Econ 260 Chapter 11
• Standards are a government designed or
• Emissions standard = a maximum rate of
emissions legally allowed.
• Firms pay TAC only, called the compliance
• Violators are fined.
1 Types of Standards:
1. Ambient standards = maximum levels of
pollutants in the ambient environment.
• Generally set as monthly or yearly averages.
o E.g. Average SO2 levels should not
exceed 23 parts per billion each year.
2. Emissions standards = maximum emissions
from specific sources.
• E.g. limits on g/hour, total per unit of output,
or concentrations per unit of input
o E.g. Air care
3. Technology standards = a certain technology is
required by law.
• E.g. Energy efficient big screen televisions in
• Can also be design or engineering standards,
product or input standards
o E.g. unleaded gasoline
2 The Economics of Standards
Setting the level of the standard:
• All standards should be set at E* for efficiency,
but lobby groups try to influence government
• If the government wants to avoid any
environmental damage they may set a zero-risk
o This involves setting a standard such that
the marginal damage is zero.
o This could be at zero emissions for an
accumulative pollutant, or at the threshold
for a non-accumulative pollutant.
3 • Or the government could define a maximum
amount of total damages.
o Then the emissions depend on the
E.g. TD cannot exceed $20. A rural area has
MD = 0.25E and an urban area has MD = 0.5E u
MD = 0.5E
MD = 0.25E
Eu Er E
For the urban area:
TD = 20 = E(0.5E)(0.5) = 0.25E 2
20/0.25 = E 2
E = 8.94
For the rural area:
TD = 20 = E(0.25E)(0.5) = 0.125E 2
20/0.125 = E 2
E = 12.65
4 Uniform Standards
• Should all polluters face the same standard?
• E* is the goal, so it depends whether or not E* is
the same everywhere.
• Marginal damages will differ across regions
because of differences in populations and
Example: Vancouver and Saskatoon
Assuming MAC is the same in each city, the
efficient level of emissions will be different.
$ Vancouver $ Saskatoon
b MD S
E * E * E E * E * E
• A uniform standard cannot be efficient in both
o Es* will be too lenient for Vancouver:
excess total social costs = area a
o Ev* will be too strict for Saskatoon:
excess total social costs = area b
o It is