Thursday, April 20, 2006

Looking for an alternative for pollution..

is it still relevant one or may be all of these policy options to solve the problems of pollution? i said these are classical approach and i am looking for an alternative. can somebody help me? thanks for reading.. enjoy..

  1. The plant requires to install a particular pollution-reducing technology

The policy largely depends on the use of technology to reduce pollution. It is assumed that by using particular pollution-reducing technology, pollution abatement is encouraging. It has advantage of fitting with interest of regulator and polluter because of its simplicity and short time perspective of many policy decisions. The solution provided is compromising as it allows economic growth to progress while pollution may be reduced. On the contrary, the initial investment for the new technology may be high hence it may affect the plant’ performance. As a result output’ price will increase then reduce the profit of the plant. Therefore only the big plant is likely to survive.

Applying standard technology provides less choice to explore the cheaper’ technology available hence no incentive for inventing a cleaner technology. The information regarding financial capability of the plant and the level of pollution technology are less visible therefore government needs to collect detail information on these matter. This will increase administrative cost.

The underlying assumption of this end-pipe policy, it assumes homogenous emission level so that by using standard technology it can achieve the certain level of pollution. In the case that the level of emission of the plant is higher than of the abatement technology can do, hence the policy is less optimal to control the level of total pollution.

  1. The government sets a limit of allowable pollution

This type of policy is directly related to reduce quantity of emission produced in this case; the maximum pollutant can be released to the river. Compared to the use of standard technology, this policy is more efficient to achieve target. For polluters, the policy gives more room for maneuver to comply with the regulation either by reducing output or the choice of abatement method to meet the mandated goal. They can choose these options within their cost structure. In contrast with applying standard technology the marginal cost of reducing the output is much lower. It is possible for polluters to trade off between pollution units, which is impossible for technology type of policy.

On the other hand, in terms of cost to government, it is expensive to monitor how effective the plant achieves the target. In addition, the cost might occurred when the government has tacit collusion with the plant setting the allowable level which paid by the whole society. The assumption of perfect information again becomes less evident and government’ accountability is needed in this case. Lastly, the impact to the plant is the increase of output’ price however this increase is higher than of applying new technology policy.

  1. Introduction of pollution tax per unit pollution produced

The pigovian tax is meant to reduce social cost (externality) occurred by dirty production. However in order to be effective, the tax should be high enough so that has an effect to polluter’ behavior. The lower tax produces less impact to behavior especially if the polluters hold much money, they prefer paying the tax and keep polluting. Whereas, the medium to small size of polluters can’t afford when the tax is set too high. The marginal cost of additional tax paid is higher than the profit they can make from production. Furthermore, the plant will shut down and the investors move the investment to the other country where the regulation is rather lax.

The advantage of this policy is providing source of revenue to the government. By this additional revenue, government can expand their ability to improve economic growth. Despite the huge money it gets from the tax, the government should be accountable to manage such fund or else inefficiency and wasting resources might take place. Unless the government would have achieved higher level of development, the whole society will suffer from the pollution. In brief, this policy may be preferable for its costless in nature but earn a lot of income for government.


andersonite said...

How about creating a market for pollution quota? Government sets the maximum allowed pollution and firms can buy the rights to pollute ...

Anonymous said...

The problem will be more complex if
pollution is not only national but also trans-boundry. How we make standarisation of technology and tax since each country has different preference to pullution. Have you considered the effect of a high tax rate of pollution to the capital outflow? There is a competiton of tax among countries