 Homework #3 Due Monday (Sept. 21)  Quiz #2 Wednesday  Writing Assignment Due Oct. 23rd

 Assume the marginal cost of controlling a pollutant is constant, i.e., it does not vary with the level of output, and the marginal damage cost associated with this same pollutant increases at a constant rate. A) Illustrate this situation graphically and identify the cost-minimizing level of the pollutant.

 B) Now assume that as a result of a change in market conditions, the cost of one of the inputs (which accounts for 25 percent of marginal abatement costs) to pollution control doubles, ceteris paribus. Graphically illustrate the effect of this change on the efficient quantity of the pollutant.

 C) Does your conclusion in part b) make economic sense? Why or why not?  D)Identify the area in your graph for part b) that represents the change in total pollution costs attributable to the increase in the cost of the input to pollution control.

 Based on Horizontal and Vertical Zonal Characteristics, how would you classify the following pollutants (ie. Local vs. Regional, Surface vs. Global) BP Oil Spill in the Gulf of Mexico Cigarette Buds outside Stevenson Hall Vermilion’s coal-fired power station leaking coal ash from its ash ponds CO2 Emissions in the World Polychlorinated Biphenyls (PCBs) in Lake Michigan by the Outboard Marine Corp.

. From the article “EPA’s Winding Road” handed out in class, classify the following programs as cap & trade, emissions quota, or emissions charges, and identify the pollutant targeted. Acid Rain Program NO X SIP Call CAIR/CATR/CSAPR RGGI Utility MACT Rule Cooling Water Intake Rule

 Best available control technology – a pollution regulation approach in which the government mandates that all firms use a control technology deemed most effective.

 A chemical factory is situated next to a farm. Airborne emissions from the chemical factory damage crops on the farm. The marginal benefits of emissions to the factory and the marginal costs of damage to the farmer are as follows   MB= 200 – 0.3 Q and MC= Q   From an economic viewpoint, what is the best solution to this environmental conflict of interest?  How might this solution be achieved?

 Set standard based on other criteria Safe for human use or consumption Safe for human recreation Ecological health  Advantages Allows for flexibility in meeting standards  Disadvantages Possibly no incentive to go beyond the standard

An emission charge is a per-unit of pollutant fee, collected by the government. Each firm will independently reduce emissions until its marginal control cost equals the emission charge.  Advantage – Market based, economic incentive Firm more efficient at controlling pollution have a competitive advantage Revenues can be used to lower other taxes  Disadvantage – determining how high the charge should be set in order to ensure that the resulting emission reduction is at the desired level. Taxes are generally politically unpopular

 Two power plants are currently emitting 8,000 tons of pollution each. Control costs for the two plants are MC C (1)= 2Q MC C (2)= 3Q  Q represents the quantity of pollution reduction.

 Regulation requiring, each plant to control 5,000 tons  A tax of $12,000 per ton

 Suppose a new technology is discovered that can control pollution at a lower cost.  Both firms adopt this technology.  MC C =1.5 Q  What is the effect of the tax now on MC, the efficient level of Control, Total Control Cost, and Government Revenue?

 Firms are allocated X number of permits  A permit represents the right to pollute 1 ton of CO2.  Firms can buy and sell permits. But firm sells their permits, they can no longer pollute and must control their pollution instead.

 Coal Power Plant  15 tons of CO 2 Natural Gas Power Plant 15 tons of CO 2 Suppose we determine that to maintain clean healthy air, we need to reduce emissions by 15 tons total. Who should reduce emissions? By how much?

 Minimizes the control cost between the two sources  Cost Effectiveness Equimarginal Principle Cost of achieving a given level of reduction is minimized when MC 1 =MC 2 =MC 3 =..=MC X Marginal costs of all emitters are equal

 MC coal = 10 + ½ * Q coal-CO2  MC ng = 5 + Q ng-CO2  Each firm currently emits 100 tons of CO 2  The government wants the to reduce overall emissions to 150 tons of CO 2  Q CO2 = Q coal-CO2 + Q ng-CO2

 Homework #3 Due Monday (Sept. 21)  Quiz #2 Wednesday  Writing Assignment Due Oct. 23rd