试听180秒073：What Happens When Pollution Has a Price of Zero

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Hello, Himalaya’s subscribers. My name is Timothy Taylor. 

And today  we're going to discuss what happens when pollution has a price of zero. And I want to start off by telling you about the situation in a city called Chattanooga, which is in the state of Tennessee in the southeastern part of the United States. I want to describe the situation in this city. Looking back at the late 1960s in Chattanooga, they burned coal for power. There are also a lot of factories making different products. The US started passing major legislation to protect its environment around 1970. So this is a description of Chattanooga before those laws to protect the environment were passed about fifty years ago. 

And I'm quoting from an article here, it was just one of many dark and dirty days in Chattanooga, a city in which in the mid sixties, death rate from tuberculosis was double that of the rest of Tennessee and triple that of the rest of the US, a city in which the filth in the air was so bad, it melted nylon stockings off woman's legs, in which executives kept supplies of clean white shirts in their offices so they could change when a shirt became too gray to be presentable, in which head lights were turned on at high noon because the sun was eclipsed by the gunk in the sky. 

Some citizens could actually identify different sections of town by the smell alone, a stink of rotten eggs in one place, acrid metal in another, coal smoke in another, the pungent smell and orange haze of nitrogen dioxide near the old ammunition plant. One part of town, the city dump, was just called onion bottom. People joked, “we like to look at what we're breathing before we inhale it.” In this lecture and the next few lectures, we're going to talk about the economic analysis of pollution and environmental protection. This is a problem everywhere. And it's clearly a problem China is facing right now. 

I'm gonna discuss this in three parts. First of all, I'm going to talk about the environmental Kuznets curve. A term we’ll have to explain. Second, we'll talk about making the environment higher priority in China, which is happening now. And third we’ll talk about the idea of what economists call negative and positive externality. Let's start with the idea of the environmental Kuznets curve. What does that even mean? Well, you run into the name of Simon Kuznets before way back in some of the earlier lectures. He was the economist who helped think through the idea of how to measure gross domestic product back in the 1930s, what to include and what not to include. 

When Kuznets had figured out how to measure gross domestic product, he started doing research on how the changes in GDP over time were associated with other economic changes. For example, one of his better known pieces of research looked at how inequality in a society tends to rise and then fall as an economy grows. And we'll return to that idea in a couple of weeks when talking about issues of poverty and inequality. Well, Simon Kuznets died back in 1985, but researchers in the 1990s started looking at a different issue. As an economy grows, they asked what happens to the quality of the environment, and they came up with a pattern. 

When an economy starts growing quickly, the amount of pollution rises. But as the economy keeps growing, then the amount of pollution at some point starts to decline. And they called this pattern the environmental Kuznets curve in honor of Simon Kuznets. Now, the intuition behind the environmental Kuznets curve sounds like this. Think of a country that's very poor, and then it starts growing. That growth might involve the use of some natural resources, like burning coal or oil or natural gas. It might involve mining for certain minerals. It might involve a situation where many very poor countries are mostly rural farmers. And as the economy grows, you get more manufacturing facilities and more cities. 

So all of these things：natural resources, the rise in manufacturing, burning energy，all tends to create pollution. In addition, when a country is very poor, the people running that country tend to be more worried about raising the standard of living，so people have enough to eat and housing, electricity, clothing, health care, and education. They're not as worried at first about pollution. So the growth of the economy is at first associated with a rise in pollution. But as the economy keeps growing, some changes start to happen. The economy becomes less focused on manufacturing and more on service industries, like software and engineering design, retail sales, finance, education, health. 

And these kinds of industries often involve much less use of energy than manufacturing. Or to be specific, there is less energy used for say billion yuan of gross domestic product produced. As the basic needs of society, people and the government start paying more attention to pollution. They start passing rules and regulations and taxes that have the effect of causing firms to limit pollution in different ways. Now this pattern is very common. You can see it in high income countries across Europe or the US or Japan. And you can see that some areas that had very high pollution levels, like that example of Chattanooga, Tennessee, I started with, have in recent decades seeing big improvements in their environmental quality. 

So let's move to our second thing, making the environment a higher priority in China. As I described the environmental Kuznets curve, I'm sure you were thinking a little about the situation in China. China has of course been going through one side if the Kuznets curve, that is rapid economic growth leading to more pollution. And there are number of examples. For example, air pollution in most cities in China is above the level recommended by the World Health Organization and their particular problems from burning coal,and in general, from the rapid growth of manufacturing and industry. 

Air pollution gets a lot of attention. It's easy to see, but there are issues of soil pollution and water pollution, too. If a manufacturing factory is based in a certain location for a time, it's pretty common for the soil to become contaminated. And their studies that estimate China has several hundred thousand places where soil pollution can be a real problem. There are also certain kinds of factories that are likely to cause water pollution. A common example is factories that produce paper. And an important step is to build sewage treatment plants, which clean water that comes from factories, and also that comes from homes. 

China has built thousands of sewage treatment plants, but at least some researchers in China have expressed some concern they aren't helping to improve the water quality as much as they should, maybe because there are some sources of polluted water which are not yet connected up to the treatment plants. When pollution gets high, there are large costs to human health. With air pollution, for example, breathing polluted air makes it easier to get sick, and it reduces life expectancy. For the same reasons that say, smoking a lot of cigarettes is bad for your health. 

But you can see the costs of pollution in other ways, too. For example, when people pay money for masks or air filter products, that's a cost of pollution. It's true in general, in China that homes in areas with more pollution tend to sell for lower prices. And companies in areas with more pollution often have a hard time hiring workers. But when it comes to environmental rules, it isn't the 1980s or 1990s anymore in China. In the last fifteen years or so, there's been a clear shift toward having more emphasis on reducing pollution. 

In fact, there are signs that China's growth might be reaching or have reached the stage where instead of increasing levels of pollution, economic growth might start to be associated with reducing pollution instead. For example, one study looked at the language in each of the five-year economic plans that China's government has produced since 1949. The early plans had essentially no mention of the environment, but there are more and more mentions of the environment starting in the 1980s and 1990s. And in the last three, five year plans, about 5% of the total economic plan is actually about environmental issues. So that's a big shift. 

China's economy is shifting as well. The amount of energy that's used in China to produce a certain amount of gross domestic product has fallen by about 50% in the last twenty years. It's become common to hear top government officials in China say one of the top priorities in the next few years is to have quality growth, not just any growth. And one definition of quality growth is to defend the blue skies. Now if you think about this, consider just one measure of air pollution, the amount of particulates in the air in big cities like Beijing and Shanghai There's actually been a fall in particulate matter in the last ten years or so. Now this isn't true of course of every single city in China, but one study looking across 85 cities found that on average, particulate levels were dropping. 

And that study found that when the average income level in a city in China reaches about a 100，000 yuan, then the level of air pollution starts to fall. Of course, reducing pollution in the air, water, and soil takes time and effort, and one has to pay costs. I'll talk more in the next lecture about how the government reduces pollution and what China's been doing. But first, I want to describe how economists view the problem of pollution. The term economists use is our third main point: negative and positive externality. Now, externality is a term used by economists. 

And an externality happens when there is a voluntary exchange between two parties, buyer and a seller. And that exchange directly affects a third party who was not part of the exchange. So let me give you an example. Consider an apartment building that's near a restaurant that often hires a band. And this restaurant plays loud music. In fact, the music is so loud, you can hear the music in the apartments. Now the restaurant and the band have an economic transaction. Both the restaurant and the band thought it was a good price, a fair price in order to pay this music. 

But the people in the apartment building are also affected by this market transaction, and they were not consulted,they are not part of the transaction. These effects on the third party who was not the buyer or the seller is an externality. Now, this externality could be negative or positive. In this example,if you really like the music, and it's a chance to hear it for free, then this is a positive externality. If you don't like the music, and you really wish you didn't have to listen, it's a negative externality, but either way, positive or negative, what is being bought and sold in the market is not taking you into account to economists. Pollution is an economic situation where third parties are affected by these spill-overs from production or consumption, but they're not part of the market transaction. 

You can think of pollution is anything you didn't want and that you didn't have a chance to decide about buying or not buying, but it's imposed on you by the buying and selling of someone else. One way to think about the idea of an externality is to think about private and social costs. In a typical market transaction, the firm looks at the private costs that the firm faces to produce. And the buyer looks the private benefits received by buying something. They see whether they can make a deal. But in the case of pollution, there are costs which are not private. Instead, there are these costs of pollution which are imposed on others. 

These social costs of pollution are not paid by the firm. It's like the cost of that pollution for the firm is zero. So the firm will not take those social costs of pollution into account. When producers of pollution don't have to take social costs into account, they will produce a lot more pollution than anyone would want. So think back to this example of the band in the apartment building. What if the restaurant had to compensate everyone in the building for the inconvenience of having the loud band? They would probably hire the band for a shorter time, or find a quieter band, or figure out a way to keep the noise from getting out in the first place. 

But if the cost of pollution is zero, and there are no laws or rules limiting pollution, then the producer of pollution has no reason to take those social costs into account and will produce way too much pollution. In the next lecture, we'll start to discuss what policies a government can use to require those who emit pollution to take the social cost of that pollution into account. And if they have to take the social cost into account, that will give them an incentive to reduce how much pollution they are emitted. 

Let's finish here with a few review questions.What is the environmental Kuznets curve? How has China's policy toward environmental issues been evolving over time? And what is  a negative externality? In the next lecture, we will talk about actual policy choices to reduce pollution. 

I'm Timothy Taylor. Thank you for listening to Himalaya.