Evolutionary Phases in the Development of Property Rights: 1.
Access to the Commons
with no Rivalry 2.
The Tragedy of the
Commons 3.
Laws and Regulations 4.
Private Property Rights By the late 1960s, it was obvious that the United States had
moved into the second phase of property rights: the tragedy of the commons.
Environmental degradation had spread beyond isolated cities like Gary, Indiana,
and Pittsburgh (which, incidentally, have both made great strides toward
improved air quality). Congress more formally delineated rights to use the
environment by enacting environmental legislation for both water and air. Arguments about environmental regulation can be rancorous.
Environmentalists are often accused of shunning cost-benefit calculations in
favor of rigid regulations requiring greater purity. Many environmentalists
complain that bureaucrats fail to aggressively combat pollution. For example,
turmoil at the EPA in the 1980s reflected outrage that regulators were
selling out to polluting industries. This rhetoric has been counterbalanced:
firms faced with high costs of cleaning up oppose EPA regulations by loudly
criticizing the ineptitude of environmental managers. In spite of this furor,
environmental policy appears to follow a smooth and predictable path. The first step in moving past common, unrestricted use of
the environment entails identifying causes of such problems as air pollution.
Smog was first noticed in the 1940s as a haze against foothills east of Los
Angeles. Smog was first thought a passing thing, but pressure slowly mounted
to clean the persistent brown cloud. One problem was that no one could
identify the nature of smog, that is, where it came from or what its effects
might be. By 1951, however, a Cal Tech study fingered auto emissions as the
major culprit. When the EPA was first charged with responsibility for
environmental quality, it viewed mandatory cleanup by all polluters as the
only practical approach. Abatement was initially treated on a case-by-case
basis, but uniform rules seemed necessary on two grounds. First, the EPA
expected its mandates to be easily monitored. Second, uniform standards
legally treat the affected parties equally and are nondiscriminatory
constitutionally, even if they dictate unequal burdens of pollution control. During this period of uniform pollution control, society
learned more about pollution and how to measure it, paving the way for marketable
pollution rights to emerge. At the same time, political obstacles shaped
mandatory rules and standards. Special-interest groups lobbied for rules to
benefit them. Surprisingly, special-interest groups frequently pressed for
increased environmental purity; it is a mistake to think that regulations
harm all firms. Some are harmed and some are not. For example, control over
pollution in steel making entails substantial economies of scale. Thus, big
firms tend to advocate tough rules that drive their smaller competitors out
of business. The demise of small firms promotes environmental quality. Firms
in polluted regions want pollution control requirements to be as burdensome
on firms in cleaner areas. This also enhances environmental protection, but
at significant cost. In most cases, special-interest pressures have caused
inefficient regulation. Despite special-interest groups, there has been a steady
movement toward more convenient and transferable environmental property
rights. The EPA allowed the bubble concept
to be implemented in many situations in the 1970s. “Bubble” refers
to a performance standard imposed for the area surrounding a plant or a group
of adjacent plants, as opposed to the standards that were originally imposed
on each specific source within a plant. The bubble concept
allows firms to transfer pollution rights between sources within a plant as
long as a prescribed standard of environmental quality is met. There is a continuing evolution from the bubble concept to
pollution rights that are marketable between plants. The gains from exchange
that exist within a plant are also available between plants. Some permits to
pollute are also now marketable. An offset policy
allows a new firm to enter an overpolluted area by inducing other firms to
reduce emissions. Air quality must show a net improvement, and the new firm
must meet all individual standards imposed on existing firms. What this means is that a new entrant can bargain with
existing firms, paying them either to shut down or to employ better pollution
controls. For example, a California firm was permitted to build a
40,000-barrel-per-day oil terminal after paying $250,000 for an offset
created when a local chemical plant closed. Such offsets are now advertised
for sale in the Wall Street Journal.
The 1990 Clean Air Act specifically permits coal-burning utilities to
overcomply with sulfur dioxide standards and then sell their extra pollution
rights. Recently, Northeast Utilities of Connecticut donated to the American Lung
Association the company’s pollution rights—rights to release 10,000
tons of acid-rain creating chemicals. A recent extension of offsets is
described in Focus 3. Although market solutions have crept into the regulatory
postures of agencies like the EPA, there are still many inefficiencies that
exist only to enhance the wealth of special interests. For instance, the
bubble concept applies only to old plants, not new ones. New-versus-old
disparities in environmental controls are a recurrent theme. Another example
of special-interest effects is that the net improvement in the environment
necessary to qualify an offset as legal is a political football often kicked
from one end of the field to the other. Firms with offsets for sale commonly
try to influence regulators to require great improvements in environmental
quality before allowing a new firm to enter a blighted area; this drives up
the value of existing rights to pollute. |
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________________________________________________________________________________________________________________________________________________ Author: Ralph Byrns |
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Economics
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