Spatial Dimensions of Environmental Regulations

1. Spatial Dimensions of Environmental Regulations How can economics help us better regulate when the damages occur over space?

2. 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?

3. The Carpinteria problem x x x x x x x x 1 Receptor (o) Many sources (x) Marsh o

5. “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?

6. A concrete-lined channel

7. Pollution if no interaction effects pj = Saijei + Bj Where Bj is background level of Nitrogen. • Now aij = dpij/dei

8. 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) = ai + bi(Ei-ei) + gi(Ei-ei)2 • Then MC is linear. • Control costs (by industry) often available from EPA, other sources.

9. How much abatement? • To achieve ambient standard, A, which sources should abate and how much? MineSci(Ei-ei) s.t. Saiei A • In words: minimize abatement cost such that total pollution at Carpinteria Salt Marsh  A.

10. 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

11. Current pollution level P0 = S aiEi > A

12. “Rollback” • Standard engineering solution. • Everyone “rolls back” pollution by the same percentage: x = A/P0 ei = Eix • E.g. A=100 ppm, P0=1000 ppm. • Everyone rolls back by 10% • If I started at 40, new level is 36.

13. 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?

14. 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.

15. 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.

16. 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