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Command-and-Control Strategies: The Case of Standards Chapter 11
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Command and Control A command-and-control (CAC) approach mandates the behavior in law, then uses courts, police, fines, and so on to get people to obey the law. In the case of environmental policy, the command-and-control approach consists of relying on standards of various types to bring about improvements in environmental quality. 2
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Types of Standards There are three main types of environmental standards: ambient, emission, and technology. 4
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Emission Standards Emission standards are never-exceed levels applied directly to the quantities of emissions coming from pollution sources. Emission (or effluent) standards are normally expressed in terms of quantity of material per some unit of time; for example, grams per minute or tons per week. Standards may set upper limits on the quantity of flow per minute the average flow over some time period. 5
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Performance Standards In the language of regulation, emission standards are a type of performance standard because they refer to end results that are meant to be achieved by the polluters who are regulated. 6
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Technology Standards Specify the technologies, techniques, or practices that potential polluters must adopt. The requirement that cars be equipped with catalytic converters, or seat belts, is a technology standard. If all electric utilities were required to install stack-gas scrubbers to reduce SO 2 emissions, these would be in effect technology standards because a particular type of technology is being specified by central authorities. 7
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Emission vs. Technology Standards The basic point of differentiation is that a performance standard, such as an emission standard, sets a constraint on some performance criterion and then allows people to choose the best means of achieving it. A technology standard actually dictates certain decisions and techniques to be used, such as particular equipment or operating practices to be used by polluters. 8
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The Economics of Standards It would seem to be a simple and straightforward thing to achieve better environmental quality by applying standards of various types. 9
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Any Hope of Finding e*? Standards are established through a political/administrative process that may account for all kinds of considerations. The most fundamental question is whether, in setting standards, authorities should take into account only damages or both damages and abatement costs. 10
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Uniformity of Standards A very practical problem in standard setting is whether it should be applied uniformly to all situations or varied according to circumstances. The problem of the spatial uniformity of standards. The ambient air-quality standards in the United States, for example, are essentially national. The problem with this is that regions may differ greatly in terms of the factors affecting damage and abatement cost relationships. 12
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Seeking Efficiency? A single, uniform standard cannot be efficient simultaneously in the two regions. If it is set at e U it will be overly stringent for the rural area, and if it is set at e r it will not be tight enough for the urban region. The only way to avoid this would be to set different standards in the two areas. Policy trade-offs: The more a policy is tailored so that it applies to different and heterogeneous situations, the more efficient it will be in terms of its impacts, but also the more costly it will be to set and enforce them. 14
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Standards and the Equimarginal Principle We need to remember that the efficient level itself is defined by the minimum marginal abatement cost function. This means that, where there are multiple emissions sources producing the same effluent, the equimarginal principle must hold. 15
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Marginalism In order to get the greatest reductions in total emissions for a given total abatement cost, the different sources of emissions must have the same marginal abatement costs. This means that different sources of a pollutant would normally be controlled to different degrees, depending on the shape of the marginal abatement cost curve at each source. 16
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Standards and Incentives in the Short Run Standards are likely to be neither efficient nor cost effective. A basic problem is that standards are all-or- nothing—either they are being met or they are not. If they are being met, there is no incentive to do better than the standard, even though the costs of further emission reductions may be quite modest. By the same token, the incentives are to meet the standards, even though the last few units of emission reduction may be much more costly than the damages reduced. 18
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Perverse Incentives Standards in practice tend to take decision flexibility away from polluters. This is certainly the case with technology standards, which dictate the procedures that polluters must follow, even though other procedures may be available to achieve the goal at lower cost. 19
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Standards and Incentives in the Long Run Technology Standards provide no incentive to find cheaper ways of reducing emissions. Emission (performance) Standards provide strong incentives to find cheaper ways of reducing emissions. See Figure 11-4. 20
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The Economics of Enforcement The typical pollution-control law calls for emissions reduction from current levels or the adoption of specified pollution-control technologies. Ex ante, penalties will be sufficient to produce complete compliance, but this is in fact never the case. Pollution-control laws, like any others, require enforcement. 22
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Enforcing Emission Standards Consider Figure 11.5. Crossing the MAC function is a marginal penalty function. MPC represents the expected penalties that firms can be expected to face for violating an emission standard. Penalties arise when firms are detected to be exceeding their emission standard. 23
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Avoiding Penalty? Suppose a standard is set at e*. MPC is zero below e*, the firm is only penalized for emissions in excess of the standard, and the shape of the MPC curve shows how penalties would increase as the size of the violation increases. If current emissions are at e 0, the firm will clearly reduce them because marginal abatement costs at this point are well below the marginal penalty costs currently in effect. 25
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Noncompliance Firm stops reducing emissions at e 1. Abatement costs are higher than penalties. Unless something changes, the firm's emissions will end up at e 1, and the amount of noncompliance will be e* - e 1. In many cases, fines have been set too low—lower than the abatement costs required to meet the standards. 26
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Enforcing Technology Standards Initial compliance means a polluter installs the appropriate equipment. Inspectors visit the site, check to see that the equipment is installed, and make sure it will operate in accordance with the conditions of the standard. The administering agency can then give the firm the necessary operating permit. Does not ensure that the equipment will continue to be operated in the future in accordance with the terms of the permit. 27
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Monitoring Compliance Device may deteriorate through normal use, it may not be maintained properly, future operating personnel may not be properly trained, and so on. Without some amount of monitoring, there is no assurance that the source will continue to be in compliance. 28
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Trade-Offs Standards often are set by national authorities; enforcement is usually done by local authorities. There can be a great deal of informal give-and- take between the authorities and local plant managers, with participation by local environmental groups as well. One of the advantages (some might say disadvantages) of policies using standards is that they permit flexibility in enforcement. 29
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Summary Standards (especially technology standards) are not cost-effective. Pollution control can be cost-effective only when marginal abatement costs are equalized across sources. In practice, differences among sources in their marginal abatement costs may be recognized informally by local administrators in applying a uniform national standard. 30
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