Economics 350

1
Economics 350

• Environmental Economics

EPA
Water pollution
Optimal pollution
Air pollution
Abatement costs
Solid municipal waste
Cost-benefit analysis
Hazardous wastes
Tradable discharge permits
Global warming
Command and control
Endangered species
Emission taxes
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Types of Water Pollutants

• Organic wastes
• Sewage, residuals from factories, pesticides,
  oil, detergent
• Inorganic substances
• Toxic metals, salts, acids, nitrates
• Non-material
• Radioactivity, heat
• Infectious agents
• Bacteria, viruses

• Point source vs. Non-point source
• Continuous vs episodic
• Persistent vs degradable

3
Biochemical Oxygen Demand (BOD)

• High levels of DO (dissolved oxygen) are good
• DO used up in degradation process
• BOD amount of oxygen required to decompose
  organic material

4
Water Pollution Policy

• Initial burden was on states/localities
• EPA established in 1970
• Federally set TBES
• State/local enforcement
• Municipal treatment subsidies

• Refuse Act (1899)
• Water Pollution Control Act (1948, 1956, 1972)
• Introduced TBES in 1972 moved away from AQ
  standards
• Loan subsidies for construction of water
  treatment facilities
• Zero discharge goal by 1985
• Clean Water Act (1977)
• Fishable-swimmable goal
• Focus on toxic effluents
• Water Quality Act (1965, 1987)
• Converted water treatment subsidies to revolving
  loan fund
• Focus on non-point sources

5
Technology-Based Effluent Standards

• Effluent standard set at the level of emissions a
  source would produce if it used particular
  technologies
• Best Practicable Technology (BPT) by 1977
• Best Available Technology (BAT) by 1983
• Best Conventional Technology (BCT) after 1984

6
Estimated Total Costs and Emissions from
Sugar-Beet Plants Using Alternative Abatement
Technology
BPT ?
BAT ?
BCT ?
7
Efficiency and Cost Effectiveness of TBES

• Efficiency conditions not met
• Equimarginal principle not satisfied
• Marginal damages not considered
• Two Questions
• How much has the nations water quality been
  improved as a result of the system?
• How much more improvement could have been
  obtained with a more cost-effective approach?

600 subcategories of water-polluting industries
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Rivers and Streams Supporting Recreational Uses
With and Without CWA
632,552 Miles Analyzed during the mid-1990s
If all point-source emissions are eliminated
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Comparison of Point Source Water
Pollution-Control Costs TBES vs Least-Cost
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TBESs and Incentives

• Weak incentives to adopt cleaner technology
• Creates bias toward end-of-the-pipe techniques
• Ignores input reduction
• Ignores output reduction
• Ignores recycling technology

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Enforcement

• Discharge permits
• Initial compliance vs continued compliance

12
Municipal Wastewater Treatment Subsidies

• Federal subsidies to build plants
• Degree of Treatment
• Primary use physical steps (removes 35-40 BOD)
• Secondary use biological means (removes another
  45-55 BOD)
• Tertiary use chemical process (removes most the
  rest)
• WPCA (1972) mandated at least secondary by 1983

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Municipal Wastewater Treatment Subsidies

• How are grants allocated?
• Needs survey existing population, problem areas
• Political pork
• Incentives?
• Excess capacity construction grants but no
  operating costs grants
• Economic development?
• No incentive to seek out more efficient tech for
  cities
• Water Quality Act (1987)
• Replaced direct grants with State Revolving Fund
  program (loans)

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Water Policy Innovations

• Focus on Non-point sources
• Design standards
• No agricultural cultivation on steep slopes
• Designs on urban storm sewers
• Home builders must control run-off
• Tax materials/activities leading to NPS
• Fertilizers, chemicals
• Total Maximum Daily Load program
• Emission limits if TBES dont achieve ambient
  standards
• Tradable Discharge Permits
• Fox River, Chesapeake Bay, Long Island Sound,
  Dillon Reservoir
• Problems
• Thin markets
• Trading ratios

EPA estimates 50 of water violations due to NPS
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Air Pollution Policy
16
Ozone filters out ultraviolet radiation
Other gases provide for greenhouse effect
78 Nitrogen 21 Oxygen
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Federal Air Pollution Control Laws

• Early law was local in nature focus on nuisance
  laws
• Air Quality Act (1967)
• Required states to established ambient standards
  for criteria pollutants
• expanded grants to states for air pollution
  control plans
• Clean Air Act (1963, 1966, 1970, 1977, 1990)
• Established uniform NAAQS
• Established TBES
• Stationary vs mobile sources
• SO2 tradable discharge permits

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Criteria Pollutants

• Particulate Matter
• Health breathing symptoms aggravation of
  existing respiratory and cardiovascular disease
  impairment of the bodys immune systems damage
  to lung tissue premature mortality
• Welfare damage to materials, soiling visibility
  impairment
• Sulfur Dioxide
• Health adverse effects on breathing
  respiratory illness alterations to lungs
  defenses, aggravation of existing respiratory and
  cardiovascular disease
• Welfare foliar damage on trees and crops
  contribution to acid rain accelerated corrosion
  of buildings
• Carbon Monoxide
• Health exposure to elevated levels causes
  impairment of visual perception, work capacity,
  manual dexterity, learning ability and
  performance of complex tasks individuals with
  existing cardiovascular disease are at greater
  risk
• Nitrogen Dioxide
• Health lung irritation, reduced resistance to
  respiratory infection continued or frequent
  exposure may cause higher incidence of acute
  respiratory disease in children
• Welfare contributes to ozone formation and acid
  rain
• Ozone
• Health reduced lung functioning damage to lung
  tissue, increased sensitivity of the lung to
  other irritants
• Welfare reduction in crop yields foliar damage
  to crops and trees, damage to ecosystem
• Lead
• Health damage to kidneys, liver, nervous system,
  and blood forming organs changes in fundamental
  enzymatic, energy transfer, and homeostatic
  mechanisms in the body excessive exposure can
  cause neurological problems such as seizures,
  mental retardation, and/or behavioral problems

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National Primary and Secondary Ambient
Air-Quality Standards (NAAQS), 2005
Source Table 15.4, Field and Field (4e), p308
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Stationary Source Control

• State Implementation Plans (SIPs)
• AQCR 247 regions
• Growth management regulations and TBES
• TBES
• Non-Attainment Areas
• Existing Sources RACT (Reasonably Available
  Control Technology)
• New Sources LAER (Lowest Achievable Emission
  Rate)
• Prevention of Significant Deterioration (PSD)
  Areas
• Existing Sources None
• New Sources BACT (Best Available Control
  Technology)
• Note New Source Bias
• Creates incentives to hold onto older, dirtier,
  factories
• Creates incentives for older factories to produce
  to capacity whereas newer factories may have
  excess capacity

Cost-Effectiveness of TBES ?
21
Comparison of CAC Control Cost with Least Cost
Programs
Source Table 15.6, Field and Field (4e), p311
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Cap-and-Trade (CAP) Program

• 1990 CAA reduce SO2 emissions by 40 from 1990
  levels
• Phase I 1995 2000
• 110 power plants in 21 eastern/midwestern states
• permits (Avg Btu of fuel used) x (2.5 lbs
  SO2/million Btus)
• Phase II 2000 present
• Covers all power plants in US (approx. 1000)
• permits (Avg Btu of fuel used) x (1.2 lbs
  SO2/million Btus)
• Overall cap of 8.95 million permits
• Trading Rules
• CBOT
• Participants corporations, individuals, green
  groups, speculators
• EPA tracks all trades, monitors emissions
• 2581 fine for excess SO2

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Clean Air Markets in Action

• Affected Sources
• Allowance Prices
• Spot Auction
• 7-year Advance Auction
• Trends in SO2 Emissions
• Geographic mean centers of trading

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Mobile Source Emissions
Number of Vehicles
Average Miles Traveled
Emissions per Mile
Total Emissions
x
x

• Federal focus has been on emissions per mile
• Equimarginal principle suggests all RHS factors
  should be balanced
• New Car Emission Standards
• VOC, NOx, CO, PM
• Technology forcing
• Inspection and Maintenance programs
• Technology Standards
• Reformulated fuels
• Alternative fuels methanol, natural gas,
  hydrogen
• Clean cars electric vehicles, hybrids

Massachusetts v US EPA Supreme Court rules 5-4
that CO2 is a pollutant and the EPA is
responsible for its regulation
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Stationary and Mobile Sources of Criteria
Pollutants in the US
Source Table 15.1, Field and Field (4e), p302
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Estimated Impacts of 1990 Clean Air Act
Source Table 15.2, Field and Field (4e), p302
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Federal Policy on Toxic and Hazardous Substances
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Blasts from the past

• Silent Spring (1962)
• Rachel Carsons call to action
• DDT banned in 1972
• Possible cause behind thinning eggshells in
  certain birds
• Malaria prevention
• Malathion is 2x expensive and must be sprayed 2x
  as often
• Love Canal (1978)
• 1920-1940 city used property as dump site
  (including US Army)
• 1942-1953 Hooker Chemical
• 1953-1978 Board of Education Housing
• 800 families relocated/reimbursed for homes
• Times Beach (1982)
• Dioxin used for dust control
• 2800 people were bought out
• Bhopal (1984)
• Union Carbide accident (methyl isocyanate)
• 3,800 to 15,000 dead
• Chernobyl (1986)
• Radiation leak

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Types

• Chemicals
• Heavy metals
• Radioactive materials
• Note Monitoring and Control Problems
• Chemicals are everywhere
• Level of danger
• Used in relatively small amounts
• Long time gap between exposure and impact

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Examples of Federal Laws

• Federal Insecticide, Fungicide, and Rodenticide
  Act (FIFRA 1972)
• Chemical registration
• Controls on where and how chemicals are used
• Enforcement through inspections, fines, product
  recalls
• Food, Drug, and Cosmetic Act (FDCA 1938)
• Legal prohibition of products that fail to meet
  certain criteria
• Adulterated
• Mislabeled
• Occupational Safety and Health Act (OSHA 1970)
• Regulated workplace safety

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Chemicals in Production and Consumer Products

• Delaney Clause banned all food additives that
  were shown to cause cancer in lab animals
• 1996 law changed standard to reasonable
  certainty that no harm will result
• Balancing approach
• Compare control costs versus damages

Marginal Control Cost
MD
Exposure Level
r1
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Uniform Standards
MD
MC1

• Uniform standards at r2 would be inefficient for
  workplace 1
• Non-uniform standards would result in different
  MD at each workplace
• Firm 1 would have to pay higher wages
• Competition would encourage firms to reduce their
  risks (and thereby lower their wage rates)

w1
MC2
w2
r1
r2
Risks of workplace exposure
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Policies Approaches for Toxic Emissions and
Hazardous Wastes

• Federal focus on TBES
• MACT
• Waste Reduction
• Recycling residuals
• Shifting input usages (non-toxic inputs)
• Changing product design
• Other approaches
• Liability and compensation laws
• Insurance market
• Taxes
• Deposit refunds
• Right-to-know laws (TRI public pressure)

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Examples of Federal Laws, contd

• Resource Conservation and Recovery Act (RCRA
  1976)
• Manifest system
• Standards for treatment, storage, disposal
• Permit system for landfills/incinerators
• Comprehensive Environmental Response,
  Compensation, and Liability Act (CERCLA 1980)
• National Priority List
• Superfund financed by payments from responsible
  parties
• Joint and several liability

1432 Superfund sites (882 have been removed)
Hamilton and Viscusi (1999) 100m per
cancer case averted
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State Local Issues

• Municipal Wastes
• Land Use Control

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Environmental Federalism

• States as laboratories
• Fed policy may pre-empt state actions
• State regulations must be at least as strict as
  Fed regulations
• State policy can not discriminate against
  interstate trade
• Centralized or decentralized approach?
• Depends on extent of emissions mixing
• Race to the Bottom?

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Municipal Solid Waste

• Disposal Options
• Landfills
• Incineration
• Recycling
• NIMBY

Media switching?
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Municipal Solid Waste
Source Municipal Solid Wastes in the US 2005
Facts and Figures. Available at
http//www.epa.gov/msw/pubs/mswchar05.pdf
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Municipal Solid Waste
Source Municipal Solid Wastes in the US 2005
Facts and Figures. Available at
http//www.epa.gov/msw/pubs/mswchar05.pdf
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Municipal Solid Waste

• Disposal Options
• Landfills
• Incineration
• Recycling
• NIMBY
• Technical Options for Reducing MSW
• TM VM RM
• VM TM RM TM(1-r)
• Reduce TM
• Reduce economic activity
• Reduce materials intensity
• Increase Recycling

Media switching?
TM total materials used VM virgin materials
used RM recycled materials used r RM/TM
rate of reuse
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Economics of Recycling

• Producer and Consumer Decisions
• Private costs versus social costs

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Producer Decisions

S1
Increase reuse ratio?

• Raise q1, hold q0

S2
Public curbside collection

• Reduce q0, hold q1

PV t
Reduce overall demand
PV

• do both!

Increase PV thru tax
D
q1
q2
q0
Materials
With S1 q1 units will be recycled reuse ratio
q1/q0
Minimum content standards?
? Taxes or TDP?
Cost Effectiveness?
45
Consumer Decisions

• Which goods to buy? In what quantities?
• Should I recycle?
• Worksheet on Landfill vs Recycling
• Mandatory recycling
• Disposal taxes
• Deposit Refund

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40
60
30
50
20
10
30
20
20
30
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Land-Use Control Policies

• Development vs Preservation
• Wetlands
• Coastal lands
• Critical habitats
• Scenic lands
• Transportation patterns
• Housing
• Airports
• Manufacturing
• Liquor stores

• Public Action
• Land purchases by environmental group
• Zoning
• Develop with restrictions
• 14th Amendment Takings Clause
• May not take private property for a public use
  without just compensation

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Global Environmental Issues

• Ozone Depletion
• Global Warming
• Biodiversity

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Ozone Depletion

• Physical Problem
• surface ozone produced when hydrocarbons and
  nitrogen oxides mix under sunlight
• stratospheric ozone 7-10 miles above earth
  maintains earth's radiation balance
• late 1970s evidence started coming in about
  depletion 1985 hole over Antarctica
• Causes?
• CFCs refrigerants, propellants, polystyrene
• halons fire suppressants
• Damages?
• increase in ultraviolet radiation
• health impacts skin cancer, eye disease
• agricultural losses damaged crops

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Ozone Policy

• CFC ban on aerosols by US in 1978
• Montreal Protocol (1987)
• phaseout CFCs by 2000
• multilateral fund to help developing countries
• trade restrictions
• Success?
• Chlorine levels declining
• Bromine levels increasing
• Ozone hole fluctuating

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Global Warming

• Physical Problem
• IPCC Report
• Temperature increases caused by (human generated)
  CO2 increases
• 0.5 C (1 F) over last 100 years
• 1.5 - 4.5 C over next 100 years
• rising sea levels on coastal societies
• rapid change does not allow for evolutionary
  changes
• agricultural and forestry changes

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Global Warming

• Kyoto Protocol (1997)
• Prescribed emission reduction targets for 6 GHGs
• Signatories must reduce GHG 5 below 1990 levels
  by 2008-2012
• Technical Responses
• Increase earths absorption abilities
• Reduce emissions
• Total CO2 Production pop x (GDP/pop) x
  (energy/GDP) x (CO2/energy)
• Stern Review
• Damage estimates 5-20 loss in annual global GDP
• Annual mitigation costs 1 global GDP to meet
  550ppm target
• Policy Options
• Differences in control costs suggests
  incentive-based strategies
• Tradable discharge permits
• Emissions tax
• Differences in contributing factors complicate
  global agreements between nations

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Source Table 20.4, Field and Field (4e)
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Source Table 20.3, Field and Field (4e)
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Biodiversity

• Types
• Genetic material
• Species
• Ecosystems
• Species Stock
• Random mutations
• Extinction rates
• Over-exploitation
• Habitat destruction
• Introduction of non-native species

5 to 10 million species
1.4 million have been described
Normal extinction rate 9 per million years
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Policy Approaches

• Endangered Species Act (1973)
• 1452 species have been listed as endangered or
  threatened
• 40 species have been removed
• 17 have been recovered
• 14 listed in error
• 9 have gone extinct
• Prohibition on takings
• Protection of habitats
• CITES (1975)
• Export/import controls
• 5000 animals/28,000 plants
• Coase Theorem Alternative?
• African elephants
• Costa Rica and Merck