The Economic Theory of Pollution Control

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 min

The Economic Theory of Pollution

ControlThe Optimal Level of Pollution

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

• In minimizing this cost, the underlying

economic logic is this A dollar’s 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 worth’s more than a dollar

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.

• This is because incrementally higher levels

of environmental quality require

investments in technologies that are

increasingly costly

Figure 4.1 Marginal pollution control cost Note that pollution control implies

a movement towards the origin from the bench mark level of waste of 20 units Given this, it is hypothesized that the marginal control cost increases with successive increase in pollution clean-up It cost a lot more to clean-up the last unit of pollution than the first.

Quantity of Waste Emitted 0

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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

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

• 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

• 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)

• 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

• 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

• 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

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

• 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

environmental quality.

• 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

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

• 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

• 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)

• 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 even when there is as yet no

generations-incontrovertible scientific proof that serious consequences will ensue