Water Quality Trading and Agricultural Nonpoint Source Pollution: An Analysis of the Effectiveness and Fairness of EPA's Policy on Water Quality Trading

Water quality problems continue to plague our nation, even though Congress passed the Clean Water Act (CWA) to "restore and maintain the chemical, physical, and biological integrity of the Nation's waters"1 more than three decades ago. During the past thirty years, the dominant sources of water pollution have changed, requiring us to seek new approaches for cleaning up our waters. Water quality trading has been heralded as an approach that can integrate market mechanisms into the effort of cleaning up our water. This Article examines the Environmental Protection Agency's (EPA) policy on water quality trading and the prospects for water quality trading to help improve water quality.Part II briefly describes our water quality problems and causes. Part III examines the theoretical basis for trading and the EPA's Water Quality Trading Policy. Part IV discusses the potential impact of total maximum daily loads (TMDLs) on water quality trading, and Part V analyzes potential problems that water quality trading programs confront. Part VI addresses distributional and efficiency concerns that arise when considering trading and agricultural nonpoint source pollution. Part VII then examines issues relating to water quality trading and state laws before reaching conclusions and recommendations in Part VIII

Water Pollution Taxes: A Good Idea Doomed to Failure?

Water pollution taxes, or effluent fees, have long been advocated by environmental economists as a regulatory approach to cost effectively achieve water quality improvements. The article reviews the arguments in favor of taxes and traces the history of the idea in U.S. policy debates. Particular attention is given to the institutional challenges presented by a tax system and its application in watershed contexts where transport phenomena are important. The article also addresses the question of why effluent taxes are so rarely seen in practice.water quality, effluent fees, market-based incentives

Improving the Efficiency and Effectiveness of Agri-environmental Policies for the Chesapeake Bay

Water Quality, Nonpoint Source Pollution, Policy Instrument, Chesapeake Bay, Environmental Economics and Policy, Resource /Energy Economics and Policy, Q25, Q58,

Environmental taxes and policies for developing countries

Increasing urbanization and industrialization can exacerbate pollution problems in developing countries. Tax revenues in developing countries are too low to support adequate infrastructure for treating and disposing of wastes, but the problem is also attributable to the classic problem of externalities in productiion and consumption."Externalities"means that the costs of environmental degradation are not considered by the private decisionmakers undertaking the activities that cause the problems. Two types of policies are commonly considered to correct this market failure and improve the allocation of resources: command-and-control policies (such as emmission and abatement standards) and market-based incentive policies (such as emissions charges, taxes on production and consumption, and marketable pollution quotas), which raise the price of such activities for the perpetrators. Market based incentives theoretically reduce pollution at least cost and increase government revenues, but may require costly monitoring to be effective, and are usually implemented in an environment of imperfect information about the costs of abatement. Sometimes command and control policies make more economic sense in this environment. Efficiency gains from curbing pollution in developing countries may be large. Some polluting activities are subsidized, so curtailing them brings both fiscal and environmental benefits. Taxing polluting inputs and outputs is a particularly attractive policy in developing countries which often lack experience in administering and enforcing other types of environmental regulation. Corrective taxes make use of existing administrative structures and increase tax revenues, which can be spent on public goods to improve environmental quality (including treatment facilities for water and sewage, waste disposal, and sanitation) or can be used to reduce other taxes (which are often highly distortionary in countries with a narrow tax base). Which goods and inputs to single out for corrective taxation depends on the main sources of pollution, which varies from country to country. Air pollution from vehicles is growing in many countries where increased fuel taxes, perhaps coupled with improved regulations for vehicle maintenance, may be desirable. Higher taxes on high sulphur coal would curb both industiral and household emissions of sulphur dioxide. Charges can be implemented for fixed site easy to monitor industrial emissions. Subsidies to industries that cause pollution should be phased out and those industries should be subjected to higher than average tax rates.Water and Industry,Economic Theory&Research,Urban Services to the Poor,Urban Services to the Poor,Environmental Economics&Policies

WILLINGNESS TO PAY FOR WATER QUALITY IMPROVEMENTS: THE CASE OF PRECISION APPLICATION TECHNOLOGY

A contingent valuation survey conducted in Mississippi is used to assess public willingness to pay for reductions in agricultural nonpoint pollution. The analysis focuses on implementation of a policy to provide farmers with precision application equipment to reduce nutrient runoff. Findings suggest public support exists for such policies. This study also finds that inclusion of debriefing questions can be used to refine willingness-to-pay estimates in contingent valuation studies. A nonparametric scope test suggests respondents are sensitive to level of runoff reduction and associated water-quality benefits.Environmental Economics and Policy,

TRADABLE PERMITS FOR CONTROLLING NITRATES IN GROUNDWATER AT THE FARM LEVEL: A CONCEPTUAL MODEL

Nitrate contamination of municipal and domestic well water supplies is becoming an increasing problem in many rural and urban areas, raising the cost of providing safe drinking water. The objective of this paper is to describe a marketable permit scheme that can effectively manage nitrate pollution of groundwater supplies for communities in rural areas without hindering agricultural production in watersheds. They key to implementing this scheme is being able to link nitrate leaching from nitrogen fertilizer applied to crops at a farm to nitrate levels measured at a drinking water well.agriculture, groundwater pollution, leaching, nitrates, pollution trading, Environmental Economics and Policy,

The Role of Tradable Permits in Water Pollution Control

This paper was prepared as a conceptual framework to stimulate discussions on the role and applicability of tradable permits in water pollution control among participants of the Technical Seminar on the Feasibility of the Application of Tradable Water Permits for Water Management in Chile (13-14 November 2003 in Santiago de Chile). In Chile, water pollution is a major problem. Until recently, existing regulations to control water pollution consisted mainly of non-market based instruments. Innovative instruments are now being explored via a recent national law for tradable emission/discharge permits. The instrument of tradable discharge permits is one of several market-based instruments used in water management and pollution control. Tradable discharge permits are actually among the most challenging market-based instruments in terms of both their design and implementation. Experience to date with tradable discharge permits for water pollution control has been limited and mainly comes from several regions of the US and Australia. The paper at first introduces tradable permits as part of an overall taxonomy of economic instruments in the field of water management. In this context, three fundamentally different fields of application of tradable permits systems relating to water are presented: tradable water abstraction rights, tradable rights to water-based resources and tradable water pollution rights. The remaining of the paper deals exclusively with the latter category, i.e. tradable water pollution rights, their role and applicability in water pollution control

ECONOMIC INSTRUMENTS FOR NONPOINT SOURCE WATER POLLUTION: OPTIONS FOR THE SWAN-CANNING RIVER SYSTEM

The management of nonpoint source water pollution presents an immense challenge to economists and policy makers alike. A complex array of physical, economic, political and institutional barriers lie between theoretically appealing textbook prescriptions and their transition into successful real-world solutions. Underlying beliefs about property rights, interest group politics and the transaction costs associated with designing and implementing successful measures have all played a particularly critical role. Building on the theoretical literature and the lessons provided by the practical use of economic instruments for nonpoint source water pollution management around the world, this paper considers these issues in the context of the Swan-Canning river system in Perth. Four innovative economic instruments for the management of nonpoint source nutrient pollution in that system are discussed: auctioned best management practice payments; best management practice incentive charges; an urban nonpoint source emissions offset bank; and a catchment based licensing/trading program.Environmental Economics and Policy, Land Economics/Use,

THE VALUE OF ECOLOGICAL AND ECONOMIC INFORMATION IN WATER QUALITY MANAGEMENT

Replaced with revised version of paper 08/25/03.Environmental Economics and Policy,