I see two related issues here.  One is the meaning and applicability of the 
Coase Theorem. The other is its relation to, and separately, the origins of 
tradeable permit schemes in environmental economics, which are usually explained 
as deriving from the Coase Theorem. 

As Deirdre put it, Coase wanted to reduce transactions costs by creating 
property rights, so that is what the tradeable permits schemes try to do.

First of all, there really are two separate issues in the Coase Theorem, 
creating property rights and the existence of transactions costs, even if they 
may be related. Thus, if one is dealing with a true collective consumption good, 
it may be extremely difficult, indeed impossible, to create property rights.  
This will certainly increase transactions costs. 

OTOH, there are other factors involved in the size of transactions costs besides 
the degree to which property rights are defined.  One is the number of parties 
involved in the situation. Irrespective of the property rights situation, the 
more people involved, the higher will be transactions costs.  The global climate 
is an extreme case, where pretty much everybody in the world is involved, and 
property rights are hard to define.  No wonder we have not gotten a handle on it 
yet.

Regarding the in some sense more history of economics question regarding the 
origin of tradeable permits, they existed prior to Coase's famous paper and 
simply arose on their own spontaneously without anybody mandating them.  This is 
described in an interview with Richard Norgaard in a book in which Deirdre also 
appears, _The Changing Face of Economics: Conversations with Cutting Edge 
Economists_, by Colander, Holt, and Rosser, 2004, University of Michigan Press,
pp, 220-221.  He describes the situation in the late 1950s when LA set an 
average height limit of six stories on buildings.  A market emerged in which if 
one had a three story building, one could sell one's "height rights" to another 
who wanted to go to nine stories. This happened before Coase wrote his famous 
paper, and I note that Coase himself did not write about tradeable permits.

Within the environmental economics literature, it is generally agreed that the 
first to specifically discuss the idea of tradeable permits was J.H. Dales in 
_Pollution, Property and Prices_, 1968, Toronto University Press.  He seems to 
have been only marginally influenced by Coase and more by legal practices in 
Ontario where there was activity to assign rights between fishers and polluters,
and Dales realized that these could be traded.  He did not seem to be aware 
of these earlier "height rights" markets in US cities.

I believe that the first program in which a government consciously established a 
system of tradeable permits to pollute was by the Department of Natural 
Resources in the state of Wisconsin in the mid-1970s for BOD emissions into the 
Fox River, which flows into Green Bay.  The pulp and paper mills along there 
were major emitters, and there was serious pressure to minimize economic
costs, especially layoffs, in that industry, while getting the river up to 
standards on BOD.  I know of this program because I was involved peripherally in 
setting it up as an employee in the Bureau of Water Quality (I was finishing my 
dissertation at the time).  Someone else who was at the University of Wisconsin 
at the time and played a bigger role than I did, and would later become one of 
the most important advocates of this system was Tom Tietenberg, author of the 
biggest selling textbook in environmental and natural resource economics, and 
now at Colby College.  He has since written many books and articles advocating 
the system and is as responsible as anybody for the fact that
they have become so popular.

Barkley Rosser