Who Deserves the Value of the Atmosphere
New Assets to be Owned
Jeff Gates
The quality of the gaseous bubble that surrounds the earth is hugely
important to the quality of life on earth. Our use of fossil fuels has put
that domain at risk. For example, we Americans blow about 1.5 billion tons
of carbon into the air each year. The sky may already have reached its
absorptive capacity for acid-brewing sulfur, ozone-eating chlorine and
heat-trapping carbon-dioxide. Oil is no longer in short supply. Sky is.
Yet because the atmosphere has no owner, it's treated like a common sewer.
That helps keep energy prices low because, when you buy gas at the pump,
there's nothing factored into the cost for the use of the atmosphere.
Our demand for skyborne carbon storage is the flip side of our demand for
fossil fuels. We pay for oil used because we assign property rights to its
use. We don't pay for air to hold its combusted residues, but that's
because only recently has it become clear that atmospheric capacity is
scarce. The era of free sky is over. The question is how best to regulate
its use. Property laws have traditionally been used to allow owners of
scarce things to charge other people for using them. That could be done
for the atmosphere much the same as it's now done for land and water use.
What's required is that we create atmospheric property rights and then
assign them to proper owners. Therein lies both the opportunity and the
danger.
A recent study by DRI/McGraw-Hill put the value of U.S. carbon absorption
capacity at hundreds of billions of dollars per year throughout the early
twenty-first century, making this ownerable asset a potential
multi-trillion dollar treasure trove. One intriguing aspect is that the
value of the sky rises as emission caps are lowered because of the scarcity
factor (people will pay more to use a limited resource). That also means
owners of these property rights will collect more income when emission caps
are lowered, thereby aligning interests in conservation and income.
This is where an Alaska or GSOC-like model might be put to good use,
transferring this property right provided everyone in the nation is made a
beneficiary. Indeed, we may find that the best way to preserve the
atmosphere is not to regulate it but to price it. By ensuring that
consumers pay not only for goods but also for "bads," this approach could
ensure that atmospheric scarcity is factored into the price of fossil
fuels, with that extra cost becoming income to those who own a stake in
this newly created property right.
One key challenge here lies in ensuring that the carbon club (the oil
companies) do not claim this property for themselves. Under the Clean Air
Act of 1990, coal-burning companies are allowed to trade sulfur emission
permits among one another, allowing the industry as a whole to find the
cheapest way to reduce overall emissions. Those permits now trade at the
Chicago Board of Trade alongside grains, stock index futures and pork
bellies. What has happened with sulfur could now happen with carbon and
other gases. Whoever owns these emission rights will become the landlords
of the sky, charging a fee for the right to use the scarce absorptive
capacity of our commonly inherited atmosphere.
This idea comes along at a time when needed. Not only do we need a new
approach to control pollution, we also need to find a new way to capitalize
our grossly undercapitalized population. Consider that President Bill
Clinton's plan for Universal Savings Accounts is projected to cost $450
billion over 15 years. Similarly, Senator Bob Kerrey of Nebraska proposes
diverting $250 billion in Social Security taxes over the next 15 years to
create a savings account for every newborn child ($1,000 at birth plus
$500/year until age five). Yale professors Bruce Ackerman and Ann Alstott
propose an even grander plan in The Stakeholder Society, relying on a
wealth tax to create universal nest eggs.
This is quite different. In essence, the idea is to create monetary goods
by ensuring that people pay for pollution. Projections suggest that the
proceeds could easily exceed $1 trillion over the next 15 years, more than
the Clinton and the Kerrey plan combined. Plus the revenue wouldn't depend
on iffy budget surpluses, transfers from Social Security or new taxes on
anything. Instead, it would rely on the very Jeffersonian idea of
small-scale property rights created from the commons (the atmosphere) and
assigned individually to all those with a stake in the commons.
Also, unlike a tax on pollution, which would have a drag on the economy,
this mechanism would bypass the U.S. Treasury, relying on the concept of
atmospheric rents (which would raise energy prices) but with those rents
paid out to citizens as taxable income for them to spend as they wish.
Rather than an economic drag, the effect should be to reduce the use of
pollutants while stimulating either consumption or saving (the dividends
paid to children could be put in an education trust account). Of course,
this is an overly simplistic explanation of a much more complex and
multi-layered subject that involves not only the interests of U.S. citizens
and other developed countries (the key polluters) but also the interests of
lesser developing countries who can be expected to resist the notion of any
restraint on their development due to a repricing of energy.
This article appeared earlier at the Progress Report web site.
Books by Jeff Gates:
The Ownership Solution (1998)
Democracy at Risk (2000)
