Archive forexternalities

Natural Gas Drilling Negative Externalities

Natural Gas has become an increasingly popular fuel source as a clean alternative to oil and coal. The corporation Chesapeake Appalachia LLC is one of the largest drillers of natural gas, mainly drilling in the Marcellus Shale of northern Pennsylvania. While natural gas burns cleaner and more efficiently than most other fuel sources, there are many negative repercussions in drilling for this fossil fuel. There are many environmental consequences in this process as the chemicals used to extract the natural gas harm many major waterways and land ecosystems. Also, citizens of the area where drilling occurs are forced to deal with the residual effects of the process.

The negative externalities of this corporation are the major fines presented annually by the state and national government due to the effects of the drilling process. In 2011, the company suffered $565,000 in fines from the DEP (Pennsylvania Department of Environmental Protection) and $1.5 million in total since the company started their endeavors. Because natural gas is so abundant in the area, this negative externality does not deter the company from drilling. Also, the market for natural gas is flourishing because its low costs and positive publicity, making this endeavor profitable. This market will lose its value as the Marcellus Shale mines become tapped and natural gas is no longer abundant.



Negative Externalities from Cigarettes and Second-hand Smoke

Cigarette consumers vary greatly regarding age and culture, yet most people who consistently consume cigarettes ultimately become addicted due to nicotine. Younger generations are notorious for buying this commodity in order to appear cool, which ultimately turns into a habitual purchase as a coping mechanism, while older generations typically have developed an addiction to smoking. The tobacco industry is a relatively strong one that is willing to conceal the obvious health risks associated with smoking.

One external cost that has historically not been taken into account  would be second-hand smoke and its associated health risks. It is worth noting that the adult population of American smokers has reached an all time low. From 2005 to 2013, the quantity of smokers decreased from “45.1 million to 42.1 million” (1) despite the US population increasing over the last decade. Possible contributions to this overall decrease include the increase in the prices of cigarettes, raising the taxes of cigarettes, and more “smoke-free” laws (1). Although, Centers for Disease Control and Prevention estimates that there is still more progress that must be made since “over 5.5 million kids who are alive today will die prematurely from tobacco-related diseases” (1).

There are many dangerous consequences that are directly related to the tobacco industry’s main negative externality (second-hand smoke) especially for children whose bodies are still developing. The U.S. Surgeon General’s Report from 2006 declared that second-hand smoke is a “known cause of low birth weight, Sudden Infant Death Syndrome (SIDS), asthma, bronchitis, pneumonia, middle ear infection, and other diseases” (2). One of the most thought-provoking things about second-hand smoke is that these health issues that can arise from the exposure to it are preventable for children, and this is something that society has begun to recognize. Now, women are more informed about the dangers of smoking while pregnant, and this is crucial to targeting second-hand smoke exposure. Also, timing is another factor because studies have shown that the sooner the amount of second-hand smoke exposure decreases for a child, the less likely the child is to develop an addiction to smoking as a teenager or adult.



This article talks about why tariff on China’s exports would not be wise in the aspect of rare earth trade between China and USA. Rare earth is an strategic resource that is crucial in the national defense such as composition of advance alloys and in civilian uses such as batteries. Thus, if Donal Trump impose a tariff as high as 45% on China’s export, China would most likely restrict its rare earth export. China remains as the world dominant export country of rare earth with 105 thousand metric tons compared to 4.1 thousand of the US. China has absolute advantage in the production of rare earth. It would not be wise for Trump be adopt a Beggar-Thy-Neighbor policy, for it would leave China with no choice but to engage in retaliatory policies. The effect on rare earth trade is an externality of the possible trade tariff. Considering the mass demand in the market for batteries in smart devices, an tariff is not only damaging Sino-US relation but also destructive to the world economy.


Subsidy to green energy can be counterproductive

“Paying for waste”

Renewable energy like wind energy and solar energy have positive externalities on the environment, in contrast to fossil fuels that can cause pollution. Thus, subsidies to green energy is a very common policy to increase social surplus.

However, subsidy alone can be counterproductive. Electricity cannot be largely stored, so it must be produced and consumed at the same time. Thus, producers need reliable means to produce backup energy, which is mostly  generated by burning fossil fuels. Subsidy shifts the supply curve downwards, reducing the market price. When higher quantity of electricity is demanded, more backup energy produced by burning fossil fuels are demanded. In the end, the positive externality brought by green energy is likely to be undermined by the negative externality caused by burning fossil fuels.


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Environmental Impacts of Wind Power.

Harnessing power from the wind is one of the cleanest and most sustainable as it doesn’t contribute to global warming. Wind is also abundant and affordable, which makes it a reasonable alternative to fossil fuels. But because the production of wind power requires the use of wind turbines, there are a variety of environmental impacts on wildlife and their habitats. The turbines required for production need to be placed on flat surfaces and 5 to 10 rotor blades apart. This adds up to to a large amount of land needed to run a wind farm. The hidden negative externality that wind power contains comes from the spinning turbines. When the turbines spin, they change the are air pressure around them causing birds and bats to collide with them and die. Taking this externality into consideration, we now know that we are always facing tradeoffs. While Wind energy is a far superior energy source compared to fossil fuels, an increase in wind energy will impact bird and bat populations.


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The Price of a Cruise

Cruise ships dump 1 billion gallons of sewage into the ocean every year. One 3,000-passenger cruise ship dumps about 74,000 gallons of sewage into the ocean per day. In the past the ocean was able to dilute the waste but as the cruise ship industry has grown the amount of waste being dumped has increased substantially. The infiltration of chemicals into ocean waters infecting the aquatic life and ecosystems, prevents growth, contaminates seafood and posses severe health risks to both marine animals and swimmers alike. These costs to aquatic life and ecosystems as well as non-customers who live near the beach are not factored into the price of a cruise-ship holiday.

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A Plague of Pigs in Texas

Wild boars are extremely destructive creatures, digging up and destroying crops and farmland. These creatures are scattered in many states but most predominantly in Texas where they cause millions of dollars worth of damage each year. Due to the amount of damage caused by the boar Texas has lowered the cost of tags and increased the hunting season (for boar) to give hunters a greater incentive to hunt. With no tags required and a year-round hunting season, by virtue of their sport, hunters provide an external benefit to farmers and the state of Texas by lowering the boar population.


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Marijuana Cultivation and Negative Externalities

Marijuana is used as a psychoactive drug or medicine. “Marijuana (herbal cannabis),consists of the dried flowers and subtending leaves and stems of the female Cannabis plant.” Marijuana can be produced in a number of different ways but the most prevalent method is outdoor or indoor cultivation.  Most of outdoor cannabis cultivation in the United States occurs on public lands. This allows cultivators take advantage of remote areas to minimize the risk of forfeiture from the government. In retrospect, home-grown cultivators have knowledge in breeding and nurturing a variety of different strains of marijuana. Cultivators concentrate on creating various types of marijuana by controlling the growth process.“This is done by using heating lamps, fluorescent bulbs, ventilation and soil nutrients, hydroponics (growing without soil by using a liquid solution which contains nutrients and minerals) and salt-free sand.” All these factor require a large amount of electricity.

The large amount of electricity needed for the cultivation of marijuana results in a negative externality because it uses an excessive amount of electricity. Four indoor plants sucks as much as much electricity as 29 refrigerators. A scientist, Evan Mills, discovered that “legalized indoor marijuana-growing operations account for 1% of total electricity use in the US, at a cost of $6bn per year. Annually, such consumption produces 15m tons of greenhouse gas emissions (CO2), equal to that of three million average cars.” The excessive amount of energy used results in large amounts of CO2 emission which is a negative externality.

Once the social cost is taken into account, the quantity of the goods consumed decreases. In order to account for the negative externality, in this case CO2 emissions, the price for the good increases which leads to a lower quantity being consumed.

Why Marijuana is Not Green

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The pollution in Delhi dued to burn-off of rice stubbles

The pollution in Delhi primarily is caused by the smoke from the burning of rice stubble in surrounding farmland and the traffic pollution. The annual average PM 2.5 in Delhi doubles annual average in Beijing. The negative externality of rice and car production will be the pollution in air.

However, due to government’s dread of stopping farmers from burning off stubbles left from rice production. India is the second place in producing rice while Uttar Pradesh, a state which Delhi is in, is the second place in the country. Government’s liability on rice production explains why it doesn’t want farmers to be alienate.

The fear of shortage in food supply neither help cut the rice production but even encourage it which may trigger more burn-off pollution. Government encourages growing by offering floor prices and subsidies. According to what we learned about subsidies and floor price, there is such a nice market condition for rice production which has a large negative externality in polluting.



Production of Palm Oil Polluting Southeast Asia

Palm oil is a type of edible vegetable oil derived from the palm fruit produced in Southeast Asia, more specifically in Indonesia, the world’s biggest producer, where it acts as a significant basis of the country’s economic security. It is exported around the world to be used in a wide variety items: from being an important ingredient in foods such as chocolate and chewing gum to washing powders, and even bio diesel. It is a high demand item, consumed by people in everyday products, such as chocolate, however, many consumers do not realize its negative externalities. Despite it being a core ingredient to many products, it causes severe environmental implications that often cause controversy.

This industry is linked to major issues such as deforestation and forest fires, causing heavy air pollution as a result of using slash and burn agricultural techniques used to clear and regrow palm oil plantations. This technique causes terrible air pollution in surrounding areas, particularly in Singapore, Indonesia’s neighboring country. On September 24, 2015, Singapore’s air quality index reached unhealthy levels, hitting a record of 321 (anything above 100 is considered “unhealthy”), closing schools and producing acid haze, darkening daylight. During this time, people were highly advised to stay inside and wear masks outdoors in order to protect their lungs from the toxins carried in the air. These hazy conditions lingered for weeks and were directly attributed to the timing of the palm oil plantation season where slash and burn agriculture is used to clear clear the land. Although it did not directly around impact the price of palm oil at this time, the diagram represents how the negative externality shifts the supply curve left because of its indirect cost on Singaporean society. The quantity of the good consumed is less than the optimal quantity that internalizes all costs and benefits.


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