A cost-benefit analysis of relocating a polluting factory

Abstract

This study examines the economic viability of relocating polluting industrial factories from densely populated residential areas to designated industrial zones. This solution requires a significant economic investment consisting of relocating and remediating costs. This solution has a direct financial benefit, due to the alternative value of the land on which the factory currently stands, as it can be converted to more attractive uses. In many cases, this direct benefit does not cover the costs, therefore it is not economically feasible to transfer the plant. However, it is possible that relocating a factory in these cases is economically feasible from a national perspective, as the factory's current location may cause a decline in nearby property values, while relocating it may result in an increase in property values. Nevertheless, in these cases, government intervention may be required. This paper presents a case study for such a situation – analysing the case of the Ta'as Magen factory, a severely polluted site located in the heart of Israel's main metropolitan area. This analysis reveals that the indirect benefits of relocating the factory and remediating the site are considerably greater than the direct benefits, and outweigh all required costs.

Keywords:

• economic efficiency
• direct and indirect benefits
• remediation

Notes

1. Our purpose here is to capture the effect of the pollution on property prices by examining the rate of change in property prices. Therefore, prices are presented in NIS, not in dollars, in order to avoid the effect of the exchange rate variation.