Professor Tom Roberts

Spring 1999

NATURAL RESOURCES: Primary Energy Fuels; Oil and gas

Material for Jan. 19, 1999

Garrett Hardin, "The Tragedy of the Commons,"

162 Science 1243 (13 December 1968); (excerpt, footnotes omitted)

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. . .. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit - in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Some would say that this is a platitude. Would that it were! In a sense, it was learned thousands of years ago, but natural selection favors the forces of psychological denial. The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers. Education can counteract the natural tendency to do the wrong thing, but the inexorable succession of generations requires that the basis for this knowledge be constantly refreshed.

In an approximate way, the logic of the commons has been understood for a long time, perhaps since the discovery of agriculture or the invention of private property in real estate. But it is understood mostly only in special cases which are not sufficiently generalized. Even at this late date, cattlemen leasing national land on the western ranges demonstrate no more than an ambivalent understanding, in constantly pressuring federal authorities to increase the head count to the point where over-grazing produces erosion and weed-dominance. Likewise, the oceans of the world continue to suffer from the survival of the philosophy of the commons. Maritime nations still respond automatically to the shibboleth of the "freedom of the seas." Professing to believe in the "inexhaustible resources of the oceans," they bring species after species of fish and whales closer to extinction.

The National Parks present another instance of the working out of the tragedy of the commons. At present, they are open to all, without limit. The parks themselves are limited in extent -there is only one Yosemite Valley - whereas population seems to grow without limit. The values that visitors seek in the parks are steadily eroded. Plainly, we must soon cease to treat the parks as commons or they will be of no value to anyone.

What shall we do? We have several options. We might sell them off as private property. We might keep them as public property, but allocate the right to enter them. The allocation might be on the basis of wealth, by the use of an auction system. It might be on the basis of merit, as defined by some agreed-upon standards. It might be by lottery. Or it might be on a first-come, first-served basis, administered to long queues. These, I think, are all the reasonable possibilities. They are all objectionable. But we must choose - or acquiesce in the destruction of the commons that we call our National Parks.

In a reverse way, the tragedy of the commons reappears in problems of pollution. Here it is not a question of taking something out of the commons, but of putting something in - sewage, or chemical, radioactive, and heat wastes into water; noxious and dangerous fumes into the air; and distracting and unpleasant advertising signs into the line of sight. The calculations of utility are much the same as before. The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free-enterprisers.

The tragedy of the commons as a food basket is averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated. We have not progressed as far with the solution of this problem as we have with the first. Indeed,our particular concept of private property, which deters us from exhausting the positive resources of the earth, favors pollution. The owner of a factory on the bank of a stream - whose property extends to the middle of the stream - often has difficulty seeing why it is not his natural right to muddy the waters flowing past his door. The law, always behind the times, requires elaborate stitching and fitting to adapt it to this newly perceived aspect of the commons.

The pollution problem is a consequence of population. It did not much matter how a lonely American frontiersman disposed of his waste. "Flowing water purifies itself every 10 miles," my grandfather used to say, and the myth was near enough to the truth when he was a boy, for there were not too many people. But as population became denser, the natural chemical and biological recycling processes became overloaded, calling for a redefinition of property rights.

Hammonds v. Central Kentucky Natural Gas Co.

255 Ky. 685, 75 S.W.2d 204 (1934)

STANLEY, Commissioner.

The case seems to be one of first impression. About 1919 the appellee exhausted the gas from a field of about 15,000 acres in Menifee and adjoining counties, most of which it had under lease. Thereafter it brought in vast quantities of gas from distant fields and put it by force through its previously drilled wells into the vacated underground reservoir, withdrawing it as desired. In recent rate litigation the company valued these holdings at $2,000,000. . .. The appellant owns 54 acres within this boundary which was never leased to the company. It is not disputed that this geological dome or basin underlies her land. She brought this suit to recover a large sum for use and occupation under the idea of trespass, it being charged that the gas was placed in or under her property without her knowledge or consent. Judgment went for the defendant. The decision must rest upon the character and nature of property in natural gas.

The migratory trait of oil and gas when released from imprisonment in their natural geological reservoirs by decrease of the pressure which confines them when the strata is penetrated, naturally or mechanically - perhaps at a point far removed and where no connection could be suspected - was early judicially recognized. This power, as it were, of self-transmission, or this fleeting nature of oil and gas, soon gave rise to the distinctive rules of law which differentiate these substances from the solid minerals.

In the pioneer case of Hail v. Reed, 54 Ky. (15 B. Mon.) 479 (decided in 1854), suit was filed to recover possession of "three barrels of American oil," valued at $1.25 a gallon, which had been drawn from the plaintiff's salt well in Cumberland county without his license or permission. In the argument the plaintiff likened the oil to solid minerals, while the defendant suggested the analogies between animals ferae naturae and waters of a spring to oil (then a novel product sold as a medicine, and stated by the court to be "a peculiar liquid not necessary nor indeed suitable for the common use of man"), and maintained that since the plaintiff had not reduced the oil to possession and as they had done so through their own efforts, they were entitled to retain it. The court passed over the suggested analogies and held that, like water collected, the oil actually in the well, there subject to being taken out, was the property of the owner of the land and belonged to him when drawn out unless it had been done by his licensee. The defendants were regarded as wrongdoers and the oil was restored to the owner of the land. It remained for the Supreme Court of Pennsylvania twelve years later to point out specifically for the first time the distinctions and to lay the predicate for the various rules based upon the fugacious nature of these minerals in Funk v. Haldeman, 53 Pa. 229. In Westmoreland & Cambria Natural Gas Company v. De Witt, 130 Pa. 235, 18 A. 724, 725, 5 L.R.A. 73, that court said:

"Water and oil, and still more strongly gas, may be classed by themselves, if the analogy be not too fanciful, as minerals ferae naturae. In common with animals, and unlike other minerals, they have the power and the tendency to escape without the volition of the owner. Their "fugitive and wandering existence within the limits of a particular tract was uncertain." . . . They belong to the owner of the land, and are part of it, so long as they are on or in it, and are subject to his control; but when they escape, and go into other land, or come under another's control, the title of the former owner is gone. Possession of the land, therefore, is not necessarily possession of the gas."

But, as is pointed out in Mills & Willingham on the Law of Oil and Gas, sec. 13, the doctrine of ferae naturae was not carried to its logical conclusion in that state (as it was in Indiana), for Pennsylvania, as in a majority of the oil producing states, has adopted the rule that the owner of land under which oil and gas lie is the absolute owner of them in place in the same manner and to the same extent as is an owner of solid minerals, and that he may create by grant or reservation a separate corporeal estate in oil and gas identical in nature with the estate of the surface, subject, of course, to loss through escape. We so regard it in Kentucky. . .. Except the easement to explore and develop, the conveyance is in reality the grant of a right in real estate yet to be actually severed or produced, for as to oil and gas not discovered or produced, there is no change of title from the common ownership . . ..

The conception of absolute ownership can go no further, for beyond that point the wild and migratory nature of oil and gas destroys the theory. They may be here today and gone tomorrow. They belong to the owner of the land as a part of it so long as they are on it or subject to his control; when they are gone, his title is gone . . ..

If they escape into the land of another, they become his property in like degree or manner. So it is declared that oil and gas are not the property of any one until reduced to actual possession by extraction, although by virtue of his proprietorship the owner of the surface, or his grantee of the severed mineral estate, has the exclusive right of seeking to acquire and of appropriating the oil and gas directly beneath. This theory of ownership or, perhaps more accurately speaking, lack of ownership is practically universally recognized . . ..

When gas is thus severed and brought under dominion and into actual possession at the surface, it, of course, becomes the personal property of the one who has extracted it under a right so to do. Willis's Thornton on Oil & Gas, secs. 50 and 60. The appellee acquired such title to the gas here involved. The question is whether that gas, having once been reduced to possession and absolute ownership having vested, was restored to its original wild and natural status by being replaced in a similar reservoir of nature, taking the place of other gas which once occupied that same subterranean chamber . . ..

In seeking for an analogous condition in the law, the courts, since the early Pennsylvania case, have compared natural gas and oil to that of animals ferae naturae. The analogy, as we have seen, formed the basis of the all but universal doctrine of property in these wandering minerals. So we may look to that analogous law. From the beginning, wild animals have been regarded as quasi property of the entire human race. It is the recognition of land titles rather than of any individual property in the game that prevents its pursuit, and barring all questions of trespass, exclusive property in birds and wild animals become vested in the person capturing or reducing them to possession. But unless killed, this is a qualified property, for when restored to their natural wild and free state, the dominion and individual proprietorship of any person over them is at an end and they resume their status as common property . . .. So, too are fish collective property so long as they remain unconfined in their natural element in a public stream, and not even the owner of the soil over which the stream flows owns the fish therein, although he may have the exclusive right of fishing in the stream where it runs over his land. And, as in the case of wild game, a qualified property in an individual may be acquired by catching and confining fish within a private pond so they cannot escape. If, however, the fish escape and are found at large in their proper element, they again become public property and are subject to appropriation by the first person who takes them . . ..

If one capture a fox in a forest and turn it loose in another, or if he catch a fish and put it back in the stream at another point, has he not done with that migratory, common property just what the appellee has done with the gas in this case? Did the company not lose its exclusive property in the gas when it restored the substance to its natural habitat?

Another analogue to the moving deposits of oil and gas is subterranean and percolating water which also have a similarity of relation though not of identity, the substantial difference being only that oil and gas are vanishing products while water may be perpetually supplied by nature. One may draw water and it becomes his when placed in his own receptacle. He may appropriate water from a running stream to turn his mill or to irrigate his land and the property therein may be said to exist in him so long as it remains under his control. But once the water is restored to the earth or to the running stream that exclusive, individual title is lost . . ..

We are of opinion, therefore, that if in fact the gas turned loose in the earth wandered into the plaintiff's land, the defendant is not liable to her for the value of the use of her property, for the company ceased to be the exclusive owner of the whole of the gas -- it again became mineral ferae naturae.

Accordingly, the judgment is affirmed.

NORTH CAROLINA OIL AND GAS CONSERVATION ACT

(1945)

Section 113-382.

In recognition of imminent evils that can occur in the production and use and waste of natural oil and/or gas in the absence of equal or correlative rights of owners of crude oil or natural gas in a common source of supply to produce and use the same, and in the absence of adequate measures for the protection of the environment, this law is enacted for the protection of public interests against such evils by prohibiting waste and compelling ratable production in authorizing regulations for the protection of the environment. (1945)

Section 113-390

Waste of oil or gas as defined in this law is hereby prohibited.

Section 113-389(14).

"Waste" in addition to its ordinary meaning, shall mean "physical waste" as that term is generally understood in the oil and gas industry. It shall include:

a. The inefficient, excessive or improper use or dissipation of reservoir energy; and the locating, spacing, drilling, equipping, operating or producing of any oil or gas well or wells in a manner which results, or tends to result, in reducing inefficiently the quantity of oil or gas ultimately to be recovered from any pool in this State . . . .

c. Abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to non-uniform, disproportionate, and unratable withdrawals causing undue drainage between tracts of land . . ..

Section 113-392

(b) For the prevention of waste and to avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells, the Department [of Natural Resources and Community Development] shall, after a hearing, establish a drilling unit or units for each pool . . . .