Explain the CONTROLLING POLLUTION and Command-and-Control Approaches and Market-Based Approaches below using economic terminology, economic logic, and economic reasoning

CONTROLLING POLLUTION

How do we get polluters to change their behavior to take account of the negative externalities that they generate? In the airline example, we made the assumption that the airlines had to pay for the negative noise externalities that they generated. But in the real world, it's not as easy as that.

Imagine, for example, a small town of people who live around a lake. They dump their wastewater in the lake, which ends up being severely polluted. The members of the town council vote and decide that these discharges into the lake need to be substantially reduced. How should they accomplish this change?

The most straightforward way is to issue regulations restricting how much waste each family or business can discharge into the lake and establishing fines or jail sentences for the violators. That's how most pollution control is done today. However, as we will see in this section, economists have come up with alternative ways of controlling pollution that may produce better results.

Command-and-Control Approaches

As we saw in the section about energy conservation earlier in this chapter, the government can use a command-and-control approach to reduce pollution. That means the government tells businesses and consumers what to do & what not to do. Here are a couple of examples. In 1972, the Environmental Protection Agency banned the pesticide DDT because of concern about the harm it caused to the environment and both human and animal health. Similarly, in 1973, the EPA issued regulations forcing refineries to sharply reduce the amount of lead they put in gasoline to make car engines run better. Studies had shown that the lead from gasoline ended up in the air and on outdoor and indoor surfaces, and this lead was especially poisonous to children.

Overall, command-and-control regulations have helped reduce pollution in the United States and other developed countries.Figure 19.8, for example, shows the emissions of carbon monoxide, a toxic gas produced by internal combustion engines. The Clean Air Act, passed in 1970 by Congress, required that emissions of carbon monoxide be sharply curtailed. In response, the EPA issued strict regulations detailing how much carbon monoxide cars could produce. The result: Automakers installed catalytic converters in cars, which turn carbon monoxide into carbon dioxide. The amount of emitted carbon monoxide fell by 71 percent from 1970 to 2017, despite a large increase in the number of vehicles.

Figure 19.8 The Decline in U.S. Carbon Monoxide Emissions, 1970-2017

Regulation helped drive the decline in airborne pollutants such as carbon monoxide.

The benefit of the command-and-control approach is that you know what you're going to get as a resultin this case, less pollution. You can simply ban the offensive actions or substances or require the use of a particular antipollution technology. Command and control can be appropriate for pollutants that have large and immediate negative health effects because stopping their use is clearly the best strategy for safeguarding the public.

However, command-and-control approaches have a big disadvantage: They're inflexible and usually force all pollution emitters to meet the same standards or install the same equipment. That can be expensive and perhaps counterproductive, especially if the regulations take effect very quickly.

For example, let's go back to the problem of noise pollution at airports. Suppose that the federal government made a rule that all airlines could no longer use older, noisier planes, in order to address noise complaints from people living near airports. What would happen then? Suddenly, U.S. airlines would have to ground most of their fleet (because they all tend to have aircraft that average over 10 years old). The result: bankrupt airlines and sharply higher ticket prices for passengers. That's not a good idea at all.

Market-Based Approaches

As we saw for energy conservation, market-based approaches to controlling pollution work by changing the price signals that people and businesses face in the market. Such price signals give people and businesses incentives to produce less pollution while giving them more options than the command-and-control approach.

One example of using a market approach to reduce the amount of pollution is to tax the product or process causing the externality. The government can use that tax to make sure buyers and sellers take into account the externalities of their actions affecting third parties.

Let's see how this might work, using your computer as an example. Computers and monitors contain sizable amounts of toxic metals, such as lead, cadmium, and mercury. A typical computer monitor, for instance, can contain several pounds of lead, which can seriously damage children's brains if inhaled or ingested. When it's time to dispose of the computer, if it is simply thrown in a landfill, these toxic metals are releasedharming human health and the environment.

Now suppose a tax is put on the computer according to the amount of toxic metals it contains. The more lead, cadmium, and other toxins in the computer, the higher the tax is. Faced with these incentives, computer manufacturers will look for ways to reduce the amounts of toxic metals. In other words, the tax forces the computer manufacturers to bear part of the externality.

In the air travel example, a similar solution for reducing the externality from noise would be to make the airlines pay a tax for each landing and takeoff. The exact amount of the tax would depend on the noisiness of the aircraft. Extremely noisy planes would pay a steep tax, while quiet planes would pay no tax at all. The result would be an extra encouragement for airlines to upgrade their fleets to quieter models.

Another market-based approach for reducing pollution is the use oftradable pollution permits. A pollution permit gives a business the right to emit a particular amount of pollution. For example, since 1995, electric utilities in the United States have needed pollution permits (also calledallowances) to emit sulfur dioxide, the pollutant that causes acid rain.

The idea of issuing permits to pollute may seem like a funny concept. But they can be highly effective in reducing pollution. First, only a certain number of permits are issued, which provides a cap on the amount of pollution (that's why such programs are often calledcap-and-trade systems). The cap can be reduced over time.

More important, these permits can be bought or sold. If a business has a permit to emit some amount of pollution, it has three choices. It can use the permit itself. It can decrease its own pollution and sell the permit to another business that needs it more. Or it can buy more permits if reducing its own pollution is too expensive.

The ability to sell permits for a profit gives firms an incentive to cut their own emissions more than required. In other words, there is a reward for virtue. And the permits are sold to companies that have the hardest time cutting their pollutants.