Stationary Source Air Pollution PDF Fall 2024, University of Oregon

Stationary Source Air Pollution EC 434/534 University of Oregon Emmett Reynier Fall 2024 Housekeeping... 1. Midterm grades will be posted by the end of the week 2. Problem set 3 is up, due Friday November, 15th 3. I have posted feedback on your project ideas and fixed some mistakes on due date...

Stationary Source Air Pollution EC 434/534 University of Oregon Emmett Reynier Fall 2024 Housekeeping... 1. Midterm grades will be posted by the end of the week 2. Problem set 3 is up, due Friday November, 15th 3. I have posted feedback on your project ideas and fixed some mistakes on due dates (sorry) Meet with me to discuss in Weeks 6, 7, or 8 Paper is due Dec 3rd, not on Thanksgiving 2 / 38 Any news you'd like to discuss? 3 / 38 Last time... Tradeable permits (i.e. cap-and-trade). Comparisons between Pigouvian policy and tradeable permits. Both are market-based policy tools that ensure pollution control is achieved at least cost (if not necessarily at an efficient level). Taxes ensure price stability (price-based policy instrument). Permits ensure environmental effectiveness (quantity-based policy instrument). Under uncertainty about M AC , instrument choice varies according to relative steepness of M AB and M AC curves (Weitzman, 1974). Today: Stationary-source air pollution & real-world examples. 4 / 38 Introduction 5 / 38 What is stationary-source pollution? Basically, pollution generated by factories and plants. We'll focus on air pollution It's not that the pollution itself is stationary. It's that the thing generating the pollution doesn't move. In contrast, mobile sources of air pollution would be things like cars, trucks, and ships. (Next lecture's topic.) In the U.S. there are an estimated 27,000 regulated major stationary air pollution sources. Most of these sources are governed under the Clean Air Act (CAA) and its various amendments. 6 / 38 Clean Air Act Amendments of 1970 Regulation of stationary sources of air pollution got serious in 1970 with the first CAAA. Federal government seized a much stronger, centralized role in the regulation of air pollution. States were largely sidelined. The CAAA of 1970 were focused on "criteria pollutants" → i.e. pollutants that required the EPA to draw up regulating criteria. SO2 N OX CO2 Lead Ozone Particulate matter (e.g. PM 2.5) 7 / 38 Clean Air Act Amendments of 1970 CAAA 1970 primarily worked by establishing a form of emissions standards → National Ambient Air Quality Standards (NAAQS). NAAQS set standards for the ambient concentration of pollution over a given period of time. Set a short-term (max during the day) and a long-term standard (annual average). NAAQS were not set with costs considerations in mind CBA prohibited by the law itself Standard set at a level to protect most vulnerable citizens. 8 / 38 Clean Air Act Amendments of 1970 Implementation and enforcement: Each state must file a State Implementation Plan (SIP). The SIP divides each state into air-control regions. The SIP contains detailed plans for how each region will attain the ambient air standards, what control methods will be used, and on whom they will be used. (Non)attainment is the key issue. When an air-control region doesn’t meet the NAAQS, it is designated as "nonattainment". (Bad.) Strict and costly pollution controls are forced upon sources of pollution. Until non-attainment is remedied, EPA has the authority to: Halt the construction of new or modified pollution sources Withhold other federal money from the state, etc. 9 / 38 Detour: Perverse incentives A lot of recent interest in perverse incentives of attainment and local authorities gaming the system. Spatial gaming Grainger et. al., 2020 ⟶ Local authorities more likely place monitoring stations in low pollution areas. Temporal gaming Zou, 2021 ⟶ EPA only monitors every 1 in 6 days. Both papers exploit new satellite-based ("remote sensing") pollution estimates to work out the bias of conventional, ground-based measurement techniques. 10 / 38 Detour: Perverse incentives Pollution "miraculously" falls on the day of monitoring Zou, 2021. 11 / 38 Back to the CAAA: New Source Review The CAAA of 1977 established "New Source Review" ⟶ New or significantly renovated sources must seek a permit for operation. The permit approval required that the new or modified source will install BACT (i.e. Best Available Control Technology). BACT are a list of control technologies that must be implemented regardless of cost. As old plants become obsolete, their replacements will be much better at reducing pollution. 12 / 38 Back to the CAAA: New Source Review NSR backfires? NSR can create perverse incentives for the operators of polluting factories and power plants. Complying with BACT is expensive: it might be cheaper not to upgrade the facility at all. "The Best or Nothing" 13 / 38 (In)efficiency of Command and Control 14 / 38 CAC regulations and (in)efficiency If standards/CAC regulations are efficient, must be the case that the standard is set at the point where M B(e) = SM C(e). Efficiency of CAA depends on five things: 1. Threshold concept 2. NAAQS levels 3. Geographic variation 4. Timing 5. Human exposure Let's review these briefly in turn. 15 / 38 1. Threshold pollutants Threshold pollutants are assumed to have very little or no external cost until they cross a critical level (the threshold). E.g. NAAQS are based on the "health threshold" Idea that there is a level under which there are no damages. Doesn't seem to be a very realistic assumption. Recent evidence suggests that this notion of a "health threshold" doesn't make much sense: Health damages exist at lower levels. SM C is very likely upward sloping rather than flat. 16 / 38 2. Level standard What should the level of the NAAQS be? Since we don’t think that the criteria air pollutants are threshold pollutants, efficiency requires we maximize net benefits of the policy. Again, however, the CAAA strictly forbid cost considerations... Very unlikely that we are achieving efficiency. Difficult to determine ex post if the policy was efficient. From 1970 to 1990, benefits could be anywhere from $6 to $50 trillion. 17 / 38 3. Uniformity The same standards apply to everyone, everywhere. No account is taken of geographical variation. Some areas might have high SM C , others might have low. Geographic variation in inputs makes attainment harder in certain areas. 18 / 38 4. Timing The timing of emissions can have important impacts. A large burst of emissions in time can be just as bad as a concentration of emissions in space. Ambient pollution of ozone, for example, does more damage in the midday sun than at night. Variability of SM C throughout the day and year isn't accounted for. 19 / 38 5. Concentration vs. Exposure CAAA focuses on outdoor air concentrations. Americans only spend 10% of their day outside on average. Not all regions have equal human exposure to outdoor air. SM C might be higher in urban areas since more humans are exposed to pollution. Efficiency would require a tighter standard. 20 / 38 Were the 1970s CAAA cost-effective? There is no way of knowing if the CAAA 1970 was efficient. But was it cost effective? Unlikely a priori → A group of heterogeneous firms all facing the same standard. No gains from trade. At least nine studies have tried to estimate the costs of CAC relative to a least-cost alternative (i.e. one with perfectly functioning permit market). Each study focused on one city or region at a time. Eight of the estimates suggested substantial (sometimes huge) overruns, ranging from 78% more costly to 2,100% more (!) costly. A ninth study, focusing on Los Angeles, found CAC was only 7% more costly. (What do you think drove this outlier?) 21 / 38 Did the 1970s CAAA work? Okay, so the CAAAs weren't cost-effective. But did they reduce pollution? Change in air quality (%) 1980 vs. 2010 1990 vs. 2010 2000 vs 2010 CO -82 -73 -54 Ozone -28 -17 -11 Lead -90 -83 -62 NO2 -52 -45 -38 PM10 -- -- -29 PM2.5 -- -- -29 SO2 -76 -68 -48 Those are big changes! 22 / 38 Market based approaches 23 / 38 Market-based approaches While the US (mostly) opted for CAC-style air pollution policy at the federal level, there are notable exceptions. As we saw from the last two lectures, market-based strategies have the advantage of shifting the burden of pollution control to the firms. Doesn't require the same informational overhead. Flexibility is desired by the private sector. Firms typically find cheaper ways to reduce pollution than required by some uniform standard. Market-based approach allows for pollution prevention, as opposed to just "end-of-pipe" control technologies. 24 / 38 Example 1: RECLAIM smog trading California's Regional Clean Air Management (RECLAIM) program was designed to reduce smog. Established by the California South Coast Air Quality Management District; i.e. the district responsible for the greater Los Angeles area. Started in 1994, had goal of cutting N O and SO emissions by 80%. X X Each of the ± 400 industrial polluters are allocated annual cap → annual decreases of 5-8%. Every unit of pollution that a firm beats their standard by can be sold to other firms. 25 / 38 Example 1: RECLAIM smog trading RECLAIM generally regarded as successful, but two main issues. 1. Political: In order to get the program legislated, the initial caps were so high they were meaningless. Traditional regulation would have performed better initially. 2. Safety valve: Program temporarily suspended if permit price gets too high and everyone pays a (smaller) tax on emissions. Permit prices driven by electricity even though only ± 14% of permits allocated to power generators. California electricity crisis of 2000. Older, dirtier generators brought online to meet demand. Permit price/tonne of N O : $4,284 (1999) → $39,000 (2000)! X Safety valve kicks in to take pressure off. 26 / 38 Example 2: Japanese emissions charge Japanese version: Tax polluters and use that money to directly compensate victims of pollution. Use govt revenues to directly pay for external damages. Tax on units of SO and on automobile weight. 2 Victims apply to regulator for compensation. Emissions charges have risen dramatically, providing strong incentive to abate (although not all pollution sources covered). In permit system, the "price" is set by the market. Taxes are set by the govt. The tax in Japan is adjusted so that revenues are enough to offset pollution damage claims. Victim claims ↑ as program becomes popular. Emissions are falling because of the tax and other reasons. 27 / 38 CAAA of 1990 and the Acid Rain Program 28 / 38 Local vs regional pollution The difference between local and regional pollution is the distance the pollution travels in the air. E.g. SO can travel up to 600 miles. 2 Similarly, some pollutants experience chemical changes in the atmosphere which change them into more harmful chemicals. How did the original CAA(A) operate? Local ambient pollution standards. 29 / 38 "Dilution is the solution" Firms responded to local CAAA standards by building giant smoke stacks. Pump the pollution high into the air and let it dissipate over a much wider range. "Dilution is the solution". This was cheap, but it didn't really solve the problem. Just shifted the burden elsewhere. Pollution control policy is now set at the federal level, largely from this. 30 / 38 Clean Air Act Amendments of 1990 By the late 1980s, it had become clear that the CAA needed revising. Inefficient command & control (CAC) regulation. Local standards for regional pollutants. Simultaneously, acid rain had become a huge problem. Initial focus was on SO (primary contributor to the formation of acid 2 rain), but later expanded to include N O. X The Congressional Budget Office (CBO) estimated that stricter CAC regulations on SO would be expensive. 2 By comparison, CBO determined that a tax on SO emissions would be 2 most cost-effective to reduce ambient SO levels... 2 31 / 38 Clean Air Act Amendments of 1990 Needless to say, an emissions tax was not politically popular. The George H.W. Bush Administration partnered with the Environmental Defense Fund (EDF) to pass the CAAA of 1990. "A grand bargain" that avoided the political problems of a tax... by implementing a new/different market-based policy instrument. (Can you guess?) Capstone feature of the 1990 CAAA: Acid Rain Program (ARP). A national tradeable permit program for SO. 2 Cap was set so that SO emissions would fall 10m tons relative to 1980 2 levels by 2010. 32 / 38 ARP: Affected plants Source: Hitaj and Stocking (2016) 33 / 38 Evaluating the ARP A resounding policy success. Near 100% compliance and early achievement of goals. 1990--2004: Emissions ↓ 36% even as coal-powered electricity ↑ 25%. In practice, the ARP had some unexpected "help". Railroad deregulation made it much cheaper for plants to reduce SO 2 emissions. (Why?) Ex-post over 95% of the ARP's estimated benefits are due to improvements in human health (from ↓ in airborne sulphate particles). Ironic b/c health considerations were not considered as part of the original CBA calculations and policy motivation. 34 / 38 Evaluating the ARP Cross-State Air Pollution Rule Passed in July 2011, removing the ability to trade across state lines (ie. now only within state). Market is now effectively dead. Current permit price ≈ \$0. But it had already done its job... even if it did have some unexpected help. (A market-based instrument gives you felixbility to take advantange of this!) Another irony: The program was created and passed by successive Republican administrations (Reagan/Bush). Regarded as one of the most innovative and successful market-based environmental policies in the real-world Yet...C&T is now much maligned by the current crop of GOP leaders and conservative lawmakers. 35 / 38 Last thing... The CAAA continues to be a very good deal according to the latest research Shapiro and Walker, 2021. 36 / 38 Conclusions 37 / 38 Conclusions Stationary air pollution refers to the immobility of pollution sources (not pollution itself). In the US, stationary air pollution is by and large regulated by the CAA and its various amendments. CAAA of 1970 were not cost-effective (or efficient). CAC-style regulation didn't take advantage of cost savings available in market-based policies. Focus on local pollution standards created an incentive to export pollution to neighboring areas. Ignored variation in damages across time and space. CAAA of 1990 was much improved due to market-based policies. Introduced a well-functioning cap-and-trade system that reduced emissions at low cost. Although, unexpected help (railroad deregulation) and benefits (human health). 38 / 38