Standards, Taxes And Tradeable Permits Essay

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3. Discuss the relative merits of i) standards, ii) taxes, and iii) tradable permits, in inducing a socially optimal level of pollution. Try to provide some empirical evidence. There is no doubt that pollution is a serious issue, a report to congress by the United States Environmental Protection Agency in 2002 found that when 19% of all streams in the US were assessed, only 51% of that water was deemed ‘good’, while 41% (amounting to approximately 309,755 miles of streams) was impaired.1 The problem of pollution in relation to economics is a complicated one. There are many factors involved in the cause of it, and so it is difficult to try and force any one firm, or industry, or even country to try and solve the problem. There are some relatively simple economic measures a government can take to curb point-source pollution, where a clear cause of the problem can be found, i.e. a factory releasing waste into rivers. However, with nonpoint pollution it is not only difficult to control multiple sources (of unknown or ambiguous severity), it is difficult to tax or fine them, as it is unfair to seek reparations with no evidence of which party is to blame. On top of this, governments may be unwilling to appear to harsh on firms or industries that pollute, because if they require them to completely cover the marginal social cost of production, it may become to expensive to stay in business, and they could either stop operating or leave the country for some less restrictive. Therefore a solution must be found that fairly distributes the abatement of pollution between all agents without disrupting the market or punishing the firms to the extent where it is no longer worth staying in business: because of this, environmental policy is a very delicate matter. Setting emission standards is historically the first method of controlling emissions in the US and Europe, but

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