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Who Shall Inherit the Sky?

The Kyoto accords on global warming set the stage for an historic choice. We can give away yet another global commons or claim the sky as a trust benefiting all the people of today and of the future

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For the past 150 years or so, progressives have been concerned with the question: who owns the means of production? The time has come to pose a complementary question: who owns nature?

This is not an idle question. Nature, not labor or capital, is increasingly the scarce factor in our global economy. The world has no lack of workers or dollars, but we are running out of topsoil, clean fresh water, biodiversity, and we are running out of sky.

Economics teaches us that if a needed commodity is scarce, it should be worth something. And, indeed, a team of economists led by Robert Costanza recently calculated that the value of 17 ecosystem services (climate regulation, water purification, ultraviolet protection, nutrient recycling, waste absorption, and so on) is greater than total world Gross Domestic Product. As intact ecosystems grow increasingly scarce and stressed, their economic value rises.

Who owns these valuable assets? Some pieces of nature – subdivided land, minerals, water rights – have already been privatized or claimed by governments. But large chunks – the sky, the oceans, the gene pool, and ecosystems as systems – are effectively unowned. This is a world-size problem – and an historic opportunity.


The Tragedy of the Commons

The unowned status of most of nature is a world-size problem because, as economics teaches us, things that are unowned tend to be overused. This is sometimes referred to (most famously by Garrett Hardin) as the tragedy of the commons. Thus, when any person can add sheep to an unowned pasture, or dump waste into an unowned river, the pasture is likely to become overgrazed, and the river polluted. In time, humans will destroy their own nest, and every other species' as well.

The American approach to this quandary has been to regulate the use of unowned natural assets. This led to an interesting discovery: if government sets upper limits on uses of nature (such as emissions), and then lets private entities trade usage rights within those limits, the result will be a maximally efficient use of scarce natural resources.

This was the theory behind the 1990 Clean Air Act amendments, which were designed to decrease US sulfur emissions (the chief cause of acid rain) by 50 percent over 20 years. Sulfur emitters were granted emission permits within gradually declining limits and allowed to trade them among each other and speculators. Today, the reduction in sulfur emissions is well ahead of schedule, while the added costs incurred by emitters (and thus society) are far less than predicted.

So far so good. But willy-nilly, we are brought back to the question of ownership, because when tradable usage rights in scarce natural resources are created, what are also created are property rights – the rights to use scarce assets, or to sell those valuable usage rights for cash. That cash is what economists call scarcity rent. When applied to scarce natural systems, it can be a sizeable amount of cash indeed. Ask any television or radio station that has paid millions of dollars to purchase a license to use scarce electromagnetic frequencies for broadcasting.

Environmentalists rarely talk about ownership of nature. In part, this silence is attributable to their feeling that nature is sacred and shouldn't be commoditized – an appealing notion philosophically, but one that's no match for modern capitalism. This silence is also due to the political delicacy of talking about ownership – after all, emitters, like broadcasters, are politically powerful, and many environmentalists are loath to offend them.

But the issue of who owns nature can no longer be ignored. For looming on the horizon, in the name of environmental protection, is a trillion-dollar giveaway that will affect all our descendants – or, if the opportunity is seized, a chance to modernize the venerable institution of the commons.


The coming era of scarce sky

The danger – and the opportunity – flow from the Kyoto Protocol on climate change, which the US and over 100 other nations have signed. Last December, the industrial nations of the world agreed to set late 2000 as the deadline for establishing international trading rules for each nation's carbon emission rights under the Protocol. This is progress: such international trading rules are needed if human-made climate change is to be curbed. But left largely unexplored is the question of who will own each nation's domestic rights to emit carbon – and in particular, who will own the rights to America's piece of the sky? In the coming era of scarce sky, the answers to these questions will determine to whom we and our children – and every generation of Americans thereafter – pay sky rent.

In theory, there are three possible answers to this question: private corporations, the federal government, or all citizens together through a trust.

Corporate ownership is not as farfetched as it might sound. US history is marked by numerous giveaways of public assets to private corporations, from enormous land grants to railroads in the 19th century to the recent gift of electromagnetic spectrum to broadcasters. The standard argument used to justify these gifts is that, in exchange for public assets, the receiving corporations deliver a quid pro quo of public value: they build railroads, extract valuable minerals, or transmit sharper TV images.

Whether past gifts of this sort were good deals for the public is debatable; if measured by the rigorous yardsticks of Wall Street, most probably were not. (Are sharper TV pictures worth the $70 billion value of the spectrum that was recently given away?) But there's no doubt that a future gift to private corporations of the atmosphere's limited capacity to absorb wastes would be a terrible investment. There's nothing we would get in return. Such a gift would dwarf every previous form of corporate welfare, making private corporations the rent collectors for the sky, now and forever.

Government ownership is often seen as the best, if not the only, alternative to corporate ownership of the sky since, presumably, the federal government represents the public interest. However, if we look at the historical record, the federal government all too often has been a poor steward of valuable natural assets (land, minerals, timber, water, and spectrum). The reason is not hard to fathom. Though in theory the federal government defends the interests of all citizens, and of future as well as present generations, in practice it accommodates powerful interests who want favors now.

In the end, the argument for federal ownership of the sky rests mostly on lack of imagination. But as the state of Alaska has shown, there is another model, and it is a better one than federal ownership.


A trust for the sky

When oil began flowing from Prudhoe Bay in the 1970s, Alaska's voters established the Alaska Permanent Fund (APF). The APF is managed as a trust for all current and future Alaska residents, separate from the state treasury. It invests its share of Alaska's oil revenue in a diversified portfolio of stocks, bonds, and real estate. About half the income from these investments is used for schools and highways, while the rest is paid in precisely equal dividends to every state resident. In 1997, each Alaskan received a dividend check for $1,296 from the APF; households of four received $5,184. Needless to say, Alaskans of all political stripes love the APF.

Recently, the Washington-based Common Assets Project (www.cfed.org), of which I am a founder, proposed a model for sky ownership that closely follows Alaska's. In lieu of oil, the American Common Assets Trust's underlying asset would be America's share of the atmosphere's carbon absorption capacity. The trust would be neither a government agency nor a private corporation, but a civic institution embodying citizen ownership of a commonly inherited asset.

We chose the trust structure for several reasons. Like the joint stock corporation, the trust is a market-based entity that can own and manage assets, charge for use of its assets, and distribute its income to individuals. Also like the joint stock corporation, the trust has a board of directors (called trustees) who are legally responsible for its actions.

Where the trust differs from the corporation is in the specificity of its legally defined mission. A corporation's purpose is to maximize profit for its shareholders. It is required to obey prevailing laws, but otherwise has no enforceable constraints. A trust, by contrast, is normally given a specific mission, which its trustees are legally bound to fulfill. For example, a trust can be established by a wealthy individual to preserve assets for children or grandchildren, or for a charitable cause.

Trusts needn't be driven by short-term calculations. Trustees are accountable neither to a ruthless stock market nor a fickle electorate. Their sole responsibility is to the trust's mission – and they can be sued if they deviate from it. Trusts are thus ideally suited to, and frequently used for, long-term preservation of assets.

The beneficiaries of the trust we propose would be all US citizens, current and future. Its trustees would have three legally binding responsibilities:

• to preserve the current mix of gases in the sky, thereby stabilizing the climate;

• to receive market prices for use of the sky as a dump; and

• to distribute income among beneficiaries equally. Eventually, dividends from such a common assets trust could be comparable to Alaska's; DRI/McGraw-Hill and others estimate that the scarcity rent captured through carbon emission permit auctions would be in the range of 2 percent of GDP.

Trust dividends would be a nontransferable property right of all US citizens, including children. They'd be paid annually in a lump sum, as in Alaska. Every American, whether rich or poor, would thus have a source of property-based income. Every American baby would be a trust fund baby.


A nation of owners

The intent of the Common Assets Project is not to revive a pre-modern institution that has outlived its usefulness (pasture used for common grazing). Rather, we seek to clarify the distinction between the commons and the state, and by so doing, avert yet another separation of the commons from the commoners. Such separations have occurred with too much frequency in the past – usually at times when common property becomes commercially valuable – and have left in their wake too many propertyless people.

What makes the problem of propertylessness especially troubling is its hereditary nature. It is a brutal fact that one-fourth of American children, through no fault of their own, are born into poverty, with low odds of escaping. It's hard to see how this inherited poverty can be alleviated without ending inherited propertylessness.

If such trusts were widely established, we'd have a world with many millions of property owners receiving income in the form of ecosystem scarcity rent. More children would rise out of poverty, and more adults would be liberated from the global labor market.

The common assets trust we propose is a way to recognize every citizen's right to a share of our common inheritance. It privatizes, equitably, the income from commonly inherited natural assets, while leaving the assets themselves in trust for future generations. At its heart, it is a rent recycling system whose underlying formula is: from each according to their use of scarce ecosystems, to each according to their equal ownership. Those who consume less than their proportionate share come out ahead; gluttons come out behind.


Massive giveaway or a new commons?

New property rights don't magically arise; they emerge through political battle, one step at a time. Right now, the Clinton Administration is slouching toward a domestic tradable permit system in which carbon emission rights are grandfathered to large energy companies. The underlying allocation formula would be: from each according to their current emissions, to each according to their previous emissions. The more you polluted in the past, the more rent you'd collect in the future.

Inside the Beltway, this is no doubt perceived to be the path of least political resistance. But debate has barely begun, and the high cost of corporate privatization has not yet been exposed. Thus, the danger and the opportunity: within the next few years, we could either see a massive giveaway of nature's wealth to energy companies, or the emergence of a new form of common ownership that could transform the world.


Peter Barneswas the co-founder and president of Working Assets and is currently founder of the Common Assets Project, c/o Corporation for Enterprise Development, 777 N. Capitol St. NE, #410, Washington, DC 20002. tel: 202/408-9788, web: www.cfed.org

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