Pollution in Akrini caused by lignite-fired electricity plant

"Small village in Greece illustrates the problems of coal"

According to this article, the inhabitants of Akrini, a village in northern Greece, are suffering the consequences of living nearby Greece's largest lignite-fired electricity plant. This plant emits more carbon dioxide than any other coal plant in Europe, causing the village to be covered by increasing amounts of smog and pollution.

The power plants may perhaps be operating at a level of output which benefits Greece in the sense that it supplies the country with 70% of its electricity; however, what the firm of these plants is not taking into account are the negative externalities of the plant--the negative effects of the power plants on a third party: the inhabitants of the village. These negative externalities are placing increasing risks on the people who continue living in the village. The power plant has caused the village to be completely "surrounded by mountains of toxic ash" which is a byproduct of the power plant, and this ash is in turn leading to breathing problems and an increase in cancer and heart disease deaths throughout the community. According to statistics taken by Sargiannidis' association, "deaths from cancer and heart disease in Akrini doubled from 2001 to 2006 and now account for 80 percent of all deaths in the village." Furthermore, many young children living nearby the power plants have respiratory problems due to the emissions from the plants.

Currently, the firm is producing at a level which takes into account only their private costs rather than encompassing the external costs--costs to society--as well. These external costs are the costs of the negative externalities to the inhabitants of the village. In order to determine the optimal level of output for these plants, a new supply curve must be drawn which takes into account both the private costs to the firm as well as the external costs to society. Because the costs increase, as a determinant of supply, this causes the supply curve to shift inward, leading to a new equilibrium with a quantity of output lower than the original quantity of output. The fact that this optimum quantity is lower than the quantity of output produced when only private costs are taken into consideration indicates the existence of a market failure: there is a distinct over allocation of resources to the supply of electricity from these power plants.

Ecologists from Greenpeace are encouraging Greece to work on using sun and wind to generate electricity instead of relying so heavily on lignite. However, it is manifest that the Greek government will not install wind farms, solar parks, and hydroelectric projects without any incentive other than the benefit to society. Therefore, in order to encourage these establishments, the European Union should subsidize the creation of such plants and the use of sun and wind in order to generate electricity. This corrective subsidy would bring out the supply curve of wind farms, solar parks, and hydroelectric projects, and therefore lead to a decrease in the supply of lignite power plants.

Another possible solution would be to place a corrective tax on the firms supplying electricity with lignite power plants. If these firms were taxed by the amount of the external costs, the new supply curve would match the supply curve mentioned earlier, which accounts for both private and external costs. The new equilibrium quantity would then be equal to the optimum quantity.