Under a "marketable permits" approach to controlling pollution, firms have permits to emit a certain amount of pollution.
If a firm has extra permits, it can sell them; if it needs additional permits, it can buy them. The idea is that firms that have lower-cost methods of reducing pollution now have an incentive to do so, because they can sell the permits.
But here's a question that's obvious to economists: Could an environmental group purchase a bunch of these pollution permits and not use them or sell them, just for the purposes of reducing pollution?
Similarly, what if government auctioned off a bunch of oil leases. Could an environmentalist group purchase them, and not drill? Or what if government auctions off leases for grazing cattle or cutting timber on federal lands. Could an environmentalist group bid on the leases but then not graze cattle or cut timber? Or what if the government gives out a limited number of permits for hunting a certain animal, perhaps by lottery. Can a bunch of environmentalists flood into the lottery, get some share of the permits, and then not hunt?
Shawn Regan tackles this question in "Why Don’t Environmentalists Just Buy What They Want to Protect?" and gives an answer in the subtitle "Because it’s often against the rules" (PERC Reports, Winter 2020, pp. 15-23). He writes:
Technically, any U.S. citizen can bid for and hold leases for energy, grazing, or timber resources on public lands. But legal requirements often preclude environmentalists from participating in such markets. Federal and state rules typically require leaseholders to harvest, extract, or otherwise develop the resources, effectively shutting those who want to conserve resources out of the bidding process. Energy leasing regulations, for example, require leaseholders to extract the resources beneath their parcels. If they don’t, the leases could be canceled.
Historically, there is some rationale for these rules. A local economy may depend on cattle grazing or timber or oil and gas extraction. Environmentalists can buy out private owners of land: say, buying buying oil and gas leases or grazing rights from private owners. But environmentalists are not allowed to buy rights on public lands. By setting up a lease program, the government has agreed that these are suitable uses for the land.
In the case of hunting permits, the number given out is often calculated based on what wildlife biologists think is useful for the long-run success of the species. In this case, environmentalists who try to gather up such permits to prevent hunting are opposing "the science." Timber rights are often given out based partly on the notion that letting dead wood pile up can create a landscape that will at some point suffer a devastating fire. Appropriate land management is a controversial topic.
Environmentalists are increasingly trying to purchase government leases. Regan points out:
But increasingly, environmentalists are testing the strategy of bidding for the rights to natural resources instead. In recent years, activists have attempted to acquire oil and gas rights in Utah, buy out ranchers’ public grazing permits in New Mexico, purchase hunting tags in Wyoming to stop grizzly bears from being killed, and bid against logging companies in Montana to keep trees standing.
Behind the scenes, grazing and timber rights have been declining over time. Regan reports: "Livestock grazing on federal lands has declined more than 50 percent since the 1950s, in part due to environmental regulations that have weakened ranchers’ grazing privileges and pitted them against environmentalists in zero-sum legal fights. Likewise, timber harvests on federal lands have fallen nearly 80 percent since the 1980s." In some cases, it may be more productive for environmentalists to focus on whether it might be possible to focus on whether leases will be granted at all, rather than engaging in a legal battle to purchase them.
It's worth noting that use-it-or-lose-it property rights are not unheard-of in other contexts. For example, water rights in much of the western United States have traditionally operated under a use-it-or-lose it legal regime. As economists have been quick to point out, this approach is often not good for incentives to conserve water, because a farmer who finds a way to use less water simply loses their legal right to that water. But it also means that if an environmentalist purchased a western farm and did not use the water rights, the farm would lose those rights. Use-it-or-lose-it property rights are common in the workplace, too, in companies where if you don't use your vacation or your sick leave or other benefits in a given year, they disappear and do not carry over into the following years.
As Regan writes: "It’s clear that many people value conservation and are willing to spend their own money to get it. The only question is whether those resources will be channeled through zero-sum political means or through positive-sum market mechanisms. In any case, if competing groups cannot directly acquire or trade rights through markets, whether for use or non-use purposes, the only option is to fight it out in the political and legal arenas."
Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.