Economics of Pollution

12 Key excerpts on "Economics of Pollution"

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  eBook - PDF

  Air Pollution

  Health and Environmental Impacts

  • Bhola R. Gurjar, Luisa T. Molina, C.S. P. Ojha(Authors)
  • 2010(Publication Date)
  • CRC Press

    (Publisher)

  If we continue to ignore the difference between income and capital for nature, mistakenly treating nature as an income item rather than as a capital item, we will reach a stage where the adverse effects of dam-ages to nature will not be reversible and we will continue to destroy our planet and possibly even cause our own extinction. To bring to an end these arguments, over the last half century developed countries have begun to reverse health effects and to reduce the cost of environmental pollu-tion in urban cities. For this reason, Environmental Economics has emerged as a subfield of economics to deal with environmental issues using standard methods of Neoclassical Economics and to undertake theoretical and empirical studies of the economic effects of national or local environmental policies around the world. As a result, issues such as the costs and benefits of pollution, alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming have become very important subjects for analysts to solve. 13.6 Conclusion: What Must the Role of Economics be to Eliminate Air Pollution in the Future? ..................................................... 355 References .............................................................................................................. 358 The Economics of Air Pollution 329 Over the last 50 years in particular, the health effects of environmental pollution, especially air pollution, have become the center of many epidemiological studies for risk assessments issues and of Environmental Economics for policy decision-making processes. With an increasing community awareness of human health and air quality concerns, a large body of epidemiological research has emerged, showing the adverse health effects of air pollution and focusing on the damaging effects of air pollutants on public health.

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  Introduction to Sustainability for Engineers

  • Toolseeram Ramjeawon(Author)
  • 2020(Publication Date)
  • CRC Press

    (Publisher)

  A negative externality is therefore an uncompensated, human-caused harm to others in society. If the loss of welfare is compensated by the agent causing the externality, the effect is said to be internalized. Pollution is the prime example of a negative externality. Internalization of externalities should be done to incorporate these costs and benefits in the decision-making process. This will help reflect the true cost of environmental resources, which are usually treated as “free goods” and hence lead to optimal social allocation of resources. The “Polluter Pays Principle” (PPP), which is a guiding rule for environmental policy in many countries, intends to deter the free use of resources, making polluters “internalize the externalities” caused by their activities. The objective is to integrate all environmental degradation and resource depletion in the price of goods and services. There are two possible forms of PPP:

  1. the extended one, in which the polluter compensates those affected by the pollution that s/he generates, and
  2. the standard one, in which the polluter bears the expenses of carrying out the abatement measures decided by a public authority.

  Market failure is defined as the inability of markets to reflect the full social costs or benefits of a good or service. This “failure” needs to be addressed by correcting prices so they take into account the “external” costs. It is important for an engineer to understand the key concepts of environmental economics for the following reasons:

  –    The context in which organizations now take decisions is rapidly changing and environmental economics is part of that context.

  –    Nature provides many freely available ecosystem services such as erosion control and climate regulation. It is important to understand how these ecosystem services can be valued and how environmental externalities can be quantified.

  –    Understand regulatory and market-based instruments devised by policy makers –    Have a better understanding of the full cost of business and society’s decisions.

  5.2 Valuing the Environment

  Assessing the economic value of the environment is a major topic in environmental economics and it raises technical questions reflecting the nature of environmental goods. Because environmental goods are typically not priced, estimates of the value of environmental changes – improvements or degradation – must be measured by some sort of indirect means. Some of the benefits cannot readily be quantified at all, let alone in monetary terms. Furthermore, there are different conceptual types of “value”, all of which should be taken into account. Figure 5.2

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  Principles of Environmental Economics and Sustainability

  An Integrated Economic and Ecological Approach

  • Ahmed Hussen(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  THIS CHAPTER OFFERS the theoretical foundation of a standard economics approach to pollution control. First, the determinants of pollution control and damage costs are carefully and thoroughly examined. What becomes immediately apparent is the trade-off that exists between the pollution damage and control costs. Once this is recognized, using basic economic logic, the condition for optimal pollution is derived. This condition stipulates pollution control (clean-up) is done in a manner that is cost-effective.

  ∎ 4.1 Introduction

  In Chapter 3 an attempt was made to address the issue of environmental quality by looking at the trade-off society has to make between economic goods and improved environmental quality. That is, more economic goods can be attained at a sacrifice of some level of environmental quality and vice versa. In addition to merely recognizing the existence of this trade-off, in the same chapter an attempt was made to formally establish the necessary condition for attaining the level of output (economic goods) that would be consistent with the socially optimal level of environmental quality.

  This chapter will discuss an alternative approach to the management of environmental quality by looking directly at the nature of waste disposal costs . Viewed this way, the economic problem will be to determine the volume of waste (not the production of economic goods, as in Chapter 3 ) that is consistent with the socially optimal level of pollution (or environmental damage). This approach, as will be seen shortly, provides a good many helpful new insights as well as a thorough evaluation of all the economic, technological, and ecological factors that are considered significant in assessing pollution control (abatement) and pollution-damage cost functions. Furthermore, the materials presented in this chapter provide the basic analytical framework for the evaluation of alternative environmental public policy instruments (subject matters covered in Chapters 5 and 6

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  Economics, Natural-Resource Scarcity and Development (Routledge Revivals)

  Conventional and Alternative Views

  • Edward B Barbier(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  4

  Conventional Theory: Pollution and Natural Environments

  On the whole, conventional theories treat the problem of pollution as an externality problem separate to that of optimal resource use. Theoretical considerations of the pollution problem, however, have led to further concern about the assimilative capacity of the environment and the preservation of natural systems. This chapter will discuss these further developments and argue that the next step is to develop a more integrated approach focusing on the trade-off between resource use and environmental degradation.

  POLLUTION AS AN EXTERNALITY

  The term pollution usually refers to the waste by-products, or residuals, created by the economic activities of production, its intermediate processes, and consumption. Thus by definition, a waste residual or pollutant has an important economic interpretation:

  A residual is a non-product (material or energy output), the value of which is less than the costs of collecting, processing, and transporting it for use. Thus, the definition is time dependent, that is, it is a function of (1) the level of technology in the society at a point in time and (2) the relative costs of alternative inputs at that point in time. For example, manure in the United States is now a residual, whereas thirty or so years ago it was a valuable raw material.1

  As pointed out by Baumol and Oates, the conventional economic approach has always been to see “the problem of environmental degradation as one in which economic agents imposed external costs upon society at large in the form of pollution. With no prices to provide the proper incentives for reduction of polluting activities, the inevitable result was excessive demands on the assimilative capacity of the environment. The obvious solution to the problem was to place an appropriate price, in this case a tax, on polluting activities so as to internalize the social costs.”2 Thus, pollution is an example of a negative externality: that is when the actions of one economic agent affect the welfare of another, who is not compensated for the ensuing damages.3

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  Handbook of Environmental Economics

  Environmental Degradation and Institutional Responses

  • Karl-Goran Maler, Jeffrey R. Vincent(Authors)
  • 2003(Publication Date)
  • North Holland

    (Publisher)

  Chapter 6

  The Theory of Pollution Policy

  Gloria E. Helfand    School of Natural Resources and Environment, The University of Michigan, Dana Bldg. 430 E. University, Ann Arbor, MI 48109-1115, USA

  Peter Berck    Department of Agricultural and Resource Economics, University of California, 207 Giannini Hall #3310, Berkeley, CA 94720-3310, USA

  Tim Maull    School of Natural Resources and Environment, The University of Michigan, Dana Bldg. 430 E. University, Ann Arbor, MI 48109-1115, USA

  Abstract

  Physically, pollution occurs because it is virtually impossible to have a productive process that involves no waste; economically, pollution occurs because polluting is less expensive than operating cleanly. This chapter explores the sources and consequences of, and remedies for, pollution and associated environmental damages. If all goods had well-defined property rights and could be traded in markets, environmental goods would be no different than other goods; however, markets fail for these goods because property rights cannot or do not exist and because of the nonexclusive, nonrival nature of these goods. Thus, environmental goods provide the classic case where government intervention can increase efficiency. Achieving efficient levels of pollution involves charging per unit of pollution based on damages caused by that unit. In practice, this policy can be difficult to achieve, due to difficulties in measuring and differentiating damages by source, difficulties in monitoring and enforcing pollution policies, and the financial and political costs of pollution taxes. Additionally, pre-existing market distortions influence the nature of efficient pollution abatement strategies. Thus, many regulatory approaches that do not achieve first-best outcomes may be used because their technological or political feasibility is superior. Market-based instruments provide flexibility to polluters, while command-and-control (standards-based) approaches limit choice, often through an emissions limit or a technology requirement. Market-based approaches typically achieve a specified level of emissions with lower abatement costs than standards, but their greater efficiency may not hold in the presence of the problems mentioned above. Non-regulatory approaches to pollution control include the use of liability law to define and enforce property rights and some voluntary pollution control initiatives by polluters. While these approaches can play an important role, they are unlikely to achieve adequate provision of environmental goods.

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  Environmental and Natural Resource Economics

  A Contemporary Approach

  • Jonathan M. Harris, Brian Roach(Authors)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  Chapter 8

  Pollution

  Analysis and Policy

  DOI: 10.4324/9781003080640-8

  Chapter 8 Focus Questions

  • What are the best policies for controlling pollution?
  • How can we balance the costs and benefits of pollution regulation?
  • Should industries be allowed to purchase permits to pollute?
  • How can we deal with long-lived and cumulative pollutants?

  8.1 The Economics of Pollution Control

  Many economic activities generate pollution. Natural systems have some capacity to absorb and break down wastes and pollution. But when humans generate excessive levels of pollution, negative impacts occur, including degradation of natural resources and human health effects. This raises two questions for environmental policy. First, how much pollution is acceptable—given that any society must emit some waste products? Second, how can we best control or reduce pollution to this acceptable level?

  How Much Pollution Is Too Much?

  You may think the answer to this question is that any pollution is too much. As noted in Chapter 3 , some environmental economists think in terms of an optimal level of pollution that maximizes net social benefits. While some might believe that the optimal level of pollution is zero, economists would argue that the only way to achieve zero pollution is to have zero production. If we want to produce virtually any manufactured good, some pollution will result. We as a society must decide what level of pollution we are willing to accept. Of course, we can strive to reduce this level over time, especially through better pollution control technologies, in some cases with a goal of net-zero emissions. But, in most areas of production, society will have to accept some level of pollution.

  • optimal level of pollution the pollution level that maximizes net social benefits.

  We’ve already discussed pollution as a negative externality in Chapter 3

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  Sustainability in European Transport Policy

  • Matthew Humphreys(Author)
  • 2010(Publication Date)
  • Taylor & Francis

    (Publisher)

  34 The achievement of the Pareto optimum ensures efficiency, and pollution is one piece of evidence that we do not inhabit a Pareto optimum world. Should the aims of achieving optimum efficiency and pollution reduction cease to coincide, economists and ecologists may suddenly renounce their alliance.

  Taking the polluter pays principle as a development of, or application of, theories on an efficient economy, the economist may consider that the problem of pollution stems from an absence of entitlement to assets. Some resources are either not owned by any particular legal person, or they are owned collectively. Damage to an individual’s private property is rectified by civil liability claims or public prosecution. An individual’s resource can either be exploited by that individual, or it can be sold to another for exploitation. However, some resources are not owned in any sense. Who then can sell them? The market requires individuals to buy and sell, freely making choices concerning their wealth and welfare. Externalities in the market equation can be seen as being caused by individuals exploiting resources to which they do not have title. With regard to the air pollution caused by driving, the fault in the market could be seen as resulting from the fact that air is common or unowned property. The externality then is in the cost of using the air. This cost is not reflected in the supply and demand equation because there is no mechanism for valuing it,35 or no person ready to sue for its value. A cost arises from its use, which is not paid by those pursuing self-interest; thus, we have economic inefficiency and no optimum air use, if such a thing can be imagined.

  Public authorities should then intervene, following on approach respecting free markets, which can be traced back to the theories of Ronald Coase.36

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  Economic Analysis of Environmental Problems

  • Gregory C Chow(Author)
  • 2014(Publication Date)
  • WSPC

    (Publisher)

  Chapter 4

  Macroeconomic Models Incorporatingthe Effect of Pollution

  4.1.  Introduction

  In this chapter, I propose two models incorporating the consideration of pollution to explain certain aspects of the Chinese macroeconomic economy.1 The first treats pollution as a byproduct of macroeconomic production by the simple assumption that pollution is proportional to output, as will be discussed in Section 4.2 . A main motivation for discussing this model is that it helps to pinpoint clearly the issue of sustainable development. In Section 4.3 , I present results from empirical estimation and testing of the model of Section 4.2 using Chinese data. A measure of Green GDP will be provided. The model explains the decline in the rate of consumption growth in recent years but fails to explain the prospect of continued growth in the Chinese macroeconomy. Section 4.4 shows that a market economy with consumers maximizing utility and producers maximizing profits will yield the same theory as the one in Section 4.2 , which was derived from maximization by an all-knowing central planner. A second model in Section 4.5 assumes a different utility function with cumulative emission E as an argument and without setting an upper limit M for emission. It also includes emission e as a factor of production. Chinese data are used to test this relation in Section 4.6 with encouraging results. Section 4.7 shows that the model of Section 4.5 can also be obtained by a market solution. The effect of market failure in the regulation of pollution is treated in Section 4.8 .

  4.2.  A Macroeconomic Model Assuming Pollution to be Proportional to Output

  A macroeconomic model can serve two purposes. In the realm of positive economics, it is constructed to explain macroeconomic phenomena. In normative economics, it can be used to provide policy recommendations to improve economic performance. If one believes in the working of Adam Smith’s invisible hand, one can construct the same model of a market economy which is both descriptive of reality and shows how efficient allocation of resources is achieved. Assuming that the market solution is efficient, economists have constructed macroeconomic models to explain reality by an optimization exercise. In this exercise, a social objective function is defined and an all-knowing central planner is assumed to solve an optimization problem to maximize an objective function. The implications of the solution are interpreted as propositions concerning the behavior of the actual macroeconomy. This approach fails if the market does not work perfectly or does not allocate resources efficiently, as in the case of allocating natural resources. Even in this case it is a useful exercise to construct a macroeconomic model under the assumption of market efficiency and then introduce market failure to improve its power for explaining observed phenomena. Performing this exercise, we obtain an understanding of how an actual inefficient market works and how it can be made to work better. This is the methodology that I follow in this chapter.

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  Environmental Health

  Third Edition

  • Dade W. Moeller, D. W MOELLER(Authors)
  • 2009(Publication Date)
  • Harvard University Press

    (Publisher)

  To do so unilaterally could easily place them at a competitive dis-advantage, particularly if it means reducing the consumption of fossil fuels. Addressing these types of problems, as well as those just cited, re-quires collective action on a global basis. Such actions include interna-tional agreements to impose order on the world’s nations that are analo-gous to property rights. At the same time, the fact that the moral implications of environmental protection also apply to the actions of in-dividual members of society must not be overlooked. It must also be rec-ognized that the “morality” of such issues is often dictated by the various, often conflicting, cultural norms of the peoples involved. The bumper sticker of the 1980s, “Think Globally and Act Locally,” is as relevant today as it was then. Terms and Concepts As background for a discussion of the approaches that are being devel-oped by environmental economists, it is important that certain terms and concepts be understood. Several of these are described here. externalities Externalities are costs associated with the manufacture of a product that frequently are not considered in establishing its selling price. A prime example is the economic value provided to various manufacturers through the discharge into the environment of wastes generated by their opera-tions. Since it is difficult to place a value on these types of benefits, some economists advocate the use of surrogate prices that are expressed in the form of pollution taxes and effluent fees. utility Utility refers to the benefits or improvements in the welfare of given mem-bers of a community that result from the goods and services that are being provided. In dealing with environmental problems, the goal of most econ-omists is to achieve a situation in which there is no practical way to in-crease the utility of some member or members of the community, and thus

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  Environmental and Natural Resource Economics

  • Thomas H. Tietenberg, Lynne Lewis(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  Chapter 14

  Economics of Pollution Control

  An Overview

  Democracy is not a matter of sentiment, but of foresight. Any system that doesn’t take the long run into account will burn itself out in the short run.

  —Charles Yost, The Age of Triumph and Frustration (1964)

  Introduction

  In Chapter 2 we introduced a schematic describing the relationship between the natural and economic systems. One side depicted the flow of mass and energy to the economic system, while the other depicted the flow of waste products back to the environment. In the last few chapters we dealt extensively with different types of natural resources and maintaining efficient and sustainable levels for both stocks and flows of those resources. Now we turn to examining how a balance can be achieved in the reverse flow of waste products back to the environment. Because the waste flows are inexorably intertwined with the flow of mass and energy into the economy, establishing a balance for waste flows will have feedback effects on the input flows as well.

  Two questions must be addressed: (1) what is the appropriate level of flow of pollution? and (2) how should the responsibility for achieving this flow level be allocated among the various sources of the pollutant when reductions are needed?

  In this chapter we lay the foundation for understanding the policy approach to controlling the flow of these waste products by developing a general framework for analyzing pollution control. This framework allows us to define efficient and cost-effective allocations for a variety of pollutant types, to compare these allocations to market allocations, and to demonstrate how efficiency and cost-effectiveness can be used to formulate desirable policy responses. This overview is then followed by a series of chapters that apply these principles by examining the policy approaches that have been adopted in the United States and in the rest of the world to establish control over waste flows.

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  Economics and the Environment

  • Eban S. Goodstein, Stephen Polasky(Authors)
  • 2017(Publication Date)
  • Wiley

    (Publisher)

  See also Sachs and Warner (1999). 172 PART I HOW MUCH POLLUTION IS TOO MUCH? 9.1 Ecological economics’ intellectual lineage can be traced back to Malthus and his population trap; ecological economists are sometimes called neo-Malthusians. Malthus was “wrong,” thanks in large measure to the Green Revolution in agriculture. However, gains from the Green Revolution have recently tapered off. Ecological economists share the Malthusian view that population (and consumption) pressures lead to initially steady, and eventually catastrophic, declines in human welfare. 9.2 Modern ecological economics was launched with the publication of Limits to Growth in 1972, and more recent work on planetary boundaries, which claims that we have already exceeded acceptable limits on pollution or depletion of resources in several important dimensions. Ecological economists differ from Malthus in their views that they have broadened the drivers from population to include consumption and the resource constraint from land to a whole suite of ecosystem services. 9.3 Ecological economists use the IPAT equation to identify particular forms of natural capital in need of more aggressive protection, to ensure strong sustainability. They employ physical measures of resource stocks or pollution impacts weighed against population and consumption pressure as their measure of sustainability. If demand for resources without good substitutes is a large portion of the current supply, then our use is unsustainable (e.g., water). If the absorptive capacity of environmental sinks is exceeded, leading to changes in ecosystems from stock pollutants, then our use of those sinks is unsustainable (e.g., CO 2 in the atmosphere and oceans). Ecological economists also employ footprint analysis to assess sustainability at the economy-wide level. It is a challenging goal to achieve both a high Human Development Index rating and a low footprint.

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  A Guide to Modern Economics

  • Michael Bleaney, Prof David Greenaway(Authors)
  • 1996(Publication Date)
  • Routledge

    (Publisher)

  All in all, the Hotelling analysis remains a powerful analytical tool in resource economics, but more caution than has been exercised is required to characterize its application to explain real-world resource depletion decisions. Similar strictures apply to its use as a normative guideline for a depletion policy.

  8.4 THE VALUATION ISSUE

  Independently of any view taken about the existence issue, environmental economists have been unanimous in seeking to extend the shadow-pricing of the environmental functions of ecosystems. This effort has resulted in a substantial literature which is conveniently reviewed in several sources (Freeman 1979; Bentkover et al. 1986; Johansson 1987; Pearce and Markandya 1989). The briefest of overviews is therefore offered here.

  ‘Benefits assessment’, i.e. the monetary evaluation of the environmental benefits of environmental policy, or its obverse, ‘damage assessment’, has had two main uses: first, to integrate better into cost-benefit analysis the unpriced functions of natural environments and, second, to illustrate the kinds of economic damage done to national economies by resource depletion and environmental pollution. Estimates of national environmental damage avoided through deliberate environmental protection policy, for example, have been produced by Freeman (1982) for the United States. His results suggest a ‘saving’ of some $26 billion in 1978, i.e. some 1.25 per cent of gross national product (GNP). Similar analyses by other authors, but of actual damage, amount to 0.5– 0.9 per cent of Netherlands GNP and 6 per cent of German GNP (Pearce and Markandya 1989).

  Various methodologies have been developed to place monetary estimates on environmental gain or loss. The dose-response functions approach concentrates on the physical ‘response’ to a ‘dose’ of pollution, measured by ambient pollution concentration or by exposure. In effect, economists have become ‘macroepidemiologists’, adopting statistical regression techniques to assess the effect of variables on damage such as mortality, morbidity, crop yields, materials deterioration, health of trees etc. Insights have been achieved because of the use of large data sets and because, in some cases, economic variables have been entered into the regressions in a more imaginative way than hitherto. Thus, simple regressions of air pollution on health as the dependent variable are unlikely to be revealing, but multivariate analysis involving age, socioeconomic status, access to medical care and pollution variables is likely to be richer in information yielded. Classic works such as Ridker’s (1967) study of air pollution were extended in sophisticated ways by Lave and Seskin (1977), which in turn launched a large literature (see, notably, Crocker et al.

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