# gradenv06 4 Nov - Environment Theories and Programs Peter...

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Environment: Theories and Programs © Peter Berck 2006

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Concepts From Emission to Harm Marginal Cost of Abatement Standards Taxes
Emissions to Harm Emissions Emissions Media (air) Chemistry Trees & Lakes people Alt Media water

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Inputs to Emissions Input Process Input Cleanup Emission Pollution prevention vs. Cleanup
Fundamental Eq of Pollution Pollution = Sum over activities of Output times pollution/output Abatement requires some of Less output from polluting sectors Make gdp smaller or change composition Better pollution/output Cleanup or pollution prevention

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In econ terms Need to get sectoral output right—if it pollutes it probably has too much output relative to social optimum Need to get right point of isoquant
High Level View q output a effluent C(q,a) minimum cost to make q while emitting a . C is non-increasing in a . -dC/d a is the marginal cost of abatement 2200 π (P, a ) = max q (Pq –C(q, a )) By envelope theorem d π /d a = -dC/d a . An increase in emissions raises profits by marginal cost of abatement.

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Market Model Damage from emissions is D(a) Free market: choose a to maximize π • -C a =0. Social Planner choose a to max π – D(a) -C a (q*,a*) = D’(a*)
Tax and Standard t = D’(a*) is the optimal emissions tax • Firm max a π (P,a) - ta a* is the optimal emissions standard • Firm max a π (P,a) s.t. a < a* In both cases a* is the chosen emissions difference is that with a tax t a* is the tax revenue that goes to the government. Firm (of course) prefers standard P constant drives the equivalence

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Example for C(q,a) Leaching of nitrates to ground water. Apply water and nitrogen to land Part of water that is applied becomes evapotranspiration and helps plant to grow becomes leaching fraction and pulls remaining salts to ground water Art of irrigation is getting leaching fraction right.
N Pollution As water applied goes up it takes more leachate to groundwater. Lettuce is grown using water and nitrogen Next slide shows iso-pollution and isoquant.

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Isoq and Isop 8.6b) Isopollution Lines with an Increase in Water Price 700 750 800 850 900 950 120 130 140 150 160 170 180 190 200 nitrogen (kq/hectare) water (mm/hectare) Original Price High Price Low Pollution Original Pollution A D
Types of Standard Emission standard Lines up with model Requires measurement of emissions Hard to do with leachate, autos, and so on Point source = can measure Non point source = too expensive to measure Hard limit (e.g. 4 tons NOx)

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Other types of standards Input standard Look back at lettuce example: for least cost Water limit will work N limit will not work Emission per unit Output (water TDML’s are this) Input
Technology Standards E.g. Must use catalytic converter on car Cf x gms per mile an emission/output standard.

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Technology Based Effluent Standard Clean air services Other input C A technique that uses C units of clean air services Regulator finds a technique that uses less air and sets standard C as the amount of air used by that technique Cost minimizing technique
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gradenv06 4 Nov - Environment Theories and Programs Peter...

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