According to the New York Times, “Setting ambitious goals for producing energy f

Question

According to the New York Times, “Setting ambitious goals for producing energy from the sun, wind and other renewable sources, Hillary Rodham Clinton seized on an issue that increasingly resonates with Democratic voters and sets up a stark contrast with the Republican presidential field.” Quoting further “While Mr. Obama’s climate change goals, driven by regulations from the Environmental Protection Agency (E.P.A.), would lift the nation’s renewable power to about 20 to 25 percent, according to E.P.A. estimates, the rest of the increase, experts said, will be impossible without new laws requiring renewable power.”

(1) The E.P.A.’s first Administrator, William Ruckelshaus, declared that the agency had "a broad responsibility for research, standard-setting, monitoring and enforcement with regard to five environmental hazards; air and water pollution, solid waste disposal, radiation, and pesticides.” From an economics perspective, why was it necessary to create the E.P.A. to deal with air and water pollution? Demonstrate and explain.

(2) In addition to regulation, what other method can the government use to achieve its underlying goal with respect to air and water pollution? Demonstrate and explain.

(3) The E.P.A. was created by an Executive Order prepared by President Nixon and sent to the Senate and House of Representatives on July 9, 1970. Why do we elect officials and authorize them to make decisions on our behalf? Explain.

(4) Are there any potential problems associated with electing officials and authorizing them to make decisions on our behalf? What are they? What is the root cause? Explain.

(5) Conventional wisdom suggests that among our elected officials, Democrats are likely to support the proposed policy while Republicans are likely to oppose it. Demonstrate and explain why this might be the case (i.e. how the elected officials might be responding to their constituents).

(6) Suppose that there are only three elected officials: R who prefers no regulation, I who prefers moderate regulation, and D who prefers high regulation. What level of regulation will be chosen? Demonstrate and explain.

(7) What assumption is required for the above result to hold? What might happen is this assumption is violated? Explain.

(8) Is the result described in (7) likely to be socially optimal? What would it take for it to be so? Explain.

(9) Were most Americans likely to be aware of Mrs. Clinton’s speech? Why or why not? Explain

Explanation / Answer

1) In the year 1970 the congress created EPA by enacting several environmental protection laws, defining the role of EPA & its responsibilities. Pollution being a negative externality affects the economy negatively. Pollution affects human health escalating cost of health care, have negative impact on property values, & increases social cost in an economy.

There are various types of controlling pollution in an economy like green taxes, penalties & creating well defined laws to address the issue. Out of them the method of ‘command & control’ has proved to be the best method to deal with the issue in economics.

In this method an industry is regulated by legislations which define what is permitted & what is illegal. From the pollution perspective, these laws define the standards like ambient standards, emission standards & technology standards to ensure healthy environment. This is the best cost effective method as it requires very low cost to implement & gives outstanding results. The regulator like EPA have the ability to act swiftly in case of violations. In case of any violations or disputes EPA is able to take firm decisions.

Considering the effectiveness of approach & since it was an era of fast economic growth & fast environmental degradation, states were not politically motivated to deal with it. Therefore it was necessary to create EPA which had a broad responsibility for research, standard-setting, monitoring and enforcement.

2) In addition to regulation, government can use following methods to achieve its underlying goal with respect to air and water pollution.

a) Cap & trade system: This is a market based approach to control pollution by giving incentives to achieve reduction in pollution. Government sets the limit on emission of pollutants & if firms exceed the cap they are penalized. The total amount of cap is divided into allowances & government sells these allowances to discharge specific quantities of specific pollutants to firms as per their requirement.

b) Green taxes or Pollution Taxes: The government tries to internalize the effects of negative externalities of pollution by charging firms approximately the same cost as the damage by pollution is done by their productions & operations.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.