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Market Failures
The problem of acid rain in the Adirondacks, as well as much of the northeastern United States, is one that is very threatening to the people and wildlife who use and enjoy its resources. The pollution in the Adirondacks is caused by several market; these market failures cause the struggles faced by advocates of the area, who have been lobbying for regulations in hopes of cleaning and purifying a beautiful area. Much of the pollution causing acid rain in the Adirondacks is caused by midwestern power plants that burn coal, oil, and natural gas to produce electricity. The fuels are burnt, supplying electricity to the point where marginal benefit equals marginal cost. However, this marginal cost fails to include the cost of the negative externality that is added to society this external cost includes the cost of pollution in the Adirondacks. The effects of acid-rain pollution in the Adirondacks are staggering. For example, according to The Adirondack Mountain Club’s website, almost 25% of Adirondack lakes can not support plant and aquatic life, with that percentage growing every year. Lakes also experience ‘acid shock’ as acid-rich snow melts, filling up lakes and waterways, and thus stunting the growth of plant and animal life during the time when buds form after the long cold winter. Trees are dying, the biodiversity is shrinking, and with them, the aesthetics are disappearing as well. |
Furthermore, changes in the pH caused by the acid deposition make water more acidic, potentially affecting drinking water. The acid itself is not necessarily the problem, but it has the ability to separate elements and toxic substances that are embedded in rock and soil within the lakes. An example of this is mercury, which is being found in many lakes that also have high amounts of acids in them. The market fails due to the failure of utility companies’ to include these costs into their marginal cost estimations. The utilities neglect to include the unlivable lakes and ponds, the dead trees and animals, and the aesthetically unpleasing results that all of these leave. If they did include these costs, and then produced at the output level where social marginal cost exceeded marginal benefit, much of this damage could be averted, as the electricity utility would produce less of the product, which would in turn add less pollutants into the air. By including the externality in their costs, they would operate more efficiently, and can pass along a part of the external costs on to their customers. The problem of undefined property rights and high transaction costs also makes pollution abatement options difficult since, in effect, midwestern corporations and consumers have to pay the abatement costs, while Northeasterners are able to reap the benefits of them. |
Another market failure occurs as a result of trying to stop the problem. One attempt at curbing the pollution of utility companies is Title IX of the Clean Air Act Amendments of 1990. These rules allowed companies pollution credits, with each credit being valued at a certain amount of pollution. The lawmakers hoped that since each company had a limited amount of pollutants they could release into the air, the company would have to either clean up their processes or just produce less. However, a problem that arose out of this was the selling and trading of these credits.
LILCO, a utility in the New York area, cleaned up their operations to the extent that they did not need many of the credits they were allotted. The company then sold their remaining credits to many midwestern utilities, which now are legally allowed to pollute more, as they have the credits allowing them to do so. The midwestern utilities, while paying a high price for the credits, paid less than what the costs of abatement would be, so while they are producing on a higher marginal cost curve, it is still below a social marginal cost curve that includes the abatement costs. While the trading of permits helps achieve a more efficient output, a law limiting the trading of permits depending on regions might be useful in keeping the target areas, in this case the Adirondacks, cleaner.
These market failures all contribute to the problem. No one wants to accept the cost of abatement, and therefore the market runs inefficiently and pollution occurs. Government intervention has had some success, but to the peoples of the Adirondacks, the lawmakers have not done enough. If only the utilities in the Midwest were forced to internalize their externality, many of the problems that are evident today in the Adirondacks could have been prevented.