1. Property rights and the climate

    In discussions about the climate issue, I’ve often heard the argument that no one, including the government, has a right to interfere in the disposition of private property.  In essence, supporters of this view believe in unrestricted property rights and place great faith in their sanctity.  This position is a bit ironic, because it is precisely the lack of property rights in the global atmospheric commons that leads to the world’s emitters using its ecological services for free and causes the problems I outline in previous chapters.   The deeper issue is, however, that the most widely cited justifications for property rights contain often over-looked assumptions and cannot be used to justify their unrestricted application.

    There are two fundamental justifications for property rights in western societies:  one justification is based on natural rights or justice, the other on economic efficiency.  The rights-based justification traces its roots to the writing of the English philosopher John Locke, who, in The Second Treatise of Government, wrote:

    Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person; this no body has any right to but himself.  The labour of his body, and the work of his hands, we may say, are properly his.  Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.  It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men:  for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others. (ch.5, §.27)

    The laborer therefore deserves the fruits of his labor, as Robert Nozick and other contemporary philosophers have argued. However, the final proviso is often overlooked by advocates of unrestrained property rights, yet its effect is to limit their scope dramatically in a world dominated by tragedies of the commons like climate change.  Determining whether a polluter is leaving “as much and as good” for others can be difficult, but once it is determined, the “others” can act to restrict the property rights of the polluter in some undetermined way, even under the philosophy of one of the most forceful and widely-quoted advocates of natural rights to property.

    The other major justification for property rights is that of economic efficiency.  This justification has its roots in the writings of Locke and Adam Smith, but it derives the necessity for property rights by showing that property rights in a market-based economy will lead to a more efficient outcome than systems without property rights.  One assumption of this justification is that consumers purchasing a good must pay the full cost of the good, including costs borne by society as a whole.  If all social costs are not internalized, the production outcome will not be an efficient one.  But this assumption is none other than the Lockean proviso of “as much and as good”, and the result is the same.

    Both justifications for property rights therefore include the same proviso:  when an individual or organization pollutes, despoils, or is generally not leaving “as much and as good” for others, then there is justification for restricting property rights.  This proviso is both efficient and just, because manufacturers using hazardous materials have an incentive to reduce their consumption, and those consumers who use a product that requires such materials in its manufacture pay the costs of doing so.

    It’s also important to remember that government defines property rights and can choose how these will be structured and enforced, which can strongly affect the incentives individuals and institutions have to protect the commons (for one example of this issue in the government context, go here). Many of these choices have some level of arbitrariness to them, which means we as a society can make choices that favor long-term sustainability instead of short-term profit, and there’s nothing wrong with that. 

    I doubt anyone would argue nowadays that preventing people from owning others as slaves was an unwarranted abridgment of property rights, but that shift had major social and economic implications, not the least of which was living up to the promise of the Declaration of Independence, that “all men are created equal”. Other examples abound, from restrictions on how companies can treat workers, to conditions on the chartering of corporations, to creation of new types of corporate entities, to the penalties imposed when property rights are actually infringed by others in the society.

    For many decades the property rights associated with a battery transferred fully from the manufacturer to the purchaser of that battery.  In recent years, as society has become more aware of the toxic effects of chemicals in groundwater, some countries (notably those in Europe) have moved towards a modification of property rights, under the rubric of “extended producer responsibility”.  The manufacturer is still responsible for safely recycling that battery, even after it is sold to the customer, so in a sense the producer still owns the part of the battery’s costs associated with long-term disposal.  This change is not that different from property rights for land in the US, where rights for mining, water, wind generation, and air (in the sense of the right to fly through the air above some land) can be split off and sold separately, depending on the laws for the state in which the property resides. 

    Decanio raises this issue clearly in the context of climate:

    “Property rights begin with the government, because it is the government that defines what kinds of actions are lawful, what kinds of exchanges are permitted, and what kinds of contracts are enforceable…

    Social entitlements typically are inalienably attached to individuals.  Yet the practical significance of these entitlements depends on interpretation and enforcement of laws.  Ultimately it is the state that makes this determination.

    The reason this matters for climate policy is because the future outlines of the economy are going to be determined, to a very large degree, by the kinds of rights–in climate stability, emissions levels, or fossil fuel use–that ultimately will be policy-determined.  The situation until now has been one in which users of fossil fuels have been free to dispose of the waste products of the combustion of those fuels (mainly CO2) for free…This allocation of ‘climate rights’ was appropriate in the preindustrial and early industrial world, when energy demands were relatively low and human activity did not have much of an impact on the atmosphere as a whole…

    That situation no longer prevails…If and when governments begin to address the consequences, and assign various kinds of environmental or climate rights to people (including future potential victims of climate change), the result will be a change in the allocation of wealth.”

    Thus, the definition of property rights depends on context, as Decanio rightly notes, and this definition can (and should) evolve as the context changes (and boy has it changed). 

    The deep insight conveyed by Decanio is that solving the climate problem requires redefining property rights to reflect the new reality of our limited atmosphere, and no one else can do that except governments. It is therefore nonsensical for people to argue that private property rights are absolute—they are defined by government based on a certain context, and when that context changes, the way we define property rights needs to change too.  The argument about climate and other environmental issues then becomes about what definition of property rights makes sense instead of focusing on the costs imposed on individuals and corporations, and that’s a much more appropriate place to have the argument.

    For individuals, rights come with responsibilities.  That’s true of people and it should also be true of companies. They are treated as persons under the law, at least from a rights perspective, but their responsibilities need to also be enumerated and enforced.  If the government aggressively enforces property rights without also simultaneously defining and enforcing the responsibilities for property owners then this imbalance will lead to outcomes that are bad for society. So we really do need a consumer products safety commission to keep lead paint out of toys, a Food and Drug Administration that aggressively enforces purity standards for consumer goods, and a government that in general takes a proactive role in analyzing the societal costs of private actions and takes appropriate actions when the costs of those actions are not being born by the economic actors who cause them.   Even better would be giving incentives for companies to proactively behave in the most sustainable way, but that’s something we’re going to have to work on.

    This way of looking at the problem has an additional important feature:  it reveals yet another issue with economic models.  These models take the current set of property rights as a given, but if these are redefined (as it is incumbent upon all market systems to do as conditions change) then the equilibrium that results may be quite different from one where property rights are kept constant.  The possibility for changing property rights is therefore another important source of multiple equilibria (along with increasing returns to scale, information asymmetries, and transaction costs, to mention a few), and that means (again) that we get to choose the kind of society we want by our choice of property rights regimes.


    This blog post draws from Chapter 7 in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, to be released by Analytics Press on February 15, 2012.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

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