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

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 Ohio River 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. (JEL Q53

Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis

“…For the most part, induspoint source, based on available control technologies. For the most part, industrial point source compliance with these permits has been high (Freeman 2000). trial point source compliance with these permits has been high (Freeman 2000).…”

“…For the most part, industrial point source compliance with these permits has been high (Freeman 2000). trial point source compliance with these permits has been high (Freeman 2000). Municipal sewage treatment has also expanded dramatically, resulting in impressive Municipal sewage treatment has also expanded dramatically, resulting in impressive improvements in urban water quality-for examples, see Boston Harbor and the improvements in urban water quality-for examples, see Boston Harbor and the Hudson River near New York City.…”

“…The stated goals of the Clean Water Act were: 1) the attainbecame law in 1972. The stated goals of the Clean Water Act were: 1) the attainment of fi shable and swimmable waters by July 1, 1983; and 2) the elimination of ment of fi shable and swimmable waters by July 1, 1983; and 2) the elimination of all discharges of pollutants into navigable waters by 1985 (Freeman 2000). Obviously, discharges of pollutants into navigable waters by 1985 (Freeman 2000).…”

“…The stated goals of the Clean Water Act were: 1) the attainment of fi shable and swimmable waters by July 1, 1983; and 2) the elimination of ment of fi shable and swimmable waters by July 1, 1983; and 2) the elimination of all discharges of pollutants into navigable waters by 1985 (Freeman 2000). Obviously, discharges of pollutants into navigable waters by 1985 (Freeman 2000). Obviously, those deadlines have been postponed through amendments, and distinctions have those deadlines have been postponed through amendments, and distinctions have since been made between different types of pollutants.…”

Incremental and Average Control Costs in a Model of Water Quality Trading with Discrete Abatement Units

“…3 AC is equal to the total cost of a technology step divided by the number of abatement units achieved. 4 Prominent issues addressed in the pollution trading literature include the identification of optimal trading ratios for non-point sources (Shortle 1987(Shortle 1990Malik et al 1993;Shortle and Horan 2005;Farrow et al 2005;Hung and Shaw 2005), empirical/numerical estimates of cost savings with pollution trading (Fullerton et al 1997;Bernstein et al 1994;Hahn and May 1994;Coggins and Smith 1993;Bohi and Burtraw 1992;Atkinson and Tietenberg 1991;Hester 1989a and1989b;Hahn 1989), the roles of transaction costs (Winebrake et al 1995;Stavins 1995;Lund 1993;GAO 1994;Montero 1997), market concentration/failure (Cason et al 2003;Atkinson and Tietenberg 2001;Misiolek and Elder 1989;Hahn 1984;O'Neil 1983), market size (Atkinson and Morton 2004), banking (Wen et al 2005;Germain et al 2004;Cronshaw and Kruse 1996), noncompliance (Konishi 2005;Keeler 1991), moral hazard (Joskow and Schmalensee 1986), and price uncertainty (Baldursson and von der Fehr 2004; Rubin 2001; Chao and Wilson 1993). of being a buyer or a seller of pollution reduction credits depending upon its choice of how much to abate relative to its target load, its WTP is ultimately its MC.…”