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7-BA-Instruments of Pollution Control
7-BA-Instruments of Pollution Control
Prepared By
Dr. Anup K Mishra
Cost efficiency and cost-effective pollution abatement
instruments
• Suppose a list is available of all instruments which are capable of
achieving some predetermined pollution abatement target.
• If one particular instrument can attain that target at lower real cost than
any other can then that instrument is cost-effective.
Instrument category
Institutional approaches to
facilitate internalisation of
externalities
Institutional approaches to
facilitate internalisation of
externalities
Location of
emissions
Emissions output
Production technique
Inputs used
Zoning
Emissions licenses
Output quotas
Technology controls
Input restrictions
Unattractive Properties
• The pay-off structures are altered by changing relative prices. This can be done in
many ways. We focus on two of them:
1. By the imposition of taxes on polluting emissions (or on outputs or activities deemed to be
environmentally harmful), or by the payment of subsidies for emissions abatement (or reduction of
outputs or activities deemed to be environmentally harmful).
2. By the use of tradable emission permit (or allowance) systems in which permits command a market
price. Those prices are, in effect, the cost of emitting pollutants.
• More generally, any instrument which manipulates the price system in such a way
as to alter relative prices could also be regarded as an incentive-based instrument.
Marginal benefit Marginal damage
(before tax)
Marginal
benefit (after
tax)
*
0 M* M̂ Emissions, M
Figure 6.5 An economically efficient emissions tax
Marginal cost of
abatement
* Marginal benefit of
abatement
0 Z* = M̂ M * Z Emissions abatement, Z
0 ~
. .
M̂ Emissions, M
M
Figure 6.7 Emissions tax and abatement subsidy schemes when marginal damage is unknown, or
when a target is being set on grounds other than economic efficiency
Suppose that the EPA does not have sufficient information to deduce the economically efficient
level of emissions, or it wishes to set an overall emissions target on some other basis. Figure 6.7
makes it clear that to attain ANY specific emissions target using a tax or subsidy instrument,
knowledge of the aggregate (pre-tax or pre-subsidy) marginal benefit of emissions function would
be sufficient.
Emission reduction of some unspecified amount.
• For ANY emission tax (or emission abatement subsidy) rate, some – probably
unknown – amount of emissions reduction would be obtained.