I am a Libertarian. I believe that market processes based on secure property rights and competitive ‘exit’ provide the best hope of discovering ‘solutions’ to the vast majority of socio-economic problems including environmental ones. Profit-driven capitalism and its desire to ‘make people pay’ for goods they were previously consuming ‘for free’ provides the key to solving most environmental dilemmas – it is the embodiment of the ‘polluter pays principle’. Seen through this lens, there are many environmental assets currently held under ‘open-access’ conditions or subject to government ownership and/or regulation that could and should be ‘privatised’ – whether at the level of individuals or companies, or as suggested by Elinor Ostrom at the level of cooperatives and mutual associations. These include land-based assets such as forests, minerals, and wildlife, which can be subject to various ‘fencing’ technologies; stationary resources such as oyster beds; and water-based assets such as rivers and inshore fisheries that are also relatively excludable with existing technology. Empirical studies of such assets under open access, government ownership and private ownership show that tradable property rights promote more sustainable management practices (for a summary of this evidence, see L. De Alessi, 2005). As exclusion technologies evolve this class of assets may be extended to include even such resources as offshore fisheries and some regional forms of pollution.
All this said, as a Libertarian I have no hesitation in recognising that anthropogenic climate change presents a potentially serious ‘market failure’. Even allowing scope for entrepreneurs to develop new techno-institutional devices Libertarians need to bite the bullet and recognise that ‘privatising the atmosphere’ is a fantasy. To make this admission, however, is not to suggest that there is any realistic non-libertarian solution to the problem. On the contrary, in order to reach this conclusion one would need to subscribe to at least three assumptions that are no less fantastic than the idea of privatising atmospheric resources. The first of these assumptions is the belief that government’s can be trusted to develop cost effective schemes to reduce emissions given their abysmal record at estimating accurately the costs of much more basic public infrastructure projects. The 1% of GDP estimated by the Stern Report to be the annual cost of reducing carbon dioxide emissions seems remarkably optimistic in view of the recommendation that cuts in emissions per unit of output need to reach the order of 80% by 2050. If Stern’s projected costs turn out to be as inaccurate as was the much simpler task for UK authorities of estimating the cost of the Scottish parliament building (and countless other similar schemes) – which came in more than 1000% above target – then the economic costs of climate change policies may turn out to be far greater than the costs of climate change itself.
The second assumption is that global policy makers have the knowledge to manage climatic patterns via adjustments to emissions and that they can in the face of diverse international incomes, preferences and attitudes to risk, agree on the parameters necessary to determine an appropriate rate of reductions. It seems highly unlikely that agreement will ever be reached on some sort of global cost v benefit analysis because depending on which particular climate simulation model proves accurate, significant parts of the globe may be net beneficiaries from climate change. Russia in particular would likely be a net beneficiary on some estimates owing to the improved agricultural productivity resulting from a warmer climate and fewer cold-related deaths during the winter months (Nordhaus and Boyer, 2000).
The final assumption is the belief that the type of global political institutions needed to develop climate change policies could enforce credible policies and be held accountable for their actions. While it is true that large scale environmental issues, of which CO2 induced climate change is the most important are unlikely to bring forth adequate solutions from individual nations ‘acting alone’ owing to free-rider problems and the difficulty of identifying individual ‘polluters’, these collective action problems will not be eradicated with the creation of global political structures. On the one hand, such structures would face massive monitoring costs in seeking to discover whether their own regulations are being enforced. In addition, they would need to commit to the enforcement of credible punishment procedures against transgressors. How exactly, a state like China or the United States might be ‘punished’ is left unanswered. Would such nations impose fines against themselves, and if not would other nations resort to protectionism with all its attendant costs or worse still (though less credibly) military action if they did not? And, finally there would be enormous principal v agent problems in holding to account the relevant global structures. The lack of accountability witnessed in existing trans-national bodies such as the European Union and the United Nations hardly fills one with confidence that global climate change institutions would not systematically abuse the enormous powers that would need to be at their disposal.
To summarise, I contend that there may be no effective institutional solution to the ‘mother of environmental dilemmas’. This is the tragedy of climate change.
De Alessi, L, (2005) Gains from Private Property: the empirical evidence, in Anderson, T, McChesney, F (eds.) Property Rights: Cooperation, Conflict and Law, Princeton: Princeton University Press.
Nordhaus, W., Boyer, J. (2000) Warming the World: Economic Models of Global Warming, Cambridge: MIT Press.