In the United States, oil and natural gas companies are publicly traded on the stock market and fully privatized [1]. The implication of this is that natural energy resources like oil and natural gas, on which all people depend for their livelihood, and the burning of which contributes to climate change, are controlled narrowly by a fraction of citizens with voting rights (shareholders), while broadly by market forces; a second implication is that natural resources do not rightfully belong to the people, but are properly treated as a commodity like any other. In effect, the private holding of natural energy resources and the tradability of shares on the stock market creates a faction of shareholders whose interest in the maximization of profit is contrary to the general interest of all people, present and future, to live sustainably on a healthy planet. This is due to the nature of the stock market itself, where stocks attract investment based on potential return, not on social or environmental justice.

On the other hand, full government ownership is open to its own objections, such as the potential for corruption, and inefficiency due to bureaucratic control which is unable to respond quickly to market signals. We are mired thus between the privatized system in place which brought us to the precipice of catastrophe on one hand, and a likely unworkable government ownership solution on the other.

In this paper, we will consider two market based approaches to natural resources to show that they are inequitable, inefficacious, or both. First, we will consider Anderson & Leal’s neoclassical approach in Free Market Environmentalism, showing that it is insufficient to deal with climate problems on a global scale, and that it represents and inequitable conception of property. Secondly, we will consider a neoliberal approach to climate change in the form of pigouvian taxes, showing that even if it is an efficacious solution in theory, it fails in equitability. Ultimately, I will argue that a middle ground between private and governmental ownership, in the form of shared stock control, is a solution that addresses climate problems and preserves market signals, while affording a more equitable distribution of property.

Free market environmentalism, based on the book of the same name, is a neoclassical approach to environmentalism that that emphasizes strongly defined property rights and incentives to behavior, “with clearly specified titles obtained from land recording systems, strict liability rules, and adjudication of disputed property rights in the courts, market processes can encourage owners to carefully weigh costs and benefits and to look to the future.”[2] Anderson and Leal posit that there is a role for government in the protection of the environment, but that role is confined to the “definition and enforcement of property rights” [3].

Anderson and Leal are more concerned with process than specific prescriptions[4], noting that knowledge is diffuse and that humans are self-interested, and thus a correct market framework will give the multitude of individuals the tools they need to achieve various solutions to environmental problems. [5] The work echoes and refers to the work of Julian Simon and his cornucopian theory. Simon, in Bright Global Future, paints a picture of the history of scarcity as one in which private individuals devised solutions that cranked the engine of progress such that when one source of energy, such as whale oil, became scarce, it incentivized “entrepreneurs to discover and produce substitutes.”[6]

Both works take for granted the seemingly intuitive proposition that past experience is a fair predictor for the future, but upon further inspection we will see first that this argument is flawed; that the free market approach is impracticable; and that it assumes basic notions of private property that when applied to natural resources are too inequitable to justify.

Our first consideration is the argument’s optimism, which ascribes almost omnipotent power to human ingenuity. It works under the assumption that there is in fact a technical solution on the basis that in the past there have been technical solutions, failing to note that physical and logical limits are an inherent attribute of any system [7], be it ecological or otherwise. Following their optimism, one might be tempted to believe that if there were an economic incentive to travel faster than the speed of light, man would somehow find a way, even when physicists have observed that the speed of light is hard coded into the universe [8]. This is of course an extreme example which is offered only to prove the larger point. With regard to the environment, there is no doubt that human ingenuity has consistently functioned, consistent with FME’s framework, to find new sources of energy to exploit. And as people became more conscious of environmental problems, human ingenuity has led to more efficient technologies, which decrease power usage and thus emissions.

None of this, however, implies that there will always be a technical solution, nor that humans cannot approach or surpass a dangerous precipice, past which the earth warms to dangerous levels. It is true that had the occupants of the Titanic had a year to solve the dilemma of their sinking ship, they might have been able to do so, but as the laws of physics are what they are, we should not put too much faith the market’s ability to always find technical solutions before the point of no return is reached. It is impossible to predict whether we have reached the point that a technical solution is unfeasible, but the precautionary principle should lead us to consider the potential for catastrophe before eschewing greater measures.

In reality, we are working against a ticking clock that is ticking an increased rate due to what FME in part advocates: the uncoordinated actions of self-interested individuals with diffuse knowledge in a system with strong private property rights. It is true that property is not fully privatized, and we can accept their claim that government regulation distorts market information, but do we have good reason to believe that had there been zero government regulation, rising climate temperatures would have been avoided? The idea seems prima facie implausible. The two means provided by FME to deal with environmental problems are ease of adjudication in the form of damage compensation, and, as discussed, market information leading to technological solutions. We have shown the latter to be flawed, and though there is more to say, space constraints prohibit further discussion. On the former, we must observe first that damages may be any combination of difficult to prove, and pointless if achieved, if the effect of emissions is global catastrophe, and not merely property damage.

There is a final point regarding the inequitable assumptions about property, but as this is a major theme of the paper, it will be discussed in its own section. First we will consider a neoliberal adjustment to the neoclassical system in the form of pigouvian taxes. To conclude this section, I note that we can accept the system of FME as possibly efficacious to deal with environmental problems that aren’t global in scope, but that FME per se is not likely to prevent problems global in scope.

A major difference between the free market approach of Anderson and Leal and that of Baumol, who we will now consider, is that while Anderson & Leal argue against regulations, Baumol believes that the government, by pricing externalities, can create optimal market conditions that can normalize carbon output. Implementation consists of two steps, “the setting of standards, more or less arbitrarily, of levels of pollution, congestion and the like, that are considered to be tolerable, and the design of taxes and effluent charges whose rates are shown by experience to be sufficient to achieve the selected standards of acceptability.” [9] The theory, in essence, is that by integrating the cost of negative externalities into the price of carbon emission, market forces will keep pollution down due to the prohibitive cost of production.

Even if we accept the logic of this approach as a sound means to emissions reduction, we’re still left with presuppositions about property, value, and equity similar to the neoclassical approach which may not stand to ethical scrutiny. It is presumed, i.e., that natural resources are rightfully fully propertied to a portion of private citizens; that pollution is a pricing problem, which implies the sanction of pricing natural resources such as clean air or water, which further implies that these are not rights; and that a certain amount of inequity is expected and acceptable. Johnathan Aldred [10] has already considered questions of pricing and value, so our focus will be on property.

To consider the question of property, let us consider how the ownership of natural resources might come to be established. Imagine that from a great deal of seismic activity somewhere in the middle of the Pacific ocean arose a landmass of considerable size (it could support perhaps 200k people) which, due to awkward positioning with regard to shipping routes, went undiscovered (if it is more plausible, imagine this in a time before satellites, airplanes, etc.). Further imagine this landmass to be rich in oil, edible flora, and the surrounding oceans with fish, but with only a single source of fresh water in the form of lake.

At some point, a man is shipwrecked on the landmass. Do we accept that by virtue of having shipwrecked on uninhabited land that the land is fully in his control? It seems to be an implausible claim. It would imply that ownership of consecutive land is rightfully propertied upon discovery, and thus that the first human to cross the Mediterranean from Africa to Europe rightfully owned the south western most corner of Italy to the north eastern most tip of Russia. And so if, for example, a woman was later shipwrecked, we wouldn’t think it right that the man should have recourse to bar her from the landmass.

If we can further accept that humans have a basic right to, if not their sustenance provided, but at least to pursue their sustenance, we wouldn’t rightfully be able to bar the woman from drinking the landmass’s only source of fresh water, and nor would she have the right to bar it to the man, and so the water exists as a sort of common resource. Why should energy resources be considered different from water?

One answer might be that water is a necessity of life, and that energy isn’t. There might be some merit to a narrow, but not a broad version of this claim. A broad version, that energy isn’t a necessity of human life, is incorrect by virtue of the fact that life per se is a chemical reaction which needs constant energy input in order to sustain. A narrower phrasing of energy as referring specifically to fossil fuels might be more plausible, but not entirely and not without consequences on equity. That is, in an undeveloped state, there is no need for energy derived from fossil fuels, but post-industrialization, sustaining life within the polis, to whatever extent the polis depends on fossil fuels, implies that members of the polis necessitate fossil fuels as well, and so to categorically deny them to any given person necessarily denies them the ability to partake in social life.

Another objection might be that a lake only requires that one drink from it, whereas energy extraction is a process that requires high degrees of labor and technology, and so if the man was able to devise a way to exploit it, he would have added value to what was previously not valuable. But to counter this, imagine that the source of fresh water was not a lake but an underground well of some sort, such that the man, before the woman arrived, had to dig with his bare hands to access it. Would we then allow that the man would have the right to deny the woman her basic necessity for water, thus condemning her to death? He could perhaps deny her access to his particular well, but could he deny her the right to dig her own into the fresh water supply?

Let us further consider this problem with regard to the sovereign [11]. Suppose that over time, many populated ships crashed on our landmass and that the people eventually settled and formed a contractarian government which claimed the entire landmass as its territory (the equity of this is not itself a matter of our concern, but to create the most just conditions, we will assume that the number of inhabitants is such that the entire surface of the landmass is utilized at least to some extent with housing, roads, etc., such that no one person has exceptionally more than they need to survive and thrive). At some point, society will be unable to progress without higher concentrations of energy in the form of fossil fuels. How then should the oil be propertied when it is discovered? We dealt above with the claim that the original discoverer of a necessary resource has the full right to property, and we now have the added element of a contractarian government. Suppose that the government is legitimate in its claim to the territory, and that ipso facto the territory in some sense belongs to the body politic as a whole; coupled with the rising status of oil to that of necessity, is it not implied that the oil belongs to the people as a whole, and not merely a particular group?

I believe I have proven it to be the case, though admittedly a more thorough discussion of contractarianism which is omitted by space constraints would lend extra soundness to the argument. But let us proceed by considering one objection and then offering a solution which considers the argument above. This objection is simply the efficacy of the market in resource and investment allocation. That is, the market has shown itself to be, though the laws of supply and demand, efficacious in distributing resources. Further, it could be argued that without a strong return on the investment needed to extract and process oil, people would be unwilling to do so, and that the government, not being guided by market principles, would do the job in an inefficient and costly manner.

We will accept these objections taute courte, if only because we recognize they are not likely to disappear from societal discourse anytime soon, or ever. The problem we have then, is to strike a balance between the inequitable distributions of property discussed above, with the assumed necessity of market forces for proper energy extraction and distribution.

The solution is merely an adjustment to our current system. Rather than placing the ownership of natural resources purely in the hands of the few, government should adopt a version of the Rhenish [12] model, wherein natural energy companies remain privately owned, but wherein a portion of control is ceded to the people, in the form of shared stock ownership. That is, the people, whether directly or through representatives, would have some voting allowance in the running of the company, in the same way that voting shareholders would in any publicly traded company. This has the advantage of more equitably distributed property, and in a system which preserves a risk reward system subject to market forces. What it additionally adds is a hedge against purely profit motivated behavior which has the effect of contributing to environmental degradation. So for example, in our current system, it is not enough that a majority of people accept the dangers of climate change, they must also elect representatives who agree, which many not happen for any number of reasons, such as gerrymandering. Further, even if the right representatives are elected, court challenges can pose legislative hurdles. In the proposed system, however, it is not necessary to engage in slow moving politics. So long as a majority agree, the direction of oil production can be steered. If this were to happen, it creates an incentive for shareholders with profit shares (i.e. not all shareholders can sell shares, the public e.g. only has voting control) to diversify the company toward cleaner technologies if they want to continue maximizing profit.

Unfortunately, a larger discussion on the merits and objections is beyond the space allotted for this paper, and so this is presented in its simplicity for further consideration.

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