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Upcoming in Class

Upcoming in Class. Homework #3 Due Monday (Sept. 21) Quiz #2 Wednesday Writing Assignment Due Oct. 23rd. Homework #3.

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Upcoming in Class

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  1. Upcoming in Class Homework #3 Due Monday (Sept. 21) Quiz #2 Wednesday Writing Assignment Due Oct. 23rd

  2. Homework #3 • Assume the marginal cost of controlling a pollutant is constant, i.e., it does not vary with the level of output, and the marginal damage cost associated with this same pollutant increases at a constant rate. • A) Illustrate this situation graphically and identify the cost-minimizing level of the pollutant.

  3. Question 1 • B) Now assume that as a result of a change in market conditions, the cost of one of the inputs (which accounts for 25 percent of marginal abatement costs) to pollution control doubles, ceteris paribus. Graphically illustrate the effect of this change on the efficient quantity of the pollutant.

  4. Question 1 • C) Does your conclusion in part b) make economic sense? Why or why not? • D)Identify the area in your graph for part b) that represents the change in total pollution costs attributable to the increase in the cost of the input to pollution control.

  5. Question 2 • Based on Horizontal and Vertical Zonal Characteristics, how would you classify the following pollutants (ie. Local vs. Regional, Surface vs. Global) • BP Oil Spill in the Gulf of Mexico  • Cigarette Buds outside Stevenson Hall • Vermilion’s coal-fired power station leaking coal ash from its ash ponds • CO2 Emissions in the World • Polychlorinated Biphenyls (PCBs) in Lake Michigan by the Outboard Marine Corp.

  6. Question 3 • . From the article “EPA’s Winding Road” handed out in class, classify the following programs as cap & trade, emissions quota, or emissions charges, and identify the pollutant targeted. • Acid Rain Program •  NOX SIP Call •  CAIR/CATR/CSAPR •  RGGI •  Utility MACT Rule •  Cooling Water Intake Rule

  7. Ash Disposal Rule Best available control technology – a pollution regulation approach in which the government mandates that all firms use a control technology deemed most effective.

  8. Question 4 A chemical factory is situated next to a farm. Airborne emissions from the chemical factory damage crops on the farm. The marginal benefits of emissions to the factory and the marginal costs of damage to the farmer are as follows MB= 200 – 0.3 Q and MC=100+0.1Q From an economic viewpoint, what is the best solution to this environmental conflict of interest? How might this solution be achieved?

  9. Marginal Costs ofPollution Damage and Control

  10. Pollution Standards • Set standard based on other criteria • Safe for human use or consumption • Safe for human recreation • Ecological health • Advantages • Allows for flexibility in meeting standards • Disadvantages • Possibly no incentive to go beyond the standard

  11. Emission Charges • An emission charge is a per-unit of pollutant fee, collected by the government. • Each firm will independently reduce emissions until its marginal control cost equals the emission charge. • Advantage – • Market based, economic incentive • Firm more efficient at controlling pollution have a competitive advantage • Revenues can be used to lower other taxes • Disadvantage – • determining how high the charge should be set in order to ensure that the resulting emission reduction is at the desired level. • Taxes are generally politically unpopular

  12. Practice Problem • Two power plants are currently emitting 8,000 tons of pollution each. Control costs for the two plants are • MCC(1)= 2Q • MCC(2)= 3Q • Q represents the quantity of pollution reduction.

  13. Calculate the control cost for the firm, total control cost, government revenues, and total pollution reduction for the following two scenarios. Regulation requiring, each plant to control 5,000 tons A tax of $12,000 per ton

  14. A Per-Unit Chargefor Pollution Emissions

  15. A New Technology Suppose a new technology is discovered that can control pollution at a lower cost. Both firms adopt this technology. MCC=1.5 Q What is the effect of the tax now on MC, the efficient level of Control, Total Control Cost, and Government Revenue?

  16. A Transferrable Pollution Permit System • Firms are allocated X number of permits • A permit represents the right to pollute 1 ton of CO2. • Firms can buy and sell permits. But firm sells their permits, they can no longer pollute and must control their pollution instead.

  17. Example – 2 Polluting Sources • Natural Gas Power Plant • 15 tons of CO2 • Suppose we determine that to maintain clean healthy air, we need to reduce emissions by 15 tons total. • Who should reduce emissions? By how much? Coal Power Plant 15 tons of CO2

  18. Cost-Effective Allocation of a Uniformly Mixed Pollutant

  19. Cost-Effective Allocation • Minimizes the control cost between the two sources • Cost Effectiveness Equimarginal Principle • Cost of achieving a given level of reduction is minimized when • MC1=MC2=MC3=..=MCX • Marginal costs of all emitters are equal

  20. Example – 2 Emitters MCcoal = 10 + ½ * Qcoal-CO2 MCng = 5 + Qng-CO2 Each firm currently emits 100 tons of CO2 The government wants the to reduce overall emissions to 150 tons of CO2 QCO2 = Qcoal-CO2 + Qng-CO2

  21. Upcoming in Class Homework #3 Due Monday (Sept. 21) Quiz #2 Wednesday Writing Assignment Due Oct. 23rd

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