Microeconomics: Externalities Analysis - Carbon Emissions and Health

This report examines the microeconomic implications of carbon emissions, framed as a negative externality, drawing upon an article discussing the potential to save millions of lives by reducing these emissions. It analyzes the impact of air pollution on public health and economic efficiency, utilizing supply and demand diagrams to illustrate the social costs associated with production. The report explores various scenarios for emission reduction and their projected effects on mortality rates in different cities, referencing specific examples in Asia and Africa. Furthermore, it discusses government interventions, such as carbon taxes, as a mechanism to internalize the external costs of pollution, thereby promoting a more socially efficient outcome. The analysis highlights the broader benefits of emission reduction, including environmental protection, improved public health, and enhanced economic growth. The report concludes by emphasizing the multifaceted positive impacts of reducing carbon emissions on human health, environmental sustainability, and economic productivity.

Article: New Study finds reducing carbon emissions could save hundreds of millions of
lives
Date of Article: 22/03/2018
Source of Article: The Chronicle- the independent news organization at Duke University
Word count of commentary: 750 words
Date of commentary: 20/09/2018
Subject of the commentary: Microeconomics (Externalities)

Link to the article: https://www.dukechronicle.com/article/2018/03/new-study-finds-
reducing-carbon-emissions-could-save-hundreds-of-millions-of-lives
The article by Claire Ballentine talks about reducing carbon dioxide emissions which has the
potential to save millions of lives in 154 of the largest urban cities especially the ones in Asia
and Africa.
According to the article, a research was conducted by Duke Scientists which showed that- air
pollution leads to 153 million premature deaths. These deaths can be drastically reduced if
the countries reduce their consumption of fossil fuels. Drew Shindell- professor from
Nicholas School of Environment states that the ones who have studied earth sciences have
knowledge about air pollution and with historical data, they can certainly say about the
number of deaths in a city according to the given pollution scenarios.
The article reflects upon the premature deaths due to air pollution all over the world. Air
pollution is a negative externality caused due to production of goods which emit high density
of smoke in the air. The usage of fossil fuels and energy resources in the production process
emits smoke as the by-product. This smoke consists of carbon-di-oxide, nitrous oxide and
methane. This by-product is harmful to both the residents as well as the producers. To
understand how the society adapts to this negative externality, let us consider the diagram
below:
Assume an industry that manufactures plastic bottles. MSB is the Marginal Social Benefit
from the production of the plastic bottles, which is downward sloping, as the production
increases, the marginal benefit falls. MPC is the marginal private cost of production, which is
borne by the producers and MSC is the marginal social cost which is borne by the society due
to the air pollution released by the industry. This cost is greater than MPC, reflecting that the
cost of production to the society is higher than that incurred by the manufacturers. This cost
is not just the monetary cost but also the cost of their health. The society suffers from lung

diseases and heart diseases like asthma, cancer, damage to liver, chronic respiratory diseases
and etc. In the graph, Q is the level of output produced when there is free market allocation
but if the social cost is taken into account then Q1 is the socially efficient output level. The
difference between MPC and MSC is the negative external cost.
According to the article, the countries can reduce death toll from reduction of usage of fossil
fuels and resources that emit high level of pollution under three scenarios. Under the first
scenario- the emission reduction is accelerated and there is no negative emission throughout
the century. This will highly benefit the Asian cities like Kolkata and Delhi. The second
scenario is where the global warming is capped to 2 degrees and the emissions are slightly
higher in the short term. In the third test, the emissions are cut more drastically and the global
warming is capped at 1.5 degrees. The results of the test depicts the following effect:
Kolkata, India New Delhi Asian & African
cities 80 other cities
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Reduction in deaths
The above graph shows the reduction in death due to capping of global warming and also due
to reducing emission of greenhouse gases. The numbers are in millions.
To remove any externality from the society, the government has to intervene so that the
market can be regulated. One way to reduce emission is via taxing the emission of
greenhouse gases, also popularly known as carbon tax. It can be explained by the graph
below:

The graph above shows the effects of carbon tax. Before the imposition of tax, the producer
was supplying Q1 units of the good – S being the supply curve. After the imposition of tax by
the government, the supply curve shifted towards the left (St) and the quantity dropped to Q2.
At point A the society is socially inefficient while at Point B, the society is socially efficient.
The efficiency comes from reduction in production which reduces emission, it also reduces
the environmental damage along with the number of people being infected with lung and
heart disease. The red shaded area represents the benefit to the society.
The reduction of carbon emissions is not only to protect the climate and to save the Earth but
it also has huge impact on all the living beings of the Earth (plants, animals and humans). The
pros are manifold. It will protect so many species from being endangered, it will save the
ozone layer, it will reduce cancer and other human diseases which will help in increasing the
human productivity and also lead to increase in Economic Growth of the countries.

References:
New study finds reducing carbon emissions could save hundreds of millions of lives. (2018).
Retrieved from https://www.dukechronicle.com/article/2018/03/new-study-finds-reducing-
carbon-emissions-could-save-hundreds-of-millions-of-lives
Negative Externality - Economics. (2018). Retrieved from
http://economics.fundamentalfinance.com/negative-externality.php