Data Response on Coal Fired Power Stations
Posted on: February 13, 2011
Text: “‘Clean coal’ and those pesky negative externalities”
1. Define the following terms: a) negative externality, b) welfare loss
a) Negative externality is spillover effect that has an impact on ‘outsiders’ that are disadvantageous to them and for which they receive no compensation. In this article, it is pollution.
b) Welfare loss occurs when the optimum outcome for society is not achieved. It happens when marginal social benefit does not equal marginal social cost, and thus is loss to society.
2. Using an appropriate diagram, explain why coal fired power stations produce a negative externality.
(Figure 1) Negative production externality of coal fired power station
3. Using an appropriate diagram, explain how government might intervene to overcome this example of market failure.
(Figure 2) Government intervention
4. Using information from the text and your knowledge of economics, evaluate the intervention you outlined in (c).
(Figure 3) Coal fired power stations
The stakeholders will be affected both negatively and positively when the government intervene to overcome the negative externality by taxing.
The local community will be affected positively when the coal fired power stations are taxed by the government. According to the article, “in the local area, there will likely be decreases in air quality” because the coal fired power stations will increase the level of local pollutants. When the coal fired power stations are taxed, the quantity of their products will decrease, as shown in figure 2. Therefore, with the decrease in the quantity of the coal fired power stations’ products, the local community will not be polluted as much.
However, the tax on the coal fired power stations will have negative consequence for the other communities. According to the article, the coal fired power stations “will reduce overall [CO2] emissions” and “reduce sulfur dioxide emissions” as well. Thus, when the coal fired power stations are taxed, the quantity of the power stations’ products will decreases, leading to less chance of decreasing the pollution in the other communities.
The owners of coal fired power stations are a group of people who would be affected negatively by the tax on coal fired power stations. When their products are taxed, their profit will decrease for the quantity demanded will decrease with higher price and they would have to pay the tax to the government.
Similarly, the laborers who work under the owners would be affected negatively as they may suffer from unemployment. Since the cost of producing the coal fired power stations’ products, the owners might be inclined to fire their laborers.
In conclusion, putting tax on the coal fired power stations would not be advocated by many of the stake holders. Thus, the employment of tax might not be the best solution in reducing pollution.
Evangel's IB Economics Blog 
1 | Jane
February 19, 2011 at 4:21 pm
We say it in that manner because a coal fired power station has not been built in the state since the mid 90s but if this manages to gather all the permits and approvals necessary it will be because it is designed to not release any carbon dioxide according to a article. The Norwegians have been doing something similar in the Sleipner Field under the North Sea for the last 13 years and oil wells in Texas frequently use CO2 to boost recovery rates so the technology is largely proven..Indeed coal fired power stations still hold enormous promise to produce economical lower carbon emission energy if the administrations energy department and the environmental lobby can just get over their hang ups about coal being the cause of climate change. Even China is with their latest power stations that carbon emissions a third to a half of older plants are possible without government subsidy simply by embracing new higher temperature burn technology coal gasification and the economies of scale that come with a concerted effort to replace old polluting plants with modern much cleaner plants.