Transcript Econ 4440/5440 Ch 17 Powerpoint created by Dr. Nieswiadomy Fall

Ch. 17 Regional and Global Air Pollutants:
Acid Rain and Atmospheric Modification
Regional Pollutants
Regional pollutants cause damage
significant distances away from source.
 Some substances can be both local and
regional pollutants: sulfur oxides, nitrogen
oxides, and ozone.
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– e.g. sulfur emissions (acid rain) have been
know to travel 200-600 miles and can be
transformed into sulfuric and nitric acids
– e.g. nitrogen oxides and volatile organic
compounds can combine in presence of sunlight
to form ozone.
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Acid Rain
Acid rain is misnomer: actually acidic substances
can be deposited as dry particles
Precipitation is normally mildly acidic, (around
pH of 5.0). Remember pH (power of Hydrogen)
is a log (base 10) scale: below 7.0 is acid and
above 7.0 is alkaline.
Industrialized areas often receive rain with pH
below 5.0 (east U.S. averages 4.4 pH).
Wheeling, West Virginia once received acid rain
with pH of 1.5. (Car battery is 1.0 pH.)
Evidence clearly shows that anthropogenic
sources are the primary cause.
National Acid Rain Precipitation Assessment Program
(1980 10 yr. study funded by Congress) : Findings
 1) most sport fish can tolerate pH above 5.5 but not
below 5.0
 2) worst spots: 14% of Adirondack lakes in New
York and 23% in Florida are acidified.
 3) in many national parks visibility is reduced due to
SO2 (50%-60% in East Shenandoah and Great
Smoky Mountain National Parks)
 4) No significant effect on crop growth at 10 times
current acidity levels.
 5) hurts red spruce at eastern mountain tops
 6) can increase rate of deterioration of galvanized
steel, bronze, carbonate stone, etc.
Acid Rain (cont.)
U.S. findings were less dire than expected.
Sweden has 4000 acidified lakes. 13,000 sq. km
of lakes in Norway have no fish. Germany,
Scotland & Canada have problems.
 In early days, the motto was “dilution is the
solution.” Taller smokestacks were built.
 National Coal Model (1986) analyzes the
economic and political effects of various
strategies designed to achieve reductions of SO2
from 8 to 12 million tons below 1980 levels.
 First, we will compare CAC to emissions charges
 Second, we will consider political issues.
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National Coal Model
CAC strategy requires each state to reduce
their share of “excess emissions” e.g. 8, 10,
12 million tons.
 Emission charge is $600 per ton, figured to
reduce emissions about 10 million tons.
 Findings:
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– 1) MC of additional control rises rapidly,
particularly after 10 million tons.
– 2) CAC costs more ($360/ton) vs. emission
charge strategy ($327/ton)
– 3) magnitude of cost effectiveness is not large
in this particular context.
National Coal Model
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Total program Annual Cost
Key state
Cost
cost
to utilities
employ. change effectiveness
Strategy
($ billions)
($billions)
(# of jobs lost) ($/ton)
-------------------------------------------------------------------------------------------------8 million ton $20.4
$1.9
14,100
$270
10 million ton $34.5
$3.2
21,900
$360
12 million ton $93.6
$8.8
13,400
$779
emission charge $37.5
$7.7
17,900
$327
Coal and Politics -- don’t mix!
It took until 1990 to enact acid rain
legislation because of politics -- many coal
jobs in many states.
 Coal switching is a cost saving strategy -switch to low sulfur to reduce emissions
 But Illinois, Indiana, Ohio and Pennsylvania
are high-sulfur states.
 Largest electricity rate increases would
occur in Midwestern and Appalachian states
that have largest excess emissions, but their
rates would still be below average for U.S.
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Coal and Politics -- don’t mix!
Firms don’t like emissions charges ($7.7b)
because they cost more than CAC( $3.2b)
 Emission permit program can achieve same
cost effectiveness and reduce cost to
utilities.
 They are traded on Chicago Board of Trade
and individually. See Ex. 17.2.
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The Sulfur Allowance Program
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“Cap and trade” program was adopted as part of the Clean
Air Act Amendment of 1990.
Substantial change from previous CAC approach.
Anyone can buy the allowance. Environmental groups have
retired them. Student organizations have.
By 2005 reduced SO2 by 41% from 1980 levels.
NY, PA, WI, MI, WV ¼ less surface water was acidic
VA, New England no change; but there were health benefits
Ellerman et al. (2000) finds Phase I cost savings of from
33% to 67% over non trading alternatives. Primarily due to
switching to low sulfur coal, falling prices of low-sulfur coal
(lower rail costs) and lower costs of scrubbers.
It is politically difficult under traditional system to get MC
of control equal. Some utilities would be forced to reduce
more.
But allowance trading program voluntarily solves this
problem.
Global Pollutants:
Ozone Depletion
Ozone Depletion
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In troposphere (closest to earth) ozone O3 is pollutant.
In stratosphere (just above troposphere) ozone shields us
from ultraviolet rays. Mnemonic tool: layers of the
atmosphere (lowest to highest) That Should Make It
Easy: (troposphere, stratosphere, mesosphere,
ionosphere, exosphere)
Cholorofluorocarbons (CFCs) may deplete the ozone
shield in a complicated chemical process. CFCs have
been used in cushioning, packaging, insulating foams,
food freezing, industrial cleaning of metals, air
conditioning.
Major known effect of increased ultraviolet radiation is
increase in nonmelanoma skin cancer. Other effects are
possible.
Ozone Depletion
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On June 30, 1978, U.S. EPA banned the manufacture &
sale of “fully halogenated chlorofluoroalkane” for aerosol
propellant uses subject to Toxic Substances Control Act.
But worldwide CFC-11 and CFC-12 continue to grow
Rand Corporation studied the costs of controlling
nonaerosol applications of CFCs.
– 3 policies were considered for a 10 year period
» 1) emission standards forcing use of specific technologies
» 2) constant emissions charge of $0.50 (real dollars) per pound emitted
» 3) marketable permit system
– conclusions: permit system produces same amount of reduction
as mandatory controls at about one-half cost
Table 17.2 Comparisons of Alternative Policies Having Similar Cumulative
Emissions Reductions
Emissions reduction
Total compliance costs
(millions of permit pounds)
(millions of 1976 dollars)
Cumulative
Cumulative
a
Policy design
1980
1990 1980-1990
1980
1990 1980-1990
Mandatory controls
54.4
102.5
812.3
20.9
37.0
185.3
Economic incentives
Constant chargeb
54.8
96.9
816.9
12.3
21.8
107.8
Permit systemc
36.6
119.4
806.1
5.2
35.0
94.7
a
Present value of annual compliance costs, discounted at 11%.
b
Based on a constant tax rate of $0.50 from 1980 through 1990 (in 1976$).
c
Based on a permit price or emission charge rising from $0.25 in 1980 to $0.71 in 1990.
Source: Palmer, Mooz, Quinn, and Wolf (p. 225, Table 4.7)
Ozone Depletion
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Transfer costs can be enormous under emission charge
program, as much as 15 times as large as expenditures
incurred in controlling emissions.
In September 1988 24 nations signed the Montreal
Protocol to completely phaseout halons & CFCs by end
of 20th century. A $240 million Multilateral Fund was
established for 1991-1993 to help poorer countries switch
to more expensive, but less harmful substitutes.
Replenished 5 other times; most recently 2003-2005 =
U.S. $474.
The U.S. has chosen to use tradable permit system
EPA taxes the permits to soak up rents.
Ozone depletion should reach worst point soon then
Climate Change
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Global Warming
Greenhouse gases absorb the long wavelength
(infrared) radiation from earth’s surface and
atmosphere, trapping the heat that would otherwise
radiate into space.
Carbon dioxide is most abundant but others such as
CFCs, nitrous oxide, methane, and tropospheric
ozone may be more important in future.
Intergovernmental Panel on Climate Change (IPCC)
(2001) projects a doubling of CO2 by 2100 & a rise
of surface air temperature of between 1.4o and 5.8o
C. Sea level will rise. Most computer models now
project at the lower end of the temperature rise.
What has been impact of humans? See:
http://www.ipcc.ch/ipccreports/tar/vol4/english/pdf/
spm.pdf
Global Warming
What are consequences of temperature
increases of this magnitude?
 Most studies focus on effects on agriculture.
 Mendelsohn, Nordhaus, Shaw (1994)
estimated that damages in U.S. would be
small because farmers would substitute crops.
 Rosenzweig and Parry (1994) argue that
developing countries may not be able to
substitute as easily.
 Other problems: Russia may benefit from
higher temperatures.
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Global Warming Strategies
1) Climatic engineering: Shoot particles into
atmosphere
 2) Adaptation: adjust to living in hotter
conditions
 3) Mitigation: increase planetary capacity to
absorb greenhouse gases
 4) Prevention: reduce emissions through
fossil fuel tax or other methods. Current
gasoline taxes vary greatly across countries.
U.S. tax in 1991 - $0.36/gal.; $1.64-Germany;
$1.91/Britain; $2.33 - France; $3.26 - Italy.
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Complementary Strategies
Prototype Carbon Fund (PCF): similar to
mutual fund, receive pro rata share of
emission reductions.
 Global Environmental Facility (GEF): funds
projects that have external benefits to other
countries so that projects that can’t be
justified domestically (but can be globally
justified) receive additional funding.
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The Case for Emissions Trading
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Emissions trading is cost effective.
– Reduction in GDP of about 0.2% to 2% in 2010
w/o trading b/w Annex B countries
– Reduction in GDP of about 0.1% to 1.1% in 2010
w/ trading b/w Annex B countries
Debate 17.1
Copyright © 2009 Pearson Addison-Wesley. All rights
17-25
reserved.
Controversies, timing of policy, creating incentives
for participation in climate change agreements
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Controversies:
– 1) monitoring and enforcement are necessary
– 2) Former Soviet countries have surplus of
permits due to weak GDP of 1990s. Lowers
permit prices; less pollution control needed
– French Firm Cashes In Under U.N. Warming
Program By CHARLES FORELLE July 23,
2008; Page A1, Wall Street Journal
» Will earn $1 billion selling pollution credits
Controversies, timing of policy, creating incentives
for participation in climate change agreements
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Timing of Policy
– Benefit cost analysis shows that some hedging
strategy is better than “wait and see” strategy.
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Creating incentives for participation
– Must deal with public goods problem
– Game theory is needed
– Issue linkage can be used to allow both parties to
win
The End