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ENFORCEMENT AND

POLITICAL ECONOMY
CHAPTER 13 (BERCK AND HELFAND)
Tasneem Raihan
Whittier College
Compliance in Practice
• Adopting an environmental regulation is only the first step
in reducing pollution.
• The next step is compliance.
• Compliance means ensuring that producers obey the
rule.
• An effective program for ensuring compliance with
environmental regulations has at least three parts:
1. Monitoring
2. Enforcement action
3. Penalties
Compliance in Practice
Monitoring
• It is the act of looking for violations.
• Takes many forms and has varying degree of effectiveness.
• Monitoring can be continuous or periodic.
• Continuous emissions monitoring is very expensive and
used only for large facilities, such as power plants.
• More commonly, monitoring is periodic, especially for small
sources. For example, biennial smog tests for cars.
• Without monitoring, violations of environmental standards
are almost certain to go undetected.
• Recently, California sent a licensed smog tester to jail for
falsifying test reports.
Compliance in Practice
Enforcement Action
• It is a government action to make a polluter obey the law.
• It may include among others requests for correction and legal
action.
Penalties
• The last step, which is not always taken, is to impose a penalty.
• Criminal prosecutions by the government are also possible.
• After the tanker Exxon Valdez spilled 11 million gallons of oil in
Alaska’s Prince William Sound in 1989, Exxon Corporation had
to pay almost $3.4 billion in fines, cleanup expenses, damages
and other cost.
• They also had to pay an additional $507 million in punitive
damages, which are payments beyond the value of the
damage caused, meant to deter future pollution.
Penalties
• Let’s consider how a source might decide how much
precaution to undertake when it faces a pollution
standard.
• Figure 13.1 is an estimate of the marginal benefits of
polluting for a representative power plant.
• For small amounts of emissions, the benefits of one more
unit of pollution are positive and large.
• The gains from more pollution decrease but stay positive
until the marginal benefits of polluting curve hits the
horizontal axis at 16,600 tons.
• In this example, the plant faces a standard that limits
emissions to 5000 tons.
Penalties

• If the plant complies with the standard, it has to reduce


emissions from 16,600 to 5000 tons and forgo total benefits of
$5.9 million given by the shaded region above.
• Without a penalty in place for violating the standard, it is unlikely
for the plant to reduce its emissions from 16,600 tons.
Penalties

• Suppose the regulator imposes a fine of $1.5 per pound of emissions.


• Total fine for non-compliance* = 1.5 × 2000 × 16,600 − 5,000
= $34.8 million
• So total fine is way greater than the $5.9 million benefits from non-
compliance.
• Therefore, the plant does not have the incentive to violate the standard.
Exercise
Suppose a pollutant has a linear marginal benefit of
polluting curve given by 𝑏 𝑥 = 1000 − 3𝑥 where 𝑥 denotes
emission in tons. If the emission standard is set at 125
tons, and penalty is set at $700 per ton for violating the
standard:
1. What is the benefit from non-compliance?
2. What is penalty cost of non-compliance?
3. Is it profitable for the polluter to violate the standard?
Political economy
• Ideally, all projects are subject to approval based on a benefit-
cost analysis.
• But is this the rule that policy makers actually use in setting
standards or any other environmental policies?
• Political economy is where political science and economics
overlap.
• In many cases, public officials seek policies that will help them
get re-elected or elected to a new position.
• A small group of loggers may influence public officials’ decisions
by contributing money to their election campaign efforts.
• For example, the forestry industry donated $3.3 million to federal
candidates and campaigns in 2006, and $5 million in 2008.
• They lobbied on a broad collection of issues including illegal
logging and biofuels.
Ending note
• Political scientists argue that the influence of small,
motivated groups is only one factor in public officials’
decision processes.
• Their personal ideologies, their views of the public good,
and the views of their constituents are all likely to play
roles in addition to those of special interest groups.
• As a result, a benefit-cost approach is, in practice, likely to
be balanced against political and personal gains and
losses as the policy maker decides.