Costs and benefits from nutrient reductions to the Baltic ...€¦ · Report 5877 • Costs and benefits from nutrient reductions to the Baltic Sea Economic Marine Information 3 Preface

Costs and benefits from nutrient reductions

to the Baltic Sea

rapport 5507 • novemBer 2006

report 5877 • deCemBer 2008

Effective July 1, 2011, this publicationis handled by the Swedish Agency for Marine and Water Management.Telephone +46 (0)10 698 60 [email protected]/publications

Costs and benefits from nutrient reductions to the Baltic Sea

Ing-Marie Gren

Valuable comments are obtained from Katarina Elofsson.

SWEDISH ENVIRONMENTAL PROTECTION AGENCY

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Phone: + 46 (0)8-505 933 40 Fax: + 46 (0)8-505 933 99

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Internet: www.naturvardsverket.se/bokhandeln

The Swedish Environmental Protection Agency Phone: + 46 (0)8-698 10 00, Fax: + 46 (0)8-20 29 25

E-mail: [email protected] Address: Naturvårdsverket, SE-106 48 Stockholm, Sweden

Internet: www.naturvardsverket.se

ISBN 978-91-620-5877-7.pdf ISSN 0282-7298

© Naturvårdsverket 2008

Digital publication

Cover photos: Johan Resele, Global Reporting Sweden AB

SW E DI S H E NVI RO N M E NT A L P R O TE C TI ON A GE N C Y Re p o r t 58 77 • Cos t s a nd be ne f i t s f r om n u t r i e n t r e duc t i ons t o t h e B a l t i c Se a

Economic Marine Information

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Preface The Swedish Environmental Protection Agency, by assignment of the Swedish Government, has carried out a project to gather information about the economic impacts of the human influence on the Baltic Sea and the Skagerrak1 environment. The project, based on already existing material, attempts to compare the situation if no further measures are implemented compared to if further measures are imple-mented. The countries around the Baltic Sea have been invited to participate in the project and the search for economic marine information has been carried out in every state that borders the Sea.

The goal of the project is to provide decision makers with the information available regarding the economic benefits of ecosystem services, the cost of measures re-quired to protect these services, as well as the estimated costs of non-action. The assignment was divided into different subprojects which resulted in different reports.

1. Ecosystem services provided by the Baltic sea and Skagerrak 2. The economic value of ecosystem services provided by the Baltic Sea and

Skagerrak - Existing information and gaps of knowledge 3. Trends and scenarios exemplifying the future of the Baltic Sea and Skager-

rak – Ecological impacts of not taking action 4. The costs of environmental improvements in the Baltic Sea and Skagerrak

– A review of the literature 5. Costs and benefits from nutrient reductions to the Baltic Sea 6. Tourism and recreation industries in the Baltic Sea area – How are they af-

fected by the state of the marine environment? – An interview study 7. Economic information regarding fisheries - Swedish Board of Fisheries

Each of the reports 1-5 contains information on knowledge gaps and suggestions of new research or how existing information could be compiled. All subprojects have been compiled into one synthesis report with the title What´s in the Sea for me – Ecosystem Services of the Baltic Sea and Skagerrak. The author of this report is Ing-Marie Gren, Department of Economics, Swedish University of Agricultural Sciences, Uppsala. During its preparations the content of the report has been debated and discussed and the Swedish Environmental Agency would like to underline that opinions expressed in this report are those of the author and de not necessarily reflect the official view of the Swedish Environmental Agency.

1 The project defines the Baltic Sea and the Skagerrak as the waters of the Bothnian Bay, the Bothnian sea, the Gulf of Finland, the Gulf of Riga, the Baltic Proper, the Danish Straits, the Kattegat and the Swedish coast of the Skagerrak.



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However we find it important that different views regarding subjects brought up in the report are further debated. Hopefully the publication of the report will help in making this discussion a fruitful one that will lead to even better results. Stockholm, October 2008

Swedish Environmental Protection Agency



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Contents

PREFACE 3

SUMMARY 6

SAMMANFATTNING 9

1. INTRODUCTION 12

2. BASIC PRINCIPLES FOR COST EFFECTIVE NUTRIENT ABATEMENT 13

3. NUTRIENT LOADS AND IMPACTS OF ABATEMENT MEASURES 18

4. COSTS OF NUTRIENT REDUCTION MEASURES 27

5. NET WELFARE IMPROVEMENTS OF NUTRIENT REDUCTION MEASURES 33

6. COST EFFECTIVE NUTRIENT REDUCTIONS 38

7. DISTRIBUTION OF NET COSTS 49

8. CONCLUSIONS AND RESEARCH NEEDS 57

APPENDIX 61

REFERENCES 65



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Summary

This study raises three interrelated questions: i) which measures combating eutrophication in the Baltic Sea give net welfare gains?, ii) what are the minimum costs for alternative nutrient reductions to the Baltic Sea?, and iii) which countries make net losses or gains from common international poli-cies against eutrophication?. The questions are approached by means of a mathematical programming model used for calculating minimum cost solu-tions for Baltic Sea wide targets and by reliance on existing welfare esti-mates of eutrophication oriented changes in the Baltic Sea. With respect to the first question, the study calculates and compares net benefits for 14 different measures reducing nitrogen loads and for 10 meas-ures decreasing phosphorus loads. Eight measures affect both nutrients. The measures are classified into two main categories; emission oriented meas-ures reducing nutrient discharges at the sources, and leaching and retention oriented measures. Examples of the former are decreases in airborne emis-sions from installation of selective catalytic reduction and increased clean-ing at sewage treatment plants. Land use changes, such as catch crop culti-vation and wetland creation provide examples of the latter. The reason why it is important to distinguish between these classes of measures is their in-terdependency. The cleaning capacities, and hence costs of reducing loads to the Baltic Sea, of measures affecting leaching and retention are namely de-pendent of the load of nutrient from air and soil, which are affected by the emission oriented measures. Unless this interdependency is accounted for, costs of emission oriented measures for reductions in nutrients to the Baltic Sea are underestimated, which, in turn, implies deviations from cost effec-tive solutions. Benefit estimates rely on other studies, from which constant unit benefit for nitrogen and phosphorus reductions to the coastal water of the Baltic Sea can be derived. Differences in net benefits among measures therefore de-pend on their marginal costs for nutrient reductions. Calculations of costs of different measures reveal that the low cost measures for nitrogen reductions are the second class of measures in the ‘chain of impacts’, i.e. land use changes, and for phosphorus the first class of measures. Estimated marginal costs vary considerably among measures and drainage basins for both nitro-gen and phosphorus reductions. Relatively small reductions in fertiliser pro-vide low cost options, while reductions at high levels constitute the most costly measure for reductions in both nutrients. Other low cost options for nitrogen reductions are wetland creation, catch crop cultivation and installa-tion of catalytic reduction of nitrogen oxides on ships. Removal of phos-phates in detergents and increased cleaning at sewage treatment plants are among the least expensive measures for phosphorus reductions.



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Two types of targets are chosen for calculation of minimum cost solutions under the second main question posed in this report: overall reductions of nutrient to the Baltic Sea and reductions to specific marine basins. Two dif-ferent assumptions on adjustments among basins to exogenous load changes are made for basin specific targets; no adjustment and total, steady state, adjustment. For a given nutrient reduction in percent, estimated total cost and associated cost effective allocation of reduction in loads to different basins vary considerably depending on target setting. For example, at the 20 percent reduction in nitrogen load, annual minimum cost vary between 30 and 240 millions of Euro depending on target specification with respect to overall reductions or decreases in load to specific basins. The corresponding range in costs of phosphorus reductions is larger, between 10 and 290 mil-lions of Euro per year. Furthermore, cost effective solutions imply reduc-tions in nutrient load from most of the drainage basins of the Sea. Although costs can be calculated for different levels of nutrient loads, this is currently not possible for estimations of benefits from improvements in different marine basins. When relating overall and country wise costs with benefits it is therefore assumed that the Helcom Baltic Sea Action Plan (BSAP) generates available benefit estimates. However, the BSAP includes country targets and basin targets. If the countries implement these country allocations cost effectively they will not generate the same impacts on the basins as the BSAP marine basin targets. Benefits are therefore compared with cost effective solutions for different target formulations. The results indicate that overall annual net benefits range between 0.2 and 7.4 billions of Euro per year depending on target formulation and choice of discount rate. Associated allocation of net benefits among countries depends also on choice of common international policy. When comparing two types of poli-cies – BSAP country allocation and nutrient trading markets – it is shown that the size of net benefits can vary considerably depending on choice of policy and on choice of initial allocations of nutrient credits under a trading market system. For example, although Poland is a net looser under both types of policies, the magnitude of annual losses can vary between 0.1 and 1.0 billions of Euro. Common results for both policy designs are that Po-land, Latvia and Lithuania are net losers, and Germany, Denmark, Finland, Sweden and Estonia are net winners. Net impacts for Russia depend on pol-icy design. It is important to emphasise that a study of this kind can be made only under a number of assumptions related to nutrient transports, cost and benefit es-timates. Considering that improvements of nutrient reductions may require decades before full realisation, there is a high degree of uncertainty associ-ated with forecasting impacts on and value of different types of ecosystem services. Furthermore, it might be difficult to implement cost effective strategies at the international and national scales which implies an increase in costs. On the other hand, this study has not included side benefits of abatement measures, such as provision of biodiversity by wetlands, which



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implies an overestimation of abatement costs. Nevertheless, the simulations support earlier studies of likely overall net benefits of common international program against eutrophication, and that associated net benefits may be sufficiently high for compensating net losers of the program. The study also points to need for future investigations and research. One such finding is the inconsistency in the BSAP marine and country alloca-tions, which calls for a diversity and variety in the approaches for modelling nutrient transport in drainage basins and in the Sea. Results are robust and reliable only when several models and modellers arrive at similar results with respect to, among others, nutrient reduction requirements to different basins and from different countries. The need for careful interpretation of the BSAP recommendations is underlined by the large differences in esti-mated abatement costs, totally and for different countries, depending on interpretation and choice of BSAP nutrient targets. However, although data on cost, nutrient load impacts, and benefits from nutrient load reductions is insufficient, there is currently relatively much research and knowledge on these topics when comparing with knowledge on conditions for emergence of international agreements, their implementa-tion in practice in different countries, and human responses to different nu-trient related policies, such as compensation payment for wetland creation in Sweden and Denmark. Unless the understanding of Baltic Sea related hu-man behaviour is improved, further data collection and/or model advances on nutrient loads and biological impacts in drainage basins and/or marine basins may not add much to actual policy making and associated human responses. Current imbalances in knowledge between human and nature behaviour with respect to eutrophication of the Baltic Sea may be one of the most important impediments for improvements of the Sea.



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Sammanfattning Syftet med denna rapport är att belysa och besvara tre olika, men sammanhängan-de, frågeställningar: i) vilka åtgärder för att bekämpa övergödningen i Östersjön ger nettovärde?; ii) vilka är de lägsta kostnaderna för att uppnå olika mål för reduk-tioner av kväve och fosfor till Östersjön?; och iii) hur fördelas nettovärden, mellan olika länder runt Östersjön? Frågorna behandlas med hjälp av en matematisk pro-grammeringsmodell som beräknar kostnadseffektiva reduktioner av näringsämnen till Östersjön och genom utnyttjande av existerande studier som beräknat värden av minskad övergödning i Östersjön. När det gäller den första frågan jämförs nettovärden av 14 olika åtgärder för att reducera tillförsel av kväve och fosfor till Östersjön. En del åtgärder, såsom ändrad markanvändning påverkar transporter av både fosfor och kväve. Åtgärderna klassi-ficeras i två huvudkategorier: åtgärder för reduktion av utsläpp vid källan och åt-gärder som minskar läckage och transport av näringsämnen till kusterna. Exempel på den första kategorin är en minskning av luftburna utsläpp genom installation av katalysatorer i bilar och ökad reningsgrad vid reningsverken. Förändringar i mark-användningen, till exempel odling av fånggrödor och skapandet av våtmarker, utgör exempel på den andra kategorin åtgärder. Skälet till varför det är viktigt att särskilja mellan dessa åtgärdsklasser är deras inbördes beroende. Reningsförmågan, och därmed kostnaden för att minska belastningen på Östersjön, av åtgärder som minskar läckage påverkas av mängden näringsämnen som deponeras på marken. Dessa härrör i sin tur från utsläppskällorna som påverkas av de utsläppsorienterade åtgärderna. Om detta beroende inte tas med i beräkningen kommer kostnaden för de utsläppsorienterade åtgärderna att underskattas. Beräkningar av nettovärde av olika åtgärder visar att förändringar i markanvänd-ning ger de högsta nettovinsterna för kvävereduktioner och utsläppsreduktioner vid källorna de största nettovärdena för fosforreduktioner. De beräknade marginalkost-naderna varierar dock avsevärt mellan åtgärder och avrinningsområden för minsk-ningar av både kväve och fosfor. Reducerad användning av handelsgödsel vid låga nivåer är en relativt billig åtgärd, men minskningar vid höga nivåer utgör en av de dyraste åtgärderna för reduktion av båda kväve och fosfor. Andra lågkostnadsalter-nativ för kvävereduktion är konstruktion av våtmarker, odling av fånggrödor och installation av katalytisk rening av kväveoxid på fartyg. Några av de minst kost-samma åtgärderna för att minska fosformängden är att ta bort ämnet i tvättmedlen och att öka reningsgraden av fosfor i reningsverk. Under den andra frågeställningen beräknas kostnadseffektiva lösningar för två olika slags mål: en allmän reduktion av näringsämnena till Östersjön och en reduk-tion i specifika havsområden. De beräknade kostnaderna för en viss procentuell minskning av näringsämnen varierar väsentligt beroende på målformulering. Vid till exempel en 20-procentig minskning av kvävebelastningen varierar den årliga



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minimikostnaden mellan 30 och 240 miljoner EUR, beroende på mål om generell reduktion till Östersjön eller minskning i belastningen till specifika havsbassänger. Motsvarande spännvidd i kostnaderna för fosforreduktionen är större, mellan 10 och 290 miljoner EUR per år. Dessutom pekar resultaten på att åtgärder ska genomföras i samtliga avrinningsområden för att uppnå kostnadseffektiva reduk-tioner i näringsbelastningen till Östersjön. Resultaten under den tredje frågeställningen indikerar att totala nettovärdet och fördelning av detta mellan olika länder är avhängigt av tre faktorer: mål för reduk-tioner av näringsämnen, räntenivå för diskontering av uppnådda värden, och val av internationell samarbetsform. Resultaten visar att det totala nettovärdet kan variera mellan 0,2 och 7,4 miljarder EUR per år beroende på målformulering och diskonteringsränta. Fördelning av nettovärden mellan olika länder påverkas också av gemensamt styrmedel. När man jämför två slags styrmedel – BSAP:s länderal-lokering och en Östersjömarknad för näringsämnen – ser man att nettovärdet för enskilda länder kan variera betydligt. Även om till exempel Polen är en nettoförlo-rare under båda styrmedlen kan storleken på de årliga förlusterna bli antingen 0,1 EUR under en marknad för näringsämnen eller 1,0 miljarder EUR vid BSAP:s allokeringsförslag. Gemensamma resultat för båda konstruktionerna är att Polen, Lettland och Litauen är nettoförlorare, medan Tyskland, Danmark, Finland, Sveri-ge och Estland är nettovinnare. Nettoresultatet för Ryssland beror på val av interna-tionellt styrmedel. Det är viktigt att betona att en studie av det här slaget bara kan genomföras under en rad antaganden rörande beräkningar av näringstransporter, kostnader och vär-den. Med tanke på att anpassningar i Östersjön till en belastningsminskning kan kräva årtionden finns det en hög grad av osäkerhet när det gäller att förutspå effek-ter på olika slags ekosystemtjänster. Dessutom är det svårt att implementera kost-nadseffektiva strategier på en internationell och nationell skala, vilket medför öka-de kostnader. Å andra sidan har den här studien inte inkluderat positiva sidoeffek-ter av olika åtgärder, som till exempel ökad biologisk mångfald genom konstruk-tion av våtmarker, vilket innebär en överskattning av kostnaderna. Under alla om-ständigheter stödjer simuleringarna tidigare studiers beräkningar som ger nettovär-den av gemensamma internationella program mot övergödning. Studien pekar även ut framtida forskningsbehov. Ett sådant behov härstammar från inkonsekvenserna i BSAP:s havs- och landsfördelning, som manar till mångfald vid modellering av näringstransporten i avrinningsområden och i havet. Beräkning-arna blir robusta endast när flera modeller erhåller likartade resultat med avseende på bland annat krav på reduktioner av näringsämnen till olika havsbassänger. Be-hovet av en försiktig implementering av BSAP understryks av de stora skillnaderna i de uppskattade reduktionskostnaderna, totalt och för olika länder, beroende på tolkning av målen för reduktioner av näringsämnen i BSAP.



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Det bör dock påpekas att även om data på transporter av näringsämnen och belast-ningseffekter är otillräckliga, finns det för närvarande relativt mycket forskning och kunskap om dessa områden när man jämför med kunskaper om villkoren för internationella överenskommelser, deras implementering i praktiken i olika länder, och samhällets reaktioner på olika styrmedel såsom subventioner för konstruktio-ner av våtmarker i Sverige och Danmark. Om inte kunskaper om mänskliga attity-der och beteenden rörande Östersjön förbättras är det risk för att ytterligare datain-samling och/eller modellering av transporter av näringsämnen i avrinningsområden och/eller havsbassänger inte bidrar särskilt mycket till den faktiska Östersjöpoliti-ken. De nuvarande obalanserna i kunskaper om människans och naturens beteende rörande övergödning av Östersjön kan vara ett av de främsta hindren för att havet ska kunna återställas.



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1. Introduction

Damages from eutrophication in the Baltic Sea have been documented since early 1960s by a number of different studies. The riparian countries did also show concern by, among other things, the manifestation of the administra-tive body Helcom in charge of policies for improving Baltic Sea since 1974, and ministerial agreements in 1988 and 2007. However, in spite of long-term monitoring, political concern, and improved scientific understanding of the functioning of the sea, degradation of the sea continues. One important reason for the hesitation to reduce nutrient loads to the Baltic Sea is by all likelihood associated costs, which now start to increase at a higher rate than earlier since the low cost options, such as improvement in nutrient cleaning, have been implemented in several countries. However, studies estimating willingness to pay for improvements indicate significant welfare enhance-ments from cleaning programs. The purpose of this study is to present calcu-lations of costs of nutrient reductions to the Baltic Sea which are compared with benefit estimates obtained from other studies (Söderqvist, 2000; Markowska and Zylicz, 1999). Cost calculations are made by means of an updated mathematical programming model of cost calculations for nutrient reductions with respect to costs and effects of different measures reducing airborne nitrogen and nutrient loads from agricultural, industry, and sewage (Gren et al., 1995; Gren et al., 1997). Cost effective nutrient reductions are defined as minimum cost solutions to pre-specified targets, which can be expressed in nutrient reductions at dif-ferent basins in the Baltic Sea or as required sight depth changes. This im-plies calculations of costs and impacts of a number of different measures affecting the nutrient loads to the Baltic Sea, and a minimum cost solution most often implies a combination of different measures. In spite of the rela-tively large scientific research on the Baltic Sea there are surprisingly few large scale empirical economic studies that analyse and calculate cost effec-tive nutrient reductions to the Baltic Sea (Gren et al., 1997; Elofsson, 1999; Turner et al., 1999; Gren, 2001; Gren and Folmer, 2003; Elofsson, 2003; Gren, 2008). The paper is organised as follows. First, calculations of emissions and nutri-ent loads to the Baltic Sea are presented. Next, benefits and costs of differ-ent measures are presented, which is followed by a chapter presenting cost effective solutions to different targets. Specific attention is given to the costs of the recently suggested action plan by Helcom, which specifies nutrient reductions requirements for marine basins and for different countries (Hel-com, 2007). Next, alternative cost effectively solutions are compared with benefits, totally and for different countries. The report ends with a conclud-ing chapter, which also points at further research needs.



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2. Basic principles for cost effec-tive nutrient abatement

Cost effectiveness is defined as the allocation of abatement measures in different countries, which generates the target at the minimum overall cost. The condition for this is that marginal costs of all measures are equal. As long as marginal costs differ among abatement measures it is always possi-ble to reallocate abatement and obtain the same target at a lower cost. This is made by reducing cleaning at the relatively high cost measure and in-creasing it by the same amount by the low cost measures. Marginal costs of nutrient reductions to the Baltic Sea or any of its basins consist of two main parts: cost for the measure and its impact on the Sea target. Starting with the cost for a specific abatement measures, say im-proved cleaning at sewage treatment plants or reductions of fertilisers, it is most often less expensive to clean up nutrient at low cleaning levels. At higher cleaning levels it becomes increasingly more costly to clean up an-other ton of nitrogen or phosphorus. Such a typical shape of the marginal cost for cleaning at the emission source is illustrated in Figure 1. Euro/ton MC (Marginal cost for cleaning) Nitrogen cleaning Figure 1: Illustration of marginal cleaning cost at an emission source The MC curve in Figure 1 illustrates how cost for cleaning of an additional ton of nitrogen is increasing for higher cleaning levels. Each point on the curve shows the minimum cost for an additional cleaning by one ton. It is then assumed that the firm uses its resources for cleaning, such as labour and capital, in order to minimise total cleaning cost at each cleaning level. If this is not the case, such as under the requirement of best available technol-logy, the marginal cost becomes higher for larger cleaning levels. In prac-tice it is however difficult to estimate such a smooth marginal cost function as illustrated in Figure 1. Instead constant marginal abatement cost, or unit



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costs, are used to compare costs of different measures (see e.g. Elofsson, 2008). This implies a horizontal line in Figure 1. However, the curve illustrated in Figure 1 is for most emission sources not the marginal cost for reaching nutrient reduction targets in the Baltic Sea. In order to find this marginal cost we need to specify the target and to calculate the effect on the target for the specific emission source illustrated in Figure 1. Let us assume that the target is specified as maximum loads to the coastal waters of the Baltic Sea. The curve in Figure 1 is then the same as the marginal cost for achieving the target for a source located at the coastal waters with direct discharges into the sea, a so-called point source. How-ever, for non-point sources located upstream in a drainage basin, the mar-ginal cost at the emission source needs to be combined with the effect on the target from the source in order to represent the marginal cost for nitrogen reduction to the Sea. This is illustrated in Figure 2 where we have two iden-tical emission sources, say a sewage treatment plant located at the coast, A, and an identical plant located upstream, B. Their marginal costs at the emis-sion sources are the same and correspond to the MC curve in Figure 1. However, due to the upstream location of plant B, only half of its effluents reach the coast. This means that it becomes twice as expensive to reduce one ton nitrogen to the coast from plant B as compared to plant A. Let us illustrate this important difference in impacts between the two plants with a simple numerical example, where we assume that the marginal cost is 1 Euro/kg N reduction for both plants. The nitrogen retention rate for the upstream located plant B is assumed to be 0.5. The marginal cost for 1 kg N reduction to the Sea is now determined by the marginal cost at the source divided by the impact. The impact of 1 kg N reduction from plant A is 1, and for plant B it is 0.5. This means that the marginal cost for nitrogen re-ductions to the Sea from plant A is Euro 1/kg N reduction and from plant B Euro 2/kg N reduction. The larger the impact for a given marginal cost at the source, the lower is the marginal cost of nitrogen reductions to the Sea, and vice versa. Marginal costs for different nitrogen reductions to the coast for the two plants are illustrated in Figure 2.



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Euro/ton MCB MCA MCT €B €T

€A

NB N’ NA 2N’ Nitrogen reductions to the coastal water Figure 2: Illustration of marginal costs for nitrogen reductions to the coastal wa-ters from a plant A located at the coast and an upstream located plant B.(MCA, MCB, MCT marginal cost for plant A, B and for both plants; 2N’ nitrogen reduction target; N’ requirement of equal cleaning at the plants; NA,NB cost effective clean-ing by plants; €A, €B marginal costs for plants A and B at N’; €T marginal cost at cost effective cleaning)

Note that, due to the specification of the target, the horizontal axis in Figure 2 shows nutrient reductions to the coastal waters, and not emission reduc-tions at a source as in Figure 1. At N’, the two plants clean the same amount, but their marginal costs differ being approximately twice as high for plant B as for plant A. We can then keep the same total level of cleaning and obtain cost savings by increasing cleaning for plant A and decreasing cleaning for plant B, which, at N’, gives a net saving of €B-€A for a switch by one ton of nitrogen. Obviously, the cleaning allocation where each plant abates N’ is not a cost effective allocation of abatement. The curve MCT shows the marginal costs for abatement by both plants, which is the sum of abatement of each plant for different levels of MC. The target under the individual quotas of N’ corresponds to 2N’. It is shown in Figure 2 that the marginal cost of €T is the same for both plants, and it is then not possible to redistribute cleaning among the plants and obtain the total cleaning of 2N’ at a lower cost. Thus, the cleaning allocation of NA and NB gives a cost effective solution. However, the marine basins of the Baltic Sea have different needs of nutri-ent reductions due to their differences in ecological status. This means that the target of nutrient reductions to the coastal waters of the Baltic Sea is not the prime interest but instead nutrient reductions to specific marine basins. For illustrative purposes, we assume a target for nitrogen reductions to the Baltic Proper basin, B’, and the existence of only one additional marine basins, the Bothnian Sea, where an identical sewage treatment plant as above can be located, which we call plant C. It would seem straightforward to chose measures located in the drainage basin of the Baltic Proper under



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the presupposition that the impact on the Baltic Proper is largest for such locations. This is likely to be true, but it is also correct that measures in other marine basins have some impact on the nutrient availability in Baltic Proper. Therefore, instead of climbing along the marginal cost curve for measures in the own drainage basin, a cost effective achievement of a target in Baltic Proper can include measures located in an adjacent basin. A cost effective allocation of nutrient reductions to the Baltic Proper basin is illustrated in Figure 3, where we now have three identical plants that can be located at the coast of Baltic Proper, A, or the Bothnian Sea, C, or up-stream in the drainage basin of the Baltic Proper, B. According ot Savchuck (2005) the relation in impacts on the Baltic Proper between measures in its own drainage and in that of the Bothnian Sea is approximately 1:0.6, that is, one kg nitrogen reduction from plant A implies one kg reduction to Baltic Proper, and one kg nitrogen reduction from plant C generates 0.6 kg nitro-gen reduction to Baltic Proper. This relation has been calculated by means on input-output analysis, which shows the dispersion and adjustment im-pacts among basins from an external load change to one basin, which is described in Chapter 3.2. Euro/ton MCBMCC MCA MCBP €BP

NB NC NA NBP Nitrogen reductions to the Baltic Proper basin Figure 3: Illustration of marginal costs for nitrogen reductions to the coastal wa-ters from plants A and B located at the coast of Baltic Proper and an adjacent basin respectively, and an upstream located plant B in the drainage basin of Baltic Proper. (MCA, MCB, MCC: marginal costs for plants A, B and C; MCBP marginal cost for all three plants; NBP assumed nitrogen reduction target; NA, NB, NC cost effective cleaning of plants A, B and C; €BP marginal cost generating cost effective allocation of cleaning) The horizontal axis now represents nitrogen reductions to the Baltic Proper marine basin. The nutrient reduction target is NBP, and the marginal cost for different nutrient reduction levels including all three plants is represented by MCBP, which shows the minimum increase in total cost for an increase in nutrient reductions to the Baltic Proper. The marginal cost curves for the



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three identical plants at different locations are illustrated by MCA, MCB, and MCC. The marginal cost of plant A is still lowest, but due to the relatively large impact of cleaning at the coastal plant in the adjacent basin Bothnian Sea as compared to the upstream located plant B, MCC is lower than MCB. At NBP, the marginal cost is €BP, and the associated cost effective allocation of cleaning between the three plants is NA, NB, and NC. Thus, in a cost effec-tive allocation the low marginal cost paths for all plants are used. Exclusion of any measure, such as plant C because of its location in another basin than the target basin, would lead to larger total cost for reaching the target NBP. This chapter has demonstrated the need for calculating costs at emission sources and their impacts, where impacts can be quite complex and include several pollutant pathways, for all possible abatement measures in a drain-age basin. Furthermore, the role of target formulation and associated loca-tion of abatement measures have been demonstrated. It can be less costly to implement abatement measures in other marine basins than the target basins then to locate the measures upstream in the drainage basin of the target ma-rine basin. An appropriate cost effectiveness analysis can be carried out when there is access to data on abatement costs at emission sources and their impacts on the target(s). In the case of Baltic Sea there are not one abatement measure with three different locations, but several different abatement measures and locations. Choice of locations depends, in turn, on the target formulation, such as reductions in overall nutrient reductions or to specific marine basins. As will be discussed in this paper, the impact of a measure is far from a trivial issue to calculate when considering two nutrients, heterogeneous water basins, and dependency in impacts among measures.



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3. Nutrient loads and impacts of abatement measures Although simple, the brief presentation in Chapter 2 illustrates the impor-tance of quantifying both impacts and costs of measures. The impacts are, in turn, determined by nutrient transports in soil, surface and sub surface wa-ters in the drainage basins, and, depending on target formulation, by trans-ports among marine basins in the Baltic Sea. The quantification of impacts is to a large extent related to the calculations of total nutrient loads to and within the Baltic Sea. Therefore, the calculations of the nutrient loads used as a reference case are presented in this chapter. Unless otherwise stated, all data and calculations are found in Gren et al. (2008). In order to match data availability on costs and impacts of different meas-ures the entire drainage basin is divided into 24 basins (see Figure 4) for which nutrient emissions, costs and impacts of different measures are calcu-lated. The choice of drainage basins is based on availability of data on emis-sions, leaching into waters, transports from the emission sources to the coastal waters of the Baltic Sea, division of marine basins in the Baltic Sea, and on costs of alternative measures.



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Figure 4: Drainage basins of the Baltic Sea (originally from Elofsson, 2003). (Drainage basins in Denmark (2), Germany (2), Latvia (2), and Estonia (3) are not provided with names, but are delineated only by fine lines) In this paper, two main target formulations are considered: nutrient reduc-tions from the 24 drainage basins to the Baltic Sea and nutrient reductions to specific marine basins. In the following, calculations of nutrient loads for these two formulations are briefly presented. 3.1 Nutrient loads to coastal waters Nutrient loads to the Baltic Sea are, for all emission sources, calculated by means of data on emissions, which is sufficient for sources with direct dis-



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charges into the Baltic Sea, such as industry and sewage treatment plant located by the coast and air deposition. For all other sources additional data is needed on the transformation of nutrients from the emission source to the coastal waters. This requires data on transports of airborne emissions among drainage basins, leaching and retention for all sources with deposition on land within the drainage basins, and on nutrient retention for upstream sources with discharges into water streams. Nitrogen loads are therefore divided into three main classes; airborne emissions, agricultural loads, and discharges of sewage from households and industry. Phosphorus loads are classified into the same categories except for exclusion of airborne emis-sions. The calculations of loads from these sources are briefly described in the following.

Airborne emissions include nitrogen oxides and ammonia which is depos-ited in the drainage basins and directly on the Baltic Sea. This study in-cludes nutrient loads, which can be affected by measures implemented in the drainage basins of the Baltic Sea. This includes all air deposition on land within the drainage basin, which originates from countries within and out-side the drainage basin and can be changed by land use measures. This is not the case for direct air deposition on the Baltic Sea originating from non-riparian countries, which accounts for approximately 15 per cent of calcu-lated load to the Baltic Sea from air borne emissions, see Table 1.

Airborne emission gives rise to deposition directly on the Sea and also indi-rectly through deposition on land which is transported by soil and water into the Baltic Sea. Calculation of indirect air deposition and loads from agricul-ture is made by data on deposition on land and on leaching from soil and retention in water transports to the Baltic Sea (see Table A1 in the Appendix for data on land use, leaching and retention of nitrogen and phosphorus). Deposition of nutrients on arable land includes manure and fertilisers. Dis-charges of N and P from households are estimated based on data on annual emission per capita in different regions, and on connections of populations to sewage treatment plants with different cleaning capacities. Calculated loads of nitrogen and phosphorus from all classes of emission sources are presented in Table 1.



21

Table 1: Calculated allocation of N and P discharges into Baltic Sea from different sources and countries, thousand tons of N and P in 2005 Country Nitrogen:

Air1 Sewage Agric. Total Phosphorus: Sewage Agric.. Total

Denmark 20 3 21 44 0.5 0.6 1.1 Finland 18 9 22 49 0.8 0.9 1.7 Germany 11 4 31 46 0.2 0.3 0.5 Poland 71 41 206 318 11.0 10.0 22.0 Sweden 22 14 37 74 1.0 0.6 1.6 Estonia 6 4 46 56 0.3 1.3 1.6 Latvia 9 4 31 44 1.0 2.0 3.0 Lithuania 17 4 72 93 1.1 2.4 3.5 Russia 47 15 22 83 2.7 1.3 4.0 Baltic Sea2 18 18 Total 239 98 487 824 19.6 19.3 38.9

1. Both direct discharges on the Baltic Sea and indirect loads from deposition on land and transports to the Sea are included. In average, direct discharges account for 45 % of total air loads. Approximately 15 % direct deposition on the Sea from non-riparian countries is excluded. 2. Direct deposition on the Sea from emission sources operating at the sea. Source: Gren et al. (2008). The largest single source of nutrient load is the agricultural sector in Poland, which accounts for approximately 25 per cent of total load of both nitrogen and phosphorus. In total, nitrogen load from Poland accounts for almost 40 per cent of total load. The next largest country source is Lithuania, followed by Russia. The main reasons for the relatively large load from Lithuania are relatively high levels of airborne deposition due to intensive animal farming and low retention of nitrogen. It can also be noted that the agricultural sec-tor accounts for 59 per cent of total calculated nitrogen load and to 50 per cent of total calculated phosphorus load. Approximately 30 per cent of total nitrogen loads originate from air borne emission. Since the calculated loads presented in Table 1 provide the basis for estima-tion of costs under different target formulations, it is of interest to compare the results with similar studies. The estimated results reported in Table 1 can then be compared with two other sources of similar estimates, but for other time periods (Helcom, 2004, 2007). Helcom (2004) presents calculations of nutrient loads for the year 2000 and Helcom (2007) show average loads for the period 1997-2003, see Table 2.



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Table 2: Country shares of nitrogen loads and phosphorus loads from differ-ent calculation sources, % of total estimated loads. Country Nitrogen loads;

Own BSAP1 Hel com2

Phosphorus; Own BSAP1 Hel com3

Denmark 5.0 7.3 7.8 2.9 4.7 5.3 Finland 5.9 12.1 13.7 4.2 11.7 14.1 Germany 5.6 2.6 2.5 1.2 1.5 1.4 Poland 37.9 27.2 25.7 56.5 36.0 36.7 Sweden 9.0 18.2 20.6 4.2 13.6 14.4 Estonia 6.3 4.2 3.6 4.2 3.3 2.8 Latvia 5.4 11 9.1 7.7 5.2 6.4 Lithuania 11.2 6.2 6.4 8.9 6.6 5.5 Russia 10.4 11.3 10.6 10.1 17.3 13.4 Total 97.84 100 100 100 100 100 Total load, thou-sand tonnes of N and P

823.9 791.31 744.9 38.9 38.07 34.5

1) Helcom (2007) table 2 page 3 and figure 2; 2) Helcom (2004) table 5.39; 3) Helcom (2004) table 5.41; 4) Own estimates of country shares do not sum to 100 due to the loads of air emission sources operating outside the drainage basin of the Baltic Sea. Source: Gren et al. (2008) table B3 in Appendix B

The estimated total loads of both nitrogen and phosphorus are close to those reported in Helcom (2007) report. A common result to all three calculation sources is the dominance of Polish loads of nitrogen and phosphorus, but the magnitude differ between the studies. The Polish shares of total nitrogen and phosphorus load are larger in this study and in BSAP than in Helcom (2004). As will be demonstrated in Chapter 4, differences in country alloca-tions of nutrient loads between sources can be of large relevance for country allocations of nutrient reductions. The calculated nutrient loads presented in Tables 1 and 2 give an indication of main sources of pollution and associated nutrient abatement potential. For targets with large overall reductions in nutrients, measures must be imple-ment in Poland for achieving the target. How much abatement to carry out in Poland also depends on the costs of measures, which we know depend on abatement cost at the source and its impact on the target. Impacts of up-stream located measures in the different countries are determined by the leaching and retention parameters for each drainage basin. High leaching and low retention rate implies a relatively large impacts of measures imple-mented upstream. For example, the leaching coefficients of nitrogen, i.e. share of leaching of deposition on land, in Denmark is 0.095 and in Poland 0.229 indicating an impact of upstream located measures in Polish drainage basins that is 2.4 times higher than of measures in Danish basins (see Table A1 in Appendix A). However, retention rate, the share of leaching reaching coastal waters, is 0.1 in Denmark and 0.34 in Poland. The final impact when considering both leaching and retention of measures in Denmark is then



23

0.095x(1-0.1)= 0.085 and in Poland 0.229x(1-0.34)=0.13. The difference in impacts of measures in the Danish and Polish drainage basins is now re-duced considerably as compared to when only leaching is considered. Simi-larly, a focus only on the retention rates would also be misleading since then impact of abatement measures would be larger in Denmark then in Poland. Impacts, measured as shares of abatement at the source reaching the Baltic Sea, for all riparian countries are presented in Table 3. Table 3: Impacts after leaching and retention of one unit nutrient load change from upstream located measures on coastal waters. Region Nitrogen Phosphorus Denmark 0.06 0.01Finland 0.12 0.02Germany 0.11 0.01Poland 0.13 0.04Sweden 0.04 – 0.19 0.01 – 0.02Estonia 0.24 0.02Latvia 0.20 0.06Lithuania 0.29 0.08Russia 0.24, 0.25 0.02, 0.03

Source: Table A1 in appendix. The range in impacts for Sweden is explained by the relatively large number of drainage basins and the availability of measurements on leaching and retention. The two estimates for Russia refer to the two different drainage basins. According to Table 3, the highest impacts of upstream located measures, mainly in the agricultural sector, are found in Lithuania, Estonia, Russia and Latvia. Sweden shows the lowest impacts which occur for drain-age basins located in North Sweden. 3.2 Nutrient loads to marine basins

In order to calculate cost effective solutions to targets on maximum load to different basins of the Baltic Sea, associated calculated loads are required. However, depending on assumptions of adjustments among basins to ex-ogenous changes in loads from any drainage basins two different loads to basins are identified in this study; direct loads from own drainage basins and long-term final adjustment. Due to the responses in the Baltic Sea to exoge-nous changes in loads to one or several of the basins, direct loads are not sufficient for assessing biological responses to exogenous load changes. The final adjustment, so called steady state, represents adjustments where all spread of impacts and repercussions among basins are accounted for. Final load in steady state after all adjustments have taken place can be calculated by means of input-output analysis (Gren and Wulff, 2004; Savchuk, 2005).



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Calculated direct discharges of nutrients and steady state nutrient loads are presented in Table 4.

Table 4: Allocation of nutrient loads among basins of the Baltic Sea under different response scenarios, in %. Basin Nitrogen:

Direct1 Steady state2

Phosphorus: Direct1 Steady state2

Bothnian Bay 3 2 2 1 Bothnian Sea 4 12 3 12 Baltic Proper 61 46 71 27 Gulf of Finland 14 9 13 6 Gulf of Riga 6 3 7 2 Danish Straits 7 16 3 30 Kattegat 5 11 2 23 Total 100 100 100 100

1)No response; 2) Full adjustment, which may take decades Source: Gren et al. (2008) page 15. The direct loads reported in Table 4 show that approximately 60 percent of total nitrogen load and 70 per cent of total phosphorus loads enter the Baltic Proper. These shares of total direct discharges reflect the sizes and loads of the drainage basins of the water basins. When comparing the shares of direct discharges with similar estimates from two Helcom sources, the estimated shares in Table 4 to the Baltic Proper are relatively high, while the shares to Bothnian Bay, Bothnian Sea and Kattegat are relatively low, see Table A2 in Appendix. The results presented in Table 4 show significant differences in shares of direct and steady state loads to the marine basins. For both nutrients, the loads to Baltic Proper reduce considerably while the nutrient loads to Both-nian Sea, Danish Straits, and Kattegat increase significantly. These changes in allocation of nutrient loads also give indication of impacts of different measures for basin targets. For several target basins, which constitute all basins except for the Bothnian Bay and the Bothnian Sea, there is a differ-ence in allocation of loads between direct discharges and allocations after adjustments have occurred. This means that the impact of measures with direct discharges into, say Baltic Proper, have a smaller impact, and hence, higher marginal costs, when accounting for adjustments. The allocation of impacts of a change in nitrogen load by one unit on each marine basin are presented in Table 5

Table 5: Share of impacts from 1 unit change in nitrogen load in ‘column’ basins on ‘row’ basins



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Bothn. Bay

Bothn. Sea

Baltic Proper

Gulf of Finland

Gulf of Riga

Danish Straits

Kat-tegat

Bothn. Bay 0.30 0.04 0.01 0.01 0.01 0.00 0.00 Bothn. Sea 0.31 0.42 0.11 0.07 0.07 0.04 0.02 Baltic Proper 0.25 0.35 0.57 0.36 0.33 0.22 0.08 Gulf of Finland 0.02 0.03 0.05 0.39 0.03 0.02 0.01 Gulf of Riga 0.01 0.01 0.01 0.01 0.42 0.01 0.00 Danish Straits 0.07 0.10 0.16 0.10 0.09 0.46 0.17 Kattegat 0.04 0.05 0.09 0.06 0.05 0.25 0.73

Source: Calculations based on Savchuck (2005). Each column shows the allocation of impacts on all marine basins of a change by one unit in the column basin. For example, a decrease by 1 ton of N in Bothnian Bay gives the largest impact in Bothnian Sea followed by Bothnian Bay. It can also be seen that changes in nitrogen loads in all basins but Danish Straits and Kattegat give rise to impacts on all basins. Further-more, the basin with the largest own impact is Kattegat, and that with the smallest is Bothnian Bay. However, for our purpose, i.e. identifying differences in impacts on a target basin from location of a measure in different basins, it is of most interest to look at the rows. When Baltic Proper is the target basin, it can be seen from the row of this basin that reductions in all marine basins affect the nutrient load in this basin. The differences in impacts among basins from a change in nutrient load by one unit to the basins can be found by relating the shares of the other basins to that of Baltic Proper. For example, the relative difference between a reduction in loads to the Bothnian Sea and Baltic Proper is ap-proximately 2.3 (0.57/0.25). That is, the impact of nutrient reductions to the Baltic Proper from a measure implemented in the own drainage basin is 2.3 times larger than if the same measure is implemented in the drainage basin of the Bothnian Bay. Implementation of abatement measures in Bothnian Bay for achieving targets in Baltic Proper is then cost effective when the cost of a measure in the Baltic Proper is at least 2.3 times higher than that of a measure in the Bothnian Bay. Another interesting observation is that the basin with the highest impacts of measures in the own drainage basin as compared to measures in other basins is Gulf of Riga The corresponding allocations of impacts of phosphorus on all basins from a change by one unit in each of the basins are presented in Table 6.



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Table 6: Share of impacts from 1 unit change in phosphorus load in ‘column’ basins on ‘row’ basins Bothn.

Bay Bothn. Sea

Baltic Proper

Gulf of Finland

Gulf of Riga

Danish Straits

Kat-tegat

Bothn. Bay 0.41 0.02 0.01 0.01 0.01 0.01 0.00 Bothn. Sea 0.22 0.36 0.16 0.13 0.13 0.10 0.05 Baltic Proper 0.17 0.28 0.37 0.30 0.31 0.23 0.12 Gulf of Finland 0.03 0.05 0.07 0.24 0.06 0.04 0.02 Gulf of Riga 0.01 0.02 0.02 0.02 0.18 0.01 0.01 Danish Straits 0.11 0.18 0.24 0.20 0.20 0.39 0.20 Kattegat 0.06 0.10 0.13 0.11 0.11 0.21 0.61

The pattern in spread of impacts of one unit phosphorus change in the col-umn basins in Table 6 is similar to that of nitrogen changes. One difference can be observed, which is that the own impacts are smaller for almost all basins for phosphorus reductions than for nitrogen changes.

When comparing the relative impacts for a target basin such as Baltic Proper with the combined leaching and retention impacts presented in Table 3 it can be noticed that the impacts of measures located upstream in drainage basin correspond to maximum 29 per cent of the impact of measures located at the coast. It thus seems as measures reducing direct discharges to coastal water in several marine basin can be less costly than abatement of upstream nutrient load in the catchment of the target basin. For example, Gren et al. (2008) show that cost effective nitrogen reductions to the Kattegat basin include measures implemented in the drainage basin of the Bothnian Sea and Bothnian Bay.



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4. Costs of nutrient reduction measures

Foregoing chapter revealed the differences in impacts depending on target formulation. However, there is also dependency in impacts on the Baltic Sea between different types of measures. The abatement measures included in this report are therefore divided into two main classes: reductions in nutri-ents at the source and reductions in leaching of nutrients into soil and water for given nutrient emission levels. The first class includes, among others, reductions in the use of fertilisers and reductions in livestock holdings. Ex-amples of the second class of measures are land use measures such as in-creased area of grassland and cultivation of catch crops, and changed spreading time of manure from autumn to spring.

The costs for the second class of abatement measures consist of manage-ment cost and opportunity cost for a given area of land, which are independ-ent of the leaching impacts. The cost of nutrient reductions then depends on the deposition of nutrient on land or nutrient load to a downstream wetland. The deposition, in turn, depends on the emissions from the sources, i.e. first class of measures, and, for wetlands, leaching into waters entering the wet-land. The cost for leaching reduction, or nutrient abatement by wetlands, is then lower the higher is the emission if there is a positive correlation be-tween leaching and emission of nutrients entering soil and water in the drainage basins. This, in turn, means that marginal cost for nutrient reduc-tions to the Baltic Sea increases for measures implemented at the emission sources since a decrease in emissions reduces the leaching impact, and hence increase abatement cost of the second class of measures (see Gren et al. 1997 and Byström 1998 for formal derivations of these cost linkages). If this interdependency among measures is not accounted for, the calculations will not generate cost effective solutions.

This report is based on estimates of abatement costs for different measures made in Gren et al. (2008), which include 14 measures affecting nitrogen loads and 10 measures changing phosphorus loads, where most of the meas-ures belong to the first class of measures affecting emissions at sources. However, before presenting calculations of costs for nutrient these reduc-tions at sources and to the Baltic Sea, a brief presentation is made on the empirical approaches applied for the cost calculations.



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4.1 General approach for calculations of costs at sources

Ideally, when calculating cost of an abatement measure, data is available on total costs for different reduction levels where total costs include two main components: net cleaning cost at the source and dispersion of impacts on the rest of the economy. Examples of cleaning cost at the source are expenses for increased cleaning at sewage treatment plants, foregone profits from decreases in the use of nitrogen fertilisers, and expenses for creation of wet-lands.

Cleaning activities at firm levels in different sectors of the economy may give rise to impacts on other sectors and adjustments within the whole economy. So called computable general equilibrium (CGE) models can be applied for calculating final costs, including all adjustments among produc-tion sectors in the economy (e.g. Bergman. 2005). Such a CGE approach is indeed appropriate for calculation of costs in sectors with relatively large shares of the total production in the economy, which generate considerable dispersion impacts on the economy. However, the usefulness of CGE is questionable for cost calculations of activities in primary production sectors with relatively small shares of total production, which is the case for agri-cultural sectors in several Baltic Sea countries (Brännlund and Kriström. 1996). Furthermore, another advantage with CGE models, consideration of trade linkages among the Baltic Sea countries, may not be applicable due to the small trade volume among the riparian countries (Johannesson and Randås, 2000). An alternative to CGE models is then partial equilibrium approach, which is a more simple and less data demanding approach. It can be carried out by use of data on demand for inputs goods such as nitrogen fertilisers. Mini-mum costs for abatement by means of a measure, say fertiliser reduction or changes in land use, are then derived by imposing abatement requirements, such as restrictions on the use of an input at different levels for the represen-tative profit maximising firm. Adjustment take place, and the resulting re-duction in profits show the minimum cost of obtaining different levels of cleaning.

A third approach for calculations of cost for measures at the sources is the so-called engineering method, which calculates cost for a specific measure, say increased cleaning at sewage treatment plants or installation of selective catalytic reductions at combustion sources, based on the measures’ need for different inputs such as labour and capital at given prices of these inputs. Constant unit abatement costs are then assumed, which result in linear cost curves as compared to the convex cost function, which can be obtained from partial equilibrium analysis. In this study, partial equilibrium analysis is applied for reduction in fertilisers and engineering methods are used for calculations of costs of all other measures.



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In order to calculate marginal cost of measures for reductions in nutrient loads to the Baltic Sea, the estimated costs of cleaning measures are com-bined with data on impact on the Baltic Sea which occurs by nutrient trans-ports in soil and water, in air, and, depending on target formulation, in ma-rine basins. Measures affecting airborne emission have the most involved ‘chain of impacts’, where reductions in airborne emissions have direct and indirect impacts on the Sea. The direct impacts consist of the share of emis-sion that would have been deposited on the Sea, and the indirect impacts occur through decreases in dispersal of deposition on land within the entire drainage basin, which, in turn, generate less leaching and final transport to the Baltic Sea. Measures with direct impact on the Sea, such as increased cleaning at sewage treatment plants located by the coast, have the most sim-ple ‘chain of impacts’, where the impact on the Sea corresponds to the re-duction at the source.

4.2 Calculated marginal costs

The two classes of measures, reduction of nutrient at the emission sources and measures affecting leaching and retention, include 14 emission nitrogen reduction measures and 10 measures for corresponding phosphorus reduc-tions, see Table 7.

Table 7: Included measures N reduction (14 measures)

P reduction (10 measures)

Emission reduction measures: Selective catalytic reduction (SCR) on power plants

SCR on ships SCR on trucks Reductions in cattle, pigs, and poultry Reductions in cattle, pigs, and poultry Fertilizer reduction Fertilizer reduction Increased cleaning at sewage treat-ment plants

Increased cleaning at sewage treatment plants

Private sewers Private sewers P free detergents Measures affecting leaching and re-tention:

Catch crops Catch crops Energy forestry Grassland Creation of wetlands Creation of wetlands Changed spreading time of manure Buffer strips

Costs for reductions in airborne emissions by SCR, change in spreading time of manure, increased cleaning at sewage treatment plants and private



30

sewers in rural areas are calculated as annualised investment costs, which are obtained from (COWI, 2007) and (Shou et al., 2007). Costs of reduction in livestock holdings and decreases in nutrient fertilizers are calculated as associated losses in profits, and costs of P free detergents as increased pro-duction cost. Costs of P free detergents and reduction in livestock holdings are found in COWI (2007). Abatement by each measure is subjected to capacity constraint, such as a maximum cleaning of phosphorus at sewage treatment plant by 90 per cent. Additional constraints are the number of households that can be connected to sewage treatment plants. Limitations on fertiliser and livestock reduc-tions are imposed in order to avoid drastic structural changes in the agricul-tural sector. For a detailed presentation of abatement capacities of all meas-ures see Gren et al., (2008). Marginal costs for nutrient reductions to the coastal water of Baltic Sea are obtained by dividing the marginal costs at the sources with their impacts on the Baltic Sea as presented in Chapter 3.1. The latter is determined by spread of airborne emissions of nitrogen oxides and ammonia, leaching from soils, and retention of nutrients during transports from the emission source to the Baltic Sea (for data see Gren et al. 2008, Tables A1, A4-A6 in Appendix A). Calculated marginal costs for reductions of nitrogen to the Baltic Sea are presented in Table 8. Table 8: Calculated marginal costs per kg N reduction to the Baltic Sea from emission reduction measures at sources, Euro/kg N reduction to coastal waters. NOx Livestock

reductions Fertiliser reduction

Sewage treatment

Private sewers

Denmark 25 – 42 36 – 65 1 – 154 15 – 35 54 – 60 Finland 27 – 43 30 – 59 1 – 42 15 – 45 54 – 77 Germany 47 – 80 56 – 68 1 – 44 15 – 48 54 – 82 Poland 33 – 56 33 – 44 1 – 11 12 – 48 46 – 81 Sweden 23 – 40 23 – 52 1 – 50 15 – 79 54 – 81 Estonia 24 – 40 23 – 35 1 – 7 12 – 35 46 – 59 Lithuania 27 – 45 6 – 14 1 – 24 12 – 41 46 – 83 Latvia 37 – 37 22 – 43 1 – 17 12 – 49 46 – 70 Russia 28 – 64 22 – 41 1 – 44 12 – 67 46 – 115 Minimum cost per unit N reduction by SCR in ships including direct impact on the Baltic Sea and indirect on deposition on land in all drainage basins is Euro 2/kg N reduction.

Sources: Gren et al. (2008) page 21 The spread in marginal costs of the measures depends on type of measures for NOx decreases, type of animal for reductions in livestock holdings, level of reduction for fertilizer decreases, sewage treatment and private sewers. Furthermore, for all measures marginal costs depend on location in each



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drainage basin, at the coast or upstream. Differences in retention among drainage basins affect marginal costs for upstream located measures. The upper limits of marginal costs are determined by abatement capacity con-straints for each measure. It can be noticed from Table 8 that both lowest and highest marginal costs are found for fertilizer reductions. The second lowest marginal cost occurs for sewage reductions and selective catalytic reduction on ships. It can also be seen that marginal costs are relatively large for private sewers.

Corresponding calculations of marginal costs for phosphorus reductions to the Baltic Sea are reported in Table 9. Table 9: Calculated marginal costs for phosphorus reductions to the Baltic

Sea from emission reduction at sources, Euro/kg P reduction to coastal waters.

P free detergents

Livestock reductions

Fertiliser reductions

Sewage treatment

Private sewers

Denmark 11 – 46 2530 – 4810

1 – 10920 61 – 135 255 – 260

Finland 15 – 52 1020 – 1730

1 – 1190 61 – 180 255 – 345

Germany 27 – 134 4300 – 6000

1 – 9950 61 – 330 255 – 637

Poland 18 – 29 497 – 590 1 – 550 41 – 140 215 – 345 Sweden 11 – 100 1190 –

4540 1 – 4140 61 – 250 255 – 480

Estonia 17 – 30 775 – 920 1 – 280 41 – 138 215 – 335 Lithuania 14 – 20 120 - 260 1 – 160 41 – 126 215 – 306 Latvia 18 – 36 640 – 650 1 – 293 41 – 147

215 – 360

Russia 13 – 45 960 – 2080

1 – 2021 41 – 220 215 - 535

Sources: Gren et al. (2008) page 22

Similar to calculated marginal costs of nitrogen reductions, fertilizer reduc-tions provide both low and high cost option depending on the level of fertil-izer reduction. However, marginal costs of phosphorus decreases by live-stock reductions are larger than corresponding costs for nitrogen reductions. Removal of P in detergents is a relatively low cost measure.

Costs for most of the second class of measures, which affect leaching and retention, are calculated as profits, or rents, foregone from alternative land use. These costs are measured as annualised values of market prices of ar-able land. Additional operational costs occur for energy forestry, catch crops, and creation of wetland (see Gren et al. (2008), Tables A8 and A10 in Appendix A). However, the marginal costs for nutrient reductions to the Baltic Sea by these measures are determined by their abatement capacity,



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which in turn depends on nutrient loads to the land use in question. Mar-ginal costs for these measures are therefore calculated for the maximum load where no other measures are undertaken, and constitute therefore the minimum marginal costs. Costs of change in spreading time for manure from autumn to spring are calculated as annualised costs of investment in manure storage capacities. Marginal costs for nitrogen reductions by the second class of measures are presented in Table 10.

Table 10: Calculated minimum marginal costs for nitrogen reductions to the Baltic Sea from measures affecting leaching and retention, Euro/kg N reduction to coastal waters. Catch crop Grass land Change

spread of manure

Energy forest

Wetlands

Denmark 31 – 32 105 – 110 8 110 – 115 7 – 18 Finland 16 – 34 33 – 34 6 87 – 109 1-15 Germany 12 – 35 34 – 35 14 62 – 63 2-3 Poland 9 – 11 9 – 10 8 13 – 15 1-1 Sweden 5 – 40 8 – 32 5 – 8 58 – 370 8-290 Estonia 6 – 9 6 6 11 – 12 5-7 Lithuania 8 2 6 11 2 Latvia 15 – 22 15 7 30 7-10 Russia 17 – 21 16 – 18 6 – 7 25 – 27 10-15

Sources: Gren et al. (2008) page 23. The pattern of marginal costs is less clear for measures affecting leaching and retention than for emission oriented measures presented in Table 8. Although increased areas of grass land and energy forest seem to be rela-tively expensive for several countries, these options can also be relatively inexpensive in Poland, Estonia, and Lithuania. The relatively low marginal costs of nitrogen reductions by wetland construction are determined by the nitrogen loads to wetlands which include airborne emissions and water borne nitrogen transports from leaching of all land (not only arable land) and from sewage. These loads are, in turn, determined by leaching and re-tention in the drainage basin, which is one explanation to the low marginal costs in Lithuania where nitrogen retention is low. When comparing the marginal cost of measures affecting leaching and re-tention with measures reducing nitrogen emission at source it can be seen that the former provides the lowest cost option. This is not the case with marginal costs of measures affecting leaching and retention of phosphorus, which instead are large as compared to the emission oriented measures, see Table 11.



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Table 11: Calculated minimum marginal costs for phosphorus reductions to the Baltic Sea from measures affecting leaching and retention, Euro/kg P reduction to coastal waters. Catch crop Buffer strip Wetlands Denmark 790 – 1050 3305 – 4010 745 – 925 Finland 525 – 540 790 – 855 80 – 250 Germany 160 – 200 715 – 910 320 – 410 Poland 315 – 345 260 – 275 50 – 70 Sweden 785 – 7090 270 – 3740 2745 – 6790 Estonia 2030 – 9735 250 – 275 655 – 870 Lithuania 450 95 260 Latvia 860 – 6615 230 – 285 450 – 545 Russia 150 – 210 190 – 280 960 – 1070

Source: Gren et al. (2008) page 24 Buffer strips in Lithuania and wetland creation in Finland and Poland con-stitute the only measures for which marginal costs are in the same order of magnitude as the marginal cost of P free detergents and increased cleaning at sewage treatment plants.

A general conclusion when comparing marginal costs of nitrogen and phos-phorus reductions by measures in the two classes is that marginal costs of measures affecting leaching and retention are relatively low for nitrogen while marginal costs of emission oriented measures are relatively low for phosphorus reductions. It is important to emphasise the sensitivity of the cost estimates with respect to data on leaching, retention, and discount rate when annualising investment costs.



34

5. Net welfare improvements of nutrient reduction measures

When comparing cost estimates of different measures with associated gains from biological improvements in the Baltic Sea there is a need of quantify-ing functional relations between i) nutrient decreases and provision of dif-ferent ecosystem services, such as recreational values, and ii) monetary measurements of different quantities of each ecosystem service. Depending on which measure is implemented, nutrient decreases give rise, not only to water quality improvements in the Baltic Sea, but also to other so-called side benefits, such as water quality improvement in lakes and ground water. Differences in welfare improvements among measures are due also to their time delays with respect to effects on the Baltic Sea, spatial range, and mu-lti-pollutant abatement capacity. Starting with the time perspective, people in general appreciate goods and services or income obtained in early as compared to late periods, because of their pure time preferences and the option of earning interest from capital. This gives rise to a positive discount rate, the level of which has been de-bated during decades. The implication of a positive discount rate is that the value of future benefit streams is reduced as compared to achievement of the same benefits in current time. All measures presented in Chapter 4 share the time delays that occur due to adjustment processes to external nutrient load-ing which occurs in the Baltic Sea. However, they differ with respect to the nutrient impact in the coastal waters of the Sea. While measures imple-mented at the coast, such as decreases in discharges from sewage treatment plants or industry, have a direct effect, upstream located measures like culti-vation of catch crops may need much longer time before the impacts are visible in the river mouths and the coastal waters of the Baltic Sea. Implementation of measures give rise to water quality improvements in the Baltic Sea, and may also improve local water quality conditions such as decrease in nitrate in ground water. Furthermore´, decreases in phosphorus loads may generate reductions in eutrophication in lakes situated in the drainage basins, where phosphorus is considered as the limiting nutrient of biological production. An additional aspect is that several types of measures may provide other types of benefits in addition to water quality improve-ments in the Baltic Sea and its drainage basin. For example, reductions in nitrogen from air borne emission imply decreases in acidification and wet-land creation also generate biodiversity. In this respect, upstream located measure can have an advantage as compared to measures implemented at sewage treatment plants located at the coastal waters. We thus conclude that, not only different measures, but also their location in drainage basins,



35

upstream or downstream, have different comparative advantages and disad-vantages, which are summarised in Table 12. Table 12: Comparative advantages of included measures Measure

Timing1 Scale2 Multi pollut-ant3

Multi water quality 4

Multi env. objectives5

Selective catalytic reduc-tion (SCR) on power plants

(X)6 X X X X

SCR on ships (X)6 X X X X SCR on trucks (X)6 X X X X Reductions in cattle. pigs. and poultry

(X)7 X X X X

Fertilizer reduction X X Increased cleaning at sew-age treatment plants

(X)8 X

Private sewers (X)8 X P free detergents X Catch crops X X Energy forestry X X X Grassland X X Creation of wetlands (X)9 X X X Changed spreading time of manure

X

Buffer strips X 1. Low time delay between implementation of measures and nutrient reduction in the Baltic Sea. 2. Nutrient reductions at a large spatial scale including several countries within and outside the Baltic Sea drainage basin. 3. Both N and P and also other pollutants are reduced simultaneously. 4. Several water quality are obtained from the same measure. 5. Simultane-ous achievement of environmental objectives in addition to water quality improvements. 6. Decreases in direct deposition of NOx on the Sea. 7. Decreases in direct deposition in am-monia on the Sea. 8. Sewage treatment located by coastal waters. 9. Wetlands situated in river mouths along the Baltic Sea However, the conditions for comparison of benefits and costs –quantified relation between nutrient reduction and supply of ecosystem services and measurement in monetary terms – are not fulfilled at the Baltic drainage basin scale for any identified ecosystem service (see Garpe 2008 for appli-cation to the Baltic Sea). We therefore have to rely on assumptions and sim-plifications, but bearing in mind that they are likely to underestimate total net benefits as will be briefly discussed in the following. Currently, there exist four studies aiming at estimating benefits of nutrient reductions (Söderqvist. 1996; Söderqvist and Scharin. 2000; Sandström. 1999; Soutokorva. 2001). The studies apply different valuation methods, the contingent valuation method (CVM) and the travel cost method (TCM) (see e.g. Turner et al., (2003) for a review of methods and empirical applications and Söderqvist and Hasselström (2008) for applications to the Baltic Sea).



36

A TCM study measures only the so-called user value of the good in ques-tion. i.e. recreational value of the archipelago, and does not include non-use values such as option and/or existence values. The CVM includes both use and non use values, which explains the difference in results between the two studies. However, studies applying CVM are subjected to a lot of criticism concerning their hypothetical way of estimating values (see e.g. Turner et al.. 2003). On the other hand, it can be argued that benefits of the Söderqvist and Scharin (2000) study are likely to be underestimated since the popula-tions was limited to the citizens of the two adjacent counties to the archipel-ago. It is known that the archipelago has a recreational value to residents in the rest of Sweden (Sandström 1999). The CVM is used by Söderqvist (1996), which is the only Baltic Sea wide study, and by Söderqvist and Scharin (2000). The TCM approach is applied by Sandström (1999) and Soutokorva (2001) for estimating individuals’ willingness to pay (WTP) for an improved sight depth in Laholm Bay at the Swedish West coast and in the Stockholm archipelago. Results from the four different Swedish studies estimating willingness to pay for nutrient reductions or sight depth changes are presented in Table 14. Table 13: Estimated annual benefits of eutrophication related changes in four different studies in 2007 prices. Söderqvist

(1996) updated in Söderqvist (2008)

Sandström (1999)

Söderqvist and Scharin (2000)

Soutokorva (2000)

Scenario Return to a ‘healthy’ Baltic Sea

Sight depth. Laholm Bay

1 meter sight depth im-provement. Stockholm Archipelago

1 meter sight depth improve-ment. Stock-holm Archipel-ago

Result Euro 12 - 24 /kg N Euro 265 - 500/kg P

Euro 1 – 2/kg N Euro 9 – 21/kg P

53 – 90 mill Euro/m sight depth

6 – 12 mill Eu-ro/m sight depth

Two of the studies, Söderqvist (1996) and Sandström (1999), translate their results into nutrient reductions, and the other two measure benefit estimates for sigh depth changes. Reported benefits expressed in terms of one kg N or P reduction show large variations. This is partly due to the methods applied. The CVM studies include both use and non-use values, while the TCM stud-ies estimate only use values. Another reason can be the specific focus of estimating sight depth changes in the Sandström (1999) study, whereas the Söderqvist scenario includes a number of impacts on the Baltic Sea. For this reason and because Söderqvist (1996) is the only large scale study, marginal cost estimates presented in Chapter 4 are compared with these benefits esti-



37

mates. The ranges in unit benefits estimates reported in Table 13 for the Söderquist study are due to different assumptions of the discount rate, which ranges between 0 and 7 in real terms. Estimated net benefits for different measures are as presented in Table 14.

Table 14: Net welfare impact of different measures Measure

Range of net welfare. Euro/kg N Euro/kg P

Selective catalytic reduction (SCR) on power plants

-60 – -15

SCR on ships 10 – 25 SCR on trucks -40 – 0 Reductions in cattle, pigs, and poultry -55 – 20 -3585 – 385 Fertilizer reduction -140 – 25 -10650 – 500 Increased cleaning at sewage treatment plants

-70 – 15 -70 – 465

Private sewers -75 – -20 -375 – 290 P free detergents 130 – 495 Catch crops -30 – 20 -6825 – 555 Energy forestry -360 – 15 Grassland -100 – 25 Creation of wetlands -285 – 25 -6525 – 455 Changed spreading time of manure -5 – 20 Buffer strips -3470 – 410

The range in marginal net benefits is caused by the differences in marginal net benefits as reported in Table 13, and differences in marginal costs among countries as shown in Tables 8-11 in Chapter 3. The results in Table 14 indicate that there are only two measures generating net benefits at their max and min net benefits; SCR on ships and P free detergents. SCR on power plants and trucks, and private sewers for cleaning of nitrogen give negative net benefits at their entire ranges. All other measures can give negative as well as positive net benefits depending on assumption of dis-count rate and marginal cost of the measures. The highest potential net benefits obtained from both nitrogen and phosphorus reductions are low decreases in the use of fertilisers and construction of wetland. However, both these measures can also generate relatively low net benefits for both nutrients. Remember also from Chapter 3 that minimum marginal cost esti-mates are presented for land use measures since interdependencies among measures are not accounted for. This means that net benefits are overesti-mated for these measures.



38

6. Cost effective nutrient reduc-tions

Although the estimates of cost benefit ratios for different measures pre-sented in Chapter 5 are quite informative in giving a first indication on choice of abatement measures, they are insufficient for determining net benefits for chosen nutrient reduction targets. One important reason is the interdependency in impacts and hence marginal costs among measures and the transports among water basins. The cost benefit ranges presented in Ta-ble 14 are estimated at minimum marginal costs for all measures disregard-ing their interdependency for nutrient reduction to coastal waters of each drainage basin thus neglecting transports among water basins. Therefore, this chapter presents cost effective solutions for different nutrient reduction targets, some of which are compared with benefits in Chapter 7.

Based on the data on load presented in Chapter 3 and on the cost estimates reported in Chapter 4, cost effective solutions for different targets are pre-sented in this chapter. The two types of targets illustrated in Chapter 2 and used by Helcom BSAP (Helcom, 2007) are then defined: overall reductions in nutrients to the Baltic Sea and reductions to specific target basins of the Sea. As will be demonstrated in this chapter, minimum costs can differ sig-nificantly for the same reduction as measured in per cent nutrient decreases depending on target formulation. 6.1 Cost effective reductions to coastal waters

According to Helcom (2007), considerable reductions of nitrogen and phos-phorus from countries to the Baltic Sea are needed in order to meet ecologi-cal targets in marine basins. Minimum costs are therefore presented for re-duction targets ranging between 0 and 50 per cent for nitrogen and between 0 and 70 per cent for phosphorus reductions, which include the suggested targets. The results are presented in Figure 5.



39

0

1000

2000

3000

4000

5000

0 10 20 30 40 50 60 70

% nutrient reductions

Mill

Eur

o pe

r yea

r

N red.P red.

Figure 5: Minimum costs for different levels of overall nitrogen and phosphorus reductions to coastal waters. Minimum costs for N and P reductions are in the same order of magnitude for reductions below 30 per cent. At larger reduction levels, N decreases become more expensive and the costs are approximately 60 per cent higher at the 50 per cent reduction requirement level. However, although the total costs are almost the same for lower reduction levels, the overall marginal costs differ for all nutrient reduction levels, see Figure 6.

050

100150200250300350400

0 20 40 60

% nutrient reductions

Mar

gina

l cos

t, Eu

ro/k

g re

duct

ion

N red.P red.

Figure 6: Overall marginal cost per kg N or P at different targets for nutrient reductions to coastal waters. It can be seen from Figure 6 that the overall marginal costs of phosphorus reductions are considerably higher than for the same nitrogen reduction levels as measured in per cent. At 50 per cent reduction level, the marginal cost for nitrogen reduction is Euro 27/kg N and for phosphorus reduction it is Euro 190/kg P. However, the marginal cost of phosphorus reductions increases rapidly at higher reduction levels and amounts to approximately Euro 360/kg P reduction at the 70 per cent decrease. Choice of measures and their location can be determined from comparing overall marginal costs for nitrogen and phosphorus reductions presented in Figure 6 with the marginal costs of different measures reported in Tables 8-11 in Chapter 4. Fertiliser reductions and wetland creation are the least



40

costly options for low nitrogen reduction levels, and catch crops, SCR on ships, and improved cleaning at sewage treatment plants at nitrogen de-creases exceeding 40 per cent. Relatively low fertiliser reductions, improved cleaning at sewage treatment plants, and P free detergents are included in cost effective phosphorus reductions not exceeding 30 per cent. Land use measures for curbing phosphorus loads are cost effective at reduction levels exceeding 50 per cent. Due to differences in marginal abatement costs for different countries, nutri-ent reduction requirements differ significantly between countries. In Figure 7 reductions in each country’s initial nitrogen load are shown for overall nitrogen target reductions up to 50 per cent.

0

10

20

30

40

50

60

0 10 20 30 40 50Overall nitrogen reduction in %

Cou

ntry

redu

ctio

ns in

% o

f the

irin

itial

load

s

SwedenDenmarkFinlandPolandEstoniaLatviaLithuaniaGermanyRussia

Figure 7: Per cent reductions in country nitrogen loads (vertical axis) for different overall nitrogen reduction targets (horizontal axis).

Figure 7 can be difficult to read due to the many curves showing each coun-try’s reduction in its own load for different overall nitrogen reductions. Nevertheless, three observations can be made. One is the requirement of nutrient reductions in all countries for reaching most reduction targets. The other is that the three countries with the largest nitrogen reduction require-ments in their own loads are Estonia, Lithuania and Poland, which is due to the relatively low marginal costs as shown in Tables 8-11 in Chapter 4. The third observation is that two countries – Denmark and Germany – face the lowest percentage nitrogen decreases because of their relatively high mar-ginal costs of, in particular, land use measures due to the high market prices of land (Gren et al., 2008, Table A8 in Appendix A). This is one reason why these countries’ shares of total cost increase at higher nitrogen reduc-tion levels, see Figure 8.



41

020406080

100

10 20 30 40 50

% nitrogen reduction to coastal water

Cou

ntry

cos

t in

% o

f tot

alco

st


Figure 8: Share in % of total cost for each country in cost effective solutions for different targets of nitrogen reductions to coastal waters.

Figure 8 shows how each country’s share of total cost develops at larger nitrogen reductions. At 10 per cent reduction level, the cost burden of abatement for Poland, Estonia and Lithuania corresponds to 75 per cent of total cost due to the availability of low cost options such as wetland creation and nitrogen fertilisers reductions in these countries. The cost share is de-creased at higher nitrogen reduction levels, and amounts to 50 per cent at the largest nitrogen reduction level. The reason is the limiting capacities of low cost measures in the three countries, which requires implementation of higher cost measures in other countries in order to meet the reduction target. Allocation of phosphorus reductions among countries show a somewhat different pattern than that of nitrogen reductions, see Figure 9.

01020304050607080

0 10 20 30 40 50 60 70Overall phosphorous reduction in %

Cou

ntry

redu

ctio

ns in

% o

fth

eir i

nitia

l loa

ds


Figure 9: Per cent reductions in country nitrogen loads (vertical axis) for different overall phosphorus reductions to coastal waters (horizontal axis).

Figure 9 takes the shape of a spider web to a larger extent than nitrogen reductions displaced in Figure 7, but we can notice that Germany meets the lowest reductions as measured in percent of its initial load due to the rela-tively high marginal costs for phosphorus reductions to coastal waters. This



42

is also true for Finland, Denmark and Latvia for most reduction targets. Similar to nitrogen reductions, Poland, Estonia and Lithuania reduce phos-phorus loads relatively much for most target reductions. It can also be no-ticed that the per cent reductions for Sweden and Finland show large shifts, having among the lowest phosphorus reductions for low overall targets and among the highest for other targets. The reason for such shifts is the rela-tively tight capacity constraints of low cost measures in different countries. This is also reflected in the countries’ shares of total costs for different phosphorus reduction targets, see Figure 10.

020

4060

80100

10 20 30 40 50 60 70

% phosphorous reduction to coastal waters

% c

ount

ry c

ost o

f tot

al c

osts


Figure 10: Share in % of total cost for each country in cost effective solu-tions for different targets of phosphorus reductions to coastal waters.

The sum of abatement cost for Russia and Poland correspond to 75 per cent of total cost at low phosphorus reduction targets. The reason for the high phosphorus reduction in Russia, which can be seen in Figure 9, and associ-ated cost share is the relatively low cost of land use measures due to the low market prices of land (Gren et al. 2008, Table A8, Appendix A). The Polish share of total cost is lowest at the 10 per cent phosphorus reduction level because of lower cost options in Russia, but since these options are sub-jected to capacity constraints, the Polish cost share is increasing for larger reduction levels. 6.2 Costs of nutrient reductions to marine basins However, as noted in earlier chapters, it is unlikely that overall reductions of nutrient are the ultimate aim of eutrophication policies. Instead, the purpose is to achieve improvements in different basins of the Sea. According to Hel-com (2007), nitrogen reductions are required to Baltic Proper (BP), Gulf of Finland (GF), Danish Straits (DS), and Kattegat (KT). Phosphorus reduc-tions are needed in order to improve the biological conditions in Baltic Proper, Gulf of Finland, and Gulf of Riga (GR). As reported in Chapter 3, calculations of nutrient loads to these basins are made in two different ways;



43

direct discharges from the own drainage basins and the steady state solution where all adjustments are made to changes in nutrient loads. As will be shown in this chapter, consideration of adjustment among basins has con-siderable impacts on cost effective solutions with respect to total cost and allocation of nutrient reductions among basins.

Starting by presenting calculations of cost effective solutions to each of the target marine basins when considering only discharges to target basins from their own drainage basin, it is noticed that minimum costs for N and P re-ductions show large differences for targets above 10 per cent reductions, see Figures 11 and 12.

Figures 11 and 12: Minimum costs of nitrogen and phosphorus reductions in direct discharges to target basins from its own catchment

Except for phosphorus reductions to the Baltic Proper, minimum costs are calculated for nutrient reductions up to 50 per cent. The choice of higher reduction levels of phosphorus to Baltic Proper is based on the required reductions pointed at by Helcom (2007). Costs are largest for nutrient reduc-tions to the Baltic Proper, which is explained by the magnitude of loads to this basin from its drainage basins. It can also be observed that the costs of N and P reductions to Baltic Proper are similar for the same reductions as measured in percent. However, nitrogen reductions to Gulf of Finland are approximately three times as expensive as corresponding phosphorus reduc-tions, which is explained by the availability of low cost options for phospho-rus reductions by sewage treatment in the drainage basins of the Gulf. When instead requiring reductions in final steady state, when all adjust-ments are made among basins, the costs for given percentage reductions are similar for different basins, see Figures 13 and 14.

0500

10001500200025003000

0 10 20 30 40 50 60 70

% P reductions

Mill

Eur

o/ye

ar

BP GF GR

0200400600800

10001200

0 10 20 30 40 50

% N reductions

Mill

Eur

o/ye

ar

BP GF DS KT



44

Figures 13 and 14: Minimum costs of nitrogen and phosphorus reductions to target basins in steady state. The cost of N reductions are now slightly more expensive than correspond-ing P reductions, but the costs are significantly higher then for correspond-ing reductions in direct discharges to basins. The small difference in cost for reaching targets in different basins is due to fact that basins become more interconnected, and abatement measures are therefore implemented in most of the drainage basins for reaching targets in one marine basin. As indicated in Chapter 4.3, measures for obtaining targets of nitrogen reductions to Bal-tic Proper or Kattegat shall be introduced in all Baltic Sea basins for reach-ing cost effective solutions. Results presented in Figure 15 show that nitro-gen reductions are needed in all countries for obtaining nitrogen reductions to all target basins simultaneously.

0

10

2030

40

50

60

0 20 40% nitrogen reduction to target basins

% re

duct

ion

in e

ach

coun

try'

s in

itial

nitr

ogen

load


Figure 15: Per cent reductions in each country’s initial nitrogen load for different nitrogen reductions to target basins (Baltic Proper, Gulf of Finland, Danish Straits, and Kattegat)

0

2000

4000

6000

8000

0 10 20 30 40 50 60 70

% P reductions

Mill

Eur

o/ye

ar

BP GF GR

0500

10001500200025003000

0 10 20 30 40 50

% N reductions

Mill

Eur

o/ye

ar

BP GF DS KT



45

Estonia, Lithuania and Poland meet the largest relative nitrogen reductions, and Finland and Denmark the smallest in cost effective solutions. This pat-tern of cost effective abatement allocation is very similar to that of cost ef-fective nitrogen reductions to coastal waters presented in Figure 7. One dif-ference is that Finland now replaces Germany, and faces lower nitrogen reductions then Denmark. The reason is the relatively large nitrogen reduc-tion target to Kattegat and Danish Strait as compared to Gulf of Finland. The shares of total costs among countries for different nitrogen reductions to target basins in steady state are also similar to those of cost sharing for ni-trogen reductions to coastal waters, see Figure 16.

0

20

40

60

80

100

10 20 30 40 50% nitrogen reductions to target basins

% c

ount

ry c

ost o

f tot

al c

ost


Figure 16: Each country’s share of total cost in % for different targets on nitrogen reduction to target basins in steady state.

Poland has a significant cost share also for nitrogen reductions to target basins. Sweden, Finland, Denmark, and Germany have higher cost burdens for basin targets than for reductions in nitrogen to coastal waters and ac-count for approximately 40 per cent of the total cost at 50 per cent nitrogen reduction level.

When considering reduction in phosphorus to all target basins in steady state, Finland, Denmark and Germany meet relatively low reduction re-quirements, see Figure 17.



46

0

20

40

60

80

0 20 40 60

% phosphorous reduction to target basins

% re

duct

ion

of e

ach

coun

try'

s in

itial

pho

sphr

ous

load


Figure 17: Per cent reductions in each country’s initial phosphorus load for differ-ent phosphorus reductions to target basins in steady state (Baltic Proper, Gulf of Finland, Gulf of Riga)

It is interesting to observe that phosphorus reductions for Latvia follow almost exactly the overall target reductions in per cent, i.e. for 10 per cent reductions to the target basins Latvia reduces its load by 10 per cent in a cost effective allocation and so on. Phosphorus decreases for Russia, Po-land, and Lithuania are clearly above the corresponding reductions to the target basins, while reductions for Denmark, Finland, Germany and Sweden are below the Latvian curve. Except for the lowest phosphourous reduction level, Poland has the highest cost burden, measured at share of total cost. It increases from approximately 20 per cent at the 10 per cent reduction level to 70 per cent at the largest reduction level, see Figure 18.

0

20

40

60

80

100

10 20 30 40 50 60% phosphorous reductions to target

basins

% c

ount

ry c

ost o

f tot

al c

ost


Figure 18: Each country’s share of total cost in % for different targets on nitrogen reduction to target basins in steady state (Gulf of Finland, Gulf of Riga, Baltic Proper).



47

The relatively large Danish share of total costs for reduction level below 20 per cent is explained by the low retention rate (see Table A1 in Appendix), which makes phosphate free detergents least expensive in this country. It can also be noted that Latvia has a constant share of total costs, and that all other countries except Poland have decreasing cost shares. However, so far separate targets for each nutrient have been considered where costs are minimized for achieving certain percentage reduction in one nutrient at the time. It would be misleading to sum the costs for target achievements of separate nutrients when considering achievement of target for both nutrients since land use measures affect both nitrogen and phospho-rus simultaneously. Minimum costs are therefore calculated and presented for achievements of different percentage reductions of N and P in all target basins simultaneously under different assumptions of adjustments among basins, see Figure 19.

0

1000

2000

3000

4000

5000

0 10 20 30 40 50

% N and P reductions

Mill

Eur

o/ye

ar

DirectSteady state

Figure 19: Minimum costs for constraints on all target basins under different as-sumptions of adjustments among basins in the Baltic Sea (Direct: discharges from the drainage area of the basins. Steady-state: final adjustments to nutrient load reduction.).

The minimum costs for reductions in steady state loads of nitrogen are ap-proximately 30 per cent higher than the costs for reductions in discharges from the own drainage basins. Another difference between the two assump-tions of connections among basins is that cost effective allocation of meas-ures are implemented in all basins for nitrogen and for all basins but Danish Straits and Kattegat for phosphorus reductions under the assumption of steady state adjustments (see Gren et al., 2008, Table D3, Appendix D). However, the two target formulations do not give the same reductions to basins due to the spread of impacts on other basins than the target basins in the steady state solution. This means that the nutrient reductions from all countries are higher for targets defined as nutrient reductions in steady state than for reductions in direct discharges.



48

It is important to emphasise the uncertainty with respect to all calculations of cost effective solutions in this paper. As reported in Chapters 3 and 4 there are several underlying assumptions for the estimates of costs and abatement capacities of the different measures and on biological parameters determining leaching and retention of nutrient. For example, Gren et al., (2008) show that costs for 20 per cent phosphorus reductions to the coastal water of the Baltic Sea can increase by 1/5 when costs for sewage treatment increases by 25 per cent. On the other hand, when abatement capacity of a low cost option increases, such as increased area of wetland by conversion of more arable land, total cost can decrease considerably.



49

7. Distribution of net costs In principle, allocation of benefits and costs among countries for given tar-gets or strategies depends on their costs and benefits of nutrient reductions and on choice of national and/or international policy. Studies have been carried out on benefit and costs of Baltic Sea cleaning programs since mid 1990s. Common to these studies is the simplification with respect to target formulation where, in principle, only nitrogen reductions are considered. Today, the nutrient reduction targets are more involved with a desire to reach nutrient reductions to specific basins according to their water quality status. However, although simple, the earlier studies can be of comparative interest, and are therefore briefly reviewed and discussed in this chapter before presenting cost benefit estimates of the updated cost estimates pre-sented in Chapter 3 and of the cleaning allocations suggested by Helcom (2007).

7.1 Brief discussion of current literature There are three studies estimating basin wide net benefits, Markowska and Zylicz (1999), Söderqvist (1996), and Gren (2001). Both Markowska and Zylicz (1999) and Söderqvist (1996) compare costs and benefits from an overall 50 per cent reduction of nitrogen, and Gren (2001) also calculates net benefits under different assumptions of dispersion of benefits among countries from nitrogen reductions and of scenarios with respect to interna-tional cooperation. See Table 15 for the results of calculated net benefits among countries from the different studies.



50

Table 15: Studies with calculated annual net benefits of nutrient reductions to

the Baltic Sea, billions of Euro/year in 2007 prices. Söderqvist

(2000)1 Markowska and Zylicz (1999)1

Gren (2001) Cooperation2 National Action3

Sweden 0.64 0.60 0.23 – 1.21 0.03 – 0.07 Denmark 0.05 0.39 0.09 – 0.41 0.02 – 0.13 Finland 0.19 0.29 0 – 0.24 0 – 0.003 Poland -0.67 0.12 -0.19 – 0.01 0 – 0.01 Estonia -0.16 -0.10 0.04 – 0.17 0 – 0.004 Latvia -0.19 -0.13 0 – 0.12 0 – 0.01 Lithuania -0.27 -0.17 -0.03 – 0.001 0 – 0.001 Germany 0.03 0.11 0.23 – 0.48 0.03 – 0.15 Russia 0.04 0.13 -0.03 – 0.03 0 – 0.003 Total 0.34 1.24 0.33 – 2.67 0.07 – 0.38

1) Net benefits at 50 % nitrogen reduction; 2) Maximum net benefits for all coun-tries under different assumptions of dispersion of environmental benefits; 3) Each country maximises its own net benefits under different assumption of country wise unit benefits. As shown in Table 15, allocation of net benefits among countries can differ considerably between the studies. This is due to different purposes of the studies and also to different estimates of benefits of nitrogen reductions. The Markowska and Zylicz (1999) and Söderqvist (2000) studies rely on the same cost estimates but have different benefits estimates when comparing costs with benefits at the 50 per cent overall nitrogen reduction level. Gren (2001) calculates maximum net benefits under different assumptions of in-ternational cooperation and allocation of unit benefits of nitrogen reductions among countries. In the cooperation scenario, all countries cooperate in order to maximise total net benefits. Under national actions each country maximises only its own net benefits and does not consider the benefits ac-crued by other countries from own nitrogen reductions. Note that net bene-fits under national actions must be non-negative since otherwise the coun-tries are assumed not to undertake abatement A common result to all three studies is that Sweden, Denmark, Germany and Finland are always net winners. However, none of the other countries is always a net looser. It is interesting to note the large variation in Polish net benefits depending on study, from -0.7 to 0.1 billions of Euro.

7.2 Benefits and costs from BSAP nutrient reduction targets.

Helcom (2007) suggests a cleaning allocation, which specifies required nu-trient reduction targets to specific basins from the riparian countries, see



51

Table A3 in the appendix for a specification. The marine basin targets are then interpreted as achievements of nutrient load reductions in steady state as reported in Chapter 3. Targets are also suggested for each country to dif-ferent marine basins (Table A5 in Appendix). Since it is unclear how these targets are derived, they are interpreted as reductions in direct discharges from the country to specific basins. For example, the Swedish drainage basin of Baltic Proper needs to reduce its direct discharges into Baltic Proper of nitrogen and phosphorus by 26 per cent and by 34 per cent respec-tively. It is further assumed that the basin targets achieve the benefits estimated by Söderqvist (1996) and updated by Söderqvist and Hasselström (2008) as presented in Table 15. The reason is that the valuation scenario in this study mostly resembles the aim of nutrient reductions for achievements of water quality improvements. The requirements differ among basins with respect to which nutrient to reduce and the magnitude of reductions. Net benefits for different countries are thus compared with cost effective reductions of nutri-ent to the target basins. Minimum costs are also calculated for the Helcom (2007) country and basin targets. However, as will be evident below, the BSAP country targets may not reach the marine basin targets, and a third target specification is therefore included. This is formulated as minimum costs for achieving the overall nutrient reduction targets corresponding to the BSAP country targets, which give 48 per cent and 21 per cent for phos-phorus and nitrogen respectively. The results for different countries are presented in Table 16, where benefits as measured by willingness to pay for water quality improvements under alternative assumptions of discount rate. Calculations of cost effective solu-tions are made for the three different target specifications: BSAP basin tar-gets, BSAP country targets, and cost effective solutions to overall nutrient reductions resulting from the BSAP plan.



52

Table 16: Benefits and costs from nutrient reductions targets according to BSAP1, billions of Euro/year in 2007 prices. Benefits as WTP2

for discount rates 0 - 7

Costs: Basin Country Cost effective-targets3 targets4 reductions4

Sweden 1.46 – 2.71 0.11 0.10 0.04 Denmark 0.92 – 1.71 0.22 0.29 0.02 Finland 0.61 – 1.13 0.04 0.01 0.04 Poland 0.93 – 1.73 3.27 1.68 1.10 Estonia 0.06 – 0.11 0.06 0.01 0.07 Latvia 0.06 – 0.11 0.30 0.03 0.07 Lithuania 0.08 – 0.15 0.27 0.22 0.16 Germany 0.53 – 0.98 0.25 0.13 0.01 Russia 0.18 – 0.33 0.16 0.09 0.11 Total 4.83 – 8.97 4.68 2.56 1.62

1) Helcom (2007); 2) Willingness to pay from Söderqvist (1996) and (2008); 3) Marine basin targets require overall N reduction of 30 % and P reduction of 69 %; 4) BSAP coun-try/basin targets give overall reductions of 21 % in N load and 48 % of P load from all countries in the model used in this study. As shown in Table 16, there is a considerable difference in total costs and allocation of costs among countries. Total costs can be almost three times as large under the basin target as compared to the cost effective solutions to overall nutrient reductions. One important reason for this difference is that the specified country reductions to different marine basins results in overall nitrogen and phosphorus reductions, 21 and 48 per cent respectively, that is considerably lower then the corresponding reduction requirements for achieving the marine basin targets, 30 and 69 per cent for nitrogen and phosphorus, see Table A6 in Appendix. The reason is that implementation of measures in each drainage basins affect all water basins, and for rela-tively open basin such as the Baltic Proper, much of the reduction ‘leach’ into other non-target basins (see Tables 5 and 6 in chapter 3.2). This, in turn, implies relatively large nutrient reductions from drainage basins in order to achieve specific marine basin targets. Another salient feature of the cost effective solution to marine basin targets is that nutrient reductions are carried out from all drainage basins, and not only from catchments to the target basins as suggested by Helcom (2007), see Table A5 in Appendix. For example, Sweden and Finland reduce their phosphorus to loads Bothnian Sea by 55 and 35 per cent respectively. The reason for inclusion of abatement in drainage basins of non-targeted marine basins is, as demonstrated in Chapter 3, the relatively high impacts from non-targeted basins as compared to abatement measures upstream in the catchment of the target basins. If this low cost opportunity is not used, the cost for achieving the marine basin targets would be larger.



53

The cost of BSAP country targets is approximately 60 per cent higher than the cost effective overall reductions. The reason for this difference in costs is that cost effective nutrient reductions among countries are not obtained in the BSAP allocation plan. The marginal cost for nitrogen reduction varies between Euro 0.1/kg N reduction (Lithuania) and Euro 18/kg N (Denmark). Similarly, marginal costs of phosphorus reductions range between Euro 45/kg P reduction (Russia) and Euro 1425/kg P reduction (Germany). As discussed in Chapter 2, such differences in marginal cost imply that the same nutrient targets can be achieved at a lower total cost. When comparing benefits with the three cost estimates in Table 16 for dif-ferent countries, it can be noted that a common result to all target specifica-tions is that Sweden, Denmark, Finland, Germany and Russia are net win-ners, i.e. net benefits are positive under all target specifications. Another common result is that Poland and Lithuania are always net losers. Net bene-fits for Estonia and Latvia depend on target specification. Net benefits are non-negative for both countries under the BSAP country target.

However, the comparison of net benefits under alternative target specifica-tion assumes that the benefits, or ecosystem improvements, will be the same. This is likely not to occur since the nutrient reductions to the specific basins differ, see Table 17.

Table 17: Steady state nutrient reductions in % to basins under alternative

target specifications Basin BSAP basin tar-

gets P N

BSAP country allocation P N

Cost effective overall reductions P N

Gulf of Finland 29 5 33 10 29 24 Baltic Proper 66 29 34 22 22 27 Gulf of Riga 34 27 29 Danish Straits 32 24 24 Kattegat 31 25 21

If the BSAP basin targets are derived from the need of water quality im-provements in the targeted basins, their achievements are quite likely to differ for the targets on specific or overall nutrient reductions from coun-tries. Starting with phosphorus targets, the BSAP country allocation plan ‘overshoots’ reduction targets to Gulf of Finland while not achieving the targets to Baltic Proper and Gulf of Riga. The cost effective phosphorus reduction matches the target for Gulf of Finland but does not achieve the other marine basin targets, in particular the Baltic Proper target. The pattern is similar for both specifications of reductions in direct nitrogen discharges, where too much nitrogen reductions occur to the Gulf of Finland and too little to the Baltic Proper, Danish Straits and Kattegat in the final steady state solutions. Obviously, if the BSAP basin targets generate the benefits presented in Table 17, these are likely to be achieved only under the basin



54

target specification. Thus, precision in achievement of nutrient reductions to water basins can be costly. 7.3 Allocation of net benefits under alternative international policies There is a large literature on the potential for international agreements to results in concrete policy design (see e.g. Barrett, 2005). One important impediment to agreements on policies is the asymmetric allocation of net benefits from the agreement among involved countries. It is therefore of interest to calculate and compare net benefits of different international mechanisms. Total and country wise abatement costs depend not only on target formula-tion but also on the implementation of international policy for implementing the chosen target. In principle, there are two types of compulsory instru-ments: command and control and economics instrument, such as charges and markets for nutrient trading. At the international scale, command and control implies that countries agree on a certain allocation of nutrient reduc-tions, such as the suggested Helcom (2007) allocation in the BSAP. One well known drawback with such a system is the inefficiency with respect to cost effectiveness. Any allocation diverging from the cost effective solu-tions will result in higher total cost then presented in chapter 7.2. Economic instruments rely on incentives for achieving nutrient reductions where it is costly to polluted the sea and beneficial to clean up and will thereby achieve nutrient reductions at minimum costs. A nutrient trading market can be regarded as a combination of the systems of command and control and incentive mechanism. It defines restrictions for nutrient loads to basins or to the sea, such as the BSAP suggestions, distributes nutrient cred-its to involved firms which then can be traded among firms. Such a frame-work for a nutrient trading market has recently been suggested for the Baltic Sea (NEFCO, 2008). Due to the suggestion of a trading system and to the BSAP allocation of nutrient cleaning, only nutrient trading and command and control are dis-cussed in this chapter. However, the two types of policies differ also with respect to transaction costs. Transaction costs refer to all the costs associated with implementation and enforcement of policies, such as administration costs and monitoring of compliance. In general, these costs are increasing in the complexity of the design of the policy scheme. The most involved design is required for policies aimed at achieving basin targets, since this may require a market of nitrogen and phosphorus permits for each basin. However, in the specific case of the BSAP basin targets it is



55

enough with markets for only one basin, Baltic Proper, for both nitrogen and phosphorus. The reason is the relatively large reduction requirements to this basin for both nutrients in combination with its openness, which implies that simultaneous improvements are obtained for other basins ‘free of charge’. Nevertheless, even if only one market for each nutrient is needed for basin target specifications, there is a need to differentiate between different loca-tions of abatement measures due to their differences in impacts on Baltic Proper. This can in principle be made by means of trading ratios, or ex-change rates, which reflect the relative impact between sources. This would require more then 100 trading ratios for each nutrient, which might consti-tute an interesting monitoring challenge. Due to the complexity of design of both command and control and permit market for basin target achievements, the two policies are compared for overall nutrient reductions to the Sea, the cost of which are reported in Table 16. Under the command and control system, net benefits correspond to the estimated WTP minus abatement costs for each country. A permit market system also gives rise to costs/incomes from credit purchases/sales, which depend on the initial distribution of nutrient credits. Let us assume that the initial credits permits are distributed free of charge and correspond to the BSAP cleaning allocation plan for countries. A country then offers credits for sale when the equilibrating permit price is higher than its marginal clean-ing costs, and buys when the price is lower. In the cost effective solutions of simultaneous reductions in nitrogen by 21 per cent and in phosphorus by 48 per cent the equilibrium permit prices are Euro 2.6/kg N load into the Baltic Sea and Euro 220/kg P load. The net benefits for a country depend on initial allocations of nutrient credits. In Table 18, net benefits are calcu-lated for two different allocation systems when future benefits are dis-counted by seven percent per year. One is allocating nutrient credits accord-ing to the BSAP suggestions as presented in Helcom (2007) page 3 and shown in Table A4 in Appendix A. For comparative purposes, net benefits are also calculated for a system where all countries achieve the same per-centage initial allocation of the reference pollutants loads presented in Chap-ter 3, which correspond to 52 per cent for phosphorous and 79 per cent for nitrogen.



56

Table 18: Net benefits under command and control and permit market systems with two different distributions of initial permits for 21 % N and 48 % P reduction, billions of Euro/year in 2007 prices.

Command and control, BSAP country alloca-tion plan

Nutrient trad-ing markets with BSAP initial allo-cations of permits

Nutrient trading markets with uniform proportional initial allocations of permits

Sweden 1.40 1.43 1.34 Denmark 0.65 0.85 0.81 Finland 0.58 0.60 0.48 Poland -1.02 -0.74 -0.09 Estonia 0.05 0.16 0.0 Latvia -0.05 -0.04 -0.16 Lithuania -0.14 -0.12 -0.05 Germany 0.30 0.45 0.42 Russia 0.06 0.10 -0.04

The results in Table 18 support results from similar studies presented in Chapter 7.1 where Poland is a net loser regardless of policy design. How-ever, the magnitude of losses differ depending on policy, being largest for the BSAP allocation plan and lowest under a nutrient trading market with uniform proportional allocation of initial nutrient credits. The reason for the lower losses is the option of selling permits when marginal costs are lower than the permit prices. This is also the case for Lithuania, which, together with Latvia, are the additional countries which always face net losses. However, the calculations of costs presented in Table 18 assume that nutri-ent reductions are cost effectively implemented in each country. An evalua-tion of Swedish Baltic Sea policies made by Elofsson and Gren (2004) indi-cates that actual costs for a given nitrogen reduction may be more than twice as high as necessary. It is therefore quite likely that abatement costs are larger than those presented in Table 18. In practice, it can be associated with high monitoring costs to implement abatement measures where they give the highest impact on the sea, which gives rise to so called efficiency losses (e.g. Scharin 2005). On the other hand, no side benefits of any measures have been accounted for which point at higher net benefits than the calcula-tions in Table 18. Nevertheless, the simulations show the importance of design of international policies for the generation of total and country wise net benefits, which can be of significant importance for the acceptance and truth full implementation of international agreements.



57

8. Conclusions and research needs The main purpose of this report has been to calculate costs of different measures, cost effective solutions to different nutrient targets and to com-pare these estimates with associated benefits. Since cost effectiveness is a crucial criterion for choice of abatement measures and their locations in different drainage basins, the study started up with a brief presentation of basic principles for cost effective solutions to predetermined targets. It was then recognised that two components determine marginal costs of different measures: abatement cost at the emission source and impacts on the target. However, since the target formulation can differ – reduction requirements to coastal waters or to specific marine basins – impacts measurements vary, which, in turn, have implications for total costs and allocation of measures in different drainage basins. The study therefore presented calculations of baseline nutrient loads to coastal waters and to target basins as defined by Helcom BSAP (Helcom, 2007). It was then found that both total nutrient load and allocation among countries and basins differ between studies. The load estimates in this study come close to Helcom (2004), but differ from the BSAP (Helcom, 2007). The study calculated costs of different measures and cost effective solutions but rely on other studies with respect to benefit estimates. When comparing marginal costs for nutrient reductions to the Baltic Sea with associated bene-fits for different abatement measures it was found that there are only two abatement measures – SCR on ships and phosphate free detergents – out of 16 abatement measures that always generate net benefits regardless of loca-tion of the measures. The net benefits of SCR range between 10 and 25 Euro/kg N reduction and that of phosphate free detergents between 130 and 495 Euro/kg P reduction. The variation is due to different discount rates of benefit estimates and to differences in marginal costs depending mainly on location of the measure. However, a general conclusion is that the variation in net benefits is relatively large for most abatement measures. Another conclusion is that there is no measure focusing on P reductions that gives negative net benefits in the entire range, but there are three measures – SCR in power plants and truck, and private sewers – that generate negative net benefits for nitrogen reductions.

When calculating cost effective solutions to targets formulated either as nutrient reductions to the coastal waters of the Baltic Sea or to marine target basins, significant differences were found. One is that total costs of marine basin targets are higher than for the same reductions in per cent to coastal waters. One important reason is the ‘leaching’ of nutrient reductions to non-



58

targeted that occurs for reduction to coastal waters, which necessitates higher nutrient decreases from countries for reaching marine basin targets. Another difference between target formulations is that nutrient reductions and associated cost burdens vary among countries. Although marine basin targets require reductions to all marine basins, the emphasis is on countries with drainage basins to the target marine basins. A common result to all target formulations is that Poland meets the highest relative cost burden and Denmark the lowest.

Due to the high cost share for Poland, which in turn is due to its large share of total initial nutrient loads and availability of relatively low cost abatement options, net benefits are also likely to be negative for the country. Since it is very unclear which nutrient reductions will generate the benefits estimated by earlier studies, it was assumed that these benefits can be obtained by the implementation of the suggested BSAP by Helcom. However, the plan con-tains marine basins and country targets that give different nutrient reduc-tions to the marine basins. The cost of the marine basin target formulation is approximately twice as high as that of country targets, which, in turn, are approximately 60 per cent larger than a cost effective solution for the same overall nutrient reductions as under the country targets. There is thus a range of total net benefits depending on which target formulation is supposed to generate the benefits, from approximately 0.2 billion of Euro to 7.4 billion of Euro. Furthermore, net benefits for single countries also show consider-able variation depending on target formulation, in particular for Poland, for which abatement cost can be reduced by 60 per cent under cost effective nutrient reductions as compared to marine basin targets. When cost effec-tiveness is an important criterion, this difference between results depending on target formulation points at the need for comparison of nutrient load es-timates from different countries and within basins from several studies when recommending overall and country targets.

Whether or not a cost effective solution can be obtained depends on national and international policies for implementation of the abatement programs. If a command and control approach is used, as suggested by the Helom BSAP, costs can be 60 per cent higher than necessary, and several countries make net losses. A switch to a market based system with nutrient credit trading can reduce these losses for the countries due to the option of selling nutrient credits. Depending on initial distribution of nutrient credits, the net losses for Poland can be almost eliminated from sales of nutrient credits. On the other hand, it is well known that an advanced market based system that ac-counts for marine basin targets can be difficult to implement in practice. A simplified system is likely to be needed in practice, which implies that some of the gains from cost effective solutions can not be realised.



59

It is important to emphasise that all results presented and discussed in this report rest on a number of different assumptions, which point to further re-search needs. The assumptions made in this study are related to choices and estimations of costs for abatement measures, to pathways of nutrients in the drainage basins and in the Baltic Sea, and to effects on human use and valuation of the Baltic Sea. Changes in any of the chosen parameters will affect the results. It is therefore necessary to compare results with other studies, and to identify eventual robust results with respect to cost of abate-ment measures, nutrient load base lines, and benefits from mitigation of eutrophication (see Elofsson, 2008; Söderqvist and Hasselström, 2008).

However, since there will never exist ‘perfect’ data, modelling and quantifi-cation of risk and uncertainty may improve robustness of results (see Elofsson, 2003 and Gren 2008 for applications to the Baltic Sea). This is of particular relevance when considering the time needed, up to 50 years, for changes in nutrient loads to have full impacts on the Baltic Sea. During such a long time period, changes occur in abatement technologies, human prefer-ences, structures of the economies, biogeochemical conditions of soils and in the Baltic Sea, etc. (see Kadin 2008 for a discussion of future scenarios for the Baltic Sea). This calls for dynamic and uncertainty analysis of action plans under different future scenarios.

This study included only abatement measures implemented in the drainage basins. One type of technological development that may occur in the near future is the possibility of implementation measures directly in target basins of the Baltic Sea, such as cultivation of mussels and read, and aeration of the Sea. Such measures may have a high potential by their direct impacts on target areas. Interdisciplinary research in this field is very scant (e.g. Lindkvist, 2008).

Although there are insufficient data for calculations of cost, nutrient load impacts, and benefits from nutrient load reductions, there is currently rela-tively much research and knowledge in these fields as compared to knowl-edge on international agreements, their implementation in practice in dif-ferent countries, and human responses to different nutrient related policies such as compensation payment for wetland creation in Sweden and Den-mark. There exist very few studies on international agreements for the Baltic Sea (Gren 2001; Gren and Folmer, 2003; Elofsson, 2007; Laukanen and Huhtala, 2007), and in principle no scientific research on evaluation of ac-tual policies in the Baltic Sea countries. More precisely, examples of future research areas are:

- Theoretical and empirical analysis of conditions for international

agreements with truthful implementation of national policies. Al-though net benefits for countries can play an important role, other



60

criteria such as perceived justice of the international programs can be important components of successful agreements.

- Empirical analysis and comparison of different international eco-nomic instruments, such as nutrient trading markets and charge/refund systems. One important issue is related to the link-ages between international and national policies in order to avoid counteracting incentives.

- Improved understanding of human responses to and final impacts of national policies related to eutrophication of the Baltic Sea. Learn-ings can be made from evaluations of policies implemented in dif-ferent countries.

Unless the understanding of Baltic Sea related human behaviour is im-proved, further data collection and/or model advances on nutrient loads and biological impacts in drainage basins and/or marine basins may not add much to actual policy making and associated human responses. Current imbalances in knowledge between human and nature behaviour with respect to eutrophication of the Baltic Sea may be one of the most important im-pediments for improvements of the Sea.



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Appendix Table A1: Area of land use, leaching and retention in different drainage basins of the Baltic Sea

Region Area1

thous. Km2 Arable land1

thous. km2Leaching.

N2Leaching.

P2 Retention.

N3 Reten-

tion. P3

Denmark: Kattegat 9.60 8.03 0.095 0.01 0.1 0.02The Sound 16.16 12.93 0.095 0.01 0.1 0.02Baltic Proper 1.58 2.15 0.095 0.01 0.1 0.02Finland: Bothnian Bay 134.3 9.08 0.162 0.028 0.29 0.26Bothnian Sea 46.66 5.37 0.162 0.028 0.29 0.26Gulf of Finland

52.56 3.57 0.162 0.028 0.29 0.26

Germany: The Sound 9.77 7.26 0.16 0.014 0.34 0.6Baltic Proper 11.95 8.49 0.16 0.014 0.34 0.6Poland: Vistula 192.90 124.10 0.229 0.067 0.44 0.38Oder 117.59 75.51 0.229 0.067 0.44 0.38Polish coast 25.58 15.38 0.229 0.067 0.44 0.38Sweden: Bothnian Bay 128.86 1.55 0.051 0.019 0.23 0.4Bothnian Sea 180.19 5.67 0.085 0.025 0.27 0.4Baltic Proper South

30.65 7.86 0.164 0.013 0.6 0.47

Baltic Proper North

50.63 9.48 0.164 0.013 0.6 0.47

The Sound 2.90 2.47 0.276 0.016 0.3 0Kattegat 71.65 10.60 0.207 0.016 0.2 0.4Estonia: Baltic Proper 6.07 2.15 0.315 0.066 0.23 0.36Gulf of Riga 11.34 4.69 0.315 0.066 0.23 0.36Gulf of Finland

65.49 32.84 0.315 0.066 0.23 0.36

Latvia: Baltic Proper 96.69 10.00 0.358 0.093 0.45 0.4Gulf of Riga 122.45 62.25 0.358 0.093 0.45 0.4Lithuania 96.69 59.01 0.442 0.114 0.35 0.3Russia: Kaliningrad 20.00 15.08 0.617 0.067 0.6 0.6S:t Petersburg 310.10 49.04 0.55 0.036 0.6 0.5

1) Shou et al. (2006) table A3.5, page 63. for Sweden from Swedish Statistics (2005); 2) share of root zone leaching from deposition of nutrients. Elofsson (2000) page 50; 3) share of discharges into water that do not reach the coastal waters of the Baltic Sea, Shou et al. (2006), table A2.4, page 53



62

Table A2: Baltic Sea basin shares of nitrogen loads and phosphorus direct loads from different calculation sources, % of total estimated loads. Basin Nitrogen;

Own BSAP1 Helcom2 Phosphorus; Own BSAP1 Helcom2

Bothnian Bay 3.1 7.0 6.7 1.7 7.2 8.9 Bothnian Sea 4.4 7.7 12.4 2.4 6.8 9.1 Baltic Proper 61.2 44.4 41.1 71.0 52.5 55.5 Gulf of Finland 14.2 15.3 15.4 13.2 19.1 13.5 Gulf of Riga 5.6 10.6 7.1 7.0 6.1 4.4 The Sound 6.6 6.2 6.1 2.9 3.9 3.1 Kattegat 5.0 8.7 11.1 1.9 4.4 5.6 Total 100 100 100 100 100 100 1) Helcom (2007) table 1, page 2; 2) Helcom (2004) table 5.31, page 163; 3) Hel-com (2004) table 5.32, page 164 Table A3: Helcom BSAP basin reduction targets, in % P N Baltic Proper 66 29 Gulf of Finland 29 5 Gulf of Riga 34 Danish Straits 32 Kattegat 31

Source: Helcom (2007) page 2 Table A4: BSAP nutrient reduction allocations

Nitrogen

Phosphorus

Denmark 31 35Estonia 5 22Finland 8 25Germany 29 41Latvia 25 34Poland 30 68Sweden 29 39Russia 8 38Lithuania 27 65

Source: Helcom (2007) pp. 3



63

Table A5: Helcom country and marine basin targets, in % of riparian country loads to marine basins Baltic

Proper N P

Gulf of Finland N P

Gulf of Riga1

N P

Danish Straits N P

Kattegat N P

Sweden 26 34 32 31 Denmark 24 31 32 31 Finland 8 25 Poland 29 64 Estonia 25 54 4 19 8 Latvia 25 53 12 Lihuania 26 66 Germany 24 45 32 Russia 27 57 5 31

1) Only riparian countries included, which excludes nutrient reductions suggested in Belarus and part of Russia, Ukraine and Czech Republic.

Source: Helcom (2007b), Tables 8

Table A5: Cost effective allocation of country and marine basin targets, for achieving the BSAP marine basin target, in % of riparian country direct loads into marine basins.

Country Bothnian Bay N P

Bothnian Sea N P

Baltic Proper N P

Gulf of Finland N P

Gulf of Riga N P

Danish Straits N P

Kattegat N P

Sweden 1 48 1 55 6 51 57 16 53 10 Den-mark

44 16 45 17 30 11

Finland 1 18 11 35 39 40 Poland 32 81 Estonia 38 68 25 50 35 73 Latvia 30 69 35 61 Lithua-nia

37 70

Ger-many

22 21 57 35

Russia 25 52 14 46



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Table A6: Country reductions under alternative nutrient target specifications, reductions in %. Cost effective

BSAP basin targets P N

BSAP country allocation P N

Cost effective overall reductions P N

Sweden 40 30 17 24 42 5 Denmark 15 40 11 31 31 1 Finland 29 8 11 3 31 13 Poland 80 32 64 27 53 27 Estonia 53 28 19 6 51 33 Latvia 49 34 19 5 34 27 Lithuania 69 37 66 32 58 37 Germany 25 38 27 28 10 2 Russia 42 16 36 5 42 14 Total 69 30 48 21 48 21



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Costs and benefits from nutrient reductions to the Baltic Sea

This study finds that net benefits can range between 0.2

and 7.4 billions per year depending on choice of target

for nutrient reductions to the Baltic Sea, cost and be-

nefit estimates. Net benefits of land use measures and

phosphate free detergents are relatively large. Allocation

of net benefits among countries depends on choice of

international Baltic Sea policy. The report is part of the

project Economic Marine Information commissioned by

the Swedish Government.

report 5877

SwediSh epa

iSBn 978-91-620-5877-7

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Swedish epa Se-106 48 Stockholm. visiting address: Stockholm - valhallavägen 195, Östersund - Forskarens väg 5 hus Ub, Kiruna - Kaserngatan 14. tel: +46 8-698 10 00, fax: +46 8-20 29 25, e-mail: [email protected] internet: www.naturvardsverket.se orders ordertel: +46 8-505 933 40, orderfax: +46 8-505 933 99, e-mail: [email protected] address: Cm-Gruppen, Box 110 93, Se-161 11 Bromma. internet: www.naturvardsverket.se/bokhandeln

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