Macro-economic Impacts of Air Pollution Policies in the EU

In this paper we analyse interactions between European air pollution policies and policies for climate change making based on the computable general equilibrium model called WorldScan. WorldScan incorporates both emissions of greenhouse gases (CO2, N2O and CH4) and emissions of air pollutants (SO2, NOx, NH3 and PM2.5). WorldScan is extended with equations that enable the simulation of end-ofpipe measures that remove pollutants without affecting the emission-producing activity itself. We simulate air policies in the EU by introducing emission ceilings for air pollutants at the level of member states. The simulations show that mitigation not only consists of implementing emission control technologies, but also efficiency improvements, fuel switching and structural changes. Greenhouse gas emissions decrease, making climate change policies less costly. The decrease in the price on emission of greenhouse gases may be substantial, depending on the ambition level of the air pollution policy and the context of international climate policies.