Some assets are overused or underprovided - why?

The costs and benefits of correcting underprovision or overuse

If environmental assets are generally overused or underprovided, how can society begin to weigh the returns to addressing an environmental issue against the costs? It depends on the starting point.

Starting from a moderately degraded state, it is often possible to make significant improvements at fairly low cost. Very simple low-cost measures to abate water pollution (for example, installing water filters) can often remove close to half the pollutants. The costs of additional reductions in degradation are likely to rise more steeply because more sophisticated measures are needed. Consequently initial costs are low and rise more steeply as the quality of the asset is restored.

In another example, consider the costs (estimated in the early 1990s) of reducing air pollution from transport in Mexico City. The cheapest emission reductions were found initially among the busiest vehicles, especially those that were driven downtown during most of the day. Further emission reductions required modifications for a larger part of the vehicle fleet-which became more expensive. (Emissions reductions for buses and taxis would have cost only $300 a ton because of their higher annual mileage, compared with $1,600 a ton for passenger cars.) The incremental costs of mandatory inspection and maintenance programs for vehicles in use would have been higher still (with costs rising as the standards were tightened) and the additional reduction in emissions would have been lower assuming the cheaper alternatives had already been implemented. Improvements in the fuel mix are at the high end of marginal costs, providing even less additional reductions in emissions (figure 2.4).⁷³