Environmental Markets A Property Rights Approach LEANZ

Environmental Markets: A Property Rights Approach LEANZ, Nov 2015 By Terry L. Anderson William A. Dunn Distinguished Senior Fellow, PERC, Bozeman, MT John and Jean De. Nault Senior Fellow, Hoover Institution, Stanford University

Bliss Point

Who Cares about Ω? § Wolfonomics § Reintroducing wolves to Yellowstone MC Value of wolves MB Ω Number of wolves

Whose Costs and Whose Benefits? “Last missing link in the ecosystem. ” “A good wolf is a dead wolf. ”

What would Coase Say? § Who has the rights? Wolves to roam or cattle to graze? § Who should pay? § What are the transaction costs? § Political solutions result in zerosum games—winners and losers.

Enter the Environmental Entrepreneur “Ain’t nobody kilt you yet? ”

Incentives matter! § “No one washes a rental car---except Hertz. ” § All environmental problems are property rights problems. § Well defined § Enforced § Tradeable—opportunity costs § Malleable—not a bundle of sticks

It’s hard to keep a good market down. § Water markets are on the rise. § Wildlife/hunting markets— CAMPFIRE § Emission trading markets § SO 2 § Tinkering with property rights doesn’t help.

Don’t tinker. SO 2 Allowance Prices

Don’t tinker. EU ETS Allowance Prices 35 30 Price (€/ton CO 2) 25 20 Phase II 15 10 5 0 1/7/2005 1/7/2006 1/7/2007 1/7/2008 1/7/2009 1/7/2010 1/7/2011 1/7/2012

Who owns the fish?

Regulatory limits, seasons, and capital Year Season Length (Days) Number of Active Vessels Percent of Halibut Marketed as Fresh 1980 64 333 N. A. 1981 58 337 1982 61 301 1983 24 305 1984 22 334 1885 22 363 1986 15 417 1987 16 424 1988 14 435 1989 11 435 1990 6 435 1991 214 433 1992 240 431 1993 245 531 1994 245 313 1995 245 294 1996 245 281 42% 94% N. A. British Columbia Halibut Fishery

Hats off to New Zealand! • Real property rights • Take or buy? • Maori Fisheries Act of 1989 • Proof is in the prices. • NZ quota are worth NZ$ 4 billion

Lease to Sales Price Ratio Sales price 12 times higher than lease price in NZ 3 times higher in US.

“When you come to a fork in the road, take it. ” § QMS has achieved sustainability. § The pie is larger so there is something to § Fight over? Zero sum. § Manage better? Positive sum.

The Fishery as a Firm § § “Changes are urgently needed to make the system work better. . Those who hold rights to fish should have more responsibility for managing them. ” Pearse Report— 1991 Successful fishery cooperatives “often perform the same management functions that a firm’s manager performs: they control aspects of members’ actions in order to achieve an outcome that is superior for the group. ” Robert Deacon

“When you come to a fork in the road, take it. ” § Progress or regress? § Will industry take a bigger role? § Setting the TAC and TACC § Undertaking research and management functions § Establishing rights for recreational and customary rights § Protecting marine ecosystems

Creating Environmental Assets § § Government works best for the environment when it creates clear and stable property rights. It works worst when it erodes them and leaves them up for grabs. Why environmental markets now? § We’ve picked the low-hanging regulatory fruit. § Environmental markets work by getting the incentives right. The next generation of environmentalists will be enviropreneurs finding the ways that work.