Incomplete Information and the Cost-Efficiency of Ambient Charges

The established opinion is that in the face of uncertain information on pollution control costs, environmental agencies cannot set levels of ambient charges enabling the reaching of desired concentration levels at receptor sites in a cost-effective way. Although a trial-and-error procedure could finally result in the attainment of concentration standards this is generally not cost-effective. This paper proves that environment agencies can develop adaptive procedures that enable the achievement of the standards at minimum costs. The proof is based on ideas of non-monotonic optimization. The adaptation mechanisms are applied in a case study of charges for acidification in the Netherlands. The results show that the iterative procedure approaches the cost-minimum fairly quickly but that over and undershooting may occur underway. The number of iterations and extent of overshooting can be reduced by using available knowledge on the violation of ambient concentrations at receptors and by a simulation of polluters responses to charges.
KEYWORDS: cost-effective emission charges, pollution charges, uncertainty, non-monotonic optimization, adaptation, market mechanism

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