The "government take" and environmental protection

Suncor oilsands mine near Fort McMurray (Todd Korol, Toronto Star)

Though Israel's coming elections revolve around other issues (and non-issues), a major political issue in Israel over the last decade has been how to divide the profits of the country's natural gas finds between the developers and the public (the legal owners of the resource). While environmental groups have argued - and this has also been my natural inclination - that the public's ownership should be expressed with a relatively large "government take" (the percentage of revenue paid over to the state in the form of royalties and taxes), I have also noted that increasing the government's financial interest in the gas decreases its motivation to effectively regulate the environmental aspects of its development.

Hereward Longley's recent article in Environment and History, "Conflicting Interests: Development Politics and the Environmental Regulation of the Alberta Oil Sands Industry, 1970–1980", provides historical support for this argument. The abstract:

This article examines the relationship between development politics and environmental regulation and research during the first commercial development phase of the oil sands industry. As demand for oil grew after the Second World War, and oil supplies from the Middle East became less stable, oil companies began building facilities to produce synthetic oil from the bitumen deposits in north-eastern Alberta. The commercialisation of the oil sands industry coincided with the formalisation of environmental policy at both the provincial and federal levels. When the Progressive Conservative Party, led by Premier Peter Lougheed, formed a government after winning the 1971 election, it strengthened and expanded the scope of environmental regulation into the mid-1970s. The 1973 oil crisis changed the economic viability and importance of the oil sands industry. For Lougheed, the oil sands industry became a cornerstone of the PC government’s goals to diversify the Alberta economy. To save the Syncrude project after Atlantic Richfield withdrew its thirty per cent stake in the consortium in December 1974, the Alberta government bought a ten per cent position along with the federal government and Ontario. This article argues that investing in the oil sands industry created a conflict of interest for the Alberta government, as it became both the regulator and the developer of the resource. Using a range of archival sources and oral history, it shows how Alberta’s environmental policies and research programmes were sidelined by the Lougheed government in the latter half of the 1970s, culminating in the cancellation of the Alberta Oil Sands Environmental Research Program in 1980. The marginalisation of environmental regulation and research has contributed to the environmental impacts of the oil sands industry on ecosystems and Indigenous communities, and limited public awareness of environmental change.

Property and water in Sasanian and early Islamic Iraq

Last August's Environment and History had an article by Michele Campopiano, "Cooperation and Private Enterprise in Water Management in Iraq: Continuity and Change between the Sasanian and Early Islamic Periods (Sixth to Tenth Centuries)". The article has a lot on the property system of the Sasanians and its relationship to water management. The abstract:

This article shows that the management of water resources in Late Sasanian and Early Islamic Iraq (sixth to tenth centuries ad) implied the participation of local communities and the mutual cooperation of landholders. The organisation of water management in the Late Sasanian Period (sixth to seventh centuries) depended on a highly complex system of interaction between local communities, aristocratic rulers and the imperial bureaucracy. This interaction allowed the government to gather information from different regions of the empire and to understand the needs of the different stakeholders. As such, the system provided a favourable institutional framework for the expansion of irrigated agriculture. The system changed when landholding conditions were transformed in the Early Islamic period, during the ninth century. These institutional transformations allowed the influence of a group of tax-farmers and merchant-bankers to increase. Irrigation policies were therefore bent to the interests of these new elites, which often lay in short-term gains rather than in long-term success. The article suggests that, in the long run, these socio-economic and institutional changes contributed substantially to the breakdown of the agricultural system in Ancient Iraq.

The dry bed of the Nahrawan Canal near Samarra, photographed by Gertrude Bell in 1909

Historical analysis in environmental law VI: What is at stake

In the last couple of posts in this series I suggested several directions of inquiry for uncovering the history of environmental law. In this final post in the series, I would like to tentatively offer some thoughts on why the historical exploration of environmental law matters.

First of all, history can help us better understand current environmental law. For instance, David Driesen has recently advanced a positive theory of environmental law, attempting to explain its salient features, such as reliance on certain types of standards. Notably missing from his account are historical explanations for these aspects of environmental law, explanations which might be provided by works such as those of Morag-Levine.  Or take the argument of 'free market environmentalists' that private law would do a better job of protecting the environment than modern regulation; this type of argument could be checked against the historical experience of legal systems that have relied on private law for this purpose.

AC Pigou

Second, the history of environmental law is a topic that offers an opportunity to bridge the material and the abstract, or to take up environmental historian Linda Nash's challenge 'to show how what is presumed to be social or cultural is thoroughly intertwined with the natural.' Such an endeavour would be beneficial to both environmental history and legal history, as legal doctrines, institutions, and ideologies—social and cultural artifacts—developed with regard to the natural, may circulate beyond the narrow confines of environmental law to other legal contexts. One thinks, for instance, of Pigouvian taxes, cost-benefit analyses, and feasibility standards, all developed 'intertwined with the natural' but spreading their branches far afield.

Environmentalists often portray themselves as acting in the name of an apolitical public interest.

London's smoke regulation

The Court of Aldermen and Common Council of the City of London (1780)

Last week's Reviews in History posted a review by Elly Robson of William Cavert's The Smoke of London: Energy and Environment in the Early Modern City (Cambridge UP, 2016, recently out in paperback). (For an earlier review see here.) From the review:

Cavert is particularly strong on the complex role of political and legal institutions – both local and national – in managing coal supply and regulating smoke. In his account, the politics of coal and smoke was a politics of governance. Chapter five, ‘Nuisance and neighbours’, deals with the legal category of ‘nuisance’ to cast light on how conflict over pollution was defined and mediated. In it, Calvert investigates a smorgasbord of relatively ineffective litigious avenues for pursuing redress against industrial polluters who infringed on royal or individual property and health. Law Reports form the mainstay of the chapter and Cavert’s frustration is evident when he describes searching for nuisance cases in Westminster court archives, including 10,000 pleas in King’s Bench, as akin to ‘looking for needles in large and messy haystacks’. Yet he casts his net wide, examining an impressive array of London institutions, including the Fishmongers Company, the Court of Aldermen, and the Wardmote Courts. He consequently has an acute sense of the regulative capacity of different, interlocking jurisdictions, but does not present them as totalising in influence. Instead his emphasis falls on their limitations. Private contracts by landlords were far more effective than common law courts in excluding noxious trades from certain parts of the city, particularly in creating an elite non-industrial zone in genteel west London. This chapter tells us more about institutions and their limits than it does about the ways in which smoke sparked neighbourly negotiation. Royal and aristocratic attempts to limit air pollution in their vicinity have left a more prominent archival trace. However, further light may be cast on environmental conflict between more lowly urban neighbours through further examination of legal depositions, which tend to be well catalogued and have provided a rich lens for early modern historians examining rural disputes over resources.

A concern with governance recurs in part three, where several chapters examine the role of the state in regulating London’s coal supply and mediating the competing claims of civic governors, coal suppliers, the military, the urban poor, merchants, and industries. Efforts to ensure a constant flow of coal to the capital were more energetically pursued than attempts to alleviate pollution, because the former aligned with the priorities of the fiscal-military state: taxation, naval power, social stability, and economic development. Although there was never a state monopoly over the coal trade, the state gathered information through taxes on coal imports and intervened in markets by granting and revoking charters. Tensions could arise, however, between state revenues and economic growth, as merchants mobilised to lobby against rising coal taxes. Similarly, in times of war, able seamen transporting coal down the coast became a valued resource and were vulnerable to naval impressment, forcing the government to balance external military dangers with the threat that fuel scarcity posed to internal social order. 

Hurricane Irma, Marco Island, and wetlands protection

Marco Island in 1964 (left) and present day (Michael Coleman)

Slate recently published a piece by Henry Grabar, "The Lessons of Marco Island", on the Florida island that was savaged by Hurricane Irma last week and the legal history that enabled its development while protecting nearby wetlands. Some highlights:

Forty years ago, the consensus of the state and federal governments was that Marco Island should not have been built at all. The community was the setting for one of the biggest development controversies in the United States and nearly ruined one of Florida’s largest and most celebrated developers. In a region with a notorious building addiction, it became the site of the environmental movement’s greatest victory over the Florida growth machine. Ecological foresight halted millions of dollars in real estate development and all but ended an engineering technique that had turned the South Florida coast from swampland to resort.

*****

When brothers Robert, Elliott, and Frank Mackle discovered Marco in the early 1960s, half of its 10 square miles consisted of mangrove swamps. Home to just a few hundred people and an abandoned clam factory, it was the single largest undeveloped barrier island property in South Florida. 

*****

The plan called for 35,000 residential units, which would require displacing 18.2 million cubic yards of ground (more than 150,000 dump trucks’ worth), dredging the land into channels, and using the dredge to create development sites in the swamp. This method is common across South Florida; Cape Coral, a little to the north, is a good example. Still, at the time, Marco Island was the largest “finger-fill” waterfront housing project to ever come before the Army Corps of Engineers, Science reported in 1976.

Deltona's "finger-fill" development used dredging to transform swampland into canal-side residential plots
(Flip Schulke/US National Archives and Records Administration)

Gorsuch and Hamburger

A few months ago we noted some of the environmental dimensions of Philip Hamburger's revisionist account of the history of administrative law. Now Eric Posner points out some contemporary relevance of Hamburger's controversial views (thanks to Legal History Blog for flagging the post, and to Eric for approving the re-post):

Judge Gorsuch has approvingly cited Philip Hamburger’s book, Is Administrative Law Unlawful?, in three opinions.* That is three times the number of opinions citing Hamburger’s book written by all the judges in all the federal circuit courts put together. Is this a matter of significance?

Hamburger argues that “administrative power” is unconstitutional. This is a radical view. I mean a radical view in the sense that, if taken seriously, it would require the invalidation of much of the administrative state. Agencies like EPA and the Fed could continue to exist, but only to gather facts, monitor industry, and bring claims against people and companies based on statutes enacted by Congress. They would not be allowed to issue regulations, that is, rules. Only Congress could do that.

I do not think that this vision is acceptable to the public, or really anyone, not even business, which says that it opposes regulation but in fact depends on it more often than not. But his view is an appealing fantasy, and it has excited the conservative legal community. It’s much easier to say “it’s all unconstitutional” than to explain why this regulation or that one is unwise or illegal.

In rereading Hamburger, I am struck by three themes, which resonate with our political times.

Forest law

from Livre de la Chasse

Moving from forests in Mexico to English forests, the latest issue of the William & Mary Bill of Rights Journal, dedicated to Magna Carta, has a couple of articles on medieval forest law in England (thanks to Legal History Blog for noting it). The first is Ryan Rowberry's "Forest Eyre Justices in the Reign of Henry III (1216–1272)" (for the second, see here). Rowberry notes that scholars have estimated that forest jurisdictions covered nearly one-quarter of England by the thirteenth century, possibly more.

 As there's a lot of interesting stuff here, I'll just quote a bit (omitting footnotes, text in brackets is my own). First of all, to clarify what a medieval "forest" was:

‘Forest’ in medieval England denoted a defined area of unenclosed land within which wild game, principally deer, along with wide swathes of its habitat were protected by forest laws for the benefit of the king. Medieval forests, however, could include “not only woodland, but also heath, pasture, meadow, and arable land, and even hamlets, villages, and townships.” Importantly, forest jurisdictions in England unlike those in Normandy could, and often did, extend outside the king’s own demesne land (the crown’s landed estate) onto privately held lands, acting as a type of economically restrictive land-use overlay on areas that remained subject to the common law as well.

The conservative as environmentalist

Though conservatism is today associated with anti-environmentalism (a trend with an interesting history); see also here and here), a growing body of work is digging into conservative and religious roots of American environmentalism. Last year we noted Dan Farber's post on American conservatism and environmentalism at Legal Planet; now comes the article: "The Conservative as Environmentalist: From Goldwater and the Early Reagan to the 21st Century" (thanks to Dan Ernst at Legal History Blog for noting it). The abstract:

Today, we often think of conservatives as opposed to environmental regulation. Yet it has not always been so. Conservative icons like William F. Buckley and Barry Goldwater took vigorous public stands in favor of environmental protection. Ronald Reagan championed protection of wilderness when he was governor of California and oversaw the creation of the state’s pollution control agency. He shifted to an anti-regulatory stance in the early years of his presidency, but then shifted again to a more moderate position. Few people know that he personally championed the international ozone agreement and signed a law to require planning for possible climate change. Even today, there are important conservative voices advocating environmental initiatives such as a carbon tax.

This Article recovers the forgotten history of conservative environmentalism. It argues that conservative environmentalism faded largely because of external political forces, such as the influence of the fossil fuel industry. These forces may be abating, opening the door for a more vigorous debate about environmental policy within the conservative movement and in the broader public arena.

FDR and environmental law

I've long thought that the New Deal era doesn't get its rightful due as a critical phase in the history of environmental law. It seems Douglas Brinkley's new book, Rightful Heritage: Franklin D. Roosevelt and the Land of America (Harper Collins, 2016), makes a similar argument. As one would expect for a Brinkley book, it's already been reviewed by the New York Times and Washington Post.

Clay Risen in the Times puts the emphasis on the supposed tension between environmental protection and economic growth. Dennis Drabelle in the Post is a little more sensitive to legal history, writing that "Brinkley can be superficial when it comes to legal issues — it’s not always clear what authority FDR is drawing on when he takes a pro-environmental stance". Drabelle writes of the Duck Stamp Act:

Brinkley is good at showing how strands of Roosevelt’s life united to shape approaches to preservation that other presidents might have missed. Take an idea to raise money for waterfowl conservation which had been working its way through Congress. It culminated in the Duck Stamp Act of 1934, which requires all waterfowl hunters over 16 to buy, in addition to a state hunting license, a federal stamp, the proceeds from which go to acquiring wetlands and funding wildlife refuges. As a lifelong philatelist, Roosevelt “loved stamps too much to allow each year’s duck issue to be anything but irresistible.”

Roosevelt was a great believer in bipartisanship, and the director of what was then the Biological Survey in the Agriculture Department (now the U.S. Fish and Wildlife Service in the Interior Department) was Jay Norwood “Ding” Darling, a Republican who, in his previous job as a Pulitzer Prize-winning editorial cartoonist, lampooned the Democratic president repeatedly. At FDR’s request, Darling designed the first duck stamp, featuring “two striking mallards in flight descending on a lake.” From this literally splashy beginning evolved a much-anticipated annual contest — still being held — in which wildlife artists vie to submit the winning design (and to rake in the income generated by fans who buy reproductions). In addition to excitement and artistry, the program has generated more than $500 million through 2009, which has been used to purchase 5 million acres of waterfowl habitat.

The Duck Stamo program is still running. For all the stamps, see here.

Swamp drainage and law reform

It turns out that not all legal historians think environmental history is interesting. Today's Reviews in History has a review by Daniel Gosling of David Chan Smith's Sir Edward Coke and the Reformation of the Laws: Religion, Politics and Jurisprudence, 1578–1616 (Cambridge University Press, 2014).

Here's what Gosling has to say about one of the chapters:

Chapter three looks in more detail at the corruption of the law in the early 17th century, and the complaints of those that were expected to use it. The text does this by examining the case-study of The Case of the Isle of Ely (1609), which saw Coke attempt to negotiate the proposed draining of the Fens, the low-land area of marsh and bog in the east of England. This was such a thorny issue because in order to drain the Fens taxes would have to be raised in the surrounding areas, and parts of the Fens would have to be enclosed to incentivise investors. Although this case-study demonstrated how contentious the common law could be amongst the wider population, and how Coke attempted to solve the problems, this chapter more than any of the others feels like an unnecessary digression from the wider argument, with too much time spent looking at the law in the Fens rather than the more pressing topic of common law reform that the rest of the book had set about to describe.

Some might have a different opinion. I would actually like to see a full-length study of the law of drainage; from what I remember from Catherine Drinker Bowen's book on Coke, commissions of sewers were a fertile source of law.

More on Cecil the lion

In last week's post on Cecil I didn't have time to do much more than copy an extract from the NY Times piece, but I think it's also worth trying to unpack the argument made or echoed in the story that "hunting... is part of a complex economy that has so far proven to be the most effective method of conservation".

One argument seems to be that demand for hunting gives government preserves a lucrative source of income, which they can use for conservation:

While hunting is banned in government parks here in South Africa, animals inside their boundaries are routinely sold to game ranches when their populations are considered excessive, generating money to maintain habitats and fight poachers.

But that's not really an argument for hunting, that's an argument for letting parks sell "excess" animals to those willing to pay for them; not only hunters, but ivory collectors, medicine preparers, zoos, or whomever.

Another argument seems to be that private, for-profit management is better at conserving land and species than government conservation:

In southern Africa, the emergence of a regulated trophy hunting industry on private game ranches in the 1960s helped restore vast stretches of degraded habitats and revive certain species, like the southern white rhinoceros, which had been hunted almost to extinction, conservationists say.

It's not clear what the connection between hunting and restoration is here, other than providing an incentive to private ranch owners to restore land and species so they can make money from hunting. Surely government could do the same, without the financial incentive.

In a strange twist, the article then says:

Representative Absalom Willis Robertson of Virginia

A similar shift occurred in the United States decades earlier when the Pittman-Robertson Act of 1937 allocated the proceeds from hunting to bring back lands and animals, [conservationists] argue.

The "proceeds of hunting" allocated by the Pittman-Robertson Act (the Wildlife Restoration Act of 1937) to habitat restoration are actually the proceeds of an excise tax on firearms and ammunition. Now, while it may be true that hunting makes such a tax more palatable from a political point of view, there is no inherent connection between government spending tax money on conservation and hunting.

There are, of course, other conservation arguments for allowing hunting, including keeping populations in check to prevent habitat degradation and giving local populations a financial incentive to preserve wildlife and their habitat. But I find the arguments cited in the newspaper article wanting.

Environmental-legal conflicts in the western Mediterranean mining industry – Portugal

[We have today a guest post from Paulo Eduardo Guimarães, Senior Lecturer in Contemporary History at the University of Évora and researcher at NICPRI (Research Unit on Political Science and International Relations). Paulo presented a paper on this topic at the recent World Congress on Environmental History at Guimarães.]

The growth in the demand for sulphur and copper by the British world economy was directly responsible for the spurt in the exploration of old mine deposits of pyrite ores beginning in the middle of the 19th century in the western Mediterranean. As consequence, the roasting of pyrites in blast furnaces or in open air ‘telleras’ in large scale operations led to conflicts with landowners, farmers, peasant communities, miners, and local populations affected by acid rain and sulphur smoke.

The old open pit mine of Sao Domingo (1958-1965), now full of acid waters

The violent incidents of Rio Tinto in 1888, when the Spanish army intervened to repress a peaceful demonstration against that pollution, killing about two hundred men and wounding an indeterminate number of other protesters, became the landmark of that conflict in the historiography of the western Mediterranean mining industry. However, violent reactions against modern mining industries were not exceptional in this part of the world. An account of these types of industrial conflicts in Portugal shows the emergence of popular violent reactions against mining operations due to environmental disruption. These included the occupation of mining fields, ‘Luddite’ actions (destruction of machinery, forests, and mining infrastructure), and sabotage in larger explorations located in the southern Alentejo province and in the mines of the Aveiro district.

The detailed analysis of each incident reveals a more complex picture than the label ‘peasant protest’ or ‘environmentalism of the poor’ suggests. Not only peasants and poor people were involved in collective actions against mining companies; landowners and farmers made use of legal instruments. Yet they were often unsuccessful in court, as the mining law favoured the foreign capitalist ventures. The use of ‘expropriation for public utility’ was a sword of Damocles hanging over these disputes, and the companies often used it.

Fluvial landscape and the colonial state

The latest Environment and History has an article by Nitin Sinha, "Fluvial Landscape and the State: Property and the Gangetic Diaras in Colonial India, 1790s-1890s". The abstract:

from William Stanhope Sherwill,

General Remark on the District of Monghyr (Calcutta, 1848)

(from the article)

Looking at the interplay of law and revenue as a means of understanding colonial practices and policies towards diaras, this paper addresses a relatively neglected field in the agrarian-ecological history of South Asia. The constant formation and disappearance of lands due to river shifts raised several issues. Among the most important from the viewpoint of the colonial state were secure revenue extraction and the fixation of proprietorial rights. Using a number of case-studies, the paper argues that, although maximisation of revenue did not necessarily mean the dilution of the idea of the Permanent Settlement, the state throughout the nineteenth century failed to arrive at a standardised set of practices because of its own structural (bureaucratic) incoherency, ideological underpinnings and the ecological settings.

Early environmental economics

Agnar Sandmo has posted "The Early History of Environmental Economics", an article surveying the thought of eighteenth- and nineteenth-century economists on environmental issues, long before Arthur Pigou's famous work on taxing externalities and the late twentieth century blossoming of the field. Thomas Malthus is here, but so are many others whose writing on environmental issues is less well known, including the Marquis de Condorcet, John Stuart Mill, and Alfred Marshall, along with Edwin Chadwick, whom I had not thought of as an economist.

Some examples. Mill, the classical liberal, is quoted as writing the following regarding the proper role of government:

John Stuart Mill

Is there not the earth itself, its forests and waters, and all other natural riches, above and below the surface? These are the inheritance of the human race, and there must be regulations for the common enjoyment of it. What rights, and under what conditions, a person shall be allowed to exercise over any portion of this common inheritance cannot be left undecided. No function of government is less optional than the regulation of these things, or more completely involved in the idea of civilized society.

Marshall anticipated later fascination with the "fisherman's problem" in the late nineteenth century:

Bicycles and taxes

Environmental History's "New Scholarship" section alerted me to James Longhurst's "The Sidepath Not Taken: Bicycles, Taxes, and the Rhetoric of the Public Good in the 1890s", from the October, 2013 issue of the Journal of Policy History. Longhurst writes (citations omitted):

For a brief moment at the end of the 1890s, an alternative vision of the future of American transportation flickered to life, and then faded. Bicyclists dissatisfied with the haphazardly maintained, locally financed, and unpaved roads of the nineteenth century first proposed to build their own recreational paths through private, voluntary efforts. But by the end of the decade, supporters of the sidepath movement imagined cities and towns connected not only by roads but also by a separate, bicycle-specific network of improved paths. These paths were to be protected by state law and funded by innovative public/private cooperation on the county and local level, combining earlier voluntary efforts with an institutionalized user-fee model. In a now-forgotten national magazine, some sidepath promoters concentrated on the recreational aspects of interurban paths, while others emphasized the possibilities for personal transportation and practical commuting within cities before the existence of an affordable and reliable automobile. Sidepath networks were built first by taxing cyclists at the county level in northwestern New York, but the passage of user-fee legislation in 1899 provided a template adopted by states across the nation. Sidepath building briefly flourished in Chicago, Minneapolis, Portland, and elsewhere, leading excited cyclists to imagine a network of paths allowing them to “go from New York to any point in Maine, Florida or California on smooth roads made especially for them.” While these dreams were expansive, the movement was severely limited by the persistent problem of convincing politicians and the populace that the construction of infrastructure for a small number of individuals was a “public good.” Development floundered by 1905, as fewer cyclists made voluntary contributions to the project. Most sidepath advocates then threw their lot with farmers and other powerful stakeholders in a combined-use Good Roads movement, abandoning their separate system. When the automobile later came to dominate those combined-use roads, cities slowly became increasingly auto-centric throughout the twentieth century. Had it been successful, a separate sidepath system would have changed American history. But it was a sidepath not taken.

Sprawl and taxpayer environmentalism

January's issue of Environmental History had an article by Andrew Wiese, "'The Giddy Rise of the Environmentalists': Corporate Real Estate Development and Environmental Politics in San Diego, California, 1968–73". The abstract:

Dr. Seuss, drawing for cover of San Diego Magazine,

December 1972 (Legendary Auctions)

Changes in US real estate development during the 1960s and early 1970s were a catalyst for popular environmentalism. New flows of capital between builders and investors, including direct investment by Fortune 500 companies and the growth of the first nationwide home-building firms, produced a historic peak in US construction between 1969 and 1973. A case study of San Diego, California, indicates that these changes played a key role in the era's burst of environmental reform. It also reveals an entangled history of environmental and taxpayer politics rooted in the spatial and financial changes of accelerated real estate development. In San Diego, the corporate real estate boom brought together environmental concerns with taxpayer anxieties to produce a right-leaning environmental backlash that would have long influence in the city.

Under the heading "A Taxpayer Environmentalism" Wiese explains further:

In addition to stirring environmental concerns, accelerated real estate development provoked fiscal anxieties that struck home in the local political culture. In a city that voted for Nixon, Goldwater, Nixon, and Nixon in successive elections, aversion to taxes was a staple of politics.

Tax law and environmental history

Over at Legal Planet, Dan Farber blogged yesterday about corporate welfare for oil through the US tax code:

“There Will Be Blood” was the title of 2007 movie about an old-time oilman. If you were doing a similar movie about the situation today, you might call it, “There Will Be Tax Write-Offs.”

The taxpayers have been generous to the industry. Oil companies get about $5 billion per year in favored tax treatment.  Mostly, these provisions allow oil companies to write off costs faster than normal businesses.  The depletion allowance can actually allow a company to write off “costs” that are greater than the amount it actually spent. Some of these special provisions favor the industry as a whole, but others are available only to independents rather than Big Oil. Despite arguments to the contrary at AEI, it’s clear that these are deviations from normal tax principles, which would provide less favorable treatment to such capital expenditures.  These benefit the industry at the expense of not only taxpayers but of other businesses that are competing for capital.

Estimates by the Treasury as well as by independent researchers indicate that the effect on oil production  is small, under 1% of total production.  The effect on price is also miniscule. Mostly, the subsidies encourage producers to drill in marginal locations, which otherwise wouldn’t be worth the trouble. To the extent that these tax rules increase oil production, RFF calculates that each additional barrel of oil costs the Treasury several hundred dollars.

This is a great topic for some historical research. How did these tax breaks get started, and how did they evolve over time? What marginal locations have been drilled in as a result of tax incentives, and how has the environment there been affected? What are the historical relationships between tax breaks for oil production and other parts of the tax code, and between tax law and other aspects of energy law? How have US tax breaks for oil influenced, or been influenced by, the law of other countries?

RIP Ronald Coase

Nobel Prize-winning economist and law school professor Ronald Coase passed away earlier this month at the age of 102.

Coase's 1960 article, "The Problem of Social Cost", the most-cited law review article of all time, had an immense effect on both the study of environmental law and its design, providing intellectual backing for two prominent trends in environmental law of the last few decades: market-based policies and cost-benefit analysis. As Cass Sunstein explains:

His target was the great British economist Arthur Cecil Pigou, who contended that if a polluter is emitting smoke, and thus causing injury, the best response is to make the factory owner pay for the injury or to impose a corrective tax.

Coase said Pigou failed to see “the reciprocal nature of the problem.” Suppose that a very noisy factory is causing legal injury to a doctor operating next door. Under Pigou’s approach, the factory should be required to pay damages to the doctor. But Coase pointed out that we could also make the doctor bear the cost. His central insight was that if people can bargain with one another, and if it isn’t costly for them to do so, it just doesn’t matter who is required to pay: People will negotiate their way to the efficient solution. This is the Coase theorem in a nutshell.