Pollution Control: Targets READING Perman et al (2nd edition): Chapter 11
THE ECONOMIC ANALYSIS OF POLLUTION * How does pollution arise? * What is the "best" level of pollution? * What policy instruments are available to achieve any pollution target? * What are the relative merits of these instruments?
How does pollution arise? • Pollution arises from economic activity. • When the consequences of residual material/energy flows are damaging. • This requires that flows exceed natural absorption and re-processing capacities of environmental media.
TYPES OF POLLUTION FLOW POLLUTION pollution damage = f (pollutant flow) e.g. noise, light STOCK POLLUTION pollution damage = f (pollutant stock) e.g. greenhouse gases, particulate air pollution
What is the best level of pollution? Depends what you mean by best That is, what is the objective?
ECOLOGICAL • Minimum disruption to ecosystems • Maintenance of biodiversity • Avoidance of critical threshold
(2) ACCEPTABLE RISKS TO HUMAN HEALTH e.g. Nuclear radiation levels e.g. ambient air quality indices But what determines "acceptable"?
(3) ECONOMIC Best = economically efficient Efficient = level which maximises net social benefits Must include ALL costs and benefits in these calculations. Key principle: Pollution is both damaging and beneficial. (Or pollution control is both beneficial and costly). So the idea here is that there are trade-offs. Want to choose the best point along the trade-off.
(4) MIXED ECOLOGICAL/ ECONOMIC/HEALTH * Maximise net social benefit subject to certain ecological and/or health constraints. * Safe minimum standard of conservation.
THE ECONOMIC PERSPECTIVE Three ways of thinking about this: 1. What is the best level of output of goods (with which pollution is associated)? 2. What is the best level of pollution? 3. What is the best level of pollution abatement? Conceptually, are alternative versions of same underlying question.
The efficient level of output (of a polluting good). Price SMC = PMC + EMC PMC P** P* EMC PMB Quantity per period Q* Q**
An alternative picture The next slide is an alternative version of the previous one. In this one, we show the private marginal net benefits (PMNB) of the output (that is, private marginal benefits minus private marginal costs) on one curve, and the external marginal cost or damage (EMC) of the pollution externality on a second curve.
The efficient level of output EMC PMNB Output, Q Q** Q*
The efficient level of pollution (M) EMCM PMBM = Marginal damage caused by the pollution M2 M1 M3 Pollution emissions, M
The efficient level of pollution abatement (Z) MCZ SMBZ Pollution abatement, Z Z2 0
Pollution Control: Equivalence of last two diagrams MC(M) =SMB(Z) PMB(M)=MC(Z) M* Pollution, M Abatement,Z Z*
SOME PROBLEMS WITH ALL THIS (1) Non-convexity (2) Risk and uncertainty (in conjunction with irreversibility of ecological changes). (3) Issues of valuation (4) How to proceed when there is no consensus about the objectives of environmental policy. and most importantly …..
STOCK POLLUTION More complicated. Why? Because the pollution damage functions change over time. In this case, need to set targets for specific points in time (or over paths of time) in terms of pollution concentration levels (ambient standards).
Targets in practice * Information very limited (See EU targets on benzene emissions) * What is done is often what is politically acceptable at the time. (See USA policy on greenhouse gas emissions) Targets may thus be set rather arbitrarily.
Problems 1. When is the socially efficient level of (flow) pollution zero? 2. When is it socially efficient to have zero pollution abatement?