BASD505 Course Notes 5 - Standards Standards sometimes...

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Unformatted text preview: Standards Standards sometimes called command-and-control (CAC) policies deal with envi- ronmental problems by mandating desired behaviours (command) using various methods to enforce compliance with those standards; eg, nes, courts (control) We'll examine two types of environmental standard 1. emission standards 2. technology standards Emission Standards Emission standards limit the amount of pollutant released by sources (eg, rms, industrial plants, etc.) Emission standards can be expressed in a variety of ways; eg, a maximum emission rate (eg, kg per hr) a maximum total quantity of emissions over some period (eg, kg per year) a maximum emission concentration (eg, grams per m 3 ) a maximum amount of emissions per unit of output (eg, gram per megawatt) a minimum percentage removal of residuals from the discharge stream (eg, 98%) s REMARK: Throughout our analysis of environmental policies we will assume that monitoring and enforcement activities are e ective and that rms comply with any rules or regulations imposed on them Uniform Emission Standards Common to impose uniform emission standards ; ie, same standard applied to all sources Assume that there are two sources of emissions, an old plant and a new plant, with the MAC functions shown below, and that the regulator wants to cut total emissions by 50% from the unregulated level of 2E U to E U imposes uniform standard, so each source must reduce emissions to 0.5E U $ decrease in abatement costs for old firm increase in abatement costs for new firm MAC NEW MAC OLD E U 0.5E U This policy does not satisfy the equi-marginal principle, so we could achieve the reduction in total emissions reduction at lower cost by imposing a more stringent standard on the new plant (ie, E NEW < 0.5E U ) a less stringent standard on the old plant (ie, E OLD > 0.5E U ) Generally, uniform emission standards will not be cost-e ective because sources typ- ically have di erent abatement costs s QUICK QUIZ: Why do you think uniform standards have been used so often if they are typically neither e cient nor cost-e ective? BASD 505 Lecture 5: page 2 E cient Emission Standards We will consider two important features of emission standards 1. informational requirements: what information is needed to set e cient stan- dards? 2. incentives for innovation: what incentives do standards give sources to develop and/or use lower cost methods of abatement? To think about these issues, we'll assume the regulator would like set the standard to achieve the e cient level of emissions E * $ E U E T E * MAC MD emissions Standards and Information Requirements To set an e cient standard the regulator needs to know the MAC function the MD function In reality, this information won't be readily available and the situation will likely involve asymmetric information the source of pollution will probably have better information about its abate- ment costs than the regulator the victim or victims of pollution may have better information about the damage caused BASD 505 Lecture 5: page 3 s...
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This note was uploaded on 04/21/2010 for the course BUSINESS basd505 taught by Professor Clive during the Spring '10 term at The University of British Columbia.

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BASD505 Course Notes 5 - Standards Standards sometimes...

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