Ron Paul Wants to Abolish the EPA

No surprise there. And he offers a conventional libertarian bromide as a substitute for the regulatory agency: "Polluters should answer directly to property owners in court for the damages they create...." For years, small minorities of economists and libertarians calling themselves "free-market environmentalists" (see, e.g., here and here) have argued that common-law property protections, by themselves, can and would supply efficient, even optimal, levels of environmental protection. They would certainly be right, if we lived in the mythical world of the "Coase theorem," in which information is complete and transacting is costless (see here). Indeed, if we lived in that world, we wouldn't even need property law or courts to resolve environmental disputes as parties in the free market would costlessly bargain to optimal allocations of pollution. But, as Coase himself acknowledged many times (see id.), the world we live in is not at all like the world of the "Coase theorem." In the real world, theories of free-market environmentalism are dangerously misguided because of transaction costs and the real limitations of common-law solutions to environmental problems.

Here's what Coase had to write about environmental protection in his 1959 article on "The Federal Communications Commission" (see here, p. 29):

[I]f many people are harmed and there are several sources of pollution, it is more difficult to reach a satisfactory solution through the market. When the transfer of rights has to come about as a result of market transactions carried out between large numbers of people or organizations acting jointly, the process of negotiation may be so difficult and time-consuming as to make such transfers a practical impossibility. Even the enforcement of rights through the courts may not be easy. It may be costly to discover who it is that is causing the trouble. And, when it is not in the interest of any single person or organization to bring suit, the problems involved in arranging joint actions represent a further obstacle. As a practical matter, the market may become too costly to operate.

In these circumstances, it may be preferable to impose special regulations (whether embodied in a statute or brought about as a result of the rulings of an administrative agency).

 Peter Grossman and I build on Coase's arguments in Chapter 15 of our book, Principles of Law and Economics (Aspen 2011), pp. 397-8:

The causation-proof problems Coase recognizes are especially important. Many pollutants travel long distances, and pollution-related diseases can have long latency periods. To prevail in court, plaintiffs must be able to trace their harm to a particular pollution source that might be located hundreds of miles away, and prove that their harm was proximately caused by exposure to a certain pollutant that may have occurred several decades ago. This evidentiary burden is often unbearable, and always very expensive. Moreover, common-law courts have traditionally restricted nuisance remedies to cases involving visible air pollution, such as smoke and dust; bad odors were usually not enough to state a claim. But, of course, many harmful pollutants - including some of the most toxic - are invisible. 

In addition to causation-proof problems, common-law remedies only protect environmental resources subject to property rights; they do not protect unowned, common-pool resources, regardless of social value.

The problems raised, respectively, by Coase and Cole and Grossman bear on Paul's belief that common-law causes of action provide sufficient remedies for environmental harms, but ultimately they are inapposite to his opposition to EPA and large-scale environmental regulation because Paul is not a welfare-consequentialist. As true-believing libertarian, Paul is more interested in maximizing individual liberty than overall social welfare (although he might believe that maximizing the former would maximize the later). Paul's strict libertarianism distinguishes him from his rivals for the Republican presidential nomination. While they mostly pander to anti-environmental interest groups, Paul's environmental position is principled. But, if implemented as policy, it would be disastrous for the health and welfare of the American people.