privatization.
Giving away pollution permits, instead of auctioning
them to the highest bidders, is like handing out free
leases to an office building. Worse, it’s like
handing out free leases and letting the freeloaders
sublease to others and pinch the rent. And we’re
not talking about pocket change, either. When it comes to
carbon dioxide emissions, the assignment of property
rights is potentially worth trillions of dollars.
That’s money consumers will inescapably pay in
higher prices for energy. To whom they pay it depends on
who gets the property rights to the sky. ...
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