I was watching a video last night on Vice TV, which is the YouTube channel of the media outlet known as Vice Media. The video had something to do with a “petcoke” plant in Chicago where people were protesting over the massive mountains of petcoke soot building up in the area. Understandably they were pissed as hell. Apparently this stuff has the consistency of fine dirt but is sticky at the same time, meaning it blows all over the place and seriously disturbs surrounding communities.
It brought me to thinking a great deal about Milton Friedman. Friedman acknowledges the handful of scenarios where a governing body is necessary, among them is the need for an environmental agency that simply administers cap and trade permits. The reason this is necessary is because the environmental externality associated with certain forms of pollution is often too difficult to pinpoint to any one, particular firm. While class-action lawsuits have traditionally been used to handle such matters, we are familiar with just how difficult it can be to fight a team of corporate lawyers. The burden of proof is on the victims and they must prove that XYZ company is directly responsible for so-and-so’s lung cancer. Despite this, we all know that certain pollutants cause major health issues and can also damage private property value. This creates the distinct need for an active market of cap and trade permits under a government body.
Cap and trade permits can be used for virtually anything because they simply determine the acceptable limit of pollutants that can be released into the air, water, or earth. The government body simply sets the limit for the year and firms go about trading permits with one another and creating a supply and demand market for releasing pollutants. It may also be useful to create a limit on the amount of permits that any particular firm can purchase. This way the most powerful company in the region can’t simply buy out all of the permits for the year. Cap and trade could easily be administered for carbon dioxide and methane emissions, waste water, biological hazards, and would also take care of this petcoke issue in Chicago. Clearly the firm found it most useful and cheap to simply dock their petcoke in Chicago, but a permit limit for Chicago would have prevented this from happening on the scale that it did. The firm can then find the most cost-effective way to work around that issue, but no matter where they look they will have to purchase pollutant permits along the way.