Blog Post

By: Thomas Holst

Note: The opinions expressed are those of the author alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.

Dec 17, 2019 – I enjoy hiking and skiing in Millcreek and Little Cottonwood Canyons. These activities clear my mind of routine workaday concerns but, like everyone else, I notice big differences in air quality above and below the Salt Lake Valley’s inversion level. Poor air quality jeopardizes vulnerable sectors in society with health risks ranging from pneumonia to chronic obstructive pulmonary disease.

My point of view on improving Utah’s air quality has changed over time. When I was an undergraduate chemical engineering student, the faculty chair assigned me to drive the department’s truck equipped with air monitoring equipment to a spot near Geneva Steel. After winching up the equipment, I had some hours to reflect on how Utah air quality could improve in the future. Closure of the steel plant may resolve the air quality problems, I thought.

The plant closed long ago but air quality problems remain.

If shutting down large emitters of air pollution does not solve the problem, what are some other options?

Arthur Cecil Pigou, an economics lecturer at Cambridge University, proposed an alternative in the early 1900s. Pigou’s center of attention was “London Fog,” created by coal burned in London’s residential and industrial areas.

Pigou coined the term “negative externalities” to describe this situation.

• “Negative” because the London Fog damaged the health of humans and livestock, and left its residue on household interiors.
• “Externalities” because the affected households were not a party (i.e., external) to the commercial coal transaction.

Pigou’s starting point for a solution was that bystanders to the coal transaction (that is, the households) should not bear the cost of damages caused by coal. He suggested putting a price on the negative externalities and requiring parties to the coal transaction to pay for damages.

The London Fog situation would have been relatively simple to administer because large single-point source polluters would have borne the costs. However, today’s situation is more complex because we all have an emissions footprint.

Is Pigou’s solution still relevant when thousands of widely dispersed pollution emitters would be required to pay for societal costs of health impacts created by poor air quality?

A diverse group of economists known as the Pigou Club continues to endorse Arthur Pigou’s principles. For example, they might suggest placing a surcharge on those commodities creating pollution and letting market forces resolve the problem.

What to do with the receipts from such a pollution surcharge is an interesting question. Since the goal of the surcharge is to reduce or eliminate the activity being charged, the new revenue stream should eventually dry up. Therefore, policymakers would want to be careful not to create a constituency dependent on pollution surcharge funding who would have a vested interest in continued, and even increased, pollution.

How would this surcharge work in reducing air emissions? Simply put, people respond to incentives. In this case, incentivized behaviors include becoming more fuel efficient, driving less, and using public transit, all to reduce or avoid the pollution charge paid.

Using principles of Arthur Cecil Pigou, Canada’s Prime Minister Justin Trudeau recently declared, “It will no longer be free to pollute anywhere in Canada.” The results of fiscal changes instituted in Canada will be examined closely by all countries, including its neighbor to the south.

Thomas Holst is the senior energy analyst at the Kem C. Gardner Policy Institute.