Fog and filthy air

Here's another weather blog. It's cold and atmospheric conditions are right for exceptionally severe local air pollution; smoke, micro particulates and sulphur dioxide combine into a greasy 'smog'. The health impact is severe. People start talking about a 'killer fog' and even an 'environmental disaster'. Thousands die over the next few days and weeks, many more face serious long term consequences.Where am I describing?

OK, so it's a trick question. Perhaps you thought I was describing a bustling city in modern China like Shanghai, but I was trying to convey the conditions that existed in London in 1952.

Here's a springboard into a choice of really interesting economics discussions:

Firstly, you might like to contrast conditions in Shanghai this week with those in London sixty years ago (I used to think the song 'A Foggy Day in London Town' was quite romantic, until you start to think about it...) Similar conditions - and economic behaviour - caused similar problems.

Economists often talk about air pollution in terms of negative externalities. This type of market failure arises when economic costs generated by one party fall on to another, as can be clearly seen in the case of Singapore's recent air quality problems, mainly generated by deforestation in neighbouring Indonesia. Studies show these effects can be felt on very local scales.

Secondly, you could discuss the problems associated with industrialisation, economic growth and development. It's relatively easy to see how China's growth (and Britain's, up to the 1950s) created these environmental hazards. (China's problem is spoofed in this recommended satirical video from The Onion).

How can China and Britain chart a path to a cleaner future? What steps will be necessary (London is discussed here and here, whilst burning coal in China is discussed here)? Part of the answer is obviously new laws (what economists sometimes call a 'command and control' approach). But can you suggest other market-based initiatives that might be even more effective in addressing this serious challenge?