By Fred Foldvaryl Guest Commentary
WE HAVE THE MORAL RIGHT TO BE FREE from the pollution of others. We can minimize pollution more effectively with property rights than with regulations, carbon taxes, or permit trading. A property-rights approach to pollution invokes the spiritual aspect of economics that policymakers ignore: the harmony between what is morally right and what is economically efficient.
When people pollute, they invade others’ property, including the property of their own bodies. If cattle trample a neighbor’s ranch, the rancher is entitled to compensation. Likewise, when pollution trespasses into our bodies and other property,we are morally owed restitution.
Federal and state laws have instead mostly handled pollution with prohibitions and regulations. Some California lawmakers seek to phase out incandescent light bulbs, replacing them with compact fluorescent bulbs. South Coast Air Quality Management District officials have proposed prohibiting wood-burning fireplaces in new homes in some southern California counties.
California has imposed a statewide cap on greenhouse gas emissions. The state requires car owners to have periodic smog tests, and the federal government requires gasoline additives and regulates car engines. All these requirements and restrictions disregard wide differences in the costs of compliance.
One current fashion in handling pollution is to require permits to pollute. With a fixed number of permits,firms need to buy permits from other holders to increase production and pollution. Like trades in tax permits, this is an artificial market, increasing the costs on enterprise while showering windfall profits to permit holders who did not produce more but just hold claims to a privilege.
Instead of prohibiting and regulating, there are several ways that property rights can be used to deal with pollution. If a factory dumps pollution into a river that flows into a neighbor’s farm, the two sides can negotiate. Nobel Prize–winning economist Ronald Coase explained how parties can achieve an efficient solution by negotiating a payment either for the damage or to prevent the damage, whichever costs less. That is, the factory owner would either pay compensation for damages or stop polluting. The payment would greatly reduce pollution, since it makes it costly to pollute.
If the factory owner refuses to pay, the farm owner should be able to sue the polluter in court to get restitution plus court costs. However, U.S. laws and judges have hindered the ability of injured parties to sue for pollution damages. Government officials have regarded pollution as a public rather than a private nuisance.
When a resource such as a river is owned by the government instead of a private party, the ethics and economics of pollution don’t change. The polluter should pay compensation to the owners—the people—possibly with government collecting the payments on our behalf.
Unfortunately, instead of directly charging polluters for their damage, governments tax proxies—activities and property that seem to be related to pollution. For example, some environmentalists propose “carbon taxes” on inputs that contain carbon.
But taxing inputs such as gasoline is inefficient, since cars differ in their amounts of pollution. Fireplaces don’t pollute if they are not used or if the smoke can be captured. The problem is the output, or pollution, not the carbon inputs or the property such as a car or fireplace. It is both morally right and economically effective to focus the levies on the pollution, as doing so would cause the polluter to minimize the toxic emissions rather than the use of inputs.
Reducing pollution does not have to restrict liberty or impose an economic cost on industry and consumers. We can have a win-win solution by using pollution levies to offset taxes on income and sales, so that the social costs of installing pollution-reducing equipment is offset by lower taxes on goods, wages, and profits. Californians would benefit greatly if we replaced government mandates, taxes, and restrictions with pollution charges plus the liberalization of tort law so that victims could effectively sue polluters or negotiate with them.
Many environmentalists confuse energy efficiency with pollution. It should be nobody else’s business if a person uses a lot of energy with his own money. The only problem occurs when somebody’s emissions trespass on others. Negotiation, lawsuits, and pollution charges can handle this situation well, so there is no good reason to have costly regulations and taxes on things that do not directly harm others.
FRED E. FOLDVARY teaches economics at Santa Clara University, where he is also an associate of the Civil Society Institute.
Originally published in the Santa Monica Daily Press print edition on June 18, 2007. Read the original PDF.