Efficiency and Political Economy of Pollution Control with Ancillary Benefits

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Efficiency and Political Economy
of Pollution Control with Ancillary
Benefits: An Application to NOx
Control in the Chesapeake Bay Airshed
nits u .AdHivaD
kcinpu r .KnJalA
llennoC c .MaDinigriV
43 -r7e9 pnaoPissucsiD
yaM7991
secruoseR rof ehterutuF
1616 P Street, NW
6 3C,0 Dn0o2tgnihsaW
0005-82 3e-n2o0h2peleT
0643-9 3x9a-F202
© 7991 secruoseR rof eht .erutuF llA sthgir .devreseroN
noitrop fo siht repap yam eb decudorp etruohtinwoissimrep
of the authors.
Discussion papers are research materials circulated by their
srohtua rof sesoprup fo noitamrofni dna .noissucsidyehT
have not undergone formal peer review or the editorial
tne mdteaderrotcca FFR skoob dna. srneohittoacilbup
Efficiency and Political Economy of Pollution Control with Ancillary Benefits:
An Application to NOx Control in the Chesapeake Bay Airshed
llennoCc M. Dainigri Vdn a,kcinpur K. Jnal A,nitsu A. HdivaD
Abstract
slortn oncoitull o fpnooitacol leavitceffe-ts orc osfnoitacilp msienima xreep aspihT
r osfecnerefe rogptnidroc cr,aosen illanoig egrno ldaezinag rsonoitila ofscoecnerefe rnpehw
en si eado scetaarbap m eosrcta l.u r sdoeefRtnuo c ec,rasatnemevor pymtiil arueq t .arswiva
e rsats olcat odt n,adradna tystila urqet ayawl nyofsit atss usmnoitcud esrnoissi mxe OhNcihw
sts olcortn olcanigr atma httlus eersac-es a obetvita l. esRecru ossnoissi mree vdoeziminim
lortn o fcgonitfi hyslp mri ira osfecnerefe repvital erregnor t,ssecru osssor claau q eetbsum
y asmecnereff ildanoi g. eyRtila urq i oasttifen eybrallic nraetae regcudo rtpa hstecru odsrawot
tcef ft aolnl iswi ht tu,bw oe lrsatifen eebre hnwoitarepo oeccud nosittnemy aepd iesriuqer
.detacol ledabluo hssevlesme hstlortn owcoh
ii
Table of Contents
I. Introduction ................................ ................................ ................................ .................. 1
II. noitazimini MtsoC ................................ ................................ ................................ ........ 4
III. stifene Bri Ayrallicn Aro fgnitnuoccA ................................ ................................ ........... 7
IV. se csr sunooorSictaa ctoslolCA ................................ ................................ ..................... 9
V. secru onSiht inwoitacol ltAsoC ................................ ................................ .................... 13
VI. snoisulcnoC ................................ ................................ ................................ ................. 16
secnerefeR ................................ ................................ ................................ .......................... 19
xidneppA ................................ ................................ ................................ ............................ 21
iii
EFFICIENCY AND POLITICAL ECONOMY OF POLLUTION CONTROL
WITH ANCILLARY BENEFITS: AN APPLICATION TO NOX CONTROL
IN THE CHESAPEAKE BAY AIRSHED
*
David H. Austin, Alan J. Krupnick, and Virginia D. McConnell
I. INTRODUCTION
efcor uro os e j rraa eiamoha ttsneid inxeogor tsfinonoiss itm aedhettpe c wctsoaIin
e h ft%o 0 o4%t 0m1o refrehwy nganisirpm o,cy aeBkaepase heC h nttinemhcir nteneirtun
ev axh O fNsonoissi mre ieacud e orsteicil o,ptlu s .e sasrAgnida o)lxO Ne(di xnoegort isn'yaB
noissi mr eieasu a.c selBev etlneirt uy naeBcud eosrttpmet tfsaouc otfnatrop mneiamoceb
e httuo beasi rsaeus stinatrop m,iytila urqet ad wnr aihat ontbocap mneiav ashnoitcuder
r inaeewt elbortn ofscots oe chfntooitacol le ahttuo b,asecru or siflaoortn oflcoev etlneiciffe
.noitacol leavitceffe-ts o rctoneicif f neganiveih c fayomono cleacitil oep httuo bda n,aret adwna
e reare hnte hswts ofncooitacol le ahnktor oewlbaredisn once es baehre hhtguohtlA
gnuo Y.P (muide mlatnemnorivn eelgni san istnemevorpm if oseiraicifene belpitlum et al.,
noitacol ltaneicif fee hgtninima xker oewltt inle esb aehre h,t)stifen erbet a fweos aec h nt2i891
r,oslortn oecso hydtbetcef fe araaid eemlpitl unme hr,wosecru oeslpitl usmsor csalortn ofco
e hfntooitacol le ahfto costse rtaa hstmelbo rnpoitazimit ploanoitnevn oeck i.l lnoUrtn ofco
ylpm ies rwaoll otfa hsttcef fleanoitubirts ied hhtci hrw odf n,aemoct utoneicif fee hrt odfevlos
n adc nlaed oem h ntdietneserp eer rsanrecn olcanoitubirts ied hstisyla nra u no,idebircsed

*
ls le yec r tnrs;o,i n uiefnsooeof ro rsChs ohuiyelctet ttstvaMRniuiiie wFvlnmfiaUnoD uoeQrhitvnE
Maryland, Baltimore County.
1
,nitsuA ,kcinpurK dnallennoCcM 4 3F-F7R9
ot nmielbo rep hstmrofsna rntoitacol ltas o fcsoisyla n ea. heTmoct utoneicif fee hetcneulfni
.ycneicif f fenoa hrteht ayrmono cleacitil o fpeono
d n,aseus seise hetnima xoyettinutrop peouq i snaeudivo reps ay caeBkaepase heChT
sts oectacol losaty aewtairporp ptauo bsathg i.s knrIowema rlfacityla ndaeif i nooonaisdtu
gnillortn ofscots oe chntgis sow atothuo beatab eydcil otpnerr ue chngtonira eebv alhliw
y asmts o fctonemngis se.a hdTetcef fea raaid ermet adw nra ihat onbe hxw OeNnrobria
-e-cru ohsc atdeaetutits nstiia hltortn oscnoissi mfteonuo me ah,tnr un,tiecneulf nyiltcerid
snoitalucl ascsenevitceffe-ts oe chott nriet nheci hswts o)cdengis sr aod(etacol lease hstrtiiof
.ecru ohsc atsealortn oscnoissi mtenuo mlaamit pe ohetnimret etdaht
seav ayhtila urqet a nwsolortn oscnoissi mre i fasotcef fee h ntsoeidu tssuoiverP ll adengis
ytil a rusniqloaort neosc esfhtotca p emghintiro n,gsitife nreeb t ealohwottrt nsfotoc s eofhcot
nahc e.PH .tEnese rexpwidne p .pnn saaIl(ev eeltalucitr ad pneano ztoneib mdaecud ehrguorht
)s. i yheaTkBaepas e ehnnhCoititcu deetrar tsfiton sdoectami t)s6e9 9'1s(etaico sdsnAa
.lsol ro trw ntosonHncooci s hsrgiium aoenrohittu lr legotnpa iw sc stuefesdhotoetacrtsrevo
,secru ossnoissi meetaraps indeewt eslbal esrwaet ad wnr ainaeewt e,bdetacol ledabluo hsstsoc
.snoits edueqrewsn anniua m,eercr uho csntaeaekatre ddenlbuu olhosrt nho cc wudomnha
pol e.v seeedWus seise hfetom ogsnivlos edrraw ostpe ttssr iefm ossek artep aspihT
le d toacmurts n. osectWniartsn oscuoir arved nluortn oscnoissi mleamit pfsooled olmareves
stifen erb iyarallic neare htw u,bed irset aew h nt sodiradna tlsatnemnoriv nyel neo hetrehw
ere hews ae chetnima xo es. lre aoWdfetnuoc cd andaezingoc ee rrlaortn oscnoissi mmeorf
sis a sabeavir e. edsWdradna tystila urqet adw nra ihat oebveih ctas ulmortn oscnoissi mxeON
elp m riaesd nsutnemevorp myitila urqet ar woyfgetar tlsortn olcamit pe ohntosirapm orcof
2
,nitsuA ,kcinpurK dnallennoCcM 4 3F-F7R9
cost-minimizationy byln odeniartsno cs idn aytilau qri an istifene byr allicn aserong itah temiger
the water standard.
xO Neh tf orebmu ntnacifingi saesuaceB r ae fry aaeBkaepase he Chgtnitcef fsaecruos
y aemre h,tsnoissi mreie h ntsolortn omco rsftifen eeb h ftroew eyfoj nlel idw n,a t fidoniwpu
ret ayw adBevorp mri osfnoissi mgenillortn o ocstnoig edrniw pmuo refcnatsis eerr oemb
. mAelbo rep h otsttniartsn oycmono cleacitil ogpnid d yaybtilibiss ospi hstserd d. eayWtilauq
r osfecnerefe rgpnireff itdneserp e ordte s sutiniartsn oycmono cleacitil o fpdon itknereffid
ytilau qri an istnemevorpmi versus feocneulf n ei hettagitsev n oi stsuwol lsa i. hyTtila urqetaw
n o)psuecud ostrtipife nreeb t d arntwiana i eorhjet veoc (rn uiaoh stsinwoitaco ltl saloocrtnoc
t oe nrsanoitacol l ta.s soeCcru osssor csalortn oscnoissi mfneooitubirts id dnsalev ellamitpo
e. hsTecru onseewt esbtnemy aepd iesvlov nois lna atc u,bsesicre xgenitnuoc chac u osdtetimil
lortn oe chgtnic aefso hfstoecnerefe re phndtonep eldl idwe sduoht enmoitacol ltas ofdconik
e r,asnoisic endoitacol ltas oncrev ohgci h,wstniartsn o"cssenria fd "n"aytilanoita r.e "shtTsoc
.noitull o fptoropsna rrt ilaanoiger-sna rmto rgfnisi rsaeus sginisserd d natinavel eyrllaicepse
fnooitacol le ahttcef fsatniartsn olcacitil oepse hw toe heosestir ethseret nriuO emissions
controls across sources.
sisa beh ts ades ue byletamitl ulli were hdetneser psledo mehT sisylan alaciripm en arof
dnet xlel iswisyla n ea. hyT aeB h otstgnida otlneirt uencud e orsteicil oepvitceffe-ts ofco
edul cdo,nntsiaevitanre tylcai ltfroeoeps d k at o)oaoao6rtl9b 9k1 r(roewil rsa'enahceP
laciteroe hrt udo n,asetamit stes osc'nahc e nPdoe s. asBisyla nea h ntsitifen e)bri ay(rallicna
lanoitida retr o omdterapm odc nyallacirip mdeetamit s eenb asceicil olpamit p,osledom
sdradna tlsatnemnoriv ne e hf"toseci rwpodah se "h,tnoiti d. dsnaeIicil olportn od cndanammoc
3
,nitsuA ,kcinpurK dnallennoCcM 4 3F-F7R9
tneirt ufsnoeci rwpoda hodsterapm od cndaetamit sen ebascecru or simao rsfgnida ox lOrNof
. ssln oo f riodxtte On c sfeNoyu naIr cede,ob ueherei-ttutr actruud onceofftautoldaaewbr
feoci rwpoda hrsew oel hst ahhci h)wret a rwroi am(uid eem hmto rtfsr iefm odcluo hssgnidaol
control.
II. COST MINIMIZATION
floortn oec httfi h os etlbl i"wstifen eybrallicn ad"ellac- ors ogfnitnuoc c fatocef feehT
ftonuo mnaev irag osftifen eybrallic nraetae rggnitaren esgecru odsraw ostnoissi mxeON
t o snyitila urq ieare hew nmoo rrfeff iyd aemmoct uso i. hrTet aew h ntnioitcud esrgnidaol
stcef fee hgtnitagitsev ndino y. edBradna ttase eoms ltas utm u,btifen eybrallic n nadaeredisnoc
suoir a fvsotcef fee hrtedisn oocs l ea,wsdradna tlsatnemnoriv n fesonoitanibm otcnereff ifdo
snoissi myrnebooitac oydlbezinag rsopuo rtgser e.t sntIs olcortn ogcnitacol lfsaodohtem
neiviec eyre hsttifen eeb hhtct a omntoitapicitr arpie httim i olntetaer hytlbide ryc aemcruos
r oyf a opstsengnill irwe veotab e sdeire h ft,iylevitanre t. leAcru orsie h t tranooig errieht
,r odfetnuoc c eoadbte ey nasmecnerefe rlpaudivid n,istnemevorp myitila u)q-r ir ao-(retaw
hsttiswoc withinstifen erbet adw nra idae cudorp-yltni oej h otdtetacol lsaecru olsaudividni
nfooitaco lllaami tet phs.otaer ct r n eut odWoatceshactud osrlpe veevlit a gleonehtirtdrocca
noissime controlsled onmoitazimin itms oecsac-es a yabdbeilp m sitia hhwt iswecru osssorca
.tegr ayttila urqe t yyaablw ndoeniartsnoc
4
,nitsuA ,kcinpurK dnallennoCcM 4 3F-F7R9
led okmramhcn ee bhn,ti)589 1g(rebneti endTie snuoitat oe nhgtnitpodA we seek to
re vsots olcortn olcat oetziminim J sed inxeogor tsfieoncruos 1 l aet c o tu ntta deeshewvutrimg
stim idlehsilbatse-e repm o osgtnida oxl OyNaB W h fctoaae I .f sIn(oitac otlnemerusaem
i
timi len odn anoitaco lelgni sayln oe blli wereh t,dexi mylmrofin uer asgnidaol W , but for
).snoitaco lelpitlu memuss alli we wytilareneg gnitteL c ( r ) tn ee shtgetsnro ipcfceourder
j j
ecru o tssanoissi mxeON j tnuo mea h ytb r leve lsnoissim eenilesa bemo smor f- - e --dna
j j
noitcn uef hgtnittel L ( (cid:215)) pam xON ecru o tssanoissi me j et i tssagnida oyl aoBtni i, eht
ji
secru ols lsasor csanoitcud eerso h fttos oectagerg gea hetzimin i omytlpm i sseivitcejbo
: seivitcej b.e oshtTegr ayttila urqet ae whgtniveih cotatcejbus
J ( )
(cid:229)
nim C( R) =nim c r , (1)
j j
rj rj j=1
subject to
J ( )
(cid:229)
- W + L e - r £ 0 (2)
i ji j j
j=1
sgnida otla hgtnirus sfya oaewvisnep xtesa ee lhdtn iosftke ersotalug ee rh, tstiahT L
ji
( )
,dellats nei rsalortn orcet fganiniam esrnoissi mee hfto e - r , are no greater than the
j j

1
tI si na ne pnooitseu qwoh esoht J ee hv dti el rob uke t nordrfowou oiwo.sdn ee ttncxAe e leseresacruos
optimal extent of a regulatory region. ,hrrcoeitwh aowgnlp n eueifeg vdfwesdlaotrilorehuvtbTonwi
ylbamuser psi retaerg eht rewe fsecruos taht tsum e,bdellort ndonca stsoc l afton elmonrotrniovcne --sa
gnidnetxe eht yradnuob dluoc rewol stsoc yb gnitaerc desaercni sniag morf gnidart revo a regral ,tekram sallew
sa ylbissop gnignirb egral snoissime secruos rednu eht lortnoc fo eht.rotaluger
5
,nitsuA ,kcinpurK dnallennoCcM 4 3F-F7R9
dradna tystila urqet adwesopmi Wnev ieg r,asecru ossnoissi mle lrae vdoemm u,ssts olca t. oT
i
yb C(R). snoitcud etra hntev imgumit p noeaveih c oaT r etbs u s-mea-vitagen-n oetnbsum
j
reilpitl uemgnarG aeLht l snoitidn orcekcuT-nh ue Kh-) t-2nd(iradna tlsatnemnoriv ne ehnto
i
(see, e.g.,,noitazimin itms orc onfoit idn orcedro-tsr iyf ee.k hdTeifsit a estbs u)m29 9,1nairaV
:s i,wole bnialpx ee whcihw
¶ c I
j - (cid:229) l L ‡ 0 . (3)
¶ r i ji
j i=1
osl as inoitidno cssenkcal syratnemelpmo casseln udeveihc ae bto nlli wnoitazimini mtsoC
snoissi mxe OsN tsiecud eyrllamit ptoa hetcru oysre vre otfa hgtnieetnara u,gdeifsitas (i.e.,
r esreacr u lo,lstan imoupmi t e,pthsoatd r.roye w thnitIloa uhq t e t)isne3wiom(itid n,o)c0>
j
"sec iwropda h es mfh" euotlhsat usqte sloocrt nloacnig rraim eehrt edohetwllortnoc l feoht
i
sgnida oel h ytdbethgi e,wsdradna tlsatnemnorivne Ly ahBc a tesanoissi mxe OrNie h fto
ji
ta hsteilp m) i3,(es a)cgnix immrofi nr uor(otpec eerlgn ie .shr rtooFtpecer sources are
controlled to where the ratios of their marginal control costs, MC , to their Bay loading
j
factors L are all equal:
j
MCj = l = MCj¢
Lj Lj¢
for any sources j and j' tdoln uso iwehvtei hhoc gta oisohtt sloacnig rha tmsiew c.r uoS
.snoissi mreie hetcuder
taa hetrehwes lnewo hnse esb a thti u,bta iyfrotalug e yrdbeveih c eanb aecmoct usoihT
fsognida ollat ogtnicudo rspnoissi mr eosftimr eepre h,whcaorp ptaimr eeplbada r,tdesab-tekram
W at each receptor ilaiti nr io)f279 1y(remogtn o eM.e eSm(oct ueom ae shetveih cn aac
i
6