Air and water pollution has enormous human and social costs. The ingestion of contaminated water in developing nations claims responsibility for several million lives annually, including an estimated 1.3 million children (UNESCO 2005, UNEP 2005). In the U.S. and many other developed nations, water pollution has also caused degradation of freshwater lakes and rivers and adversely impacted estuaries and near shore habitat in the oceans. Water pollution is also partially responsible for the listing of many endangered and threatened species of animals. Furthermore, contamination has impacted recreational opportunities in lakes, reservoirs, rivers, estuaries and ocean beaches. The adverse effects of air pollution are also severe. Estimates suggest air pollution costs of 2% of GDP in developed countries, and 5-20% in developing countries (UNEP).

Economics and policy issues related to pollution can be divided into two main areas. First, estimating the costs of pollution and estimating the costs of controlling pollution; and second, evaluating the advantages and disadvantages of policy approaches to control pollution. In this second area, economists frequently emphasize the advantages in terms of cost and flexibility of market-based or "economic incentive" (IE) policies over regulatory or "command-and-control" (CAC) policies. In some cases, the costs of IE policies have been shown to be a small fraction of the costs of CAC approaches. One particular form of IE policy, tradable pollution permits, is now the main instrument for reducing acid rain in the U.S.

A great deal of progress has been made in reducing pollution in the U.S. Many serious problems still remain, but air pollution levels have been improving since 1970 See the graph here for a rough idea of the trends {figure below}. Trends in water quality in the US have also been positive, with the percent of water bodies meeting water quality standards rising from 36 percent in 1972 to 63 percent in 1998. In other areas, notable greenhouse gas emissions, progress has not been made. Additional information on specific forms of pollution can be found at the following links for smog, acid rain, ozone depletion, and climate change.

Sources:
U.S. Environmental Protection Agency (EPA). 2005. Clean Water Act [PDF].

United Nations Educational, Scientific and Cultural Organization (UNESCO). 2005. Water.

United Nations Environment Programme, Key Facts About Cities: Issues for the Urban Millennium.