Question

Coal-fired power plants are known to release a lot of pollutants such as sulphur dioxide, carbon monoxide, mercury, ashes, etc.
(i) Does it matter to a coal-fired power plant whether there is a liability law or not? If so, explain in what ways.
(ii) Is there is any incentive to innovate (i.e. adopt new abatement technology) under a liability law for a polluter? Explain.

Answer 1

1) For a coal fired power plant, coal is the source of energy , which tend to generate great levels of pollution, as the energy is generating with the burning of coal. A liability law makes the coal firm answerable, by the law, if pollution level exceeds certain limits. Hence the production is dependent greatly upon the liability law. If the law is present , it will either limit production by quantity or by rising taxes over production.

2). Yes there is an incentive to innovate for the producers of there is liability law because as discussed above liability cost can increase the cost of production , while dealing with production limits. Hence to tackle the losses , the producer would want to invest in innovations which makes the pollution rates less , which is short term investment in terms of money invested in innovations but a long term gain , in terms of escaping the additional taxes imposed out of liability law.