Economics and Government

According to an Article by William Evans entitled “BP Scores Stimulus Cash”, the oil company has received 308 million dollars of federal grants over years for a “cutting edge” power plant to be constructed on farmland near Tupman California. The goal of the plant is to foster clean coal technology in the hope to capture carbon dioxide emissions in the fight against global Warming. Taxpayers will be footing additional costs of the projects however citizens of this area are torn between those who are in favor of plant and those who are not.

The first question that must be asked is if there is a Market failure? In this situation the citizens that are in favor of the construction of the plant argue that the construction of the plant will provide approximately 1,500 construction jobs and 100 operating jobs. In this case the construction and maintenance of the plant would fix/help the market failure of unemployment in that area especially since the local stores are closing down. A native of the town argues that the need for the town to “upgrade” (in terms of seeing where his taxpaying dollars are going) is desperate. On the other end of the spectrum he’s skeptical that the containment of the plants carbon dioxide emissions can be contained to a certain percentage that wont cause additional harm to the region’s notoriously polluted air.

Activists opposing the construction of the plant argue that the plant will continue to take a tax on the regions air. So the second question to ask is will the plant generate a negative externality through pollution? According to both some of the supporters of the plant and activists against it, that the plant will generate a certain amount of pollution in which BP’s pollution credits would go toward. So what amount is acceptable? The acceptable amount of pollution would be calculated by the town agreeing upon how much they would be willing to pay for each additional amount of pollution. (Where Marginal Social Benefit= Marginal Social Cost (MSC=MSB).) At this level there would be an efficient amount of pollution in which BP’s plant could produce at.

Should government have given BP this sort of grant? Well exempting the oil crisis that BP was responsible for in the Gulf of Mexico, I would say that they should. The constructions of the power-plant would/could fix the market failure of unemployment for that region. Also if BP’s plant produces and efficient amount of pollution riding the town of a negative externality and fighting against global warming, the grants by the government toward the completion of the plant would be positive especially for a state such as California.

Cites:http://motherjones.com/environment/2010/08/bp-stimulus-funds-california-power-plant

# posted by Ellis : 9:46 PM