Buildings account for 40% of our consumption of raw materials and energy, and are responsible for 30% of greenhouse gas emissions.
The Leadership in Environmental and Energy Design certificates are given to buildings that meet energy-efficiency targets.
In the United States, many states and cities require certification for new commercial buildings.
There are other unmeasured benefits such as higher worker productivity and a more favorable corporate image.
The marginal principle is used to describe the virtues of pollution.
Explain the role of taxation in promoting external costs from automobiles.
MyLab Economics can help you study more efficiently.
The price of a product is determined by the person who sells it.
Market failure occurs when production causes external costs such as air or water pollution.
Public policy intervenes in the market to make it more efficient.
The best response to market failure is not to abandon markets, but to use them to reduce pollution in the most efficient way.
We discuss pollution taxes and auctions.
The chapter's theme is that the economic solution to market failure is to create markets that don't exist.
Climate change is one of the most challenging environmental problems.
The mission of the Intergovernmental Panel on Climate Change is to provide comprehensive scientific assess ments of the causes and consequences of rising levels of atmospheric greenhouse gases.
Warming of the climate system can be seen in increases in average air and ocean temperatures, melting of snow and ice, and rising sea levels.
Changes in atmospheric concentrations of GHGs and aerosols, land cover, and solar radiation have altered the energy balance of the climate system.
The GHG emissions from human activities increased by 70% between 1970 and 2004.
There is a lot of evidence that global GHG emissions will increase over the next few decades.
The climate is warming, that human activities contribute to it, and that under current practices, it will continue.
The most reliable projections of sea levels and surface tempera tures for the rest of this century are made by the Intergovernmental Panel on Climate Change.
The projected changes are large enough to change the economies of the world.
The production of food and other agricultural products will be affected by the change in the climate and the increase in sea level.
The economic approach to the problem of global warming is to impose a unit tax on greenhouse gases.
The most efficient way to reduce CO2 emissions is ensured by this approach.
The optimum level of pollution can be described using the marginal principle.
To reduce air pollution, we could eliminate trucks, but shipping goods by horse-drawn wagon would result in higher freight costs and higher prices for most products.
We could reduce water pollution by shutting down the paper mills, but reverting to slate boards would be difficult.
It is sensible to allow some pollution to occur.
Reducing pollution from some starting level is the most convenient way to discuss pollution policies.
The marginal principle can be used to determine the optimal level of pollution.
If the marginal benefit exceeds the marginal cost, increase the level of the activity.
The marginal benefit is equal to the marginal cost.
The principle states that we should cut pollution to the level where the marginal benefit of abatement is equal to the marginal cost.
The marginal principle focuses on the trade-offs from pollution.
Less sickness from waterborne pollutants and cleaner air means lower health-care costs and fewer sick days taken by workers.
The health of trees is improved by improving the air quality.
The water quality can be improved to make it better for swimming, boating, and fishing.
Some manufacturers use clean water in their production process.
Lower production costs can be achieved by cleaner water.
Labor, capi tal, and land are used in the abatement process.
The marginal principle is used to look for the level of pollution abatement at which the marginal benefit is equal to the marginal cost.
Consider a lake shared by a steel mill and a fishing firm as an example of the optimum level of pollution.
The mill dumps waste into the lake, which degrades the fish habitat and decreases the fish harvest.
The increase in fish harvest from a 1-ton decrease in pollution is equal to the marginal benefit of the negatively sloped curve.
The marginal principle can be used to determine the socially efficient outcome.
The marginal benefit is greater than the marginal cost for smaller quantities of abatement.
If we start with 100 tons of abatement, the marginal benefit is $17, compared to a marginal cost of $5.
Adding an additional ton increases the fish harvest by $17 but costs the steel firm only $5, so it's socially efficient.
The first unit of pollution is less expensive to experience than it is to prevent, so it is more efficient to have some pollution.
300 tons (200 tons of waste) is the efficient level of pollution abatement, where the marginal benefit equals the marginal cost.
If the property rights are assigned to the polluter, the other party pays to reach 300 tons of abatement.
If the property rights are assigned to the other party, we start with zero pollution and the polluter pays to increase pollution to 200 tons of waste.
Bargaining among the affected parties can resolve an external-cost problem.
When there is a small number of affected parties and the transaction costs are relatively low, the Coase bargaining solution is applicable.
A lake shared by a steel mill and a fishing firm is an example of a bargaining solution.
The property of the steel mill can be used to dump waste into the lake.
The fishing firm would be willing to pay the mill to reduce pollution.
The fish ing firm is willing to pay $21 for the first ton, the abating cost is only $3, and the two parties can cut a deal.
The fishing firm will pay $12 to the mill for 1 ton of abatement if they split the difference between benefit and cost.
The fishing firm pays $12 to get $21 in additional fish, while the mill pays $12 to incur an abatement cost.
The marginal cost is less than the marginal benefit so the two parties can cut a deal.
The amount the fishing firm is willing to pay for one more ton of abatement is less than the cost.
The marginal benefit of the last unit of abatement is a $1 increase in the fish harvest.
The cost to the steel mill is $13 if you go from 1 to 0 pollution.
Allowing 1 ton of pollution would save the steel firm $13.
Allowing the first ton of waste would harm the fishing firm by $1 and save the mill $13, so there is room to bargain.
The fishing firm would receive $7 to tolerate a $1 loss in harvest, while the steel mill would pay $7 to avoid $13 in abatement cost.
The harm to the fishing firm is less than the cost savings to the steel firm so the fishing firm can cut a deal to allow 2 tons of waste.
The bargaining stops at the socially efficient point because pollution harms the fishing firm more than it saves the steel firm.
The socially efficient outcome has been seen when property rights are assigned to either the steel mill or fishing firm.
Once property rights are assigned, bargaining and side payments allow the firms to adjust the level of pollution as long as the marginal benefit exceeds the marginal cost.
The equity implications of the assignment of property rights are important.
Whoever owns the lake collects the side payments from the party that doesn't.
Bargaining is possible because there are only two parties.
The marginal cost of abatement is less than $10 per ton for the first 36 mil ion metric tons, and increases at an increasing rate, reaching $150 per ton at 69 million metric tons.
It is cheap to recover moderate amounts of methane from landfills and coal mines.
The abatement systems become more expensive as the volume increases.
It is cheap to reduce natural-gas leakage by maintaining surface facilities, but expensive to reduce venting at production sites.
It depends on the benefit of abatement.
The optimum level is about 36 million metric tons if the marginal benefit is $10 The optimum level of abatement is 69 million metric tons if the marginal benefit is $150.
There are related to exercises 1.3 and 1.4.
One of the greenhouse gases is methane.
It is released into the atmosphere from land.
Methane 430-R-99-013 is required in this case.
The costs of arranging side payments and a small number of affected parties are required in Coase bargaining.
When the number of affected parties is large, the bargaining process won't work, and the solution to a spillover problem requires a centralized policy such as pollution taxes, regulations, or marketable permits.
Just as they pay for labor, capital, and materials, taxation promotes efficient environmental generate.
Externality is a cost incurred by someone other than others.
A tax or charge equal to the external cost of labor and materials is called a pollution tax.
The marginal principle will be used by the firm to decide how much pollution to put out.
As long as the marginal benefit is greater than the marginal cost, the firm will increase the level of abatement.
The marginal benefits and costs of abating SO2 are shown in Figure 31.2.
The firm must use more costly means to cut emissions if the marginal cost increases with the amount abated.
The marginal benefit of abatement is the pollution tax that can be avoided by cutting pollution by 1 ton.
The savings in pollution taxes from abating a ton of SO2 is the marginal benefit of abatement.
The marginal benefit of abatement is greater than the marginal cost for the first 6 tons.
The firm will pay the tax instead of abateing it.
Consider the effect of a pollution tax on the market for the product produced by pol luting firms.
A tax on SO2 increases the cost of producing electricity because firms pay for abatement and also pay pollution taxes on any remaining waste they generate.
A tax shifts the supply curve upward by the amount of the tax, decreasing the equilibrium quantity and increasing the equilibrium price, as we saw in an earlier chapter on market efficiency.
Pollution taxes affect the market for electricity.
Two-thirds of SO2 emissions come from electric power plants.
The pollution tax is appropriate because the marginal damage from SO2 is $3,500 per ton.
One-quarter of the nation's NOx emissions are caused by power plants, and they contribute to acid rain and the most important factor in urban smog.
According to the study cited in the chapter, the appropriate tax for NOx is about $1,100 per ton.
Pollution taxes have an effect on the market for electricity.
The taxes increase the cost of producing electricity.
The pollution taxes would increase the price of electricity by 4 percent.
The pollution tax increases the cost of producing electricity, which affects the market supply curve.
The pollution tax is shifted to consumers in the form of a higher price, and they respond by consuming less of the good.
Consumers buy less electricity when the cost is high.
Firms switch to cleaner technology as a result of a pollution tax.
Low-sulfur coal is more expensive than high-sulfur coal, but it reduces SO2 taxes.
The share of power generated with low-sulfur coal increased.
The share of electric power from other sources increases when the cost of using coal is higher than the cost of using natural gas and nuclear power.
The pollution taxes decrease the amount of air pollution.
The government could use the revenue from the pollution tax to cut other taxes, for example, the payroll tax or the income tax.
"Efficient Emission Fees in the U.S. Electricity Sector" was based on Spencer Banzhaf, Dallas Burtraw, and Karen Palmer.
The problem of global warming caused by greenhouse gases is an ongoing environmental issue.
Taxing carbon-based fuels is one approach.
A carbon tax of $100 per ton of carbon content would translate into taxes on gas, oil, and coal.
The tax on coal would be high because of its higher carbon content.
A carbon tax would cause people to drive less and buy more energy efficient vehicles.
The tax would increase the price of electricity, decrease the quantity of elec tricity demanded and burn fossil fuels.
The higher the price of home heating, the less people will use it and the less efficient it will be.
Some electricity producers would switch from coal to natural gas, which has a lower carbon content, and thus a lower carbon tax.
Others would switch to non carbon energy sources.
Governments around the world have imposed carbon taxes.
British Columbia has a carbon tax of $30 per ton.
The carbon tax revenue is returned to taxpayers through reductions in taxes on personal and business income.
The per capita fuel consumption in the province has decreased by 4.5 percent since 2008, and citizens use less fuel and pay less income taxes.
According to local observers, the tax has been good for the environment and taxpayers, and hasn't harmed the economy.
There are carbon taxes in Europe.
$200 per ton is the cost of carbon washing with current technology.
If carbon washing develops at the same pace as other new technologies, the cost per ton could be as low as $30.
A tax of 0.25 per gallon of gasoline would cover the cost of capturing the CO2 it creates.
A firm that produces CO2 faces a carbon tax of $70 per ton if it has a marginal abatement cost of $90 per ton.
The tax will be paid by the firm.
The firm could offset its carbon emissions with a carbon washing machine if the cost of carbon washing is $50 per ton.
One option to address the problem of CO2 in the atmosphere is a savings of $20 per ton for the firm and less carbon in large machines to wash CO2 out of the air.
The incentives for Bon will at least partly offset current emissions, and could actuify new carbon-washing firms.
Such a firm would use ally to reduce the carbon content of the atmosphere and charge a price high enough to restore historic levels of atmospheric carbon.
Exercise 2.6 is related to it.
Prototype machines that absorb carbon are being developed by several organizations.
Explain the difference between taxation and traditional regulation.
Under a traditional regu lation policy, the government tells each firm how much pollution to abate.
Consider an area with two electricity genera tors, firm L and firm H, and see how regulation affects them.
In the absence of pollution-abatement efforts, each firm would discharge 2 tons of pollution per hour.
2 tons of SO2 per hour is divided between the two firms by the government.
The table shows the numbers behind the example.
The marginal cost for firm L is $2,000 and the marginal cost for firm H is $5,000.
Under the uniform-abatement policy, the total cost of abatement is $2,000 for firm L and $5,000 for firm H. The government could impose a pollution tax of $3,000 per ton.
Firm L will respond by abating 2 tons because the marginal cost is less than the tax.
Firm H will pay the tax because the marginal cost of abatement is more than the tax.
The total cost of reducing pollution by 2 tons is only $4,000 if the low-cost firm does all the abating.
Uniform abatement is inefficient because it doesn't take advantage of the differences between the two firms.
A pollution tax ages abatement by the most efficient abaters.
We get an efficient response when we treat firms equally in terms of the consequences of pollution.
The low-cost firm incurs tax costs to avoid the tax, while the high-cost firm incurs tax costs to avoid the tax.
There is another aspect to traditional regulation policies that contributes to higher costs.
Under a command-and-control policy, the government requires each firm to produce no more than a certain amount of pollution and requires abatement be done with a particular technology.
The mandated abatement technology is unlikely to be the most efficient technology for two reasons.
A technology that is efficient for one firm may not be efficient for others.
Incentives to develop more efficient abate ment technologies are decreased by the regulatory policy.
There is no incentive to cut the amount of waste below the maximum allowed because of the command part of the policy.
The benefit of developing new technolo gies is small because there is no payoff.
If the firm develops a new technology that cuts pollution, it will pay less in pollution taxes.
A command-and-control policy causes firms to use inefficient abatement technologies, so production costs will be higher than they would be under a pollution tax.
It doesn't exploit differences in abatement costs across firms to achieve the same reduction in pollution at a higher cost.
There's no incentive to develop better techniques because of the control part of command and control.
The supply curve for the bad will shift upward by a larger amount than it would with a tax.
A larger supply shift causes the equilibrium price to go up and the quantity to go down.
Consumers pay higher prices because of the inefficiency of regulations.
The command-and-control policy has one advantage.
Predicting the total volume of waste is possible because the policy specifies how much waste each firm can produce.
It is difficult to predict the total volume of waste that will be emitted because we don't know how firms will respond to the pollution tax.
Traditional environmental policy is inflexible.
Firms are not allowed to use the most efficient methods.
A person with the name "Dreading Winter" sought advice about how to deal with a pollution problem.
Her neighbors heated their home with a wood-burning stove, and the smell and smoke from the wood fire gave Dreading Winter burning eyes, a stuffy nose, and painful sinuses.
She offered the neighbors money to stop burning wood, but they didn't take it.
Dreading Winter should buy the neighbors a catalytic add-on for the wood stove or a wood chip gasifier.
There would be less air pollution from burning wood.
If you want to see the smoke disappear, soak a towel in water.
The smoke odor can be eliminated by leaving a saucer of vinegar in each room.
Pay your neighbors to have a chimney sweep clean their flue.