Effluent Charges and Political Realities—A Qualification

Terry A. Ferrar
Peter G. Sassone
Alan B. Brownstein

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DOI: 10.2190/7A56-LJF7-Q0M7-R2DT

Abstract

For some time now, economists concerned with the pollution problem have espoused the effluent charge as the "in principle" solution to environmental degradation. This paper examines the potential of the effluent charge ideas as a practical, workable policy. Specifically, the authors recognize that any potential environmental policy must pass certain political acceptability tests before it may be implemented and investigate the impact on the construction of an optimal effluent charge.

During the winter of 1972-73, New York City was faced with a low-sulfur residual fuel-oil shortage and employed a financial incentive scheme to encourage the use of environmentally desirable fuels. This paper examines the implications of this approach and demonstrates that the existence of a legally specified "principle of fairness" effectively prohibited the construction of an optimal effluent charge. Moreover, the authors show that an analytically identical "fairness" stipulation is a central feature of the Pure Air Tax Act of 1972 and extend the results of this broader policy issue.

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