Public Policy Problem Of Air Pollution In Greater Manchester

In this essay, I will be discussing the public policy problem of air pollution in Greater Manchester. Air pollution largely comes as a result of negative externalities such as fossil fuels. Negative externalities occur when the marginal social cost is greater than the marginal social benefit, meaning the production or consumption of a good has a negative affect to a third party. In this case the burning of fuel is a negative externality as the air pollution affects people who are not involved in its consumption via air pollution.

It is clear that air pollution is a big problem in Greater Manchester with the Manchester evening news labelling it a ‘silent killer’ as it is linked to “1200 deaths a year” (2018 manc evening news) in Greater Manchester. With the main cause of air pollution being NO2, the Government is currently developing the Greater Manchester clean air plan to reduce the dangerously high levels of air pollution across the city. Clean Air GM has identified “152 stretches of road” (Clean air gm) likely to have NO2 well over the legal limit beyond 2020 if no action is taken, however they have not yet made a final decision yet on which measures they will be carrying out to help solve the problem. I believe the main ways in which Government intervention can help solve this problem through economic policies are congestion charges to very busy traffic zones, taxation on negative externalities such as petrol and high polluting diesel cars, giving pollution permits to businesses and subsidising renewable energy sources such as photovoltaic cells and wind turbines.

It is important to understand what is causing air pollution in the first place. Burning non-renewable fossil fuels for energy lets off harmful gases such as CO2 and NO2 which have a negative impact on air quality causing market failure. Market failure occurs when there is an inefficient allocation of resources in a free market. As fossil fuels are so heavily consumed, there is clear rationale for the government to subsidise sources of renewable energy in order to correct this market failure. Although there is already some criticism for renewable energy being heavily subsidised, the IEA found that in 2016 renewable energy had subsidies amounting to $140 billion, whereas fossil fuels received more financial aid with $260 billion (IEA). UCSUSA described fossil fuels as having “much less preferential political treatment” and stating that it is an uneven playing field politically between fossil fuels and renewable energy (UCUSA). Pumping more resources into the renewable energy industry through subsidies will enhance the technology used for renewable energy and encourage innovation in order to reduce air pollution levels.The government can intervene to level out the balance between carbon pricing applied to fossil fuels and direct subsidies for low-carbon alternatives to ensure that the market failure will be addressed while moving closer to meeting emission reduction targets. With investment into renewable energy there will also be lots of new job vacancies as companies aim to make their energy resources more efficient and more innovative, adding to the “10 million jobs” that are currently available in renewable energy. Germany have already taken advantage of this and see renewable energy as a driver for economic growth and job creation, offering attractive business opportunities to smaller businesses such as Entercom who produce wind turbines, as well as larger more established companies such as Siemens who credit more “than 40 per-cent of its entire sales revenue with its ‘Environmental Portfolio,’ which consists mainly of renewable energy and energy-efficient technologies” (jstor renewable). Germany exports more than 80% of its wind turbines, which shows their is clear economical gain to be made from subsidising renewable energy, as well as environmental gain. Whilst the benefits to subsidising renewable energy are clear, it could prove to be unreliable in Manchester, a city that is not known for its sunlight, and not every day is going to have high wind speeds so large amounts of money would need to be invested into energy storage in order to guarantee there will be reliable amounts of renewable energy and there will not be a drought.

Congestion charges are a scheme that have already been implemented in the UK in London. The congestion charge would mean a daily charge for drivers who are driving within some of the highest polluted zones in Greater Manchester. This zone could be formed using Clean Air GM’s pollution map of Greater Manchester. A congestion charge in Manchester could be beneficial to Greater Manchester as not only will it discourage unnecessary driving and encourage carpooling, which will help lower NO2 emissions, but it will also generate high amounts of revenue for government spending which can be spent on improving public transport and subsidising renewable energy. The congestion charge has seen significant results in London with a “25% reduction in traffic” (bbc news) on the day it was implemented, and then sustaining a “20% decrease” (bbc news) in traffic post congestion charge. As well as this the charge generated a revenue of “£257.4m over the financial year” accounting for 8.5% of TfL’s (Transport for London) annual revenues. With such high levels of revenue and clear evidence to support that it reduces traffic in the city, congestion charges appear to be an obvious solution for the air pollution problem in Greater Manchester, however it is worth noting some knock on effects it can have on the economy. After the charge was implemented in London it is estimated that Oxford Street retailers alone lost £300m as the charge discouraged people from travelling into the charging zone, according to a report commissioned by the John Lewis partnership.(john lewis ting) Sir Stuart says this report should “serve as a warning” (source) to other cities looking to employ a congestion charge. It is also worth noting that the highest polluted zones in Greater Manchester are very spread out and although putting a congestion charge in the city centre of Manchester would reduce traffic and air pollution in the city centre, it would not have a large effect on other highly polluted areas of Greater Manchester such as Bolton. With the London congestion charge covering little over “1% of Greater London,” (congestion charge) the congestion charge would need to either take up a much larger section of Manchester or be made up of several zones throughout the county to have significant impact on the 152 stretches of road identified by Clean Air GM with dangerously high NO2 levels.

An alternative method the government could use to reduce air pollution levels is taxation. Applying tax to negative externalities such as fuel and cars that emit high levels of pollution means consumers have to pay the full social cost of producing pollution. This is demonstrated in the diagram below.

Here we can see the social marginal cost (SMC) of consuming fuel is greater than the private marginal cost (PMC). The red line indicating the difference between them represents the external cost to a third party. Taxation on fuel causes the supply to shift to S2, meaning the consumer must pay the full social marginal cost, reducing the quantity consumed to Q2. This will provide a socially efficient outcome as the social marginal cost is equal to the social marginal benefit. Fuel duty is currently imposed at a flat rate of 57.95p per litre (source). Increasing tax on fuel prices should discourage consumers from using their cars as they will have to pay more for it, however these high taxes on fuel cause the biggest problem for those who can least afford it, such as the disabled and those with low income. There is also an argument to be made that fuel is an inelastic good with evidence showing that “a one per cent increase in the real cost per mile of driving will reduce miles travelled by less than half of one per cent,” (ifs) meaning although there will be a small response to the increase in price and may not have a significant enough impact on air pollution levels. I believe removing road tax and increasing fuel tax would be a better alternative as less efficient cars will have to pay more tax, discouraging their use and therefore reducing air pollution. It would also make sense to put a variable tax on environmentally inefficient cars. This would mean high polluting vehicles will generate tax revenue which can be spent on other pollution reduction schemes as well as offering an incentive for producers to make a more environmentally efficient product and encourages consumers to choose a more environmentally friendly car.