International knowledge diffusion and its impact on the cost-effective clean-up of the Baltic Sea

This paper analyzes the implications of international knowledge diffusion for the costs of Baltic-wide policy to reduce nutrient emissions to the Baltic Sea. In particular, the impact on the distribution of abatement and costs over time and space is investigated, and the relative importance of knowledge spillovers between countries and nutrient spillovers between marine basins is examined. Using a spatial and dynamic cost-effectiveness model over the Baltic Sea drainage basin, it is shown that theoretically, the presence of knowledge spillovers could imply that abatement can be cost-effective even if the cost is comparatively high and the impact on water quality is zero. The empirical simulations show that a more likely outcome is that higher knowledge dispersal leads to a further concentration of abatement to countries with large, low-cost abatement opportunities.