Does environmental protection hurt low-income families?

February 1, 2009

Does environmental protection hurt low-income families?

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Policies for environmental protection impact the lives of all U.S. citizens by regulating pollution, imposing costs, and influencing economic decisions. Common examples range from municipal trash disposal to federally mandated Corporate Average Fuel Economy (CAFE) standards for automobile fuel efficiency. Other notable environmental policies include the Environmental Protection Agency’s Acid Rain Program to reduce sulfur dioxide (SO2) emissions from domestic power plants and the much discussed but not yet enacted idea of a program to reduce greenhouse gas (GHG) emissions. Although the United States is not a member of the Kyoto Protocol to reduce global GHG totals, which was adopted by the United Nations Framework Convention on Climate Change (UNFCC) in December 1997, President-Elect Obama promised to achieve substantial GHG reductions in the form of a cap-and-trade policy. The proposed policy has an ambitious reduction target, and if such a policy were to be passed by Congress it would have profound impacts on the entire country. Here, we look at various implications of a GHG regulatory regime for residents of the nation and the state of Illinois, including the possibility of effects that vary by income group.

As pollution becomes an increasing concern at the municipal, state, national, and international level, policy makers continue to enact environmental policies to manage environmental problems. Pollution is a negative “externality” to the extent that the costs of pollution are not included in the price of the goods produced and sold. Generally, an externality is defined as the impact of a market transaction on individuals not involved in that transaction. A firm that tries to maximize profits would not voluntarily incur costs to cut emissions. Similarly, consumers do not ration their use of goods that are produced in a polluting process because they do not face the higher prices that would result if producers were required to pay for pollution. In such circumstances, it is incumbent upon the government to enact appropriate policies to deal with the negative externalities of pollution. However, the optimal level of pollution is not zero. Given current technology, some pollution is necessary to produce the vast majority of goods and services demanded by consumers. Policymakers have a large menu of choices at their disposal to control pollution levels.


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Research Area: Economic Policy

Policy Initiative: none

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