Command And Control Strategies: The Case of Standards Lecture 18

• CAC rely on standards and compliance costs• Standard is a mandated level of performance that is

enforced in lawIf you want people not to do

something, simply pass a law that makes it illegal and then send out the authorities to

enforce the law

Compliance Costs of meeting the standard

• Types of standards

– Ambient Standards

– Emissions Standards

– Technology Standards

• Ambient Standard– Qualitative dimensions of the

surrounding environment– For example, required Dissolved Oxygen

in a River

• An upper limit for the pollutant is set and is expressed in average concentration over some period of time, for e.g. SO2 annual average of 80 μg/m3 over a particular area

• Emissions Standards– Upper limit on quantity of emissions coming from different

pollution sources tons / week or average residual flows/year– Link between emissions and ambient quality?– Is meeting emission standard a prerequisite to meeting

ambient standard or vice versa?

• Environment usually transfers pollutants from one region to another

• Hydrological and meteorological studies of the environmental media

• Chemical process in environmental media renders some pollutants harmless

• Also affected by human decisions

• Performance standards include emission standard and other types such as workplace standards

• Technological standard– Techniques or practices potential polluters must adopt.– For example, all cars be equipped with catalytic converters

• Distinction between performance standard and technology standard

• Standards appear to give regulators a degree of positive control to get pollution reduced; but the process is complicated

• Setting the level of standard

Zero-risk approach

An implicit trade-off:

Temporary deteriorate environmental quality and damage it today

Incurring long-run high abatement costs to meet ambient quality standards

• Uniformity of Standards

Policy trade-off:

Applied to heterogeneous situations, more efficient would be the impact

More costly will it be to gather the required information and make MD and MAC functions

• Standards and the equimarginal principle– There are multiple emissions sources producing the

same effluent, EMP must hold!

• To summarize:– The greater the difference between marginal abatement

costs and marginal damages, the worse will be the performance of equal-standard approach

– Pollutants are in fact emitted by many sources, and setting different standards for different sources would only be possible if– “Public agency knows the MAC functions for each of

these resources”

• Incentives Aspect of the Standards– In technology standard, polluters are dictated

various operating practices – Reduce the incentive of polluters to find cost-

effective solutions to emissions reduction – You meet the standard or you don’t meet that

level!

Perverse Incentives

Technology forcing and pollution control industry

• The Economics of Enforcement– Pollution-control laws

are not enough – Accompanied by efficient

enforcement machinery– Various resources that

have opportunity costs– Lower e would require

less enforcement but the standard might be efficiently achieved!

• Other factors affecting the enforcement costs– Budget constraint– Nature and amount of penalties– Number of polluters

– US: Self-monitoring book-keeping of the emissions hourly rate of flow

– Periodic auditing or random visits lower this visit rate, lower will be the extent of compliance

– Enforcement carried out by local agencies; how devoted and sincere are they?

– Initial compliance and continued compliance

• Implicit trade-off?