Pollution Economics

Question 1

Marginal Damage Cost

Answer 1

incremental cost of another unit of pollution emitted; paid for by society, which includes the POLLUTER

Question 2

Abatement Cost

Answer 2

the cost of reducing/controlling pollution emissions

Question 3

Absorptive Capacity

Answer 3

the natural ability of the environment to process some low-levels of pollution

Question 4

3 Ways to Abate

Answer 4

1.) adopting cleaner production techniques/technology (i.e. not creating as MUCH pollution)
2.) installing pollution collection/cleaning technologies (i.e. capturing some pollution BEFORE it escapes)
3.) ceasing pollution creation activities (i.e. STOP polluting, duh!)

Question 5

3 Ways of Evaluating Efficiency

Answer 5

1.) maximizing Net Benefits of pollution ABATEMENT
- benefit is avoiding damages
- cost is abatement cost
2.) maximizing Net Benefits of pollution EMISSIONS
- benefit is avoiding abatement costs
- cost is damage cost
3.) minimizing the COSTS associated with pollution
- cost 1: damage cost
-cost 2: abatement cost

Question 6

4 Basic Pollution Policy Instruments

Answer 6

I. Emissions Standards (“Command and Control”)
II. Technology-Based Approaches
III. Pigouvian Tax
IV. Tradable Pollution Permits (“Cap and Trade”)

Question 7

I. Emission Standards

Answer 7

policies that dictate particular emission rates from specific pollutants

Pros: allows regulator to set direct pollution limit
Cons: inflexible and no incentive to reduce any more than what is required (only trying to lower MAC)

Question 8

II. Technology-Based Approaches

Answer 8

requirements set by the government to utilize specific pollution abatement technology

Pros: enforcement and monitoring is relatively cheap (“is the tech. installed?”)
Cons: still somewhat inflexible and thus unlikely to be cost-effective (UNLESS abatement tech. is wide-scale, then adoption may motivate a price drop)

Question 9

III. Pigouvian Taxes (Pollution Taxes)

Answer 9

tax on market activity that generates negative externalities

Pros: flexible, cost-effective, and double dividend
Cons: won’t know the level of pollution until the policy is fully in place, and can be politically challenging bc the polluter pays to abate AND the tax

Question 10

Double Dividend

Answer 10

using revenue from an efficiency improving policy to offset a distortionary policy

Question 11

Distortionary Policy

Answer 11

a policy that creates inefficiency

Question 12

IV. Tradeable Pollution Permits

Answer 12

government establishes a total pollution emission limit, prints permits for each unit of that limit, and then distributes them

Pros: non-polluters can participate, cost-effective, potentially profitable, and flexible
Cons: design issues (i.e. initial allocation, initiating the market) and Hot Spots of pollution

Question 13

Price

Answer 13

MAC_total = MAC_1 + MAC_2 + … + MAC_n

Question 14

Grandfathering

Answer 14

exceptions within a policy that account for prior participants

Question 15

Upstream

Answer 15

usually means managing fewer pollutants and thus incurring lower administrative cost within the policy

Question 16

Fund Pollutants

Answer 16

have some negligible absorptive capacity

Question 17

Cumulative Pollutants

Answer 17

have little to NO absorptive capacity; do not dissipate/degrade over time :(

Question 18

Point Source Pollution

Answer 18

easily identified at source of emissions

Question 19

Nonpoint Source Pollution

Answer 19

difficult to trace back to the polluter bc you don’t know who they are

Question 20

Uniformly Mixed Pollutant

Answer 20

any pollutant emitted by many sources in a region, resulting in a relatively constant concertation level across the region (Taxes and Permits WORK WELL in these cases)

Question 21

Nonuniformly Mixed Pollutant

Answer 21

location of damage is connected to the location of the emissions (Hot Spots may results from Taxes and Permits here, BAD)