In this paper, we explore the synergies and tradeoffs between abatement of global and local pollution. We build a unique dataset of Swedish combined heat and power plants with detailed boiler-level data 2001–2009 on not only production and inputs but also on emissions of CO2 and NOx. Both pollutants are regulated by strict policies in Sweden. CO2 is subject to theEuropean UnionEmissionTrading Scheme and Swedish carbon taxes;NOx— as a precursor of acid rain and eutrophication—is regulated by a heavy fee. Using a quadratic directional output distance function, we characterize changes in technical efficiency as well as patterns of substitutability in response to the policies mentioned. The fact that generating units face a trade-off between the pollutants indicates the need for policy coordination.
SAMHÄLLSVETENSKAP -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)
SOCIAL SCIENCES -- Economics and Business -- Economics (hsv//eng)