Ch. 6.-Pollution Control Instruments PDF
Ch. 6.-Pollution Control Instruments PDF
6
Pollution control: instruments
Outline of lecture
[Previous: Ch. 5. What is the socially optimal pollution level?]
Efficiency condition
Equal marginal abatement costs
MCB = 5ZB
MCA = 3ZA
100
75
10
15
20
25
30
35
40
Pollution abatement
Figure 6.1 Marginal abatement cost functions for the two firms.
Instrument category
Institutional approaches
to facilitate internalisation of externalities
6.3.1.2 Liability
Ambient pollution
levels
Emissions output
Quantity of goods produced
Location of
emissions
For non-UMPs
Production technique
Start here
Inputs used
Ambient pollution
requirements
Zoning
Emissions
licenses
For non-UMPs
Output quotas
Technology controls
Start here
Input restrictions
Inefficient
-----------* The opportunity cost is the value of the best foregone alternative.
Captures the idea that the cost of something is not just its monetary cost but also the value of what you didnt get.
Efficient
emissions tax
*
0
M*
Emissions, M
Z* =
M*
M
Emissions abatement, Z
Figure 6.6 The economically efficient level of emissions abatement (Uniformly mixed pollutant)
Polluters will again emit pollution until the marginal benefit of emitting pollution is
zero
at a lower pollution level.
Emissions tax/subsidy
Marginal damage unknown
.
.
~
M
Emissions, M
Figure 6.7 Emissions tax and abatement subsidy schemes when marginal damage is unknown, or
when a target is being set on grounds other than economic efficiency
Abatement Subsidies
versus
Pollution Taxes
If an industry is given a subsidy at a fixed rate (*) per unit of
pollution abated
then the same level of emissions reductions would be achieved
As in the situation where an equivalent tax was imposed.
Marginal benefit
(before tax)
*
0
S3
S5
S6
S4
M*
S2
S1
Emissions (M)
Emissions Permits
Allocated through auction
We consider tradable permits on quantity of emissions
Regulator determines total quantity of missions allowed
Permits are allocated between polluters through a market.
0
Supply of emission permits determined by regulator
M*
Emissions Permits
Distributed at no charge
Firms with low abatement costs will reduce their emissions and sell the
excess emissions permits
at a price higher than their marginal abatement costs
Marginal cost of abatement will be equal for all firms (Figure 6.10)
Supply of permits
by firms
EP*
Emission permits
(EP)
Cost-efficiency
A command and control regulation instrument
To be cost-efcient
the regulator must know each polluters marginal cost of
abatement function
very unlikely that this requirement will be met.
For a ow pollutant and a uniformly-mixing stock pollutant
Second-best world
Policy instrument choice takes place in a second-best world,
where results are much less clear
Costs of
monitoring, administering and enforcing compliance
These costs can be substantial.
The prevalence of minimum technology requirements may be due
to the fact
MC1
MC2
Firm will save:
due to lower MC of abatement
+ due to reduced tax payment
Emission
tax/subsidy
Z1*
Z2*
At lower MC:
firms abatement level will increase from Z1* to Z2*
Z
Level of abatement