International experiences in air pollution control pptx

International experiences in air
pollution control
Short Version
Haakon Vennemo*


* Econ Pöyry, P.O.Box 5, 0051 OSLO, Norway.
Phone: +4791136716, fax: +47 22 42 00 40, , e-mail:


— ECON Analysis —
International experiences in air pollution control – Short version
Introduction

As recently as the late 1970’s air emissions in Europe and the USA were terribly
high. For instance, in 1978 sulfur dioxide (SO
2
)-emissions in Europe stood at 70
million tons (Figure 1), almost three times higher than current Chinese emissions.
Not only were emissions terribly high, but any impartial observer of the future
seen from the perspective of 1978, basing his views on recent trends in European
SO
2
-emissions from 1945-1978, would have had to admit that realistically,
emissions would continue to grow. Only the bravest would have suggested that
come 25 years later emissions of SO
2
in Europe would stand at 15 million tons,
similar to the level of 1930.

Figure 1 SO2 emissions in Europe (unit Tg SO2)

Source: Vestreng et al. (2007)

Yet this is what happened. In Europe, a mountain of SO
2
has disappeared since
1978. The story is the same although less dramatic in the U.S.: Emissions of SO
2

in the U.S. have fallen by about 50% since 1990. In fact, the dramatic fall in
emissions of SO
2
in Europe and the U.S. is a main inspiration of the now famous
Environmental Kuznets Curve, depicting that emissions first rise and then fall as
gdp/capita grows, (e.g., Grossman and Krueger, 1995).
Emissions of most other polluting compounds to air, with the notable exception of
CO
2
have also fallen in Europe and the U.S. Meanwhile, emissions of SO
2
and
many other compounds to air are increasing fast in China. Thanks to the double
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impact of lower emissions in Europe and the U.S. and higher emissions in China,
Chinese SO
2
-emissions are now higher than in Europe and the U.S. combined, see

Figure 2.

Figure 2 SO2 emissions in China, Europe and the USA
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
1
990
1
992
19
94
19
96
19
98
20
00
20
02
2004
2006
Million to
n
SO2 China

SO2 USA
SO2 Europe

Source Vestreng et al. (2007), U.S. EPA (2007), Vennemo et al. (2008).

Trend extrapolation suggests further growth in Chinese emissions, similar to what
an impartial European observer would have said in 1978. But the Western
experience shows that trends may be broken. This essay asks what were the
reasons for the trend disruption in Europe and the U.S.? A longer version of the
essay extends the discussion to NO
x
and fine particles in urban regions, as well as
photochemical pollution (groundlevel ozone) and mercury emissions to air. The
essay ends with a discussion of relevance of findings for China, and provides
policy recommendations.

Why emissions of priority substances have been falling in Europe
Emission reduction protocols coordinated action
When emissions stood at its peak in 1978 damages of acid rain, in particular, were
generating considerable concern all over Europe. In continental Europe the so-
called black triangle of dead forest emerged in Germany, Austria and the Czech
Republic. Acid rain was suspected as the primary culprit. In Scandinavia
acidification of lakes emerged as a huge concern. The problem here was that the
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water in freshwater lakes became too acid for fish to live. The loss of trout, in
particular, was considered significant since recreational trout fishing is a popular
pastime that is engraved in national identity.
The main driver of acid rain was clearly SO

2
. SO
2
also lead to local air pollution
in urban areas, and reports at the time from cities such as Athens in Greece and
Krakow in Poland emphasised that SO
2
was eating up millennia-old statues and
cultural relicts.
Something had to be done. But action was not easy, both because Europe seemed
dependent on large amounts of SO
2
-emissions for its standard of living and
because acid rain in particular, was a trans-boundary problem. For example, the
emissions causing damage to Scandinavian lakes were mostly coming from Great
Britain, Poland and other European countries. With hindsight, maybe the main
achievement of the concerted European action to reduce SO
2
-emissions was that it
overcame the twin obstacles of seemingly high cost to the standard of living and
the transboundary character of the problem.

The SO
2
protocols
What happened? In the words of Menz and Seip (2004) “the necessity of
international cooperation in dealing with acidification problems in Europe led to a
ministerial meeting in Geneva in November 1979 within the Framework of the
ECE on the Protection of the Environment”. ECE is the UN Economic
Commission on Europe. “The necessity of international cooperation” simply is to

say that the situation was considered so grave that something had to be done. An
economist would interpret this sentence in cost-benefit terms: The benefits of
emission reduction had become sufficiently obvious that action was taken. Maybe
it also mattered that coal-mining in Europe, in particular, was not as profitable as
it once had been, bringing down the cost of emission reduction in important
emission source countries. Finally it is interesting that in ECE the countries had
available an institutional framework for organising cooperation on SO
2
-control.
The meeting in Geneva led to the ECE Convention on Long-range Transboundary
Air Pollution, more commonly known by its acronym LRTAP. LRTAP, which
entered into force in 1983, established general principles for international
cooperation on air pollution issues. This was necessary since LRTAP was the first
legally binding convention to deal with air pollution on a broad international basis
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(Menz and Seip, 2004). Second, LRTAP established an institutional framework
bringing together science and policy. The framework was centered at IIASA in
Austria and in particular the part of IIASA operating the air pollution model
known as RAINS. IIASA with RAINS has later been important as a generally
accepted impartial referee on what is the science of acid rain, its causes and
effects.
Since 1978 LRTAP has been followed by a number of protocols on emission
reduction in Europe. The most recent agreement is the Gothenburg Protocol of
1999, which seeks to reduce Europe’s SO
2
-emissions by a further 63 percent by
2010. The Gothenburg Protocol has similar, if less ambitious reduction targets for
NO

x
(-41%), NMVOC (-40%) and NH
3
(-17%).
One noteworthy aspect of the protocols that have laid out the path of emission
reduction in Europe is that as a rule they do no detail policy instruments and there
are no penalties. Rather, they are coordinating devices that in the end rely on the
trust and good will of signatories to follow up on their promises. Fortunately,
countries have indeed been following up on their promises, perhaps because it has
been easier (cheaper) than feared, perhaps because the peer pressure that is a
characteristic of such agreements. So what were the policy instruments countries
choose?

Policies to reduce emissions of priority substances in Europe
Command-and-control at the emission level
The main policies for emission reductions in Europe have been laid down in a
number of directives of the European Union. Directives are turned into national
law and as such are binding for all member states. They can be supplemented by
national policies, but remain the drivers of European policy in the area.
Important directives for air pollution control in Europe are set out in Table 1.
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Table 1 Important EU directives for air pollution control
EU directives,
instruments
Type of measure Pollutants covered
National Emission
Ceiling (NEC) Directive
(2001)

Binding emission
ceilings, which EU
Member States will have
to meet by 2010
SO2, NOX, NMVOC,
NH3
Large Combustion Plant
(LCP) Directive (1988,
2001)
Emission limit values SO2, NOX , dust
Integrated Pollution
Prevention and Control
(IPPC) Directive (1996)
Integrated permit based
on Best Available
Technology (BAT)
Not specified: ‘Overall
environmental
performance’
EURO standards (1992
and onwards) for
passenger cars and other
light duty vehicles,
heavy duty vehicles (e.g.
lorries, busses) and
motor cycles
Emission standards and
testing
Fuel regulations
NOX, CO, HC, HC +

NOX and PM
Source: EEA (2007)
As can be seen the EU directives prescribe typical command-and-control policies
such as best available technology in the case of the IPPC directive, and emission
limit values and standards in the case of the LCP directive and the successive
generations of EURO standards. The exception is the NEC directive, which gives
member states a freedom of choice in how to meet the national emission ceilings.

Incentive based regulation at the energy level
The main area of economic regulation in Europe is at the energy level. European
countries have levies on gasoline and diesel that currently bring consumer prices
up to 2-3 dollars per liter. The high prices on gasoline and diesel are quite
remarkable given that Europe has a large and vibrant car industry. Second, The
European Union has set up the European Trading System (ETS) for CO
2
trade,
clearly the most ambitious economic regulation of a pollutant that the world has
ever seen. Since there is currently no economical way of reducing CO
2
per unit of
fossil energy the ETS is in practice a regulation at the energy level.
There are even other examples that economic regulation is pervasive at the energy
level in Europe. Economic regulation has helped to reduce demand for fossil
energy. In other words, it has stimulated energy efficiency. By stimulating energy
efficiency economic regulation lays the foundation for successful reductions in
emissions. But in Europe it is command-and-control policies that have realised the
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potential offered by end-of-pipe technologies like FGD (SO

2
) and catalytic
converters (NO
x
) and turned limited energy demand growth into radical emission
reductions.

Reasons why priority emissions have been falling in the U.S.
In terms of SO2 control, developments in the U.S. resemble those in Europe with
the Clean Air Act of 1970 playing the agenda setting role of the Helsinki Protocol
and subsequent protocols; and the large program called National Acid
Precipitation Assessment Program (NAPAP) providing the science similar to
IIASA, RAINS and the scientific community in Europe. In 1990, however, events
in the U.S. took a different turn from Europe. That year the U.S. Congress
approved new amendments to the Clean Air Act that introduced an emission
trading system for SO2. This means that in terms of SO2-control the U.S. opted
for an incentive based regulatory approach as opposed to the command-and-
control strategy of Europe.

Economic regulation of SO
2

The emission trading program in the U.S. starts by issuing a fixed number of SO
2
-
allowances annually to sources of SO
2
-emissions, based on previous emissions.
These allowances are given away to the sources of SO
2

as opposed to an
auctioning system. In economic parlance they are grandfathered. Recipients of
allowances can use them this year to offset their emissions, or they can save them
to next year or later (so-called banking), or they can sell them. It is the ability to
sell allowances that gives the system its economic power. By allowing trade, units
that for various reasons have particularly high abatement costs are allowed to buy
allowances from units with low abatement costs. Economists argue that a system
that allows trade can never be worse for participants than a system that disallows
trade: If all units choose to use their emissions themselves, fine. In that case
nothing a lost compared to a system that disallows trade. But if some units prefer
to purchase an allowance rather than doing abatement themselves they will be
better off with trade than without. The same goes for sellers. They too only sell if
they are better off. Hence trade itself is a proof that a system with trade is better
than one without. Trade just gives more options and greater flexibility of the
country to reduce SO
2
-emissions in a smart way.
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Another important ingredient of the system is that units are not told how they
should reduce SO
2
-emissions. Should they install an FGD or buy low-sulfur coal?
That is up to them as long as SO
2
-emissions are reduced. This property of the
system is unlike the European practice of requiring “best available technology”. In
fact, the main savings in cost of the emission trading system is that of not
requiring units to install FGD (Carlson et al., 2001). Some regulated units choose

low-sulfur coal, process improvements or allowance purchases. In fact, in 2005
only one fourth of power plants in the U.S. on an MW basis were covered by
FGDs. The share is much higher in China, where one half now have FGDs
(Vennemo et al, 2008).

Command and control at the energy level
While the U.S. clearly has a market oriented approach to SO
2
-control the country
is equally clear that its approach to energy market regulation is command and
control. As is well known the price of gasoline in the U.S. tracks the world market
price closely, with only the smallest of local taxes added on top. The current price
is about one dollar per litre, less than half the level in Europe. At the same time
the U.S. Congress is firmly negative to CO
2
-levies or anything else that looks like
CO
2
- or energy taxation. These factors contribute to the U.S. being by far the
largest consumer of fossil energy per capita in the world. The implications are
also seen immediately by casual observation of the fuel economy of the car fleet
and the absence of public mass transport in many urban centers. The high
consumption of fossil energy makes air pollution control more difficult and more
costly than would have been the case otherwise.

Conclusions and lessons for China
Cutting emissions to air of most pollutants is no rocket science. The technology is
available and its use has been demonstrated in Western countries. These countries
have managed dramatic improvements in their local and regional air quality over
the past 30 years.

It is evident from the European and U.S. experiences that command-and-control
and economic regulation are two strategies that both do the job of reducing air
pollution. Europe makes use of economic regulation at the energy level, and
command-and-control at the emissions level. The U.S. does exactly the opposite
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as far as SO
2
is concerned, and is discussing extending their approach to NOx and
mercury emissions. The crucial precondition for both command-and-control and
economic regulation to work is monitoring and enforcement.
In addition, is it of course necessary to set emission limits and air quality targets
that are sufficiently ambitious. Both Europe and the U.S. have managed to de-
politicize environmental target-setting with the help of independent scientific
bodies that help to establish a factual basis and suggest targets based on cost-
benefit considerations.
In our view there are lessons to be learned for China both at the level of setting
ambitious targets, prescribing policy and enforcing policy.

Improving environmental target setting in China
It has been suggested that provincial and below-province EPBs should be
independent of provincial economic and industrial authorities. That may be, but it
is not the most important thing to do. Based on international experience the real
issue is to make target-setting a scientific rather than a political decision. The
international experience suggests empowering scientific institutions with the
authority, models, monitoring equipment etc to provide a neutral information
basis for, and advice on targets. Then in the final instance the provincial and
central governments should decide and commit on these.
Current air quality and emission regulation in China has a strong emphasis on

SO2. While we do not disagree that SO2 is important and have focused on SO2 in
this condensed essay we believe that more attention should be given to the main
health risk, PM. The emphasis on SO2 gives the impression that one is guided by
slightly outdated science, since SO2 used to be seen as the main source of air
pollution damage until one became aware of PM.
Beside PM recent epidemiological evidence strongly suggests groundlevel ozone
to be the major health risk. As far as we know groundlevel ozone is not regularly
monitored in China, which partly may be related to the fact that it is expensive
and difficult, but also because the risks are underestimated. A monitoring program
for groundlevel ozone should be started and reasonable targets should be set.
While respecting the principle of similar but differentiated responsibilities we
predict it is a matter of time before China should take on real commitments to
reduce CO2. One reason is that as the largest source of CO2 emissions in the
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world the country will help itself to avoid future damage from climate change.
The sooner China realises this, the better.
Both outdoor emissions, e.g., open air biomass burning, and indoor rural
emissions constitute major risks to health. There is currently little attention to
these problems in China and few policies, in particular few policies with an
environmental objective. One obvious reason for that is that MEP’s responsibility
does not include rural areas. MEP should be given responsibility for rural area
pollution and set reasonable environmental targets.

Policy and regulation in China
China uses command-and-control both at the level of emissions and the level of
energy. While we have pointed out that command-and-control does work, it is a
cumbersome and unnecessarily expensive means of regulation. The fact that
command-and-control regulation in China usually includes a number of

exceptions to the general rule, proves the point. The power of economic regulation
is that it gives the regulated party the choice of how to meet the regulation.
Therefore firms and inhabitants of China will gain from more economic
regulation of the environment
Current economic regulation in China is counterproductive for air pollution
management. There is a de facto subsidy to coal since the domestic price is lower
than the world market price. A further subsidy is given to electricity consumption,
whose price is regulated and normal return to capital is not granted to electricity
generators. This not only stimulates consumption, it also encourages the use of
low quality coal and discourages abatement in order to save o&m costs. Similarly
oil refineries are not granted normal return to capital and receive subsidies in the
form of VAT refunds. These practices should stop. China should not subsidize
environmentally damaging activities.
While end-of-pipe abatement is necessary, huge cost savings are obtained if
energy efficiency and renewable energy, as well as mass transit are encouraged.
Interventions to reduce fossil fuel consumption reduce many air pollutants in one
stroke. Economic regulation and pricing of pollution costs is an important avenue
for reducing fossil fuel consumption. In short, China should regulate for co-
benefits of energy efficiency and air pollution control.

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Monitoring and enforcement of policies and regulation
The incentive system of provincial leaders has so far emphasised economic
growth. In the 11
th
five year plan SO2 reduction and energy efficiency (and COD)
have been added to the incentive system. In future plan periods the incentive
system of political leaders should be extended to include more environmental and

energy indicators. This is necessary in order to make leaders interested in
environmental improvement and interested in enforcement, though it may not by
itself solve the problem of unfaithful monitoring and reporting.
One agency that emphasises environmental improvement, is the provincial EPB.
However, currently the EPBs have to arbitrate with other ministries about
environmental enforcement. Sometimes firms can escape enforcement by
appealing to other ministries. Besides changing incentives for leaders (see last
proposal) it might help to give provincial EPBs more power, more funding and
more intellectual capacity to do its job.
One key to ensuring implementation of regulation is to instigate a system of
checks and balances whereby agencies are watching each other and outside
stakeholders are watching all of them. This increases accountability. In different
countries one or more of the media, the environmental NGOs, the scientific
community and the courts do this job. Local elections will also increase
accountability. In an emission trading or tax system where money is involved the
competitors of a firm that does not comply will have an incentive to inform. This
will also increase accountability. There are many who can play the role of
watchdogs and many ways of doing it. The specifics depend on the general
workings of society. The point is that when someone discovers lack of
implementation he should have somewhere to turn with his complaint and it
should be voiced in society’s conversation.
The case in China may be that central government puts greater emphasis on
environmental improvement than provincial governments in practice do. In this
situation it is reasonable for central government to approve provincial plans for
implementation of environmental targets, and withhold budgetary transfers if
implementation is lacking. Independent monitoring, e.g., by the scientific body
designed to establish facts, may be used to verify whether implementation is
satisfactory.

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