Air Pollution and Energy Policies: The Role of Environmental Damage Estimation

Abstract

This paper investigates the effectiveness of the instruments adopted to tackle air pollution in developing countries. The argument presented is that, even more than in developed economies, the less developed countries have to allocate the resources in this area with extreme care and parsimony. In order to implement effective programs, first the potential benefits of a reduction in emissions have to be estimated, and compared to the costs of alternative actions; second, govern ments have to move away from a “command control” approach to the problem, to one where market based instruments can influence economic agents behaviour towards the revised targets. The methods by which air pollution control policies have been determined in OECD countries and the feasibility of external cost estimates in air pollution strategies are discussed. Accordingly, the transferability of these estimates to account for environmental damages in developing dountries is examined. The paper claims that rules for modifying the willingness to pay to account for differences between countries at different levels of development can be set and the potential role of monetary estimates is explored.

This is of course the opposite of the conventional assumption in economic theory of rising marginal damages. The conventional assumption may still be correct,however, since we have not allowed for the feedback effects of rising emissions via changes in location.