Property rights in wind: accession or first possession?

Introduction

More than seven years ago, the government introduced planning constraints on the construction of onshore wind farms in England which almost paralyzed that industry. However, last September the government updated this policy, facilitating the development of wind farms in England. Considering that the UK faces enormous pressure to diversify its energy sources, this reform could lead to an explosion of onshore wind farming in England. Until now, the development of windfarms in the UK has been mostly addressed through public law regulation concerned with their impact on adjacent communities and the involvement which they should have in the approval of new projects. However, these are not the only problems created by wind farming. As discussed below, the proliferation of onshore windfarms can also lead to disputes between private parties competing to extract energy from the same wind stream. This triggers relevant questions as to who has, and should have, the better right to extract wind in cases of conflict. This post addresses this issue from the perspective of the initial allocation of property rights.

Wind as a competitive resource

For most of human history, technological limitations made wind an unattractive source of energy. Therefore, wind has traditionally not attracted the attention of property law. However, over the last decades this situation has changed as a result of technological developments which have made the extraction of the energy contained in wind economically feasible. This may raise several new challenges regarding the use of wind that are typically addressed by property law.

One of these challenges stems from the problem of scarcity that underpins all property law. The extraction of energy contained in wind weakens its stream, creating a ‘shadow effect’ downwind where it carries less energy. Following Yael Lifshitz, this can lead to a situation sometimes called a ‘tragedy of the commons’, as each wind farmer has incentives to extract as much energy as possible of a stream, without considering the effect on those located downwind. Even if this is not accepted, in her view, the fugitive nature of wind - that is, its constant movement from one place to another - entails the risk that the competitive withdrawal of wind will lead to inefficiency. As with oil, gas and water, the exploitation of wind is not completely tied to a specific surface, allowing people in different locations to compete for the same ‘common pool’ of wind, until it is exhausted.

Legal conflicts arising from the competitive nature of wind are not completely without precedent. In one of the foundational papers of the ‘law and economics’ movement, Ronald Coase referred to two early English cases involving buildings obstructing currents of wind used by windmills to illustrate the reciprocal nature of externalities (e.g., Webb v. Bird 10 C.B. (N.S.) 268, 142 Eng. Rep. 445), while in the US, similar situations have also recently led to disputes (e.g., Windpower Partners 1987 et al. v. County of Alameda et al., No. A089107 (Cal. Ct. App. dismissed Nov. 27, 2000)). With the recent relaxation of planning regulation in England, it might be only a matter of time until we see similar disputes in this jurisdiction.

Hybrid allocation of wind

Yael Lifshitz has recently analysed the American experience from the perspective of property law, arguing that the right to make use of wind seems to be initially allocated through hybrid mechanisms which combine elements from both the principle of accession and the principle of first possession. In her view, the accession principle is linked to the ad coelum doctrine and riparianism. According to the first, ownership of land extends to everything above it, suggesting that it includes the air which flows over it. According to the second, the owner of the abutting land would be entitled to use the wind that flows over it, in the same way that an owner of land adjacent to a water stream is entitled to use such resource. Once access to wind is initially allocated in this manner, the logic of first possession kicks in. Due to the competitive nature of wind, the energy contained in it will be allocated among the landowners with access to the stream through a competitive race, unless some ‘reasonable use’ test (akin to that of a riparian water law system) is applied. Finally, because on this model the ability to extract energy from wind is tied to ownership of land, in practice the right to make use of wind circulates in the market as part of land, typically through leases.

The problems of hybrid allocation

Lifshitz’s hybrid allocation model might be a correct description of the current approach to the right to use wind, but it can be subject to normative criticism from both an efficiency and distributive perspective. According to the hybrid model, the benefit obtained by the upwind farmer might impose a cost on downwind farms that is not borne by the former, thereby creating what economist call a ‘negative externality’. According to the 'Coase theorem', the standard answer for this is that, if the allocation of property rights is certain and there are no transaction costs, the affected parties will be able to allocate this loss efficiently through direct dealings, regardless of the initial allocation of the right. For example, if the right to exploit wind is allocated to landowner A, but B is in a better position to build a windfarm, the latter will simply buy out the right to exploit wind from the former. However, in practice, this might not happen. To start with, the migrant and changing nature of wind reduces the level of certainty for dealings around it. Even if this were not the case, in the real-world, transaction costs are rarely close to zero and there is no reason to assume that entering ‘Cosean dealings’ with all the relevant landowners will be easy, due to the existence of both information constraints and incentives for opportunistic behaviour.

Another problem flows from the fact that the accession principle underpinning the hybrid model does not seem to respond to any clear or sound distributive theory. The accession principle is based on the physical connection between an asset already owned by one person (the land) and a new ownerless asset (the wind). The rationale of accession seems to provide a clear and simple rule that avoids leaving valuable assets without an owner which can extract benefits from them, which feeds into the abovementioned efficiency justification. However, this argument offers no reason to justify the distributive effects of the accession principle. Moreover, as highlighted by Thomas Merrill, because the accession principle allocates property rights to those who already have them, its natural distributive effect is to increase gaps in wealth, which is hard to justify from a purely distributive perspective.

First possession as an alternative

From a conceptual perspective, the obvious alternative for the initial allocation of wind is a model based on the principle of first possession. However, in practice, this does not seem feasible, as it is not possible to make any use of wind without having physical access to the land beneath it. Nonetheless, at least in theory, it is possible to normatively separate wind from land. In other jurisdictions this is frequently done by allocating separate property rights over natural resources physically linked to land, such as water or minerals. For example, in Chile this is done by the creation of a statutory right to exploit the relevant resource that is allocated on a ‘first come, first served’ basis or through a bidding process. Such a right entails the power to impose an easement on the land needed to take advantage of the resource, against the payment of an indemnity to the landowner.

This model offers a number of potential advantages over the accession principle. From an efficiency perspective, first, it incentivises the discovery of valuable hidden resources by rewarding those who have invested time and money in finding them; second, it tends to allocate resources to the party that, through its investments, has (probably) shown itself to be in the best position to take advantage of them; and, third, it facilitates dealings over the relevant resource by enabling parties to trade it independently of land. On the other hand, first possession is also underpinned by a better distributive theory. In this view, which is ultimately based on John Locke’s theory of labour, the allocation of rights to first possessors is ultimately justified in the activity and intention of the assignee. Moreover, this principle is also compatible with a range of distributive goals, as it can easily be combined with a price, tax, or fee that forces the first possessor to share her gains with the community.  

However, the normative separation of wind from land would create challenges of its own. For starters, it would effectively deprive the landowner of ‘as stick’ of her bundle of property rights, namely, the right to exploit the wind that blows over her land. This would trigger a cascade of new problems: should she be compensated for her loss? If so, in what amount? How would first possession of wind take place in practice?

Is it worth creating a new ‘wind right’?

That it is possible to think of a separate proprietary right in wind does not imply that such right should be created. Introducing a new type of proprietary right has challenges of its own. That is why, across jurisdictions, the law aims to control the expansion of property law by providing for a closed list of property rights. There are policy and principle-based reasons that suggest that new forms of property should only be allowed when, at least, two tests are met. On the one hand, the benefit from having a more granular property system must offset the cost created by the additional complexity. On the other, the gained benefit must also be able to outweigh the general principle holding that parties should generally not be subject to liability for non-consented duties. Finally, the creation of new property types tends to have distributional effects: someone loses, and someone wins. As a result, the creation of new property types can create instability that needs to be dealt with in a manner that is both just and efficient. Taking this into consideration before rushing into creating a new property right in wind is important. Property systems are subject to heavy inertia; thus, once a new type of property right is created, it is extremely difficult to go back.

*  This blog post is based on Ernesto Vargas Weil, ‘Towards a Private Property System over Wind in Chile’ (2017) 44 Revista Chilena de Derecho 7.