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Establishing a Clearinghouse to Reduce Impediments to Water Quality Trading

Author

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  • O'Hara, Jeffrey K.
  • Walsh, Michael J.
  • Marchetti, Paul K.

Abstract

Pennsylvania adopted a water quality trading program to reduce Chesapeake Bay nutrient pollution. It is the first such program to provide regulated point sources the option of purchasing nutrient reduction credits via arms-length market transactions to achieve mitigation requirements. After the program initially experienced limited trading, the Pennsylvania Infrastructure Investment Authority designed a nutrient credit clearinghouse to reduce some of the transaction costs and risks that impeded market activity. We review the clearinghouse functionality, examine initial results of its implementation, and evaluate its effectiveness. Nutrient credit auctions conducted by the clearinghouse revealed that the clearinghouse provided benefits for participants seeking to buy credits and that purchasing credits could be a least-cost compliance alternative for many regulated point sources. To our knowledge, this is the first clearinghouse to successfully administer a nutrient credit auction on behalf of regulated point sources seeking to comply with a discharge permit.

Suggested Citation

  • O'Hara, Jeffrey K. & Walsh, Michael J. & Marchetti, Paul K., 2012. "Establishing a Clearinghouse to Reduce Impediments to Water Quality Trading," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 42(2).
  • Handle: RePEc:ags:jrapmc:143776
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    File URL: http://purl.umn.edu/143776
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    References listed on IDEAS

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    1. Richard D. Horan & James S. Shortle, 2005. "When Two Wrongs Make a Right: Second-Best Point-Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 340-352.
    2. Sheila M. Olmstead, 2010. "The Economics of Water Quality," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(1), pages 44-62, Winter.
    3. Arun S. Malik & David Letson & Stephen R. Crutchfield, 1993. "Point/Nonpoint Source Trading of Pollution Abatement: Choosing the Right Trading Ratio," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 959-967.
    4. Andrew Manale & Cynthia Morgan & Glenn Sheriff & David Simpson, 2011. "Offset markets for nutrient and sediment discharges in the Chesapeake Bay Watershed: Policy tradeoffs and potential steps forward," NCEE Working Paper Series 201105, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2011.
    5. Hanna L. Breetz & Karen Fisher-Vanden & Hannah Jacobs & Claire Schary, 2005. "Trust and Communication: Mechanisms for Increasing Farmers’ Participation in Water Quality Trading," Land Economics, University of Wisconsin Press, vol. 81(2).
    6. Richard D. Horan, 2001. "Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 934-941.
    7. Cynthia Morgan & Ann Wolverton, 2005. "Water Quality Trading in the United States," NCEE Working Paper Series 200507, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2005.
    8. Abdalla, Charles W. & Borisova, Tatiana & Parker, Douglas D. & Saacke Blunk, Kristen, 2007. "Water Quality Credit Trading and Agriculture: Recognizing the Challenges and Policy Issues Ahead," Choices, Agricultural and Applied Economics Association, vol. 22(2).
    9. King, Dennis M., 2005. "Crunch Time for Water Quality Trading," Choices, Agricultural and Applied Economics Association, vol. 20(1).
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