Society derives some indirect utility from pollution, otherwise there would be no incentive to pollute.

This utility comes from the consumption of goods and services that create pollution. Therefore, it is
important that policymakers attempt to balance these indirect benefits with the costs of pollution in
order to achieve an efficient outcome.[30]

A visual comparison of the free market and socially optimal outcomes.

It is possible to use environmental economics to determine which level of pollution is deemed the social
optimum. For economists, pollution is an “external cost and occurs only when one or more individuals
suffer a loss of welfare,” however, there exists a socially optimal level of pollution at which welfare is
maximized.[31] This is because consumers derive utility from the good or service manufactured, which
will outweigh the social cost of pollution until a certain point. At this point the damage of one extra unit
of pollution to society, the marginal cost of pollution, is exactly equal to the marginal benefit of
consuming one more unit of the good or service.[32]

In markets with pollution, or other negative externalities in production, the free market equilibrium will
not account for the costs of pollution on society. If the social costs of pollution are higher than the
private costs incurred by the firm, then the true supply curve will be higher. The point at which the
social marginal cost and market demand intersect gives the socially optimal level of pollution. At this
point, the quantity will be lower and the price will be higher in comparison to the free market
equilibrium.[32] Therefore, the free market outcome could be considered a market failure because it
“does not maximize efficiency”.[26]

This model can be used as a basis to evaluate different methods of internalizing the externality. Some
examples include tariffs, a carbon tax and cap and trade systems.

Sources and causes

File:Ship Tracks Reveal Pollution's Effects on Clouds.ogv

Air pollution produced by ships may alter clouds, affecting global temperatures.

Air pollution comes from both natural and human-made (anthropogenic) sources. However, globally
human-made pollutants from combustion, construction, mining, agriculture and warfare are increasingly
significant in the air pollution equation.[33]

Motor vehicle emissions are one of the leading causes of air pollution.[34][35][36] China, United States,
Russia, India[37] Mexico, and Japan are the world leaders in air pollution emissions. Principal stationary
pollution sources include chemical plants, coal-fired power plants, oil refineries,[38] petrochemical
plants, nuclear waste disposal activity, incinerators, large livestock farms (dairy cows, pigs, poultry, etc.),
PVC factories, metals production factories, plastics factories, and other heavy industry. Agricultural air
pollution comes from contemporary practices which include clear felling and burning of natural
vegetation as well as spraying of pesticides and herbicides[39]

About 400 million metric tons of hazardous wastes are generated each year.[40] The United States alone
produces about 250 million metric tons.[41] Americans constitute less than 5% of the world's
population, but produce roughly 25% of the world’s CO2,[42] and generate approximately 30% of
world’s waste.[43][44] In 2007, China has overtaken the United States as the world's biggest producer of
CO2,[45] while still far behind based on per capita pollution - ranked 78th am