Chapter 13

Global Air Quality: Policies for Ozone Depletion and Global Warming

2004 Thomson Learning/South-Western

The Problem of Ozone Depletion

Ozone layer Ozone present in the stratosphere that protects the earth from ultraviolet radiation Ozone depletion thinning of the ozone layer, originally observed as an ozone hole over Antarctica

The Problem of Ozone Depletion

Searching for the Causes of Ozone Depletion
Chlorofluorocarbons (CFCs) a family of chemicals that scientists believe contributes to ozone depletion Halons a major group of ozone depleters that have long atmospheric lifetimes

Controlling Ozone Depletion

International Agreements to Control Ozone Depletion
Montreal protocol Signed in 1987 by 24 major countries, the Montreal Protocol on Substances That Deplete the Ozone Layer called for 50 percent reduction in CFC consumption and production Amendments to the Protocol Outlined full phase-out plan for CFCs, halons, and other ozone-depleting substances International allowance trading Market approach included production and consumption allowances Multilateral fund Established in 1990 to assist developing countries
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Controlling Ozone Depletion

Figure 13.1 Cumulative Global Production of CFCs: 1960 1998

Controlling Ozone Depletion

U.S. Policy to Control Ozone Depletion
Ozone depletion potential (ODP) a numerical score that signifies a substances potential for destroying stratospheric ozone relative to CFC-11 Excise Tax on Ozone Depleters an escalating tax on the production of ozone-depleting substances

Controlling Ozone Depletion

Allowance Market for Ozone-Depleting Chemicals a system that allows firms to produce or import ozone depleters only if they hold an appropriate number of tradeable allowances Two types of transfers:
Trades with other parties Interpollutant transfers

Controlling Ozone Depletion

Regulatory Impact Analysis (RIA) of the PhaseOut A benefit-cost study of the formal phaseout plan conducted by the EPA

Economic Analysis of U.S. Policy on Ozone Depletion

Assessing Cost-Effectiveness
EPA-commissioned study conducted by Rand Corporation investigated three alternative control approaches Costs for each approach were as follows Technology-based command-and-control approach: $185.3 million Fixed emission charges: $107.8 million Tradeable emissions permit system: $94.7 million

Controlling Ozone Depletion

Figure 13.2 Price Adjustments of CFCs and CFC Substitutes

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Controlling Ozone Depletion

Price Changes
U.S. progress could be observed through the price mechanism due to implementation through marketoriented instruments

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Controlling Ozone Depletion

Incentives and Disincentives To Develop CFC Substitutes
Usual incentives encouraged a market adjustment to the observed industry declines and price changes Use of tradeable allowance plan along with the excise tax, the recycling program, and the safe alternatives policy achieved the phase-out objectives in a more cost-effective manner

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The Problem of Greenhouse Gases and Global Warming

Greenhouse gases (GHGs) gases collectively responsible for the absorption process that naturally warms the earth

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The Problem of Greenhouse Gases and Global Warming

Understanding the Potential Problem
Global warming caused by sunlight hitting the earths surface and radiating back into the atmosphere where its absorption by GHGs heats the atmosphere and warms the earths surface Global warming potential (GWP) measures the global warming effect of a unit of any GHG relative to a unit of CO2 over some time period

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The Problem of Greenhouse Gases and Global Warming

Figure 13.3 Greenhouse Gases and Their Contribution to Global Warming

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The Problem of Greenhouse Gases and Global Warming

Scientific Uncertainty
No one knows with certainty the timing or the extent of the outcome of the climate changes associated with rising amounts of CO2 Carbon sinks natural absorbers of CO2 such as forests and oceans

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The Problem of Greenhouse Gases and Global Warming

Predicting the Potential Effects of Global Warming
There is a lack of substantive information on what the eventual outcome of accumulated GHGs might be Scientific predictions about the effects of global warming are not at all conclusive

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Policy Response to Global Warming

International Response
U.N. Framework Convention on Climate Change (UNFCCC) agreement dealing with global warming and other air quality issues National Action Plan (NAP) a nations policy to control GHGs and a statement of its target emissions level for the future Kyoto Protocol U.S. Response Clinton administration Bush administration
Greenhouse gas (GHG) intensity the ratio of GHG emissions to economic output
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Policy Response to Global Warming

Figure 13.4 Top 10 National Emitters of Carbon Dioxide, 1999

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Policy Response to Global Warming

Investigating Market-Based Policy Options
Pollution Charge a fee that varies with the amount of pollutants released Gasoline tax a per unit tax levied on each gallon of gasoline consumed Btu tax a per unit charge based on the energy content of fuel, measured in British thermal units (Btu) Carbon tax a per unit charge based on the carbon content of fuel Corrective taxes a tax aimed at rectifying a market failure and improving resource allocation
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Policy Response to Global Warming

Tradeable Permit System Tradeable permit system for GHG emissions based on the issuance of marketable permits, where each allows the release of some amount of GHGs

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Economic Analysis of Global Warming Control Policies

Estimating the Benefits of Controlling Global Warming: Two Opposing Views
Short - and Long-Term Expected Benefits: A Report from the OECD Assessment of Relative Benefits: A Study by Beckerman

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Economic Analysis of Global Warming Control Policies

Figure 13.5 Modeling the Negative Externality of GHG Emissions Associated with Electricity Generation

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Economic Analysis of Global Warming Control Policies

Economic Model of the Market Failure Evaluating Market-Based Policies
Analysis of Pollution Charges Evaluating a Tradeable Permit System

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