National Clean Air Agreement: Evaluating Environmental Externalities and Costs

This report evaluates the National Clean Air Agreement in Australia, focusing on environmental externalities such as acid rain, smog, and air pollution. It assesses the costs and benefits of the policy and provides recommendations for reducing air pollution.

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Principles of Environmental and Resource Management
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Introduction
On December 2015, Australia’s Environmental Ministers developed the National Clean
Air Agreement. The agreement aimed at recognizing the current and future air quality challenges
facing Australia. The National Clean Air Agreement compliments on Australia’s existing air
quality management programs aimed at ensuring that the air is clean in the future. The agreement
provides an overarching framework to help the government identify as well as prioritize air
quality strategies that are likely to benefit from national cooperation. Prioritizing on air quality
strategies would deliver health as well as economic and environmental outcomes for Australians.
Different government levels are acknowledged by this agreement in managing air quality along
with recognizing that business, including the community, are supposed to remain active if good
air quality results are to be attained. The report will describe the environmental externality in
context of this policy, evaluate the policy using analysis of environmental externalities, and
provide an assessment of costs and benefits of the problems presented in this policy.
Environmental Externalities
Treatment of environmental as well as natural resource-based issues that include
environmental disamenities by economists has broadly been anchored by the externality concept.
Externality takes place when a person incurs a benefit or cost to other individuals but is not
constrained to pay the cost to the victims or even receive payment from the beneficiaries. An
environmental externality is a transaction cost problem and if the transaction costs are negligible,
the externality issue is negotiable among the parties that are involved (Chava, 2014, pp.2231).
However, most of the environmental issues such as air pollution that is addressed by the National
Clean Air Agreement comprises of high transaction costs and involves many people, making it

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difficult to allow a bargaining solution. Such environmental externalities include acid rain,
particulate matters, smog, non-point source pollution, ozone depletion, and mobile source
pollution.
The first environmental externality is the acid rain problem. The problem is primarily
caused by sulfur dioxide and nitrogen dioxide. When the two emissions are released into the
atmosphere, they react with water vapor forming acid which eventually falls back on the earth’s
surface either as rainfall or snowfall (Albrizio, Kozluk and Zipperer, 2017, pp.211). Electricity
generating power plants are more responsible for emitting sulfur dioxide with the rest emission
coming from transportation and other industrial processes. Acid rain increases acidity in water
bodies causing damage to the environment, ecosystem, and human health.
Smog is the other environmental externality and is primarily composed of ground-level
ozone. Emissions that result in smog are mainly emitted from cars that burn gasoline, chemical
manufacturing plants, and petroleum refineries among other consumers as well as business
products that contain VOCs (Chanel and Luchini, 2014, pp.84). Ground-level ozone has adverse
effects on human health, affects the forests, and has the potential of reducing the yields of
agricultural crops. Individuals that are repeatedly exposed to ozone are susceptible to lung
inflammation as well as respiratory infections. The exposure can also exasperate pre-existing
respiratory diseases that may include asthma. Pollution of air particles is the third environmental
externality and it comprises of fine dust, smoke, and soot, including droplets that result from
chemical reactions and from burning fossil fuels (Pedersen, et al., 2013, pp.702). Nitrogen oxide
and sulfur dioxide react with water vapor and sunlight to form particles. The particles can get
into people’s lungs causing respiratory illnesses and deaths. The particles also aggravate asthma,

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reduce lung function, results in acute respiratory symptoms, and people with lung or heart
diseases experience a high risk of health problems.
Policy Evaluation
The National Clean Air Agreement policy contains standards that are aimed at addressing
the above mentioned environmental externalities. The standards make sure that there is
consistency in monitoring as well as reporting air quality, limiting emissions along with reducing
air pollution (Wellenius, et al., 2012, pp.231). The National Clean Air Agreement work-plan
comprises of executing strong reporting standards of specific matters such as sulfur dioxide,
nitrogen dioxide, and ozone issues including the National Environmental Protection Measures
associated with air toxics along with diesel vehicle emissions (Crippa, et al., 2016, pp.3829). The
first standard contained in the policy is strengthening reporting standards for particles by
considering the latest scientific evidence which expresses that any amount of particles in the air
can cause health issues. The New South Wales Environment Protection Authority was
responsible for this work. The other standard includes reviewing sulfur dioxide, nitrogen dioxide,
and ozone standards. The review is being led by the Victorian Environmental Protection
Authority. The council is to consider forming the intent of varying the Ambient Air Quality
NEPM in regards to these standards (Dekker, Vollebergh, de Vries and Withagen, 2012, pp.53).
The agreement also seeks to review the Fuel Quality Standards Act 2000 which provides the
legislative foundations for Australia’s fuel quality information standard as well as national fuel
quality. The policy also contains the following standards: emission reduction measures and
reviewing the need to have air toxics and diesel vehicles NEPMs.

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Solutions/recommendations
Australia has taken a good step in devising policies that aim at ensuring fuel-efficiency
and reduce emission. Policies such as the National Clean Air Agreement have the potential of the
health of Australia’s urban air. Simultaneously, this is an opportunity to also improve on
implement testing for cars, fuel efficiency, and demand for higher-quality fuel. However, in the
short-run, Australians can try to use vehicles less often (Marcon, et al., 2014, pp.388). Also,
raising awareness is helpful with recent studies showing that millions of dollars could be saved
in fuel costs if drivers are exposed to anti-idling initiatives. Buying vehicles that have automatic
idle-stop technology would greatly help in cutting emissions. The technology that is common
among high-end European vehicles models automatically turns off the vehicle when it still,
allowing the driver to restart the vehicle when the accelerator is pressed (Anderson, Thundiyil
and Stolbach, 2012, pp.173). Nonetheless, Australia’s refineries should be upgraded to ensure
they supply low-sulfur fuel. Supporting public transport that operates using “clean fuels’ will go
a long way in reducing air pollution in Australia.
Costs and Benefits
Costs
Environmental Cost-Benefit Analysis is concerned with the social evaluation of policies
or even projects that have got significant environmental effects. There are significant costs linked
to air pollution in Australia. Australia’s annual financial cost is approximately $ 11.1 billion to
$24.3 billion. The cost associated with asthma alone is approximately $655 million which is
0.9% of the government’s total direct spending on health (Hoek, et al., 2012, pp.542).
Nonetheless, the OECD has made estimates that in 2010, the economic cost of the motor vehicle

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emissions in Australia are approximately $5.8 billion. The cumulative externalities of both
carbon dioxide and air pollution from coal power generation are approximately $42/MWh for
black coal and $52/MWh for brown coal, and $19/MWh for gas.
Nonetheless, children, as well as the elderly, including individuals with existing
cardiovascular and respiratory conditions, are more susceptible or sensitive to air pollution. The
interactions between natural conditions and pollutants are likely to aggravate health impacts.
Particularly, vulnerable people are at risk due to poor air quality and excessive heat. Dust
deposits, smoke as well as odors result in environmental nuisance (Naddafi, et al., 2012, pp.28).
Due to climate change, it is predicted that it will result in an increase in ground-level ozone along
with fine particle pollution that increases lung diseases, strokes, and heart conditions. All these
factors translate to increased monetary costs not only in Australia but in the world (Brauer, et al.,
2015, pp.83). Research conducted by World Bank in 2013 approximates that the global
economic cost of death resulting from air pollution is US$225 billion in lost labor income as well
as US$5 trillion in welfare losses.
Benefits
Although environmental policies and measures contain certain control costs, they are
motivated towards reducing damage to human health, improving well-being, and ensure the
environment is cleaner to safeguard the ecosystem’s sustainability. Despite that it is challenging
to conduct a monetary evaluation of these aspects, several evaluation studies indicate that there
are more benefits linked to the air pollution policy compared to the costs. As such, cost-benefit
studies which broadly define ‘welfare’ are applied, inclusive of aspects that are omitted in GDP’s

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definition. They include changes in public health, - suffering, pain, and premature death- as well
as the loss of natural capital.
Conclusion
Most economic activities possess notable external impacts, - affects individuals that are
not directly involved in the activity, either positively or negatively. An example is air pollution
that results from various activities such as the burning of fossil fuels or pollution from
automobiles. However, the costs associated with these external impacts are not usually reflected
in the market price, resulting in excessive production of commodities that have negative
externalities. An example of a negative externality is environmental externalities that include
acid rain, particulate matters, smog, non-point source pollution, ozone depletion, and mobile
source pollution. The externalities adversely have a negative effect on the health of Australians
and damaging the ecosystem. With the adoption of the National Clean Air Agreement, Australia
can ensure that the quality of air is healthy for its citizens, which in turn translates to improved
health conditions.

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