How to Reduce Pollution: The policy angle

Government Policies for Environmental

Protection

(c) 2010 by Peter Berck

Public Health is the Reason

• To clean up.

• Health depends on the breathed air

© 2011 Pearson Addison-Wesley. All rights reserved.

12-1

Table 12.1: National Ambient Air Quality

Standards Under the U.S. Clean Air Act.


12-2

Where should the government regulate? Why?

• Ability to Observe

• Multi media problem

• Align Incentives

• Provide Flexibility


12-3

Figure 12.1:

From Inputs to Damage.


12-4

One Price for Pollution

• Requires One marginal benefit from abatement curve, not one for every place in the US

12-5


Figure 12.2:

Spatial Variation in Pollution.


12-6

Sacred Cars

• NOx abatement by cars and power plants


12-7

Figure 12.3: The Marginal Costs of Abating

Nitrogen Oxides (NO x

).


12-8

Politics, yes that is the reason….

• But it is also the uncoordinated system

• USEPA or CA/EPA/ARB controls car emissions

• States control Powerplant emissions

• Outcome depends on a regulatory process with

TBES being set, plus New Source

Performance Standards, etc.

• So not entirely Machiavelli

12-9


Figure 12.4: Deadweight Loss When

Standards Are Not Well Chosen.


12-10

Table 12.2: Comparison of Command and

Control Approaches.


12-11

Let’s see a tax at work…

• We charge 45c/lb for NOx

• Firm sets MCA(abate) = 45 cents/lb

– WHY?


12-12

Figure 12.5:

Using a Pollution Price to Reduce Pollution.


12-13

Yeah, you knew that right?

• But have a gander at the magnitude of the tax take!

12-14


Figure 12.6:

Taxing Power Plants.


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Makes you long for metric

• 6 million tons x .93c per lb

• 12,000 million lbs x $1 (close enough)

• 12 billion dollars in tax take.

• To get 6.7 billion dollars in abatement done

• Wow: tax take is 2x cost of doing the job


12-16

So suppose we do it with a subsidy for abatement

• US pays powerplants for their abatement instead of charging them for emissions


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Figure 12.7:

Using a Subsidy to Reduce Pollution.


12-18

So you gotta find 13 billion bucks

• Maybe that isn’t so crazy.

– Industry takes your money and does the job

– You don’t end up discussing it in court for 40 years

• But you will have to tax something to do it.

– Deadweight loss of taxation = 16-25% or so of amount, so figure a 16 billion bucks

– Unless you can find an undertaxed bad, like

– cars, and then you get a gain.


12-19

Taxes have one more subtle advantage

• Over standards

– Another black triangle


12-20

Figure 12.8:

The Incentive to Innovate.


12-21

A bit of summary


12-22

Table 12.3:

Comparison of MBI Approaches.


12-23

Table 12.4: Comparison of Standards to

Market-Based Incentives.


12-24

An Aside on Actual Policy: CWA

• Clean Water Act

– Goal of NO emissions to water

• National Pollutant Discharge Elimination

System. NPDES. A TBES program in which all who discharge must have permits.

– Not enough to keep water clean

– Too many permits

12-25


The State Federal Dance

• States set “designated uses” like boat able and not necessarily drinkable.

• Once and if they set a use (or potentially but not really the Feds set one for them)

– If don’t meet standard, states establish

– Total Maximum Daily Loads of emissions

– Then must regulate to make it so.

• But they hate doing this as it might mean regulating agriculture or further regulating point sources


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No real forcing mechanism

• In practice states aren’t made to regulate water

– Missouri river has so much Nitrogen in it in

Montana that you can’t purify it or drink it on a canoe trip.

• From ? (before 1972) to 1980 CWA subsidized sewage treatment.

– Worked

– Killed off by left and right. (why the left was against)


12-27

Cheating and Bad Government: Chapter 13

• Firms cheat because of the money

• Firms behave because of the expected penalty


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Penalty

• 1. Government expends money on monitoring. Sends inspectors. Mounts devices. Hears citizen complaints.

• 2. Monitoring leads to probability of detecting cheating.

• 3. Once cheating is found it must be proved. Administrative law procedure.

• 4. Penalty is determined and firm pays


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• 5. Or firm litigates for a decade or two.

• Expected penalty = prob of being caught times fine if caught.

• ?Why did Macy’s open on Sundays when it was illegal?


12-30

Figure 13.1: The Marginal Benefits of

Polluting Curve for a Power Plant. (Again)


13-31

A Standard backed by an expected penalty

• Emit more than the standard and we will find you and fine you


12-32

Figure 13.2: Penalty Is Greater Than Benefits from Emitting.


13-33

Lag regulatory climate

• Aka Houston Tx.


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Figure 13.3: Penalty Is Less Than Benefits from Emitting.


13-35

Notice that the standard plays a different role here

• Isn’t important anymore. All the firm cares about is the penalty, which is a “tax” on emissions above standard.

• In practice there are also criminal penalties for plant managers who commit

“intentional violations.”


12-36

Are you a Goo goo?

• Like Fiorello Laguardia? (good government)

• Many agencies responsible for banking system:

Federal Reserve, Sec. of Treas., Comptroller of the Currency, Fannie May and Freddie Mac.

– Yet totally unpayable loans generated in the billions/trillions for housing.

• Why did the regulators sleep (and who is

Barney Frank and why is he partially guilty)


12-37

Captive Regulators

• Stakeholder process

• Fisheries Management Councils are charged with regulating fishing.

• They are made up of fishers and processors plus some others

• Will they be goo-goos?


12-38

Captive regulators

• How many politicians did the big four own?*

• Where people right to be wary of the railroad “interests”

• *Someone name the big four.


12-39

“voluntary” environmentalism

• Either regulate yourselves or the EPA will do it for you. (Eat a vegetable or your parents will choose which vegetable.)

– Bargaining in the shadow of the law.

• TRI

– Toxic release inventory

– “Voluntary” sort of.

– Top 10 punished in the market place


12-40

How to Reduce Pollution: The policy angle

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