Acid rain is caused by sulphur dioxide (SO2), largely from power stations, and nitrogen oxides (NOx), half of which comes from vehicles. The paper attempts to quantify the costs and benefits of abatement in Europe, and concludes that the current agreement on uniform reductions from 1980 levels is inefficient and costly. The evidence suggests that SO2 pollution from power stations is costly and should be reduced. The damage done by different polluters varies significantly with location, as does the cost of abatement. A better solution is payment for reductions from benchmark levels, but tradable permits give rise to problems within the privatized but duopolized electricity-generating industry in the United Kingdom. The emphasis on reducing NOx emissions from vehicles seems misplaced and costly. For both pollutants the present state of knowledge about the costs of the damage done is poor and is a major impediment to rational policy making.
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