Pollution

Abstract

The principle of economic efficiency in environmental policy implies a balance between the marginal costs of pollution reduction and the marginal damage of pollution. This has implications for both the level of control and the policies used to achieve it. Although the principle of balancing marginal costs and benefits is simple 219in theory, its application to real-world issues is often complex and involves judgment about both goals and policies. Pollution levels can be regulated in four basic ways. The most commonly used approaches have been to set pollution standards and mandate certain technologies. While these two policies have certain advantages, economists tend to prefer market-based approaches, such as pollution taxes and tradable permit systems. With a pollution tax, the tax level should reflect the damage caused by the pollution. A pollution tax allows individual firms to decide how much pollution reduction to undertake. Least-cost pollution control options will be selected first. However, choosing the tax level requires an accurate estimate of damage costs, which may be difficult to determine in monetary terms. Tradable pollution permits allow the setting of a target for total pollution reduction. The permit price is then set through the market mechanism, as firms trade permits. This, in theory, combines the advantages of a definite amount of pollution reduction with an economically efficient process. But it is best suited only for specific pollution control efforts under particular conditions, and may not be appropriate in all cases. Market-based policies often fail to control pollutants that exhibit nonlinear and threshold damage effects, as well as pollutants with local rather than regional impact. Specific emissions standards may be needed for these pollutants, especially those that produce potentially severe health or ecological damage. Important considerations in the choice of pollution policy include the patterns of costs and damage as well as options for improved pollution-control technology. Policies should be selected with a view toward minimizing unnecessary costs or damage and promoting technological progress in pollution control. Pollution policies in practice have led to major pollution reduction in some cases, but not in others. In the United States, emissions of criteria air pollutants have been significantly reduced since the 1970s, and progress has been made in reducing toxic pollutants. Water pollution policies have reduced point-source pollution, with less progress on addressing nonpoint-source pollution. For potentially toxic chemicals, the burden of proof in the United States is on regulators to determine whether a chemical is safe. In contrast, recent chemicals policy in the European Union places the burden of proof on manufacturers to demonstrate a chemical’s safety.