Many Receptor Case

 Cost-effective ambient charge paid by any source would be:

j
Ti = Σ Aij Fj
j=1

Where:
Ti = charge paid by ith source for each unit of emission
Aij = transfer co-efficient that translates emission by source i
into concentration increases at the jth receptor
J = number of receptors
Fj = monetary fee associated with the jth receptor
 Thus, source pays a charge incorporating its effects
on all receptors and control authority could
manipulate Fj for each receptor location until desired
concentration level is achieved for that receptor.
 The ambient permit system to many receptors case
requires that a separate permit market be created to
each receptor. The price in each of these markets
reflects the difficulty for meeting the ambient
standard at the receptor.
 When the ambient permit and ambient charges
system policies are chosen, the marginal cost of
emission control varies from location to location.
Sources located in heavily polluted region pay higher
MC due to greater impacts on receptors of interest.
 Example exercise
1. Two firms can control emissions at MCC1 = $200Q1 and
MCC2 =100Q2 where Q1 and Q2 are the amount of emissions
reduced by the two firms. Assume that with no control at all,
each firm would be emitting 20 units of emissions or a total of
40 units for both firms.
(a) What would be the cost-effective allocation if a total
reductions of 24 units emissions are necessary?
(b) What would be the cost-effective allocation of control of
reductions, if ambient standard is 27 ppm and transfer
coefficients which translate a unit of emission into ppm
concentration at the receptors are a1=2 and a2=1?
© Suppose that the control authority wants to achieve the
total emission reduction target to 24 units as staed in 1(a)
using an emission charge system. What should be the value of
the efficient level of per unit charge?
 Solution:
a) For cost effective allocation of control:
MCC1 = MCC2

=> Q2 = 2Q1 (1)

Total reductions required = 24 units
Q1 + Q2 = 24 (2)
Combining (1) and (2) we get Q1 = 8 and Q2 = 16
b) The cost effective allocation would be for a single receptor
MCC1/a1=MCC2/a2
That is
200Q1/2 = 100Q2/1
=>Q1=Q2
Therefore, a1(20-Q1)+a2(20-Q2)=27
2(20-Q1)+1(20-Q2)=27
Cost effective amount of control is: Q1 = 11 and Q2 = 11
 c) If emission level was employed,

We know that, T=MC1 = MC2, where T=Tax

MC1 = 200*8 =$1,600=MC2
Therefore, a emission tax of $ 1600 per unit of charge
would give cost effective control.
 Environmental Regulation through
Liability Law and Property Rights
Approach
 Liability Law Approach
 The main idea behind environmental regulation
through liability laws is to make polluters liable for
the damage they cause. More specifically, polluters
are the defendants and those who are affected by
pollution, the pollutees, are the plaintiffs.
 Thus, since polluters are subject to lawsuits and
monetary payments if they are found guilty, it is in
their best interest to pay special attention to the
way they use the ambient environment as a
medium for waste disposal. In this sense, liability
laws can be used as a means of internalizing
environmental externalities.