If Coase and Chevron were BFFs

Research done by Chevron, an American energy corporation has shown that when there is an increase in Pollution there is also an increase in the economy.  Why? Because the country is using more oil, gas, and fuel to power homes and factories to create products. But recently in the less than 50 years, Chevron shows that we’ve been able to use less energy in relation to our growing economy. For example, An increase in natural gas use opposed to polluting substances is correlated to an increase in GDP per capita. In addition, more natural gases and energy efficiency has done the following:

• Increased efficiency gains per vehicle miles traveled 
• Used less harmful gas emission per capita 
• Made electric energy more efficient 
• Declined CO2 emissions 
• Decreased pollution by a whopping 70% over the past 40 years

This example relates to our discussion of the Coase Theorem of local expenditures to an extent. Before there was a recorded decrease in pollution, there was an increase in pollution correlated with an increase in the economy. The amount of pollution, which is an external cost, plus the private cost to an individual sums up their social marginal cost. But regardless of who was liable for the pollution, whether it be the individuals driving their cars or firms’ factories giving off CO2 emissions, each party continued to produce the pollution because their marginal benefits were greater than the social marginal cost. But within the past 40 years or so, the external cost of pollution had grown to a point where it could not be offset by the marginal benefit, so to resolve the issue companies like Chevron have innovated energy efficient ways to bring the economy closer to an equilibrium point but keeping our social marginal costs lower than our marginal benefit, which is the increase in $1 of GDP per capita. Because MB > SMC, we still continue to produce pollution, but at a lower and more efficient rate.