Cost-effectiveness of the Baltic Sea Action Plan

Abstract

The governments around the Baltic Sea have agreed on a new set of targets for nutrient load reductions. The major motive for this is new and better knowledge about the link between nutrient loads and water transparency in different parts of the sea. The Baltic Sea Action Plan (BSAP) defines target for transparency in different marine basins, the load reductions necessary to meet transparency targets and a scheme for the distribution of the abatement burden between countries adjacent to the sea. Using a spatially disaggregated cost-effectiveness model, this paper analyzes the environmental effects of a cost-effective policy for meeting BSAP targets under joint costs of reducing nitrogen and phosphorus loads. The marginal cost of nutrient reductions to different parts of the Baltic Sea is derived and the potential cost savings from basin-wide nutrient load permit trade are investigated. The results show that cost-effective fulfillment of BSAP's load targets can imply that water transparency is improved beyond the target levels due to joint reductions of nitrogen and phosphorus. This suggests that costs could be saved through an adjustment of the basin-wise load reduction targets, while still meeting targets for water transparency. The analysis shows that well-functioning load permit trade can reduce the total annual cost of meeting the BSAP's basin targets by 16%, corresponding to 724 million € per year.