Evaluating Regulatory Efficiency
Your group project’s client is the St. Louis Air Quality Management District. They are
considering revising their air pollution regulations in order to make industry in the city
more competitive and thus keep jobs from leaving town.
Your task is to estimate the costs of several regulatory options and report on your
findings, recommending steps that can be taken. You should write a one-page memo to
policymakers summarizing your findings. You should also attach an appendix, detailing
your analysis.
You find an old source document in the library, from a study done in the early 1970's.
(You probably don't need to look at the whole EPA report, but if you want, see "A Cost
Evaluation of Alternative Air Quality Control Strategies".) The report does have good
data on control costs and atmospheric transport. See Table 1, Figure 1 and the transfer
matrix. You may also wish to refer to pages 171-4 (in Chapter 9) of Kolstad,
Environmental Economics, which summarizes a paper by Atkinson and Tietenberg
(1982) [cited in the book].
As shown in the EPA Report (and the section of the book), the authors use a two-part cost
function, referred to in Table 1 on page 17 of the EPA Report as First and Second Node.
[Column F is the percentage reduction which can be achieved using the emission control
cost of column E. The remaining reduction, up to the percentage in column H can be
achieved at cost in column G.]
Simplify their analysis by using only the first part of these costs. In other words, assume
the marginal cost of emission reduction is constant at the level of column E in Table 1
and that all emissions (column D) can be reduced at this cost per unit emissions. Thus
your results will be somewhat different from Atkinson and Tietenberg or Atkinson and
Lewis.
[Assume everything is the same now as it was when the report was written -- you do not
have to find up-dated information.]
NOTE TO EXCEL USERS ON ORGANIZING RESPONSES. Use one Workbook for
everything. Label the Worksheets, corresponding to the five parts to the assignment:
Memo/Pre-Control/Rollback/Least-Cost/Figure
SUMMARIZE YOUR RESULTS IN A ONE_PAGE MEMO WITH APPENDIX
(20 points)
PARTS TO BE INCLUDED IN THE APPENDIX TO YOUR MEMO:
a. (20 points) What is the pre-control concentration of particulates at each of the nine
receptors? What does this tell you is the maximum concentration of particulates in the St.
Louis area (ie, the maximum over the nine receptors)? How does this compare to the
Federal Primary standard of 60 micrograms per m3 and the secondary standard of 40
micrograms per m3? [Don't forget the background levels of particulates -- see Figure 3
from the report.] [HINT: In Excel, use the MMULT function to multiply a vector of precontrol emission rates by a column of the transfer matrix.]
b. (15 points) Suppose the air quality regulators in St. Louis decide to control the problem
using a rollback approach; ie, if the concentration at the worst receptor needs to be
reduced 30%, each source is reduced 30%. What is the total cost of achieving the primary
and secondary Federal standards? What is the associated pollution concentration at each
of the nine receptors in each case?
c. (20 points) Using the Solver function in EXCEL, find the least cost way of meeting the
primary and secondary standards. Attach a copy of your EXCEL spreadsheet. [Hint: Try
to implement the equations spelled out on page 173 of Kolstad, keeping in mind that
costs have been simplified for this exercise.]. This least cost way is equivalent to what
would happen with ambient permits.
d. (25 points) Generate your own version of Figure 9.5 on page 174 of Kolstad. Assume
command-and-control is equivalent to the rollback approach discussed in part b above.
The horizontal access (air quality) is the maximum concentration over the nine receptors.