Pollution - Environmental Science - page 171

Cost-Benefit Analysis
Many industries use cost-benefit analysis (CBA) to determine beneficial courses of action. For example, an
office might ask if the ease and decreased cost over time is worth the purchase price of a new printer. Similar
analysis applies when industries pollute or evaluate the remediation of a polluted area. Simply, do the benefits
outweigh the costs?
For example, benefits of remediation may include improved air or water quality, species preservation, in-
creased recreational opportunities, reduced wildlife mortality, increased job opportunities, and reduced pollu-
tion. Costs may include higher prices of goods passed on to the consumer; increased taxes, fees, or costs asso-
ciated with the action; and lost opportunities to create marketable products. Aside from assessing the immedi-
ate economic gains and losses of an action, a cost-benefit analysis takes into account long-term effects and the
impact on human well-being.
Market effects are the effects that can be expressed in dollars, whereas nonmarket effects do not necessarily
have a fixed dollar amount but may have tangible and intangible benefits to ecosystem or human well-being.
Sometimes, for the purpose of comparison in a cost-benefit analysis, these intangibles are represented as dollar
amounts; however, some people argue that assigning dollar values to nature, ecosystems, and human lives is
unethical.
Assessing the relative desirability of actions is a difficult and often subjective process, and one in which finite
monetary resources must be allocated to the places in which they do the most good. Is preserving a unique
forest ecosystem just as valuable as providing increased healthcare options to individuals? Also, how is the
value of an ecosystem or a resource assessed? Therefore, CBA is used not only to define whether a single ac-
tion should take place, but also to compare the benefits of many possible actions, allowing more informed de-
cisions on where limited resources can be the most useful.
Marginal Costs
It isn't very difficult to clean up "grade F" air to "grade D" air, but it is much harder to make B+ air into A+ air.
This is the idea of marginal cost: As more units are produced, as air gets cleaner, or as grades get higher, it is
increasingly difficult to add the same amount as you did before. So, although the effort of cleaning very dirty
air may be worthwhile, the effort of cleaning air that is already relatively clean may not be worthwhile. Add to
this the idea of marginal benefit —the fact that making those first air-quality improvements can drastically in-
crease quality of life, but making further improvements tends to have decreasing benefits. One piece of pizza is
great, but 15 pieces are not so great—each subsequent piece has a decreasing marginal benefit. So, how much
air should you clean or how much pizza should you eat? To create economic efficiency, you should clean or eat
exactly until the marginal benefit becomes less than the marginal cost—you want to continue until the cost out-
weighs the gain. At this point of equilibrium, between marginal cost and marginal benefit, is economic effi-
ciency.
The cost benefit analysis in the diagram below shows the optimal point of equilibrium (Q), between marginal
cost and marginal benefit. To the right of equilibrium, items' production cost outweighs their gain; to the left of
equilibrium, the relatively high combination of high marginal benefit and low marginal cost means that you
should be producing more than you are to take advantage of these conditions (again, producing in exactly the
quantity at which you reach equilibrium between these factors).