Technical Synergies and Trade-Offs Between Abatement of Global and Local Air Pollution

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 \hbox {CO}_{2} and \hbox {NO}_{\mathrm{x}}. Both pollutants are regulated by strict policies in Sweden. \hbox {CO}_{2} is subject to the European Union Emission Trading Scheme and Swedish carbon taxes; \hbox {NO}_{\mathrm{x}}—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.