Essays on water quality policies of the Baltic sea and technological innovation

This thesis contains four papers on the water quality of the Baltic Sea and technological innovation. The first paper examines the effect of environmental regulation aimed at reducing eutrophication on innovation in nitrogen and phosphorus management technology in the wastewater treatment sector and agricultural sector. Using patent statistics from Sweden over 1960 to 2015 as a measure of innovation, it is shown that increased environmental stringency has a positive effect on technological innovation in the wastewater treatment sector, but not in the agricultural sector. The second paper examines the ex-post cost-effectiveness of nitrogen load reductions to the Baltic Sea due to environmental regulation. Using a counterfactual approach, we estimate the total nitrogen reductions from 1996 to 2010 to be roughly 145,000 tons. Result from a cost-effectiveness model suggests this reduction could have been achieved at 12% of the realized cost. If the same budget had been used efficiently, nitrogen reductions could have been twice as large. The third paper uses data from a choice experiment over five Baltic Sea countries to analyze the effect of the distance to the coast and nitrogen retention on farmers’ compensation demand for agri-environmental schemes. The results suggest that the two spatial variables affect farmers’ compensation demand and, the effect depends on the spatial variation in production conditions within the countries. The results also show that providing higher compensation to farmers closer to the recipient is not always motivated, and by that, providing differentiated payments, the budgetary cost can be reduced. The final paper examines the development of environmental technological innovations in the private and public sectors, in six major countries from 1990 to 2014. The result from our decomposition framework shows a shift toward environmental technologies in general and energy-related technologies in particular. We attribute the shift in the private sector to changes in research priority, and increased scale of research activity. The growth in the public sector is attributed to increased efficiency of the research process