Protecting the environment and the poor - a public goods framework applied to Indonesia

As is evident from public finance principles, redistribution objectives do not influence environmental policies if there are other, costless means of redistribution. How does optimal environmental protection depend on redistribution objectives? The authors develop a framework that treats air quality as a pure public good, and tracks net beneficiaries as those who value air quality improvements more than their costs in a pollution control strategy. The framework highlights the distributional characteristics of the public good and of the costs for the control strategy. One critical parameter for the distributional characteristics of the public good is the elasticity (with respect to income) of willingness to pay for environmental improvements. Strategies to control urban air pollution would be altered by redistribution objectives -- to be more aggressive in reducing emission from luxury goods such as transport (private and general) and less aggressive for goods more heavily consumed by the poor (including several energy sources). Some air pollution control strategies cover urban and rural areas, For those, optimal pollution control would typically be reduced by redistribution objectives, as rural households are net losers, and they are poorer.