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By the end of this section, you will be able to:

  • Show how pollution charges impact firm decisions
  • Suggest other laws and regulations that could fall under pollution charges
  • Explain the significance of marketable permits and property rights
  • Evaluate which policies are most appropriate for various situations

Market-oriented environmental policies create incentives to allow firms some flexibility in reducing pollution. The three main categories of market-oriented approaches to pollution control are pollution charges, marketable permits, and better-defined property rights. All of these policy tools, discussed below, address the shortcomings of command-and-control regulation—albeit in different ways.

Pollution charges

A pollution charge    is a tax imposed on the quantity of pollution that a firm emits. A pollution charge gives a profit-maximizing firm an incentive to figure out ways to reduce its emissions—as long as the marginal cost of reducing the emissions is less than the tax.

For example, consider a small firm that emits 50 pounds per year of small particles, such as soot, into the air. Particulate matter, as it is called, causes respiratory illnesses and also imposes costs on firms and individuals.

[link] illustrates the marginal costs that a firm faces in reducing pollution. The marginal cost of pollution reduction, like most most marginal cost curves increases with output, at least in the short run. Reducing the first 10 pounds of particulate emissions costs the firm $300. Reducing the second 10 pounds would cost $500; reducing the third ten pounds would cost $900; reducing the fourth 10 pounds would cost $1,500; and the fifth 10 pounds would cost $2,500. This pattern for the costs of reducing pollution is common, because the firm can use the cheapest and easiest method to make initial reductions in pollution, but additional reductions in pollution become more expensive.

A pollution charge

 The graph shows the incentive for a firm to reduce pollution in order to avoid paying a pollution charge.
If a pollution charge is set equal to $1,000, then the firm will have an incentive to reduce pollution by 30 pounds because the $900 cost of these reductions would be less than the cost of paying the pollution charge.

Imagine the firm now faces a pollution tax of $1,000 for every 10 pounds of particulates emitted. The firm has the choice of either polluting and paying the tax, or reducing the amount of particulates they emit and paying the cost of abatement as shown in the figure. How much will the firm pollute and how much will the firm abate? The first 10 pounds would cost the firm $300 to abate. This is substantially less than the $1,000 tax, so they will choose to abate. The second 10 pounds would cost $500 to abate, which is still less than the tax, so they will choose to abate. The third 10 pounds would cost $900 to abate, which is slightly less than the $1,000 tax. The fourth 10 pounds would cost $1,500, which is much more costly than paying the tax. As a result, the firm will decide to reduce pollutants by 30 pounds, because the marginal cost of reducing pollution by this amount is less than the pollution tax. With a tax of $1,000, the firm has no incentive to reduce pollution more than 30 pounds.

Questions & Answers

In few words, what is the role of interest rate in economy?
Carlos Reply
what is population
Nyakeh Reply
total number of people in a given area or country
Clement
the total number of people at a given area or country
Clement
total number of people in a given area or country
okhiria
What is price Elasticity of demand?.
Samuel
The responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price.
EMMANUEL
please rice and beans will be what type of demand but note we mostly cook it together
Oladosu Reply
complementary or joint demand
Yillah
but did you know you can demand for rice without beans so how is it joint or complementary
Oladosu
From my point of view, rice and beans are replaceable goods, hence they can't be complementary.
Carlos
what are the money value
Wisdom Reply
Nothing more than a purchase power, in other words, $100 now, must have the same value after 1 year.
Carlos
what is Monopoly
Rebecca Reply
what is money
Lawal Reply
It can be define as a big transaction that can control any business for one place to another base.
Akinlo
money is recognisable note to accept both parties selling and buying
Hassan
i don still understan
Rene
hey
Abdul
hi
Rene
money is anything generally accepted as a medium of exchange
Awwal
Money is anything generally accepted as a medium of exchange and for the settlement of goods and services .
Korda
hi good ppl, pls help out
Tumi
discuss human and natural resources as develop strategies ro improving living condition of citizens in developing countries.
Tumi
I don't understand the question.
Naomi
it's a form of currency used for 2 or more individuals or parties in order to reach their amicable personal or business attainment. one must understand that money itself can manifest in multiple fashions for which the individuals or parties adheres.
are u trying to say we shld discuss ways in which human natural resources help in improving living condition of citizens in developing countries?
Naomi
money is a legal thunder generally accepted as a medium of exchange for the payment of debt ,goods and services
Naomi
money is a way of payment.
Carlos
money is any thing that is generally accepted as a medium of exchange good for good and settlement of debt and means of payment
Yillah
money is nothing but a object which is used for exchange of goods and services.
Harshita
money is anything that is generally accepted as payment of goods and services and settlement of debt
Rebecca
what is demand
Melissa Reply
demand is where the customer is willing and able to buy goods and services during a given period of time
idk
demand is the ability and willingness of an individual to buy goods and services at a given price in a particular period of time
Alpha
demand is the ability to buy a specific quantities of goods and services at a given price and at a specific period of time
rosemary
what are the rules of demand
rosemary
Rosemary Nsebon, Do you mean laws of demand?
Alpha
what are the rules of demand
Rene
the rule of demand is the higher the price the lower the quantity demanded and the lower the price the higher the quantity demanded
mbi
thank
Rene
what is unemployment
Rebecca
unemployment is a scenario or a phenomenon in an economy whereby people are willing are able to work but cannot a job
mbi
Suppose you have a team of two workers: one is a baker and one is a chef. Explain why the kitchen can produce more meals in a given period of time if each worker specializes in what they do best than if each worker tries to do everything from appetizer to dessert. please I need a urgent answer
Oladosu Reply
Enables individuals and countries to consume a variety of goods and services
Iddrisu
what is the meaning of competency
Oladosu Reply
competency is an ability and courage to do something perfectly
Abdullahi
ability to perform some task
Segun
rival
Ray
thanks 🙏 it is also the same with the core competency
Oladosu
A sufficient supply
Ebenezer
Ebenezer you mean the (core competency) right?
Oladosu
what is mean,median and mode
Ikeh Reply
mean is the average number of a given data
Gallant
median is the middle number of a given data
Gallant
in a given data sorry
Mitchel
hi
Sajib
Pls am new here
Physcal
what are development bank in Nigeria
Adedigba Reply
.hi
Physcal
hi
Adedigba
hw
Physcal
and cool
Rosie
nice to meet everyone
Rosie
hi how are dears
Mumtaz
how can we development economic in our country
Mumtaz
hi
Charm
Payroll and​ 4p
Wasuroj
Agriculture
Wasuroj
Export
Wasuroj
Transport
Wasuroj
Change management​ and​ cerrancy
Wasuroj
Empoyee
Wasuroj
Lawyer army and​ Lawyer​
Wasuroj
animal husbandry essay
Rakuane Reply
what's the primary location of capital and money market respectively
ALIMI
what is bank
Nyakeh Reply
A bank is an institution set up purposely for the save keeping of money and other valuables
Alpha
A bank is a financial institution which helps people to save their money
Cyprian
pls define the HRM and HRP
Mumtaz
we have no money in bank....the bank owes us
Ray
When a supply curve start from the origin price elasticity of supply is unitory. Provide a simple proof
Felix Reply
Oui
Bobbo
please help someone should help me this question
Felix
ok
Anita
what is price
Divine Reply
the perchesing amount of something is called price
Nasir

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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