Financial methods in environmental decisions
Financial methods in environmental decisions

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Financial methods in environmental decisions

2.3 Using external costs

Figure 2 suggests that the external cost of municipal waste incineration is somewhere in the range of €17 to €40 per tonne burned.

Activity 10 National policies

Timing: Allow 15 minutes to complete this activity

What could a government do with the information in Figure 2?

Answer

Firstly, a government could use the information as a basis to introduce an incineration tax to ‘correct’ this market failure. However, if it was not coupled with similar taxes on other waste disposal methods, it would distort the waste disposal market by, for example, encouraging more landfill.

Secondly, the information could be used with data on the cost of abating NOx emissions to establish the economically optimum emission limit.

Finally, it could be used to justify research and development into improved and lower-cost methods for abating NOx.

T867_1

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