Class Notes (811,170)
Economics (28)
ECON 3220 (17)
Ali Kamar (17)
Lecture

# Chapter 8-1.docx

6 Pages
89 Views

School
University of Lethbridge
Department
Economics
Course
ECON 3220
Professor
Ali Kamar
Semester
Winter

Description
Chapter 8-1 CBA: Estimating Costs How to estimate costs  Recall Chapter 6 of a proposed government project to reduce sulfur emissions from 365 to 265 kilotonnes over 20 years with the following data on costs and benefits Cost benefit analysis (from Chapter 6)  Recall the MAC-MD model: o At unregulated market emissions E M  TDC (area under MD curve) is max  TAC is 0, as there is no abatement cost o If, for a regulation, emissions are reduced from E to E’, TAC will increase from 0 to area D  In chapter 8 our focus is on the MAC curve and TAC  Recall, that each point on the MAC curve gives the marginal cost to polluters for reducing emissions by one unit  Area under the MAC curve gives total abetments costs (TAC) of reducing pollution  Note that all costs should be measured in terms of opportunity costs of resources used for abatement, not the accounting costs. Components of Costs  Total costs of an environmental regulation policy or project can include a number of component’s o Abatement / compliance costs  These include actual clean-up costs, installation of new equipment, and their operating costs to meet the target set by the regulation  Usually towards producers, some can be consumers  It results to a loss of producer surplus as MC of production rises o Enforcement costs/ regulatory costs  These are the costs of administering and monitoring environmental laws and regulations, environmental policing, legal and prosecution fees due to violations  Since these costa are borne by the government with tax dollars, it represents a loss of consumer surplus o Damage costs/ environmental costs  If the policy has negative effect on another attribute of the environment o Ex. A waste water treatment facility to reduce water pollution may have unintended negative effects on air and land in terms of odor at the plant site and the sludge disposal lands  Damage costs usually results to a loss of consumer surplus, but it can also be a loss of producer surplus also as we have seen in chapter 7 o Indirect costs  These include other costs such as buying a right of way for building a new bike path, media awareness campaign, etc. Levels of environmental regulations  Can target o Single firm/facility o Single sector/industry o Multiple sectors/industries together  So the estimation of costs of such policy or project is better understood at a single facility level first, and then progressing to a single sector or multiple sectors level  Single firm facility o Here the focus is on different aspects of costs of reducing pollution by a single firm or project  Flood control project, solid waste managements, public parks, etc. o We mainly rely on engineering/technological parameters to estimate total costs of a single facility assuming that this is the lowest costs technology of achieving the environmental quality standards set by regulation Costs of a single firm/ facility example  Consider the costs of a small wastewater treatment plant  A) Construction costs o It has three types of construction costs  Treatment plant costs  Conveyance costs  Sludge-disposal costs o Plus, construction related environmental mitigation costs o Salvage value is the residual value let after depreciation o Higher salvage values act to lower total cost of the project they are –ve costs  B) Annual costs o Operation & Maintenance (O&M) costs of pumping o Treatment plant o Sludge-disposal costs o Plus mitigates and unmitigated environmental costs such as odor issues both at the plant and on the sludge disposal lands  C) Present Value o All components are initial costs are added under the “TOTAL” column and PV (@ 8%) is calculated for the projects entire lifetime (40 years) costs o This is why PVs are larger than the initial costs o As noted before, salvage values are shown with –ve signs as they lower total project costs Opportunity costs  The potential benefit of these resources society has given up if they had been used in their highest alternative purposes 
More Less

Related notes for ECON 3220

OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Just a few more details

So we can recommend you notes for your school.