ANALYSIS
Comprehensive cost-effectiveness analysis of measures to
reduce nitrogen emissions in Switzerland
Reto Schleiniger *
Institute for Empirical Research in Economics,Uni6ersity of Zurich,Blumlisalpstrasse10,8006Zurich,Switzerland
Received 11 May 1998; received in revised form 22 September 1998; accepted 16 October 1998
Abstract
This paper proposes a comprehensive cost-effectiveness analysis to evaluate environmental policies. While effective-ness is measured as the reduction of different pollutants aggregated to a damage index, all the other effects apart from pollutant reduction are monetarised and expressed as cost. The damage index is based on the ‘Umwelt-Belastungs-Punkte’ (UBP)-method (Environmental Impact Points) and is extended to include the different geographical ranges of various pollutants. The method is then applied to assess the cost-effectiveness of nitrogen reduction measures in Switzerland. The results indicate that a less nitrogen-intensive agricultural production and the use of a new generation of low nitrogen oxide burners are very cost-effective. © 1999 Elsevier Science B.V. All rights reserved.
Keywords:Cost-effectiveness; Nitrogen emissions; Damage index; Effluent charges
1. Introduction
In August 1994, the Swiss government set up a working group with the mandate to develop a strategy to reduce nitrogen emissions in Switzerland. In particular, the group was assigned to propose measures to curb nitrogen pollution and to evaluate these measures from both an ecological and an
economic perspective.1The commission was
accom-plished in September 1996. The present paper is based on the work of this group. It gives a methodical discussion and analyses additional measures.
There are two basic methods to economically evaluate pollution reduction policies: the cost-benefit and the cost-effectiveness analysis. Both methods have specific advantages and drawbacks. The cost-benefit analysis allows one to evaluate measures absolutely, by expressing all the effects in monetary terms. However, the well-known problem is to reliably monetarise the ecological consequences of emission reduction policies
(Bing-* Tel.: +41-1-6343727; fax: +41-1-6344907; e-mail ad-dress: [email protected]
1The author himself was assigned to the working group as
an expert, dealing mainly with methodical and economic ques-tions relating to the topic.
R.Schleiniger/Ecological Economics30 (1999) 147 – 159 148
ham et al., 1995). The cost-effectiveness analysis evades the problem of monetarising ecological effects, measuring the emission reduction in one physical unit (e.g. tons of nitrogen per year). As a consequence, the cost-effectiveness analysis allows a relative rating of the measures examined only. Furthermore, since different pollutants cannot sensibly be aggregated in physical terms (the dam-age of a ton of CO2-emission is not equal to the
damage resulting from the emission of a ton of nitrate), the traditional cost-effectiveness analysis is restricted to one — hopefully — major pollutant and ignores all the other ecological effects. Studies in this field have been carried out for a variety of pollutants in different regions, for example, Ma¨ler and Olsson (1990) for sulphur in Europe, Krup-nick and Walls (1992) for ozone in American cities, Johnsen (1993) for phosphorus and
Koop-man (1995) for CO2-emissions in Europe. Gren
(1993), Zylicz (1995) additionally consider the im-pact that different locations of emission sources have on environmental quality. This study is fo-cused on another issue. In trying to overcome the drawbacks of valuing the invaluable, or of being limited to considering the emissions of one pollu-tant only, a comprehensive cost-effectiveness anal-ysis is proposed. In this analanal-ysis, effectiveness is measured in terms of reduction of different pollu-tants aggregated to a damage index, while all the other effects apart from pollutant reduction are monetarised and expressed as cost. Similar ap-proaches are already applied in health economics, where effectiveness is measured as a health index, for example, as quality-adjusted life-years (Tor-rance, 1986).2
With this method, it is intended to possibly include all economic and ecological consequences in order to derive concrete results to evaluate environmental policies. The goal of the analysis is to provide the government with information on the comprehensive cost-effectiveness of measures to reduce nitrogen emissions. This allows the deci-sion maker to choose measures such that a given environmental standard can be reached at mini-mal cost.
The next section discusses methodical questions and explains the aggregation of various pollutants to an index. In particular, the problems of assess-ing greenhouse gas emissions and weighassess-ing pollu-tants with different geographical ranges are addressed. In Section 3, the cost-effectiveness analysis is applied to a range of pollution reduc-tion measures which are at present under political discussion in Switzerland. These measures are de-scribed briefly and the results are presented in two stages. While the first stage ignores the interde-pendencies of different measures, the second stage considers the sequence of introducing the mea-sures according to their cost-effectiveness. Section 4 concludes.
2. Methodical considerations
Particularly in Europe, the aggregation of dif-ferent ecological effects to an index has developed into a specific branch of research. Not unexpect-edly, this research has not resulted in a single method that is accepted ubiquitously.3 It is not
the purpose of this paper to discuss the various propositions and their relative merits at length. Instead, one method in particular will be consid-ered, one that has been developed in Switzerland (Ahbe et al., 1990) and is currently also employed in Scandinavia, the Netherlands, Austria and Japan. The so called UBP-method, from the Ger-man ‘Umwelt-Belastungs-Punkte’ (Environmental Impact Points), is adapted to the specific question of evaluating measures of reducing nitrogen emis-sions. These adaptations refer to the choice of critical flows, the inclusion of different greenhouse gas emissions and the distinction between nation-ally and internationnation-ally harmful emissions.
The determination of cost, on the other hand, is methodically straightforward and based on the opportunity cost concept. Since all effects apart from the pollutant emission reduction must be expressed as cost, other external cost savings, for example, noise reduction of traffic measures, need to be monetarised.
2In this context, Torrance uses the terminology of
cost-util-ity analysis.
3For a survey on various valuation methods, see
Table 1
Annual actual and critical flows of pollutants in year 2002a
Pollutant Actual flow (1000 t Critical flow (1000 t Marginal damage (index points per 1000
year−1) t)
year−1)
11
Nitrogen oxideb 41 0.34
Ammonia 54 25 0.086
Nitrogen into lakes and 1000 500 0.14
riversc
16
Nitrogen into ground water 29 0.11
Volatile organic compounds 172 65 0.041
25
Sulphur dioxide 32 0.050
1
3 2.9
Phosphorus
115
Chemical oxygen demand 120 0.0080
13 500 000
Carbon dioxide equivalent 27 000 000d 0.00011
aAccording to the considerations on the affected areas, the flows of carbon dioxide equivalent refer to the whole world, the flows
of nitrogen into lakes and rivers to the North Sea and all the other pollutant flows to Switzerland. If not indicated otherwise, all flows are from the Swiss Federal Office for Environment, Forests and Landscape, 1996.
bMeasured as tons of nitrogen. cOslo and Paris Commissions (1993).
dForecasting precisely the actual flow of global carbon dioxide equivalents in the year 2002 depends decisively on the global
measures undertaken to curb greenhouse gas emissions until then. In this study, we depart from forecasts of the Swiss flow and assume a share of 0.2% of world-wide emissions. This is a rather crude assumption but the results do not react sensitively to it. Apart from that, specific measures of other countries to reduce carbon dioxide emissions — and nitrogen emissions into lake and rivers — are not taken into account.
2.1. Effecti6eness: the UBP-method
The basic idea of the UBP-method is to nor-malise quantities of different pollutants with their respective critical flows, assigning to pollutants with lower critical flows a higher weight (see the first term of the r.h.s. of Eq. (1)). This weighting is motivated by the close connection between the environmental impact and the critical flow of a pollutant. Low critical flows express high environ-mental damage per quantity and vice versa. (Compare, for example, the critical flows of nitro-gen into lakes and rivers and phosphorus in Table 1: the higher environmental damage per quantity phosphorus is reflected in a lower critical flow.) Since the critical flows serve as an indicator for environmental impact, the particular choice of the flows is decisive when applying the method.
In the original UBP-method, critical flows are derived from quality standards that are politically set, e.g. the maximum allowed concentration of nitrogen oxides in the air. This approach has the major drawback that politically set environmental standards often include cost considerations and
do not express ecological minimum standards. When an index based on these political standards is used to calculate the cost-effectiveness, the eco-nomic cost aspect is counted twice, appearing in the nominator (cost) as well as in the denominator (effectiveness) of the result. Therefore, in this paper critical flows derived from ecological con-siderations are used, i.e. maximum flows of
pollu-tants that — with the current knowledge
R.Schleiniger/Ecological Economics30 (1999) 147 – 159 150
Fig. 1. Marginal damage function of nitrogen oxide.
A second step, constructing the pollution index, is based on the assumption that the marginal damage of a pollutant is linear in the actual flow (see the second term of the r.h.s. of Eq. (1)). While the idea of increasing marginal damage is familiar to economists, the linearity assumption is admittedly arbitrary. But as long as there is no clear evidence for other functional forms, it seems sensible to choose the simple function.4
With these two valuation steps, the relative
marginal damage of a pollutant (MDi) can be
formulated:
MDi=
1 Fci
Fi
Fci
(1)
whereFciis the critical flow of pollutant iand Fi
is the actual flow of pollutant i.
The benefit of reducing emissions of a pollutant (Bi) by DFican then be calculated as an integral:
Bi= −
&
Fi−DFiFi
1 FciFi
Fci
dFi. (2)To illustrate the pollution index, the marginal damage function for nitrogen oxide is represented in Fig. 1. With an actual yearly flow of 41 000 t
and a critical flow of 11 000 t, the marginal dam-age per thousand tons of nitrogen oxide is 0.34 (see also Table 1). According to formula (2), an emission reduction of DFyields a benefit the size of the shaded area in Fig. 1.
Fig. 1 also shows that the marginal damage below the critical flow is small but not zero. Since the precise determination of the critical flows is very difficult and depends on the ecological knowledge currently available, it seems sensible to assign emission reductions below the critical val-ues a small but non zero benefit5and to choose an
intercept of zero.
Note that the slope of the marginal damage function does not influence the results, since any linear transformation of the function leads to the same index ranking. Choosing the same slope for all pollutants on the other hand implies an equal marginal damage of a normalised quantity at the critical flow.
Finally, to calculate the environmental benefit of all pollutant reductions (E), the pollutant spe-cific benefits (Bi) are summed up over all
pollu-tants. This yields the effectiveness of a measure to
5A sensitivity analysis with zero marginal damage below the
critical flow only changes the results marginally. In particular, the relative cost-effectiveness of the evaluated measures does not change. Note also, that only the actual flow of chemical oxygen demand is below its critical flow.
4An empirical discussion of the linearity assumption is
be used when assessing the comprehensive
cost-The summing up as presented in Eq. (3) allows for a trade-off between different pollutants caus-ing damage but takes no account of possible synergies or antagonies. Thus, the damage of one pollutant is assessed independently of the emis-sion level of other pollutants. With more
knowl-edge about such interdependencies, more
complicated indexes could be applied on the same methodical basis.6
2.2. Greenhouse gas emissions and their effecti6e
range
The political measures analysed in the present
study reduce — besides other pollutants — the
emissions of three greenhouse gases: carbon
diox-ide (CO2), methane (CH4) and laughing gas
(N2O). Since these three substances all contribute
to the same ecological problem of increasing the greenhouse gas effect, it makes no sense to deter-mine critical flows for each substance. Instead, the substances are aggregated to carbon dioxide equivalents according to their global warming po-tential in a time scale of 100 years, i.e. CO2=1,
CH4=11 and N2O=270 (IPCC, cited in Swiss
Confederation, 1994, p. 15). Then a critical flow of carbon dioxide equivalents is chosen. Since no definite critical flow can yet be quantified, the minimum proposition of the IPCC (cited in Pro-Clim, 1996, p. 12) is adopted to half the present global amount of annual greenhouse gases release. Additionally, a sensitivity analysis with lower crit-ical flows is undertaken.
On evaluating the relative damage of pollutant emissions, the further problem arises that differ-ent pollutants affect a differdiffer-ent range of the popu-lation. While, for example, nitrate emissions into ground water in Switzerland do not cross national boundaries, nitrate emissions into lakes and rivers
pollute the North Sea and hence affect the popu-lation of the neighboring states too.7 Greenhouse
gas emissions, on the other hand, have global consequences regardless of the origin of emission. In taking into account these different effective ranges it must be remembered that the considered environmental effects are all of the public bad type — meaning that any person is affected by pollution irrespective of the number of others being affected. To be precise, the marginal dam-age (MDi) as expressed in Eq. (1) is the marginal
damage per person affected by pollution of
sub-stance i, and the total marginal damage of
sub-stance i could be calculated by multiplying the
marginal damage (MDi) by the number of people
affected. Now, if all pollutants affected the same number of people, such a multiplication would be unnecessary since the index is only a relative measurement and has no meaning in absolute terms. For our purposes though, it is necessary to adjust the valuation of nitrate emissions into lakes and rivers as well as greenhouse gas emissions in order to take into account the larger geographical effect of these two substances in comparison with the other pollutants. Hence, the marginal damage in Eq. (1) must be extended with a factor that expresses the size of the affected population rela-tive to a reference population (see Eq. (1%)). To illustrate the extended Eq. (1%), consider two pol-lutants with the same actual and critical flows but with a different effective range. Without taking into account the different number of people af-fected, the two pollutants were assigned the same marginal damage. But since the marginal damage per person affected is equal only, an adjustment with a population factor is needed. Therefore, the pollutant with a larger effective range is assigned a higher total marginal damage. By the same token, the benefit and the total effectiveness of Eqs. (2) and (3) must be adjusted accordingly:
MDi=
7The nitrogen run-off into the Mediterranean Sea is not
considered an ecological problem by the Swiss Federal Office for Environment, Forests and Landscape because the coastal waters are deeper than in the North Sea. Therefore, this effect is ignored.
6For a theoretical discussion on this topic and an
R.Schleiniger/Ecological Economics30 (1999) 147 – 159
where Fci is the critical flow of pollutant i in
affected area;Fiis the actual flow of pollutantiin
affected area;Piis the population in area affected
by pollutant i (CO2-equivalents: 5.25 billion;
ni-trogen into lakes and rivers: 250 million, all other pollutants: 7 million=PCH)
8
; andPCHis the
pop-ulation in Switzerland (7 million).
For a cost-effectiveness analysis that only con-sidered the national effects of emission reduction, no adjustment for international public goods would be necessary. As a consequence, the calcu-lated effectiveness of greenhouse gas and nitrogen reductions would be biased downwardly, since the international benefits of a national emission re-duction would be ignored. In this study, it has been decided to include the international effects of national policies as well.9
2.3. The relati6e marginal damage of pollutant
emissions
In Table 1 the pollutants and the corresponding actual and critical flows per year are listed. Since it is assumed that until the year 2002 the agricul-tural measures will realise their full effect, we chose 2002 as the reference point in time. Hence, all actual flows and all emission reductions refer to the year 2002. The critical flows, on the other hand, do not depend on the choice of a reference year. The last column of Table 1 shows the mar-ginal damage per thousand tons of pollutant emission — calculated according to Eq. (1%).
The last column in Table 1 shows a high mar-ginal damage due to phosphorus emissions. This is mainly due to the relatively low critical phos-phorus flow giving a unit of emission a relatively large weight. At the other end of the scale, the global critical flow of greenhouse gas emissions is very high. This explains why the corresponding marginal damage per unit of emission is low even though it is considered that the total world popu-lation is affected by greenhouse gas emissions. The other factor explaining the relative marginal damage of an emission unit is the ratio of actual and critical flow, which is highest for nitrogen
oxide and lowest for chemical oxygen demand.10
Table 1 also shows that although the ratio of actual and critical flow for nitrogen into lakes and rivers and for carbon dioxide equivalent is the same, the marginal damage differs substantially. Again, this is due to the different critical flows of the two pollutants, giving a thousand tons of nitrogen emissions a much larger weight than the same amount of greenhouse gas emissions.
3. An application to nitrogen reduction measures
We evaluate five measures that both reduce nitrogen pollution substantially and are under political discussion in Switzerland.11 As an
addi-tional measure, an environmental charge on the burning of fossil fuels with a charge rate that is based on the pollutant index is proposed and evaluated. With this measure, an instrument is chosen that reduces pollutant emissions from car traffic comprehensively including emissions of ni-trogen oxide. The measure will turn out to be much more cost-effective than a general carbon dioxide charge.
Again, although the emphasis is on nitrogen reduction, all the other emission reductions are
8Of course, a further spatial differentiation would be
desir-able. But since no further information on regional flows and regional critical flows is available, only three regions (Switzer-land, North Sea Countries, i.e. France, Belgium, Netherlands, Denmark, UK, Sweden, Norway, Germany and World) have been distinguished.
9A sensitivity analysis with only national effects considered
did not change the efficiency ranking of the evaluated mea-sures, although the measure sewage plant (see below) expect-edly turned out to be much less cost-effective.
10Chemical oxygen demand is not a pollutant itself but
serves as an indicator for dissolved organic compounds in lakes and rivers.
11Of course, this choice is very country-specific. As an
also taken into account in order to fully evaluate the measures and to prevent a bias towards mea-sures that only reduce one or a few pollutants.
3.1. Extension of sewage plants
Existing sewage plants are extended to
trans-form ammonia into molecular nitrogen (N2). The
calculations are based on a total nitrogen elimina-tion of 55%. Addielimina-tionally, the measure leads to a reduction of phosphorus emissions and chemical oxygen demand. The cost of this measure consists mainly of capital costs which are calculated on the assumption that an investment of 150 000 CHF t−1 of yearly nitrogen reduction is needed.
3.2. Low nitrogen oxide burners
Heating systems based on oil and gas are re-newed with a new generation of low nitrogen oxide burners. These burners reduce the nitrogen
oxide emission by 1.6 g kg−1 oil. At the same
time, their fuel efficiency is increased from 75 to 85%, leading to less consumption of fossil fuels. The cost calculations are based on an additional
investment of 30 CHF kW−1
. To assess the future benefit of fossil fuel savings, a yearly real price increase of 2% has been assumed.
3.3. Gas cleaning of waste incinerators
An additional gas cleaning system is installed to reduce nitrogen emissions of waste incinerators. The specific emission reduction of this system is 2 g nitrogen oxide per kilogram waste. The invest-ment cost amounts to 25 million CHF per 100 000 t of waste.
3.4. Agricultural policy2002
This package of measures includes two issues relating to nitrogen. Firstly, the new WTO-rules lead to falling producer prices and to structural changes in Swiss agriculture, which, until recently, has been heavily protected from international competition. Secondly, an incentive system for integrated production with an equalised nutrient balance is established. The reaction to this
pack-age has been calculated with a model describing an income maximizing behaviour of a representa-tive farmer. The compararepresenta-tive static results on the farmer’s nitrate cycle have been derived with the method of linear programming. Furthermore, these theoretical findings have been adjusted to empirical data on nitrate flows to allow for the fact that farmers do not produce on the efficient boundary. Finally, the results have been projected to assess the national impact on the agricultural nitrogen emissions (Lehmann et al., 1995). It is forecasted that in the year 2002 96% of all farmers
will have established an equalised nutrient
balance.
3.5. Carbon dioxide charge
A modest carbon dioxide charge increasing the price of gasoline by 10% and the price of other fossil fuels according to their relative carbon con-tent is introduced. To calculate the reaction to such a charge and the loss of consumer surplus, different price elasticities of demand for four groups of polluters are adopted: car traffic, 0.45; road haulage, 0.3; household, 0.4; and industry,
0.5 (Wasserfallen and Gu¨ntensperger, 1988;
Spierer, 1988).
3.6. Index-based charge on fossil fuels
The relative rates of this charge correspond to the relative marginal damage of different fossil
fuels as expressed by Eq. (1%). The burning of
diesel in a truck, for example, produces almost twice as high a marginal damage per unit of energy than the burning of gasoline in a private car. The rates are further differentiated by includ-ing the external cost of traffic noise and traffic accidents. Table 2 shows the external cost rates for passenger traffic and road haulage that have been calculated for Switzerland and are used to
determine the index-based charge rate (see
ECOPLAN, 1991, 1992). With such a differenti-ated charge system, a more cost-effective reduc-tion of emissions than with a simple carbon dioxide charge must result.
R.Schleiniger/Ecological Economics30 (1999) 147 – 159 154
Table 2
External cost rates of traffic
Traffic acci- Traffic noise dents
Passenger traffic (CHF 0.015 0.024 km−1and person)
The emission reductions as listed in Appendix A and the data in Table 1 on the actual and critical flows allow us to calculate the effectiveness as presented in the third column of Table 3.
In the fifth column of Table 3, the cost-effec-tiveness of all the measures is listed. It shows striking differences in the cost per pollution
re-duction, ranging from −351 to +149.12 This
emphasizes the importance of including cost con-siderations when deciding upon environmental policy programs.
Two measures, agricultural policy and low NOx
burners, show a negative cost-effectiveness, i.e. they produce negative cost. These results require some explanation.
The measure entitled agricultural policy leads to less agricultural production in Switzerland and consequently to substantial savings of factor cost (capital: 655 million CHF, labor: 13 million CHF) and fertilizer (216 million CHF) (Lehmann et al., 1995). Since the production costs in Switzerland are higher than abroad, substituting domestic pro-duction with imports is efficient.13
The cost of these imports amounts to 255 million CHF. Also, cost-effectiveness), the rate-level of the
index-based charge is chosen so as to produce the same effectiveness as the carbon dioxide charge.
To assess the cost-effectiveness of the proposed measures, we proceed in two stages. In the first stage, the cost-effectiveness of each measure is derived independently of other measures. This corresponds to a scenario in which each measure is introduced without any of the other policies being realized. The result of this first stage can then be used to rank the measures according to their cost-effectiveness.
Since the cost as well as the effectiveness of a measure depend on the policies already intro-duced, it is not possible to sum up the results of the first stage to obtain total cost and effective-ness data on a package of measures. It is rather necessary to calculate a second stage, taking into consideration the sequence of introducing the measures according to their first stage ranking.
12Since the results can only be interpreted in relative terms,
the choice of the currency is of no importance.
13Note that the environmental effects of additional import
have not been taken into account.
Table 3
Cost-effectiveness of measures to reduce nitrogen emissions (first stage)
Cost-effectiveness (mil-Effectiveness
Effectiveness Cost-effectiveness (CHF
Cost (million Measure
(nitrogen t per ton of nitrogen)
(index-points)
91 0.61 1835 149
Waste incinera- 49 367
it is plausibly assumed that such additional im-ports do not increase agricultural production in the exporting countries, and hence do not increase nitrogen emissions abroad.14
Of course, such a policy is accompanied by distributional effects. Basically, the consumers win and the farmers lose. The opposition of the politically strong group of farmers is the reason why such an economically profitable policy has not already been realized.
The measure entitled low-NOx burners yields
negative cost because the — yearly — saving of en-ergy of 479 million CHF exceeds the capital cost of 324 million CHF. The question arises as to why such burners are not installed without any political decree. The reason is an incentive prob-lem. In Switzerland, 70% of the population are tenants living in apartments that are — for the most part — rent controlled. In this situation, the owners of the apartments have no incentive to install new heating systems because it is the ten-ants alone who would benefit from the energy saving measures undertaken.
Table 3 also shows that an index-based charge on fossil fuels is almost three times more cost-ef-fective than a charge based on carbon content only, i.e. the same pollutant reducing effect can be reached at three times lower cost. With the elastic-ities given above, a loss of consumer surplus of 261 million CHF results. However, these costs are almost compensated by a reduction of external accident and noise cost of 253 million CHF. Compared with these numbers the calculated ad-ministrative cost of 4 million CHF is of minor importance.
It is noted once again that with either of these charges a greater effectiveness can be achieved with higher charge rates. Higher rates, however, lead to higher cost-effectiveness because the shadow price of the environmental restriction increases.
When applying a more stringent critical green-house gas flow of only 25% of the actual flow, the effectiveness of the two measures intended to reduce the burning of fossil fuel is approximately
doubled, and hence they become twice as cost-effective. However, the sensitivity analysis shows that the ranking of the measures does not change even when the critical flows of carbon dioxide equivalents are changed substantially.
The measures entitled sewage plants and waste incinerator appear at the bottom of the order in Table 3. Both measures are typical end-of-the-pipe policies with high capital cost. However, it cannot be concluded that end of the pipe mea-sures are generally inefficient because in this study only a restricted selection of the measures is con-sidered. In another study (Ma¨der and Schleiniger, 1995), the catalytic converter of gasoline exhaust in cars, for example, showed a very good cost-effectiveness.
The last column in Table 3 shows that the relative cost-effectiveness of the measures changes when only the nitrogen reduction is considered.15
As expected, the cost-effectiveness of the two charges on fossil fuels decreases since these two measures are not particularly intended to reduce nitrogen pollutants alone but a wide range of other pollutants too. With this restricted assess-ment of ecological effects, the carbon dioxide charge is less cost-effective than the sewage plants measure. This switch in the efficiency order em-phasizes the importance of considering all ecolog-ical effects when evaluating different measures.
3.8. Second stage results
Table 4 gives the results of the second stage calculations, considering the altered effectiveness of measures when other policies are already real-ized. Because of its inefficiency compared to the index-based charge, the carbon dioxide charge is no longer considered. As a rule, the cost-effective-ness of measures introduced after other measures are already in place decreases in comparison with the first stage results of Table 3. This is due to the decrease in the actual emission flow resulting in a
15Note that the efficiency ranking of measures with negative
cost-effectiveness is somewhat complicated. In our example, the agricultural policy measure is still preferred to the low-Nox
burner measure since it yields both higher effectiveness (tons of nitrogen reduced) and lower cost.
14This assumption only holds for a small country like
R.Schleiniger/Ecological Economics30 (1999) 147 – 159 156
Table 4
Cost-effectiveness of measures to reduce nitrogen emissions (second stage) Effectiveness Cumulative cost
(mil-Cost (million
Measure Cumulative effective- Cost-effectiveness
(mil-CHF per year) lion CHF per year) (index points) ness (index points) lion CHF per index point)
−686 −686
Agricultural 1.96 1.96 −351
policy 2002
Low-NOx −155 −841 1.81 3.77 −86
burners
11 −830
Index-based 1.18 4.95 9
charge
−802 0.51 5.46
Sewage plants 28 55
91 −711 0.52 5.98 175
Waste incinera-tors
lower effectiveness (see Eq. (1%)). Looking at Table
4, it can be seen though that the two measures,
low-NOx burners and sewage plants, have not
changed in their effectiveness as compared to Table 3. The reason is that these two measures reduce pollutants that are not decreased by more cost-effective measures. Therefore, the actual flow of these pollutants does not change in stage two. Now that the interdependencies of the measures are considered, a cumulation of the cost and the effectiveness is possible. Because of the large cost savings of the two most efficient measures, i.e. agricultural policy and low-NOxburners, the total
cost of all the measures is still negative. Hence, with an appropriate compensation of the losers in this policy package, it is possible to reach a Pareto improvement. It is noted that this conclusion can be derived without the need to monetarise the effects of lower pollutant emission.
The results in Table 4 can also be presented as a marginal abatement cost curve. In Fig. 2, the cumulative effectiveness on the horizontal axis is graphed against the ascending cost-effectiveness of the measures on the vertical axis, giving rise to a stepwise marginal cost curve. It is noticed that in our example the more efficient measures are also more effective, i.e. they produce a larger absolute amount of pollutant reduction (with the exception of the two least efficient measures that yield almost the same effectiveness). This is mainly coincidental and can only to a small extent be explained by the decreasing flow of actual
emissions leading to lower effectiveness of less efficient measures.
4. Conclusions
As mentioned in the introduction, an optimal environmental quality standard cannot be derived from the present analysis. For that purpose, a marginal benefit curve as a function of environ-mental quality is required. Moreover, the inclu-sion of further measures (including charges with different charge rates) can lead to a different form of the marginal cost curve in Fig. 2, and conse-quently to a different intersection with the mar-ginal benefit curve. Therefore, the goal of this paper is more modest. The present cost-effective-ness analysis allows one to establish an order of measures to efficiently attain a given environmen-tal standard. Additionally, the toenvironmen-tal compliance cost can be determined.
Fig. 2. Marginal abatement-cost curve.
While these general results are also relevant for other countries than Switzerland, one should take care when applying the specific findings to other countries because they have been derived with country-specific parameters.
Acknowledgements
Much of the basic data on cost and reduced emissions used in this article was taken over from the work of the project group ‘Nitrogen house-hold in Switzerland’, which was set up by the Swiss government to analyze and evaluate mea-sures to reduce harmful nitrogen emissions. I am very grateful for the permission granted to use this data for further research. In particular, I would like to thank the chairman of the project group, Dr. Roger Biedermann, the Institute for Agricultural Economics at the Swiss Federal Insti-tute of Technology in Zurich, the Swiss Federal Office for Environment, Forests and Landscape together with the engineering company of Ku¨nzler and partners, as well as Professor Stefan Felder and anonymous reviewers for many helpful comments.
pollutant and hence the restriction to some of the ecological consequences only. This alternative is much less satisfactory. For further research, it is more interesting to work with different pollution indexes and to analyze the sensitivity of various aggregation methods onto the cost-effectiveness of pollution reducing policies.
The evaluation of measures to reduce nitrogen emissions in Switzerland yields two results of gen-eral interest. First, there are striking efficiency differences between the evaluated measures. These differences point to the importance of considering cost aspects when choosing environmental mea-sures. Second, there are still measures that yield —
besides the reduction of pollutant
R.Schleiniger/Ecological Economics30 (1999) 147 – 159 158
Appendix A. Emission reductions by pollutant and measure (first stage)
Agri- Index- Waste
Pollutant Low- CO2 Sewage
cultural NOx based charge plants incinerator
charge
policy burners
1835 2126
Nitrogen oxide (t year−1) 4171 2132
Ammonia (t year−1) 7000
2289
Nitrogen into lakes and rivers (t year−1) 1120
Nitrogen into ground water (t year−1) 12 880
1525 Volatile organic compounds (t year−1
) 512 4405
3282 Sulphur dioxide (t year−1
) 2681 1761
55 Phosphorus (t year−1
)
2850
Chemical oxygen demand (t year−1
)
3624 4068
Carbon dioxide (1000 t year−1) 2860
Methane (1000 t year−1)
Laughing gas (1000 t year−1) 3
3624 4068
Carbon dioxide equivalent (1000 t year−1) 849 2860
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