Understanding Costs & Benefits of Air Pollution Abatement: Flue-gas Desulfurization & Dama, Study notes of Agricultural engineering

Download Understanding Costs & Benefits of Air Pollution Abatement: Flue-gas Desulfurization & Dama and more Study notes Agricultural engineering in PDF only on Docsity! Chapter 5 – How much to abate? We’ve been taking pollution levels as inextricably linked to output levels. In practice, firms can reduce emissions/unit of output by employing services of abatement technologies to clean up their production. Classic example: Use a “scrubber” to get the sulphur dioxide out of your exhaust. This is a good idea because sulphur dioxide is a primary ingredient in smog. Majority of anthropogenic SO2 emissions result of electricity generation. There are different types of scrubbers. Here’s a description of what a “wet” scrubber does: “In wet scrubbers, the flue gas enters a large vessel (spray tower or absorber), where it is sprayed with water slurry (approximately 10 percent lime or limestone). The calcium in the slurry reacts with the SO2 to form calcium sulfite or calcium sulfate. A portion of the slurry from the reaction tank is pumped into the thickener, where the solids settle before going to a filter for final dewatering to about 50 percent solids. The calcium sulfite waste product is usually mixed with fly ash (approximately 1:1) and fixative lime (approximately 5 percent) and disposed of in landfills. Alternatively, gypsum can be produced from FGD waste, which is a useful by-product.” (World Bank <http://www.worldbank.org/html/fpd/em/power/EA/mitigatn/aqsowet.st m>) <Show overhead with diagram> Note: ESP = electrostatic precipitator FGD = flue-gas desulfurization Source: World Bank <http://www.worldbank.org/html/fpd/em/power/EA/ mitigatn/aqsowet.stm> So the technology is complicated, and uses a lot of resources. Point: abatement is not free. So how much should we let firms pollute (i.e.not abate)? linked to the choke price for the good. And few market goods really are priceless, even in small quantities. <fig 5.3> Equimarginal Principle If there are multiple polluters, each with different technologies, what does the aggregate abatement cost curve look like? It’s just the horizontal sum of the individual MAC curves: <fig 5.4> Raises interesting question. With multiple firms, who should abate first? The rule is: have the firm with the lowest MAC abate. Based on our graph, if we wanted aggregate emissions to be only 5lb/year, then we’d want to get Firm 2 to undertake all its possible abatement (20 lbs) and Firm 1 to only abate down to 5 lbs. Is this weird? Given the graph, most of the emissions without regulation would come from Firm 2. So it does seem fair that they do the lion’s share of the abatement. But if you look at the cost curves, you’ll probably conclude that firm 2 is the more efficient firm: they’ve probably got the new technologies that allow for cheap abatement. Seems unfair to penalize the low cost firm doesn’t it? We’ll come back to this. But if we take the shapes of the MAC curves as fixed, then the logic (that you should have firm 2 emit 20 lbs, and firm 1 only 5) is impeccable. Prove this to yourself. Suppose we instead asked firm 1 to abate all the way to zero, and let firm 2 expand emissions out to 5 lb/year. Could calculate mathematically how aggregate abatement costs change, but is easier to use a graph: <figure 5.5> Firm 1 incurs a+b+c in additional abatement costs, while firm 2 saves only area c. See Aggregate Total Abatement Costs rise by a+b. Before we go on, it’s fun to draw a MAC curve for something real. In practice, government often doesn’t know firms’ costs of cleaning up its act. But some public abatement activities are easy to price, so let’s use that. This’ll also bring home the point that not all abatement is the responsibility of corporations. Use the data from text in Exhibit 5.1 and chart it. This data apparently for 2000 and for Boston Harbor. 0 1200 600 300 900 150 Indoor and Harbor water quality No sewage pipes no running water (epidemics, harbor ecology destroyed) Running water in Houses, clean safe drinking water, sewage piped to harbor without Treatment (harbor unswimmable, shelfish contaminated) … , sewage undergoes primary and secondary treatment; sludge recycling; long outfall; storage for CSO water, infrequent release of raw sewage via CSOs (seafood edible, few beach closures, harbor often swimmable) …, sewage undergoes Primary, secondary & tertiary treatment, long outfall; containment of CSO water (healthy marine environment, Harbor swimmable) Marginal Costs of Cleaning Up Boston Harbor (2000) C o st /H ou se ho ld /Y e a r Socially efficient level of pollution In last example, I chose 5lb/year as aggregate target. Admittedly, choice of 5llb/year was arbitrary. How should we pick our targets? Usual economic reasoning: choose Q such as that marginal social benefit from emissions equals marginal social cost. MD represents marginal social costs from emissions. And if the firms are perfectly competitive (so that price of any foregone output represents true value  Official Foreign Aid: 0.17% (2004 “Global Issues”)1 Unless otherwise noted, all numbers from CIA Factbook for 2005. Is 2.6% too much? Depends on what you get for it. Some estimates of benefits versus costs Source: EPA’s whitepaper “Environmental Protection: Is It Bad for the Economy?” (see syllabus for link) OMB (1997) report shows that the aggregate annual benefits of all of all environmental regulations (imposing costs of over $100 million each) totaled $162 billion (1996 dollars), while their total annual costs were $144 billion. Hahn (1996) calculates aggregate annual benefits and costs (of same US env’l 1 Norway: 0.87% regulations?) at $253.8 billion and $206.7 billion respectively (1994 dollars). EPA (1997) estimates the total costs and benefits of the entire Clean Air Act from 1970 to 1990[10] as follows: total benefits for this time period ranged from $5.6 trillion to $49.4 trillion (1990 dollars), while total costs were $523 billion (1990 dollars).