Study Notes on Environmental Protection and Negative Externalities
Chapter 12: Environmental Protection and Negative Externalities
12.1: The Economics of Pollution
U.S. has made progress on pollution since the 1970s, but issues remain including air/water pollution, hazardous waste, and health impacts.
Externalities
Externality: Effect on third parties outside market transactions.
Negative Externality: Third party suffers from a transaction.
Example: Factory emissions causing respiratory issues in nearby residents; noise pollution from an airport affecting local communities.
Positive Externality: Third party benefits from a transaction.
Example: A homeowner landscaping their garden increases property values for neighbors; vaccinations preventing the spread of disease to others.
Pollution as a Negative Externality
Pollution incurs additional external costs; social costs include both private costs and external costs.
Market Failure
Occurs when markets do not allocate resources efficiently in the context of social costs and benefits.
12.2: Command-and-Control Regulation
Regulation specifies allowable pollution quantities and required technologies, increasing firm costs.
Example: The U.S. Clean Air Act setting emission limits for power plants; mandates for catalytic converters in cars.
Issues: No incentive for beyond-standard improvements, inflexible standards, potential loopholes.
12.3: Market-Oriented Environmental Tools
Pollution Charge: Tax incentivizing firms to reduce pollution cost-effectively.
Example: Carbon taxes implemented in countries like Sweden or British Columbia.
Marketable Permits: tradable permits allowing firms to emit certain pollution levels.
Example: The European Union Emissions Trading System (EU ETS) for greenhouse gases; the U.S. acid rain program.
Better-Defined Property Rights
Essential for managing environmental issues like endangered species considerations.
Example: Establishing protected land areas or conservancies to safeguard habitats for specific endangered species like the California condor, allowing for better management and prevention of poaching or habitat destruction.
12.4: Benefits and Costs of U.S. Environmental Laws
Benefits: Health, industry support, property value increase, and enhanced enjoyment of the environment.
Example: Reduced child mortality due to cleaner water from the Clean Water Act; job creation in renewable energy sectors; increased tourism in national parks.
Marginal Analysis
Marginal costs of pollution reduction increase as costs decrease; marginal benefits generally decrease with added reductions.
12.5: International Environmental Issues
Global problems require international cooperation.
Paris Climate Agreement aimed at limiting CO2 emissions; biodiversity and transnational externalities crucial.
Example: Addressing ozone depletion through the Montreal Protocol; managing shared river basins like the Nile or Mekong.
12.6: Tradeoff Between Economic Output and Environmental Protection
Analyzed through production possibility frontier (PPF); decisions reflect societal values regarding economic output versus environmental protection.
Example: A country choosing to invest more in renewable energy (environmental protection) might initially see a slower growth in traditional fossil fuel industries (economic output), or a nation facing a decision between logging an old-growth forest for timber (economic output) versus preserving it for biodiversity and carbon sequestration (environmental protection).