Econ 100 Lecture 8.3 Pollution and Initiatives in the NW Summer 2009

How Do We Get There? Standards (command and control) –Set the overall standard at Q* –Calculate the amount of reduction necessary –Set uniform reduction goal for all firms Taxes/Emission Charges –Set the tax = externality cost at the optimum Q* –Firms will internalize the cost Tradable Permits (Coase) –Allocate right to pollute (Q*/N) –Allow firms to set price for trading permits

Comparison of Approaches Tradable Permits –Cost efficient Firms will purchase permits from more efficient firms if permit cost < abatement (technology) costs –Technological incentive to reduce pollution Marginal cost of abatement = permit cost –Similar to taxes –Administratively simpler Require less information about the firms’ cost Better able to handle “spatial” variation in pollution –Fewer permits auctioned in bad areas Adjust “automatically” for changes in inflation and growth –E.g., Ca RECLAIM experience –If auctioned -> revenues for admin costs

A Webinar on Tradable Permits es_pubs/cap-in-trade-2009-sightline- webinar

Water Pollution Problems Types of Waste-Receiving Water There are two general types of water bodies at risk of contamination from pollution. –Surface water includes rivers, lakes and oceans. Historically, clean-up policies have focused on surface water. –Groundwater is subsurface water. –Groundwater and surface water require different water policies. Major issue with identifying source –Could set optimal level, but how to allocate?

Western Climate Initiative (WIN) Cap and trade program –Include BC, Washington and Oregon Cap would be set for each state/province on Greenhouse gases at 1990 levels (Kyoto protocol) –CO2, CH4, NO, hydroflurocarbons, perfluorocarbons and sulfurhexafloride Transportation, residential, commercial and industrial fuels –25k metric tons of CO2 equivalent (annual) –1 ton tradable permits –Start in 2012; reduce cap by 50% by 2020

Puget Sound Clean Up Objectives –Reduce 150k per day pounds of toxic chemicals that enter Puget Sound daily Over 2 years -> equivalent to Exxon Valdez spill –Acquire/restore prime marine habitats Replace degraded shorelines, wetlands, estuaries –40 major species have declined

Puget Sound Clean Up Initiative Governor’s proposal –Added $42M to already allocated $90M –Puget Sound Partnership 10 person team of elected official, business leaders Proposed actions –$21M faster clean-up of pollution and shoreline –$6.5M upgrade of septic systems -> into PS –$4M for Parks to upgrade sewer systems –$3M restore estuaries (wetlands) –$2M to remove creosote logs –$1.5M for oil spill and hazardous chemical clean-up, including storage

Puget Sound Clean Up What’s happening today –Port Gardner Bay Clean Up (9 sites) Oil, gasoline, diesel fuels, heavy metals Everett shipyard North Marina Baywoods Exxon/Mobil storage Weyerhauser East Waterway ASARCO (Arsenic)