Environmental Policies for Air Pollution and Climate Change in the New Europe

Caterina De Lucia

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781136930126
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The interlinked issues of air pollution and energy policies in an enlarged Europe are currently subjects of major interest in economic, environmental, geography and regional sciences. This interest is understandable given the considerable consequences on human health and on climate change issues at not only a European, but a global level. In addition, the recent effects of economic fluctuation and oil prices as well as the actual restructuring of the European energy supply and security market raise a great deal of policy challenges. These issues have become an increasingly relevant concern, as the optimal design of policy by centralised European institutions has come under greater scrutiny.

This book presents an integrated approach to recent regulations on air pollution with particular emphasis on transborder air pollution, climate change and energy policies in the new Europe. This integrated vision embraces the extent to which global pollution influences policy decisions at different institutional levels; the magnitude, by virtue of policy simulation analysis, of environmental policy tools (i.e. environmental taxes) on aggregate welfare and transboundary air emissions fluxes in light of the recent enlargement process; the European Trading System and its flexible mechanisms to curb carbon emissions and fulfil the European Union Kyoto Protocol's commitments; and the developments of the new European energy strategy and its interdependencies across energy requirements, innovation, competitiveness and climate change.

The book is primarily aimed at Postgraduates and Postdoctoral research students in economics, environmental economics, environmental sciences, or environmental policy disciplines. However, it should also be of interest to environmental economists, energy policy analysts, members of governmental and non-governmental agencies dealing with environmental policy, climate change or air pollution.

1
Introduction

Over the last decades air quality and energy issues achieved considerable attention in the European Union (EU). European citizens and institutions constantly acknowledge the need to reach a sustainable pattern between human activities and the natural ecosystem. European environmental regulation is moving fast to comply with the increasing number of international agreements and domestic laws to reduce global emissions. Most of the air pollution problems affecting the EU have their effects at either local or transboundary scale. Acidification as well as ozone depletion and greenhouse gases (GHGs) are pollution problems which are of primary interest to European countries. In the case of acidification, the physical formation process, due to sulphur dioxide (SO₂), nitrogen oxides (NO_×) and ammonia (NH₃), when released in the atmosphere and transformed to acids is deposited either via rain precipitation (wet depositions) or falls directly (dry depositions) on the Earth’s surface. Either ways the natural ecosystem is damaged. At the same time, these depositions, together with fine particles in the atmosphere, deplete the ozone layer. Primary precursors of acidification and ozone depletion are mostly generated from stationary sources (coal burning power plants, industrial boilers or agricultural activities in the case of NH₃) and mobile sources such as vehicle emissions. The 1997 European Commission staff working paper on acidification (European Commission, 1997a) showed that although progress has been made in the short term, the long-term-strategy of ‘no exceeding ever of critical loads and levels’ of the Fifth Environmental Action Programme appears difficult to achieve. The main effect of the acid depositions varies spatially, depending on the sensitivity of the receptors. Critical loads reflect the sensitivity of a certain ecosystem by defining the exposure to pollution that each ecosystem can tolerate before damage occurs. Among European countries, sensitivity varies across different areas. For example, northern EU countries suffer high-sensitivity-levels to acid depositions. Nevertheless, even if reduction in acidification takes place, acidification itself will not stop damaging the natural ecosystem until depositions would reduce below critical load thresholds. The critical load approach has been implemented as a tool to carry out effect-based-and cost-effectiveness-abatement strategies under the Convention on Long Range Transboundary Air Pollution (CLRTAP) (United Nations, 1979). The approach was also used to negotiate the 1994 Sulphur Protocol (United Nations Economic Commission for Europe, 1994). More recently, a Framework of Air Quality Directives (European Commission, 1996a) entered into force to reduce, among other things, SO₂, particulate and ozone depletion. The Council conclusion in 1997 recognised the impossibility of achieving the long-term-target for the whole of Europe by 2010. By using a gap-closure-methodology, various interim targets are available, whose aim is a rational approach to closing the gap between the ecosystem-level-protection in 1990 and the 100 per cent protection by a given percentage. However, with current available technology a 50 per cent gap closure target should be achieved by 2010. Long-term-targets of acidification reductions are also carried out by an international system of agreed data on emissions, transboundary fluxes and budgets depositions. These have been developed and constantly updated by the International Institute for Applied Systems Analysis (IIASA)¹ and the European Monitoring and Evaluation Programme (EMEP).² On the basis of these tools, the community adopted national emission ceilings (NECs), through Daughter Directives (European Commission, 1999a, 2000a, 2002a and 2005a) consistent with the approach undertaken by the United Nations Economic Commission for Europe (UNECE) Convention on Long Range Transboundary Air Pollution (CLRTAP) (United Nations, 1979). NECs allow for a certain degree of flexibility for Member States to determine the most cost-effective-way to decide on pollution emission thresholds. In the context of air pollution, the Large Combustion Plant Directive (LCPD) (European Commission, 2001a) merits particular attention. The LCPD aims to reduce the emission levels of acidifying pollutants and fine particles from large combustion plants contributing to achieve the targets of the CLRTAP and the NECs. Also, the LCPD sets more stringent emission limit values for combustion plants above 50 Megawatt (MW) thermal which are built since 1987 and 2002. For pre-1987 plants, on the other hand, the LCPD gives the opportunity to Member States to opt for either applying the new emission values or developing a National Plan to reduce emissions; in the case of a National Plan for SO₂ and NO_× this would aim at reducing total annual emissions by the year 2012 to emission levels that would be achieved by applying the existing plant during 2000. However, the EU only sets limit values of SO₂ and NO_× leaving countries the freedom to choose the appropriate environmental regulation tool to achieve emission targets.

In the case of GHGs, soon after the industrial era most of the anthropogenic activities heavily affected the formation of dangerous gases to both human health and global ecosystems. Nowadays the international community is fighting for translating into real actions the commitments undertaken for the Kyoto Protocol and curb carbon dioxide (CO₂) emissions worldwide. In the EU the existence of the Emission Trading Scheme (ETS) is recognised as being the first multi-country-legally binding system worldwide to exchange emission permits to reduce GHGs. Entered into force in January 2005, the ETS is now in its second trading period (2008–12). In the first pilot phase (2005–07), allowances were only exchanged across a number of large energy combustion plants. The carbon market price ranged around an initial price of 9 Euros with peaks to 18 Euros/tonne of CO₂, including a debateable low fee (40 Euros/tonne of carbon emissions exceedance) for compliance measures. A number of questions arose from the results of the implementation phase. In a recent review³ conducted across 500 European stakeholders perplexities have risen for the allocation of emission permits. It is argued that in all Member States except for the UK, Ireland, Spain, Slovenia, Italy and Austria too many permits were issued causing CO₂ emissions to rise. Inconsistencies for benchmarking allowances were also evident. Germany, Denmark and Finland for example allowed the possibility to allocate permits to new entrants limiting access to the ETS to existing polluting installations. Sweden, Netherlands and Italy on the contrary have favoured the introduction in the carbon market to a larger number of plants. During the first trading period (2005–07) the ETS has also imposed high administrative costs in terms of data availability or management of the benchmarking process (Egenhofer et al. 2006). Benchmarking resulted to be crucial to the functioning of the system. Questions raised on the distribution of revenues. While most companies would prefer revenues redistribution to favour industries in the need to convert to new technologies their existing production chain, governments and NGOs ‘favour [them being] earmarked for special purposes’ (European Commission Directorate General for Environment, 2006, pp. 5). The Commission, based on the lessons learned in Phase I (2005–07), reinforced the carbon market mechanism for the second trading period (2008–12). The adoption of stricter allocation rules, the increased transparency and publicity within the market, the extension of allowances to non-trading-sector and other pollutants (acidifying and ozone depletion pollutants) and the inclusion of flexible project-based-mechanisms such as the Clean Development Mechanisms (CDMs) and Joint Implementations (JIs) are a clear signal to strengthen the ETS in a perspective which goes beyond 2012.

The EU also welcomes and supports the use of fiscal instruments such as environmental taxes and charges for a cost-effective-management of environmental quality at community level. Through the 1997 Communication on Environmental Taxes and Charges in the Single Market, (European Commission, 1997b) the EU establishes the first step towards the use of environmental taxes in Member States according to the legal framework of the single market. The document was not aimed at explaining to Member States the economics of an environmental tax system; rather it was an ‘action’ to recognise the opportunity upon the adoption of such instruments within the community. The Commission recognises environmental taxes based on the polluter pays principle, a competitive market and an efficient fiscal policy within Member States where revenues from implementing such taxes should not result in distortion. Distortion would arise in all cases where institutions have asymmetric information on the final price of commodities or services. This price would not reflect environmental damages caused in the production of such commodities or services within the community. Distortion would also arise by setting, for example, an environmental tax rate too low or too high to internalise the environmental damage caused to the society. To avoid distortionary effects, the Communication aimed to launch a continuous plan towards examining and monitoring the effectiveness of the existing environmental taxation across Member States by adopting a collection of experiences and case studies, analysing the environmental effects on existing taxes and charges and considering the economic effects on competitiveness within the market. This would serve the Commission in the adoption of ad hoc policies establishing efficient environmental tax rate levels. Additionally, the adoption of an environmental tax system would guarantee the transparency in terms of objectively determine the tax rate, the taxable base, monitoring (to avoid free-riding-behaviours) and collecting systems. The document also ensures that an environmental tax, when applied, would not discriminate against commodities originating in other Member States. By so doing the Commission prevents protectionist actions affecting the principle of free movement of goods within the EU market. In the case ofad valorem (indirect tax) taxes, harmonised rules should apply for duties on specific sectors (mineral oil, tobacco, alcohol, transport and agriculture). The Communication also establishes the use of revenues arising from environmental taxes. In particular, revenues’ destination should be clearly stated by Member States to ensure transparency and avoid state aid. Generally, environmental taxation would serve as support for environmental activities and/or investments, disposal’s collection of dangerous substances and redistribution purposes. In the follow up study of the 1997 Communication (Ecotec, 2001), an evaluation of nine environmental taxes were taken into account. Among these, a comparative study of a NO_× tax across Sweden, France and Galicia (Spain) assumes considerable attention as instrumental to the management of ground level ozone. The implementation of the NO_× tax however differs across countries for its policy design, implementation and revenue’s destination. In Sweden the NO_× tax was introduced in 1990 (Swedish Environmental Protection Agency, 1995) and its value is one of the highest in Europe (about 4,430 Euro/tonne). The charge applies only on large plants and is distributed back through a refundable mechanism. The success of the Swedish experience was to create an effective reduction in NO_× emissions and a neutral effect on competitiveness. The French system on the other hand used NO_× (and other pollutants) revenues for environmental purposes of the French Environment Agency. The tax (of a value around 38 Euros/ tonne in 1998) is seen as a subsidy for abatement technologies and a proxy to estimate further NO_× emission reductions. The design of the Galician NO_× tax case is instead applied to plants with emissions above 1,000 tonnes of NO_× at a tax rate around 30 Euros/tonne. The revenues’ use is also different from the Swedish or French case. Only five per cent revenues from NO_× tax are destined to an environmental fund, the rest is used for Galician regional budget purposes. In most of new Member States environmental air pollution taxes (mostly SO₂ and NO_×) achieved particular attention over the last years prior to accession. The revenue raising funding function was seen as economically instrumental to their implementation rather than effectively reducing emissions. In Czech Republic and Slovakia, for example, emission taxes accounted around 30 per cent of total national revenues. The system, actually in place in Czech Republic, Estonia, Latvia, Lithuania, Poland and Slovakia, (Regional Environmental Center for Central and Eastern Europe, 2001) works such that a base tax rate is applied to a pollution limit level and a non-compliance-fee is added on the exceedance. In addition, taxes on CO₂ have now been predominantly introduced through domestic laws (Sweden, Italy, Denmark, Netherlands, Norway, France, Finland, UK, Slovenia and Estonia) after the failing (for lobbying reasons) of the EU proposal of a carbon tax during 1990s. Attempts have also been made in Ireland where a proposal is due to be submitted in Parliament at the end of 2009. The difficulty of implementing an environmental tax lies in the assessment of external damages and uncertainties linking emissions and their impact on the ecosystem and human health. For example, the damage caused by acidification and/or climate change may be higher in areas which are more vulnerable than others. As a consequence, a bias would result in the estimated health impacts. In this case, the design of an environmental tax employs a ‘second best approach’ where the determination of the tax rate would be the result (the tool) of a political rather than an economic process.

A fundamental component for air pollution and climate change management is the EU’s sustainable energy strategy adopted in 2006 (European Commission, 2006f ) which leads to the promotion of energy policy proposals, the creation of a EU market for electricity and gas, the strengthening of external relations with neighbouring countries and the securing of energy supply. The most ambitious policy proposal is to reach by 2020 the target of 20 per cent GHGs emission reductions using 20 per cent of renewable resources (European Commission, 2007a). This new demanding act of the EU to further fulfil Kyoto commitments and guarantee sustainable energy supply is receiving attention worldwide and domestically. EU citizens (European Union Directorate General for Research, 2007) welcome the opportunity to re-structure-the energy field and are keen to develop further opportunities in the actual energy system. These options mainly occur through incentivising mechanisms for renewable energy use (in particular for domestic energy use) or supporting research and development initiatives in new technologies. Carbon Capture and Storage (CCS) initiatives for example are expected to play a great role in reducing carbon emissions when market conditions and funding schemes will become further viable over the next years. CCS is still in its early development and time is a fundamental variable for this technology to be fully adopted and commercialised at large scale. Proposals for considering incentivising measures come from both public and private sources. It is also expected that the ETS would offer a large share of financial support to CCS provided that carbon prices rise over the next years, when auctioning allowances will be the rule instead of the exception.

1.1 Aims and coverage of the book

This book aims at presenting an integrated view of global air pollution, climate change and energy policies in the new Europe. The book is divided into four main topics: 1) A general overview of current EU air pollution policies; 2) A modelling analysis to study welfare, environmental and economic effects of transboundary air pollution policies (i.e. environmental taxation) in the 27 Member States; 3) A broad illustration of EU climate change market mechanisms to curb CO₂ emissions; and 4) A discussion on the new EU energy policy visions to achieve long-term-sustainable goals. Following this introductory note, Chapter 2 provides a detailed overview of air pollution policies under four different perspectives: EU, Member States, polluting sources and international level. The overview summarises various regulations and offers inspections on the interactions across these angles. A further case also considers the question of harmonisation of environmental policies in EU and its effects on welfare. Chapter 3 presents an in-depth-modelling analysis in the event of implementing harmonised emission taxes and their interactions with the elimination of barriers to trade when the enlargement process occurs. A policy discussion also illustrates how these two policies affect welfare, transboundary pollution fluxes and economic sectors across Member States. Chapter 4 poses its attention on climate change market mechanisms with particular emphasis on current ETS including the lessons learnt in its first implementation phase (2005–07). The chapter also emphasises current EU expectations for future steps to be implemented by the ETS and other flexible investment mechanisms (CDM and JI) to fulfil the EU Kyoto Protocol’s commitments. Chapter 5 carries out a discussion on the new era for EU energy policies highlighting issues for energy security, competiveness, innovation and international relations. Finally, Chapter 6 concludes.

2
European air pollution regulation

European air quality regulation has notably improved and moved fast in terms of approval-implementation-strategies over the last decade. In this chapter the European Union (EU) air quality legislation is analysed under four different angles: EU, Member State, source and international level.

2.1 Air quality programme at EU level

Under the 6th Framework Programme of the EU (2002–06), the CAFE programme received enormous attention for providing a valuable scientific research assessment on air quality in Europe. Based on the results of this assessment, consequent EU air quality regulations (European Commission, 1996a) were put in place and are now fully implemented. In partnership with the IIASA, the CAFE team at the Environment Directorate-General of the EU developed an integrated assessment modelling approach based on the established IIASA’s Regional Air Pollution Information and Simulation (RAINS) model.

The modelling approach estimates cost-benefit-analysis (CBA) and health effects of air pollution in Europe for a 20-year period (2000–30). The base-case scenario considers an energy model of the 25 Member States (EU-25) using the PRIMES model (Institute of Communication and Computer System [ICCS], 2000) and its recent revision (European Union Directorate General for Energy and Transport, 2007).

The base-case-scenario assumes yearly population average growth at 2.2 per cent and various macro-economic-policy measures already implemented in the EU up to the year 2006. These macro-economic-policies concern the completion of the EU energy market by 2010,⁴ energy efficient measures such as the Energy Labelling Directive 92/75/EEC (European Commission, 1992a), use of green heating and combined heat and power materials for buildings, renewable policy taking into account the Directive 2001/77/EC on Electricity Production from Renewable Energy Sources (European Commission, 2001c) and the Biofuels Directive 2003/30/EC (European Commission...

Table of contents

• Routledge Explorations in Environmental Economics
• Contents
• Illustrations
• Foreword
• Preface
• Acknowledgements
• Abbreviations
• 1 Introduction
• 2 European air pollution regulation
• 3 A case study on modelling transboundary air pollution policy in an enlarged Europe
• 4 Market-based-approach to air pollution and climate change
• 5 New EU policy initiatives for air pollution and climate change
• 6 Conclusions
• Notes
• Bibliography
• Index