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Water quality trading markets – Integrating land and marine based measures under a smart market approach

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  • Filippelli, Raphael
  • Termansen, Mette
  • Hasan, Syezlin
  • Hasler, Berit
  • Hansen, Line
  • Smart, James C.R.

Abstract

Implementation of effective policy instruments to reduce emissions from non-point agricultural sources has been challenging. Mussel farming has the potential to mitigate diffuse nitrogen losses from agricultural production, and a Water Quality Trading Market (WQTM) between agricultural and mussel farmers could potentially be an efficient mechanism. We simulate a hypothetical WQTM in a catchment in northern Denmark using a relatively new approach referred to as a smart market for water quality. Building on previous work, we integrate mussel farmers as nitrogen permit sellers in a WQTM involving agricultural farmers and analyze the effect of the market on the cost of meeting water quality improvement targets. In addition, we set-up scenarios with decreasing levels of participation by agricultural farmers (−10%, −20% and − 30%). The results show a clear benefit from allowing trading between agricultural and mussel farmers, reducing the total costs by as much as 11.9%. Lower participation results in reductions in the benefits from trade. However, allowing mussel-based mitigation to supply N permits at modest cost can potentially partially circumvent the well-documented challenge that agricultural farmers are reluctant to act as N permit suppliers in WQTMs. The study illustrates the economic and environmental potential of integrating land- and marine-based farmers in a joint policy scheme to reduce nitrogen emissions to coastal and marine areas.

Suggested Citation

  • Filippelli, Raphael & Termansen, Mette & Hasan, Syezlin & Hasler, Berit & Hansen, Line & Smart, James C.R., 2022. "Water quality trading markets – Integrating land and marine based measures under a smart market approach," Ecological Economics, Elsevier, vol. 200(C).
  • Handle: RePEc:eee:ecolec:v:200:y:2022:i:c:s0921800922002117
    DOI: 10.1016/j.ecolecon.2022.107549
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    References listed on IDEAS

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