Economic Solutions to Pollution Control : The Transferrable Emission Permit : A Case Study
Rettig, Elizabeth A.
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Industrial pollution is one of the major sources of our environmental problems. The scientific efforts to solve this problem has been quite significant in the past three decades. Given that most firms are motivated more by the hallowed dollar than by moral incentives to control their actions, the author believes that economic incentives have a better chance to control pollution than other methods. Chapter I discusses the problem of pollution in general. Strictly from an economic view point, the problem of excess pollution is viewed as coming from the market failure to account for external costs. Non-pecuniary and pecuniary externalities are discussed as well as the issue of who should pay for the externality: the beneficiary or the producer. Chapter I reviews three economic methods of pollution control. The Pigouvian method (a tax on output), the emission charge (a tax on waste), and the transferrable emission permit (allowing firms to trade pollution allowances in a market setting) are discussed, with the focus being on the latter. Chapter II discusses the Acid Rain Program developed by the Environmental Protection Agency (EPA). This program will be implemented in a two phase program between 1995 and 2000. It will affect coal-burning facilities nation-wide in an effort to reduce sulfur dioxide emissions by 10 million tons and nitrous oxide emissions by 2 million tons. This program is discussed, because the transferrable emission permit will be used to control pollution. This chapter reviews how the EPA will issue allowances to facilities, the market that has been created to trade these, and how the EPA will monitor pollution created by facilities involved in this program. Chapter Ill is a case study on the Northern Indiana Public Services Company (NIPSCO). Chapter IV discusses ethical implications as well as conclusions about the pollution problem.