IS RANCHING on the federal range an environmentally destructive anachronism? Many environmentalists seem to think so. Less than 30,000 ranchers graze cattle on 350 million acres of federal lands, an area twice the size of Texas. Environmentalists hope the public lands will be, as the bumper sticker intones, "Cattle Free by '93."

Grazing has also been the target of budget reformers; grazing programs subsidize what environmental writer Edward Abbey called "welfare cowboys." These programs cost taxpayers about $50 million a year. Some permit holders, however, have found public lands to be quite profitable.

A recent report by the Department of the Interior highlights one case in which a California public utility subleased its public grazing privileges to ranchers. It charged subleases 315 percent more per animal unit month than it paid to the Bureau of Land Management (BLM) for the grazing permits. The bottom line: The public loses money to permit holders' benefit.

Ranchers are politically powerful and have successfully headed off attempts at fee reform. Last September, for example, a modest fee increase approved by the House was subsequently negotiated away by the Senate. Today grazing rates remain at about one-quarter of the average of private lands in the same region.

The answer seems to be raising grazing fees to the market level. Ethically and economically, it is not that simple.

BLM grazing privileges were assigned to ranchers under the Taylor Grazing Act of 1934. Preference was given to nearby landowners. Over time, grazing privileges have become linked to these "base properties," with leases being routinely renewed. Today the permits are virtually owned by the base property holders, though technically given as "privileges" by the BLM.

This "ownership" has been ratified in a number of ways. The value of the grazing permits is taxed by the Internal Revenue Service when a ranch is inherited. Permits are also accepted by FDIC-insured banks as collateral for loans. And they are routinely transferred to new owners by the BLM when a base property is sold. Over time, the value of these "rights" has been incorporated into the value of associated private ranch lands.

Consider this analogy: Two cars are auctioned. They are identical in every way except that one carries a sticker entitling it to half-price gasoline for the life of the automobile. Surely the cheaper gasoline does not come free; the discount on gas will produce higher bids for the car. Gas or grass, it works the same. A ranch sold with federal grazing permits is worth more than one without permits. An economist would say that the value of access to cheap grass becomes capitalized into the ranch's value.

So those who have received a subsidy are those who got the initial windfall and sold out for a higher price. Many ranchers who own the base properties today have paid for their subsidy, which makes it no subsidy at all. As the director of the BLM wrote, "The point is that we simply do not know who is `unduly' benefiting or if they are benefiting at all."

Simply raising grazing fees is unfair to the ranchers who have paid for cheap government-land grazing through the value capitalized into their ranch's purchase price. So how else can we reform the federal grazing lands?

A free market in permits can help end government subsidies in a just way. Grazing permits could be offered to the current ranchers for the value of future grazing fees. The permits could then be freely exchanged.

The federal government would stop subsidizing management of the land but would still own it and set environmental standards; for example, by requiring protection of riparian areas as a condition of holding permits.

Environmentalists have long pointed out that there are many valuable uses for federal lands, among them recreation and wildlife habitat. The current system's "use it or lose it" requirements effectively prevent shifts from cattle to other uses. A permit holder cannot save winter range for elk and other wildlife because even if the grazing fees are paid, the permits may be revoked and "unused" forage reallocated to another ranch.

A transferable permit system would encourage diverse uses. Grazing would continue, but land would surely be dedicated to esthetics and biodiversity by groups like the North American Elk Foundation or the Nature Conservancy.

There are several benefits of owned and transferable permits. For example, with more secure access, permit holders would have incentives to invest in and improve the public lands. Property rights encourage diversity and provide incentives for stewardship. This change will benefit our range land and the people who care about its diverse values.