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Simple vs. Complex: Implications of Lags in Pollution Delivery for Efficient Load Allocation and Design of Water-quality Trading Programs

  • James Shortle, David Abler, Zach Kaufman and Katherine Y. Zipp

Abstract

Water-quality markets that allow point-nonpoint trades assume that nonpoint best management practices (BMPs) achieve the targeted reductions as soon as they are implemented. However, changes in water quality in response to BMPs occur over time—from a few months to decades. We simulate emission allocations using static and dynamic-optimization models to determine whether a simple static allocation can produce results comparable economically and environmentally to complex multi-period designs for nitrogen emissions to Chesapeake Bay. We find that static rules provide relatively large cost savings compared to dynamic rules but result in a delay in achievement of water-quality targets.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

Correspondence: James ShortleDepartment of Agricultural Economics, Sociology, and Education111D Ferguson BuildingPennsylvania State UniversityUniversity Park, PA 16802 ■ Phone 814.865.8270 ■ Email jshortle@psu.edu.

References

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Carlton, D.W. 1984. “Futures Markets: Their Purpose, Their History, Their Growth, Their Successes and Failures.” Journal of Futures Markets 4(3): 237271.
Chesapeake Bay Program. 2010. “ChesapeakeStat” data. Available at http://stat.chesapeakebay.net (accessed July 2014).
Environmental Protection Agency. 2010. “Chesapeake Bay Phase 5.3 Community Watershed Model.” EPA 903S10002 – CBP/TRS-303-10. EPA, Chesapeake Bay Program Office, Annapolis, MD.
Fisher-Vanden, K., and Olmstead, S. 2013. “Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis.” Journal of Economic Perspectives 27(1): 147171.
Horan, R.D., and Shortle, J.S.. 2011. “Economic and Ecological Rules for Water Quality Trading.” Journal of the American Water Resources Association 47(1): 5969.
Kaufman, Z., Abler, D., Shortle, J., Harper, J., Hamlett, J., and Feather, P.. 2014. “Agricultural Costs of the Chesapeake Bay Total Maximum Daily Load.” Environmental Science and Technology 48(24): 1413114138.
Office of Management and Budget. 1992. “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs.” Circular A-94, OMB, Washington, DC. Available at www.whitehouse.gov/omb/circulars_a094 (accessed March 2016).
Ribaudo, M., Savage, J., and Talberth, J.. 2014. “Encouraging Reductions in Nonpoint Source Pollution through Point-Nonpoint Trading: The Roles of Baseline Choice and Practice Subsidies.” Applied Economic Perspectives and Policy 36(3): 560576.
Scientific and Technical Advisory Committee, Chesapeake Bay Program. 2013. “Incorporating Lag-times into the Chesapeake Bay Program.” Publication 13–004, STAC, Edgewater, MD.
Shortle, J. 2013. “Economics and Environmental Markets: Lessons from Water-quality Trading.” Agricultural and Resource Economics Review 42(1): 5774.
Shortle, J.S., Kaufman, Z., Abler, D., Harper, J., Hamlett, J., and Royer, M.. 2013. “Building Capacity to Analyze the Economic Impacts of Nutrient Trading and Other Policy Approaches for Reducing Agriculture's Nutrient Discharge into the Chesapeake Bay Watershed.” Report to the U.S. Department of Agriculture, Washington, DC.
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Agricultural and Resource Economics Review
  • ISSN: 1068-2805
  • EISSN: 2372-2614
  • URL: /core/journals/agricultural-and-resource-economics-review
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