The contribution of economics to understanding environmental cost: A case study of the Libyan cement industry, 1988-2008

This study considers how an increase in production costs following an action to reduce environmental pollution would be shared between the producer and the consumer. As such, it makes an interesting contribution to the literature on environmental economics by discussing, and modelling, how such a cost increase would be shared between the producer and the consumer. Producers might be more willing to undertake pollution control given that they are more than likely not going to have to bear all of the control cost. Consumers would bear some of that through a price increase. They would need to recognise that they should accept some of the responsibility for pollution control through higher prices that contribute to the cost of installing ‘cleaner’ production methods.

The method used in the study is a descriptive and analytical (time series analysis and the application of microeconomic analysis tools) to determine the potential effects of environmental policy on the case study company. In essence, the study calculates price elasticities of demand and supply and applies an appropriate value for the cost of environmental improvement. Then the relative elasticities are used to determine producer and consumer shares of the cost increase.

The student has selected one of the major cement producers in Libya – the Ahlia Cement Company and studied four of their cement manufacturing plants. He spent three months working with the plant managers to compile a database of costs and revenue; this data being previously unavailable in this form. Data was collected for the period, 1988-2008. The environmental cost used in the estimation is drawn from their company accounts.

The study starts by setting the world context for cement production, and pollution, and then puts Libyan environmental policy into that wider context. It then concentrates on the four separate cement manufacturing plants within the Ahlia Cement Company.

The specific lessons that can be drawn for managing environmental improvements in the Libyan cement industry can be extended somewhat to other Libyan industries and the wider global environment.