© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Environmental Economics and Management: Theory, Policy, and Applications 6e by Scott J. Callan and Janet M. Thomas Slides created by Janet M. Thomas 1

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DEFINING AIR QUALITY: THE STANDARD-SETTING PROCESS Chapter 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Defining Air Quality Air quality in the U.S. and other nations is defined through standards that set limits on anthropogenic pollutants Anthropogenic pollutants are contaminants associated with human activity Natural pollutants are those that come about through nonartificial processes in nature 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overview of U.S. Air Quality Legislation Early evolution There were no national air quality laws until the Air Pollution Control Act of 1955 There was no truly comprehensive legislation until Clean Air Act of

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overview of U.S. Air Quality Legislation Current U.S. Policy 1990 Clean Air Act (CAA) Amendments use some market-based approaches, but continues to be command-and-control oriented 1990 Clean Air Act (CAA) Amendments Cross-State Air Pollution Rule (CSAPR) was finalized by the EPA in July 2011  Replaces the Clean Air Interstate Rule (CAIR)  Calls for reductions in SO 2 and NO X emissions transported across state borders, targeting power plants in eastern half of U.S. 5

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Identifying Major Air Pollutants Criteria pollutants are substances known to be hazardous to health and welfare, characterized as harmful by criteria documents Hazardous air pollutants are noncriteria pollutants that may cause or contribute to irreversible illness or increased mortality Greenhouse gas (GHG) pollutants are those collectively responsible for the absorption process that naturally warms the earth 6

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6 Criteria Air Pollutants particulate matter (PM-10 and PM-2.5) sulfur dioxide (SO 2 ) carbon monoxide (CO) nitrogen dioxide (NO 2 ) tropospheric ozone (O 3 ) lead (Pb) 7

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Hazardous Air Pollutants 189 are identified in 1990 CAA Amendments Key distinctions from criteria pollutants They pose much greater risk They affect smaller segment of society 8

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. GHG Air Pollutants A U.S. Supreme Court decision found that greenhouse gases (GHGs) are pollutants covered by the Clean Air Act and that EPA is authorized to regulate them These GHGs include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride 9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Setting Standards to Define Air Quality EPA sets national standards for the major air pollutants to be met by potentially controllable sources Stationary sources are fixed-site producers of pollution, such as a building or manufacturing plant Mobile sources are any nonstationary polluting sources, including all transport vehicles 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Standards for Criteria Air Pollutants National Ambient Air Quality Standards (NAAQS) set maximum allowable concentrations of criteria air pollutants National Ambient Air Quality Standards (NAAQS) Primary NAAQS are set to protect public health from air pollution, with some margin of safety Secondary NAAQS are set to protect public welfare from any adverse, nonhealth effects of air pollution 11

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recent NAAQS Proposals Revision to the primary standard for SO 2 To enhance protection from short-term SO 2 exposure by replacing the 24-hour and annual standards with a one-hour standard Proposal to strengthen primary and secondary standards for O 3 To help combat urban smog In 2011, President Obama requested that this be withdrawn because of slow economic growth 12

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Standards for Hazardous Air Pollutants National Emission Standards for Hazardous Air Pollutants (NESHAP) are set to protect public health and the environment and are applicable to every major source of any identified hazardous air pollutant National Emission Standards for Hazardous Air Pollutants (NESHAP) Maximum Achievable Control Technology (MACT) is the technology that achieves the reduction to be accomplished by the NESHAP 13

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Standards for GHG Pollutants No ambient standards have been set, and none have been proposed Nonetheless, the EPA is determining how to lower GHG emissions now that the Supreme Court ruled that it has the authority to do so New emissions standards for mobile sources Permitting and reporting requirements for stationary sources and emissions standards for major GHG stationary sources 14

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recent NESHAP Proposals To reduce mercury and other toxics from industrial, commercial, and institutional boilers and incinerators To reduce heavy metals and acid gases released from coal-fired and oil-fired power plants Estimates for both suggest positive net benefits 15

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Infrastructure To Implement the Standards: Two Key Elements State Implementation Plan (SIP) An EPA-approved procedure outlining how a state intends to implement, monitor, and enforce the NAAQS and the NESHAP Air Quality Control Region (AQCR) A federally-designated geographic area within which common air pollution problems are shared by several communities 16

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Reclassification of AQCRs In 1974, following a suit filed by the Sierra Club, AQCRs were reassessed to identify 3 types of regions: Regions that met or exceeded the standards as Prevention of Significant Deterioration (PSD) areas Regions not in compliance with the standards as nonattainment areas nonattainment areas Regions with insufficient data In 1990, the new CAA Amendments reclassified all nonattainment areas into new categories that identified the severity of the pollution 17

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Monitoring Air Quality Across Regions Estimating pollutant emissions levels Best available engineering methods are used to derive annual emissions estimates for over 450 source categories Measuring pollutant concentrations Pollutant concentration levels are measured at air-monitoring station sites located throughout the country  Most of these sites are in urban regions  Reported to the EPA via an air-monitoring network 18

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Emissions Trends in the U.S. 19 Source: U.S. EPA, Office of Air and Radiation (February 10, 2011).

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Analysis of U.S. Air Quality Policy Evaluation Criteria Equity criterion Environmental justice  In 1993, environmental justice became one of the EPA’s seven guiding principles Economic criterion Allocative efficiency  Arises where marginal social costs (MSC) and marginal social benefits (MSB) are equal 20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Portney’s Benefit-Cost Analysis of 1990 Policy Offers a point estimate for MSB of $14 billion and a point estimate for MSC of $32 billion annually Since MSC far outweighs MSB, it might be that Titles II through V of the 1990 Amendments overregulate society 21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Graphing Portney’s Findings $1990 billions Abatement MSC MSB AEAE A Inefficiency

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. EPA’s Benefit-Cost Analysis of 1990 Policy (first prospective study) In its first prospective analysis of the 1990 CAAA, the EPA estimated the following: Present value of net benefits associated with Titles I through V of the 1990 CAAA for the 1990 to 2010 period is $510 billion ($1990) Present value of net benefits for Title VI, protecting the ozone layer, is $500 billion ($1990) for 1990 to 2165 EPA’s quantitative results, though recognized as based on sound methods and data, are considered controversial on a number of fronts Discussed in Freeman (2002) and Krupnick and Morgenstern (2002) 23

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. EPA’s Benefit-Cost Analysis of 1990 Policy (second prospective study) In 2011, the EPA completed its second prospective analysis of the 1990 CAAA for the 1990 to 2020 period Estimates for 2020 are: $70.3 billion ($2010) in costs $2,110.3 billion ($2010) in benefits $2040 billion ($2010) in net benefits Not comparable to the first study because of the use of different data and methods 24

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Benefits-Costs from the Second Prospective Study 25 Source: U.S. EPA, Office of Air and Radiation (March 2011), Exhibit 11, p. 19.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Analysis of NAAQS Two Potential Sources of Inefficiency No cost considerations in standard-setting Uniformity of the standards 26

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Absence of Cost Considerations NAAQS are solely benefit-based Economic feasibility not explicitly considered Primary standards include “margin of safety” 27

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Uniformity of NAAQS NAAQS are nationally based, ignoring regional cost or benefit differences e.g. different pollution levels, technology access, demographics, etc. Exception is that distinctions are allowed for PSD areas PSD areas face higher standards than NAAQS Are higher standards for PSDs efficient?  Only if MSC PSD = MSB PSD at a higher A level  Let’s examine possible scenarios that support such an outcome 28

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Scenarios Achieving Efficiency MSC NON MSC PSD MSB PSD = MSB NON $ A A NON A PSD (a) MSC PSD = MSC NON MSB NON MSB PSD $ A A NON A PSD (b) MSC NON MSC PSD MSB PSD MSB NON $ A A NON A PSD (c) Which of these are feasible?

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Feasibility Panels (a) and (b) are not likely. Why? MSB NON likely higher than MSB PSD MSC NON likely higher than MSC PSD Panel (c) is possible only under a series of conditions Suggests that higher standards in PSD areas may be justifiable on efficiency grounds but only under certain economic conditions. 30