A few days ago, Rep. Sean Casten (D-IL) posted a 31-part mega-thread on Twitter about carbon pricing. Casten thinks carbon pricing is a potentially powerful tool for coping with climate change, as I do, even though we don’t agree on every detail of how it should best be implemented. But one point that Casten raised in his Tweets stood out for me: Who owns the air?
Casten does not pose that question directly, but it comes up indirectly when he raises the issue of how a carbon tax, which is commonly said to be a “price on pollution,” differs from an ordinary market price, like the $120 he paid recently for a pair of running shoes. Here is what he wrote in Tweets 7 through 10 of his thread:
We can say one thing generally: For markets to work, the price a buyer pays should be the revenue a seller gets.
So the way we efficiently allocate private assets for shoe manufacturing is by ensuring that the $120 I paid for my last pair of running shoes = $120 in revenue to the shoe store.
No one this side of Karl Marx argues that we should instead pay the government $120 and then leave them to allocate that revenue among putative shoe manufacturers and distributors. And yet that is EXACTLY what a carbon tax does.
Is it really true, then, that to advocate a tax as the best way to implement a carbon price makes me a Marxist? That answer, I think, turns precisely on our view of who “owns” the air — or more precisely, who owns the right to pollute the air, or to exclude pollution?
Consider three possibilities:
- Pollution victims “own” the right. The standard analogy is that just as you don’t have the right to dump your kitchen garbage on my lawn, you don’t have the right to dump your carbon in my airspace. I could sell you the right to dump your garbage, or your carbon, if you offer me an attractive price, but unless we negotiate a deal, I can go to court to enjoin unauthorized dumping.
- The polluter “owns” the right to emit carbon as the “first user” or “homesteader.” Steel mills and power plants were spewing carbon long before anyone objected or felt harmed by it. Therefore those who feel harmed must go to the polluters and offer to pay them to cut their emissions.
- The government “owns” the air rights and manages them as an agent for citizens. One way to do that is for the government to set a price for carbon emissions and collect the revenue. In turn, through the political process, it would determine how to spend the revenue in a way that best benefits its principals, the citizens.
These alternative assignments of property rights have been debated endlessly on philosophical grounds, but I’d like to skip over those arguments here. Instead, I would like to focus on some pragmatic issues that lead us to carbon taxation as a reasonable way to implement a price for carbon.
First consider assignment of air rights to individuals, including the right to seek injunctive relief for pollution under theories of nuisance or trespass. The problem is, in that case it would quickly become impossible for anyone to emit any carbon pollution whatsoever. Each carbon emitter would have to negotiate a compensation agreement with each victim anywhere in the world. If procedural standards and burdens of proof were structured to favor plaintiffs, any single dissatisfied victim could sue for an injunction to close the source down entirely. Industry and commerce would grind to a halt and the courts would be clogged with lawsuits for minor infringements or imagined damages. The result would be a world with too little pollution and not enough goods and services.
In a well-known paper, Murray Rothbard has argued that outcome could be avoided by tilting the burden of proof and other legal requirements for trespass and nuisance suits in favor of polluters. For example, he would require that a plaintiff would have to prove beyond a reasonable doubt that the specific carbon dioxide molecules he is bothered by originated from a specific source. Suits to enjoin carbon emissions in general would not be allowed. Also, Rothbard would severely limit the right of plaintiffs to join together in class actions. If his recommendations were adopted, it would, in practice, become impossible for victims of carbon pollution to prevail in court, despite their formal property rights. The result then would be a world with too much pollution.
Suppose, instead, that emission rights were assigned to polluters under a homesteading or first-use theory. A different set of problems would then arise. In that case, pollution victims would have to negotiate with polluters to pay them to cut back on emissions. That “Coasean” approach sometimes works when there are just a few victims and one or a few sources of pollution. However, in the case carbon emissions, where victims and sources are scattered across the world, such negotiations would have scant chance of success. The Coasean approach, like the Rothbardian one, would lead to a world of excessive emissions.
The problems that arise from the assignment of air rights to either sources or victims, and then asking them to sort things out in court or through private negotiations, bring us to the third alternative: Assigning air rights to the government, which would then act as an agent for the citizenry. Arguably, that approach offers the best hope of balancing the costs and benefits of various levels of pollution. Writers who advocate carbon pricing argue that such a system offers a simple and practical way of implementing a balanced policy. If so, it would be entirely in keeping with market principles for carbon payments to be made to the government, which would then determine how best to use them through democratic procedures — debt reduction, investment subsidies, compensation of low-income households, or whatever.
In conclusion, I’d like to point out one more way in which Casten’s running-shoe analogy misses the mark. In the running shoe case, the manufacturer is not only the seller of the shoes, but their producer. If the seller does not get an appropriate price for the product, the shoes will not come into existence. In contrast, regardless of to whom we assign emission rights, the capacity of the atmosphere to absorb carbon emissions is not “produced” by anyone. It is a naturally occurring resource that can be used up, but it cannot be increased or decreased by human action. Therefore, unlike the case of running shoes, there is no need to compensate the seller for the cost of bringing this resource into existence.
The bottom line: In the abstract, I see the attraction of establishing a “real” market for pollution rights by assigning ownership of the air to individual pollution victims. But as a pragmatist, I think this is a case where the government can do better, even if no real-world government is ever going to do its job personally. That is why I think a carbon tax is the best way yet proposed for implanting a price for carbon.