Coal-fired electricity-generating plants emit substantial amounts of sulfur dioxide and particulate pollution into the atmosphere. Concerned citizens are appalled at the aesthetic and environmental implications of such pollution, as well as the potential health hazard to the local population.
In analyzing remedies to the current situation, three general methods used to control air pollution are generally considered:
• Regulations -- licenses, permits, compulsory standards, and so on.
• Payments -- various types of government aid to help companies install pollution-control equipment. Aid can take the form of forgiven local property taxes, income tax credits, special accelerated depreciation allowances for pollution-control equipment, low-cost government loans, and so on.
• Charges -- excise taxes on polluting fuels (e.g., coal, oil, and so forth), pollution discharge taxes, and other taxes.
Answer the following questions in light of these alternative methods of pollution control.
A. Pollution is a negative externality and a major cause of market failure. Explain why markets fail.
B. What is the incentive provided to polluters under each method of pollution control?
C. Who pays for a clean environment under each form of control?
D. On the basis of both efficiency and equity considerations, which form of pollution control is most attractive?