Name of the student: Sam

Date of the Article: 9th April 2017

Date Accessed: 14th September 2017

Spring is not the only thing in the air

Longer days are here at last, but in terms of air quality, spring is often our most polluted time
of year. Pollutants left over from the northern hemisphere winter cause increased ozone at
ground level. Coastal areas are most vulnerable and the problem tends to move south through
spring.

During March, ozone on Shetland reached four on the UK’s 10-point warning scale. Heavy
fertiliser use and spreading manure that was stored over winter causes big releases of
ammonia each spring. This reacts chemically with pollution from traffic and industry to
create particles that can stay in the air for a week or more. These caused pollution to reach
eight on the UK’s 10-point scale across England in February, and six during March.

Industry and new vehicles have to meet ever tightening emission standards, but targets for
controlling ammonia from farming are less ambitious. Over-use of fertiliser costs farmers
money. It harms our rivers and our air and releases powerful greenhouse gases. Ammonia
from farming decreased substantially in the early 1990s, but progress has stalled since. In
Turkey and eastern Europe it has increased, while Denmark halved ammonia
emissions between 2000 and 2010 showing what can be done.

The particles from the ammonia, traffic and industry mixture can drift a long way. Around
one third of the health impacts from western Europe’s particle pollution occurs in other parts
of the world, but this is not the only way that we export pollution. Based on goods traded in
2007, western Europe’s consumption of Chinese products causes around 55,000 early deaths
from air pollution deaths across China each year.

https://www.theguardian.com/environment/2017/apr/09/spring-is-not-the-only-thing-in-the-
air
The article depicts the “heavy fertiliser use” which released ammonia into the air causing a
Negative production externality, external cost to the third party1, in turn leading to
misallocation of adequate resources: Market failure. This implies that there is a huge
difference between the socially desired goods and services and what is actually being
produced and consumed due to the forces of demand and supply.

The pollution affecting the coastal areas (third party) result in the cost borne by the society
i.e. Marginal Social Cost (MSC) being higher than the cost of production borne by the firms
i.e. Marginal Private Cost (MPC): MSC > MPC, while the private and social benefit received
by the consumer remains the same i.e. Marginal Private Benefit (MPB) = Marginal Social
Benefit (MSB)
Figure 1: Negative Externality of Production

1
Tragakes, Ellie. "market failure." Economics for the IB Diploma. 2nd ed. Cambridge UP,
2012. 103. Print.
S= MPC represents the costs of producing an additional units of fertilisers and vehicles, and
S=MSC represents the additional overall cost borne by the society in the form of
environmental degradation and pollution as mentioned in the article. This can be seen by the
vertical distance between MSC and MPC, as the external cost. The free market outcome can
be seen through the intersection of supply curve, MPC and the demand curve, MPB to
produce quantity Qm at price Pm, which is higher than the social optimum quantity at the
intersection of MSC and MSB at quantity Qopt at price Popt. Overproduction observed by
the horizontal distance been Qopt and Qm results in a dead weight loss marked by the
triangle due to market distortion and loss in social surplus.

“Industry and new vehicles have to meet ever tightening emission standards” depicts the
government regulations involved in order to internalise the externality. This command
approach relies on the use of authority through legislations and regulations. The aim of
government regulations is either to limit the emissions of pollutants or limit the output of the
polluting firm. This regulation is shown by the red arrow that depicts a shift in the MPC to
MSC, in order to produce at the socially desirable output of Qopt at price Popt, helping the
society to gain allocative efficiency and prevent market failure.

However, there are downsides to this approach and makes regulations ineffective in long run
as regulations disallow the externality to be internalised therefore making it impossible to
distinguish between firms having higher or lower costs of reducing pollution. The
government is unable to provide incentives for firms to use less polluting resources.
Furthermore, there are costs of policing and lack of complete implementation that results in
partial correction of externality at higher cost.

“It harms our rivers and our air and releases powerful greenhouse gases”, shows the
persistence of the externality. Market based policies such as carbon taxes i.e. a tax per unit of
carbon emissions of fossil fuels2 can be used to further correct the externality.

2
Tragakes, Ellie. "market failure." Economics for the IB Diploma. 2nd ed. Cambridge UP,
2012. 106. Print.
 Imposition of Carbon Tax.

Following the imposition of tax firms have to pay a higher price to buy the fossil fuel. This
will result in the shift of MPC to MPC + tax= MSC1, producing a lower, socially desirable
quantity of Qopt 1 at a higher price Popt1. However, the tax does not only correct the
externality, but also acts as an incentive for the firms to look for substitute resources that
have lesser carbon emissions. This results in incentivising the firms to use cleaner resources
which in turn reduce the external cost shown by the shift of MSC1 to MSC2 producing a
higher socially desirable quantity Qopt2 at a lower price Popt2. The tax also incentivises the
firm to economise their production methods that are less polluting in nature. Furthermore,
carbon taxes help in internalising the external cost, as this is now paid by consumers and
producers who are parties to the transaction, reducing the pressure borne by the third party
i.e. society.

However, carbon taxes face huge drawbacks since there are questions as what production
methods cause pollution. Furthermore, in order to tax a good or a fossil fuel, the value of the
harm it causes is required and calculating the monetary value of the harm is not yet known.
Both government regulation and market-based policies aim to incentivise firms to use less
polluting resources, simultaneously correcting the negative production externality, in order to
promote allocative efficiency for sustainable development in long run.

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