Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 529: Synergies and Trade-offs between Climate and Local Air Pollution: Policies in Sweden

Jorge Bonilla (), Jessica Coria () and Thomas Sterner ()
Additional contact information
Jorge Bonilla: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Jessica Coria: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Thomas Sterner: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden

Abstract: In this paper, we explore the synergies and tradeoffs between abatement of global and local pollution. We built a unique dataset of Swedish heat and power plants with detailed boiler-level data 2001-2009 on not only production and inputs but also emissions of CO2 and NOx. Both pollutants are subject to strict policies in Sweden. CO2 is subject to multiple levels of governance using environmental instruments such as the EU ETS and Swedish carbon taxes; NOx – as a precursor of acid rain and eutrophication – is regulated by a heavy fee. Using a quadratic directional output distance function, we characterize changes in technical efficiency as well as patterns of substitutability in response to the policies mentioned. The fact that generating units face a trade-off between the pollutants indicates a need for policy coordination.

Keywords: Interaction of environmental policies; shadow pricing; directional distance function; climate change; local pollution.

JEL-codes: H23; L51; L94; L98; Q48

34 pages, April 30, 2012

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