| Why is regulation of environmental pollution felt necessary in recent days? How do you determine the optimal level of pollution control from social point of view? What are the various methods applied by the government to minimize the problem of pollution? |
Environmental pollution has become one of the major political and economic problems in the present era. Environmental pollution results from the negative externalities. Externalities may be eliminated by the clear definition of property rights if the parties involved are not very numerous. Otherwise, transaction costs are too high and externalities persist. This is precisely the environment pollution, which refers to air pollution, water pollution, thermal pollution, pollution resulting from garbage disposal and so on.
As pollution results mostly from automobile exhaust and smoke from factory and electricity generating plants through the combustion of fossil fuels, which released particles into the air. While it is difficult to measure precisely the harmful effects of sulfur dioxide, carbon monoxide, and other air pollutants, they are known to cause damage to health and to property. Water pollution results from dumping raw sewage, chemical waste products from factories and mines, and runoff of pesticides and fertilizers from farms into streams, lakes, and seashores. This reduces the supply of clean water for household uses and recreational uses.
Thermal pollution results from the cooling off of electrical power plants and other machinery. This increases water temperature and kills fish. The disposal of garbage such as beer cans, newspaper, cigarette butts, and so on, spoils natural scenery, as do billboards and posters. To this, visual pollution must be added noise pollution and many other forms of pollution.
Environmental pollution results whenever the environment is used as a convenient and cheap dumping ground for all types of waste products. It is convenient and cheap from the private point of view to use the environment in this manner because no one owns property rights to it. As a result, air and water users pay less than the full social cost of using these natural resources, and by so doing, they impose serious external costs on society. Since property rights are ambiguous and the parties involved are numerous (often running into the millions), it is impossible and impractical (too costly) to identify and negotiate with individual agents. The external costs of environment pollution cannot be internalized by the assignment of clear property rights and so government intervention is required. This intervention can take the form of regulation or taxation. However, appropriate corrective action on the part of the government requires knowledge of the exact cost of pollution.
i) Optimal pollution control
The optimal level of pollution is that level at which the marginal social cost of pollution equals the marginal social benefit (in the form of avoiding alternative and more expensive methods of waste disposal). Zero pollution is an ideal situation, but as long as pollution is the inevitable by-product of the production and consumption of commodities that we want. Economists advocate optimal pollution control instead that is, we should be prepared to accept (as inevitable) that amount of pollution which, at the margin, balances the social costs and benefits of pollution. The marginal loss (cost) increases with rising amounts of pollution. When the firm does not incur any cost for discharging waste, it will do so until the marginal benefit becomes zero. That is, as long as the firm saves some cost by discharging its waste. However, pollution does impose a cost on society as a whole.
ii) Direct regulation and effluent fees for optimal pollution control
The optimal level of pollution from society’s point of view is not zero, but is given by the level at which the marginal cost of pollution is equal to the private/social marginal benefit of disposing of waste by the cheapest method possible. Even though this prescription is theoretically precise, it is often very difficult to actually estimate the marginal social costs and benefits of pollution. Without government intervention, environmental pollution is certainly likely to be excessive.
There are generally two ways to achieve the optimal amount of pollution control: direct regulation and effluent fees. By direct regulation, government could legislate that the industry limits pollution to the optimal level. Alternatively, government could set the effluent fee that brings the private cost of pollution equal to its social cost. An effluent fee is a tax that a firm must pay to the government for discharging waste or otherwise polluting.
While direct regulation is sometimes necessary, economists generally prefer effluent fees to achieve optimal pollution control. There are two reasons for this. First, effluent fees generally require less information on the part of the government than direct regulation. Second, and more importantly, effluent fees minimize the cost of optimal pollution control, whereas direct regulation does not. This is because with effluent fees, each polluter will pollute until the marginal benefit of pollution equals the effluent fee. Thus, the optimal amount of pollution is allocated to those firms that benefit the most from polluting. As a result, the social cost of pollution is minimized.
One way to use effluent fees to reduce pollution is by the sale of pollution rights by the government. Under such a system, the government determines the amount of pollution that it thinks is socially tolerable (based on the benefits that result from the activities that generate the pollution) and then auctions off licenses to firms that generate pollution up to the specified amount. Pollution costs are thus internalized (i.e. they are considered part of regular production cost) by firms and the allowed amount of pollution is utilized in activities in which it is most valuable.
The industry/firm does not pay all social cost of its pollution, it does not consider profitable to reduce its pollution level up to the marginal level. The government may adopt various measures to make the firms reduce pollution. Some measures are as follows:
- Direct regulation: The first method used by the government to make the business firm reduce pollution is the direct regulation. If the firms or individuals break this law or discipline of the government are punished.
- Effluent fee: The government encourages the firms or individuals to reduce pollution by imposing effluents fee. The effluents fee may be useful in the certain area where it has to maintain quality of local rivers. This experiment may be very successful in a particular area. However, in case of Nepal, it is not applicable. Those who are making dirt in the public place but nobody charge them. In order to manage the dirt, or wasteful material goods, the government can levy the pollution tax.
- Issue of transferable emissions permits: By issuing transferable emissions permits, the government may reduce the quantity of pollution. Such permit allows creating pollution in the given quantity. It means permits are being issued in limited quantity. If it is done, the total quantity of pollution is equal to one determined by the government.
These permits can be purchased and sold. The firms, which consider it very expensive to reduce pollution, purchase such permits. On the other, the firms that consider it cheaper to remote pollution, sale the permits.
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