ilva final

ECB2EPS – Economics of the public sector ILVA MISMANAGEMENT

ANALYSIS OF ILVA, A CASE STUDY: THE SOCIO-ECONOMIC IMPLICATIONS OF

NEGATIVE EXTERNALITIES IN THE AREA OF TARANTO, ITALY

1. INTRODUCTION

ILVA is an historical Italian joint-stock company that works in the sector of iron and steel.1 The

most important plant in Italy is located in Taranto (Apulia) and it is the largest steel plant in

Europe.2 Formerly known as Italsider, it was privatized in 1995 due to the crisis in the iron and

steel sector as a result of the acquisition by the Italian steel producer Gruppo Riva before being

run in extraordinary administrative procedure3 in 2015.4 Following the privatization, the Italian

government has failed to monitor and control the negative impact of ILVA on the environment,

revealing the difficulties in managing industrial performance with respect to the quality of the

environment and human health.5 Nowadays, an inquiry is still being conducted by the judicial

authority and ILVA’s Management Board is under investigation on suspicion of manslaughter

and arson, poisoning of foodstuffs, willful omission of precautions against accidents at work,

aggravated damage to public property, jet and spillage of hazardous substances and air

pollution.6 The complexity of the ILVA situation does not involve only an environmental crime,

but it also has a social impact in terms of employment7. Unlike the problem, our questions here

seem clear and straightforward: what could the government do to avoid this kind of issues and

damages to people and for the environment? Which social, environmental and economic benefits

could have been achieved arising from avoiding this disaster?

We will deal with ILVA’s case study by comparing both Italian laws concerning negative

externalities and the European regulations and directives with the current chemical and

epidemiological surveys with the purpose of an economic analysis of the possible benefits.

1 Tonelli, F., Short, S.W., Taticchi, P. (2013).2 Faris, S. (2012).3 The extraordinary administrative procedure, regulated by the Italian Legislative Decree n. 270 of 8 July 1999, is applied to businesses in insolvency state with preservative purpose, not with liquidation one.4 Carrubba, C., Gnudi, P., Laghi, E. (2015).5 ARPA Agenzia Regionale per la Protezione dell’Ambiente dell’Emilia-Romagna (2012).6 Decree of 25 July 2012 of the judge for preliminary investigations at the Court of Taranto.7 Lucifora, A., Bianco, F., Vagliasindi, G.M. (2015).

Edoardo Serrini 5728215 | Daniele Perpetua 5743796 | Maurizio Persico 5702542 1


Furthermore, we will investigate on one particular case from the US Superfund Sites to find out

how Italian government can intervene on ILVA’s issue by understanding how different

governments tackled similar cases of industrial pollution-related issues.

The theoretical framework will be structured in the following way: first, an historical background

of the ILVA to better understand the role of Italian and European laws; second, an introduction

to the market failure including the implications that led to negative externalities and an overview

of the relevant European directives and Italian laws in the matter of pollution; third, the impact

of negative externalities on relevant socio-economic fields; fourth, brief description of the case

of Woburn (Massachusetts), similarities with the case of ILVA and possible solutions.

2. HISTORICAL BACKGROUND

ILVA's disaster has his roots in 1905, year of the foundation of the homonymous public

company, established for the purpose of industrialization development of in the South of Italy:

the support of the Italian government ensured the supply of iron and steel at subsidized rate and

protection of company from foreign competition due to tariff barriers.8 After being managed by

the Istituto per la Ricostruzione Industriale9 (IRI) and then by Finsider, in 1965 the IV Steel Mill

of Taranto, set to be the largest steel plant in Europe, was inaugurated.10 Due to the crisis in the

steel sector, Italsider11 was voluntarily liquidated and acquainted by Gruppo Riva, that in 1995

completed the process of privatization changing the nature of the business into profit-oriented.12

The Gruppo Riva is currently the 1st steel producer in Italy, 5th in Europe and 46th in the world,

consisting of 20 production sites in 6 different countries in the world.13 Nowadays, ILVA is

composed of 16 different steel plants, located in Taranto (Apulia), Genoa (Liguria), Novi Ligure

and Racconigi (Piedmont), Marghera (Veneto), Patrica (Lazio) and 3 in France.14 In 2012,

following the publication of the chemical and epidemiological surveys, the redevelopment of the

8 Krugman, P.F., Obstfeld, M., Melitz, M.J. (2014).9 English: Institute for Industrial Reconstruction.10 Pennuzzi, M. (2001).11 Nuova Italsider was the name of ILVA since the acquisition by Finsider in 1949, it was renamed back ILVA only in 1988.12 Affinito, M., De Cecco, M., Dringoli, A. (2000).13 Gruppo Riva (2014).14 ILVA (2015).



steel plant located in Taranto started as part of the Integrated Pollution Prevention and Control

(IPPC).15 In 2013 the Italian government ratified a legislative decree which agreed upon the

compulsory administration of ILVA and the subsequent extraordinary administrative procedure

in 2015.

3. INTRODUCTORY ANALYSIS TO THE MARKET FAILURE

Since 1960, year of the beginning of the IV Steel Mill of Taranto’s construction, ILVA sowed

the seeds of an unavoidable future disaster. It is possible to recognize at least four different

reasons that led to the ongoing market failure that involved both the Italian government and the

company itself: the location of the plant, the inadequate management of the issue by the Italian

government, the inappropriate ownership of the company, the lack of European directives

implementation.16

The ILVA plant of Taranto is located in proximity of the district of Tamburi, inhabited by

around 18.000 people.17 Its position does not only influence the residential area, but also the

marine area and the surrounding soil (as in Figure 1).18

15 Ministry of the Environment and Protection of Land and Sea (2012).16 Legal framework provided by Vagliasindi, M.G., Gerstetter, C. (2015).17 ARPA Agenzia Regionale per la Protezione dell’Ambiente dell’Emilia-Romagna (2012).18 Cardellicchio, N. (2012).


Figure 1 - Area of the polluted site in the province of Taranto


The Italian government decided to build the new plant in Taranto due to the worsening of the

industrial and occupational crisis in the South of Italy: this decision, initially opposed by the IRI,

required an expansion of the plant in 1970 without taking into account its location and the

subsequent environmental risks for the Ionic area. After years of inactivity, the Italian

government recognized ILVA as a plant of national strategic interest and authorized the

continuation of the industrial activity19 despite chemical and epidemiological surveys showed

that such activity was detrimental to the health of citizens of the city of Taranto.20 Any fee or

additional seizures had been applied so far.

Since the privatization of ILVA in 1995, the production of steel was enhanced from 8.5 million

tons/year to 11.5 million tons/year. On the other hand, the environmental impact was not

improved, a decree21 was issued to ensure the adoption of environmental and sanitary protection

in compliance with the IPPC permit.

Italy has failed to meet the EU requirements regarding the pollutant emissions of ILVA, that did

not comply with environmental standards. Despite the infringement proceedings of the European

Commission ongoing since 2013 for the aforementioned reasons, the Commission itself is

conducting an inquiry to assess a potential violation of the EU state aid rules with regard to

Italian financing to ILVA.22

4. FRAMEWORK OF THE IMPACTS OF ILVA EMISSIONS

4.1 Environmental impact

The IV Steel Mill of Taranto emitted throughout years of activity significant quantities of

pollutants23 stemming from the production process that consisted of 4,159.3 tons of dust,

11,056.9 tons of nitrogen dioxide (NO2), 11,343.2 tons of sulfur dioxide (SO2), 7 tons of

hydrochloric acid (HCl), 1.3 tons of benzene (C6H6), 335.5 kg of polycyclic aromatic

19 Law Decree n. 207 of 3 December 2012, converted with modifications into law n. 231 of 24 December 2012; commonly known as “Decreto Salva-ILVA” (English: Save-ILVA Decree).20 Pascucci, P. (2013).21 Law Decree n. 61 of 4 June 2013, converted with modifications into Law n. 89 of 3 August 2013.22 European Commission Press Release of 20 January 2016.23 The values are expressed on annual basis.



hydrocarbon (PAH), 52.5 g of benzo[a]pyrene (C20H12) and 14.9 g of polychlorinated

dibenzodioxins (PCDD/F) and polychlorinated biphenyl (PCBdl) and 280 kg of chromium III

(Cr).24 Those pollutants are present in the atmosphere as particulate matter (PMx)25 and they show

an higher concentration in proximity of the plant and the surrounding territory, along with a

positive correlation with dangerous effect for the health and for the agriculture.

The chemical survey is the result of a production process that has capacity of 20 million tons of

raw material, including 11.5 million tons of steel, representing the 40% of the total Italian supply

of steel.26 Due to implementations of the production system with the Best Available Techniques

(BAT) to limit the environmental impact,27 the steel supplied by ILVA dropped to 4.7 million

tons28, but still plays a key role in terms of employment in the Southern Italy and the Italian

supply of steel. Best Available Techniques (BAT) means the available techniques, including both

the technology used and the way your installation is designed, built, maintained, operated and

decommissioned, which are the best for preventing or minimizing emissions and impacts on the

environment.29 BAT legally refers to BAT Reference Documents (BREFs) that have been

adopted under both the European Integrated Pollution Prevention and Control Bureau (IPPC)

Directive30 and the Industrial Emissions Directive (IED).31 Although the decrease in production

is significantly high, it assumes a considerable importance also the effect that this event has on

the pollutant emissions, resulting in a drastic reduction with the implementation of the BAT and

the IPPC directives (see Table 1).32

24 Sanna, M., Monguzzi, R., Santilli, L., Felici, R. (2012).25 “x” refers to the dimension of the particles in m. 26 Meneghello, M. (2013).27 Pirro, F. (2009).28 ILVA (2016).29 United Kingdom Environment Agency (2016).30 Directive 2008/1/EC.31 Directive 2010/75/EU.32 ARPA Agenzia Regionale per la Protezione dell?Ambiente della Puglia (2013).



Table 1: Emissions scenario before (2010) and after (2016) IPPC implementation

Pollutant ILVA Channeled Emissions ILVA Hot Area Emissions Other ILVA Emissions Unit of Measurement

2010 2016 Variation % 2010 2016 Variation % 2010 2016 Variation %

Bap 76.0 69.2 -9% 178.4 125.5 -30% kg/yearNaphthalene 853.6 568.8 -33% 4,267.1 3,002.6 -30% kg/year

As 1,536.2 1,168.1 -24% 50.1 36.4 -27% 26.0 2.6 -90% kg/yearNi 893.6 938.2 5% 183.7 132.5 -28% 1,479.4 147.9 -90% kg/yearCd 1,336.5 1,273.4 -5% 74.6 54.4 -27% 20.1 2.0 -90% kg/yearPb 39,474.0 36,417.4 -8% 549.1 400.0 -27% 364.0 36.4 -90% kg/yearSe 478.7 351.3 -27% 544.2 397.2 -27% 6.7 0.7 -90% kg/year

Cr (VI) 11.0 12.7 15% kg/yearBenzene 142.2 163.4 15% 10.8 10.6 -2% tons/year

PCB 49.5 46.3 -6% kg/yearPCDD/F 38.9 22.1 -43% 0.7 0.4 -42% g/year

4.2 Health impact

The presence of the aforementioned pollutants in the atmosphere translates in a scientific

evidence of negative impact on human health: in particular, the exposure to such environmental

pollutants displays acute effects (short-term exposure) and chronic effects (long-term exposure).

According to the results of the epidemiological survey of 2012, it is possible to assert, as a result

of prolonged exposure to the pollutants, that a strong and consolidated scientific evidence exists

in relation to the carcinogenic effect for human health, and that a suggestive scientific evidence

exists in relation to degenerative pathologies. In the seven years (2004-2010) considered in the

survey, the following results were observed: a total of 11,550 deaths (on average, 1,650 per year)

for cardiovascular and respiratory causes; a total of 26,999 hospitalizations (on average, 3,857

per year) for cardiovascular, respiratory and cerebrovascular causes. Considering only the

districts closer to the steel plant, in particular Tamburi, Borgo and Paolo VI, the following results

were observed: a total of 637 deaths (on average, 91 per year); a total of 4,536 hospitalizations

(on average, 648 per year). The critical sanitary situation in Taranto is better explained by the



mortality and hospitalization profile in Taranto that exhibits a significant increase in percentage

(see Table 2)33 of overall mortality with all cancer causes; in particular, the analysis of

SENTIERI Project displayed that the excess of overall mortality in Taranto was between 10%-

15% above the regional average for all cancer causes.34

Table 2: Percentage increase in mortality and hospitalization in three districts in Taranto (compared with the others)

Cause of death Males Females

District Tamburi Borgo Paolo VI Tamburi Borgo Paolo VI

% % % % % %

All causes +12 +7 +27 +9 +1 +28

Natural causes +3 +3 +35 +5 +28

Malignant tumor +11 0 +42 +23

Cardiovascular diseases +10 +2 +28 +15

Cardiac diseases +9 +3 +27 +24 +4 +22

Cardiac ischemia +20 +4 +37 +46 +2 +15

Respiratory diseases +8 +5 +64 +9 +9 +26

33 Forastiere, F., Biggeri, A., Triassi, M. (2012).34 Pirastu, R., Iavarone, I., Pasetto, R., Zona, A., Comba, P. (2014).



4.3 Economic impact

The impact of the pollutant particles in the environment, in the broad sense of the term, is not

only limited to the atmosphere: the chemical-physical characteristics of those pollutants, in

particular PCDD and PCB (Figure 2 and 3)35, enables the contamination of the agricultural soil

and the aquatic environment, resulting in a bioaccumulation in the food chain.36 This event

resulted in a huge impact for the local agriculture and livestock farming. Starting from 2008, a

ban was imposed in growing crops and pasturing over wastelands within 20 km from the ILVA

steel plant, while almost than 3,000 sheep and cows were slaughtered for levels of dioxins above

the limit, along with a ban for meat consumption.37

35 ARPA Agenzia Regionale per la Protezione dell’Ambiente della Puglia (2013).36 Pascuzzi, S., Russo, G., Mugnozza, G. S., Verdiani, G., Lagattolla, G. (2013).37 Esposito, V., Maffei, A., Ficoccelli, F., Spartera, R., Giua, R., Assennato, G. (2012).



ILVA steel plant in Taranto is one of the biggest employers in the Southern Italy, counting

15,487 people directly employed while other 10,000 people are employed form satellite

activities. The role that this business has for Italy emerges not only at the national economic

level, but has even crucial implications at the regional level: in terms of employment, Apulia is

the Italian region that has the highest unemployment rate with respect to the other regions,

amounting to 21.5%; in terms of GDP, it provides to more than 75% of the regional GDP. It

appears clear that Italy will never allow ILVA to fail, making it by definition a “too-big-to-fail”

business.

All the above mentioned environmental impacts had a particular effect in exports, resulting in a

loss of $4.5 billion, along with $10 billions of GDP lost and $2 billions of investments cancelled.

Also the local tourism had to face the environmental crisis that gave rise to trials from local hotel

groups against ILVA and ARPA Puglia.

5. ANALYSIS OF THE MARKET FAILURE

When the environment and natural resources are involved in a market transaction, it is plausible

that a market failure arises due to the presence of negative externalities. An externality exists


Figure 2 – Map of the average annual concentration of PCDD in 2010

Figure 3 – Map of the average annual concentration of PCB in 2010


whenever the welfare of some agent depends not only on his or her activities, but also on

activities under the control of some other agent. In the ILVA case the negative externality is the

scourge of the Taranto environmental landscape as well as the health of all the inhabitants: with a

conjunctive intervention by the local and national government this disaster could have been

avoided.

Figure 4 – Analysis of the market for steel

The blue marginal cost line (MCp) intersecting with the demand line (D) shows the optimal

quantity and price at which metal was produced (Figure 4)38: however, the optimality principle

does not imply sustainability to an environmental level. Due to a various amount of subsidies and

preferential treatment, ILVA’s marginal cost of production reached minimum levels leading to

an optimal quantity produced far higher than the normal; due to the low marginal costs too much

metal was produced, which was not a sustainable solution for the environment. With an

intervention by the national and local government aimed at increasing marginal cost of

production, normal output levels would have been restored. This could have been achieved by

the introduction of a tax: the marginal cost line shifts to the left (MCs), representing the increase

38 Tietenberg, T., Lewis, L. (2015).



in cost induced by the tax. An increase in marginal costs, as for example a tax on pollution,

would have slowed down production by increasing costs and, thus, decreasing quantity

produced, leading to an efficient and sustainable equilibrium.

However, the situation developed in a much different way (Figure 5).39

Figure 5 – Analysis of the market for steel revisited

This situation depicts perfectly how the government dealt with the problem, leading to the

discovery of the second market failure: rent seeking, the use of resources in lobbying and other

activities directed at securing protective legislation. Instead of taxing the company, the

government helped ILVA with subsidies assigned by the European committee, that should have

been used to improve production methods in order to decrease the impact of production on the

environment, giving ILVA a significant advantage over other companies in terms of production

costs. The subsidy shifts the MCp with government subsidies curve to the right, decreasing the

costs and increasing production to a non-sustainable quantity. The triangle A depicts the

deadweight loss due to the tax, but with the subsidy the deadweight area extends to B+C

increasing overall costs to society.

39 Tietenberg, T., Lewis, L. (2015).



It can be argued that the supply by the government of excessive subsidies distorted competition

giving ILVA an “illegal” advantage over other companies, allowing it to earn monopoly profits

creating another market disruption, but with this paper we will not dig that far.

6. COMPARISON WITH A SIMILAR CASE: THE WOBURN CASE

In order to further understand to what extent the Italian government failed to deal with the issue,

and in particular which kinds of measures can be implemented, we analyzed the case of Woburn,

Massachusetts: this case examines the incidence of leukemia above infant population in Woburn

as a result of water contamination.

Between 1969 and 1986, 21 cases of leukemia were diagnosed among the Woburn children

population, arousing suspicion of the locals due to the far higher rate of diagnosis cases with

respect to the national average.40 The case gained national attention, and after further

investigations by the federal authorities two companies were found liable for the disaster:

Beatrice Food, Inc. and W.R. Grace and Company. However, after 79 days of mostly technical

testimony from expert witnesses hired by all three parties, the accusing and both the defendant,

the six-members jury visited Woburn on July 1982. The jury deliberated for nine days and found

W.R. Grace liable and Beatrice Foods not liable of contaminating the sites.

40 Knorr, R. S., Condon, S. (2002).



Up to the 1960s Woburn water source was composed by 6 wells all located in rural areas.

However, due to population growth, water demand increased and new sources to satisfy the

increased demand had to be found. Two new wells were opened, referred to as G and H. Wells G

and H were located in east Woburn in the vicinity of the Aberjona River (Figure 6).41 Long ago

the Aberjona River had been a large river that ran through a valley that had been formed by

glaciers. Slowly, over many years, the valley gradually filled with sand, gravel, and silt; the

Aberjona River was slowly reduced to a meandering stream, but the ancient valley below, which

was now filled with gravel and porous dirt, had become an underground water reservoir. At the

surface there were now

marshlands, swamps, and

wetlands. Unfortunately,

much of the industrial

activity was located in this

area as well, including the

W.R. Grace Cryovac

Division, Unifirst (a

uniform dry cleaning

company), and the Riley

Tannery, which was

purchased by Beatrice

Foods in 1978. The Fifteen

Acres shown on the aerial

photograph (Figure 6)

were a parcel of land purchased by the Riley tannery in 1951; during the 1950s and 1960s this

plot of land was used to dump waste from the tannery, including chemicals such as

trichloroethylene (TCE).42 Due to the vicinity of the dumping area to both wells, contamination

was inevitable. Government intervention did not wait to strike: W.R. Grace and Company was

filed $68 million in clean-up costs, with the aim of making Woburn water potable again in the

vicinity of the next 50 years. The estimations of the total benefit coming from the cleanup of the

41 EPA United States Environmental Protection Agency (2016).42 Heneghan, A., K. (2000).


Figure 6 – Geographical representation of East Woburn & important elements


area amounts $150 million, but it does not take into account benefits to commercial property or

new uses of the neighboring industries.43

This is a clear case of negative externality caused by mismanagement of toxic waste: due to its

nature and consequences, the Woburn case can be adapted to the ILVA case depicted above.

Although the different approaches that each government undertook are blatant, some differences

are worth pointing out: The United States appointed a federal law, called Superfund or

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) designed

to clean up sites containing hazardous or other production wastes. This act gives rights to a

federal agency, Environmental Protection Agency (EPA), to intervene and oversee the outgoing

of the disaster. In Italy the government tried to overcome the problem by creating the Agenzia

Regionale per la Protezione dell’Ambiente (ARPA)44, controlled by the Italian public authority

but managed by regional authorities: it has specific tasks that include prevention and control,

monitoring of the environmental status, biochemical controls, investigation, promotions,

development and innovation relatively to a definite bundle of environmental themes.45 However,

ARPA differs from the EPA because the first one intervenes on the issue through the mediation

of a distinct institutional entity, meaning that a direct intervention is not provided. The nature of

the disasters is also very different: in the ILVA case, although output levels were not sustainable

even without subsidies, the situation dramatically worsened with the presence of the government,

leading to a government failure, while in the American case it was not a matter of production

control but of waste management.

After analyzing the Woburn case it is even clearer how a proper government intervention should

take place, but it also highlights the serious failures taking place in the Italian government as a

result of decades of public mismanagement, corruption and absence of predominant leaders.

43 Kiel, K., Zabel, J. E. (2001).44 English: Environmental Protection Regional Agency.45 The activites relative to the specific environmental themes performed by ARPA are regulated by deliberations of regional council.



7. POLICY SUGGESTIONS

This section addresses three different kinds of policy suggestions on negative externalities,

aimed at presenting a framework of plausible measures that the Italian government could

undertake in order to prevent, or at least to limit, the effect of the emissions of ILVA to the

environment. The analysis of the policy suggestions will be carried out in the following order:

The Pigouvian tax, the emission fee and the Cap-and-Trade scheme.

The Pigouvian tax is a tax levied on each unit of an externality-generator’s output in an amount

equal to the marginal damage at the efficient level of output, that simply shifts up the marginal

cost curve, due to an increase equal to the tax, increasing the price faced by the producer. This

policy pushes the producer to set his production where marginal benefit equals marginal cost, an

efficient production, so lowering outputs.

Figure 7 – Analysis of a Pigouvian tax



The hypothetical firm (Figure 7) has to make payments both to the supplier of his inputs at

Marginal Private Cost (MPC) and to the government for an amount equal to the shift made by

the MPC. Due to the shift of the MPC, now the quantity and the price are at an efficient level, the

point where the MPC+tax and the Marginal Social Cost (MSC) cross each other. The revenues

collected by the government are represented by the rectangle with height equal to the difference

between Pe and Pm and length equal to the distance between the Pm and Qe. A problem with the

Pigouvian tax is that it doesn’t give the incentives to find other ways to reduce pollution than

lowering output.

The emission fee is a tax levied on each unit of pollution, so, in order to reduce pollution, the

producer has not only to consider carefully the lowering of outputs, but also the renewal of his

machines and his plant. Furthermore, the emission fee is cost effective in the sense that induces

each polluter to reduce pollution up to the point where the marginal cost of reducing equals the

level of the fee, resulting in an equal marginal cost across polluters.

Figure 8 – Analysis of an emission fee



The hypothetical firm incurs a cost of Marginal Damage (MD) for each unit it reduces emissions

(Figure 8). The point P* indicates that emission fee due to which a hypothetical firm will keep on

reducing the pollution, reaching consequently the efficient point E. The reason why the firm will

reduce the pollution is because P*>MD (the x-axis indicates the pollution reduction). At the

efficient point the emission fee is equal to MD, so the firm has no incentives to move from the

equilibrium because moving from it means facing higher MD, if it wants to reduce more the

pollution, or the emission fee despite the lower MD.

The Cap-and-Trade is a policy of granting permits to pollute; the number of permits is set at the

desired pollution level, and polluters may trade the permits.

Figure 9 – Analysis of a Cap-and-Trade system

One firm is an “old plant” with outdated equipment and technology and, therefore, has high

marginal abatement costs, or the cost to reduce pollution; the old plant’s high marginal

abatement cost curve goes from right to left with abatement. The other firm, which will be

simply called the “new plant”, has newer equipment and, therefore, has lower abatement costs;



the new plant’s low marginal abatement cost curve that goes left to right with abatement (Figure

9). The width of the horizontal axis is the abatement that must be achieved to reduce overall

greenhouse gas emissions to the efficient level. The intersection of the high marginal abatement

cost curve and the low marginal abatement cost curve is where economic efficiency is achieved.

The total costs of achieving the efficient emissions abatement level is: X + Y + Z. The efficient

emissions level, E*, shows that the low marginal abatement cost firm should reduce more

emissions than the high marginal abatement cost firm. Another way to achieve this level of

abatement is to set a carbon cap by issuing carbon permits to polluting firms: each permit gives

the firm the right to emit one metric ton of carbon dioxide equivalent (CO2). If the government

does not have the will to go ahead and give more permits to the high cost firm in order to achieve

efficiency, it is possible to solve the issue by giving each firm the same amount of permits,

represented by the vertical "cap" line. The abatement cost to the low marginal abatement cost

firm is equal to area X. The abatement cost to the high marginal abatement cost firm is W + Y +

Z. At some point the high marginal abatement cost firm might choose to purchase a permit rather

than paying high abatement costs. If the high marginal abatement cost firm recognizes that its

marginal abatement cost is higher than the marginal abatement cost of the low cost firm, they

may choose to propose a trade. In effect, the purple line over the area W + Y is a demand curve

for permits and the green line is a supply curve for permits. Anywhere in between the purple and

green line and within the boundaries of the “cap” line and E* is a permit price that is mutually

agreeable between both firms. Trading reduces overall abatement costs by area W.46

8. CONLUSIONS

Considering all the analysis carried out above, it appears to be straightforward that the ILVA of

Taranto represents one of the biggest unsolved environmental problems that harms, directly and

indirectly, Italy and its economy due to negative externalities: to give a broader view of the issue

in its entirety, in the past years the European Commission drew its attention to the matter and it

is constantly requiring Italy to be actively involved in the reduction of such emissions.

On the other hand, thanks to the economic analysis, ILVA represents a case of a “too-big-to-fail”

firm, worsening the Italian government’s position in terms of action. In fact, we provided in the

46 Rosen, H. S., Gayer, T. (2014).



previous section a framework containing possible policy suggestions that can be applied to

overcome the problem in order to benefit both the Italian economy and its environment.

In conclusion, it is broadly recognized that the matrix of the problem has both political and

managerial explanations, but history thought to all of us that it is possible to learn from previous

mistakes and, even though the issue by itself also caused, and it is still causing, many innocent

victims, there is still room for improvements that can lead to a Pareto efficient (and socially fair)

allocation of resources that, as the previous section suggests, benefits the Italian economy in its

entirety, starting from the financial to the environmental one, hoping that future choices will not

harm anyone else.

9. BIBLIOGRAPHY

Affinito, M., De Cecco, M., Dringoli, A. (2000), Le privatizzazioni nell’industria

manifatturiera italiana, Donzelli Editore.

ARPA Agenzia Regionale Prevenzione e Ambiente dell’Emilia-Romagna (2012),

“Ambiente salute economia, una contrapposizione antistorica da superare”, Ecoscienza,

6, p. 7-10.

ARPA Agenzia Prevenzione e Ambiente della Puglia (2012), “Rapporto sulla

Valutazione del Danno Sanitario – Stabilimento ILVA di Taranto”, Bollettino Ufficiale

della Regione Puglia, ai sensi della L.R. 21/2012, Scenari emissivi pre-AIA (anno 2010)

e post-AIA (anno 2016).

Cardellicchio, N., “L’area di Taranto, sito contaminato di interesse nazionale:

problematiche e riflessioni”, La Chimica & l’Industria, 2, p. 106-109.

Cardellicchio, N., Bucolieri, A., Giandomenico, S., Lopez, L., Pizzulli, F., Spada, L.

(2007), “Organic pollutants (PAHs, PCBs) in sediments from the Mar Piccolo in Taranto

(Ionian Sea, Southern Italy), Marine Pollution Bullettin, 55(10), p. 451-458.

Carrubba, C., Gnudi, P., Laghi, E. (2015), “Programma dei Commissari Straordinari”, ai

sensi dell’art. 4, comma 2, D.L. 23 dicembre 2003, n.347 per ILVA S.p.A. in

Amministrazione Straordinaria, December 29, 2015, Milan: Ministero dello Sviluppo

Economico.



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