Course:ECON371/UBCO2011WT1/GROUP2/Article 4 : Bringing The Gulf Back to Life
http://www.peopleandplanet.net/?lid=29944§ion=37&topic=23
Summary
In the Gulf of Mexico the dead zone is already the size of New Jersey and is still growing. The dead zone is an area where the water has been depleted of its oxygen and is no longer capable of sustaining marine life. This is caused by the runoff, fueled with nitrogen and phosphorus, from the Mississippi River. These Chemicals are being discharged from fertilizer, sewage and polluted city runoffs in to the river, which ends up in the Gulf. There has recently been a petition to try and clean up the growing dead zone in the Gulf, unfortunately the Environment Protection Agency (EPA) denied this clean up. This comes as a huge loss to many industries that depend on the Gulf for there business; an example would be the fishing industry. In the past EPA has tried to set regulation limits to every state along the river, but every state has ignored these limits. For the Gulf to survive there must be strict enforcement and compliance from the EPA to accept responsibility under the Clean Water Act.
Analysis
The pollution from farming in the gulf coast is causing major environmental damage and greatly effecting the fishing industry in the area. To deal with the problem of this expanding dead zone a petition was created proposing an abatement standard on the amount of pollution emitted into the gulf that feeds the dead zone. The EPA denied this petition however and decided not to create a policy to regulate the abatement. Due to the federal power in the states the EPA would have the power to place in a policy throughout the multiple states contributing to the pollution. The Environmental Protection Agency decided to not create a policy because of political resistance, stating that they did not want to be responsible for implemeting the policy. This is an example of how politics can interfere with achieving economic efficiency and socially optimal output. Politics plays a key role in environmental policies and leads to many inefficient situations causing deadweight loss for society because of pressures from firms or residents.
The deadweight loss can be measured in the present value and future value. The current problem is the dead zone in the Gulf of Mexico has affected mostly the fishing industry. The supply for the fishing industry has decreased which will drive the price of fish up. The increased cost of fish and the loss of profit with the decreased quantity of fish is the cost of the policy. Either accept the petition to clean the ocean floor or reject the petition, which will result the price of fish to go up. However, with supplies decreasing, labor force in the fishing industry will begin to shift to somewhere more productive. In the short run, unemployment will rise, prices of fish will increase, and supplies of fish will decrease.
The future value of the dead weight loss will be the continued expansion of the dead zone in the Gulf Mexico, which measures the cost of millions of species killed that could have been prevented, and the labor movement to different industry. Because the government rejected the petition, the deadweight loss which could have been avoided is now adding additional cost to the equation. The loss of the gulf species causes a greater loss to global biodiversity which is an important factor in the marginal damage that can only be measured using contingent valuation. The standards suggested by the petition would result in less runoff into the gulf which causes detrimental losses to the economy in the gulf already. The nitrogen runoff causes algae blooms killing fish reducing one of the gulfs most prominent industries.
To truly pick an appropriate policy to deal with the increasing size of the dead zone a cost benefit analysis could be done. For this scenario the cost of the loss in the fishing industry can be directly contrasted with the costs of farming firms abating. These costs and benefits can both be measured directly making the analysis cheap and effective.This analysis gives the marginal abatement costs and the marginal damage costs and can show the most efficient policy. A uniform ambient standard would probably be inefficient because the firms most likely do not have equal abatement costs, therefore the equimarginal principle would not be satisfied. A tax or tradable permit system would probably be more efficient as long as Coase theorem was able to be satisfied because firms would adjust their abatement costs to all be equal minimizing total cost and creating economic efficiency.
Therefore, the decision to reject the petition for an ambient standard may have been correct with instead another type of policy seeming more economically efficient after analysis. However; with absolutely no policy at all there will certainly be dead weight loss to society and damage beyond the efficient level will continue until firms are given an incentive to reduce abatement.
Profs Comments
This is a situation where the Coase theorem would not work / is not working, because there are many polluters. Efficiency would require equal marginal abatement costs between the states, and within states between emitters. This would then have to be equated to the marginal damage done by the emissions, which is manifested in the continued growth of the dead zone, and its impact on fisheries.
Tradable permits between emitters could work. However, if in the US the states are responsible for regulating firm behavior, then that can't be done. Tradable emissions permits between the states could work, where each state can use whatever means it sees as best within its state.
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