Towards efficient pollution control in the Baltic Sea: an anatomy of current failure with suggestions for change

We study the Baltic Sea countries' declaration to reduce nutrient loads by 50% in each country in an ecological-economic model. The model consists of country-based abatement-cost functions, and transfer coefficients describing how phosphorus and nitrogen flow from one country to another, as estimated in a hydrological model of the Baltic Sea. We show that for nitrogen in particular the overall abatement costs of the current policy are much higher and that the benefits are more uneven than under a cost-efficient policy. Consequently, one can expect that countries with high marginal abatement costs have the least incentives to follow the agreement and to invest in nitrogen abatement. This is also confirmed by our data. Therefore, we suggest and outline a joint implementation policy to promote cost efficiency and to increase incentives for investments.