Who owns carbon? Property rights issues in a market for greenhouse gas emissions

Kathy Baylis, University of British Columbia
Travis Allen, University of Toronto

Abstract

As the 2008 start date of the first Kyoto compliance period approaches, signatories to the Protocol are scrambling to establish domestic climate change reduction systems. Canada’s future scheme, which involves both sinks and emissions trading, is still in the design stage, and its creation raises a number of questions important from both an economic and legal perspective. This paper uses an interdisciplinary approach to examine the creation and specific role of property rights (broadly defined to include general ownership of offsets) and their role in an emissions Trading system. We discuss the concept of property rights, and how property rights relate to Emissions Trading. Second, we outline the jurisdictional issues that relate to the competency of Federal and Provincial governments to define offset ownership. Finally, we discuss the important topic of emissions credit allocation. This observation of property rights shows that, while they are highly valued from an economic perspective, strong property rights could potentially act as a constraint upon effective emissions regulation. Furthermore, the creation of any sort of ownership or property right out of what was once a public good will lead to noticeable income effects for market participants that will be greatly affected by government regulation and framework choice. In a wider sense, this discussion serves as a reminder of the different conceptions that economists and lawyers hold in relation to property rights, and a stepping-stone for further inquiry into the econo-legal issues relating to offset system design.