Environmental Problems, Their Causes, and Sustainability 1

CostHighLowOptimum pollutionclean-up level0 25 50 75 100Pollution removed (%)Figure 26-7 The cost of cleaning up pollution (blue line) riseswith each additional unit removed. Cleaning up a certainamount of pollution is affordable, but at some point the cost ofpollution control is greater than the harmful costs of the pollutionto society. That is, the marginal cost of pollution clean-up increases(blue line) and the marginal benefits decrease (redline) as more pollution is removed. Where the blue curve intersectswith any other curve is a point of optimum pollution controlfor the pollutant represented.Another factor determining the shape and placementof the demand curve is how much people valuetheir resources. If no one cares whether or not the waterin a lake is clear or groundwater is pure, the optimumlevel of clean-up will be close to zero. But if theydemand a clean lake and groundwater, the optimumlevel will rise. In other words, pollution control (or resourceuse) that is optimum for some will be high orlow for others. The levels depend on human values asmuch as anything else.Case Study: What is Cost-Benefit Analysis,and How Can It Be Improved? Weighing Costsand Benefits to Make ChoicesComparing likely costs and benefits of an environmentalaction can help with decision-making,but it is a limited tool.Another widely used tool for making economic decisionsabout how to control pollution and manage resourcesis cost-benefit analysis (CBA). It involvescomparing estimated costs and benefits for actionssuch as implementing a pollution control regulation,building a dam on a river, filling in a wetland, or preservingan area of forest. It involves trying to estimatethe optimum level of pollution clean up (Figure 26-7)or resource use (Figure 26-6).CBA is one of the main tools economists and decisionmakers throughout the world use to help themmake decisions about pollution control, biodiversityprotection, and the construction of roads, airports,dams and other facilities.Making a CBA involves determining who or whatmight be affected by a particular regulation or project,projecting potential outcomes, evaluating alternativeactions, and determining who benefits and who isharmed. Then an attempt is made to assign monetarycosts and benefits to each of the factors and componentsinvolved.Direct costs involving land, labor, materials, andpollution-control technologies are often fairly easy toestimate. But indirect costs of things we value such asclean air and water that are not traded in the marketplaceare difficult to make and are controversial. Wecan put estimated price tags on human life, goodhealth, clean air and water, and various forms of naturalcapital such as an endangered species, a forest, awetland, and other forms of natural capital. However,the monetary values that different people assign tosuch things vary widely because of different assumptionsand value judgments. This can lead to a widerange of projected costs and benefits.CBA is controversial because making accurate estimatesof costs and benefits is difficult. They are alsoeasy to manipulate by parties supporting or opposinga particular regulation or project.Because of these drawbacks, CBA can lead towide ranges of benefits and costs with a lot of roomfor error. For example, one U.S. industry-sponsoredCBA estimated that compliance with a standard toprotect U.S. workers from vinyl chloride would cost$65–90 billion. In the end, meeting the standard costthe industry less than $1 billion. A study by theWashington-based Economic Policy Institute foundthat the estimated costs made by industries for complyingwith proposed environmental regulations inthe United States are almost always more (and oftenmuch more) than the actual costs of implementingthe regulations.Some environmental groups use CBA to help evaluateproposed environmental projects and regulations.But some environmentalists oppose putting too muchemphasis on using this approach as a primary factor indecision making because the large uncertainties involvedallow manipulation of the data and estimatesto come up with a desired result.If conducted fairly and accurately, CBA is a usefultool for helping making economic decisions. To minimizepossible abuses and errors, environmentalistsand economists advocate using the following guidelinesfor a CBA:■■■Use uniform standards.Clearly state all assumptions used.Rate the reliability of data used.http://biology.brookscole.com/miller14589