Evaluating Regulatory Efficiency Your group project’s client is the St. Louis Air Quality Management District. They are considering revising their air pollution regulations in order to make industry in the city more competitive and thus keep jobs from leaving town. Your task is to estimate the costs of several regulatory options and report on your findings, recommending steps that can be taken. You should write a one-page memo to policymakers summarizing your findings. You should also attach an appendix, detailing your analysis. You find an old source document in the library, from a study done in the early 1970's. (You probably don't need to look at the whole EPA report, but if you want, see "A Cost Evaluation of Alternative Air Quality Control Strategies".) The report does have good data on control costs and atmospheric transport. See Table 1, Figure 1 and the transfer matrix. You may also wish to refer to pages 171-4 (in Chapter 9) of Kolstad, Environmental Economics, which summarizes a paper by Atkinson and Tietenberg (1982)[cited in the book]. As shown in the EPA Report (and the section of the book), the authors use a two-part costfunction, referred to in Table 1 on page 17 of the EPA Report as First and Second Node. [Column F is the percentage reduction which can be achieved using the emission control cost of column E. The remaining reduction, up to the percentage in column H can be achieved at cost in column G.] Simplify their analysis by using only the first part of these costs. In other words, assume the marginal cost of emission reduction is constant at the level of column E in Table 1 and that all emissions (column D) can be reduced at this cost per unit emissions. Thus your results will be somewhat different from Atkinson and Tietenberg or Atkinson and Lewis. [Assume everything is the same now as it was when the report was written -- you do not have to find up-dated information.] NOTE TO EXCEL USERS ON ORGANIZING RESPONSES. Use one Workbook for everything. Label the Worksheets, corresponding to the five parts to the assignment:Memo/Pre-Control/Rollback/Least-Cost/Figure SUMMARIZE YOUR RESULTS IN A ONE_PAGE MEMO WITH APPENDIX(20 points) PARTS TO BE INCLUDED IN THE APPENDIX TO YOUR MEMO:a. (20 points) What is the pre-control concentration of particulates at each of the nine receptors? What does this tell you is the maximum concentration of particulates in the St. Louis area (ie, the maximum over the nine receptors)? How does this compare to the Federal Primary standard of 60 micrograms per m3 and the secondary standard of 40micrograms per m3? [Don't forget the background levels of particulates -- see Figure 3 from the report.] [HINT: In Excel, use the MMULT function to multiply a vector of pre-control emission rates by a column of the transfer matrix.] b. (15 points) Suppose the air quality regulators in St. Louis decide to control the problemusing a rollback approach; ie, if the concentration at the worst receptor needs to be reduced 30%, each source is reduced 30%. What is the total cost of achieving the primaryand secondary Federal standards? What is the associated pollution concentration at each of the nine receptors in each case? c. (20 points) Using the Solver function in EXCEL, find the least cost way of meeting theprimary and secondary standards. Attach a copy of your EXCEL spreadsheet. [Hint: Try to implement the equations spelled out on page 173 of Kolstad, keeping in mind that costs have been simplified for this exercise.]. This least cost way is equivalent to what would happen with ambient permits. d. (25 points) Generate your own version of Figure 9.5 on page 174 of Kolstad. Assume command-and-control is equivalent to the rollback approach discussed in part b above. The horizontal access (air quality) is the maximum concentration over the nine
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