Environmental Economics and General TDP Principles Analysis Paper Please write three, separate, 500 word essays that address the following concepts. Discus

Environmental Economics and General TDP Principles Analysis Paper Please write three, separate, 500 word essays that address the following concepts. Discuss the concepts themselves as well as the relationship between the concepts. i.e. some compare and contrast elements. You will want to include graphs, diagrams and figures to help illustrate key concepts. Please be sure to use other sources of information as needed. It is very important that you properly reference your sources of information. “Cite your sources” cannot be overemphasized. Always give credit where credit is due!a) emission standardsb) emissions taxes (or subsidies)c) emission permits Standards are a type of command-and-control (CAC) technique The GAG approach to pub­
lic policy is one where, in order to bring about behaviour thought to be socially desir -­
able, political authorities simply mandate the behaviour in law, then use whatever
enforcement machinery necessary–courts, police, fines-to get people to obey the
law. In the case of environmental policy, the command-and-control approach consists
of relying on standards of various types to bring about improvements in environmen­
tal quality. In general, a standard is simply a mandated level of performance that is
enforced in law A speed limit is a classic type of standard; it sets maximum rates that
drivers may legally travel. An emission standard is a maximum rate of emissions that is
legally allowed. The spirit of a standard is this: If you want people not to do something,
simply pass a law that makes it illegal, then send out the authorities to enforce the law.
Figure 11-1 shows hypothetical marginal abatement costs and marginal daniages
for emissions (E) of carbon monoxide from a plant that recycles asphalt to reuse in
road construction. 1 The units of emissions are kilograms per month. Let the equations
for the curves be:
MD= lOE
MAC= 600-SE
The regulator soives for the socially efficient equilibrium where MD = MAC to
obtain the socially efficient pollution level of emissions, E* This is the level of emis­
sions that minimizes the sum of abatement plus damage costs and maximizes net
social gains. For the equations above, E* = 40 kilograms per month. Before the stan­
dard is imposed, the factory releases emissions up to the point where its MAC curve
equals 0. Solving the MAC equation above, setting MAC= 0 yields E0 = 120 kilograms
per month.. To achieve E* the authorities set an emission standard at 40 kilogranis per
month .. This level becomes a mandated upper limit for the emissions of this factory. If
1 These plants are called “hot-in-place” asphalt recycling plants and are actually mobile factories. They move along the road site, pro­
ducing recycled asphalt on the spot Other pollutants they emit include particulate matter and organic material
206
Section Four: ENVIRONMENTAL POLICY ANALYSIS
Figure 11·1: The Socially Efficient Standard
$
600
J Oc.> –
500
400
MAC
300
200
100
0
20
40
II
60
80
E*
100
120
II
Ea
Emissions of carbon monoxide (CO)
(kilograms per month}
A standard is set where the MD = MAC to determine the socially efficient standard of 40 kilograms of carbon
monoxide per month. The standard sets an upper limit on emissions When the standard is met, the net benefits
to society are the difference between total damages at 120 kilograms per month and 40 kilograms per month
minus the total abatement costs Net benefits equal $48,000 per month
the factory exceeds that level, and is detected doing so, it will be fined or subject to
some other penalty. Assuming the factory reduces emissions in accordance with the
standard, it would be paying total abatement costs (TAC) equal to the area under its
MAC curve from E 0 to E*. Another name for these total abatement costs is the compIi·
ance costs of meeting the standard.. For this example, compliance costs equal $16, 000
when the factory meets the standards. Note that total damages at the socially efficient
level are $8, 000 per month, compared to $72,000 when there is no control of emis­
sions. The net benefits of the standard are the difference between total damages with­
out the standard ($72,000) and total damages with the standard ($8,000) minus the
total abatement costs ($16,000) The net benefits are $48,000 per month
There are many perceived advantages of using standards to address environmen­
tal problems. Standards:
•
Appear to be simple and direct
•
Apparently set clearly specified targets.
Emission Standards
I
I
Emission standards are neversexceed levels applied directly to
the quantities of emissions coming from pollution sources,,
Emission standards can be set on a wide variety of different bases. Fm example:
1. Emission rate (e . g., kilograms per hour),
2. Emission concentration (e .g , parts per million of biochemical oxygen demand, or
BOD, in wastewater),
3. Total quantity of residuals (rate of discharge times concentration times duration),
4. Residuals produced per unit of output (e g , S02 emissions per kilowatt hour of
electricity produced, grams of CO per tonne of asphalt produced),
5. Residuals content per unit of input (e g, sulphur content of coal used in power
generation),
6. Percentage removal of pollutant (e g., 60-percent removal of waste material before
discharge)
Continuous emissions streams may be subject to standards on “instantaneous”
rates of flow; for example, upper limits on the quantity of residuals flow per minute or
on the average residuals flow over some time period
In the language of regulation, emission standards are a type of performance standard,
because they refer to end results that polluters who are regulated must achieve . There
are many other types of performance standards; for example, workplace standards are
set in terms of maximum numbers of accidents or levels of risk to which workers are
exposed A requirement that farmers reduce their use of a particular pesticide below
some level is also a performance standard, as is a highway speed limit
Ambient vs. Emission Standards
There are important distinctions between ambient and emission standards Setting
emission standards at a certain level does not necessarily entail meeting a set of ambi­
ent standards. Between emissions and ambient quality stands nature, in particular the
meteorological and hydrological phenomena that link the two The environment usu­
ally transports the emissions from point of discharge to other locations, often diluting
and disperning them along the way. Chemical processes that often change the physi­
cal character of the pollutant occur in all environmental media. In some cases this
may render the emitted substance more benign Organic wastes put in rivers and
streams will normally be subject to natural degradation processes, which will break
them down into constituent elements. Thus, the ambient quality of the water at vari­
ous points downstream depends on the quantity of emissions as well as the hydrology
of the river-its rate of flow, temperature, natural reaeration conditions, and so on
Sometimes the environment will convert a certain type of pollutant into something
more damaging. Research to link emission levels and ambient quality levels is a major
part of environmental science
·’
Chapter 11: STANDARDS
209
The link between emissions and ambient quality can also be vitally affected by
human decisions.. A classic case is automobiles As part of the mobile-source
air-pollution program, Canada has established emission standards for new cars in
terms of emissions per kilometre of operation. But since there is no way of controlling
either the number of cars on the roads or the total number of hours each car is driv­
en, the aggregate quantity of pollutants in the air and, thus, ambient air quality is not
directly controlled
Technology Standards
There are numerous standards that don’t actually specify some end result, but rather
the technologies, techniques, or practices that potential polluters must adopt. We
lump these together under the heading of technology-based standards {TBS).. The require­
ment that cars be equipped with catalytic converters, or seat belts, is a technology
standard . If all electric utilities were required to install stack-gas scrubbers to reduce
802 emissions,3 these would be in effect technology standards, since a particular type
of technology is being specified by central authorities. This type of standard also
includes what . are often called design standar·ds or engineering standards. There are also
a variety of product standards specifying characteristics that goods must have, and
input standards that require potential polluters to use inputs meeting specific condi­
tions Technology standards often specify that polluters use the best available tech­
nology (BAT), the best practicable technology (BPT), or the best available technology
economically achieveable (BATEA).. Other terms may also be used. BATs are the best
possible technology, whether there are any practical applications in use at the time or
not. BPTs generally refer to technologies that are known and can be implemented
immediately. A BATEA allows some recognition of abatement costs and effect of the
technology standard on a firm’s profits Technology-based standards are analyzed and
evaluated in more detail in Section 5
The difference between a performance standard and a technology standard may
become blurred at the edges The basic point of differentiation is that:
CEPA
Environmental
Registry,
www ec.. gc.ca/
ceparegistry/
•
A performance standard, such as an emission standard, sets a constraint on
some performance criterion and then allows people to choose the best means of
achieving it.
•
A technology standard actually dictates certain decisions and techniques to be
used, such as particular equipment or operating practices to be used by pol­
luters.
In Canada there are a wide variety of federal and provincial regulations that apply
to specific industries, For example, under the Canadian Environmental Protection
Act (CEPA), there are emission guidelines or regulations for Arctic mineral extraction,
asbestos mines and mills, the asphalt paving industry, chloralkali mercury releases,
pulp and paper mill effluent, lead, and vinyl chloride, to name a few Technology stan­
dar·ds under CEPA apply to a number of industries including the energy sector, pulp
and paper mills, mineral smelters, and many more.
3 A “scrubber” is a device that treats the exhaust-gas stream so as to remove a substantial proportion of the target substance from that
dn:i-.:im ThP r’Prnvp,rnrl m:::ifP.ri;::il must then be disoosed of elsewhere.
,’
The Economics of Standards
Understanding the way standards work helps us examine the costs of reaching a
socially efficient equilibrium using this policy instrument Ve can then compare stan­
dards to other policy instruments using the criteria developed in Chapter 9 .. It would
seem to be a simple and straightforward thing to achieve better environmental quali­
ty by applying standards of various types But standards tum out to be more compli­
cated than they first appear .. In the rest of this chapter we will discuss some of these
complications Section 5 provides many illustrations in Canadian and U .8. environ­
mental policies of the issues identified in this chapter.
Setting the Level of the Standard in Practice
The first issue is where to set the standard. fn the case of the decentralized approach­
es to pollution control-liability law, and property-rights regimes–there was, at least,
the theoretical possibility that the interactions of people involved would lead to effi­
cient outcomes In theory, setting the level of the standard is even more straightfor­
ward. As we have noted many times, the socially efficient standard equates marginal
damages to marginal costs But in practice, standards are often set by examining a nar­
rower set of criteria Standards emanate from a political/administrative process that
may be affected by all kinds of considerations.
Wllat·a;e some of the approaches that have been taken in pra�tice, and how do they reiate
to soGial efficiency? One approach in standard seiting has been to ‘.ry to set ambient or
emissiori standards by reference only to the damage function A reason ior this may be that
regulators do not have information about t’le marginal abatement cast function The dam­
. age lunctlon is examined to see ii there are significant points where marginal damages
change substa[)lially Figure 11-2 illustrates a different type of marginal damage function
than the linear function we have used for analysis One approach has been to set the stan­
dard at a ”zero-risk” level; that is, at t>ie level that would protect everyone, no matter how
sensitive; from damage. This would imply setting a threshold level, labelled Er in Figure
11 °2 This standard is clearly not socially efficient if the MAC is as shown Another difficu l ­
ty is determining wheth.er or not a threshold exists Recent work by toxicologists and other
scientists seems to indicate that there may be no threshold for many environmental pollu­
tants; that, in fact, marginal damage functions are positive right from the origin (the usual
way we have drawn the MD curve) !f no thresholds exist, a “zero-risk” policy would require
ttiat flll standards be set at zero This may be appropriate for some substances-certain
highly toxic compounds such as dioxin, tor example, where marginal damages are every­
. where greater than marginal abatement costs But for many pollutants, a zero level of emis­
sions would not be socially efficient and would be difficult or impossible to achieve We
rnfght decide, therefore, that we could accept some “reasonably small” damages, in which
c�se we might set it at a place like EL, the point where the marginal damage function begins
t() f11crease very rapidly Or, if the damage function looks like that in Figure 11-2, where the
curve becomes vertical beyond E,,1AX, a risk-minimizing strategy would be to set EMAX as the
“never-exceed” level of emissions Here again, however, we would be setting the standard
without regaJd to abatement costs In Figure 11-2, E’ is “close” to EL and EMAX, but this need
not be the case.
211
Chapter 11: STANDARDS
ontiriilid
Figure 11·2: Emissions Standards for Non-linear Marginal Damages
$
MAC
MD
Ea
Emissions
A non-linear marginal damage function illustrates possible levels to set an emission standard when the reg­
ulator does not know the exact location of the MAC curve Er sets the standard at the minimum threshold
at which no damages occur EL sets the standard where MD begins to rise rapidly EMllX is an upper bound
on emissions; the point at which the MD curve becomes vertical None of these are the socially efficient
level of E’
You should note that there is, in effect, a certain amount of “balancing” going on
when standards are set on the basis of an average over some time period .. In this case,
short-run periods-when ambient quality is relatively low-are considered acceptable
as long as they do not last too long. A judgment is being made, in effect, that it is not
necessary to install enough abatement technology to hold ambient quality within the
standard under all conceivable natural conditions. In other words, an implicit trade­
off is being made between the damages that will result from the temporary deteriora­
tion of ambient quality below the standard and the high costs that would be necessary
to keep ambient quality within tµe standard under all conditions
This example illustrates some key points about standards:
1. Their all-or-nothing quality: Either the standard is being met or it isn’t
2. If a standard isn’t met, the implication is that it should be, regardless of the cost
of doing so.
3. If a standard is being met, the implication is that it is not necessary to do any bet­
ter, even though the cost of doing so may be quite low.
Uniformity of Standards
A very practical problem in standard setting is whether standards should be applied
uniformly to all situations or varied according to circumstances .. We can illustrate this
using the problem of the spatial uniformity of standards. The ambient air quality stan-·

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