Harris 16

The economics of pollution control

Service provided by natural system: sink function (capacity to absorb wastes and pollution), abused by excessive pollution.

How much pollution is too much?Optimal pollution level  compare marginal costs and benefits associated with a pollution-generating activity. Pollution that balances marginal social benefits and marginal social costs. Or comparingmarginal cost of pollution control vs marginal cost of pollution damage.

Picking a pollution control policy

Pollution taxes, regulation, transferable pollution permits (allow firms to emit onlythe level of pollution for which they have permits). Firms can buy and sell these permits.
Economic analysis is essential to understand how pollution control policies affect firms. However, thisanalysis doesn’t capture the full scope of ecosystem effects.

Marginal Costs and Benefits of Pollution Control

*QMAX: (level of pollution emitted with no controls) as pollution control policies areimplemented, the amount of pollution will drop below this Q.
*MCD: marginal cost of damage (marginal benefits of pollution reduction). Tend to rise in a nonlinear upward-curving pattern. Incrementalemissions are proportionately more damaging once the environment is already polluted.
*MCC: marginal cost of control. Rises as pollution levels fall. It’s easier to clean up the first few units ofpollution than to reduce pollution to low levels.

Optimum level  where marginal damage cost equals marginal control cost. The cost of cleaning up one more unit of pollution is greater than thebenefit it brings in reduced damages  equimarginal principle (balancing marginal control cost with marginal damage cost)

Industries often estimate control costs at higher levels than actually occurwhen control policies go into effect.

Pollution control policies: standards, taxes, permits

Pollution control: direct regulation of polluting-creating activities  Set emissions standards for...