Strategies: The Case of Standards
Chapter 11
Command and Control
A command-and-control (CAC) approach
mandates the behavior in law, then uses
whatever enforcement machinery—courts,
police, fines, and so on—are necessary to
get people to obey the law.
In the case of environmental policy, the
command-and-control approach consists of
relying on standards of various types to
bring about improvements in environmental
An emission (performance) standard is a
maximum rate of emissions that is legally
If you want people not to do something,
simply pass a law that makes it illegal, then
send out the authorities to enforce the law.
Illustrating Standards
Figure 11-1 shows marginal abatement costs
and marginal damages related to the rate at
which some production residual is emitted.
Suppose that initially the actual level of
effluent is at e1, a rate substantially above the
efficient rate of e*.
To achieve e* the authorities set an emission
standard at that level; e* becomes a
mandated upper limit for the emissions of this
Compliance Costs
Assuming the firm reduces emissions in
accordance with the standard, it would be
incurring an amount equivalent to area a per
year in total abatement costs.
These total abatement costs are the
compliance costs of meeting the standard.
Popularity of Standards
Standards are popular for a number of
They appear to be simple and direct.
They apparently set clearly specified targets.
Standards also appear to be congenial to our
ethical sense that pollution is bad and ought
to be declared illegal.
The legal system is geared to operate by defining
and stopping illegal behavior, and the standards
approach conforms to this mindset.
Types of Standards
There are three main types of environmental
standards: ambient, emission, and
Ambient Standards
Ambient environmental quality refers to the
qualitative dimensions of the surrounding
Ambient standards are normally expressed in
terms of average concentration levels over
some period of time.
Emission Standards
Emission standards are never-exceed levels
applied directly to the quantities of emissions
coming from pollution sources.
Emission (or effluent) standards are normally
expressed in terms of quantity of material per
some unit of time; for example, grams per
minute or tons per week.
Standards may set
upper limits on the quantity of flow per minute
the average flow over some time period.
Link Between Emissions and
Ambient Quality
The link between emissions and ambient
quality also can be vitally affected by human
A classic case is automobiles.
As part of the mobile-source air-pollution program,
emission standards have been set for new cars in
terms of emissions per mile of operation.
No effective way of controlling either the number
of cars on the roads or the total number of miles
each is driven, so total pollution and, thus,
ambient air quality, is not directly controlled.
Variety of Emission Standards
1) Emission rate (e.g., pounds per hour).
2) Emission concentration (e.g., parts per million of
biochemical oxygen demand, or BOD, in wastewater).
3) Total quantity of residuals (rate of discharge times
concentration times duration).
4) Residuals produced per unit of output (e.g., SO2
emissions per kilowatt-hour of electricity produced).
5) Residuals content per unit of input (e.g., SO2
emissions per ton of coal burned in power generation).
6) Percentage removal of pollutant (e.g., 60 percent
removal of waste material before discharge).
Performance Standards
In the language of regulation, emission
standards are a type of performance
standard because they refer to end results
that are meant to be achieved by the
polluters who are regulated.
Technology Standards
There are numerous standards that don't
actually specify some end result, but rather the
technologies, techniques, or practices that
potential polluters must adopt.
The requirement that cars be equipped with
catalytic converters, or seat belts, is a
technology standard.
If all electric utilities were required to install
stack-gas scrubbers to reduce SO2 emissions,
these would be in effect technology standards
because a particular type of technology is being
specified by central authorities.
Emission vs. Technology Standards
The basic point of differentiation is that a
performance standard, such as an emission
standard, sets a constraint on some
performance criterion and then allows people
to choose the best means of achieving it.
A technology standard actually dictates
certain decisions and techniques to be used,
such as particular equipment or operating
practices to be used by polluters.
The Economics of Standards
It would seem to be a simple and
straightforward thing to achieve better
environmental quality by applying standards
of various types.
Standards appear to give regulators a degree
of positive control to get pollution reduced,
but standards turn out to be more
complicated than they first appear.
Any Hope of Finding e*?
Standards are established through a
political/administrative process that may
account for all kinds of considerations.
The most fundamental question is whether, in
setting standards, authorities should take into
account only damages or both damages and
abatement costs.
“Zero-Risk” is Not Efficient
A principle used in some environmental laws
has been to set the standard at a "zero-risk"
level—a level that would protect everyone, no
matter how sensitive, from damage.
This would imply setting emission standards
at the threshold level, labeled et in Figure 111.
Balancing with Abatement Costs
The standard might instead be set at a level
that accepts a "reasonably small" amount of
damages, for example, e0, the point where
the marginal damage function begins to
increase very rapidly.
Again, this would be setting the standard
without regard to abatement costs.
A different logic might suggest that in setting
the standard, damages ought to be balanced
with abatement costs.
Uniformity of Standards
A very practical problem in standard setting is
whether it should be applied uniformly to all
situations or varied according to circumstances.
This can be illustrated by using the problem of
the spatial uniformity of standards.
The ambient air-quality standards in the United
States, for example, are essentially national.
The problem with this is that regions may differ greatly
in terms of the factors affecting damage and
abatement cost relationships.
Seeking Efficiency?
A single, uniform standard cannot be efficient
simultaneously in the two regions.
If it is set at eU it will be overly stringent for the
rural area, and if it is set at er it will not be tight
enough for the urban region.
The only way to avoid this would be to set different
standards in the two areas.
Policy trade-offs:
The more a policy is tailored so that it applies to
different and heterogeneous situations, the more
efficient it will be in terms of its impacts, but also the
more costly it will be to set and enforce them.
Standards and the Equimarginal Principle
We need to remember that the efficient level
itself is defined by the minimum marginal
abatement cost function.
This means that, where there are multiple
emissions sources producing the same
effluent, the equimarginal principle must
In order to get the greatest reductions in total
emissions for a given total abatement cost,
the different sources of emissions must have
the same marginal abatement costs.
This means that different sources of a
pollutant would normally be controlled to
different degrees, depending on the shape of
the marginal abatement cost curve at each
Problem of Standards
A major problem with standards is that there is
almost always an overwhelming tendency for
authorities to apply the same standards to all
It makes their regulatory lives much simpler, and
it gives the impression of being fair to everyone
because all are apparently being treated alike.
But identical standards will be cost-effective only
in the unlikely event that all polluters have the
same marginal abatement costs.
Standards and Incentives in the
Short Run
Standards are likely to be neither efficient nor
cost effective.
A basic problem is that standards are all-ornothing—either they are being met or they are
If they are being met, there is no incentive to do better
than the standard, even though the costs of further
emission reductions may be quite modest.
By the same token, the incentives are to meet the
standards, even though the last few units of emission
reduction may be much more costly than the damages
Perverse Incentives
Standards in practice tend to take decision
flexibility away from polluters.
This is certainly the case with technology
standards, which dictate the procedures that
polluters must follow, even though other
procedures may be available to achieve the goal
at lower cost.
Polluters will avoid other techniques in order to protect
themselves against charges of non-compliance, even if
these other approaches show considerable promise.
Standards and Incentives in the
Long Run
Technology Standards provide no incentive
to find cheaper ways of reducing emissions.
Emission (performance) Standards provide
strong incentives to find cheaper ways of
reducing emissions.
See Figure 11-4.
Political-Economic Aspects of Standards
Standards are often set under political giveand-take.
Technology forcing is to set standards that are
costly with today's technology in the hope that it
will motivate the pollution-control industry to invent
ways of meeting the standard at reasonable cost.
But stricter standards also create another
incentive: the incentive for polluters to seek relief
from public authorities by delaying the date when
they become applicable.
Pollution Control Industry
The incentives of pollution-control policy for
technological change depend on policies.
Technology standards substantially reduce
incentives for entrepreneurs in the pollutioncontrol industry to develop new ideas.
Representatives of the pollution-control industry
favor stricter emission (performance) standards,
as their fortunes are tied directly to the degree of
stringency in the emissions standards set by
public authorities.
The Economics of Enforcement
The typical pollution-control law calls for
emissions reduction from current levels or the
adoption of specified pollution-control
Ex ante, penalties will be sufficient to produce
complete compliance, but this is in fact never
the case.
Pollution-control laws, like any others, require
Enforcing Emission Standards
Consider Figure 11.5.
Crossing the MAC function is a marginal
penalty function.
MPC represents the expected penalties that
firms can be expected to face for violating an
emission standard.
Penalties arise when firms are detected to be
exceeding their emission standard.
Avoiding Penalty?
Suppose a standard is set at e*.
MPC is zero below e*,
the firm is only penalized for emissions in excess
of the standard, and the shape of the MPC curve
shows how penalties would increase as the size
of the violation increases.
If current emissions are at e0, the firm will
clearly reduce them because marginal
abatement costs at this point are well below
the marginal penalty costs currently in effect.
Firm stops reducing emissions at e1.
Abatement costs are higher than penalties.
Unless something changes, the firm's
emissions will end up at e1, and the amount of
noncompliance will be e* - e1.
In many cases, fines have been set too low—lower
than the abatement costs required to meet the
Enforcing Technology Standards
Initial compliance means a polluter installs the
appropriate equipment.
Inspectors visit the site, check to see that the
equipment is installed, and make sure it will
operate in accordance with the conditions of the
The administering agency can then give the firm
the necessary operating permit.
Does not ensure that the equipment will continue to be
operated in the future in accordance with the terms of
the permit.
Monitoring Compliance
Device may deteriorate through normal use, it
may not be maintained properly, future
operating personnel may not be properly
trained, and so on.
Without some amount of monitoring, there is no
assurance that the source will continue to be in
Standards often are set by national
authorities; enforcement is usually done by
local authorities.
There can be a great deal of informal give-andtake between the authorities and local plant
managers, with participation by local
environmental groups as well.
One of the advantages (some might say
disadvantages) of policies using standards is that
they permit flexibility in enforcement.
Standards (especially technology standards)
are not cost-effective.
Pollution control can be cost-effective only
when marginal abatement costs are
equalized across sources.
In practice, differences among sources in their
marginal abatement costs may be recognized
informally by local administrators in applying a
uniform national standard.