Unit 6: Setting Targets-Optimal Pollution Ch.8 Flashcards
The 2 Questions for the Economics of Pollution Control
1) How much pollution is Acceptable
2) How can we control/reduce pollution to this acceptable level
What is Optimal Level of Pollution
-Pollution level that maximizes social benefits
-What society is willing to accept
-Fully internalizes Externality
-Lower Production/Lower Pollution
How does Marginal Cost Reduction Change as we move from Qmax to lower levels of pollution
MCR INCREASES
-getting pollution to net zero becomes harder
What is EQUIMARGINAL PRINCIPLE
Balancing of marginal costs and marginal benefits to obtain an efficient outcome
What do efficient policies achieve
Give greatest result for the lowest cost
Name 4 Pollution Control Policies
1) Pollution Standards
2) Technology Based Regulations
3)Pigovian (Pollution) Taxes
4) Transferable (tradeable) permits
What are advantages of POLLUTION STANDARDS POLICY
-specifies a definite desired result
-uniform rule on all producers
What are disadvantages of POLLUTION STANDARDS POLICY
-Inflexibility
-not cost effective
-little incentive to reduce pollution further than standard
What are advantages to TECHNOLOGY APPROACH POLICY
-less enforcement and monitoring
-cost advantage due to standardization: widespread use drives down price of technology
What are disadvantages to TECHNOLOGY APPROACH POLICY
-may create little incentive for technology to improve due to Best Available Control Technology
-not cost effective-firms can’t choose other options
What is Best Available Control Technology
All firms must use control technology that is most effective
What is Advantage of Pollution Tax
Economically Efficient
What is Disadvantage of Pollution Tax
Hard to know how much pollution reduction a tax will produce
How do MCR curves affect pollution reduction
-Higher MCR curves reduce pollution less
-Lower costs will reduce pollution more
What are Advantages of Tradable Pollution Permits
-It is direct regulation + emissions tax
-sets definite limit on pollution
-Cost effective: uses market
-economically advantageous for firms
-Pollution levels can be lowered by market means:
–other firms buy and retire permits
–reduce number of permits issued
How does a Tradeable Pollution Permit work
-Firms will PURCHASE permit when permit price < MCR
-Firms will SELL permit when permit price > MCR
What are DISADVANTAGES of Tradeable Pollution Permits
-may not produce enough changes
-other variables may come into play
What are NONLINEAR/ THRESHOLD effects
-pollution damages not linearly correlated with pollution levels
-threshold low-damages increase significantly with increased pollution
ex. Lead
-not addressed by market solutions
What is LOCAL pollutant
-adverse effects only in small local area
-not addressed by market solutions
What are effective policies for NONLINEAR/ LOCAL pollutants
-regulations
-tech based approach
-prohibition of substance
What are REGIONAL POLLUTANTS
-Cause adverse impacts distant from where it is emitted
-market based solution works best
What is UNIFORMLY MIXED POLLUTANT
-emitted by many sources
-uniform concentration across region
What is an example of UNIFORMLY MIXED POLLUTANT
CO2
What is NONUNIFORMLY MIXED POLLUTANTS
Emitted in varying concentrations
Remain at different levels in different locations
-market based approaches don’t work here
What is an example of NONUNIFOMRLY MIXED POLLUTANTS
Lead
What is a Flow Pollutant
Short-term impact/ absorbed harmlessly
What is a CUMULATIVE/ STOCK pollutant
pollutant persists for long term-accumulates
What is GLOBAL POLLUTANT
causes global impacts
What is difficult about tax and permit policies
Usually not enough information to know marginal damage and marginal cost
What do the MD and MCR curves look like if there is Too many permits or Too little tax
MD > MCR
Increased Pollution Level
What is best if MD curve is steep and MCR is flat
Permits
What policy is best if MCR curve steep and MD curve flat
Tax
How do taxes and permits affect technological change
-amt of permits must be adjusted for tech change
-amt of tax does not need to change-based on marginal damage of pollution
What are the 2 types of permit allocation
-Free gvt issue
-Auction permits
What are the disadvantages of free permits
-gvt looses out on revenue
-may reward inefficient plants
-new firms may have to purchase permits on open market
What is Upstream Policy
Policies to regulate emissions as near as possible to point of natural resource extraction
What policies are best if objective is to keep pollution at a certain level with more certainty
Standards and Permits
What policy is best to encourage innovation and minimize control costs
Pollution Tax
What are Revenue Neutral Tax Policies
Revenues of a certain tax offset by lowering other taxes
What are the 2 Categories of Air Pollutants
Criteria Air Pollutants
Toxic Air Pollutants
What is an example of an Air Pollution Regulation
Clean Air Act-Standards Based
What is an example of a Water Pollution Regulation
Clean Water Act
What does the EU policy REACH stand for
Registration
Evaluation
Authorization
Restriction of
Chemicals
How is REACH different from Toxic Substances Control Act
REACH places burden of proof on manufactures vs. Toxic control act places burden on EPA
What produces Economic Efficiency
When Marginal Costs of Pollution Reduction = Marginal Damage of Pollution
What are the biggest issues with Market Based Policies
-fail to control pollutants
—that exhibit nonlinear effects
—exhibit threshold damage effects
—pollutants with local impact
What considerations are taken into account when choosing a pollution policy
-patterns of costs/ damages
-options for improved tech
-minimize unnecessary costs/ damages
-promote tech progress
