The Impact of Industrial Pollution on the Environment

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Environmental sustainability has become one of the most important considerations even as the world moves to develop and avail more goods and services for consumers for better living. The impact of industrial pollution has taken toll on the environment threatening not only the ecosystems existing in different parts of the world but also the very livelihoods of millions of people across the globe.

The main cause of the rapid environmental degradation is attributed to the greed and short term goals sought by industrial players. Consequently, market failures have surfaced requiring the intervention of authorities in a bid to enhance a more long-term approach to development by adopting environmentally sustainable development.

Interventions by authorities often tend to introduce impediments to free trade which is sighted as the most important in solving the developmental problems of the world. Consequently advocates for free trade are very vocal in opposing any interventions put in place to address environmental concerns as they hinder free trade.

Free trade basically entails minimal interventions by governments especially in international trade. Environmental concerns cause hindrances in trade as authorities move in to trade in goods whose production processes are considered as causing pollution.

What explanations are offered by free trade advocates that free trade are the most effective way to deal with environmental problem?

These advocates have different explanations as to why the most effective way of dealing with environmental concerns. The most important is the argument that a free market is known to produce efficient welfare-enhancing resource utilization. However this can only be possible if the determination of prices of goods services as well as resources take to full consideration of social costs. Since this is not often possible in free markets, advocates of free trade argue that when industries realize that the resources they use are getting depleted then they will initiate self imposed regulations to contribute to the restoration of the environment. They argue that industries will at some point feel threatened enough to take voluntary measures towards reversing the effects of they have had on the environment over years of production. They argue that free trade gives firms with competitive advantage in one region to produce goods and services at a lower cost and sell them in markets at lower prices. Consequently any action which would compromise this competitive advantage would trigger changes in behavior of the firms towards more responsibility. On the same front, with the modern day awareness of environmental concerns, firms with environmentally degrading production processes will be shunned by customers. They expect that such action from consumers would initiate a behavioral change adequate for environmental sustainability. Clearly, the applicability of such arguments is question. This is because in many cases, the resultant environmental degradation may not in any way affect the ability of the firms involved to produce. When a chemical processing plant releases toxic waste in rivers killing fish, the link to the inputs required for the factory to run is minimal. In addition, awareness on the environmental issues is high but a lot remains unknown among citizens for adequate boycott of the producer’s goods.

Under what conditions should we expect markets to perform optimally?

Optimal performance of the markets requires that the production be done at the lowest possible costs. It requires that the production processes be efficient enough to ensure that goods and services are produced at the lowest cost. The implication here is that prices are minimized resulting in a large if not entire population being able to access the goods and services. As a result, the living standards among the citizens are improved. Therefore the production is at a high level while prices are low.

What is predominant form of market failure that we encounter in environmental economics and what do economists generally recommend to correct for this market failure?

In this optimal performance lies market failures in the case of goods whose production causes damage to the environment. The most predominant form of market failure encountered in environmental economics is the presence of negative externalities. Externalities are costs or benefits accruing to parties other than those conducting the production process. Environmental economics is faced predominantly with the challenge of handling the negative externalities originating from both production as well as consumption of goods and services (Basic Economics, 2010).

Correcting this market failure requires that the social cost of production be considered in the pricing mechanism. Social cost entails the extra cost borne by the environment around which production and which is not often included in the books of accounts. Any costs incurred by government or any other party other than the firm producing in restoring the environment well fits in this category. Consequently, for firms to produce pollutants in a controlled manner, the cost of its goods and services should be high enough to cater for the injury caused to the environment as well as ensure that the quantities produced are lowered a result of which is sustainability. The attainment of these higher costs is through compulsory inclusion of the social costs of production in determination of the price of the goods. A graphical representation shows that inclusion of the social costs of production shifts the supply curve upwards. The result is a reduction in the quantity of goods produced. This lower level of production is the optimum level of production as it takes to full consideration all the costs. Notably it is a much more sustainable level of production. Social cost element incurred by the firm is used in either reversing the effects caused by the already reduced production activities or compensating the affected parties. This includes activities such as flood prevention, water harvesting and carbon sequestration (Stranlund, and Kathy, 2010).

Social cost graph. — Graph: Social cost.

Generally free trade leads to competitive pressures among producers which in turn push down the standards of the environment. There is less willingness for producers to be concerned about the environment as in most cases, this leads to increased costs as shown above. Having free trade would require a very high level of discipline among regulators across the trading partners in maintaining equal environmental standards. Since this is difficult to achieve, free trade would bring along what economists call “a regulator race to the bottom”. This means that regulators from the individual trading partners would reduce the standards set for environmental degradation in order to become more competitive (Arguedas, 2010).

Since choices concerning the treatment of an environmental asset are inevitable, a criterion for judging the desirability of various options are essential.

Name, define and explain thoroughly, with the help of an appropriate diagram, the normative criterion to judge efficiency of resource allocations at a point in time, when choices in various time period are independent.

The treatment of an environmental asset forms the basis of Environmental economics. An environmental asset is basically a resource facing degradation as a result of industrial activities. Choices to be made here are in mainly in regard to the utilization of the resource. A choice to uncontrollably utilize the resource means that the future availability of the resource is in jeopardy. However, a controlled use of the resource ensures both today’s as well as future generation benefits from the resource. It amounts to utilization of resources for posterity.

Name, define and explain thoroughly, with the help of an appropriate diagram, the normative criterion to judge efficiency of resource allocation when the benefits and costs occur with certainty, but at different points in time.

Resource allocation is definitely a delicate balancing act. When allocation is to be done at a point in time using the normative criterion, the decision is subjective. The allocation has to be made in line with the estimates of pollutants to be produced and the ability of the environment to endure the degradation. Careful assessment of the environmental effect has to be conducted. When the allocation is done at different points in time, then there is more flexibility and there is a possibility for consideration of the past experience informing the future.

Distinguish between efficient or optimal level of pollutants and the cost effective allocation of pollutants, stating, and explaining clearly, the criterion for each. Do the authorities typically choose one approach over the other for policy purpose? Why?

Environmental economists agree that it is not feasible to claim that the world should be totally free of pollution. In fact they well understand that attaining a level of zero pollution means no development. Industries have to produce goods and services using the resources available hence in the process causing depletion of the resources or resulting in some level of degradation of the environment. In the analysis and determination of the levels of pollution acceptable for sustainability, there are three important concepts requiring through understanding. They are efficient level of pollutants, optimal level of pollutants and cost effective allocation of pollutants (Externalities, 2010).

Efficient level of pollutants refers to the level of pollutants produced when the industry is operating at its most efficient level. The most efficient level however only includes the private costs hence excluding the social cost. At this efficient level, there is complete disregard of the environment factor. The optimal level of pollutants on the other hand is produced when the environment factor is introduced to the production equation. At his level of production, the social cost is included in the cost of production. Consequently, the efficient level of production is higher than the optimal level of production. Bearing in mind the fact that more production means more pollution, the efficient level of pollutants is thus naturally higher than the optimal level of pollutants. Environmental economists are of the opinion that the optimal level of pollutants is what will ensure sustainability of production and hence sustainable development.

Cost effective allocation of pollutants can be attained at the point where the marginal cost of reducing pollution equates with the marginal benefit of the conducting the clean-up. Therefore, polluting industries should only pay for as much as is required to restore the environment to the status it was prior to the pollution. This in turn means that the effect on the environment is largely minimized but at the same time, the industries are not unfairly charged.

It is true that authorities typically choose to allow either the efficient level of pollutants or the optimal level of pollutants. When they allow firms to produce as much as they wish, this amounts to allowing for the efficient level of pollutants. On the other hand when they impose tax or other restrictions towards production then there is a deliberate movement towards the optimal level of production.

Explain how the use the following work to control environmental problems and explain fully the advantage and disadvantage for each policy approach:

Uniform Emission standard,
Emission Charges,
Transferable Emission Permits.

There exist different standards imposed on polluters to control the level of pollution. The simplest is the Uniform Emission Standard. This entails setting equal limits on emissions resulting from production of particular products. It is fairly simple and easy to understand as it involves authorities determining the allowable level of pollution from certain industries hence putting up a legal framework to guard against exceeding the said level. This is however in full consideration of the production requirements such that the proposed regulations do not stifle production. The standard has been employed in many parts of the world and even across nations. An example is the US Clean water Act. It determines the limits of water pollution regardless of location of industry. The main advantage of this standard is simplicity in application and enforcement. There is high certainty of the allowable levels of pollution across all parties concerned.

The main disadvantage of this standard is that the implementation level demands perpetual policing to ensure compliance. Authorities have to ensure that the firms adhere to the set standards at all times hence requiring resources to always be deployed for effectiveness. In addition, experts argue that not having a uniform limit across different firms may result in some form of bias. This is mainly because different firms will incur differing costs in complying with the standards. It would only be fair that firms faced with higher compliance costs face less demand while those with less marginal compliance costs have more restrictions. This is a more equitable way of allocation. However in most cases politics get in the way of such proposals as questions of favoritism emerge (Nava, Yosef and Shmuel, 2010).

The second policy approach is Emission charges. Emission charges entail taxes charged on specific pollutants and emissions. The charged is imposed on a per unit bases. An authority may decide to charge for each liter of specific effluent discharged in a natural water source or on carbon emissions produced by industries to the atmosphere. This standard is very specific and seen as a direct punishment for pollution. It is mainly imposed on the pollutants known to have the highest effect on the environment. Application requires monitoring but where costs of monitoring may be high, assessment of averages may be used based on presumptions. Where the polluter may be able to adequately prove that they did not surpass presumed levels, then they may be entitled to rebates. This helps reverse monitoring role to firms themselves. It is a very effective tool to pollution control.

The final is the Transferable Emission Permits approach. This approach requires authorities to identify the desired amounts of pollution which in most cases is lower than that which firms are willing to produce. On determining this pollution level, the government then develops permits for issuance to firms. If the government desires 100 tons of pollutants, then it could develop ten permits, each allowing for ten tones. The ten permits may then be issued to ten firms.

Firms are then free to buy permits from each other. If firm A realizes that it cannot meet the ten tones permitted, it can sell part of the permit to allow firm B to produce more. At the final analysis, the firms may have produced different levels of pollutants but the total cannot exceed the government’s target. The main advantage of this method is that it allows for flexibility among firms while at the same time achieving set targets.

Work Cited

Arguedas, L. EconPapers: A Note on the Complementarily of Uniform Emission. 2009. Web.

Basic Economics. Market Failures and Externalities. 2010. Web.

Externalities, Tutor2u.2010. Web.

J and Kathy D. Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System. 2010.

Journal of Environmental Economics and Management Volume 38, Issue 3, Nava Kahana, Yosef Mealem and Shmuel Nitzan. A complete implementation of the efficient allocation of pollution Economics Letters. November 2008. 2010. Stranlund.

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The Impact of Industrial Pollution on the Environment

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