Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics
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411Regional Pollutants
3
While it is theoretically possible (depending on the elasticity of demand for pollution abatement) for a
rise in the tax to produce less revenue, this has typically not been the case.
In Japan, the charge takes on a different function. As a result of four important
legal cases where Japanese industries were forced to compensate victims for pollu-
tion damages caused, in 1973 Japan passed the Law for the Compensation of
Pollution-Related Health Injury. According to this law, victims of designated
diseases, upon certification by a council of medical, legal, and other experts, are
eligible for medical expenses, lost earnings, and other expenses; they are not
eligible for other losses, such as pain and suffering. Two classes of diseases are
funded: specific diseases where the specific source is relatively clear and nonspecific
respiratory diseases where all polluters are presumed to have some responsibility.
The victim compensation is funded by an emissions charge on sulfur dioxides
and by an automobile weight tax. The level of the charge/tax is determined by the
revenue needs of the compensation fund.
In contrast to cap-and-trade where allowance prices respond automatically to
changing market conditions, emissions charges have to be determined by an
administrative process. When the function of the charge is to raise revenue for a
particular purpose, charge rates will be determined by the costs of achieving that
purpose; when the costs of achieving the purpose rise, the level of the charge must
rise to secure the additional revenue.
3
Sometimes that process produces an unintended dynamic. In Japan, for example,
the charge is calculated on the basis of the amount of compensation paid to victims
of air pollution in the previous year. While the amount of compensation has been
increasing, the amount of emissions (the base to which the charge is applied) has
been decreasing. As a result, unexpectedly high charge rates are necessary in order
to raise sufficient revenue for the compensation system and these have quite an
incentive effect on emissions reduction.
Regional Pollutants
The primary difference between regional pollutants and local pollutants is the
distance they are transported in the air. Although the damage caused by local
pollutants occurs in the vicinity of emission, for regional pollutants the damage can
occur at significant distances from the emissions point.
The same substances can be both local pollutants and regional pollutants. Sulfur
oxides, nitrogen oxides, and ozone, for example, have already been discussed as
local pollutants, but they are regional pollutants as well. For example, sulfur
emissions, the focal point for most acid rain legislation, have been known to travel
some 200–600 miles from the point of emission before returning to the earth. As
the substances are being transported by the winds, they undergo a complex series of
chemical reactions. Under the right conditions, both sulfur and nitrogen oxides are
transformed into sulfuric and nitric acids. Nitrogen oxides and hydrocarbons can
combine in the presence of sunlight to produce ozone.
412 Chapter 15 Stationary-Source Local and Regional Air Pollution
Acid Rain
What Is It? Acid rain, the popular term for atmospheric deposition of acidic
substances, is actually a misnomer. Acidic substances are not only deposited by rain
and other forms of moist air, they are also deposited as dry particles. In some parts
of the world, such as the southwestern United States, dry deposition is a more
important source of acidity than is wet deposition. Though natural sources of acid
deposition do exist, the evidence is quite clear that anthropogenic (human-made)
sources have dominated in recent years.
Precipitation is normally mildly acidic, with a global background pH of 5.0 (pH
is the common measurement for acidity; the lower the number, the more acidic the
substance, with 7.0 being the border between acidity and alkalinity). Industrialized
areas commonly receive precipitation well in excess of the global background level.
Rainfall in eastern North America, for example, has a typical pH of 4.4. Wheeling,
West Virginia, once experienced a rainstorm with a pH of 1.5. The fact that battery
acid has a pH of 1.0 may help put this event into perspective.
The Effects. In 1980, the U.S. Congress funded a ten-year study (called the
National Acid Rain Precipitation Assessment Program) to determine the causes
and effects of acid rain and to make recommendations concerning its control. The
study concluded that damage from current and historic levels of acid rain ranged
from negligible (on crops) to modest (on aquatic life in some lakes and streams).
The findings from this study were significantly less dire than expected and pro-
vided a rather sharp contrast with findings of higher levels of damage in Europe.
Studies have documented that Sweden has some 4,000 highly acidified lakes; in
southern Norway, lakes with a total surface area of 13,000 square kilometers sup-
port no fish at all; similar reports have been received from Germany and Scotland.
Acid rain has also been implicated in the slower growth, injury, or death not only
of European forests, particularly German forests, but also of forests in the United
States (see Example 15.2). The high-elevation forests of the Appalachian Mountains
from Maine to Georgia, including such high-visibility areas as the Shenandoah and
Great Smoky Mountain National Parks, are particularly susceptible.
According to this research, acid rain rarely kills trees directly. Instead, it is more
likely to weaken trees by damaging their leaves, limiting the available nutrients, or
exposing the trees to toxic substances slowly released from the soil by the acidic
deposition. Quite often, injury or death of trees is a result of the combined
effects of acid rain and one or more additional threats, such as drought, disease, or
exposure to other pollutants.
In many countries with a federal form of government, such as the United States,
the policy focus in the past has been on treating all pollutants as if they were local
pollutants, overlooking the adverse regional consequences in the process. By giving
local jurisdictions a large amount of responsibility for achieving the desired air
quality and by measuring progress at local monitors, the stage was set for making
regional pollution worse, rather than better.
In the early days of pollution control, local areas adopted the motto “Dilution is
the solution.” As implemented, this approach suggested that the way to control
413Regional Pollutants
local pollutants was to require tall stacks for emissions. By the time the pollutants
hit the ground, according to this theory, the concentrations would be diluted,
making it easier to meet the ambient standards at nearby monitors.
This approach had several consequences. First, it lowered the amount of emis-
sions reduction necessary to achieve ambient standards; with tall stacks, any given
amount of emission would produce lower nearby ground-level concentrations than
an equivalent level of emissions from a shorter stack. Second, the ambient
standards could be met at a lower cost. Using Cleveland as a case study, Scott
Adirondack Acidification
About 180 lakes in the Adirondack Mountains of New York State, mostly at higher
altitudes, which had supported natural or stocked brook trout populations in the
1930s, no longer supported these populations by the 1970s. In some cases, entire
communities of six or more fish species had disappeared.
The location of these lakes, some distance east of any local emissions
sources, makes it quite clear that most of the acid deposition is coming from out-
side of the region. These lakes have relatively little capacity to neutralize deposited
acid because they are in areas with little or no limestone or other forms of basic
rock that might serve to buffer the acid.
This is a prime recreational area, particularly for fishing. Most of the sites are
within the boundary of the 6-million acre Adirondack Park, the last substantially
undeveloped area of its size in the northeastern United States. Its remoteness,
mountainous terrain, and multitude of lakes provide an accessible outdoor recre-
ation experience for the 55 million people who live within a day’s traveling distance.
Although the 1990 amendments to the Clean Air Act (described below)
resulted in substantial reductions in acid deposition, subsequent legislative
proposals encouraged policy-makers to determine if further reduction efforts
would be justified in terms of net benefits. Using a contingent valuation method
that includes both use and nonuse values, Banzhaf, Burtraw, Evans, and Krupnick
(2004) estimated the benefits from further reductions in SO
2
and NO
x
and
compared them with the costs of achieving those reductions.
Their preferred estimates of the mean willingness to pay (WTP) for ecological
improvements ranged from $48 to $107 per year per household in New York state.
Multiplying these population-weighted estimates by the approximate number of
households in the state yielded benefits ranging from about $336 million to $1.1
billion per year.
Their estimate of the costs of those reductions attributable to Adirondack
improvements range from $86 million in 2010 to $126 million in 2020. Since these
cost estimates are significantly less than the benefit estimates, the study
suggested that further reductions would be economically justified despite the
large reductions already achieved.
Source
: Spencer Banzhaf, Dallas Burtraw, David Evans, and Alan Krupnick, “Valuation of Natural Resource
Improvements in the Adirondacks.” A REPORT TO THE ENVIRONMENTAL PROTECTION AGENCY
(Resources for the Future, Inc., September 2004).
EXAMPLE
15.2
414 Chapter 15 Stationary-Source Local and Regional Air Pollution
Atkinson (1983) has shown that control costs would be approximately 30 percent
lower but emissions would be 2.5 times higher if a local, rather than a regional,
strategy were followed in a marketable-permit system. In essence, local areas would
be able to lower their own cost by exporting emissions to other areas. By focusing
its attention on local pollution, the Clean Air Act actually made the regional
pollution problem worse.
Crafting a Policy. By the end of the 1980s, it had become painfully clear in the
United States that the Clean Air Act was ill-suited to solving regional pollution
problems. Revamping the legislation to do a better job of dealing with regional
pollutants, such as acid rain, became a high priority.
Politically, that was a tall order. By virtue of the fact that these pollutants are
transported long distances, the set of geographic areas receiving the damage is
typically not the same as the set of geographic areas responsible for most of the
emission causing the damage. In many cases the recipients and the emitters are
even in different countries! In this political milieu, it should not be surprising
that those bearing the costs of damages should call for a large, rapid reduction in
emissions, whereas those responsible for bearing the costs of that cleanup should
want to proceed more slowly and with greater caution.
Economic analysis was helpful in finding a feasible path through this political
thicket. In particular, a Congressional Budget Office (CBO) study helped to set the
parameters of the debate by quantifying the consequences of various courses of
action (1986). To analyze the economic and political consequences of various strate-
gies designed to achieve reductions of SO
2
emissions from utilities anywhere from 8
to 12 million tons below the emissions levels from those plants in 1980, the CBO
used a computer-based simulation model that related utility emissions, utility costs,
and coal-market supply and demand levels to the strategies under consideration.
The results of this modeling exercise will be presented in two segments. The first
segment examines the basic available strategies, including both a traditional
command-and-control strategy that simply allocates reductions on the basis of a
specific formula and an emissions-charge strategy. This analysis demonstrated how
sensitive costs were to various levels of emissions reduction and highlighted some of
the political consequences of implementing these strategies. The second segment
of analysis considers various strategies designed to mitigate the adverse political
effects of the basic strategies as a means of ascertaining what would be gained and
lost by adopting these compromises.
The first implication of the analysis was that the marginal cost of additional con-
trol would rise rapidly, particularly after 10 million tons had been reduced. The
cost of reducing a ton of SO
2
was estimated to rise from $270 for an 8-million-ton
reduction to $360 for a 10-million-ton reduction, and it would rise to a rather
dramatic $779 per ton for a 12-million-ton reduction. Costs would rise much more
steeply as the amount of required reduction was increased, because reliance on the
more expensive scrubbers would become necessary. (Scrubbers involve a chemical
process to extract, or “scrub,” sulfur gases before they escape into the atmosphere.)
The second insight, one that should be no surprise to readers of this book, is
that the emissions charge would be more cost-effective than the comparable CAC
415Regional Pollutants
strategy. Whereas the CAC strategy could secure a 10-million-ton reduction at
about $360 a ton, the emissions charge could do it for $327 a ton. The superiority
of the emissions charge was due to the fact that would result in equalized marginal
costs, a required condition for cost-effectiveness.
Although the emissions-charge approach may be the most cost-effective policy,
it was not the most popular, particularly in states with a lot of old, heavily polluting
The Sulfur Allowance Trading Program
Under an innovative approach, known as the
sulfur allowance trading component
of the Acid Rain Program,
allowances to emit sulfur oxides have been allocated to
older sulfur-emitting, electricity-generating plants. The number of allowances has
been restricted in order to assure a reduction of 10 million tons in emissions from
1980 levels by the year 2010.
These allowances, which provide a limited authorization to emit 1 ton of sulfur
dioxide, are defined for a specific calendar year, but unused allowances can be
carried forward into the next year. They are transferable among the affected
sources. Any plants reducing emissions more than required by the allowances
could transfer the unused allowances to other plants. Emissions in any plant may
not legally exceed the levels permitted by the allowances (allocated plus acquired)
held by the managers of that plant. An annual year-end audit balances emissions
with allowances. Utilities that emit more than they are authorized by their holdings
of allowances must pay an “excess emissions” penalty and are required to forfeit
an equivalent number of tons of emissions in the following year (equal to the
amount of the excess emissions). The penalty is adjusted annually for inflation.
In 2009 the penalty was $3517 per ton.
An important innovation in this program is that the availability of allowances is
assured by the institution of an auction market. Each year the EPA withholds an
Allowance Auction Reserve of 2.8 percent of the allocated allowances; these go
into the sealed bid auction. These withheld allowances are allocated to the highest
bidders, with successful buyers paying their bid price (not the market clearing
price). The proceeds are refunded to the utilities from whom the allowances were
withheld, on a proportional basis. One main advantage of this auction is that it
made allowance prices publicly transparent. By providing more information to
investors, business investment strategies were facilitated.
Private allowance holders may also offer allowances for sale at these auctions.
Potential sellers specify minimum acceptable prices. Once the withheld
allowances have been disbursed, the EPA then matches the highest remaining
bids with the lowest minimum acceptable prices on the private offerings and
matches buyers and sellers until the sum of all remaining bids is less than that of
the remaining minimum acceptable prices.
Sources
: Dallas Burtraw, “The SO
2
Emissions Trading Program: Cost Savings without Allowance Trades.”
CONTEMPORARY ECONOMIC POLICY XIV (1996) (2), pp. 79–94; Nancy Kete, “The U.S. Acid Rain
Control Allowance Trading System.” CLIMATE CHANGE: DESIGNING A TRADEABLE PERMIT SYSTEM by
T. Jones and J. Corfee-Morlot, eds. (Paris: Organization for Economic Cooperation and Development,
1992), pp. 69–93; and Renee Rico, “The U.S. Allowance Trading System for Sulfur Dioxide: An Update on
Market Experience.” ENVIRONMENTAL AND RESOURCE ECONOMICS, 5 (1995) (2), pp. 115–129.
EXAMPLE
15.3
416 Chapter 15 Stationary-Source Local and Regional Air Pollution
power plants. With an emissions-charge approach, utilities not only have to pay
the higher equipment and operating costs associated with the reductions, but also
have to pay the charge on all uncontrolled emissions. The additional financial
burden on utilities associated with controlling acid rain by means of an emissions
charge would have been significant. Instead of paying the $3.2 billion for reducing
10 million tons under a CAC approach, utilities would be saddled with a $7.7 billion
financial burden with an emissions charge. The savings from lower equipment and
operating costs achieved because the emissions-charge approach is more cost-
effective would have been more than outweighed by the additional expense of
paying the emissions charges. What is least cost to society is not, in this case, least
cost for the utilities.
The political dilemma posed by this additional financial burden was resolved
by adopting an emissions trading system known as the sulfur allowance trading
program (see Example 15.3). Adopted as part of the Clean Air Act Amendments of
1990, this approach was designed to complement, not replace, the traditional
approach.
The sulfur allowance program is a cap-and-trade program. It sets an aggregate cap
(limit) on emissions from the covered emitters and allocates allowances (emissions
authorizations) that sum to this cap. Under the traditional system, where emissions
from each unit were directly regulated, but aggregate emissions were not, as the
number of emitters grew, so did aggregate emissions. This does not happen with a
cap; new emitters must be accommodated within the cap (since total emissions
cannot increase). This will only happen if existing emitters reduce emissions suffi-
ciently to accommodate the increases from the new emitter. The allowance program
not only limits aggregate emissions to the level specified by the cap, but also provides
an economic incentive (due to the right to sell excess reductions) for those additional
reductions to occur.
Under the sulfur allowance program, anyone can purchase allowances. Brokers,
corporations, private citizens, and environmental groups have all participated in
this program—some for the purpose of producing fewer sulfur emissions than
allowed by law via buying allowances and retiring them (see Example 15.4).
Results of the Program According to official EPA reports, SO
2
emissions were
below the program’s long-term emissions cap of 8.95 million tons by 2007—three
years before the statutory deadline. Significantly, the electric power industry
achieved nearly 100 percent compliance with program requirements—only 1 unit
had emissions exceeding the SO
2
allowances that it held.
According to Burtraw and Mansur (1999), national health benefits were nearly
$125 million higher in 2005 than they would have been had the same reduction in
emissions been achieved without trading.
Did the program result in cost savings? According to Ellerman et al. (2000), it
did. They find Phase I cost savings of 33–67 percent over the nontrading
alternative. The cost savings apparently resulted from switching to low-sulfur
coal, falling prices of low-sulfur coal (due primarily to falling rail rates for
transporting that coal), and technical change that reduced the cost of scrubbers.
417Regional Pollutants
Why and How Do Environmentalists Buy
Pollution?
Among the rather unique features of the sulfur allowance trading component of
the Acid Rain Program, two have found particular favor with environmentalists.
Not only does the program put a fixed upper limit on total annual sulfur emissions
from the utilities sector, but also it allows environmental groups to lower that limit
by acquiring allowances.
In the auctions run by US EPA, anyone (including individuals and environmental
groups) can place a bid. Environmental group bids are typically financed by donations
from individuals who want to reduce pollution. Successful bidders acquire
allowances for whatever purpose they see fit—including “retiring” them so that they
cannot be used to legitimize emissions. Every 1-ton sulfur dioxide (SO
2
) allowance
that is retired represents an authorized ton of pollution that will not be emitted.
Another organization that has raised funds to retire allowances is the Working
Assets Funding Source. This nonprofit public-interest company regularly con-
tributes 1 percent of its revenues to public-service organizations and uses its
monthly bills to solicit charitable donations from customers for various featured
causes. A summer 1993 campaign asked the 80,000 customers of its long-
distance telephone service to add a small donation when paying their bills in order
to support “our goal to reduce SO
2
emissions by 300 tons . . . and spark a move-
ment to do much more.” The result was $55,000 in donations, which enabled the
group to purchase 289 allowances.
Allowances have also been retired through charitable donations. An agreement
between Arizona Public Service Company and Niagara Mohawk Power
Corporation, for example, resulted in the donation of 25,000 allowances to the
Environmental Defense Fund. In another transaction, Northeast Utilities of
Connecticut donated 10,000 allowances to the American Lung Association. The
Lung Association has since contacted other utilities through its local chapters in
an effort to receive further donations to be used to reduce pollution.
In the 1996 auction, one nonprofit organization, known by the acronym
INHALE,
purchased 454 allowances. The Maryland Environmental Law Society
(MELS) bought and retired an allowance in the 1994 auction—the first student
group to do so. Since then, a number of other schools have purchased and
retired allowances. One of these, Bates College, is where Lynne Lewis, one of the
co-authors of this book, has the students in her environmental economics course
participate in the auctions as a learning opportunity. Bates College environmental
economics students have bid on both spot allowances and seven-year advance
allowances (not usable for seven years). For student groups and classes bidding
on and buying allowances, the goal is not simply to retire the allowances, but to
observe and participate in a real cap-and-trade setting.
Source
: http://www.epa.gov/acidrain.
EXAMPLE
15.4
418 Chapter 15 Stationary-Source Local and Regional Air Pollution
A subsequent study by Ellerman (2003) estimated that Phase II costs would
be considerably lower as well. In addition to the above-mentioned factors
responsible for lowering costs, additional savings resulted from the banking
provisions, which provided plants with great flexibility in timing their reduction
investments.
Controlling Interstate Pollution Flows The sulfur allowance program involves
a national market that focuses on reducing national emissions cost-effectively. As
such, it does not specifically address the regional aspects of pollution, namely
targeting reductions in the northeastern states that had the largest nonattainment
problems.
On March 10, 2005, EPA issued the Clean Air Interstate Rule (CAIR), a rule
designed not only to achieve large reductions of SO
2
and/or NO
x
emissions across
28 eastern states and the District of Columbia, but also to put a permanent cap on
those emissions. To implement these reductions, CAIR authorized states to
establish a regional “cap and trade” program for SO
2
and NO
x
.
On July 11, 2008, the U.S. Court of Appeals for the District of Columbia
Circuit threw out EPA’s Clean Air Interstate Rule. The court found that CAIR’s
regional cap-and-trade approach would not ensure that each upwind state would
sufficiently reduce its contribution to nonattainment in a particular downwind state
sufficiently to satisfy the governing statute. (Remember our earlier discussion
about the importance of emissions location in some contexts?) Among its specific
concerns, two are pertinent to our current focus. First, the court ruled that EPA’s
apportionment of emissions allowances failed to consider the specific contribution
of each upwind state to each downwind state’s nonattainment. In addition, the
court pointed out that a cap-and-trade program that targets aggregate emissions
reductions (rather than air quality) does not directly address the nonattainment
problem in these states; it controls the aggregate amount of emissions, but not
where the emissions reductions would occur. And for this problem, emissions
location matters.
On July 6, 2010, EPA offered draft regulations to replace the vacated Clean Air
Interstate Rule with a new regulatory proposal called the Clean Air Transport
Rule (CATR). The EPA’s proposals offer three program options for comment.
The first, and preferred, option retains interstate trading, but with more restric-
tions to address the court’s concerns. The EPA’s other proposed options allow for
(1) only intrastate trading (separate markets for each state) or (2) a command-
and-control approach, with the EPA specifying an emissions standard for each
unit falling under the program. Final rules will be established only after a public
comment period.
How would the choice among these three options affect cost? We would expect
that compliance cost would rise as more restrictions on trading (i.e., moving from
Option 1 to Option 3) are imposed as long as the aggregate emissions reductions
are the same. The reason is rather straightforward. More restrictions imply
fewer trading opportunities. Fewer trading opportunities, in turn, mean a lower
likelihood of equalizing marginal abatement costs (do you see why?) and
419Summary
4
The effects of option choice on costs can be found on the EPA website: http://www.epa.gov/
airmarkets/progsregs/epa-ipm/transport.html (accessed February 10, 2011).
equalized marginal costs is the precondition for cost-effectiveness. It follows that
we would expect the first option to have the lowest costs and direct controls to
have the highest, although we know from the Los Angeles example discussed
earlier in this chapter that as the degree of control approaches its maximum
feasible level, the advantages of trading diminish. The degree of control in this
program is quite high. Some preliminary analysis by the EPA not only finds, as
expected, that the policy options offering more trading opportunities do impose
the lowest cost, but it also finds that the cost differences among these three
options are quite small.
4
Summary
While air quality has improved in the industrial nations, it has deteriorated in the
developing nations. Because the historical approach to air pollution control has
been a traditional command-and-control approach, it has been neither efficient nor
cost-effective.
The command-and-control policy has not been efficient in part because it has
been based on a legal fiction, a threshold below which no health damages are
inflicted on any member of the population. In fact, damages occur at levels lower
than the ambient standards to especially sensitive members of the population, such
as those with respiratory problems. This attempt to formulate standards without
reference to control costs has been thwarted by the absence of a scientifically
defensible health-based threshold. In addition, the traditional policy failed to
adequately consider the timing of emissions flows. By failing to target the greatest
amount of control on those periods when the greatest damage is inflicted, the
current policy encourages too little control in high-damage periods and excessive
control during low-damage periods. Current policy has also failed to pay sufficient
attention to indoor air pollution, which may well pose larger health risks than
outdoor pollution. Unfortunately, because the existing benefit estimates have large
confidence intervals, the size of the inefficiency associated with these aspects of the
policy has not been measured with any precision.
Traditional regulatory policy has not been cost-effective either. The allocation
of responsibility among emitters for reducing pollution has resulted in control
costs that are typically several times higher than necessary to achieve the air-quality
objective. This has been shown to be true for a variety of pollutants in a variety of
geographic settings.
The recent move toward cap-and-trade policies is based on the cost-effective
economic incentives they provide. Providing more flexibility in meeting the
air-quality goals has reduced both the cost and the conflict between economic
growth and the preservation of air quality.
420 Chapter 15 Stationary-Source Local and Regional Air Pollution
What about the impact of environmental regulation on the diffusion of more
environmentally benign technologies? Does the evidence suggest that new tech-
nologies with reduced environmental impact are being developed and adopted? As
Example 15.5 points out, for chlorine manufacturing, the answer is a definite yes,
but not quite in the manner expected.
France and Japan have both introduced emissions charges as part of their
approach to pollution control, but neither application fits the textbook model very
well. In France, the charge level is too low to have the appropriate incentive effects.
In Japan, the charge is designed mainly to raise revenue for compensating victims
of respiratory damage caused by pollution. Although the Japanese charge is closer
to satisfying the conditions of an efficient charge than the French version (since the
level of the charge is based upon the damage caused), it falls short of complete
efficiency in that it covers only certain types of damages.
Regional pollutants differ from local pollutants chiefly in the distance they are
transported in the air. Whereas local pollutants damage the environment near the
emissions site, regional pollutants can cause damage some distance away. Some
substances, such as sulfur oxides, nitrogen oxides, and ozone, are both local and
regional pollutants.
As the zone of influence of pollutants extends beyond local boundaries, the
political difficulties of implementing comprehensive, cost-effective control
Technology Diffusion in the Chlorine-
Manufacturing Sector
Most of the world’s chlorine is produced using one of three types of cells: the
mercury cell, the diaphragm cell, and the membrane cell. Generally, the mercury-
cell technology poses the highest environmental risk, with the diaphragm-cell
technology posing the next highest risk.
Over the last 25 years, the mercury-cell share of the total production has fallen
from 22 to 10 percent; the diaphragm-cell share has fallen from 73 to 67 percent,
and the membrane-cell share has risen from less than 1 percent of the total to 20
percent.
What role did regulation play? One might normally expect that, prodded by
regulation, chlorine manufacturers would have increasingly adopted the more
environmentally benign production technique. But that is not what happened.
Instead, other regulations made it beneficial for users of chlorine to switch to
nonchlorine bleaches, thereby reducing the demand for chlorine. In response to
this reduction in demand, a number of producers shut down, and a disproportion-
ate share of the plants that remained open were the ones using the cleaner,
membrane-cell production.
Source
: L. D. Snyder, N. H. Miller, and R. N. Stavins, “The Effects of Environmental Regulation on
Technology Diffusion: The Case of Chlorine Manufacturing.” AMERICAN ECONOMIC REVIEW, Vol. 93,
No. 2 (2003), pp. 431–435.
EXAMPLE
15.5