Environmental Markets (ESM 285)
Bren School of Environmental Science & Management
University of California, Santa Barbara
Winter 2015
January 5, 2015
Professor: Gary Libecap
Office: 4412 Bren Hall
Phone: 805-893-8611
Email: glibecap@bren.ucsb.edu
Class meetings: TTh 10-11:15 1510 Bren Hall
Office hours: M 9-10 or by appointment
Course Objective
This course presents the roles of property rights and markets in addressing environmental
and natural resource losses associated with the “Tragedy of the Commons.” Topics include:
 The open access problem
 Traditional Pigouvian tax and regulatory solutions
 Ronald Coase, Nobel Prize 1991, and Coasean trading
 Environmental markets in fisheries
 Environmental markets in water
 Environmental markets in conservation credits and tradable development rights
 Environmental markets in cap and trade emission permits
Other areas, such as environmental benefits in energy markets are not covered due to limited time. Students will learn when rights-based systems are valuable solutions to open
access losses and study the range of environmental markets. They will research and describe environmental markets.
Course Materials
Course readings include journal articles, book chapters, cases, and reports. There will be
guest lectures. All materials will be posted on Gauchospace. Class text book is Terry L.
Anderson and Gary D. Libecap, 2014, Environmental Markets: A Property Rights Approach, New York: Cambridge University Press.
Course Requirements
Students are expected to complete all of the assigned reading before class. Course materials will be discussed in a seminar-style framework.
1. Students are required to turn in a one-two page written synopsis of the key points in
each required reading prior to class via Gauchospace and be ready to lead discussion.
2. We will a groundwater project that student will research throughout the term. We will
have periodic class discussions on the application of water markets to groundwater management within this legislation. A final paper will be written.
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Course Grades
Course grades will be based on daily class summary papers, (40%); discussion leadership
(30%); and final class paper (30%).
Course-wide Project: Applying Markets to Groundwater Management
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http://www.water.ca.gov/groundwater/Sustainable_GW_Management/SGM_Basin
Priority.cfm
The Sustainable Groundwater Management Act revised the Water Code to direct the Department of Water Resources (DWR) to develop the initial groundwater basin priority by
January 31, 2015. DWR has concluded that the basin prioritization finalized in June 2014
under the California Statewide Groundwater Elevation Monitoring (CASGEM) program
will be the initial prioritization when the SGM Act goes into effect on January 1, 2015. The
basin prioritization results are posted on the CASGEM website at
http://www.water.ca.gov/groundwater/casgem/basin_prioritization.cfm. The SGM Act applies to the 127 High and Medium priority groundwater basins, which account for approximately 96 percent of groundwater use in California.
Final Basin Prioritization findings indicate that 127 of California's 515 groundwater basins
and subbasins are High and Medium priority. These basins account for 96% of California's
annual groundwater pumping and supply 88% of the population which resides over
groundwater basins. The remaining 388 basins are Low and Very Low priority and comprise 75% of the groundwater basins in the State.
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CWF http://www.californiawaterfoundation.org/index.php
http://www.waterboards.ca.gov/water_issues/programs/groundwater/workplan.shtm
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Russell M. McGlothlin
Brownstein Hyatt Farber Schreck, LLP
1/06 Course Overview and Bargaining Over Environmental Quality
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Syllabus overview, class project discussion.
Discussion of this case: “Trees Block Solar Panels and A Feud Ends In Court,”
New York Times, April 7, 2008. The opportunity and challenges of bargaining to
reach environmental solutions.
1/08 The Problem of Open Access. This is the fundamental problem that leads to
environmental degradation or loss and too rapid and wasteful natural resource extraction.
All students will understand this problem and the reciprocal nature of environmental and
resource problems.
Readings:
 Terry L. Anderson and Gary D. Libecap, 2014 Environmental Markets, Preface
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Chapter 1, “Who Owns the Environment?”
H. Scott Gordon, 1954, “The Economic Theory of a Common Property Resource:
The Fishery,” Journal of Political Economy 62(2): 128-35 only.
1/13 The Problem of Open Access Continued
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Garrett Hardin, 1968, “The Tragedy of the Commons,” Science 162: 1243-8.
T.R. Halliday, 1980, “The Extinction of the Passenger Pigeon Ectopistes Migratorius and Its Relevance to Contemporary Conservation,” Biological Conservation 17:
157-62.
1/15 Traditional Pigouvian Tax and Regulatory Solutions. We briefly review
command and control regulation and tax options.
 Anderson and Libecap, 2014. Chapter 2, “Is Government Regulation the Solution?”
1/20 Property Rights and the Potential for Markets. Environmental markets
require some type of property right, formal or informal and there is then a potential for
trading.
 Anderson and Libecap. 2014. Chapter 3 “Property Rights for the Common Pool.”
1/22 The Potential for Markets: Coasean Bargaining. Markets reallocate resources to higher valued uses and provide price information about alternatives. Coase addresses bargaining regarding environmental problems with different assumptions about
transaction costs.
 Ronald Coase, 1960, “The Problem of Social Cost,” Journal of Law and Economics
3: 1-44 only.
1/27 Local Common Property Resource Management
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Anderson and Libecap. 2014. Chapter 4 “Local Property Rights to the Commons”
1/29 Local Common Property Management
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Elinor Ostrom, 2000, “Collective Action and the Evolution of Social Norms,” Journal of Economic Perspectives, 14(3): 137-58.
Michael Cox, Gwen Arnold, and Sergio Villamayor Tomás. 2010. A Review of Design Principles for Community-Based Natural Resource Management. Ecology and
Society 15(4): 38-52, http://www.ecologyandsociety.org/vol15/iss4/art38.
2/03: Local Common Property Management
 James M. Acheson and Roy Gardner, 2005, “Spatial Strategies and Territoriality in
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the Maine Lobster Industry,” Rationality and Society 17(3): 309-41.
Nicolás L. Gutiérrez, Ray Hilborn, and Omar Defeo, 2011, “Leadership, Social
Capital and Incentives Promote Successful Fisheries,” Nature February 17, 470:
386-389.
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2/05The Politics of Property Rights: Why Market Solutions are Often
Difficult
 Anderson and Libecap. 2014. Chapter 5 “The Politics of Property Rights”
2/10: The Politics of Property Rights: Why Market Solutions are Often
Difficult continued
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Ronald N. Johnson and Gary D. Libecap, 1982, “Contracting Problems and Regulation: The Case of the Fishery” American Economic Review 72 (5): 1005-22.
 Robert T. Deacon, Christopher Costello, and Dominic Parker. 2013. “Reforming
Fisheries: Lessons from a Self-Elected Cooperative.” Journal of Law and Economics 56(1): 83-125
2/12 From Property Rights to Markets: Examples of Successful Environmental Markets and Ones that are Less Successful.
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Anderson and Libecap. 2014. Chapter 6: “From Property Rights to Markets”
2/12 Environmental Markets:
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Freshwater Trust: Brandon Scarborough, 2010, Environmental Water Markets: Restoring Streams Through Trade PERC Policy Series 46.
Nathaniel Keohane and Sheila Olmstead, 2007, Markets and the Environment ,
Washington: Island Press, “ Habitat and Land Management,” 201-206.
2/17 Environmental Markets:
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Virginia McConnell and Margaret Walls, 2009, “Policy Monitor: U.S. Experience
with Transferable Development Rights,” Review of Environmental Economics and
Policy, Summer: 288-303.
Margaret Walls and Virginia McConnell, 2007, Transfer of Development Rights in
U.S. Communities: Evaluating Program Design, Implementation, and Outcomes,
Resources for the Future, September: 8-27, skim 28-131.
Conservation Credit Exchanges: At least 13 states have conservation credits exchanges. South Carolina: http://www.conservesc.com/; Virginia and New Mexico:
http://conservationcreditexchange.com/; http://www.vcce.net/;
http://dcr.virginia.gov/land_conservation/lpc.shtml; Colorado:
http://www.coloradocredits.com/; Georgia:
http://glcp.georgia.gov/00/channel_title/0,2094,82613131_114687036,00.html;
More generally in Ecosystem Marketplace:
http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=7
546&section=news_articles&eod=1
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2/19 Air Emission Permits
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General
A. Denny Ellerman, 2007, “Are Cap-and-Trade Programs More Environmentally
Effective than Conventional Regulation” in Jody Freeman and Charles D. Kolstad,
eds. Moving to Markets in Environmental Regulation: Lessons from Twenty Years of
Experience. New York Oxford University Press, 48-62.
Extra: Tom Tietenberg, 2007, “Tradable Permits in Principle and Practice,” in Jody
Freeman and Charles D. Kolstad, eds, Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience, New York; Oxford University
Press, 63-94.
SO2 Markets
Nathaniel Keohane and Sheila Olmstead, Markets and the Environment, 2007,
Washington: Island Press, “The U.S. Sulfur Dioxide Market,” 183-190.
Richard Schmalensee and Robert N. Stavins (2013), “The SO2 Allowance Trading
System: The Ironic History of a Grand Policy Experiment,” Journal of Economic
Perspectives 27(1): 103–122, 104–105
RECLAIM
US EPA. 2006. “An Overview of the Regional Clean Air Incentives Market.”
Washington,D.C.
Annual Report/Review: http://aqmd.gov/reclaim/reclaim_annurpt.htm
US EPA. 2002. “ An Evaluation of the South Coast Air Quality Management District’s Regional Clean Air Incentives Market - Lessons in Environmental Markets
and Innovation” Washington D.C. 1-70.
2/24 Air Emission Permits
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RGGI
Regional Greenhouse Gas Initiative webpage: http://rggi.org/
New Jersey leaves RGGI: http://www.environmentalleader.com/2011/05/27/newjersey-pulls-out-of-rggi-bans-coal-plants/
States Use of Funds http://www.stateline.org/live/details/story?contentId=494460
Paul M. Bernstein, W. David Montgomery, and Sugandha Tuladhar.2004, “Economic Consequences of Northeastern State Proposals to Limit Greenhouse Gas
Emissions from the Electricity Sector (RGGI).” Charles River Associates Incorporated.
AB32
Overview via CARB: http://www.arb.ca.gov/cc/cc.htm
Michael Hanemann, 2008, “California’s New Greenhouse Gas Laws Review of
Environmental Economics and Policy, 2 (1): 114–129
Emission Permits Allocations 2010
Controversy--http://suspendab32.org/
That AB 32 Money Went Where? http://www.article-3.com/ab32-that-cap-and-
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trade-money-went-where-912923
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EU ETS
A. Denny Ellerman and Barbara K. Buchner, 2008, “Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data,” Environment and Resource Economics 41:267–287.
2/26 Fisheries. Fisheries are the classic common pool resource and a resource where
rights-based management has grown dramatically.
 Jennifer Devine, Krista Baker and Richard Haedrich, 2006, “Fisheries: Deep-Sea
Fishes Qualify as Endangered,” Nature 439 January 5, 29.
 Ransom Myers and Boris Worm, 2003, “Rapid Worldwide Depletion of Predatory
Fish Communities,” Nature 432, May 15: 280.
3/03 Fisheries: The Impact of Property rights and their Trade
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Christopher Costello, Steven Gaines, and John Lynham, 2008, “Can Catch Shares
Prevent Fisheries Collapse?” Science 321., September 19: 1677-78.
R. Quentin Grafton, Dale Squires, and Kevin Fox. “Private Property and Economic
Efficiency: A Study of a Common-Pool Resource,” 2000 Journal of Law and Economics. 43(2): 679-713.
3/05 Fisheries
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Richard G. Newell, James N. Sanchirico, and Suzi Kerr 2005, “ Fishing Quota
Markets, “Journal of Environmental Economics and Management, 49(3): 437-462.
Rögnvaldur Hannesson, 2008, “Sustainability of Fisheries,” The Electronic Journal
of Sustainable Development (2008) 1(2)
Distributional controversies:
http://www.scientificamerican.com/article.cfm?id=progress-in-solving-fisheriesprobl
3/10 Water Rights and Institutions. Water may be the most misallocated and mismanaged resource. The role of property rights and markets.
 Gary D. Libecap, 2009, “Chinatown Revisited: Owens Valley and Los Angeles—
Bargaining Costs and Fairness Perceptions of the First Major Water Rights Transfer,” Journal of Law Economics and Organization 25(2): 311-37.
 Gary D. Libecap, 2011, Institutional Path Dependence in Climate Adaptation: Coman’s “Some Unsettled Problems of Irrigation” American Economic Review 101:
64-80.
 Jeffrey Michael, Richard Howitt, Josué Medellín-Azuara, and Duncan MacEwan ,
2010, A Retrospective Estimate of the Economic Impacts of Reduced Water Supplies to the San Joaquin Valley in 2009
3/12 Tackling the Global Commons: Are Markets An Option?
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Anderson and Libecap. 2014. Chapter 7 “Tackling the Global Commons”
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Gary D. Libecap. 2014. “Addressing Global Environmental Externalities: Transaction Costs Perspectives,” Journal of Economic Literature.
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