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Benchmarking an optimal pattern of pollution trading: The case of Cub River, Utah

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  • Caplan, Arthur J.
  • Sasaki, Yuya

Abstract

This paper employs a recently developed, dynamic trading algorithm to establish a benchmark pattern of trade for a potential water quality trading (WQT) market in the Cub River sub-basin of Utah; a market that would ultimately include both point and nonpoint sources. The algorithm accounts for three complications that naturally arise in trading scenarios: (1) combinatorial matching of traders, (2) trader heterogeneity, and (3) discreteness in abatement technology. The algorithm establishes as detailed a reduced-cost benchmark as possible for the sub-basin by distinguishing a specific pattern of trade among would-be market participants. As such, the algorithm provides a benchmark against which an actual pollution market's performance could conceivably be compared. We find that a benchmarked trading pattern for a potential Cub River WQT market – where each source, point or nonpoint, would be required to reduce its pollution loadings – may entail some point sources selling abatement credits to nonpoint sources.

Suggested Citation

  • Caplan, Arthur J. & Sasaki, Yuya, 2014. "Benchmarking an optimal pattern of pollution trading: The case of Cub River, Utah," Economic Modelling, Elsevier, vol. 36(C), pages 502-510.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:502-510
    DOI: 10.1016/j.econmod.2013.09.026
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    References listed on IDEAS

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    More about this item

    Keywords

    Advancement algorithm; Retreat algorithm; Water quality trading;
    All these keywords.

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other

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