Acid rain David Newbery Acid rain is not a new phenomenon, but environmental awareness has grown rapidly over the last decade. Much data has been collected and the transmission process is better understood. Policy-makers in Europe have set themselves the objective of a uniform 30% reduction in national emissions of sulphur dioxide and a freeze on emissions of nitrogen oxides. Whereas simple economic principles have informed much of the policy debate in the US, the same has not been true in Europe. A reduction of emissions which is uniform across countries is likely to be highly inefficient: rather, particular emissions should be curtailed until the marginal cost of further abatement equals the marginal benefit as measured by the marginal damage thereby avoided. Within and across countries, marginal abatement costs and, a fortiori, marginal damage from acid rain vary greatly. Thus an efficient emission-reduction programme involves unequal reductions of emissions across countries and activities. The paper offers calculations of the structure of an efficient programme, and discusses how we can best make use of markets and prices to decentralize as many decisions as possible.