Minimizing the Cost of Abatement

A key part of efficient pollution control is to allocate abatement (emissions reductions) across sources in a way that minimizes the total cost of clean up. This seems like ordinary common sense: surely we would always want to get the environment cleaned up as cheaply as possible. In practice, however, many pollution control regulations are very far from minimizing costs. Studies have shown that typical regulations cost 5 to 20 times (500% to 2000%) the minimum possible cost.

In order to minimize costs, a policy or regulation must ensure that abatement is allocated in such a way that the marginal cost of abatement is equal across all polluters. It's easy to see why this has to be true: if marginal costs were not equal, we could reallocate abatement and lower costs. For example, suppose that under one allocation of abatement, source A has a MC of abatement equal to $5 and source B has a MC of abatement equal to $10. If we had source A do one more unit of abatement and source B do one less, we'd get the same total amount of cleanup but it would be $5 cheaper ($10 avoided at B less the $5 cost at A).

For further details, see Combining Marginal Abatement Cost Curves.