Download Lecture 2 - Illinois State University

 Homework
 Quiz
#3 Due Thursday (Sept. 22)
#2 Next Thursday
 No
class Oct. 6
 Exam #2 Oct. 11th
 No
class Oct. 20th
 Writing
Assignment Due Oct. 27th
 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.
 Emission
load – the amount of waste
products emitted into the environment
 Absorptive
capacity – the ability of the
environment to absorb pollutants
 If
the emissions loads > absorptive
capacity, then pollutants accumulate in
the environments
15-4
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

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 (antibiotics, 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.
 The
production of high voltage power
cables requires lead, which is used as a
sheathing material to prevent water
diffusion into insulation.
 Lead is a neurotoxin that accumulates in
soft tissues and bone over time, and can
be lethal.
 Stock pollutants create burdens for future
generations.
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.
Defining the Efficient Allocation of
Pollution
 Marginal
damage costs generally
increase with the amount of pollution.
 Marginal control costs typically increase
with the amount of pollution that is
controlled or abated.
 The cost-minimizing solution is found by
equating marginal damage costs to
marginal control costs (or at Q* in Figure
15.2).





Damage costs are externalities.
Control costs are not externalities.
Therefore 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.
 Limit
the amount of pollution of an
emitter
 Per-unit tax on emissions
• 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
 How
to regulate all polluters to meet the
new standard?
• Cost-Effectiveness vs. Cost/Benefit Analysis

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 near the
earth’s surface
 Global pollutants cause damage in the upper
atmosphere
 Arsenic
– 0.010 (Skin damage,
circulatory system damage, cancer)
 Cadmium – 0.005 (Kidney damage)
 Fluoride – 4.0 (Bone disease)
 Mercury – 0.002 (Kidney damage)
 Dinoseb – 0.007 (Reproductive
difficulties)
 Chlorite – 1.0 (Anemia; nervous
system effects)
 Uniformly
Mixed Fund Pollutants
• Damage depends on how much is in the
environment, not where it enters the
environment
• Examples, SO2 and CO2
 Policy
focuses on controlling the total
amount of emissions that minimize the
cost of controlling all of the emitters.
 Homework
 Quiz
#3 Due Thursday (Sept. 22)
#2 Next Thursday
 No
class Oct. 6
 Exam #2 Oct. 11th
 No
class Oct. 20th
 Writing
Assignment Due Oct. 27th