Spatial Dimensions of Environmental Regulations How can economics help us better regulate when the damages occur over space Carpinteria marsh problem Many creeks flow into Carpinteria salt marsh pollution sources throughout Pollution mostly in form of excess nutrients e g Nitrogen Phosphorous How should pollution be controlled at each source to achieve an ambient standard The Carpinteria problem x x x x x x x x 1 Receptor o Many sources x Marsh o Transfer coefficients If emissions increase in a greenhouse on Franklin Creek how much does N concentration change in salt marsh Index sources with i receptors with j Pollution at receptor j is fn of emissions pj fj e1 e2 eI dfj dei aij transfer coefficient Natural attenuation concrete channels A concrete lined channel Pollution if no interaction effects pj aijei Bj Where Bj is background level of Nitrogen Now aij dpij dei The cost of emissions control Cost is a function depends on how much emission the source has to control ci Ei ei where Ei uncontrolled emissions level E g ci Ei ei i i Ei ei i Ei ei 2 Then MC is linear Control costs by industry often available from EPA other sources How much abatement To achieve ambient standard A which sources should abate and how much Mine ci Ei ei s t aiei A In words minimize abatement cost such that total pollution at Carpinteria Salt Marsh A Possible regulations to consider Rollback Standard engineering solution Marketable permits Not efficient because ai s different Constant fee to all polluters Same effect as permits Spatial version of Equi marginal Principle Current pollution level P aiEi A Rollback Standard engineering solution Everyone rolls back pollution by the same percentage x A P0 ei Eix E g A 1 ppm P 1 ppm Everyone rolls back by 1 If I started at 4 new level is 36 Effects of the rollback Structured to exactly hit target A Ignores cost of abatement Ignores different contribution of each source to receptor Carpinteria Marsh Can we do any better with an economic approach Marketable permits Emission fees Permits Fix total amount of pollution that is allowed A Distribute A permits where permit required for polluting let firms trade But this ignores the different contribution of each source to Marsh Same for uniform Emission fees Treat firms differently Since each polluter has a different contribution to overall pollution they need to be treated differently If we re only worried about N in ocean then likely to be worse the closer you are to ocean Need a mechanism that captures this effect need an adjusted version of equi marginal principle Adjusted equi marginal principle Instead of equating marginal costs of all polluters need to adjust for different contributions to the receptor Strong contribution cheaper to abate per effective unit of pollution MCk ak MCj aj Set these to marginal damage for efficiency
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