Marginal cost of pollution: The cost, in environmental quality, of a unit of pollution that is emitted into the environment.

Marginal cost of pollution abatement: The cost to dispose of a unit of pollution in a nonpolluting way.

Optimum amount of pollution: The amount of pollution that is economically most desirable. It is determined by plot-marginal cost of pollution abatement. The point where

The two curves meet is the optimum amount of pollution from an economic standpoint. Emission charge Policy: A government policy that controls pollution by charging the polluter for each unit of emissions, that is, by establishing a tax on pollution.

Waste-discharge permit policy: A government policy that control pollution by issuing permits allowing the holder to pollute a given amount. Holders are not allowed to produce more emissions than are sanctioned by their permits.           

Emission reduction credit (ERC): A waste-discharge permit that can be bought and sold by companies producing emissions. Companies have a financial incentive to reduce emissions, because they can recover some or all of their cost of pollution abatement by the sale of the ERCs that they no longer need.

Command and control: Pollution control laws that work by setting pollution ceilings. Examples include the Clean Water Acts and Clean Air Acts.

The Marginal Cost of Pollution

The marginal cost of pollution is the added cost to all present and future members of society of an ad­ditional unit of pollution. For each type of pollu­tion (for example, sulfur dioxide, which causes acid rain), economists add up the harm done by each additional unit of pollution (for example, another urn of sulfur dioxide). As the total amount of pollu­tion increases, the harm done by each additional unit usually also increases, so that the curve show­ing the marginal cost of pollution slopes upward. At low pollution levels, the environ­ment may be able to absorb the damage so that the marginal cost of one added unit of pollution is near zero. As the quantity of pollution increases, the marginal cost rises, and at very high levels of pollu­tion the cost soars.

The Marginal Cost of Pollution Abatement

The marginal cost of pollution abatement is the added cost to all present and future members of society of reducing a given type of pollution by one unit. This cost tends to rise as the level of pollution falls. It is relatively inexpensive, for example, to reduce automobile exhaust emissions by half, but costly devices are required to reduce the remaining emissions by half again. For this rea­son, the curve showing the marginal cost of pollu­tion abatement slopes downward. At high pollu­tion levels the marginal cost of eliminating one unit of pollution is low, but as more and more pollution is eliminated, and cost rises.

How Much Does a Clean Environment Cost?

In 1990 the United States spent $115 billion to comply with environmental regulations and clean up pollution. That is about 2 per­cent of the gross national product.

Most of this amount was spent by indus­try and consumers rather than by the federal government. The Environmental Protection Agency's expenses represented only abour $5.5 billion of the 1990 total.

Pollution control is big business. The pollution abatement industry in the United States employs almost 3 million people and generates nearly $100 billion each year in revenues.

How Economists Estimate the Optimum Amount of Pollution

The two marginal-cost curves are plotted together on one graph, called a cost-benefit diagram. Economists use this to identify the point at which the marginal cost of pollution equals the marginal cost of abate­ment, the point where the two curves cross. As far as economics is concerned, this point represents an optimum amount of pollution. If pollution exceeds this amount (is right of the crossover point), the harm done (measured on the margins 1-cost-of-pollution curve) exceeds the cost of reducing it (the marginal-cost-of-pollution-abatement curve), and it is economically efficient to reduce pollution. On the other hand, if pollution is less than this amount (is left of the crossover point), then the marginal cost incurred to reduce it exceeds the marginal cost of the pollution. In the latter situation the gain in environmental quality is more than offset monetarily by the decrease in resources available for other uses. In such a situation, an economist would argue, pollution should he in­creased.

Flaws in the Optimum Pollution Concept

There are three major flows in the economist's con­cept of optimum pollution. First, it is difficult in actually measure the monetary cost of pollution. Second, pollution is seen by some as violating basic human rights. Third, the risk of ecosystem disrup­tion is rarely taken into account.

The Difficulty of Measuring Pollution Cost

Econ­omists usually measure the cost of pollution in terms of damage to property, damage to health (in the form of medical expenses or time lost from work), and the monetary value of animals and plants killed. It is difficult, however, to place a value on damage to natural beauty—how much is scenic river worth or the sound of a bird sinking!  And how does one assign a value to the extinction of a species? Also, when pollution covers a large area and involves millions of people—as, for exam­ple, acid rain does—assessing pollution cost is ex­tremely complex (see Focus On: Natural Resources, the Environment, and the National Income Ac­counts). I

The Right of Everyone to a Clean Environment

Many people think that every person has a basic right to clean air and water, and that industries that pollute are nothing less than criminals, slowly kill­ing us without our consent. By destroying our natu­ral heritage, these people say, polluters are stealing ' from us, our children, and grandchildren, and thus there is no optimum permissible amount of pollu­tion, any more than there is a permissible amount of rape or murder.

The Risk of Disrupting the Ecosystem

In adding up pollution costs, economists do not take into ac­count the possible disruption or destruction of an ecosystem. As you've seen in the last few chapters, the web of relationships within an ecosystem is ex­tremely complex and may be vulnerable to pollu­tion damage, often with disastrous results- For an economist to simply add up the costs of loser ele­ments in a polluted ecosystem is like sitting in an airplane adding up the costs of damaged items as someone repeatedly shoots a gun in the cock­pit. The sum of costs does not reflect the very real danger that the shooting will cause the plane to

Much of our economic well-being flows from natural, rather than human made, assets-our land, our rivers and ocean, our natural resources (such as oil and timber), and indeed the air that we breathe. Ideally, for the pur­poses of economic and environmental planning, the use and misuse of natural resources and the environment should be appropriately measured in national income accounts. Unfortunately, they are not. There are at leant two important conceptual problems with the way the national income currently handle the economic use of natural resources and the environment.

1. Natural resource depletion:    If a firm produces some output but in the process wears out a portion of its plant and equipment, the firm's output is counted as part of gross national product (GNP}, but the depre­ciation of capital is subtracted in the calcula­tion of net national product (NNP). Thus NNP is a measure of the net production of the economy, after a deduction for used-up capital- In contrast, when an oil driller drains oil from an underground field, the value of the oil produced is counted as part of the nation's GNP; but no offsetting deduction to NNP is made to account for the fact that nonrenewable resources have been used up.