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Pollution Trading in Water Quality Limited Areas: Use of Benefits Assessment and Cost-Effective Trading Ratios

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  • R. Scott Farrow
  • Martin T. Schultz
  • Pinar Celikkol
  • George L. Van Houtven

Abstract

This paper proposes a water quality trading design that addresses common implementation problems. Trading ratios, which are calculated from damages integrated over each source’s spatial zone of influence, drive the system to a socially costeffective outcome. The design is applied to combined sewer overflow management in the Upper OhioRiver Basin, where trading ratios can vary significantly among trading partners. The analysis shows that significant compliance cost savings are possible without incurring a penalty in terms of social damages or overall water quality despite a higher level of discharge relative to the command and control option.

Suggested Citation

  • R. Scott Farrow & Martin T. Schultz & Pinar Celikkol & George L. Van Houtven, 2005. "Pollution Trading in Water Quality Limited Areas: Use of Benefits Assessment and Cost-Effective Trading Ratios," Land Economics, University of Wisconsin Press, vol. 81(2).
  • Handle: RePEc:uwp:landec:v:81:y:2005:i:2:p191-205
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    References listed on IDEAS

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    Cited by:

    1. Muller Nicholas & Tong Daniel & Mendelsohn Robert, 2009. "Regulating NOx and SO2 Emissions in Atlanta," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(2), pages 1-32, March.
    2. James Boyce & Manuel Pastor, 2012. "Cooling the Planet, Clearing the Air: Climate Policy, Carbon Pricing, and Co-Benefits," Published Studies cooling_the_planet_sept20, Political Economy Research Institute, University of Massachusetts at Amherst.
    3. Kailin Kroetz & James N. Sanchirico & Daniel K. Lew, 2015. "Efficiency Costs of Social Objectives in Tradable Permit Programs," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 339-366.
    4. Karen Fisher-Vanden & Sheila Olmstead, 2013. "Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 147-172, Winter.
    5. Arthur J. Caplan & Yuya Sasaki, 2009. "Sharing the Surplus Generated from Noncooperative Cost Sharing: The Case of Nonpoint Associations and Water Quality Trading," Working Papers 2009-09, Utah State University, Department of Economics.
    6. Muller, Nicholas Z., 2012. "The design of optimal climate policy with air pollution co-benefits," Resource and Energy Economics, Elsevier, vol. 34(4), pages 696-722.
    7. Suzi Kerr, 2013. "Managing Risks and Tradeoffs Using Water Markets," Working Papers 13_13, Motu Economic and Public Policy Research.
    8. Rong Zhou & Kathleen Segerson, 2016. "Individual vs. Collective Approaches to Fisheries Management," Marine Resource Economics, University of Chicago Press, vol. 31(2), pages 165-192.
    9. Nixon, Hilary & Saphores, Jean-Daniel, 2007. "Impacts of Motor Vehicle Operation on Water Quality in the United States - Clean-up Costs and Policies," University of California Transportation Center, Working Papers qt4bv8v8gj, University of California Transportation Center.
    10. Yates, Andrew J. & Doyle, Martin W. & Rigby, J.R. & Schnier, Kurt E., 2013. "Market power, private information, and the optimal scale of pollution permit markets with application to North Carolina's Neuse River," Resource and Energy Economics, Elsevier, vol. 35(3), pages 256-276.
    11. Zajicek, Michael Nathan, 2013. "Water quality trading on the Minnesota River: Lessons learned from the Jordan Trading Program," Master's Theses 162278, University of Minnesota, Department of Applied Economics.
    12. 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.
    13. repec:spt:admaec:v:8:y:2018:i:1:f:8_1_5 is not listed on IDEAS
    14. repec:oup:revage:v:30:y:2008:i:4:p:711-728. is not listed on IDEAS
    15. Meredith Fowlie & Nicholas Muller, 2013. "Market-based Emissions Regulation When Damages Vary Across Sources: What Are the Gains from Differentiation?," NBER Working Papers 18801, National Bureau of Economic Research, Inc.
    16. repec:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0026-2 is not listed on IDEAS
    17. David C. Roberts & Christopher D. Clark & William M. Park & Burton C. English, 2008. "A Spatial Assessment of Possible Water Quality Trading Markets in Tennessee," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(4), pages 711-728.
    18. Werner Antweiler, 2017. "Emission trading for air pollution hot spots: getting the permit market right," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(1), pages 35-58, January.
    19. Boisvert, Richard N. & Poe, Gregory L. & Sado, Yukako, 2007. "Selected Economic Aspects of Water Quality Trading: A Primer and Interpretive Literature Review," EB Series 121835, Cornell University, Department of Applied Economics and Management.
    20. Holland, Stephen P. & Yates, Andrew J., 2015. "Optimal trading ratios for pollution permit markets," Journal of Public Economics, Elsevier, vol. 125(C), pages 16-27.
    21. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.
    22. repec:wsi:wepxxx:v:03:y:2017:i:02:n:s2382624x16500338 is not listed on IDEAS
    23. Nicholas Z. Muller & Robert Mendelsohn, 2009. "Efficient Pollution Regulation: Getting the Prices Right," American Economic Review, American Economic Association, vol. 99(5), pages 1714-1739, December.

    More about this item

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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