The most basic economic analysis of environmental policy considers a marginal (i.e., additional) abatement cost that increases with emissions (or effluent) reduced. Emissions taxes or abatement subsidies. If the tax is above the marginal abatement cost then the firm will choose to reduce emissions until the tax is below the marginal abatement cost. Then the firm will choose to pay the tax. If the subsidy is above the marginal abatement cost the firm will choose to abate until the subsidy does not cover the cost. In the short run, both policies can be used to achieve the optimal pollution level. In the long run, we're not so sure.
It looks like North Carolina might be moving toward technological subsidies (yuck) to reduce hog waste (yuck):
Bills introduced in the House and Senate would provide up to $50 million to help farmers convert to more environmentally friendly waste disposal systems. Any new systems would have to reduce odors, airborne pathogens and water pollution.
Why the first yuck? In the first place, subsidies actually encourage the activity that generates the pollution. In contrast, a tax placed on emissions will reduce profits over and above the abatement cost that is encouraged with the incentive. This limits entry into a dirty industry. An abatement subsidy might actually encourage entry if the subsidy is structured so that it covers the abatement cost and then some. Profits might actually rise (note: in the most basic analysis).
In the North Carolina proposal the state would pay 90% of costs for existing farmers and 75% for new farmers (there has been a 10 year moratorium on new hog farms that is about to end). My guess is that the 90% subsidy covers more than 100% of the true cost, but that might be me being cynical.
The second problem is the technological nature of the subsidy. It will be tied to waste handling knowledge generated by NCSU over a number of years and at considerable expense. I'm sure that those scientists have found ingenous ways to reduce the damages from pig poop but what if farmers come up with a better idea? In that case the money spent at NCSU is a sunk cost and the subsidy should be more general -- allowing farmers to reduce the damages from hog waste using their own knowledge. Technological subsidies provide an additional constraint on farmers that leads to rising costs of production.
I'd prefer that North Carolina pursue a tax policy for the farmers. It's tough, though, hog waste in the air and water is hard to measure so emissions taxes might not be feasible without huge monitoring costs. Maybe technological subsidies are an acceptable, pragmatic approach even with the inefficiency. But ... we could tax the pigs instead of the poop. That ought to work.
Why the second yuck? Use your imagination, and enjoy the rest of your day.
