Optimal pollution in the presence of adjustment costs

This paper explores optimal pollution control when pollution is considered a stock and costs of treating pollution are a function both of the level and rate of change of pollution control. It is shown that even if the long run optimum stock of pollution is below the initial level adjustment costs may imply an optimally increasing stock of pollution in the short run. The results obtained are contrasted with those which emerge when adjustment costs are absent and when damages are taken to be a function of the flow of pollution; the appropriate tax rates of polluting discharges are examined.     

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.     

The backward incidence of pollution control in a rigid-wage economy

The backward incidence of pollution controls onto the polluting and nonpolluting industries is examined in a two-sector, rigid-wage economy characterized by unemployment in both the short run and the long run. As expected, more restrictive pollution controls result in contraction in the polluting sector and expansion in the nonpolluting sector. Somewhat unexpectedly, national income may rise with stronger pollution controls, if the polluting industry is relatively capital intensive.     

The optimality and feasibility of uniform air pollution controls

An optimal control problem is developed which minimizes both the social damages of pollution concentrations and the private costs of emission abatement subject to a differential equation relating emissions and concentrations. A specific use of the model is to analyze the optimality and feasibility of uniform controls on emissions and concentrations across an air shed.     

Efficient waste and pollution abatements for regions in Japan

This paper computes efficient industrial waste and air pollutants abatements for 47 regions in Japan for the period 1992–2002. The variable-returns-to-scale (VRS) data envelopment analysis (DEA) with a single output (real GDP) and seven inputs (labor, real public capital stock, real private capital stock, industrial waste, sulfur oxide, nitrogen oxide, and soot and dust) is used to compute target wastes of each region for each year. The efficient abatement ratios of each region in each year are obtained by comparing the actual to the target amount of a pollutant. Our major findings are: (1) Most regions in Japan have significant room to reduce their pollution since there is a wide gap between efficient and inefficient regions; (2) For each air pollutant, approximately 25–33% of Japan's prefectures can reduce their output by more than 50% without harming regional GDP, and approximately one-third of prefectures can reduce industrial waste more than 30%; (3) Hokkaido is the least efficient region for all years studied and for all waste and pollutants, and target abatement ratios there drastically worsened in the last two sample years; (4) Tokyo, Saitama, Yamanashi, Shiga, Nara, and Tottori are efficient with respect to each type of industrial waste and pollution throughout the study period; (5) many regions in the bottom quartile with respect to real per capita income have significant room to reduce their waste and pollution output; and (6) many regions where energy-intensive industries dominate produce excessive amounts of waste and air pollution compared to other regions.     

Environmental policy with upstream pollution abatement technology firms

This paper examines how the existence of an upstream abatement technology sector affects optimal environmental policy. We explore whether the policy should be especially stringent in order to spur a successful export industry based on abatement technology. Furthermore, we investigate if a stringent policy can be used to increase competition in the upstream sector. Our point of departure is a three-stage game between a government in a country with a polluting downstream industry, and a limited number of upstream firms supplying abatement technologies. The government moves first, and may use its environmental policy strategically to influence the behavior of the upstream technology firms. We find that an especially stringent environmental policy towards the polluting downstream sector may be well founded, as it increases competition between the technology suppliers, leading to lower abatement costs. However, to our surprise, an especially stringent environmental policy is not a particularly good industrial policy with respect to developing successful new export sectors based on abatement technology.     

Pesticide resistance externalities and optimal mosquito management

A simultaneous equation model of the behavior of a mosquito abatement district based on biological and economic data is presented. Results indicate high long term costs if heavy reliance on chemical pesticide control methods continue, due to a pesticide resistance buildup in the mosquito populations. Physical source reduction methods were shown to be more efficient both in the short and long run. A linear programming model is presented which optimizes the inix of chemical and physical control methods. Results indicate increasing costs of mosquito abatement as pesticide effectiveness declines.     

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.     

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.     

A cultural model of private provision and the environment

This paper analyses an overlapping generations model of environmental externalities and capital accumulation where private contributions to environmental quality are motivated by a desire to socialize others into environmental attitudes. In this framework, the formation of environmental preferences is the result of a cultural transmission process depending on the extent of private contributions. In the short run, we show that three equilibria may arise: a first one where all green agents contribute to the environment, a second one where nobody contributes to the environment and a third interior one. We show that the capital-accumulation process and the change in preferences that occur in this economy lead the interior equilibrium to be selected, in which some, but not all, green agents contribute to the environment. The model thus provides an economic rationale for the gap between the number of people who care about the environment and the number who adopt pro-environmental behaviours. We also show that the fraction of contributors rises with capital, so that we explain the negative relationship between this gap and country income. Last, we show that this gap is particularly detrimental for welfare, and analyse the impact of a number of public policies.     

Stochastic pollution, costly sanctions, and optimality of emission permit banking

This paper identifies a new economic motive for pollution regulations that allow polluting firms to bank and borrow emission permits over time. When aggregate pollution is stochastic, an intertemporal permit trading regime can provide firms with efficient incentives for pollution abatement without the need for costly government enforcement actions that would otherwise be required.     

A proposal for improving the measurement of benefits from pollution abatement

Two basic and competing approaches for measuring the benefits of pollution abatement have found support in the recent literature-the property value approach and the health damage function approach. The purpose of this paper is to show that conditions will often exist when the property value approach will not accurately measure all benefits and conditions will always be present that cause the health damage function approach to underestimate benefits. In general, neither approach can stand alone. It is possible, however, that the two approaches can be combined in such a way as to improve the measurement of abatement benefits. We present an approach for combining these two methods and do so by introducing an “information coefficient” that measures the degree of knowledge about pollution effects held by the public. Approaches to estimating the information coefficient are suggested.     

The effect of competition on toxic pollution releases

We examine how competition affects toxic industrial releases, using five years of data from thousands of facilities across hundreds of industries. Our main result indicates that competition reduces toxic releases at the facility level. On average, each percentage-point reduction in the Herfindahl Index (HHI) results in a nearly two-percent reduction in a facility׳s toxic releases. At the same time, we find no evidence that competition increases aggregate pollution. Further analysis sheds some light on the mechanisms through which firms reduce pollution releases due to increased competition. In particular, we find suggestive evidence that this relationship is due to both reduced output and increases in abatement. We find no evidence that our result is driven by: consumer aversion to pollution, regulations changing with competition, or technologies introduced by new firms. Taken together, our results indicate that competition may be good, at least for public health in areas near polluting facilities, and fail to provide support for the hypothesis that competition leads to more socially undesirable behavior.     

Firm incentives to promote technological change in pollution control: Comment

Following on from an analysis by Milliman and Prince, this article considers further the relative incentives for technical change provided by different pollution control instruments. The comments involve the recognition that emission targets are typically chosen fairly arbitrarily because of regulators' lack of knowledge of abatement cost schedules. There is also a more detailed discussion of the practicability of auctioning emissions permits, as these have been less thoroughly covered in the literature than the other instruments.     

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?     

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.     

Robust technology policy against emission leakage: The case of upstream subsidies

Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage, which hampers countries’ welfare. In order to limit leakage, governments consider supporting domestic trade-exposed firms by subsidizing their investments in abatement technology. The suppliers of such technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced technologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage.     

Optimal quasi-market choice in the presence of pollution externalities

When the relationship between emissions and ambient pollution is known, it is possible to implement a program to achieve economically efficient pollution levels, even when the control agency knows nothing about the victim's valuation of pollution damages or about emission abatement costs. Unlike a Pigouvian tax, the program provides the correct incentives for entry and exit whether or not marginal damages from a firm's emissions vary over the range of these emissions. Through the provision of “missing” markets, sizable revenues are raised while allocative distortions are corrected.     

Growth and pollution convergence: Theory and evidence

Stabilizing pollution levels in the long run is a pre-requisite for sustainable growth. We develop a neoclassical growth model with endogenous emission reduction predicting that, along optimal sustainable paths, pollution growth rates are (i) positively related to output growth (scale effect) and (ii) negatively related to emission levels (defensive effect). This dynamic law reduces to a convergence equation that is empirically tested for two major and regulated air pollutants – sulfur oxides and nitrogen oxides – with a panel of 25 European countries spanning the years 1980–2005. Traditional parametric models are rejected by the data. More flexible regression techniques confirm the existence of both the scale and the defensive effect, supporting the model predictions.     

SWAT parameterization for the identification of critical diffuse pollution source areas under data limitations

For lowering sediment, nitrogen (N) and phosphorus (P) pollution of surface water bodies at the catchment scale, environmental legislation require programs of pollution abatement measures. To be able to ensure the cost-effectiveness of such programs we first need to identify high risk areas, which give rise to increased pollutant runoff. Process-based GIS models provide the opportunity to identify such critical areas and hence better target diffuse pollution abatement actions. However, these models are data intensive and their spatially-distributed parameterization in poorly monitored catchments is not feasible without extensive input data pre-processing and significant simplifying assumptions. This study implements the widely-used SWAT river basin model (Soil Water Assessment Tool) to study a medium-sized Greek catchment with the typical data limitations met at the national level, in order to identify critical diffuse pollution source areas that may serve as the key areas for meeting the objective of ‘good ecological status’ of water bodies set by the European Water Framework Directive (WFD). Model parameterization and evaluation are presented along with the decisions made to overcome problems related to data representation in the catchment, in an effort to provide guidance on SWAT modeling in areas with similar characteristics. The results show that sediments and nutrients could be adequately reproduced in large time steps (monthly or seasonal) and that even with the current data limitations, the seasonal variation and the most critical areas of pollutant losses to waters could be adequately identified. The study proposes a transparent modeling approach under data limitations without neglecting possible deficiencies; however, it maintains that the SWAT model, if appropriately parameterized with respect to the land-use and soil differentiation within a limited-gauged catchment, can still facilitate the selection and placement of suitable practices across the landscape for a cost-effective diffused pollution management.