The Environmental Protection Agency (EPA) is being accused by an environmental group (WildEarth Guardians’) in the United States of neglecting the public’s health by failing to decrease air pollution. The WildEarth Guardians’ accusations come from a 2005 investigation which found that all 50 states had not adopted clean air plans. A deadline was implemented to decide on a plan by 2007, but several states (including California, New Mexico and Oregon) still do not have plans.
The market failure here is the EPA’s inability to effectively respond to the pollution issue. A market failure is when a process or incentive allows the inefficient production and use of goods and services. In this instance, the market is failing to take into account society’s cost of this negative externality. A negative externality is when the production or consumption of a good has a negative/harmful effect on a third party. The graph to the left shows the negative externality of the production of cars. It can be seen that the marginal social costs are greater than the marginal private costs. The producer is externalizing their costs, or pushing them onto society. Pollution has no borders, and even people on the other side of the US are affected. Though the producer is aware of the impact polluting can have, the EPA is not enforcing its laws and as a result these manufactures and producers are able to legally get away with it.
“It’s been an issue that has kind of been cast aside. It’s not really important to the EPA,” said Jeremy Nichols, the WildEarth Guardian’s climate and energy program director. In 1990, amendments were added to the Clean Air Act that proposed a carbon market. This would be more effective than monitoring the emissions of each company/factory. Pollution permits would be auctioned off to industries. If a firm needs to go beyond the limit that their pollution permits allow, they would need to buy more. If firms do not use the entire allocated pollution quota then they can sell them off. This provides an incentive for firms to reduce their emissions so they can increase their profit by selling left over permits. An incentive is a means of urging people or industries to do more of a good thing and less of a bad thing.
To the left, a graph of the carbon market can be seen. The supply of permits is decided upon by the government. The more firms that want to pollute and buy permits, the higher the price. Advantages to this system are that the revenue from the sale of permits can be directed towards improving the environment or investing in more public goods such as national defense, fighting poverty and basic research. The pollution permit market is open to everyone. Groups or organizations who are adamant about reducing pollution can buy permits for themselves; this will decrease the available supply to major industries and will also drive up the price which may urge smaller firms to look for an alternative to polluting.
“We just want to see clean air. We just want to see this problem dealt with,” said Nichols. The EPA either needs to create a new division solely for monitoring the emissions of each factory or implement pollution permits. Monitoring would require a huge amount of work, effort, money and time. A carbon market is much more effective where the private market would fix the problem. The EPA also needs to consider penalties for those who pollute more than their allocated amount. These penalties would have to be harsh enough to dissuade firms from ignoring legislation.



















































