Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Stationary- Source Local Air Pollution
Jan 18, 2016
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Chapter 14
Stationary-Source Local Air Pollution
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Economics and Pollution ControlThe Two Big Questions
1. What is the optimal level of pollution?
2. How should it be allocated among its sources (firms)?
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How Do We Get There?
• Standards (command and control) Set the overall standard at Q* Calculate the amount of reduction necessary Set uniform reduction goal for all firms
• Taxes/Emission Charges Set the tax = externality cost at the optimum Q* Firms will internalize the cost
• Tradable Permits (Coase) Allocate right to pollute (Q*/N) Allow firms to set price for trading permits
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Conventional Pollutants
The Command-and-Control Policy Framework
• Conventional or “criteria” pollutants are common substances such as sulfur oxides, particulates, carbon monoxide, ozone, nitrogen dioxide and lead. They are thought to be dangerous only at high concentrations.
• The historical approach to air pollution control has been known as command-and-control approach based on emissions standards.
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A Brief History of the US Experience
• 1955 Pollution Control Act Primarily funded research into pollution issues
• 1967 Clean Air Act Recommended standards Onus on states to enact
• 1970 Clean Air Act Amendment Set federal standards for primary (health) and
secondary (aesthetics, vegetation) ambient levels
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1970 Clean Air Act Amendment
• Primary Standards National legal ceilings on ambient level of
pollutants Health standard
• Minimum threshold such that there would be no health effects
• Costs could not be considered Best available control technology (BACT)
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TABLE 16.1 National Ambient Air-Quality Standards (1 of 2)
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Cost-Effectiveness of the Command-and-Control Approach
• Typically not cost-effective. Ratio of CAC cost to least cost varied from 14:1 to 22:1 in
most cases (8 of 10) CAC will be close to cost-effective only if a high degree of
control is necessary such that all sources are forced to abate as much as is economically feasible.
• Sulfates in LA
• SO2 in Lower Delaware Valley
• While inefficient, CAC policies have resulted in better air quality in developed countries.
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TABLE 14.2 Empirical Studies of Air Pollution Control
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TABLE 14.3 Trends in U.S. Emissions and Air Quality
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Innovative Approaches
The Offset Program
• This program is acquired when a source controls emission to a higher degree than legally required.
• The policy allows qualified new or expanding sources to emit pollution in a nonattainment area, provided they acquire sufficient emission reduction credits from existing sources.
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The Effectiveness of This Early Application
• The emissions trading program has substantially reduced the cost of complying with the Clean Air Act. Transaction cost has also increased.
• The initial allocation of permits has an effect on the potential for price-setting behavior.
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Smog Trading
• State initiatives have also resulted in innovative programs such as California’s Regional Clean Air Incentives Market (RECLAIM).
• The 400 participating industry polluters under RECLAIM receive an annual pollution limit, which decreases by 5–8% annually for the next ten years. Polluters are allowed to use flexible approaches such as purchasing credits from other firms.
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Washington’s Clean Air Proposal
• Requires industries to limit greenhouse emissions Starts in 2012 – limits overall emissions to 1990
levels by 2012• Continues to reduce emissions over time to half
• Each source limited to 25,000 metric tons of CO2 Establishes tradable permits
• 1 ton permits
• EcoNW estimates current pollution costs at $3.8B Health costs at $1.3B
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Hazardous Pollutants
• The Clean Air Act requires the EPA to frequently identify hazardous pollutants. Once a substance is listed, the EPA has 180 days to regulate emissions. This requires setting a national standard for the pollutant.
• The EPA has incorporated risk assessment and benefit-cost analysis into their decisions.
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TABLE 16.4 Net Benefits ($Million/Year) of Alternative Strategies for a Value of Life Saved of $1 Million