Cost-Effective Control of Water Pollution in Central and Eastern Europe

Since political transformations there in 1989, Central and Eastern Europe has increasingly come to realize the severity of the degradation of its surface water quality. Most major rivers and lakes in the region have pollutant concentrations far above international standards. In addition to posing health threats, contamination of the region's surface water has economic consequences. For example, pollutant discharges into the Baltic and the Black seas have already seriously reduced the output of once-productive fisheries.

Policies designed to improve the region's water quality will have to grapple with the declining industrial and agricultural output, concomitant decreases in material living standards, and shortages of investment capital faced by all the region's national governments. Given these conditions, the countries of Central and Eastern Europe could simply choose to delay adoption of the best-available pollution control technology and minimum pollutant discharge policies of Western Europe and North America until their economies can afford them. In the meantime, this decision would mean relying on existing pollution control facilities to deal with water quality problems caused by so-called point sources of water pollution—primarily industrial and municipal sewage treatment plants. As the region's economies improve, presumably more money would become available for the capital investments that are required for construction of sewage treatment plants with state-of-the-art pollution control. The region's governments would meanwhile stand to gain an advantage from delaying investment in water quality improvement: the longer they wait to undertake such investment, the greater the likelihood that noncompetitive industries will fail, obviating the need to invest in new or improved plants to treat the industries' sewage.

Delaying efforts to improve water quality is problematic, however. Although pollutant discharges into the region's waters can be expected to decrease as industries close, change their product mix, or update their production processes, it is likely that municipal sewage loads will increase as more and more households and newly formed businesses are connected to public water and sewer networks. In addition, the public may demand that water quality issues be addressed in the present rather than in the future. The downfall of many of the formerly Communist governments was brought about in part by environmental movements, and anecdotal evidence suggests that a substantial demand for improved environmental quality still exists in many Central and Eastern European countries.

Since most of Central and Eastern Europe's water supply is drawn from rivers, these bodies of water can be expected to be the primary focus of efforts to improve water quality. In order to understand which such efforts are likely to be cost-effective, it is necessary to take into account two behavioral patterns of pollutants in a typical river basin. To illustrate these patterns, suppose that our typical river basin has three point sources of pollutant discharges and three monitoring stations where water quality is measured, and that point source 1 is located highest upstream, followed further downstream by monitoring station A, point source 2, monitoring station B, point source 3, and monitoring point C (see figure, p. 30). The first behavior pattern to consider is that pollutants from each source of discharges into the basin move only in a downstream direction, resulting in higher quality of water upstream and lower quality of water downstream. Thus the quality of water passing by monitoring stations A, B, and C will be affected by pollutants discharged from point source 1, while the quality of water passing by monitoring station A will be affected only by pollutants discharged from point source 1. The second behavioral pattern to consider is that most conventional pollutants—nitrogen and phosphorus, for example—either decay naturally and so are effectively removed from the river as they move downstream or settle out of the water column and become entrained in the sediment of the river bed.

A study I conducted with László Somlyódy of the International Institute for Applied Systems Analysis in Laxenburg, Austria, suggests that Central and Eastern Europe might be able to improve its ambient water quality substantially by considering the relative effects and pollution control costs of point sources of pollutant discharges into river basins, and to do so in a way that would be cheaper than adopting the minimum discharge and best-available technology policies of Western Europe and North America. The study of alternative water quality enhancement policies accounts for the location of each major point source of discharges into the Nitra River basin, which is located in a heavily industrialized area of the Slovak Republic; the pollution control costs of each of these sources; and the effects of each source's discharges on the basin's ambient water quality. It focuses on concentrations of dissolved oxygen, which are often used as a broad measure of the quality of water and the health of aquatic ecosystems, and it considers the effects of three types of policies to increase such concentrations. The first policy is to require point sources to increase the current concentration of dissolved oxygen in the basin by reducing pollutant discharges to the lowest possible level using the best-available pollution control technologies. The second policy is for the region in which the Nitra River basin is located to implement what for it would be the least-cost strategy for increasing the concentration of dissolved oxygen in the basin to 4.0 milligrams per liter (mg/l), a concentration high enough to sustain fish and other forms of aquatic life. The third policy is for the region to implement what would be the least-cost strategy for increasing this concentration to 6.0 mg/l. A comparison of the costs of each of these three policies reveals that the minimum discharge/best-available technologies (MD/BAT) policy is the most expensive (see table, p. 31). While this policy would increase the concentration of dissolved oxygen in the Nitra River basin to 6.9 mg/I, it would do so at an annual cost of approximately $14.4 million (U.S. dollars). In contrast, the annual cost of each of the least-cost policies is less than half this figure. The least-cost policy to increase the concentration of dissolved oxygen to 6.0 mg/I would entail an annual cost of $6.6 million; the least-cost policy to increase this concentration to 4.0 mg/l would entail an annual cost of only $2.8 million. Both least-cost policies represent a substantial improvement over maintenance of the status quo (the base case), even though the cost of the latter is zero. This is because the currently low concentration of dissolved oxygen in the basin—0.7 mg/l—is likely to be detrimental to many forms of aquatic life. The above cost comparisons illustrate the likely ratio of cost savings that could be achieved through the use of a least-cost policy to increase concentrations of dissolved oxygen. The 4.0 mg/l concentration could be achieved at less than 20 percent of the cost of the MD/BAT policy, while the 6.0 mg/l concentration could be achieved at less than 50 percent of the cost of this policy. The question that arises is whether similar cost savings would be realized if least-cost pollution control policies were applied to river basins larger than the Nitra River basin. Given the magnitude of potential cleanup costs relative to GDP in Central and Eastern Europe, the answer to this question is doubtless of considerable interest to the region's governments.

Despite the fact that resource economists have been advocating their use for more than two decades, least-cost pollution control policies are the exception rather than the rule in practice. Although the United States has recently adopted one such policy—trading among electric power plants of permits to emit sulfur dioxide—it and many other countries in the West have traditionally made little attempt to design and implement pollution control policies that are efficient in the sense that they will lead to ambient standards being met at the lowest possible cost. There are many reasons why such policies are not promulgated more often. They include technical difficulties in projecting the economic and environmental effects of alternative policies, concerns about whether pollution control costs will be evenly distributed among pollution sources, and the lack of institutions to coordinate management of environmental resources.

Given that cost-effective pollution control policies are not the norm in the West, it might be expected that Central and Eastern European countries would be hesitant to adopt them. However, these countries' severe resource constraints and their institutional flexibility—the result of recent political transformations in the former Soviet bloc—tend to make such policies particularly attractive and potentially easier to implement than in the West. This combination of conditions suggests that Central and Eastern European governments may be more attuned to the arguments of resource economics than Western governments have been to date.