Optimal pollution trading without pollution reductions: a note
AbstractMany kinds of water pollution occur in pulses, e.g., agricultural and urban runoff. Ecosystems, such as wetlands, can serve to regulate these pulses and smooth pollution distributions over time. This smoothing reduces total environmental damages when the “instantaneous” damage function is convex. This paper introduces a water quality trading model between a farm (a pulse-pollution source) and a firm (a more steady pollution source) where the object of exchange is the ‘temporary’ retention of runoff as opposed to total runoff reductions. The optimal trading ratio requires firm emissions to be offset by more than a proportional retention of the initial agricultural runoff pulse. The reason is twofold: a) emissions are steady over time and -in this sense- have relatively larger environmental impact, and b) certain kinds of runoff management cause otherwise inexistent delayed environmental damages.
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Bibliographic InfoPaper provided by UNIVERSIDAD JAVERIANA - BOGOTÁ in its series VNIVERSITAS ECONÓMICA with number 008292.
Date of creation: 02 May 2010
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This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-04-23 (Agricultural Economics)
- NEP-ALL-2011-04-23 (All new papers)
- NEP-ENE-2011-04-23 (Energy Economics)
- NEP-ENV-2011-04-23 (Environmental Economics)
- NEP-REG-2011-04-23 (Regulation)
- NEP-RES-2011-04-23 (Resource Economics)
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