Natural Resource Economics

Business

Quiz 15 :
Economics of Pollution Control

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Quiz 15 :
Economics of Pollution Control

Advantages of Efficiency approach - 1. This approach takes into account exposure level and thus led to the enactment of different emission standards for different areas taking into account the level of exposure pertaining to the respective areas. Thus, this approach controls pollution in much better way. 2. This approach by taking into account amount of exposure is especially beneficial for the sensitive members of the population, such as those with respiratory problems, children, older individuals etc. This policy is able to take into account scientifically defensible health - based threshold and thus is able to formulate standards taking into account control costs. Disadvantages of Efficiency approach - 1. It is very difficult to assess how many people are exposed to a particular pollutant concentration and thus make it difficult to formulate the requisite standards. 2. This policy is costly to implement in the sense that this policy requires extensive monitoring system to assess the level of exposure and the number of people exposed to formulate necessary standards. Advantages of Uniform approach - 1. This approach administers uniform standards across regions and thus do not involve the extra cost pertaining to calculation of quantum of exposure, number of people exposed etc. Also, this approach means a uniform policy across regions and thus negates the fluctuations in policy standards among different regions. 2. Due to uniform pollution standards, incentives formulated to achieve the required concentration level could also have uniform nature as well which make the implementation much easier than in the case where standards are different across region requiring different incentives and different implementation strategies which contribute towards the high cost of implementation and compliance. Disadvantages of Uniform approach - 1. This approach only implement a threshold limit below which it has been assumed that no health damages are inflicted on any member of the population. But there are sensitive members of the population as well such as those with respiratory problems; small children etc. who can be adversely impacted by lower level of population as well that is even below threshold limit pollution could be dangerous for their health as well. No consideration for this part of population is a serious drawback of this approach. 2. This policy only state that concentration be held below a uniform threshold but does not take into account timing of emission flows. This approach results in too little control in high - damage periods and excessive control during low - damage periods. Efficiency approach, though somewhat difficult to implement, is the best approach as it take into account exposure level. As we know that health effects are more closely related to human exposure to pollutants. By targeting the amount of exposure and persons exposed, this method leads to formulation of standards that tends to contain pollutants in much more effective way. Moreover, this policy also takes into account sensitive members of the population as well. Health standards would improve through this policy approach. Better health implies higher productivity which in result will lead to high growth and income.

In our views, strictly from efficiency point of view, United States should not follow Europe's lead and shift the emphasis towards emission charges. In case of emission charges, control authority has to found the lowest possible cost of meeting a pre - determined emission reduction but in absence of appropriate and substantial information on control costs, the control authority would not be able establish the correct tax rate in the first try. Thus process of finding appropriate charge level requires some experimentation. This trial and error method creates a situation of volatile emission charge and thus investments that would make sense under a high emission charge may not make any sense under lower emission charge. Apart from this, if charge is on the lower side then this will not have any incentive impact. Also, increasing charge may not be politically feasible as it puts burden on the industrial establishments which are the main donors of the political parties. Thus, efficient outcome is highly doubtable under this approach. On the other hand, second approach of emission permit results in cost - effective allocation. If government issues the appropriate number of permits and let the market do the rest then this enables the control authority to achieve cost - effective allocation without any information on the control costs. This system helps the government in achieving its policy objective while allowing greater flexibility in how to achieve the objective. However, while issuing of permits instead of free of charge or gifting approach government should use auctioning route. Auctioning of permits and using the revenue to promote energy efficiency provides a faster and more efficient outcome.