Economic Instruments for the Control of Acid Rain in the UK

Abstract

UK environmental policy has traditionally focused on administrative controls. The paper considers the introduction of market-based instruments in the context of the control of SO₂ emissions from large combustion plants. These are responsible for more than 80% of total emissions in the UK. The analysis focuses on England and Wales, and considers three separate sectors: the electricity supply industry (ESI), refineries and other industry. It looks at the options for achieving the emission quotas for large combustion plants set by the Large Combustion Plant Directive. Electricity generators are already allowed some discretion, subject to agreement by the enforcing authorities, to allocate pollution control responsibilities among power stations within each company. Given the similarity in the power station mix between National Power and PowerGen, the advantages of extending the mechanism to include power stations of both companies would be limited. More substantial savings can be obtained when refineries and other large industrial plants, which have much higher abatement costs, are included in the scheme. An emission permit scheme which includes the ESI, refineries and other industry is therefore proposed, and is preferred to a mechanism based on emission charges. Some features of this scheme are then discussed.