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Command-and-Control Approach
2). Ambient standards designate the desired quality level of some element of the
environment, such as the outdoor air or a body of water. These standards typically
are expressed as a maximum allowable concentration of some pollutant in the
ambient environment. In each case, the ambient standard is not directly
enforceable but serves as a target to be achieved through a pollution limit, which
in turn is implemented through one of the other types of standards.
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statutory emissions limit.
2). A second implication of using standards relates to how they are implemented
across polluting sources.
Are the standards being used to define environmental objectives set at a level
that is allocatively efficient? That is, does the marginal social cost of pollution
abatement equal the marginal social benefit?
Given some predetermined environmental objective, is the implementation of
that objective conducted in a cost-effective manner?
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1). To allow for the fact that polluters choose from a menu of available abatement
methods, we model what is conventionally called a marginal abatement cost
(MAC) function. The MAC measures the change in economic costs associated
with increasing pollution abatement (A).
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2). The introduction of a cost-saving abatement technology would pivot the MAC
curve downward, as shown in figure 4.2
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Figure 4.3 Deriving the Marginal Social Cost of Abatement
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2). Whether or not the government sets environmental standards to achieve this
level depends on a variety of considerations. Four factors in particulars in
particular suggest that this outcome is highly unlikely: (1) the existence of
legislative constraints, (2) imperfect information, (3) regional differences, and (4)
nonuniformity of pollutants.
Legislative Constraints
The reality of a standards-based approach is that it does not necessarily set
pollution limits to account for the associated benefits and costs.
Imperfect Information
a. Even when a cost-benefit balancing is called for by law, the absence of full
information would likely prevent the government from identifying the MSB and
MSC of abatement.
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Figure 4.6 Setting and Environmental Quality Standard: Is It Allocatively Efficient?
Regional Differences
Consider two hypothetical regions X and Y that have identical MSC functions
(i.e., MSCX = MSCY) but different MSB functions, such that MSBX is lower
than MSBY at all abatement levels. Such a disparity might be due to differences
in income, education, or population across the two locations. In any case, at
most, only one of the two locations would consider a nationally determined AE
as efficient. Look at Figure 4.7, which superimposes the MSB and MSC for
each region on the same diagram. The allocatively efficient level of abatement
in region X (AX) is much lower than that for region Y (AY). So there is no way
that a single national standard of abatement even one that is efficient on a
national level would be optimal for both regions.
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Nonuniformity of Pollutants
a. An inefficient outcome also can arise within the same region if changes in
releases from polluting sources do not have a uniform impact on the
environment. This can occur if the relationship between the change in pollutant
releases and the change in exposure is nonlinear, or not directly proportional.
b. The nonuniformity also can arise when polluting sources are located at
varying distances from an exposed population or ecosystem, even if their
pollution releases are identical.
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defined under the assumption that the polluter selects the least-cost available
method. If the government forces polluters to use a specific technology to meet an
emissions limit, it is impeding the firm
s incentive to abate in a cost-effective
manner. Useless the mandated technology happens to be the least-cost abatement
approach for all polluters.
2). By accepting that abatement costs will likely differ among polluters, we need
to explore why this makes the use of uniform standards cost-effective. The
problem is that uniform standards force high-cost abaters to reduce pollution as
much as low-cost abaters, so more resources than necessary are used to achieve a
cleaner environment. Cost savings could be realized by having more of the
abatement accomplished by polluters who can do so at a relatively lower cost.
Example:
Assume there are only two polluting sources in a given region, each of which
generates 10 units of pollution for a total of 20 units released into the
environment. The government determines that emissions must be reduced by 10
units across the region to achieve the socially desirable level of pollution. Each
firm faces different abatement cost conditions modeled as follows:
Polluter 1s MAC: MAC1 2.5 A1 Total abatement costs: TAC1 1.25( A1 ) 2
Polluter 2s MAC: MAC2 0.625 A2 Total abatement costs: TAC2 0.3125( A2 ) 2
Case 1: The government implements the 10-unit standard uniformly, requiring
each polluter to abate by 5 units (i.e., A1 A2 5 ).
TAC1
TAC2
The total abatement costs ( TAC1 TAC2 ) in this society
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Note that MAC1 at A1=5 is $12.5
MAC2 at A2=5 is $3.13
This implies that polluter 2 has an abatement cost advantage over Polluter 1.
Therefore, it would cheaper if Polluter 2 were to do more of the abating. Of
course, it would have to have an incentive to do this, and the two firms would
have to negotiate to arrive at some mutually beneficial agreement. However, no
such opportunity is allowed when the government forces every polluter to abate
by the same amount. Thus, we conclude that the use of uniform standards
u7nder a conventional command and control approach does not achieve the
cost-effectiveness criterion as long as MAC conditions differ across polluter.
Case 2 : Could the government reallocate abatement levels across the two
polluters to achieve a cost-effective solution?
Step 1. set MAC1 MAC2 2.5 A1 0.625 A2
Step 2. set A1 A2 abatement standard A1 A2 10
Step 3. Solve the equations simultaneously A1 ? A2 ?
3). If each polluter were to abate to the point where the corresponding level of
MAC is equal across firms, the cost-effective abatement criterion would be
achieved. This means that the environmental standard would be met at minimum
cost. This result is one application of what microeconomic theory calls the
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equimarginal principle of optimality.
4). As a final point, it is reasonable to ask how in practice the government could
arrive at these firm-specific abatement standards within a common-and-control
framework. The answer is that it would have to know the abatement cost
conditions for every firm it was regulating.
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