Tradable smoking pollution permits

Tradable smoking pollution permits were proposed by the economists Robert Haveman and John Mullahy of the University of Wisconsin–Madison as an alternative to smoking bans to solve the problem of cigarette-smoking "externalities" in public bars and restaurants. The tradable smoking pollution permit systems work similar to other cap-and-trade emissions trading systems successfully used by the United States Environmental Protection Agency since the 1970s to curb other types of pollution.

Background
Emissions trading systems allow lawmakers to define the overall level of pollution that is socially acceptable, and then issue tradable permits corresponding to that amount, companies who wish to pollute must hold permits equal to their emissions. This market-based approach to pollution control provides firms with economic incentives to reduce pollution in the least costly way.

In the case of smoking permits, lawmakers would decide the optimal level of smoking establishments for an area. The total fire occupancies, or some proxy based on alcohol sales receipts for those establishments is totaled up, and smoking pollution permits are issued accordingly. Establishments are required to hold permits equal to size, either fire occupancies or level of alcohol receipts, if they wish to allow smoking. In essence, they are required to own the property rights over the clean air space of all occupants before any can smoke. Establishments with unused permits can sell them on the open market to smoking establishments, providing economic incentives to reduce smoking in bars and restaurants. A similar proposal allowing smoking permits as an alternative to outright smoking bans was also advocated by the editorial board of the Illinois News-Gazette in a 2006 editorial.

The theoretical background for tradable smoking pollution permits has been outlined by economist Ted Bergstrom of the University of California, Santa Barbara. Bergstrom models the negative effects of smoking on others as an externality problem that is caused by a "missing market"—no market exists in which non-smokers and smokers can form agreements to internalize the external costs of smoking. In Bergstrom's model, governments fill in this missing market by introducing a new commodity, "smoking permits," along with a law requiring smokers (or smoke-emitting firms) to purchase permits. The government then produces a ﬁxed supply of smoking permits and distributes them in some way among smoke emitters.

In practice, smoking pollution permitting systems have been introduced by some municipal governments in the U.S. For example, the city of Wichita, Kansas introduced a smoking ordinance in 2008 that issues $250 smoking pollution permits to firms. A similar proposal was introduced by New York State Assemblyman Howard Mills in 2003, which would have established a system of smoking permits for bars and restaurants, similar to the existing system for liquor licenses. In the United Kingdom, Julian Le Grand, chairman of the ministerial advisory board Health England, has proposed a smoking permitting system that would require individual smokers rather than firms to hold pollution permits.