GENERAL REPORT

Henri Lamotte

This sixth “Property rights, economics and environment” conference addressing land resource management has resumed issues addressed during the former five conferences – i.e. preserving environment with economic instruments and with markets for rights rather than with environmental taxes.

The topic of this year perfectly illustrates this problematic insofar as land control is a crucial element to preserve the environment since access to environmental resources (e.g. water, areas, fauna and flora…) frequently depends on the access to land.

 Three goals were assigned to this conference:

               i)      Assessing the efficiency, benefits and costs of regulatory instruments which are undoubtedly the most preferred instruments of public authorities for environmental land control issues;

             ii)      Determining how economic instruments, taxes, fees and tradable permits (solutions increasingly used in other environmental areas) might be used for environmental control purposes; we may think of tradable development rights, compensation for environmental easements, land taxes;

           iii)      Conceiving new institutions which might both be environmentally efficient and property rights friendly.

 A general report is always an over-abridging exercise; summing up in a few phrases the variety of topics, multiplicity of approaches and richness of debates is never an easy task. For sake of simplicity, two major lines have surfaced during the debates; the first one focuses on the classic modalities of public action (I); the second one deals with the potential solutions which might renew, complete and improve public action for land resources issues (II). Nevertheless, we must keep in mind that environmental protection, and not urban planning, is the general theme of this conference.

I.  Benefits and deficiencies of classic instruments used by governments for land control purposes

 This conference began with an introductory lecture by Olivier Barriere and Etienne Le Roy about the great variety of property rights regimes all over the world. The western system based on private, exclusive and transferable property rights is not the most prevalent regime on all continents. Only 4% of African lands are subject to private property rights. Nevertheless, this variety of institutional regimes leaves unanswered the question of property rights efficiency and of their contribution to capital accumulation and economic development. Hernando De Soto’s book, “The mystery of capital”, has revived this debate.^[1]

A. Regulation and direct public appropriation: two classic instruments of land policies used by public authorities

 1. Regulation and land planning are two classic instruments used by governments in all countries: setting standards (control-and-command regulations) and determining land uses thanks to zoning. Zoning leads to implement spatialized regulations that will consequently fit local conditions.

 2. Direct public appropriation

 Were regulation or land planning failing at reaching their objectives, other instruments such as direct appropriation of land resources might be used. Expropriation is a classic procedure in that respect.

 This conference is about environment. Therefore, the two above-mentioned public instruments should be examined with an environmental protection objective in mind since they might also be used for other objectives.

B. Deficiencies of classic public instruments

 Debates have revealed several deficiencies which reduce the efficiency of these instruments.

 1. Lack of environmental efficiency probably due to the lack of direct per-se effect: zoning does not prevent harms caused to environment. The implementation of agricultural protection areas only aims at guaranteeing the distribution of land that benefit agriculture but not environmentally friendly agricultural techniques.

 2. Persistent changes in relative values of land resources produced by regulation or land planning.

 Land planning brings out significant distributional effects since it produces long-lasting changes of land property rights value. Depending on whether or not land can be developed, its relative value ranges between 1 and 100, or even 1 to 1,000 in areas with a strong land pressure.

 3. Losses of economic efficiency deriving from land retention/Malthusianism

 Land retention or Malthusianism produces economic and socio-economic efficiency losses as economists put it since the most efficient uses of land cannot be implemented. The cost of urban planning might be directly evaluated with the loss of value resulting from down-classifying a land as an unconstructible one. Such a classification automatically produces socio-economic benefits such as environmental preservation of certain areas and a slowdown of urban sprawling. Lack of evaluation of these benefits makes it impossible to compare costs and expected benefits.

 4. Confusing public authorities’ powers and liabilities

 This was a much-debated topic during the 2002 conference, a topic perfectly illustrated by the expropriation of the Hyeres Salt marshes belonging to the “Salins du midi” corporation and to the Conservatoire du Littoral. However, the scope of this question goes far beyond this case.

Concerning land issues, public authorities assume three functions:

• A regulating and planning function: definition of environmental and urbanism standards and of zoning;
• A land purchase function: such purchases are not subject to civil law procedures but to pre-emption and expropriation ones;
• An assessment function: when the “Service des domaines”, a French public body dedicated to public properties management and purchases, conducts the assessment of expropriated properties.

 Each of these functions has undoubtedly some legitimacy; However conferring all of these functions upon only one actor – i.e. governments or local public authorities – is questionable. Is it fair and economically efficient to grant one body the triple power to influence prices via urban planning or regulation, to make prices ant to appropriate properties by compelling private owners to sell out their properties? Raising the question this way automatically leads to one answer! This Concentration of powers and confusion of responsibilities inescapably brings out corruption risks.

 5. Corruption risks

 Environmental regulation, latto sensus, and especially land planning are the sources of corruption hazards since they result in land value destructions or creations through administrative decisions. The value differential between approved for development and non-approved for development lands creates a corruption incentive. Decentralisation probably exacerbates the impact of local clientelism and trade-offs insofar as local authorities are in charge of urbanism documents and individual decisions –the French Government is only in charge of general rules. Local urban planning documents (POS and PLU^[2]) are subject to a permanent reviewing procedure creating opportunities for tradeoffs. Many lecturers expressed the feeling that corruption was not an occasional phenomenon.

Is corruption a necessary evil to make the system work out? Is corruption just a part of “transaction costs”? The general opinion of conference participants is that corruption is a counterproductive mechanism (lack of transparency, contradiction with a clear right system which is the basis of an efficient free-market economy) and conflicts with the principles on which our democratic societies are based on (the equality before the Law principle)

Hence, what are the available strategies, possible solutions and instruments that might either substitute or complement classic public actions in order to promote a more environmentally friendly management of natural spaces?

II.  Renewal of public authorities’ action in the land policy

 Three types of approaches have been debated during the conference: land trusts, public/private contracting and use of economic instruments latto sensus.

A. Land trusts and natural spaces management

 This topic had still been debated in 2002; land trusts play a crucial role for the preservation of natural spaces notably in Anglo-Saxon countries but also in Latin American countries. Jean Hocker has reminded us the advantages of these land trusts.

Land trusts are non-profit organisations having significant tax rebates which allow to dedicate large financial amounts to the preservation of natural spaces without plundering private owners. Land trusts are usually signing fair and long-term contracts (i.e. environmental easements) with private owners thanks to which the latter are committed to manage their lands pursuant with the land trusts’ objectives in return of a compensation. The price for an environmental easement is set by the reduction of value resulting from the contract. If necessary (e.g. environmental preservation requiring no land exploitation at all), land trusts may purchase these properties but have to pay the market price for them. For the problematic addressed in this conference, land trusts are interesting for three reasons: 

1. this case reminds us that ownership is not a prerequisite condition to space protection; land trusts usually operate with environmental easements signed by private owners and land trusts and through which owners abandon some of their rights (e.g. rights to develop some areas);
2. this case shows us that natural space protection can be achieved without evicting private owners and by contrast based on fair, mutually beneficial and flexible contracts that can fit any local situation;
3. this case emphasizes that natural space management must be viewed from a long-term standpoint; therefore, perpetual easements binding land trusts and both current and future owners are useful tools. In this framework, private owners still owns, use, operate and hold the right to sell and transmit their lands but the perpetual easement signed with the Land trust will be binding for all future owners.

 Other illustrations of private stakeholders’ involvement and commitment to natural spaces management have been given during this conference. In Europe, Ian Hodge has urged to the development of new private institutions in order to meet the new expectations of societies in agricultural affairs; e.g. a multifunctional agricultural not limited to its classic function of foodstuff production but producing other services as well which might be either market services (e.g. green tourism) or non-market services (e.g. landscape and biodiversity maintenance). Following Ian Hodge, new institutions are required to aggregate the social demand from associations and foundations and the supply from operators’ associations in order to provide homogeneous agro-environmental service while reducing transaction costs between supply and demand of amenities.

In France, the new rural environmental lease contract (Agriculture guideline Act, January 5, 2006) is another illustration of private owners’ commitment to environment protection. This new lease contract balances liabilities of tenants and owners vis-à-vis environmental management. If lands are located in certain areas with specific environments (Natura 2000 areas for instance) owners are allowed to included environmental paragraphs in return of lowered rents.

B. Private/public contracts

 The use of private/public contracts in the Land policy has been the topic of a very stimulating debate. Should private/public contracting be favored? Maybe a distinction should be made between urban planning and environmental policies. A number of interesting examples have been mentioned during this conference.

• Contracts with farmers designed to preserve water gathering grounds, as Jacques Pelissard mentioned. These contracts provide for compensation with subsidies granted to organic farming practices in order to preserve water quality from agriculture-induced nitrate pollution. Taxpayers do obvioully pay for such a reduction of agricultural nitrate pollution. This is a breach in the polluter-payer principle.
• Environmental easements established by Land trusts (see below).
• The European Natura 2000 framework.
• The “Conservatoire du littoral” policy.

In France, the Conservatoire du littoral is in charge of purchasing and enhancing parcels of coastline. Purchasing is not enough and coastline must be enhanced too. This means public partnerships with local authorities, state-owned companies and certified associations (wild bird protection league, France’s coastlines association…) and private partnerships with private owners associations (the real estate company of Chausey islands for instance) even though the law does not provide for such private arrangements with private owners or their associations. Such partnerships might be designed as arrangements with private owners of private easements (non-aedificandi easements for instance prohibiting all development). Such partnerships are legitimate insofar as the Conservatoire intends to promote environmentally-friendly economic practices – this is why use-based contracts with farmers, vineyard owners and salt producers have been developed.

However, the current legislation does not allow the Conservatoire to delegate the administration of natural spaces to private owners. This differs from the current situation prevailing in other countries where, for instance, Land trusts exist. As a result, the coastline legislation should be amended.

C.  Economic instruments, the third possible alternative addressed during this conference

 The herewith referred economic instruments are all instruments the goals of which are to substitute or to complement the regulation-based approach with market-based mechanisms thanks to which behaviours might be influenced by market prices either directly (through taxes, fees, subsidies and compensations) or indirectly (with private property rights and markets for rights). This is also a possible solution for addressing the corruption issue. How to introduce some economic instruments into the land policy?

 1. Transferable development rights?

 At first, we might think of tradable permits just like those which have been successful in other environmental areas (water, air pollution, and fight against climate change). This means transferable development rights in the United States and transferable land-use coefficients in France, a mechanism provided for by the 1976 Act on Natural spaces. However, a consensus among conference participants has not emerged on this topic. Land economics researchers argue that this is a complex framework, hardly reconciling environment and business and, finally, that all over the world transferable-rights solutions had been rarely implemented.

 2. Public authorities providing compensation for land amenities and environmental constraints

 Since its 2003 reform the Common agricultural policy promotes the adoption of environmental-objectives based compensations for farmers – something that economists call land amenities that is related to landscape quality and farming practices. This is a very direct instrument that is much more efficient than land planning for preserving the environment. This compensation might increase with the amount of produced amenities or imposed constraints. However this possibility raises a problem of amenities evaluation and a problem of public willingness to pay for such amenities.

 3. Compensation for environmental easements and land taxation

 Just like during the conference about coastal areas four years ago there were lively debates about compensation for environmental easements and taxation – what Anne-Louise Strong coined as “compensable regulation”. The classic conception, notably the French one, argues in favour of non-compensation for environmental easements, which do result in the abolition of property right even though the right of use, one of its attributes, is affected or de facto limited thereof. Pursuant to article 17 of the Human rights declaration, the French civil code only provides for compensation for expropriation. A similar situation prevails in the United States where the 5^th amendment provides for two conditions to be met before the expropriation procedure begins: existence of a public interest motive and compensation. In addition to compensation for a public works motive granted which is in France by Public law justice in case of a specific and serious damage and provided that the victim of that work expresses his or her concerns. However, the current legislation differs amongst countries:

• In France, article L 160-5 of the urbanism code provides for non-compensation for urbanism easements;
• In the United sates, a 1922 Act provided for compensation when regulation is too stringent, consequently resulting in regulatory taking; The U.S. case-law about takings has tremendously grown during the last 20 years.

However, such a conflict of approaches has been softened since the French case-law stated by Public law justice reminded some of the following elements in a 2003 ruling:

i)                    compensation is always possible except when expressly forbidden and;

ii)                   compensable damage have to be abnormal and specific.

 The debate has been clearly delineated from the 2002 conference:

i)                    for economists, lack of compensation creates unfairness and economic efficiency losses; indeed, the lack of compensation does not promote a balanced approach of regulation costs and benefits by public authorities since no compensation for such costs is provided for;

ii)                   However, compensation is not always possible and if it was how would it be evaluated?

iii)                 Compensation is a very meaningful word with no real equivalent in French; indeed, compensation is not necessarily a pecuniary one; Jurgen Hartmann has presented us a new compensation scheme based on an environmental account – agents affected by regulation are granted environmental points the he or she can use for his/her own purposes or sell to somebody else.

iv)                 Finally, this compensation should be subject to some conditions. One of these conditions might be the existence of a modern land tax thanks to which land rent might be consistently taxed away. This might look strange for non-French citizens, but no modern land rent exists in France. Such a tax should not be based on a rental value established in 1970 but should be based on the market value of land commodities, the only economically relevant basis. This does obviously requires that the sum of land taxes, capital and capital gains taxes does leas to a confiscating taxation.

 4. Eliminating all powers and responsibilities confusions and introducing market-based assessments

 Concentrating powers to regulate, expropriate and assess is neither efficient nor fair; Many conference participants consider that governments have to choose amongst these three powers and focus on the most legitimate one for its action – i.e. focusing on the power to regulate and leave other powers to other agents. Assessing worth of taken goods might be viewed as delegated to independent bodies and competing private stakeholders. As G. Dumonteil puts it, taken properties should be at least assessed independently from environmental easements imposed by public authorities.

 5. Solutions to alleviate the corruption issues have still to be discovered

 In that respect, there is no miracle solution. However, several interesting solutions have been mentioned during the conference. 

• Extending cost/benefits analyses to any new regulation and public decision;
• Ex post control of motives on which public utility status are granted;
• Embarking on the way to bureaucratic simplification since legal complexity produces corruption incentives.
• Avoiding Malthusian regulations insofar as the land rent growth they produce also create permanent corruption incentives;
• Bringing some fields of action out of the public sphere to eliminate the origins of corruption from a structural standpoint, as J-P. Chamoux told it. This is what bureaucratic simplification (i.e. deregulation) means. This also means an increased use of market-based mechanisms to allocate rights.