The Legal Nature of the Entitlement

Although the popular literature frequently refers to the tradable permit approach as “privatizing the resource” (Spulber and Sabbaghi, 1993; Anderson, 1995), in most cases it doesn’t actually do that. One compelling reason in the United States why tradable permits do not privatize these resources is because that could be found to violate the well-established “public trust doctrine.” This common law doctrine suggests that certain resources belong to the public and that the government holds them in trust for the public; they can’t be given away.21

Economists have argued consistently that tradable permits should be treated as secure property rights to protect the incentive to invest in the resource. Confiscation of rights could undermine the entire process.

The environmental community, on the other hand, has argued just as consistently that the air, water, and fish belong to the people and, as a matter of ethics, they should not become private property (Kelman, 1981). In this view, no end could justify the transfer of a community right into a private one (McCay, 1998).

The practical resolution of this conflict has been to attempt to give “adequate” (as opposed to complete) security to the permit holders, while making it clear that permits are not property rights.22 For example, according to the title of the U.S. Clean Air Act dealing with the sulfur allowance program: “An allowance under this title is a limited authorization to emit sulfur dioxide. … Such allowance does not constitute a property right” (104 Stat. 2591).

In practice this means that administrators are expected to recognize the security needed to protect investments by not arbitrarily confiscating rights. They do not, however, give up their ability to change control requirements as the need arises. In particular, they will not be inhibited by the need to pay compensation for withdrawing a portion of the authorization to emit as they would if allowances were accorded full property right status. It is a somewhat uneasy compromise, but it seems to have worked.

Adaptive Management

One of the initial fears about tradable permit systems is that they would be excessively rigid, particularly in the light of the need to provide adequate security to permit holders. Policy rigidity was seen as possibly preventing the system from responding either to changes in the resource base or to better information. This rigidity could seriously undermine the resilience of biological systems (Holling, 1978).

Existing tradable permit systems have responded to this challenge in different ways depending on the type of resource being covered. In air pollution control, the need for adaptive management typically is less immediate and the allowance typically is defined in terms of tons of emissions. In biological systems, such as fisheries, the rights typically are defined as a share of the TAC. In this

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