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(In)Efficient Management of Interacting Environmental Bads

  • Kuosmanen, Timo
  • Laukkanen, Marita

Many environmental problems involve the transformation of multiple harmful substances into one or more damage agents much in the same way as a firm transforms inputs into outputs. Yet environmental management differs from a firm’s production in one important respect: while a firm seeks efficient input allocation to maximize profit, an environmental planner allocates abatement efforts to render the production of damage agents as inefficient as possible. We characterize a solution to the hmultiple pollutants problem and show that the optimal policy is often a corner solution, in which abatement is focused on a single pollutant. Corner solutions may arise even in well-behaved problems with concave production functions and convex damage and cost functions. Furthermore, even concentrating on a wrong pollutant may yield greater net benefits than setting uniform abatement targets for all harmful substances. Our general theoretical results on the management of flow and stock pollutants are complemented by two numerical examples illustrating the abatement of eutrophying nutrients and greenhouse gases.

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File URL: http://purl.umn.edu/54287
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Paper provided by MTT Agrifood Research Finland in its series Discussion Papers with number 54287.

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Date of creation: Oct 2009
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Handle: RePEc:ags:mttfdp:54287
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  1. Kandlikar, Milind, 1995. "The relative role of trace gas emissions in greenhouse abatement policies," Energy Policy, Elsevier, vol. 23(10), pages 879-883, October.
  2. Richard S.J. Tol, 2004. "Multi-Gas Emission Reduction For Climate Change Policy: An Application Of Fund," Working Papers FNU-46, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2004.
  3. repec:zbw:cauewp:2913 is not listed on IDEAS
  4. Moslener, Ulf & Requate, Till, 2005. "Optimal Abatement in Dynamic Multi-Pollutant Problems When Pollutants can be Complements or Substitutes," ZEW Discussion Papers 05-27, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Richard S. J. Tol, 1999. "The Marginal Costs of Greenhouse Gas Emissions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 61-81.
  6. Laukkanen, Marita & Huhtala, Anni, 2006. "Optimal Management of a Eutrophied Coastal Ecosystem: Balancing Agricultural and Municipal Abatement Measures," Discussion Papers 11856, MTT Agrifood Research Finland.
  7. Anthony Fisher & Urvashi Narain, 2003. "Global Warming, Endogenous Risk, and Irreversibility," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(4), pages 395-416, August.
  8. Asbjorn Aaheim, Jan S. Fuglestvedt and Odd Godal, 2006. "Costs Savings of a Flexible Multi-Gas Climate Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 485-502.
  9. Erik Schmieman & Ekko van Ierland & Leen Hordijk, 2002. "Dynamic Efficiency with Multi-Pollutants and Multi-Targets The Case of Acidification and Tropospheric Ozone Formation in Europe," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(2), pages 133-148, October.
  10. Repetto, Robert, 1987. "The policy implications of non-convex environmental damages: A smog control case study," Journal of Environmental Economics and Management, Elsevier, vol. 14(1), pages 13-29, March.
  11. Koikkalainen, Kauko & Laukkanen, Marita & Helin, Janne, 2006. "Abatement costs for agricultural nitrogen and phosphorus loads: a case study of South-Western Finland," Discussion Papers 11867, MTT Agrifood Research Finland.
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