Environmental Economics, Part 2
In December, 1952 a sickening, deadly smog fell on London, England. Pollution from burning coal blanketed the city by an unsual weather pattern. Over the period of four days the pollution killed thousands of people. This event, now referred to as The Great Smog of London, was a seminal event leaving to environmental policy on a greater scale.
That pollution emanated from many sources: mostly heating and electricity generation, but also from transportation and industry. London couldn't simply stop this activity without upsetting the interdependent web of society. For economists, the challenge was to balance a cleaner environment with the costs of reducing pollution.
Generally speaking, environmental economists ask, “What level of resources should we devote to the reduction–the abatement–of pollution?”
Marginal Costs are a key concept, specifically Marginal Abatement Costs (MAC) and Marginal Environmental Damage (MED). The MAC is the cost of abatment for one unit of MED. For example, “it will cost 100 Euros to reduce one ton of pollutant.” Once quantified, economists can model varying tradeoffs between pollution and costs.
To an economist, the question, “how much pollution control is socially justified” is answered: “up to the point where MAC equals MED, and no further.”
Here is MAC vs MED in diagram form, from the book:
You may be thinking, “Why not abate all the pollution?” In a theoretical sense, economists' perspective comes from a recognition that society's productive resources are limited: there are opportunity costs to investing more than is required in one area. If you invest more than is necessary in pollution control, that's less money for education, health, defense, etc. That approach made more sense in 1952 when they were working on what it would take to make the London smog go away. With climate change it's another matter, and the author addresses that problem later in the book, as we will in further newsletters.