An economic analysis of air pollution from coal-fired power plants

The benefits of air pollution control techniques on a coal-fired power plant are Simulated with a scientifically based environmental model. Air pollution abatement techniques are assessed in terms of their resource cost (measured in dollars) and their effectiveness in reducing environmental damage (measured in dollars and healthy days lost). Which air pollution techniques are most efficient depend upon how much a day of health should be valued. Other factors of potential interest such as uncertainty and equity are also simulated through the model. The paper demonstrates that scientific evidence can be organized around economic principles in order to develop more rational and effective environmental policies.     

The distribution of benefits from improvements in urban air quality

This paper analyzes the distribution of benefits from an air pollution control strategy for the Boston metropolitan area. Average benefits to seven income groups are measured by physical improvements in air quality and by dollar values, using housing value and health damage approaches to estimate willingness to pay. Benefits include those in the work environment as well as at home. Physical benefits at home are found to be greater for the poor rather than for the rich; when measured in monetary terms with workplace benefits included, however, the distribution is much less pro-poor.     

A laboratory study of auctions for reducing non-point source pollution

Non-point source pollution, such as nutrient runoff to waterways from agricultural production, is an environmental problem that typically involves asymmetric information. Land use changes to reduce pollution incur opportunity costs that are privately known to landholders, but these changes provide environmental benefits that may be more accurately estimated by regulators. This paper reports a testbed laboratory experiment in which landholder/sellers in sealed-offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize abatement. In one treatment the regulator reveals to landholders the environmental benefits estimated for their projects, and in another treatment the regulator conceals the potential projects’ “environmental quality.” The results show that sellers’ offers misrepresent their costs more for high-quality projects when quality is revealed, so total abatement is lower and seller profits are higher when landholders know their projects’ environmental benefits. This suggests that concealing this information may improve regulatory efficiency.     

On estimating air pollution control benefits from land value studies

This paper deals with some unresolved issues in interpreting empirical property value/air pollution studies. A model is developed in which it is shown that in general regressions of property values on pollution variables do not identify the demand curve for clean air. However since the first derivative of the observed rent function is a locus of household equilibrium marginal willingnesses to pay, aggregate benefits can be calculated directly. The possibilities for obtaining approximate measures of aggregate benefits for nonmarginal changes in air quality are also discussed.     

The optimal pricing of pollution when enforcement is costly

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms’ abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators’ actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms’ abatement costs or monitoring costs.     

Transferable discharge permits and economic efficiency: The fox river

Recent emphasis on reforms of environmental regulation has led to suggestions for strategies which maintain environmental standards but allow the needed flexibility and cost effectiveness. The transferable discharge permit (TDP) is one such strategy for water pollution control recently adopted in Wisconsin. In this article, the potential for substantial cost savings from trading TDPs is demonstrated using data on the Fox River in Wisconsin. A simulation model of water quality (Qual-III) and a linear programming model of abatement costs determine the optimum pattern of discharge. Reaching that optimum from proposed pollution abatement orders is shown to be feasible. Varying conditions of flow and temperature can be accommodated using trade coefficients which can be accurately estimated through interpolation. The calculations demonstrate the value and feasibility of flexible regulations governing water pollution abatement.     

Efficiency of pollution taxation and market structure

This paper looks at the performance of a uniform pollution tax in achieving a given level of pollution abatement at least cost. It is shown that market structure is an important consideration in this performance and that in general least-cost abatement will not result from a pollution tax uniformly applied. The pattern of pollution taxes that will achieve least-cost abatement when differing degrees of market power exist among polluters is developed and discussed.     

Trade''s Dynamic Solutions to Transboundary Pollution

This study develops a differential game to examine the effects of trade liberalization on transboundary water pollution. Water pollution is due to wastewater emissions from countries in a shared waterway along the U.S.–Mexico border with available data of pollution abatement costs, public health damages, and trade benefits. Noncooperative and cooperative games are examined with changes in trade policy and public health damages. Results show trade liberalization leads Mexico to curtail pollution in both games. Cooperation and trade liberalization limit emissions from both countries and curtail strategic behavior of the United States from Mexico's pollution control efforts in the noncooperative game.     

Are there reasons against open-ended research into solar radiation management? A model of intergenerational decision-making under uncertainty

Solar radiation management (SRM) has been proposed as a means of last resort against dangerous climate change. We propose a stylized model of intergenerational decision making on SRM research, greenhouse-gas abatement and SRM deployment, under uncertainties about (a) the extent of future climate damage and (b) effectiveness and potential harmful side-effects of SRM. Open-ended research may reveal either that SRM effectively reduces climate damage, or that it would cause more harm than benefits. We find that SRM research increases the likelihood of deployment (“slippery slope”), and derive conditions that it decreases abatement effort in expectation (“moral hazard”). Neither of these provides a rationale against SRM research, though. The rational decision is to perform SRM research, unless (i) discounting is hyperbolic and (ii) the absolute prudence of expected climate damage is smaller than absolute risk aversion. These results generalize to the case where SRM research also provides information on climate sensitivity.     

An Equilibrium Framework for Global Pollution Problems

The paper analyzes global pollution problems from the point of view of the benefit approach to the allocation of public costs. Special attention is paid to the possibility that the optimum abatement vector may have negative elements. An appropriate cost-share equilibrium is defined and characterized, and conditions under which the equilibrium is beneficial to all parties are derived. An implementation mechanism whose Nash equilibrium yields positive abatement levels under appropriate conditions is described.     

Interactive pollutants and joint abatement costs: Achieving water quality standards with effluent charges

This paper extends earlier work on the standards and prices approach to pollution control by considering simultaneously spatial considerations, interactive pollutants, and joint abatement costs. The form of environmental constraints appropriate to water pollution problems is discussed in detail and the implications for the standards and prices approach to water pollution control are assessed. The presence of interactive pollutants and joint abatement costs is shown to have important implications for both the theoretical properties and the implementation of the standards and prices approach.     

Bidding games for valuation of aesthetic environmental improvements

An empirical case study of the benefits of abatement of aesthetic environmental damage associated with the Four Corners power plant and Navajo mine using the bidding game technique is presented. Bidding games were carefully designed to avoid the potential problems inherent in that technique. The results indicate the existence of substantial benefits from abatement of this aesthetic environmental damage. Aggregate bid curves, marginal bid curves, and estimates of the income elasticity of bid are presented. The effectiveness of the bidding game technique is discussed.     

Environmental policy and human capital inequality: A matter of life and death

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.     

Environmentally Sensitive Productivity Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach

This study employs a parametric input distance function that incorporates both desirable and undesirable outputs to provide a more complete representation of the production technology from which environmentally sensitive productivity and efficiency measures can be generated. This framework also generates pollution abatement cost estimates that are useful for policy making. An input-based Malmquist index of productivity growth that appropriately credits the producer not only for increases in marketable or desirable outputs but also for the production of improved environmental quality through pollution abatement activities is derived from the input distance function. The method was applied to time series data from the Canadian pulp and paper industry. Our shadow price estimates indicate that the marginal cost to producers of pollution control has been rising. The main conclusion of this study is that productivity improvement, from the social viewpoint, has been stronger than conventional measures would suggest.     

Should the federal government subsidize industrial pollution control investment?

Tax-exempt financing of industrial pollution control equipment has increased rapidly in recent months. This method of subsidizing pollution abatement is known to be highly inefficient. If tax-exempt industrial revenue bonds were replaced by a more efficient subsidy the net financial benefits to polluting industries could probably be about doubled without any extra cost to American taxpayers. Increased utilization of an inefficient subsidy device and the international energy crisis make this a propitious time for tax experts and economists to re-examine the question, should industrial pollution control investments be subsidized?     

Investigating the link between $$\hbox {PM}_{2.5}$$ and atmospheric profile variables via penalized functional quantile regression

Fine particulate matter (\(\hbox {PM}_{2.5}\)) events negatively affect the health of numerous persons globally each year. Previous works have described the association between air pollution and surface-level meteorological conditions; however, there has been less focus on the task of linking air pollution events with meteorological conditions at higher levels of the atmosphere. Working within the functional data framework, we develop a penalized functional quantile regression (PFQR) procedure to model conditional quantiles of a continuous response based on a functional covariate, with the ability to penalize selected derivatives of the estimated coefficient function. Our aim is to investigate the relationship between atmospheric profile variables (APVs), assumed to be functional, and key quantiles of the conditional distribution of surface-level \(\hbox {PM}_{2.5}\). Via a simulation study, we find that the performance of our PFQR procedure compares favorably to other related approaches. We conclude with an analysis of \(\hbox {PM}_{2.5}\) data at two Southeastern US locations, Columbia, SC and Tampa, FL, where we estimate the coefficient functions for the APVs corresponding to both ‘typical’ and ‘high’ \(\hbox {PM}_{2.5}\) events. As we believe that the true coefficient functions are smooth and may be exactly zero over subsets of their domains, we impose penalties on the 0th and 2nd derivatives. Our analysis indicates that the corresponding atmospheric conditions differ between the two locations, and that the conditions differ seasonally within location.     

War and sustainability

SUMMARY

In order to use the planet's ecological life-support systems sustainably, damage to them must be both prevented and repaired. However, repair requires awareness of damage which, in this case, mandates a high level of ecological literacy. Prevention of ecological damage will only be successful on a planetary scale if human society endorses precautionary practices that reduce the probability of ecosystem damage. Society is beginning to endorse precautionary practices to protect human health, which is no longer regarded as merely absence of symptoms of disease and malfunction. Health is regarded as a robust function — an approach toward optimal conditions. Similar views are beginning to emerge regarding ecosystem health, and a close link between human and ecosystem health is gaining increased recognition. However, to achieve health, ecological ‘wounds’ must be repaired, which is impossible until society ‘sees’ the wounds. After this recognition, society must become more literate on the attributes of ecosystem health. The methods and procedures are in place, but they will not be used effectively until a major paradigm shift occurs.     

A note on permits, standards, and technological innovation

Montero (J. Environ. Econom. Manage. 44 (2002) 23) contrasts the incentives to invest in new abatement technologies under different regulatory instruments and argues that one needs to consider the induced output effects that derive from lower abatement costs. Montero shows that, once one takes into account these effects on output, command-and-control instruments can generate stronger incentives to innovate than market-based instruments. This result rests on strategic output effects under command-and-control. However, he maintains that, under perfectly competitive conditions, market-based instruments will continue to weakly dominate command-and-control regulation. This note clarifies two issues raised by Montero. First, I use Montero's approach to show that in fact performance (concentration) standards will generate greater incentives to innovate than market-based instruments in perfectly competitive markets. One does not require strategic effects to get this result. Second, Montero abstracts from production costs and concentrates solely on abatement costs. He implicitly assumes that marginal production costs are constant. I show that some of Montero's results change once increasing marginal production costs are considered. When marginal costs are increasing, the benefit of additional output is tempered and market-based instruments again look more favorable.     

Prices vs quantities with multiple pollutants

We examine the choice of policy instruments (price, quantity or a mix of the two) when two pollutants are regulated and firms' abatement costs are private information. Whether abatement efforts are complements or substitutes is key determining the choice of policies. When pollutants are complements, a mixed policy instrument with a tax on one pollutant and a quota on another is sometimes preferable even if the pollutants are identical in terms of benefits and costs of abatement. Yet, if they are substitutes, the mixed policy is dominated by taxes or quotas.     

Spatial economic theory of pollution control

In February 1972 the Nixon Administration proposed a tax on sulfur oxide emissions, beyond the Federal standards, of electric power plants. It was hoped that such a tax would discourage power plant locations in heavily polluted areas like urban areas. Assuming that such a tax varies over space because pollution is not invariant over space, the spatial theory of the firm is presented in this paper cast doubt on the efficacy of such a polltuion tax to achieve the desired goal of the administration. In particular it is shown that the cost-minimizing spatial firm would abate its pollution in response to a tax by either changing its location or by reducing waste through process change or by using a transportable abatement good if the tax savings due to the change in marginal abatement through location change per unit change in abatement is greater than or equal to transport rate on the abatement good. If the goal of the firm is to maximize profits, the desired outcome would follow if in addition to the fulfillment of the above condition the percentage change in the delivered price of raw material (situated at one end of the linear location space) per unit distance is greater than or equal to the percentage change in net marginal revenue, i.e., marginal revenue net of transport cost per unit of output. In simple terms, the conclusions of this paper raise doubts regarding the effectiveness of a pollution tax in curtailing pollution of a firm which is operating in a space economy. This outcome is peculiar to a spatial firm. Sufficient conditions also have been obtained when land input is included in the production function of the firm.