Transcript Lecture 2 - Illinois State University

 Homework
 Quiz
#3 Due Monday (Sept. 21)
#2 Next Wednesday
 Writing
Assignment Due Oct. 23rd
 From
this chapter on, two questions will
be addressed:
• 1) How much pollution is ‘good’?
• 2) What are the appropriate means for pollution
reduction?
 Today, we will
• Categorize pollutants.
• Define an efficient allocation of pollution.
• Compare the marginal damage costs and the
marginal control costs.
 What
is the gain in net benefit to society
for producing at Q* rather than Qmax?
A
substance is a pollutant only if the
emissions load is greater than the
absorptive capacity.

Absorptive Capacity Classifications
• Stock pollutants are pollutants for which the
environment has little or no absorptive capacity.
• Examples – Non-biodegradable material
(plastic), heavy metals (mercury), persistent
synthetic chemicals (PCBs)
• Fund pollutants are pollutants for which the
environment has some absorptive capacity.
• Examples - Pharmaceutically active compounds
(anti-biotics, steriods, hormones), greenhouse
gases (CO2), volatile organic compounds (CFC’s)
Stock Pollutants


Damage rises as the pollutant accumulates over time,
which require us to use a dynamic model.
The optimal allocation of a stock pollutant is the one that
maximizes the present value of benefits from consuming
the good whose production causes the pollution minus
the cost of damage to the environment caused by the
pollutant.
Defining the Efficient Allocation of
Pollution
 We
can use a static model because
current emissions cause current damage
and future emissions cause future
damage (i.e. damage in each period is
independent of last period’s damage)
 Pollution control is most easily analyzed
from the perspective of minimizing cost.
• Damage costs
• Pollution control or avoidance or abatement
costs.
 The
cost-minimizing solution is found by
equating marginal damage costs to
marginal control costs (or at Q*).
• What is cheapest for the firm is not always what
is cheapest for society as a whole.
• Firms that attempt to control pollution
unilaterally are placed at a competitive
disadvantage.
• The market fails to generate the efficient level of
pollution control and penalizes firms that attempt
to control pollution.
 Emissions
Standard
• Limit the amount of pollution of an emitter
 Emissions
Charge
• Increasing tax
• Constant tax
 Policy
Problems
• Must know q* for every emitter
• Must know MAC, MDC for every emitter
 Set
standard based on other criteria
• Safe for human use or consumption
• Safe for human recreation
• Ecological health
 AKA
– cap and trade
 Firms
are allocated a fixed number of
permits
A
permit represents the right to pollute 1
unit of pollution.
 Firms
can buy and sell permits. But if a firm
sells its permits, it can no longer pollute and
must control their pollution instead.

Zonal Classifications
• Pollutants on the Horizontal Dimension
 Local pollutants cause damage near the
source of emissions.
 Regional pollutants cause damage at greater
distances.
• Pollutants on the Vertical Dimension
 Surface pollutants cause damage from high
concentrations near the earth’s surface
 Global pollutants cause damage from high
concentrations in the upper atmosphere
 Uniformly
mixed – any pollutant emitted
by many sources in a region resulting in
relatively constant concentration levels
across the region (SOx, CO2)
 Non-uniformly
mixed – pollutants that
cause different impacts in different areas,
depending on where they are emitted
(water pollution from factories, sewage,
and runoff from agriculture)
 Point
source pollution – pollution that is
emitted from an identifiable source such
as a smokestack
 Nonpoint
source pollution – pollution that
is difficult to identify as originating from
a particular source, such as groundwater
contamination from ag. chemicals
 Homework
 Quiz
#3 Due Monday (Sept. 21)
#2 Next Wednesday
 Writing
Assignment Due Oct. 23rd