The Economic Theory of Pollution Control

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The Economic Theory of Pollution Control

• The Optimal Level of Pollution

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Minimization of Waste Disposal Cost

• From a purely economic perspective, the
  management of environmental quality or pollution
  control is easily understood if the problem is
  viewed as minimizing total waste disposal costs.
• Minimize TWDC TPCC TPDC

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• In minimizing this cost, the underlying economic
  logic is this. A dollars worth of investment
  (expenditure) on pollution control technology
  will make sense if, and only if, society is
  expected to be compensated by the benefits to be
  realized from the avoidance of environmental
  damage that worths more than a dollar.

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Pollution Control (Abatement) Costs and Their
Properties

• Pollution control costs represent direct monetary
  expenditures by society for the purpose of
  procuring resources to improve environmental
  quality or to control pollution. Examples are
• Sewage treatment facilities, smoke stacks,
  soundproof walls and catalytic converters on
  passengers cars.

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• In general, we would expect the marginal
  pollution control cost to increase with increased
  environmental quality or cleanup activities.
• This is because incrementally higher levels of
  environmental quality require investments in
  technologies that are increasingly costly.

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• Exogenous factors that determines the position of
  any marginal control cost curve are
• Technology of pollution control
• Input switching
• residual recycling
• production technology

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• Since pollution control costs are explicit or
  out-of-pocket expenditures, it is often assumed
  that no apparent market distortion occurs as a
  result of a third party effect--externality.

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Pollution Damage Costs and their Salient
Properties

• Pollution damage costs represent the total
  monetary value of all the various damages
  resulting from the discharge of untreated waste
  into the environment.

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• In general, pollution damage costs are identified
  in terms of the losses of or damage to plants and
  animals and their habitats aesthetic
  impairments rapid deterioration to physical
  infrastructures and assets and various harmful
  effects on human health and mortality.

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• It is assumed that the marginal damage cost is an
  increasing function of pollution emissions.
• In other words, the damage caused by a unit of
  pollution increases progressively as the amount
  of pollution (untreated waste) emitted increases.
  (see Figure 4.2 next page)

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• The damage cost curve measures the social cost of
  the damage to the environment in monetary terms,
  resulting form each additional unit of waste
  emission.
• We assume to this despite the knowledge that some
  aspects of pollution damage are simply beyond the
  realm of economic quantification.

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• Damage cost is considered to be an increasing
  function of pollution emissions. In other words,
  the damage caused by a unit of pollution
  increases progressively as the amount of
  pollution (untreated waste) emitted increases.
• This is, of course, in accord with the ecological
  principle discussed in Chapter 2 a cumulative
  (nonlinear) effect of pollution on the
  environment.

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• Exogenous factors affecting the marginal damage
  cost
• changes in peoples preference for environmental
  quality
• changes in population
• discovery of new treatment(s) to damage caused by
  environmental pollution
• a change in the nature of the assimilative
  capacity of the environment

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• The marginal pollution damage cost curve actually
  represents what people are willing to pay to
  avoid damage or the demand function of
  environmental quality.
• Pollution damage cost are externalities--costs
  incurred by members of society after the
  pollution damages have already occurred.

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Changes in Preference and Technolgoy

• A preference for a higher level of environmental
  quality would lead to a lower tolerance for
  pollution or a higher level of environmental
  quality.
• However, the higher environmental quality would
  be realized at some additional cost.

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• Effects of Technology
• Case 1 Improvement in waste treatment
  technology would allow society to reduce its
  level of pollution or improve its environmental
  quality.
• Moreover, the improvement would be accomplished
  without an additional increase in the total
  disposal cost.

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• Case 2 A breakthrough in the treatment of a
  cancer caused by exposure to a certain pollutant.
• In this case improvement in technology would lead
  to an increase, rather than, a decrease, in the
  level of pollution or deterioration of
  environmental quality.

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• Clearly, the above two cases illustrates, a
  technological improvement that causes a shift in
  either the MCC or the MDC leads to a reduction in
  total disposal cost. A saving in disposal cost
  is, then, the unambiguous result of improved
  technology.
• However, the effect of technological improvement
  on the level of pollution or environmental
  quality is not as straightforward.

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The Optimal Level of Pollution An Ecological
Appraisal

• Cases where economic and ecological optimum
  pollution may differ
• Case 1 The case of persistent pollutants, such
  as DDT

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• Case 2 The economic optimum is achieved by sole
  consideration of human preference (willingness to
  pay) of environmental quality.
• Case 3 The standard economic approach to
  pollution control may put more emphasis on
  pollution cleanup than pollution prevention.

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• Case 3 The optimum pollution does not adequately
  safeguard the interests of future generations and
  the ecosystems as a whole. A case in point being
  global warming--a situation where irreversible
  ecological changes and the risk of major adverse
  surprise (uncertainty) over a long time horizon
  are evident.
• The precautionary Principle (see next page)

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• The Precautionary Principle--holds that society
  should take action against certain practices when
  there is potential for irreversible consequences
  or for severe limits on the options for future
  generations-even when there is as yet no
  incontrovertible scientific proof that serious
  consequences will ensue.