Wednesday, December 8, 2010

The Supreme Court and Climate Change

Discover's blog notes that the Supreme Court has agreed to hear a public nuisance suit brought against six power companies by eight states for damages caused by greenhouse gas emissions. To a certain extent, this is very good news, because it's a defeat for the use of coercive force on the part of polluters who impose costs with impunity on people who, because of history and practicality, don't have property rights to the air they consume.

I am a little concerned about it, though. While some people see the legal system and tort law as a viable way to arbitrate these things, I'm skeptical. I come at this as an economist - the problem is that a cost-bearer and a benefit-enjoyer can't meet to negotiate the terms of the cost and the benefit imposition (or if they want any cost or benefit imposition in the first place). The crux of the issue is that the cost-bearer has no legal claim on which to base a contract.

A legal solution drawing on public nuisance law at least allows ex post compensation that may or may not be appropriate. That's better than the previous situation, but it still allows benefit-enjoyers to impose the costs of pollution without the agreement of the cost-bearer. In other words, there is no "double-coincidence of wants" that guarantees that we have gains from trade: there is a "single incidence of want" with ad hoc, ex post, legally determined compensation. Even if the courts could adequately assess damages (which nobody who knows anything about the socialist calculation debate should expect), they still can't guarantee welfare maximization because they can only guarantee that cost=benefit, not that marginal cost=marginal benefit. Not only can they only guarantee that cost=benefit for compensated cost-bearers (if that), but that is all they are tasked with doing.

I think the better route would be to say "the air is collectively owned and it oughta be collectively managed", and have the court order the state to fix the problem, much as they did with desegregation. With desegregation, the rights structure that was the status quo was unjust, but rather than telling whites to compensate blacks and letting the rights structure work itself out, the courts ordered the government to rectify the arrangement of rights in public schools and in voting. Ad hoc, ex post compensation is not the price mechanism and we shouldn't expect it to achieve optimal results. State action is not the price mechanism either, but it would be much closer to the price mechanism if we had an institution acting as the agent of the people (who, under the status quo, suffer from an incomplete property rights regime).


  1. Hey Daniel.

    Greenhouse gas emission and pollution are not the same thing.

    Pollution relates to carbon particulate, while greenhouse gas emission relates to carbon dioxide. Global warming and air pollution are unrelated.

    That sort of complicates the issue further, because one might suppose that an emission in, say, Maryland may have an effect on rivers in Boliva, according to today's cited theories of climate change.

    As it is, in this case, the damage is simply impossible to assess and it's hard enough to say whether there may or may not have been any specific damage, and courts are least equipped to understand the issue, especially one as complicated as paleoclimatology.

    It's different with pollution of air and water, which has visible tangible effects.

  2. Prateek, where do you get that definition for pollution?

    It's not all that relevant to your point, but airborne particulates most certainly do affect global warming. They reduce it, by reflecting solar radiation.

  3. Prateek - "pollution" is a quite general term, and doesn't even have to refer to chemical pollutants.

    In the United States, carbon dioxide most certainly has been considered a pollutant (in addition to the carbon particulates you mention) since 2007 from a legal standpoint for the simple reason that it is a contaminent that harms an environment - the definition of "pollution".


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