Chapter 10 - Berck _ Helfand

Chapter 10 - Berck _ Helfand - Chapter 10: Supply in the...

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Chapter 10: Supply in the Long Run Chapter 8 showed producers deciding their input mix, and Chapter 9 described how producers choose their output levels. One more issue, touched on briefly in Chapter 9, still remains: which producers will be in operation. Just as the previous decisions (on input mix and output level) affect pollution levels, so too does the issue of which producers produce – and sometimes in unexpected ways. Understanding why businesses do what they do provides us with the insights necessary both to see why they act in ways that are environmentally damaging and to suggest ways to change those behaviors. In this chapter, then, we will examine How much an industry produces How many producers stay in business, Which producers in the industry stay in operation, and How pollution policy affects costs and prices. These concepts will round off our understanding of business dynamics – why businesses do what they do, and how they evolve in response to market signals. New Source Review The Clean Air Act (CAA) is the primary law in the U.S. to protect and improve air quality. It sets ambient air quality standards – how clean the air should be – for all parts of the country and then, for the most part, delegates to each state the responsibility of achieving those standards. Each state writes a State Implementation Plan (SIP) that explains how much sources within the state will have to reduce their emissions so that the state’s air is sufficiently clean. One major exception to the rule that the states decide how much pollution is permitted is the New Source Performance Standards (NSPS). Any new stationary source of pollution (that is, any new building or facility that may emit air pollution) must meet special, especially stringent standards for emissions. The motivation for this approach is that new plants can be designed with new pollution abatement technologies fully incorporated into the whole facility. It is thought to be easier for these new plants to meet these more stringent requirements than for existing plants, which were built before air quality regulation was a major issue. This distinction between new plants and existing plants was intended to make life a little easier for those already built, while setting high standards for any new plants. Legislators expected the existing plants gradually to reach the ends of their productive lives and be retired, to be replaced by the cleaner plants. Many years later, though, many old plants – especially coal-fired power plants – are still in operation. Electricity generating companies keep these plants going rather than replace them. As a result, air quality gains have been slower than expected. Keeping these old plants in operation requires maintenance.
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This note was uploaded on 03/03/2009 for the course ECON 370 taught by Professor Helfand during the Winter '08 term at University of Michigan.

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Chapter 10 - Berck _ Helfand - Chapter 10: Supply in the...

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