Academic journal article Journal of Regional Analysis & Policy

BMPs for Sale! - Implications from a Case Study in BMP Auctions

Academic journal article Journal of Regional Analysis & Policy

BMPs for Sale! - Implications from a Case Study in BMP Auctions

Article excerpt

Abstract. Over the past several decades, there has been an increase in the use of market-based approaches for environmental policy. The purpose of this paper is three-fold: 1) to provide a review of the literature on auction-based approaches to environmental management, 2) to gain insight into the use and effectiveness of an alternative auction designs, and 3) to present considerations for enhancing the use of flexible auction approaches for future environmental application. Specifically, this paper describes how innovative BMP auctions were used to distribute conservation funding in a small watershed in east-central Kansas and offers insights into their overall cost-effectiveness. Overall, there were 61 bids for practices requesting a total of $98,524 in funding. Through the bid evaluation process, 46 of the bids were actually funded, which resulted in an estimated 2,901 tonnes of annual soil erosion reduction. This came at a total cost of $62,566. The lessons learned from the project can help guide future conservation programs seeking market-based solutions to bring about environmental benefits and researchers interested in analyzing the effectiveness of these mechanisms.

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1. Introduction

Among the principal challenges in dealing with agricultural nonpoint source pollution is determining appropriate incentives and the best policy design to induce producers to adopt pollution prevention practices. Despite years of effort and the investment of millions of state and federal dollars in various environmental incentive programs, many producers still choose not to participate in traditional conservation programs and/or decide not to implement best management practices (BMPs) on their agricultural fields (Smith et al., 2007). Further, an agency's ability to effectively target investments for the greatest environmental improvements for dollars spent remains a vital yet difficult goal to even measure, much less fully achieve.

The growing interest in market-based environmental management stems partly from costeffectiveness (Atkinson and Tietenberg, 1991) and partly from the practical success governments have had in dealing with specific pollution problems such as sulfur dioxide (SO2) air emissions (Stavins, 1998) via these programs. The SO2 program, enabled by the 1990 Clean Air Act Amendments, created a formalized market institution whereby emissions were tied to well-defined, transferrable property rights. Such formalized markets have also been applied to water-borne pollutants from agriculture, with over 40 water quality trading (WQT) programs in place in the United States (Breetz et al., 2004). Unlike the SO2 market, however, WQT markets have suffered from low trading volumes, and many programs have yielded no transactions at all. Transaction data from these markets are virtually nonexistent. Hoag and Hughes-Popp (1997), Woodward and Kaiser (2002), and Peterson and Smith (2012) provided overviews of WQT initiatives and discussed a number of possible complications limiting participation.

Despite the lack of past successes of marketbased approaches for water quality, interest remains high. As mentioned previously, WQT is frequently mentioned, investigated, and implemented as a policy alternative in a variety of watersheds across the globe. In addition to WQT, more general marketbased approaches also are supported and promoted by several U.S. agencies including the largest agricultural conservation agency, the Natural Resources Conservation Service (NRCS) (Knight, 2005). For example, the 2011 request for proposals for the NRCS-supported Conservation Innovation Grants (CIG) explicitly encourages and promotes the use of "market-based systems" (NRCS, 2011).1 Seemingly, there is evident demand for more testing and analysis of market-based approaches for environmental management.

This paper describes a pilot project in which an innovative market-based approach was used to distribute conservation funding with the objectives of 1) encouraging producer/landowner conservation participation by offering greater flexibility to implement self-selected BMPs and 2) targeting funds in a cost-effective manner. …

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