Sunday, June 29, 2014

Matt Ridley from the UK: Property rights underground


The government is consulting on whether to amend the law so that you cannot stop a gas or geothermal company from drilling a horizontal well a mile beneath your house, though you can get paid for it. Lord Jenkin of Roding last week pointed out that, under the common law, ownership of your plot reaches “up to Heaven and down to Hades”. Is the government justified in weakening this aspect of your property rights below a depth of 300 metres?

Yes. When air travel began in the 1920s the United States passed a “uniform aeronautics law” to prevent planes being charged with trespass for flying over private property. In this country judges made case law that overflight was not trespass. This is a similar case — shale gas extraction would not work if trespass was held to happen deep beneath your feet.

It would be absurd to act as if you owned a diminishing cross-section of the earth’s crust, mantle and core down to where it met the vanishingly small tip of an Australian householder’s plot at the centre of the earth. The world is bedevilled by problems caused by lack of private property rights, but it is also bedevilled by problems caused by too much property ownership.

In the first camp, a new book by two American economists, Terry Anderson and Gary Libecap, called Environmental Markets: a Property Rights Approach, documents just how many environmental problems could be solved by granting stronger property rights to tackle “tragedies of the commons”, in which open access results in a destructive free-for-all. In Montana, an irrigation channel was held by judges to be a river channel and therefore free for all to fish in; the local farmers, unable to keep trespassers out, responded by allowing it to dry up when it was not needed.

New Zealand has led the way in solving marine overfishing by creating individual, transferable quotas in particular fisheries, so that fishermen have an incentive to maximise the value of the fishery they partly own, rather than grab what they can before somebody else does. In many such cases we should be strengthening property rights.

But in just as many cases we should be weakening them. In his book The Gridlock Economy, the Columbia University law professor Michael Heller coined the term “anticommons” for cases where too many owners try to charge tolls for crossing their property. His paradigmatic case was transport on the Rhine in medieval times, when the gradual fragmentation of the river’s ownership into hundreds of greedy, toll-raising fiefs led to a withering of trade.

The same happens today with patents on drugs and genes, so that researchers have to fight their way through costly thickets of patents for “access” to certain aspects of bodily biochemistry.

Many successful songs end up in court for having trespassed on a copyrighted tune. George Harrison’s My Sweet Lord, though based on an out-of-copyright hymn, was found to have “subconsciously plagiarised” a 1963 hit written by Ronnie Mack and sung by the female group the Chiffons.

Having had to pay three separate fees just to quote some short lyrics from the song What a Wonderful World in my last book, I think there is too much of this virtual rent-seeking around (even though I am an author myself).

The analogy with real property is poor anyway. The whole point of a song or a book is that you share it, which is not true of a house. In fighting against Google Books, which wants to digitise and publish extracts from books, organisations that represent authors are putting supposed property rights above sharing opportunities.

It was to prevent just such ownership gridlock that the government long ago established that individual landowners could not stop canals, railways, roads, sewers, water pipes or even coal mines going through, over or under their properties, so long as they were compensated for any harm done.

The proposals for shale gas are no different. If somebody is going to take the expensive trouble to drill through miles of rock, and have no discernible effect on your garden above, then you should no more have the right to prosecute him for trespass than you do to prosecute an airliner flying thousands of feet above your garden or a car driving past on a motorway a mile away. The law needs clarifying because the anti-gas greens were planning to buy minuscule parcels of land over shale-gas drilling sites and refusing permission to the drillers.

In the United States, where a property owner owns the gas itself, they solved this issue in an ingenious way. When oil and gas drilling first began, it became clear that you could suck somebody else’s oil out of the rock before he got to it if you pumped hard enough close to the boundary fence. This led to an inefficient arms race of competitive pumping, a bit like overfishing. The Texas Railroad Commission (incredibly, this is still the name of the oil and gas regulator in Texas) started to rule that adjoining owners must “pool” their oil ownership and be rewarded pro rata.

Some states required a threshold majority of land owners within a certain acreage to consent to the drilling, but most now have a “forced pooling” system, whereby, once the driller has reached a deal with a landowner to site its drilling pad on the surface, no adjoining landowner within that “section” can prevent the drilling going under his property.

Chris Wright, whose Liberty Resources is one of the leading shale-oil producers in North Dakota, told me how this works there. North Dakota has a standard 1,280-acre drilling spacing unit. “If you own 1.28 acres in one of my units, I send you my drilling plans and the estimated cost of the well and you can agree. . . to participate, and pay 0.1 per cent of the well costs to own 0.1per cent of the production from my well.” Alternatively, you can “non-consent”, pay nothing and own none of the oil and gas coming out until some threshold has passed. At that point — when revenues exceed 300 per cent of costs — you can apparently reconsider your refusal to participate, which is nice.

Green landowners should no more be allowed to hold up shale gas or geothermal energy projects in the deep earth than they should be allowed to prevent the overflying of aeroplanes.

Matt Ridley, a member of the British House of Lords, an acclaimed author who blogs at www.rationaloptimist.com.

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