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The Economic Theory of Pollution Control

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Title: The Economic Theory of Pollution Control


1
The Economic Theory of Pollution Control
  • The Optimal Level of Pollution

2
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.

4
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.

9
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.

17
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.

21
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.
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