Coping with air pollution

Pollution is a well known market failure. The negative externalities imposed by, say, driving cars are significant and the market has no way of applying a price to these effects. Therefore governments must intervene to mitigate against the worst effects.

There are several possible ways to deal with this. In order of effectiveness, least to best:

Do nothing
Ban the activity
Regulate the activity
Impose a tax or subsidy
Create a tradeable permit scheme

When it comes to pollution caused by traffic there are many difficulties. The 'do nothing' approach has been tried (usually this leads to building more roads which cause more congestion and pollution) and bans on certain vehicles at certain times is also used in some places (such as no lorries allowed 7.30am to 9am).

The article below explains a British scheme to impose charges on high polluting vehicles in certain areas. The aim is to discourage there use in those areas, it is, in effect, a tax. Will it work? Well that depends on the Price Elasticity of Demand for road use by the vehicles operators and whether they simply operate elsewhere simply redistributing the pollution.

The article below discusses some wider issues, but it is clear that when it comes to coping with the negative externality of pollution, or carbon emissions, a comprehensive policy is required. Not only geographically comprehensive but a policy that integrates with transport policy across all modes of transport.

The BBC covers the issue here

This article is relevant to both VCE and IB students. The methods of dealing with environmental problems is the key for VCe students whereas IB students should consider the alternative methods and their merits. My list suggests tradeable permits are the most efficient method, but why?