Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Stationary-Source Local...

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

Chapter 14

Stationary-Source Local Air Pollution

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 16-2

Economics and Pollution ControlThe Two Big Questions

1. What is the optimal level of pollution?

2. How should it be allocated among its sources (firms)?


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


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.


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


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)


TABLE 16.1 National Ambient Air-Quality Standards (1 of 2)


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.


TABLE 14.2 Empirical Studies of Air Pollution Control


TABLE 14.3 Trends in U.S. Emissions and Air Quality


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.


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.


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.


Washington’s 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


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.


TABLE 16.4 Net Benefits ($Million/Year) of Alternative Strategies for a Value of Life Saved of $1 Million

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Stationary-Source Local...

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