Efficient Pollution Regulation: Getting the Prices Right

This paper argues for efficient environmental regulations that equate the marginal damage of pollution to marginal abatement costs across space. The paper estimates the source-specific marginal damages of air pollution and calculates the welfare gain from making the current sulfur dioxide allowance...

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Bibliographic Details
Published in:The American economic review 2009-12, Vol.99 (5), p.1714-1739
Main Authors: Muller, Nicholas Z., Mendelsohn, Robert
Format: Article
Language:English
Subjects:
Air pollution
Cost control
Cost efficiency
Costs
Efficiency
Emissions
Emissions policy
Emissions regulations
Emissions trading
Environmental economics
Environmental policy
Environmental regulations
Environmental studies
Foreign exchange rates
Industrial plant emissions
Marginal abatement costs
Marginal analysis
Marginal costs
Mortality
Outdoor air quality
Particulate emissions
Pollutant emissions
Pollutants
Pollution control
Power plants
Prices
Ratios
Regulation
Studies
Taxes
VOCs
Volatile organic compounds
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Summary:This paper argues for efficient environmental regulations that equate the marginal damage of pollution to marginal abatement costs across space. The paper estimates the source-specific marginal damages of air pollution and calculates the welfare gain from making the current sulfur dioxide allowance trading program for power plants more efficient. The savings from using trading ratios based on marginal damages are between $310 and $940 million per year. The potential savings from setting aggregate emissions efficiently and from including more sources of air pollution are many times higher.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.99.5.1714