Lecture 10.2b
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Transcript Lecture 10.2b
Chapter 14
Stationary-Source
Local Air Pollution
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Economics and Pollution Control
The Two Big Questions
1. What is the optimal level of pollution?
2. How should it be allocated among its
sources (firms)?
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How Do We Get There?
• Standards (command and control)
Set the overall standard at Q*
Calculate the amount of reduction necessary
Set uniform reduction goal for all firms
• Taxes/Emission Charges
Set the tax = externality cost at the optimum Q*
Firms will internalize the cost
• Tradable Permits (Coase)
Allocate right to pollute (Q*/N)
Allow firms to set price for trading permits
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Conventional Pollutants
The Command-and-Control Policy Framework
• Conventional or “criteria” pollutants are common
substances such as sulfur oxides, particulates,
carbon monoxide, ozone, nitrogen dioxide and
lead. They are thought to be dangerous only at
high concentrations.
• The historical approach to air pollution control has
been known as command-and-control approach
based on emissions standards.
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A Brief History of the US Experience
• 1955 Pollution Control Act
Primarily funded research into pollution issues
• 1967 Clean Air Act
Recommended standards
Onus on states to enact
• 1970 Clean Air Act Amendment
Set federal standards for primary (health) and
secondary (aesthetics, vegetation) ambient levels
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1970 Clean Air Act Amendment
• Primary Standards
National legal ceilings on ambient level of
pollutants
Health standard
• Minimum threshold such that there would be no
health effects
• Costs could not be considered
Best available control technology (BACT)
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TABLE 16.1 National Ambient AirQuality Standards (1 of 2)
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Cost-Effectiveness of the Command-and-Control
Approach
• Typically not cost-effective.
Ratio of CAC cost to least cost varied from 14:1 to 22:1 in
most cases (8 of 10)
CAC will be close to cost-effective only if a high degree of
control is necessary such that all sources are forced to abate
as much as is economically feasible.
• Sulfates in LA
• SO2 in Lower Delaware Valley
• While inefficient, CAC policies have resulted in better
air quality in developed countries.
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TABLE 14.2
Empirical Studies of Air Pollution Control
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TABLE 14.3 Trends in U.S. Emissions
and Air Quality
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Innovative Approaches
The Offset Program
• This program is acquired when a source
controls emission to a higher degree than
legally required.
• The policy allows qualified new or expanding
sources to emit pollution in a nonattainment
area, provided they acquire sufficient
emission reduction credits from existing
sources.
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The Effectiveness of This Early Application
• The emissions trading program has
substantially reduced the cost of complying
with the Clean Air Act. Transaction cost has
also increased.
• The initial allocation of permits has an effect
on the potential for price-setting behavior.
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Smog Trading
• State initiatives have also resulted in innovative
programs such as California’s Regional Clean Air
Incentives Market (RECLAIM).
• The 400 participating industry polluters under
RECLAIM receive an annual pollution limit, which
decreases by 5–8% annually for the next ten years.
Polluters are allowed to use flexible approaches
such as purchasing credits from other firms.
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Washington’ Clean Air Proposal
• Requires industries to limit greenhouse
emissions
Starts in 2012 – limits overall emissions to 1990
levels by 2012
• Continues to reduce emissions over time to half
• Each source limited to 25,000 metric tons of CO2
Establishes tradable permits
• 1 ton permits
• EcoNW estimates current pollution costs at
$3.8B
Health costs at $1.3B
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Emission Charges
• Economists usually suggest one of two types
of emissions charges.
An efficiency charge is set up to achieve an
efficient outcome by forcing the polluter to
compensate completely for all damage.
A cost-effective charge is designed to achieve
an ambient standard at the lowest possible cost.
• Emissions charges must be set by an
administrative process.
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Hazardous Pollutants
• The Clean Air Act requires the EPA to
frequently identify hazardous pollutants.
Once a substance is listed, the EPA has 180
days to regulate emissions. This requires
setting a national standard for the pollutant.
• The EPA has incorporated risk assessment
and benefit-cost analysis into their decisions.
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TABLE 16.4 Net Benefits ($Million/Year)
of Alternative Strategies for a Value of
Life Saved of $1 Million
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