Pollution Control Measures - Essay Example

? Pollution Control Measures Introduction Following the Kyoto Protocol that called for the nations to reduce the amount of environmental pollution, a number of control measures are applied. The three major control measures that are adopted by nations include tradable emission permits, taxes and legal regulatory measures (Tucker, 2011). Each of the control measures has an impact on the economic condition of the country due to its effect on production and employment. Thus, the choice of a pollution control measure that should b adopted by a country depends on the economic impact it has on society. Consequently, this paper explores the merits of the three pollution control measures to establish the optimal pollution control measure that should be adopted by the countries. Discussion Benefits and marginal costs are compared to establish the amount of pollution that should be accepted in society. This is called the optimal pollution level, where the marginal social costs and marginal social benefits are equal. Similarly, the marginal cost of pollution damage and the marginal cost of pollution control are compared to establish when pollution control measures should be employed. Under this concept, pollution should be reduced if the benefits gained are higher than the control costs (Hoel, 1998). This is as demonstrated in the graphical representation below on the marginal cost of pollution damage versus the marginal cost of pollution control. Qmax in the graph above shows the maximum level of pollution that is expected when pollution control measures are not employed. Thus, the pollution amount will drop from Qmax when the control policies are introduced in the market. On the other hand, MCD is the marginal cost of damage that is caused by pollution emissions. Similarly, MCC is the marginal cost of control that has the tendency of rising as the levels of pollution fall (Hoel, 1998). The optimal control level is represented by the Q* in the graph, where the MCD and MCC are equal. This is the level at which the pollution control cannot be exceeded since the benefits will be less than the marginal cost of undertaking the pollution control measure. This practice of balancing the marginal cost and benefit is known as the equimarginal principle (Hoel, 1998). Legal regulation is one of the pollution control measures employed by government agencies, which involves setting the emission standards for specific products or industries under the legislative guideline. The major advantage of legal regulation is that it specifies results compared to other control measures (Weyzig, 2009). Thus, it is possible to ensure that producers do not allow a risky level of pollutants. However, this control measure has the potential of experiencing inflexibility when the economic players are required to meet the same standard. This can only work where activities polluting the environment are same. Consequently, pollution tax is effective in an industry that has numerous and different plants. This will involve charging the plants by per unit of emission they make in their production activities. Taxation will be effective in controlling the level of emission since the plants operating in the market will consider reducing the pollution level provided the marginal cost is lower compared to the tax (Tucker, 2011). Under the taxation control measure, the Qmax of pollution before the pollution control measures are introduced will shift to Q1, as reflected in the graph below, when a pollution tax of T1 is introduced. This is because the manufacturers in the market will prefer to lower their pollution level by undergoing a cost E shown in the graph, instead of paying a tax that is equal to F + E for these units as reflected in the graph above (Tucker, 2011). In addition, the manufacturers will be forced to pay a charge equivalent to B + D for the pollution level of Q1 they cause. This cost is lower than B+ D – E+ F that they will be required to pay if they do not reduce their pollution level. Similarly, when the per-unit pollution is charged at a higher tax of T2, manufacturers will be forced to diminish their pollution level to Q2 reflected in the graph above. The control cost will be made up of C+ D+ E while the charges of the pollution are A+B, as reflected in the graph above. This additional unit of pollution decrease is due to the high marginal costs (Weyzig, 2009). Thus, taxation is an effective pollution control measure due to its influence on producers in reducing their pollution level to avoid high per-unit charges for the total level of pollution they emit. However, the pollution charges employed under taxation control measure is unable to predict with certainty the pollution reduction that will be achieved in total for the charges introduced. This is due to the MCC shape reflected in the graph above that is usually unknown by the policy makers. Accordingly, the transferable pollution permit is considered effective in controlling pollution while maintaining economic efficiency (Hoel, 1998). Under this pollution control measure, the numbers of permits that are issued are equivalent to the targeted pollution level. When the permits are allocated, they are transferrable among interested parties or firms in the market. Thus, stakeholders are at liberty of choosing whether to decrease their pollution level or buy pollution permits for the level of pollution they will emit (Tucker, 2011). Even though the firms are able to buy permits to emit a pollution of their desire, the total pollution in the market cannot be more than the maximum amount that has been set through the amount of permits allocated. Similarly, private groups in the country that are interested in pollution reduction are able to buy the permits and retire them permanently to reduce the emission below the targeted level originally. Furthermore, the government may issue the permits for a certain time limit that will ensure fewer permits are issued after the expiry of that period (Hoel, 1998). This will help in lowering the overall level of pollution in the market significantly. The graph below illustrates how the transferrable permits help in reducing pollution emission in the market. The illustration demonstrated above assumes that there are two firms in the market that emit an amount of pollution equivalent to 50 units each. In addition, the goal of the policy is to reduce the pollution units to 40. However, the two firms emitting the pollution have different marginal control costs as reflected above (Tucker, 2011). Consequently, the graph above illustrates the diverse methods that can cause the reduction level of 40 units to be distributed in the two plants. The total pollution that is emitted by the two firms is equal to 100 units. Thus, a permit of 60 units should be issued to ensure the policy goal of 40 units is achieved. Consequently, the marginal control cost will be $600 and $200 for firm two and firm one respectively if the permit issued to each firm is 30 units, as shown in the middle of the graph. This will ensure that the goal is achieved, but it will result in economic inefficiency. The pollution control cost of firm one in the graph is represented by area A that is equal to $2,000, while that of firm two is represented by area B+C+D that is equivalent to -$6,000. Thus, the combined pollution control cost will be equal to ($2000 - $6000 = -$8,000). If the firms trade their permits, it will cause economic efficiency and own positions to be improved. This will be advantageous to firm one since it will give an extra 10 units permit to firm two. Similarly, firm two will be able to decrease it pollution by 10 units by purchasing the 10 units from firm 1. Consequently, the control cost of the two firms will be equal to A+B (-$4500) for firm one and C ($1500) for firm two, which will yield a combined cost of (-$4500 + $1500 = $6000). Consequently, the policy goal will be attained at a lower cost with a net saving of -$2,000 represented by area D. Transferable permits enable achievement of a charge system for emissions and direct regulation. Thus, the government is able to set an explicit limit on pollution emissions while ensuring the market process is efficient in attaining the goal. Consequently, transferrable permit is the ideal pollution control measure that should be adopted by policy makers. References Hoel, M. (1998). Emission taxes versus other environmental policies. Scandinavian Journal of Economics , 100(1), pp. 79–104. Tucker, I. B. (2011). Macroeconomics for today. Mason, OH: South-Western Cengage Learning. Weyzig, F. (2009). Political and economic arguments for corporate social responsibility: analysis and a proposition regarding the CSR agenda. Journal of Business Ethics , 86, pp. 417–428. Read More