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ECON 4910 Spring 2007 Environmental Economics Lecture 4, Chapter 7 -9

ECON 4910 Spring 2007 Environmental Economics Lecture 4, Chapter 7 -9. Lecturer: Finn R. Førsund. Options for reducing generation of pollutants. Reduced activity level Substitution among inputs Change of production technology Reducing use of material inputs Changing types of inputs

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ECON 4910 Spring 2007 Environmental Economics Lecture 4, Chapter 7 -9

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  1. ECON 4910 Spring 2007 Environmental Economics Lecture 4, Chapter 7 -9 Lecturer: Finn R. Førsund Environmental Economics

  2. Options for reducing generation of pollutants • Reduced activity level • Substitution among inputs • Change of production technology • Reducing use of material inputs • Changing types of inputs • Reusing residuals • Add-on purification • Recirculation of residuals • Relocalisation of activities Environmental Economics

  3. Introducing Pigou tax • Competitive market, disregarding determination of output, tax t on emission • The firm: minimising purification costs • First-order condition • Generalises directly to many firms Environmental Economics

  4. Illustration of Pigou tax -c’, D’ D’ -c’ t e D’=0 emin eo e* Environmental Economics

  5. Illustration of Pigou tax with two firms -c’, D’ D’ -c2’ -c1’ t e D’=0 e* e2o Environmental Economics

  6. Subsidy • The firm’s optimisation problem • The first order condition • Control of eo, dynamic effects Environmental Economics

  7. Illustration of Pigou subsidy -c’, D’ D’ -c’ s e D’=0 emin eo e* Environmental Economics

  8. Spatial model of the environment • ei = secondary emission vector from producer i • eki = secondary or remaining discharge of pollutant (after purification) of type k from source i • Msj = environmental service of type s measured by indicator at receptor j Environmental Economics

  9. Illustration of spatial dimension • Spatial configuration: transport from source to receptor • Key variable: transfer coefficient aij Transfer coefficient Source (Point, Mobile, Diffuse) akij Environmental receptor Environmental Economics

  10. Introducing transfer coefficients • akij= amount of pollutant type k per unit generated by source i ending up in receptor j • eki = discharge of pollutant (after purification) of type k from source i • Msj= environmental service of type s measured by indicator at receptor j Environmental Economics

  11. Non-uniform dispersion of pollutants • The impact of one unit of pollutant k from a source i depends on the location expressed by the transfer coefficient • A damage function for each environmental receptor has to be specified • Using Pigou tax on pollutants at source implies that each source must have an individual tax rate Environmental Economics

  12. The spatial model with many firms • The social planning problem • Esj: monetary evaluation of environmental sevice s provided by environmental receptor j • Simplifying to one receptor, one environmental service, one type of pollutant Environmental Economics

  13. The social optimisation problem • First-order conditions • The optimal Pigou tax Environmental Economics

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