How the U.S. judges air quality • Clean Air Act of 1970 – First Federal Act to set air quality standards • National Ambient Air Quality Standards (NAAQS): • Legal ceilings on the allowable concentration of the pollutant in the outdoor air for a specified period of time. Judged annually and daily. • Two standards: • Primary – protect human health • Secondary - protect aesthetics, physical objects and vegetation.
AAQS Standards set for 6 pollutants • Carbon Monoxide (CO) • Nitrogen Dioxide (NO2) • Ozone (O3) • Lead • Particulate Matter (aka “soot”) • Sulfur Dioxide • What’s not included?
Why do we care? • Health Effects: breathing symptoms, aggravation of existing respiratory and cardiovascular disease; impairment of and immune system; damage to lungs, impairment of visual perception, carcinogenesis, premature mortality • Non-Health Effects: contributes to ozone formation and acid rain, reduction in crop yields, damage to trees, damage to ecosystems, visibility impairment • Studies (by health experts) suggest approximately 50,000 people die each year due to air pollution in the U.S. • Millions more suffer non-lethal health conditions.
Non-attainment/compliance • Like a speed limit • If over limit, subject to penalties. • If noncompliant, states must designstate implementation plans (SIPs) and submit to the EPA. • 1990 CAA Amendments gave EPA Power to: • prevent construction of new sources of pollution or deny federal transport or sewage grants. • halt construction of major new or modified pollution sources in non-attainment areas • enforce monetary penalties for noncompliance • establish pollution permits to reduce SO2(we’ll talk about)
Air Quality Changes • Substantial Improvements have occurred for all six pollutants since Clean Air Act was enacted. • Change in quality does not equal change in emissions • Quality is not just based on emissions • Most monitors are in urban areas. • Emissions are sometimes estimated, air quality is always measured.
So what? • EPA study suggests the costs of the CAA to the U.S. economy are approximately $65 billion!
Efficiency of Clean Air Act • Studies suggest PVNB gained from Clean Air Act are substantial (Hundreds of billions to Trillions of dollars). • Central estimate is $1.9 trillion. • Annual net benefits exceed $200 billion • http://www.epa.gov/air/sect812/prospective2.html • Clean Air Act does not allow balancing of costs and benefits! • Relies instead on the “threshold concept”—that there IS some level of pollutant below which the stuff is not harmful. • Efficiency in the standards would be only accidental, since net benefits cannot be calculated.
Inefficiency of Clean Air Act • Clean Air Act does not allow balancing of costs and benefits! • Relies instead on the “threshold concept”—that there IS some level of pollutant below which the stuff is not harmful. • Efficiency in the standards would be only accidental, since net benefits cannot be calculated. • For everything except SO2 and NOx, used command and control to achieve reductions
Problems with CAA • Uniformity: Same primary and secondary standards apply everywhere, which sounds fair but must be inefficient. • No account is taken of “exposure” (# of people affected), sensitivity of ecological systems, or costs. • MSB/MSC of abatement will be different in different areas. • Timing: Would be less costly to have tight controls when conditions are bad, looser ones when absorptive capacity is greater. • Outdoor vs. Indoor Air pollution: Only 10% of time is spent outdoors. Growing evidence that while NAAQS limit outdoor exposure to pollutants, there is little monitoring of indoor air hazards (can be even more harmful).
Cost-(in)effectiveness of CAA • Least costly method of abatement requires that MAC of all polluters are equalized. • The ratio of CAC cost to least cost suggests widely varying differences in cost-effectiveness of CAC policies • Most found it’s at least 78% more costly then minimum cost approach. • CAC will be close to cost-effective only if a high degree of control is necessary (stringent controls resulting in similar marginal costs).
Studies of efficiency of CAA • All find Total Social Benefits > Total Social Costs by substantial amount • Most find Marginal Social Costs > Marginal Social Benefits by substantial amount. • What does this mean?
Understanding Uniform/Timing Inefficiency. • Know the graph with two MD curves, and be able to indicate inefficiency areas if one standard is applied to both.
Summary of CAA • Substantial Net Benefits overall (Total Benefits >Total Costs by trillions of dollars) • Could be even better (higher net benefits) if they allowed consideration of MSB and MSC and quality to vary across regions.
Acid Rain • Caused primarily by SO2 and Nox, which is generated largely by coal fired plants • Harmful to trees and crops (and statues)
How it works? • Title IV of the 1990 Clean Air Act • The Sulfur Allowance Program • National cap and trade • Allowances can be bought or sold without restriction anywhere in the US • Program was intended to cut sulfur dioxide and nitrous oxide emissions to about half their 1980 levels. Starting in 1995 emissions are monitored constantly ($100,000 annual costs/unit). • 100% compliance from utilities
Program History • Allowances were given to utilities rather than sold (no way auction could pass Congress). • Allowances can be used or banked for use in future years (or sold to other firms) • Important to have firms invested in the program for it to succeed. • Done in two phases • In the early 1990s, analysts expected prices to be about $250-350/ton in Phase I and $500-$700 in Phase II (generally under that price). • Initial permits went as low as $63. • Suggests abatement costs were lower than expected (innovation)
The effects of banking allowances • 2 million more permits were purchased in 2010 than total emissions. • Some purchased by environmental groups (why?), others by investors (why?). • Most purchased by energy companies. • Can use them or sell them later • Expect emissions will be higher later. • If 1,000 permits are sold from American Electric Power to Ohio Valley Electric Corp for $100/permit, what do we know is true?
Specifics on auctions today • http://www.epa.gov/airmarkets/participants/allowance/auction.html • Why is the price so low today?
Air Quality in Ohio/Youngstown • http://www.epa.state.oh.us/dapc/ • http://www.mahoningvalleyair.org/
International situation • Air quality has improved substantially in virtually all developed countries over last 3 decades. • Air quality has gotten much worse in most developing countries (especially India and China) • Relationship shown by the Kuznets Curve • Per capita income on horizontal axis, pollution or environmental degradation on vertical axis