Question

Suppose powerplant emissions are linked to morbidity and mortality in humans who live downwind from the powerplant. Suppose in recent years the daily load of emissions into the environment has averaged 4.0 million tons. Also suppose that since the generation of electricity is an important public service the Environmental Protection Agency is reluctant restrict electricity generation. A recent study compiled by the Green Party, an environmental organization, determined that the marginal benefits (in $’s per million tons) of abating emissions by are:

MB = 100 – 25A

A represents abated emissions in millions of tons.

While the Green Party believes that these benefits suggest that emissions should be eliminated entirely, an electricity production group has compiled information on abatement costs. They claim that the aggregate marginal cost function for pollution abatement is:

MAC = 10 + 20A

What would the net social benefits be under the Green Party's solution above? What would be the net social benefits under an economically optimal solution?

Suppose you were a policy-maker and you wanted to set a tax. What tax would you set for each ton of emissions pollution (taxes will be given in $’s per ton)?

Answer 1

MB=100-25A

MAC=10+20A

Two basic types of traditional regulatory approaches exist. The first, a technology or design standard, mandates specific control technologies or production processes that polluters must use to meet an emissions standard. The second, a performance-based standard, also requires that polluters meet an emissions standard, but allows the polluters to choose any available method to meet that standard. Performance-based standards that are technology-based, for example, do not specify a particular technology, but rather consider what available and affordable technologies can achieve when establishing a limit on emissions. At times, EPA may completely ban or phase out the use or production of a particular product or pollutant, as it has done with chlorofluorocarbons (CFCs) and certain pesticides. Regulations can be uniform or can vary according to size of the polluting entity, production processes, or similar factors. Regulations are often tailored in this manner so that similar regulated entities are treated equally