Week 2-3: Pollution Control Local and Regional Air Pollution

Question 1

What is absorptive capacity?

Answer 1

Absorptive capacity is the ability of the natural environment to absorb pollution.

Question 2

What are stock pollutants?

Answer 2

Strock pollutants are pollutants which have very little to no absorptive capacity, i.e. will persist and impact future generations.

Examples include:

• Lead
• Non-biodegradable bottles
• Some synthetic chemicals.

Question 3

What are fund pollutants?

Answer 3

Fund pollutants are pollutants with some absorptive capacity.

They transform/dilute/ disperse into non-harmful substances or concentrations.

Can take a long time and will impact current and future generations.

E.g. C02, chlorofluorocarbons.

Question 4

What is a horizontal zone of influence?

Answer 4

• Local pollutants – cause damage near the source of emission
• Regional pollutants – cause damage at greater distances
• Global pollutants – cause damage globally

Pollutants can belong to more than one category: e.g. S02 and NOx are both local and regional pollutants.

Question 5

What is a vertical zone of influence?

Answer 5

• The impact of pollution is near the surface levels (water pollution, lead or particulates.

The impact of pollution is in the upper atmosphere (carbon dioxide, chlorofluorocarbons)

Question 6

What is the mix of pollution (i.e. uniformly or non-uniformly) mixed?

Answer 6

Uniformly:

• Damage caused is only a factor of the quantity of emissions

Non-uniformly mixed pollutants:

Damage caused depends on the quantity of emissions and other factors such as the location or the timing of the emissions.

Question 7

How do we define the appropriate level of pollution control?

Answer 7

Reducing pollution levels to zero could be a too high cost to be efficient.

We find an appropriate level of pollution at an efficient level.

This is when marginal control costs equal marginal damage costs.

Occurs when the social cost is minimised.

• Social cost = TCC+TDC

For value above Q*, it is more damaging to incur the damage of pollution than control the pollution, vice versa.

Question 8

What are the issues with the MCC and MDC method of deriving efficient emissions?

Answer 8

The primary issue is policymakers do not know what MDC and MCCs are.

• MDC is difficult to quantify as costs are temporal and can have lasting unforeseen impacts. e.g. health repercussions, damage to ecosystem.
• MCC is easier to quantify but firms are not willing to release this information.
  
  • Why?
  • Potential government intervention can hinder production and business interests.

Question 9

What are the repercussions of not knowing MCC and MDC?

Answer 9

Policymakers set arbitrary goals and targets.

e.g. 10% increase in air quality, clean water, 20$ reduction, zero net carbon emissions. Without knowing the optimal level of pollution and creating inefficient outcomes.

Question 10

How do we define cost-effectiveness?

Answer 10

Cost-effectiveness occurs when the level of pollution reduction that is at least cost ‘value for money’.

Question 11

What are the marginal abatement costs?

Answer 11

Marginal abatement costs are the costs faced by a firm for reducing emissions.

Question 12

What are total abatement costs?

Answer 12

Total abatement costs is the total cost of complying with the regulation and is the triangle formed from the new emissions level, and the unregulated level.

Question 13

What are the policy options available to a government attempting to regulate uniformly mixed pollutants?

Answer 13

1. Emissions standard
2. Emissions Tax
3. Emissions permit trading
4. Technology Standard

Question 14

1. How does an emissions standard work?
2. How do we get to equilibrium?
3. Is an emissions standard effective?
4. Is an emissions standard technology neutral?

Answer 14

1. How does an emissions standard work?
   
   1. A blanket reduction in emissions (e.g. 50%)
   2. Typically, will not achieve an efficient outcome, as MAC are not equated.
2. How do we get to equilibrium?
   
   1. Use the equimarginal principle, equate MACs. Will find the point where TAC is minimised and thus the most cost-effective allocation is achieved.
   2. Emissions standard will not reach equilibrium (or efficient outcome) as the reduction is fixed for each firm.
3. Is an emissions standard effective?
   
   1. Typically no, as the policy does not inherently take into account MACs.
   2. Thus with a blanked percentage limit, it is unlikely that MACs will equate.
4. Is an emissions standard technology neutral?
   
   1. Yes, as it does not favour one type of solution over others.
   2. No mandate on a particular technology target emissions, not input or output.

Question 15

In what situations is an emissions standard efficient?

Answer 15

1. When optimal level of emissions is near zero
2. e.g. dangerous pollutants (heavy metals and radioactive waste).

Question 16

1. How does an emissions tax work?
2. How do we get to equilibrium?
3. Is an emissions tax effective?
4. Is an emissions tax technology neutral?

Answer 16

1. How does an emissions tax work?
   
   1. The government will set the externality tax. Firms will reduce emissions until the cost = the tax.
   2. I.e. when MAC<tax></tax>
   </tax>
2. How do we get to equilibrium?
   
   1. This policy tends to create an efficient outcome, as MACs are the same.
3. Is an emissions tax effective?
   
   1. This policy tends to create an efficient outcome, as MACs are the same.
4. Is an emissions tax technology neutral?
   
   1. Typically technology-neutral, as long as not to a specific industry/location/product.
      
      1. Non-prescriptive: flexible in method of reaching compliance.

Question 17

1. How does an emissions permit trading work?
2. How do we get to equilibrium?
3. Is an emissions permit trading effective?
4. Is an emissions permit trading technology neutral?

Answer 17

1. How does an emissions permit trading work?
   
   1. Permits can be either grandfathered (distributed based on historical emissions) or auctioned, either method will yield the same result.
   2. If we allocate permits based on historical use, we will often yield the same result as an emissions standard.
2. How do we get to equilibrium?
   
   1. The key difference to an emissions standard is that permits can be traded, in which following initial allocation, firms will continue to trade until MACs equate, and reflecting a position in which firms have no incentive to deviate from their allocation.
3. Is an emissions permit trading effective?
   
   1. Negotiations, so long as Coase theorem is satisfied, will yield a cost-effective and efficient outcome.
4. Is an emissions permit trading technology neutral?
   
   1. Typically, yes. So long as permits are not distributed with a bias.

Question 18

1. What is a technology standard?
2. Is a technology standard cost-effective?
3. Is a technology standard technology neutral?

Answer 18

1. What is a technology standard?
   
   1. A technology standard is a policy in which the government will mandate a particular emissions-reducing policy for firms to use.
2. Is a technology standard cost-effective?
   
   1. Uncertain, as total emissions are not capped, the technology could alter MACs across firms, but is unlikely to be cost-effective.
3. Is a technology standard technology neutral?
   
   1. No, as it mandates a particular technology solution which could become out of date over time.
   2. Ultimately, this policy leaves no incentives for firms to become more efficient in terms of emissions reduction. In addition, no incentives for cleaner technology, better processing etc.

Question 19

What are non-uniformly mixed pollutants?

Answer 19

Non-uniformly mixed pollutants are pollutants that location, timing and the amount of the pollutant matters.

Receptor sites: measurement stations (or areas of concern).

Concentration level: measured at the receptor site (NB: not the level of emissions at the pollution site) – Takes into account the distance from the pollution site.

Question 20

What is a transfer coefficient?

Answer 20

A transfer coefficient captures the increase in concentration at the receptor if a unit of pollution is discharged at source i.

Typically, the closer the source is to the receptor the larger the coefficient (assuming dispersion occurs during flow).

Question 21

Formula for concentration at the receptor:

Answer 21

Question 22

Marginal Cost of Concentration reduction (MCCR)

What is it?

What is the equation?

Answer 22

MCCR is the marginal abatement cost divided by the transfer coefficient.

• It represents the cost of reducing a ‘unit of concentration’ at the receptor site.
• It is no longer the cost of emissions reduction, but rather the cost of concentration reduction.

Question 23

In order to tackle non-uniformly mixed pollutants, what policy options does the government have available to them?

Answer 23

1. Ambient Standard
2. Ambient Charge
3. Ambient Allowance trading

Question 24

1. How does an ambient standard work?
2. Is an ambient standard cost-effective?
3. Is an ambient standard technology neutral?

Answer 24

1. How does an ambient standard work?
   
   1. 2 equations are required
      
      1. Equimarginal principle (using MCCR)
      2. Ambient standard limit
   2. Ambient standards are set for each receptor site, not for each firm.
2. Is an ambient standard cost-effective?
   
   1. Same situation as an emissions standard.
3. Is an ambient standard technology neutral?
   
   1. Same situation as an emissions standard.

Question 25

How does an ambient charge work?

What is the equation?

Answer 25

Works the same as an emissions tax, however, the tax is placed on the unit of concentration at the receptor site.

Thus the level of tax is dictated by the transfer coefficient.

i.e. a lower transfer coefficient means further away from receptor site and thus, smaller concentration per unit of emissions.

Question 26

1. What is ambient allowance trading?
2. What is the ambient allowance trading equation?
3. How does the market find an efficient allocation?

Answer 26

1. What is ambient allowance trading?
   
   1. Analogous to emissions permit trading

Ambient allowance entitles the owner to increase the concentration by a unit at the receptor

NB: the important distinction, emission permits allow emissions regardless of location.

Consequently, closer sources of pollution will require more permit trading for the same amount of emissions.

2. What is the ambient allowance trading equation?
3. How does the market find an efficient allocation?
   
   1. Using the fact that Kr must equate

Question 27

What happens when we have many receptors?

Answer 27

Having multiple receptors makes the complexity of an ambient charge or allowance trading system increase.

Ambient charge:

• The soruce would have to pay a charge that incorporates its effect on all receptors

Ambient allowance trading:

Potential solution would be to have an allowance market for each receptor (expensive).

Question 28

How do we calculate transfer coefficients?

Answer 28

Scientific method: (e.g. hydrological or meteorological models)

Government typically uses ‘rule of thumb’ measures:

• Predefined zones within which the sources have the same transfer coefficient
• Restrictions to trade between zones
• “Exchange rates” (i.e. ratios of transfer coefficients) applied to trades between zones.

Question 29

What was the US EPA Acid Rain Program

Answer 29

Miss labelled SOx and NOx as local pollutants, instead of regional. Transfer coefficients were calculated based on height and distance.

Therefore firms simply increased the height of their towers, which actual caused pollution to spread more.

The US had to iterate on this program by still retaining the local ambient standard policy. While adding in a regional cap on emissions.

Question 30

What is the main advantage and disadvantages of this two-pronged policy?

Answer 30

Advantages:

• Firms may control pollution beyond the available allowance and sell their allowances to other firms.
• Those purchasing the allowances would, in effect, be subsidizing the installation of a scrubber at another location.
• Provides an economic incentive (due to the right to sell unused allowances) to reduce emissions.

Disadvantages:

Disadvantages:

• Two level of policy is required:
  
  • Ambient standard (receptor/regional level) and emissions cap (aggregate level).
  • Further rules are also required (e.g. rules on inter-regional trade of allowances).
• The success depends on the cap set (allowance price is zero if there is no scarcity of allowances).
• The program has its greatest benefits when there are a large number of firms with differing marginal abatement costs.