Why Is The Marginal Benefit Of Cleaning Up Pollution Downward Sloping?

Chapter 12. Environmental Protection and Negative Externalities

12.4 The Benefits and Costs of U.South. Ecology Laws

Learning Objectives

Past the end of this section, you volition be able to:

• Evaluate the benefits and costs of environmental protection
• Explicate the effects of ecotourism
• Use marginal analysis to illustrate the marginal costs and marginal benefits of reducing pollution

Government economists have estimated that U.S. firms may pay more than $200 billion per twelvemonth to comply with federal ecology laws. That is big bucks. Is the money well spent?

Benefits and Costs of Clean Air and Clean Water

The benefits of a cleaner environment tin be divided into four areas: (1) people may stay healthier and live longer; (ii) certain industries that rely on clean air and h2o, such as farming, fishing, and tourism, may do good; (3) property values may be higher; and (4) people may only savour a cleaner surround in a way that does not need to involve a marketplace transaction. Some of these benefits, such every bit gains to tourism or farming, are relatively easy to value in economic terms. It is harder to assign a budgetary value to others, such as the value of clean air for someone with asthma. It seems incommunicable to put a clear-cut budgetary value on still others, such as the satisfaction y'all might experience from knowing that the air is clear over the One thousand Coulee, even if you take never visited the Thousand Canyon.

Although estimates of ecology benefits are not precise, they tin can however be revealing. For example, a study by the Environmental Protection Agency looked at the costs and benefits of the Clean Air Act from 1970 to 1990. It institute that full costs over that time period were roughly $500 billion—a huge amount. However, it also found that a middle-range estimate of the wellness and other benefits from cleaner air was $22 trillion—about 44 times higher than the costs. A more contempo study by the EPA estimated that the environmental benefits to Americans from the Clean Air Human activity will exceed their costs by a margin of four to i. The EPA estimated that "in 2010 the benefits of Make clean Air Act programs will total well-nigh $110 billion. This estimate represents the value of fugitive increases in illness and premature death which would have prevailed." Saying that overall benefits of environmental regulation have exceeded costs in the past, however, is very dissimilar from saying that every ecology regulation makes sense. For example, studies suggest that when breaking down emission reductions by type of contaminants, the benefits of air pollution control outweigh the costs primarily for particulates and lead, but when looking at other air pollutants, the costs of reducing them may exist comparable to or greater than the benefits. Merely because some environmental regulations have had benefits much higher than costs does not bear witness that every individual regulation is a sensible idea.

Ecotourism: Making Environmentalism Pay

The definition of ecotourism is a little vague. Does information technology mean sleeping on the ground, eating roots, and getting shut to wildlife? Does it hateful flying in a helicopter to shoot coldhearted darts at African wildlife? Or a fiddling of both? The definition may be fuzzy, but tourists who hope to appreciate the environmental of their destination—"eco tourists"—are the impetus to a large and growing business concern. The International Ecotourism Society estimates that international tourists interested in seeing nature or wildlife volition take 1.56 billion trips by 2020.

Visit The International Ecotourism Society'due south website to learn more nearly The International Ecotourism Order, its programs, and tourism's role in sustainable customs development.

Realizing the attraction of ecotourism, the residents of low-income countries may come to see that preserving wildlife habitats is more lucrative than, say, cutting down forests or grazing livestock to survive. In Due south Africa, Namibia, and Zimbabwe, for example, a substantial expansion of both rhinoceros and elephant populations is broadly credited to ecotourism, which has given local communities an economic interest in protecting them. Some of the leading ecotourism destinations include: Costa rica and Panama in Central America; the Caribbean; Malaysia, and other South Pacific destinations; New Zealand; the Serengeti in Tanzania; the Amazon rain forests; and the Galapagos Islands. In many of these countries and regions, governments have enacted policies whereby revenues from ecotourism are shared with local communities, to give people in those local communities a kind of property right that encourages them to conserve their local surroundings.

Ecotourism needs careful management, so that the combination of eager tourists and local entrepreneurs does non destroy what the visitors are coming to encounter. Simply whatever one'southward qualms are near certain kinds of ecotourism—such as the occasional practice of rich tourists shooting elderly lions with high-powered rifles—information technology is worth remembering that the alternative is oftentimes that low-income people in poor countries volition damage their local environment in their effort to survive.

Marginal Benefits and Marginal Costs

We can use the tools of marginal analysis to illustrate the marginal costs and the marginal benefits of reducing pollution. Figure ane illustrates a theoretical model of this state of affairs. When the quantity of environmental protection is low so that pollution is extensive—for instance, at quantity Qa—there are usually a lot of relatively cheap and piece of cake ways to reduce pollution, and the marginal benefits of doing so are quite high. At Qa, it makes sense to allocate more resources to fight pollution. However, as the extent of ecology protection increases, the cheap and easy ways of reducing pollution begin to subtract, and more costly methods must be used. The marginal cost curve rises. Also, as environmental protection increases, the largest marginal benefits are achieved start, followed by reduced marginal benefits. As the quantity of environmental protection increases to, say, Qb, the gap between marginal benefits and marginal costs narrows. At point Qc the marginal costs will exceed the marginal benefits. At this level of environmental protection, society is not allocating resource efficiently, because likewise many resource are beingness given upwards to reduce pollution.

Effigy ane. Marginal Costs and Marginal Benefits of Environmental Protection. Reducing pollution is plush—resource must exist sacrificed. The marginal costs of reducing pollution are generally increasing, considering the least expensive and easiest reductions tin can be made get-go, leaving the more than expensive methods for later. The marginal benefits of reducing pollution are generally failing, because the steps that provide the greatest benefit tin can be taken starting time, and steps that provide less benefit can wait until later.

As society draws closer to Qb, some might argue that it becomes more important to use market-oriented environmental tools to hold down the costs of reducing pollution. Their objective would be to avoid environmental rules that would provide the quantity of environmental protection at Qc, where marginal costs exceed marginal benefits. The following Clear Information technology Up characteristic delves into how the EPA measures its policies – and the monetary value of our lives.

What's a life worth?

The U.Due south. Environmental Protection Agency (EPA) must estimate the value of saving lives past reducing pollution against the additional costs. In measuring the benefits of government environmental policies, the EPA'due south National Heart for Environmental Economics (NCEE) values a statistical human life at $7.4 million (in 2006 U.Southward. dollars).

Economists value a human life on the basis of studies of the value that people actually place on human lives in their own decisions. For instance, some jobs have a higher probability of death than others, and these jobs typically pay more to compensate for the risk. Examples are body of water fishery as opposed to fish farming, and water ice trucking in Alaska as opposed to truck driving in the "lower twoscore-viii" states.

Regime regulators use estimates such as these when deciding what proposed regulations are "reasonable," which means deciding which proposals have high plenty benefits to justify their toll. For case, when the U.S. Department of Transportation makes decisions well-nigh what safe systems should be required in cars or airplanes, information technology will approve rules only where the estimated cost per life saved is $3 meg or less.

Resource spent on life-saving regulations create tradeoff. A study past West. Kip Viscusi of Vanderbilt University estimated that when a regulation costs $50 million, information technology diverts plenty spending in the rest of the economy from health care and safety expenditures that information technology costs a life. This finding suggests that any regulation that costs more $50 million per life saved really costs lives, rather than saving them.

Key Concepts and Summary

Nosotros can make a strong instance, taken every bit a whole, that the benefits of U.S. environmental regulation have outweighed the costs. Equally the extent of environment regulation increases, boosted expenditures on environmental protection will probably take increasing marginal costs and decreasing marginal benefits. This pattern suggests that the flexibility and cost savings of marketplace-oriented environmental policies will become more important.

Self-Check Questions

1. Suppose a urban center releases 16 million gallons of raw sewage into a nearby lake. Tabular array eleven shows the total costs of cleaning upwards the sewage to different levels, together with the total benefits of doing then. (Benefits include environmental, recreational, health, and industrial benefits.)
   

   	Full Cost (in thousands of dollars)	Full Benefits (in thousands of dollars)
   16 million gallons	Current situation	Electric current situation
   12 million gallons	50	800
   8 1000000 gallons	150	1300
   4 million gallons	500	1650
   0 gallons	1200	1900
   Table eleven.

   1. Using the information in Table 11, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Cost and Industry Construction if you need a refresher on how to summate marginal costs.
   2. What is the optimal level of sewage for this city?
   3. Why not only pass a law that zippo sewage can exist emitted? After all, the total benefits of zippo emissions exceed the total costs.
2. The state of Colorado requires oil and gas companies who use fracking techniques to render the land to its original condition after the oil and gas extractions. Table 12 shows the total cost and total benefits (in dollars) of this policy.
   

   Land Restored (in acres)	Total Cost	Total Benefit
   0	$0	$0
   100	$xx	$140
   200	$80	$240
   300	$160	$320
   400	$280	$380
   Tabular array 12.

   1. Calculate the marginal cost and the marginal benefit at each quantity (acre) of land restored. See Cost and Industry Structure if yous need a refresher on how to calculate marginal costs and benefits.
   2. If we utilize marginal analysis, what is the optimal amount of land to be restored?

Review Questions

1. Equally the extent of ecology protection expands, would you lot expect marginal costs of environmental protection to rise or fall? Why or why not?
2. As the extent of environmental protection expands, would yous expect the marginal benefits of ecology protection to rise or autumn? Why or why not?

Disquisitional Thinking Questions

1. From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
2. Recycling is a relatively inexpensive solution to much of the environmental contamination from plastics, glass, and other waste materials. Is it a sound policy to make it mandatory for everybody to recycle?

Problems

A city currently emits xvi 1000000 gallons (MG) of raw sewage into a lake that is abreast the urban center. Table thirteen shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing and so. Benefits include environmental, recreational, wellness, and industrial benefits.

	TC	TB
sixteen MG	Electric current	Electric current
12 MG	50	800
8 MG	150	1300
4 MG	500	1850
0 MG	1200	2000
Table 13.

1. Using the information in Tabular array thirteen calculate the marginal costs and marginal benefits of reducing sewage emissions for this city.
2. What is the optimal level of sewage for this metropolis? How can you tell?

References

Ryan, Dave. "New Report Shows Benefits of 1990 Clean Air Amendments Outweigh Costs by 4-to-One Margin," press release, November 16, 1999. United States Environmental Protection Agency. Accessed December 19, 2013. http://www.epa.gov/oar/sect812/r-140.html.

National Center for Environmental Economics (NCEE). "Frequently Asked Questions on Mortality Risk Valuation." United states of america Environmental Protection Agency. Accessed December 19, 2013. http://yosemite.epa.gov/ee/epa/eed.nsf/pages/MortalityRiskValuation.html#whatvalue Globe Tourism System, "Tourism 2020 Vision." Accessed December 19, 2013. http://www.world-tourism.org/market_research/facts/market_trends.htm.

Viscusi, Kip Westward. Fatal Tradeoffs: Public and Private Responsibilities for Risk. New York: Oxford University Press, 1995.

Solutions

Answers to Self-Check Questions

1. 1. Meet the answers in the following tabular array. The marginal toll is calculated equally the change in total cost divided by the modify in quantity.
      

      	Total Cost (in thousands of dollars) [marginal price]	Total Benefits (in thousands of dollars) [marginal benefit]
      16 million gallons	Electric current situation	Current situation
      12 million gallons	50    [50]	800   [800]
      eight one thousand thousand gallons	150   [100]	i,300  [500]
      4 meg gallons	500   [350]	1,850   [350]
      0 gallons	1,200   [700]	ii,000   [150]
      Table 14.

   2. The "optimal" level of pollution is where the marginal benefits of reducing information technology are equal to the marginal cost. This is at iv million gallons.
   3. Marginal analysis tells usa if the marginal costs of cleanup are greater than the marginal do good, society could use those resource more efficiently elsewhere in the economy.
2. 1. Come across the next table for the answers, which were calculated using the traditional calculation of marginal cost equal to change in total cost divided by alter in quantity.
      

      State Restored (in acres)	Total Cost [marginal cost]	Total Benefit [marginal benefit]
      0	$0	$0
      100	$20 [0.two]	$140 [ane.4]
      200	$fourscore [0.6]	$240 [1]
      300	$160 [0.8]	$320 [0.8]
      400	$280 [1.2]	$480 [0.vi]
      Table 15.

   2. The optimal corporeality of restored land is 300 acres. Beyond this quantity the marginal costs are greater than the marginal benefits.

Source: https://opentextbc.ca/principlesofeconomics/chapter/12-4-the-benefits-and-costs-of-u-s-environmental-laws/

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