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New Runway at Heathrow Creates Many Environmental Costs
Subject Environmental Costs Add to the Construction Costs of a New Runway
Topic Economics and the Environment; Market Failure, Regulation and Public Choice
Key Words Environmental Costs, Noise Pollution
News Story

Government sources estimate that the number of passengers using British airports will triple by 2030. As a result, a proposal is in place to add a third runway at London's Heathrow airport, a move that would almost double its capacity for flights.

Skeptics, however, view this proposal as being fraught with hidden costs--costs borne not by the airlines, but by society in general. Since these costs are external to the airlines, they are called "negative externalities," and represent one of the major failings of free market economies. In this case, the externalities take the form of noise pollution, with airplanes flying over residential areas every 30 seconds at peak times, as well as carbon and other emissions from the planes. The government has estimated that these problems cost US$2-10 billion annually. Thus many citizens argue that increasing the size of Heathrow would only make a bad situation worse.

Negative externalities like these are a problem because firms (airlines) have no incentive to consider them as a cost of production. Therefore, costs the firm incurs are lower than the costs incurred by society at large. As a result, the number of flights is inefficiently large, and the price of airline travel is too low relative to what society as a whole would "pay" in one form or another. If these costs were considered in production, in the form of a noise tax or other form of government regulation designed to compensate for the extra social costs, the cost of airline travel would likely increase, causing the number of travelers to fall.

One alternative to the Heathrow expansion would be to instead increase the size of Stansted Airport, located in a much less-densely populated area outside of London. While the amount of carbon and other pollutants emitted may not be reduced, certainly the noise pollution would be minimized, as the population around this smaller airport number in the tens of thousands, rather than the hundreds of thousands of people who live around Heathrow.

(Updated September 10, 2003)

Questions
1.

The article argues that, in the absence of consideration of environmental costs of flying, the cost of an airline ticket is lower than it should be. Use a graph of supply and demand, distinguishing between private and social costs of production to demonstrate that if environmental costs were considered, the price of flying would be higher.

2. Is there an efficient way to deal with the noise pollution created by airlines? Explain carefully.
Source "What was that you said?" The Economist. August 14, 2003.

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