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, http://www.econ.no, e-mail: haakon.vennemo@poyry.com. — 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 Haakon Vennemo_exec\AK\14.10.08\22:48 1 — ECON Analysis — International experiences in air pollution control – Short version 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 Haakon Vennemo_exec\AK\14.10.08\22:48 2 — ECON Analysis — International experiences in air pollution control – Short version 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 Haakon Vennemo_exec\AK\14.10.08\22:48 3 — ECON Analysis — International experiences in air pollution control – Short version (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. Haakon Vennemo_exec\AK\14.10.08\22:48 4 — ECON Analysis — International experiences in air pollution control – Short version 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 Haakon Vennemo_exec\AK\14.10.08\22:48 5 — ECON Analysis — International experiences in air pollution control – Short version 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. Haakon Vennemo_exec\AK\14.10.08\22:48 6 — ECON Analysis — International experiences in air pollution control – Short version 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 Haakon Vennemo_exec\AK\14.10.08\22:48 7 — ECON Analysis — International experiences in air pollution control – Short version 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 Haakon Vennemo_exec\AK\14.10.08\22:48 8 — ECON Analysis — International experiences in air pollution control – Short version 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. Haakon Vennemo_exec\AK\14.10.08\22:48 9 [...]...— ECON Analysis — International experiences in air pollution control – Short version Monitoring and enforcement of policies and regulation The incentive system of provincial leaders has so far emphasised economic growth In the 11th 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... 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... 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... 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 Haakon Vennemo_exec\AK\14.10.08\22:48 10 — ECON Analysis — International experiences in air pollution control – Short version... 353-377 Menz, F.C and H.M Seip, 2004, Acid rain in the United States and Europe: An Update, Environmental Science and Policy, 7, 253-265 U.S EPA, 2007, National Emission Inventory Air Pollutant Emission Trend Data, http://www.epa.gov/ttn/chief/trends/index.html Vennemo, H., K Aunan, H Lindhjem and H.M Seip, 2008, Walking the Line – Environmental pollution trends in China, mimeo, Econ Pöyry, Oslo Vestreng,... 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... 2001, Sulfur dioxide control by electric utilities: What are the gains from trade, Journal of Political Economy, 108, 6, 1292-1326 ECE, 2006, Strategies and Policies for Air Pollution Abatement Review 2006 Economic Commission for Europe Economist, 2008, German lessons, The Economist, April http://www.economist.com/business/displaystory.cfm?story_id=10961890 3 EEA, 2007, Air pollution in Europe 1990-2004,... 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... 2008, Walking the Line – Environmental pollution trends in China, mimeo, Econ Pöyry, Oslo Vestreng, V., Myhre, G., Fagerli, H., Reis, S and Tarrasón, L., 2007 Twenty-five years of continuous sulfur dioxide emission reduction in Europe Atmospheric Chemistry and Physics, 7, 3663–3681 Haakon Vennemo_exec\AK\14.10.08\22:48 11 . — 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. — ECON Analysis — International experiences in air pollution control – Short version impact of lower emissions in Europe and the U.S. and higher emissions in China, Chinese SO 2 -emissions. convention to deal with air pollution on a broad international basis Haakon Vennemo_execAK14.10.0822:48 3 — ECON Analysis — International experiences in air pollution control – Short version