1. The Economics of Environmental Regulation Public Regulation or the Market

2. Introduction Market failure and its consequences--show this using the analytical approach that uses marginal damage and control costs. Is market failure a necessary and sufficient condition of public intervention?

3. continue... Five policy instruments to regulate the use of the environment: Liability Laws The Property rights approach or the Coasian method Emission standards Effluent charges and subsidies Marketable (transferable) pollution permits

4. continue... General criteria for evaluating public policy instruments intended to regulate the environment: Efficiency or cost-effectiveness Transaction (compliance) costs fairness (equity) -- effects on different socioeconomic groups moral (ethical) consideration -- effects on future generations, non-human species, and nature itself

5. Emission Standards Emission standards refer to a maximum rate of effluent discharge that is legally permitted (sanctioned). –In principle, the standards are supposed to reflect the public interest at large, and any violators are subjected to legal prosecutions. If found guilty, violators are punished by a monetary fine and/or imprisonment--command and control approach

6. continue... Emission standards can take three different forms: standards expressed in terms of quantities or volume of waste released into the environment per unit time. ambient standard on the basis of an allowable concentration of pollution, for example, the ambient standard for dissolved oxygen in a particular lake or river. Technological standards--technologies that potential polluters must adopt to control pollution

7. Who Set the Standards? In the United States, the Environmental Protection Agency (EPA) is responsible for implementing environmental laws enacted by Congress. EPA is a federal agency, works in partnership with state, county and local municipality governments. [Who is the newly appointed head for this agency?]

8. continue... The EPA sets the minimum standards. However, state and local standards may exceed federal standards, but cannot be less stringent than the federal. Enforcement and monitoring of the standards is usually a state or local responsibility, with some needed supports from federal authorities.

9. continue... Some representative major environmental laws: The Clean Water Act (last amended 1988) Clean Air Act (last amended 1990) Solid Waste Disposal Act (last amended 1988) Ocean Dumping Act (1972) Endangered Species Act (1973) Resource Conservation and Recovery Act (1976) Asbestos School Hazard Abatement Act (1984) etc.

10. Basic Economics of Emission Standards Demonstrate how, in theory, emission standards are expected to attain the socially optimal level of pollution control using the the usual theoretical framework of analysis- -marginal control and marginal damage costs. Assuming full information on control and damage functions In the absence of full information--through trail-and- error (start with best available information)

11. Advantages of the Emission Standards Flexible -- can be attained through trial and error In principle, it is simple and direct -- government fiat Could be effective in curbing extremely harmful pollutants Tends to be politically popular--strictly adheres to the polluters-pay-principle. (Also, morally appealing).

12. Disadvantages of Emission Standards First, standards are set by government fiat, as such, tend to be highly interventionist. Second, the tendency to create a large bureaucracy to administer the programs or laws. Third, strong tendency for the regulators and the established firms to cooperate-- regulatory capture. Thus, standards can be used unjustly as a barrier to entry.

13. continue... Fourth, the regulatory agency is not design to generate its own revenue. Fifth, the administrative process may neglect consideration of economic efficiency in the following two specific ways: Emission standards are applied uniformly across emission sources--which is not cost effective Emission standards provide no adequate incentive to reduce pollution once a standard is met, hence, discouraging investment in new pollution control technology