To: Peter J. Monte, founder and owner of United Concrete
From: Adel B. Iglikova, Staff Assistant
Re: Recommended forms of pending regulation to predict most accurately immediate costs of compliance while incurring the lowest immediate costs
Legislation in several forms is pending in Congress to control emissions of greenhouse gasses to reduce the adverse effects of climate change. United Concrete Company is a midsized firm that makes cement. The firm is expanding by acquiring other firms; the plants exhibit a wide range of variation in the equipment and processes. ...view middle of the document...
Also, each regulation is designed to force the same overall nationwide reduction in greenhouse gasses. As it is known, it designed the way that allows fewer emissions each year than in the year before, and each moves toward the same ultimate target in the same stepped annual stage. The purpose of the staging gives additional time to allow the industry to gather all the necessary information that is needed to implement the compliance effectively and incur the lowest immediate costs of compliance.
Under the compliance regulation for Command and Control Regulation, Congress is considering forcing all industries to reduce the gas emissions and also to use the best available technology in all newly constructed plants. However, it is determined that the firm is expanded by acquiring other firms, so the plant exhibits a wide range of variation in the equipment and processes. First of all, cost of best available technology is unknown, as well as the number of prospective plants build. Secondly, in order to reduce the emissions and reach the required percentage reduction in gas emissions stated by Congress, it is necessary to reduce the production. Cost of this approach is known, because it can be found by calculating lost sales from the decrease of the production. Taking into consideration that this cost is not specific just for Command and Control, but also to other types of regulation, this cost can’t be taken into the comparing costs for the regulations.
To conclude, the best way to compare Command and Control regulation with Tax on Emissions and Cap and Trade permit System would be the best available technology. Unfortunately, there is no choice in less expensive alternatives, such as paying the tax on emissions or buying/trading permit system, because the company is required to buy this equipment, even if the there was a cheaper way to reduce emissions. Overall, the cost of Command and Control Regulation is not predictable.
To sum up, Command and Control regulation also is clearly the most costly as it required mandate and less socially effective than market incentive regulation. So the company shouldn’t take this approach as the lowest immediate costs of compliance.
Under the Tax on Emissions Regulation, Congress may adopt a bill that would impose a specific tax on each unit of greenhouse gasses that a firm emits. The EPA may specify the regulation by imposing the tax on emissions or on inputs. Therefore, there is an alternative option of reducing production to reduce emissions or paying the tax. Since it was mentioned earlier that reducing production costs are known, but also common to all three types of regulation, it can’t be...