National Clean Air Agreement: Evaluating Environmental Externalities and Costs

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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,