An economic analysis of acid rain and emissions reduction in Northeast Asia

Abstract

One important example of transboundary environmental disruption is the damage that acidification (or acid rain as it is commonly known) causes to forests, lakes, groundwater, soils and human health. While, for years scientific research had indicated the seriousness of this problem, and abatement strategies were initiated both at the national and regional levels in Europe and North America, only recently it is recognized as an emerging environmental problem in parts of Asia. Economists have long advocated the use of economic instruments for controlling such transboundary air pollution reflecting their perceived superiority over command and control regulations. One of such instruments, tradable permits approach is gaining popularity because of recent evidence confirming both the environmental effectiveness and the economic efficiency in environmental policy debate. This dissertation analyzed the cost effective abatement strategies and investigated whether a system of tradable permits approach contribute to a cost effective acid rain emissions reduction in Northeast Asia. This research study is divided into three essays and each of these essays is written as self explained research papers. The first essay develops a simple analytical model of cost-effectiveness of transboundary air pollution reduction of multiple pollutants and multiple deposition targets under multi-jurisdictional setting. This issue arises because the published literature usually focus either on single pollutant or typically in terms of reduction in emissions, not in terms of multiple pollutants or attained deposition conditions. Neglecting these issues may result in sub-optimal policies. We then used this model for determining the cost-effective strategies to reduce acid rain causing emissions from electricity generating utilities and industries in Northeast Asia. This approach thus offers an opportunity to investigate the pursuit of efficiently implemented deposition targets in a multi-source, multi-receptor, and multi-jurisdictional setting. In the second essay, we present a theoretical model of tradable permit system for non-uniformly dispersed pollutants using deposition permit system as an attractive alternative to commonly use emission permit system. The model deals explicitly with spatial dimension using transfer matrix and also guarantees that the imposed environmental quality standards are met through the initial allocation of permits. We then extent our basic model with transaction costs and potential market power because they may decrease performance efficiency of the permit market. This is especially important in the case of deposition permit system due to distribution of initial allocation of permits. Finally, the third essay presents an optimization model of modified guided bilateral and sequential tradable permit system to examine what extent such system contribute to a cost-effective acid rain emissions reduction in Northeast Asia. Both national (Northeast China) and regional (Northeast Asia) case studies are presented. In both cases, the results suggest that permit trading steers the trade process towards the cost-effective allocation of emission abatement but it may not be reached fully by profitable trade transactions. Full cooperation is therefore necessary to realize cost savings from such system. This study may benefit for a better insight into tradable permit systems for reaching cost-effective acid rain emission reductions in emerging economies like Northeast Asia.