What is externality of pollution and how do we solve it?

By: Lim Chun Hong

The articles ‘ Cars, Cows and Carbon sinks ‘ in 2011 stated the consequences of excessive carbon emission is one of the most serious issue that have been arising for past few years.

 
A chemical plant may dump waste into a river in order to minimize its cost. Further down the river, a water company has to treat the water to remove dangerous chemicals before supplying drinking water to its customers, which in other words, also rise in cost of production. Its customers have to pay higher prices because of the pollution. This is one classic example of externalities, which arise when private costs and benefits are different from social costs and benefits. However, externalities could be in positive or negative forms, but as time passes by, we are all warned to be more concern in reducing pollution to environment due to the rapid rise of global warming issues all these times. According to the article ‘Cars, Cows and Carbon Sinks’, it stated that carbon is the very main issue that affecting human activity at any level, which also affecting the economy.

There are negative production externality and negative consumption externality. First and foremost, according to the article ‘a clear rising curve in residual atmospheric carbon dioxide’, it means that the emission level of carbon dioxide is increasing significantly. It could be a sign of a rise in quantity demanded for machines that produces carbon dioxide, probably there are more factories operate without air filter that contribute to the rise of emission of carbon dioxide directly. In this case, as production and consumption both takes places at cost equals to benefits, there is a welfare loss to society, as at every level of output, marginal social cost of production is higher than the marginal private cost, which means, society as a whole, has to pay a higher price to use the machines. The loss is the difference between the marginal social cost and marginal private benefit. This loss also named as the welfare loss, as the society pay the price of polluting the environment when consuming the services, which is the higher emission of carbon dioxide. This also known as negative production externality. Simultaneously, the rise in emission level of carbon dioxide could also be a rise in sales of vehicles. As more people able to own a car, it also in a sense that causes a rise in emission of carbon dioxide because of the gas that came out from the vehicles. This is called the negative externality in consumption, when marginal private benefit is higher than marginal social benefit. As consumer himself needs the car to travel or for job purposes , especially logistics companies , damaging the environment directly too throughout the gas being processed during the transportation journey. The welfare is loss due to the excessive emission of carbon dioxide.

This definitely brings impact to the economy, as ‘production of lamb from New Zealand for UK consumption break down as roughly 80 per cent’. It could probably mean that due to air pollution, there is a fall in the number of lamb for UK consumers. With lower supply lamb, the supply curve will shift leftwards. Hence, the higher price of lamb will affect many fields such as the producers of lamb, they might face a fall in total revenue , or disposable income of consumers would decreased too, as they have to switch their choice to consumer other goods , which might originally charging at a higher price than lamb. Also, in addition to this point, export of lamb for the countries like New Zealand would be decreased, which will also experience a fall in government’s revenue. 

 However, actions such as policies, campaigns, and regulations, either from government or society to create awareness for everyone where the externalities exist. For example, quotas could be used to limit externalities. Government could narrow down the pollution levels or might even ban any activities that could lead to rise in pollution.

Besides that, issuing permit is also another way of attacking negative externalities such as emission carbon dioxide. Government or authorities could issue permits to pollute; the total of maximum amount of carbon dioxide to be emitted over a period of time like a year, then allocates permits to individual firms. This would be best to focus on the basis of current levels of emissions by firms contributed to the rise of carbon dioxide emissions. Then, the permits are tradable for money. Also, firms which managed to reduce their carbon dioxide emission levels below target can also sell the permits to other producers who are participated in such act.

Lastly, which much favored by economists and , is the use of taxes. For example, tax on petrol for cars could be charged at a higher rate by the government due to the reason of emissions of carbon dioxide and carbon monoxide directly contribute to global warming and air pollution. It should be charged where the tax revenues equal to the cost to society of emissions, making the polluters pay the cost of pollution.

The precise fact that global warming or pollutions issues are rising up brings nothing more but only harm to our future generations. It is going to be a tough battle to convince the public to make huge sacrifices, but we should get on with the job of managing it, even though the volume is huge, and only a small fraction of it can be manageably handled; at least, this is all we can do now.  Pollution of environment is still a difficult task for us to handle, before it becomes an existential crisis, conservatives actions should be proposed and suggested such as appropriately optimistic, science-based, and cost savings policies that able to minimize the emission of carbon, whether or not it is effective or efficient, at least, our mother earth knows that there are still some respect from humans that attempt to deal with the problems.