Chapter 14 & 15 Flashcards
Different types of stock pollutants
Stock pollutants: Ökar over time due to the environment’s limited ability to absorb them. Examples include heavy metals and synthetic chemicals. These pollutants persist and cause long-term damage.
Fund pollutants: The environment can absorb them up to a certain level without long-term accumulation, such as organic waste or carbon dioxide. If emissions exceed the absorptive capacity, they behave like stock pollutants.
Local pollutants: Cause damage near the source of
emissions while regional pollutants cause damage
at greater distances.
What is Marginal Damage?
Marginal damage in the context of pollution refers to the additional harm or negative impact caused by emitting one more unit of pollution. It represents the increase in damage to the environment, human health, or the economy that occurs as pollution levels rise.
What is Marginal Control Costs?
These are the additional costs associated with reducing one more unit of pollution. As more pollution is reduced, the marginal control cost typically increases because finding and implementing ways to cut down further emissions becomes more expensive.
How is the Marginal Damage and Marginal Control Costs interconnected?
- The relationship between marginal damage and marginal control costs is crucial for determining the optimal level of pollution control.
- The goal is to find the point where marginal control costs equal marginal damage. At this level, the cost of reducing one more unit of pollution (MCC) is exactly balanced by the benefit of avoiding additional harm (MD). This balance minimizes the total social costs of pollution by avoiding excessive pollution and unnecessary control costs.
- When the harm caused by an extra unit of pollution is greater than the cost to reduce it, more pollution reduction is beneficial. It means society would gain more from avoiding the damage than it would cost to control the pollution.
*When the cost to reduce an extra unit of pollution is higher than the harm it would prevent, it is not efficient to reduce further. In this case, the resources used for additional control could be better spent elsewhere.
Efficient Allocation (Q)
Efficiency is achieved when the marginal damage of pollution equals the marginal cost of controlling it. Reducing pollution beyond this point raises costs without enough benefit, while less control increases damage costs.
What is the Horizontal dimension?
Describes whether pollutants affect local (near the emission source), regional, or global areas.
What is the Vertical dimension?
Indicates whether pollutants cause damage at ground level (e.g., particulates) or in the upper atmosphere (e.g., greenhouse gases).
What is a market failure?
- Occurs when the market, left on its own, fails to allocate resources efficiently, leading to overproduction or underproduction of goods and services.
- In the case of pollution, the failure lies in the fact that the full costs of production are not reflected in the market price of goods or services. This happens because some costs, such as the harm caused by pollution, are externalized to society rather than being borne by the producer.
How could government intervention ease these issues?
Implement policies like pollution limits or emission taxes can internalize the costs.
Problems with government interventions
- Challenges of Information Burden: Authorities lack precise information on the marginal costs of pollution control and damage for each emitter. This makes it difficult to allocate responsibility effectively.
- Cost-Effective Allocation: The goal is to meet predetermined pollution levels at minimum cost. For uniformly mixed pollutants, the focus is on controlling total emissions while minimizing control costs. Cost-effectiveness is achieved when the marginal costs of control are equalized across all emitters.
- Example of Cost-Effective Allocation: Using an example with two pollution sources, a 15-unit emission reduction is necessary. The most cost-effective allocation would have one source reduce 10 units and the other reduce 5 units. Any other distribution would increase total costs.
Different Policy instruments
The “command-and-control” approach
Also referred to as emission standard. It’s a legal limit on the amount of the pollutant an individual source is allowed to emit.
Technology requirements: Requiring firms to use specific pollution control technologies or practices, such as installing scrubbers on smokestacks.
What is the key idea of emission charges?
- The key idea is that firms will try to reduce pollution in the cheapest way possible. If a firm can reduce pollution at a lower cost than the fee, it will choose to reduce its emissions instead of paying the charge.
How can emission charges work in reality?
By using incentive-based policies like emissions charges or trading, authorities can achieve pollution reduction in a cost-effective manner without needing detailed information on each firm’s control costs.
These methods rely on firms’ self-interest to reduce emissions efficiently.
What is emission charges?
- It’s not a governmental intervention in the same way as command-and-control.
- Also referred to as pollution taxes.
- Market regulated.
- Instead of setting a fixed limit on emissions, the government charges a fee for each unit of pollution emitted by a firm.
- This creates a financial incentive for firms to reduce emissions on their own. Firms that can reduce emissions at a lower cost than the charge will do so, while firms with higher costs will choose to pay the fee.
Comparison between command-and-control & emission charges/trading?
Command-and-control: Less flexible, as all firms must meet the same standards regardless of their individual circumstances.
Emission charges: More flexible, as firms can decide how much to reduce emissions based on their own costs.
Command-and-control: May not achieve the most cost-effective pollution reduction, since it doesn’t consider the different costs faced by firms.
Emission charges: Tend to be more cost-effective because firms with lower abatement costs will reduce more, while firms with higher costs may reduce less and pay the fee.
Command-and-control: Provides limited incentives for firms to find new ways to reduce pollution beyond the required standards.
Emission charges: Encourage firms to innovate and find cheaper ways to reduce emissions in order to avoid paying the charge.
What is the cap-and-trade system?
**Emission ChargesEmission trading
*
* * Emissions Cap: Authorities set an overall limit on the total amount of pollution that can be emitted by all firms combined. This is known as the cap.
- Allowances: The cap is divided into allowances, with each allowance permitting a firm to emit a specific amount of pollution (e.g., one ton of CO2). Authorities distribute or sell these allowances to firms.
- Trading: Firms can buy or sell allowances. If a firm can reduce its emissions at a lower cost, it might have extra allowances to sell. If reducing emissions is expensive for a firm, it may choose to buy additional allowances from other firms.
How does the cap-and-trade system work?
- Firms with lower control costs will sell allowances, while firms with higher costs will buy them. This trading continues until a cost-effective allocation is reached, where marginal control costs are equalized across firms.
- Cap-and-trade achieves a cost-effective allocation without the need for authorities to know individual control costs. The market mechanism ensures emissions reductions at the lowest possible cost.
- Whether allowances are gifted or auctioned, the final result is the same: a cost-effective distribution of pollution reduction responsibility.
- Cap-and-trade avoids the trial-and-error issue of emissions charges and is highly flexible, making it a prominent method in pollution regulation reforms. However, its applicability in developing countries remains a topic of debate.
