The European Commission has taken legal action against the UK due to the excessive levels of nitrogen dioxide (NO2) in the air and for breaching its obligation to reduce these levels by 2010. Of the 43 zones in the UK, 40 exceed the standard set by the European Air Pollution Directive in 1999 to take effect in 2010. The Directive states if the deadline has not been met, an extension can be granted upon the approval of submitted air quality plans. Air quality plans have been submitted for the majority of these zones, but there remain 16 cities that the government says will be unable to realistically reach the standard by 2015.
Air pollution causes 29,000 premature deaths in the UK each year; it can lead to serious respiratory problems such as bronchitis, asthma and emphysema and the World Health Organisation has confirmed that air pollution can also cause cancer. The poor quality of the air can cause heart attacks and children who grow up near busy roads can have underdeveloped lungs. On top of this, 100 million workdays are lost each year through related illnesses and the costs to society, including the damages to crops and buildings, amounts to 23bn euros each year in Europe (BBC, 2014). While a large proportion of air pollution originates from stationary sources, like factories and power plants, there are many millions of mobile sources, namely motor vehicles. The major source of NO2 seems to be from traffic fumes.
Nitrogen dioxide is a poisonous gas, which comes from the burning of fossil fuels, mainly as a by-product of diesel engines. It is a significant air pollutant as it contributes to the creation of smog and acid rain which impacts human health. Therefore, the government is in breach of its legal duty “to protect people from the harmful effects of air pollution” by these levels being in excess.
Economic efficiency offers a useful criterion to measure the performance of the economic system or certain parts of it (Field & Field, 2008). A single profit maximising firm would be considered efficient if its marginal costs were equal to its marginal benefits (MC = MB) but when dealing with the social performance of an economic decision, a broader sense of efficiency is required. It must consider all the social values and costs, particularly, environmental consequences. In figure 2, marginal willingness to pay (MWTP) represents all marginal social benefits (MSBs) experienced from consuming one more unit and marginal social costs (MSC) refer to all the costs of producing that unit. Where the two curves intersect defines the socially efficient level.
We live in a market-based economy, where economic decisions about production lie within the interactions of buyers and sellers, and which should produce socially optimal results (Field & Field, 2008). For markets to work effectively competition must exist and the quantity demanded of a good must equal the quantity supplied (as shown in figure 3, the intersection between S and D). However, what we want to know is, can the market system produce a socially efficient outcome when it comes to the environment and, in particular, air quality?
Figures 2 and 3 look similar but depict two different aspects: figure 2 shows the socially efficient rate of output and the figure 3 shows the output and price in a competitive market. When it concerns environmental values, it is very unlikely these social values and market values will be the same, since firms and individuals very often do not take into account the external costs of their decisions. Air pollution is a classic example of a negative externality, an adverse effect on other agents in the economy caused by the actions of individuals and firms. Regarding the NO2 levels from traffic, since individuals only consider the private costs of their actions and do not bear the full social costs, they will continue to use their cars frequently, rather than curbing their use to cut down...
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