CHAPTER FIVE

THE ECONOMICS OF POLLUTION

5.1. Definition
Pollution is an activity which impairs the quality of one or more receiving environments. In
biological terms pollution is said to occur when some metabolic change is observed in animal or
other populations and which would not have occurred otherwise. In economics, however, pollution
is only significant when the utility of one or more individuals is reduced by the pollutants in
question.
Pollution may be defined as the presence/release of certain substances (harmful environmental
contaminants) beyond the absorptive capacity of the earth.
Most of the substances that cause pollution are naturally present in the environment in low
concentration, and are usually considered to be harmless. Thus a particular substance is considered
as pollution only when its concentration is relatively high and cause adverse effects. Even
relatively benign products of human activity are liable to be regarded as pollution, if they
precipitate negative effects later on. The nitrogen oxides produced by industry are often referred
to as pollution, for example, although the substances themselves are not harmful. In fact, it is solar
energy (sunlight) that converts these compounds to smog.

Pollution can take two major forms: local pollution and global pollution. In the past, only local
pollution was thought to be a problem. For example, coal burning produces smoke, which in
sufficient concentrations can be a health hazard. One slogan, taught in schools, was "The solution
to pollution is dilution." The theory was that sufficiently diluted pollution could cause no damage.
In recent decades, awareness has been rising that some forms of pollution pose a global problem.
For example, human activity (primarily nuclear testing) has significantly raised the levels of
background radiation, which may lead to human health problems, all over the world. Awareness
of both kinds of pollution, among other things, has led to the environmentalism movement, which
seeks to limit the human impact on the environment.

Whether something is pollution depends almost entirely on context. Blooms of algae and the
resultant eutrophication of lakes and coastal ocean is considered pollution when it is fueled by
nutrients from industrial, agricultural, or residential runoff in either point source or non-point
source form (see the article on eutrophication for more information). Heavy metals such as lead

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and mercury have a role in geochemical cycles (i.e. they occur as within 'nature'). These metals
may also be mined and, depending on their processing, may thus be released in large
concentrations into an environment previously not playing host to them. Just as the influences of
anthropogenic release of these metals to the environment may be considered as 'polluting', such
pollution could also occur in some areas due to either autochtonous or historic 'natural'
geochemical activity.

Carbon dioxide are sometimes referred to as pollution, on the basis that these emissions have led,
or are leading, to raised levels of the gas in the atmosphere and, furthermore, to harmful changes
in the Earth's climate. Such claims are strongly disputed, particularly by political conservatives in
Western countries and most strongly in the United States. Due to this controversy, in many
contexts carbon dioxide from such sources are labelled neutrally as "emissions."

5.2. Types of Pollution

Essentially, there are three types of pollution:
i. Air pollution
ii. Water pollution
iii. Solid waste

A. Air pollution:
It is the addition of harmful chemicals to the atmosphere. Alternatively, it can be defined as the
contamination of the air by noxious gases and minute particles of solid and liquid matter
(particulates) in concentration that endanger health.
Important pollutant gases include:
 Carbon monoxide
 Nitrogen oxides
 Hydrocarbons
 Tropospheric ozone, which is ozone in the lower part of the atmosphere. (In the upper part,
it helps to reduce the amount of ultraviolet radiation from the sun that reaches the earth.
 Chlorofluorocarbons, which destroys the stratospheric ozone layer.
 Sulfur dioxide, which causes acid rain.

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Air pollutants are classified either primary or secondary. A primary air pollutant is one that is
emitted directly to the air from a given source. An example of a primary air pollutant would be
carbon monoxide, because it is produced as a byproduct of combustion. A second air pollutant is
formed in the atmosphere through chemical reactions involving primary air pollutants. An example
of a secondary air pollutant would be the formation of ozone in photochemical smog.

Sources of air pollution

Sources of air pollution are commonly divided in to two groups: anthropogenic (generated by
human activity) and natural. Anthropogenic sources of pollution are those due to human choices,
and natural sources are those resulting from forces.

Anthropogenic sources are mostly related to burning different kinds of fuel. They include:
• Combustion fired power plants.
• Vehicle with internal combustion engines
• Devices powered by Two Stoke cycle engines.
• Stoves and incinerators, specially coal ones.
• Wood fires, which usually burn inefficiently.
• Farmers burning their crop waste.
Sources not directly related to burning fuel include:
• Industrial activity in general.
• Oil refining
• Waste deposition in landfills, which generate methane.
• Fumes from paint, varnish, and other solvents.
• Aerosol sprays and refrigeration, which once depended on Freon and other
chlorofluorocarbons.
• Arsenic and chlorine found in drinking water and inhaled in bathroom showers.
• Dust and chlorine foumding drinking, especially of erodible land see dust bowl.
• Military actions, including the use and testing of nuclear bombs, poison gases, and germ
warfare.
 Rocketry, which produces many tons exotic emissions quickly and which deposits some of
them directly into the tenuous upper atmosphere.

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Natural sources include;
• Volcanic activity, which produce sulfur, chlorine, and ash particulates.
• Dust from natural sources, usually large areas of land with little or no vegetation.
• Methane, emitted by the digestion of animals, usually cattle
• Smoke and carbon monoxide from wildfires.
• Radon gas from earth minerals.
• Pine trees, which emit volatile organic compounds (VOCs) and oxygen.

Effects on health
It is estimated that three million people may die of air pollution each year worldwide. 2.8 million
of the 3 million mortalities may be due to indoor air pollution. 90% of the 3 million estimated
deaths are in developing nations. 70, 000 die each year in the US. (Some estimates are as low as
50, 000 or as high as 100, 000). Deaths from air pollution are compared to deaths from second
hand smoke and chemical weapons. In the US, more people die from air pollution than from car
accidents. They die specifically from agitated asthma, bronchitis, emphysema, lung and heart
diseases, and other respiratory allergies. The EPA estimates that a proposed set of changes in diesel
fuel technology (Tier 2) could result in 12, 000 fewer premature mortalities, 15, 000 fewer heart
attacks, 6,000 fewer emergency room visits by children with asthma, and 8,9000 fewer respiratory
related hospital admissions each year in the US.

The worst short term civilian event from pollution in India was the 1984 Bhopal Disaster. Leaked
industrial vapors killed more than 2,000 people outright and injured anywhere from 150,000 to
600,000 others some, 6,000 of whom would later die from their injuries. The worst single incident
of air pollution to occur in the United States of America occurred in Donora. Pennsylvania in late
October, 1948, when 20 people die and over 7,000 were injured. The United Kingdom suffered its
worst air pollution event when the December 4th Great Smog of 1952 formed over London. In six
days more than 4, 000 died, and 8,000 more died within the following months. An accidental leak
of anthrax spores from a biological warfare laboratory in the former USSR in 1979 near Sverdlovsk
is believed to have been the cause of hundreds of civilian deaths.

Intentional air pollution in combat is called chemical warfare. Poison gas as a chemical weapon
was principally used during World War I, and resulted in an estimated 91,198 deaths and 1,205,655
injuries. Various treaties have sought to ban its further use. Non-lethal chemical weapons, such as
tear gas and pepper spray, are widely used.

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Regulation and Monitoring
The atmosphere is a complex, dynamic and fragile system. Concern is growing about the effects
of air pollutant emissions in a global context, and the inter-linkages of these emissions with global
warming, climate change and ozone depletion. In this respect different countries have established
several standards that are expected to keep the sustainability of the environment. For instance, the
United States of America has established an agency called United States Environmental Protection
Agency (EPA). The USEPA was supposed to establish "acceptable" levels of exposure to
contaminants. One of the ratings chemicals are given are carcinogenicity, or how likely they are
to cause cancer. Levels range from, not carcinogenic, likely carcinogen, known carcinogen, and
unknown. But some scientists have said that most of these levels are far too high and people should
be exposed less to them. The U.S. has a maximum fine of US$25,000 for dumping toxic waste.
However, many large manufacturers plead guilty, as they can easily afford this relatively small
fine.
But one of the excellent moves towards maintaining the ecosystem was the international agreement
made in Kyoto Japan to combat global warming by sharply reducing emissions of industrial gases.
The agreement so reached upon was known as the Kyoto Protocol. The Kyoto Protocol is an
amendment to the United Nations Framework Convention on Climate Change (UNFCCC), an
international treaty on global warming. It also reaffirms sections of the UNFCCC. Countries which
ratify this protocol commit to reduce their emissions of carbon dioxide and five other greenhouse
gases, or engage in emissions trading if they maintain or increase emissions of these gases. A total
of 141 countries have ratified the agreement. Notable exceptions include the United States and
Australia.
The most satisfactory long term solutions to air pollution may well be the elimination of fossil
fuels and the ultimate replacement of the internal combustion engine. To these ends efforts have
begun in USA, Japan, and Europe to develop alternative energy sources, as well as different kinds
of transportation engines, perhaps powered by electricity or steam. A system of pollution
allowances based on trading emission rights has been established in USA in attempt to use the free
market to reward pollution reductions, and the international sale of surplus emission rights is
permitted under the Kyoto Protocol. Other proposed solutions include raising electricity and
gasoline rates to better reflect environmental costs and to discourage waste and inefficiency, and
mechanical controls on coal-fired utility plants.

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B. Water pollution

Water pollution is the addition of harmful chemicals or wastes to natural water. Or it is the
contamination of water resources by harmful wastes.

Contaminants;

• Bacteria, as from sewage or livestock operations;

• Fertilizers, in runoff from agricultural fields or forestry;
• Food processing waste;
• Tree and bush debris from logging operations

Inorganic pollutant include

• Metals
• Acid mine drainage
• Acid rain caused by industrial or volcanic discharges
• Acid pollutions of lakes by runoff from acid soils;
• Carbon dioxide discharges and runoff, volcanic or mineral;
• Chemical waste industrial by products;
• Silt in storm water runoff from cleared land.

Dangers of water pollution:

Virtually, all water pollutants are hazardous to humans as well as lesser species; sodium is
implicated in cardiovascular disease, nitrates in blood disorders. Mercury and lead can cause
nervous disorders. Some contaminants are carcinogens. DDT is toxic to humans and can alter
chromosomes. PCBs cause liver and nerve damage, skin eruptions, vomiting, fever, diarrhea, and
fetal abnormalities. Along many shores of USA, shellfish can no longer be taken because of
contamination by DDT, sewage, or industrial wastes.

Sources of water pollution

Like that of air pollution, the causes of water pollution can be divided in to two groups:
anthropogenic sources and natural sources.
Anthropogenic sources include:
• Discharge of poorly-treated or untreated sewage;

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 • Runoff from construction sites, farms, or paved and other impervious surfaces;
• Discharge of contaminated /or heated water used for industrial process
• Acid rain caused by industrial discharge of sulfur dioxide (by burning high sulfer fossil
fuels)
• Excess nutrients added by runoff containing large amount of detergents or fertilizers
Natural sources include:
• Seasonal turnover of lakes and embayments;
• Siltation due to floods;
• Eutrophication of lakes due to seasonal changes;
• Acid rains caused by natural volcanic discharges;
• Acid pollution of rivers and lakes by runoff from naturally acid soils;
• Carbon dioxide discharges and runoff, volcanic or mineral.

5.3. Optimal Level of Pollution Control

The efficient level pollution abatement (or the optimal level of pollution control) occurs where the
marginal abatement cost (MAC) is equal to the marginal damage cost (MDC).
Definition: the marginal abatement cost (MAC) is the cost of abating or controlling an extra unit
of pollution. It is also known as the marginal control cost.
Note that there is a negative relationship between MAC and the quantity of pollution. The higher
the MAC, the lower the quantity of pollution; and vice versa.
Graphically,

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Definition: The marginal damage cost (MDC) is the health or environmental damage caused by an
extra unit of pollution it is also known as the marginal pollution cost.
Again note that there is a positive relationship between MDC and the quantity of pollution. The
higher the quantity of pollution, the higher the MDC, and vice versa. Graphically, the MDC doesn’t
start at zero but at positive amount of pollution because of the ability of the environment to
assimilate certain amount of pollution without any damage.

Graphically, efficient pollution abetment occurs at the intersection of the MAC and the MDC
curves, such as at point Q* in the graph below. At points below Q* such as point A, it is the case
that amount spent on controlling pollution (MAC) is greater than the damage due to pollution
(MDC). Therefore , the incentive is to reduce the amount spent on controlling pollution, MAC,
thereby raise the quantity of pollution and move towards Q*.

On the other hands, at points above Q*, such as point B, it is the case that the damage caused by
pollution (MDC) is greater than the amount spent on controlling pollution (MAC). Therefore, the
incentive is to reduce the damage, MDC, by reducing the quantity of pollution, and move towards
Q*. Equilibrium will, therefore, occur at Q*, where MAC = MDC, because that is where the market
forces of MAC and MDC will be balanced such that there is no incentive to change.

Recall that Equilibrium is a situation where market forces are balanced such that there is no
incentive to change. Hence, as long as MDC and MAC are equal, there is no incentive to change.

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The Ecologist operates at X because they have zero tolerance for damage due to pollution.
The Capitalist, on the other hand, operate at Y because it is cheaper to pollute than to have
pollution abatement. Therefore profit maximization dictates that private incentive is where zero
amount is spent. This has a profound implication for policy; unless we control them, capitalists do
not care about the adverse effect.
The economic optimum occurs where MAC =MDC (or at Q*). At this point, the damage is not
zero, nor the amount be paid for contorting is zero

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