Academic journal article Agricultural and Resource Economics Review

Economics and Environmental Markets: Lessons from Water-Quality Trading

Academic journal article Agricultural and Resource Economics Review

Economics and Environmental Markets: Lessons from Water-Quality Trading

Article excerpt

Water-quality trading is an area of active development in environmental markets. Unlike iconic national-scale air-emission trading programs, water-quality trading programs address local or regional water quality and are largely the result of innovations in water-pollution regulation by state or substate authorities rather than by national agencies. This article examines lessons from these innovations about the "real world" meaning of trading and its mechanisms, the economic merits of alternative institutional designs, utilization of economic research in program development, and research needed to improve the success of environmental markets for water quality.

Key Words: environmental markets, water-quality trading

The use of markets to efficiently achieve environmental-quality goals is one of the major conceptual innovations for environmental policy coming from economic research. Market mechanisms have gained much interest and increasing acceptance outside of economics-indeed, the case for markets seems to be made at least as much from advocates outside of the discipline as from within. Advocates include consulting and trading firms involved in varying aspects of the environmental trading business, associations representing such businesses, environmental think tanks, legislators, and government agencies (e.g., Jones et al. 2005, Organization for Economic Cooperation and Development (OECD] 2004, Talberth etal. 2010, U.S. Environmental Protection Agency (EPA] 2001, 2003, 2004], The benefits of markets touted by their advocates include potential efficiency gains and innovation incentives that have been the focus of economic research. But the claims of some advocates go further. Markets, it seems, can better and more quickly deliver environmental improvements that cost less than other policy instruments can. Economic experts are not always so enthusiastic because they understand that how markets are designed and implemented and the contexts in which they are applied are important factors in what they can achieve (Tietenberg 1999],

To date, markets for environmental quality have figured most prominently in fisheries management and air pollution control, and successes in those areas have no doubt influenced expectations of what markets can accomplish for other resources. In recentyears, attention has turned to markets for water. John Dales (1968] first proposed using markets to protect water quality in 1968, and experimental and demonstration water-quality-trading (WQT] mechanisms were established in the United States in the 1980s. Interest in the United States increased in the mid-1990s as state water-quality authorities explored mechanisms by which to achieve total maximum daily load (TMDL] levels for pollutants established by EPA. In 2003, EPA announced policies intended to facilitate trading and began providing financial support and technical assistance for WQT (EPA 2003, 2004, 2007], Over the last decade, Australia, Canada, and New Zealand developed WQT programs and countries surrounding the Baltic Sea studied them as a way to address nutrient pollution in the Baltic (Green Stream Network 2008, Selman et al. 2009],

In a 2008 survey, Selman et al. (2009] identified 26 programs with established WQT rules, 21 programs under consideration or in development, and 10 programs that were complete or inactive. The United States led in application of WQT, having originated all but 6 of the 57 programs noted in the survey. WQT in the United States has taken two general forms (Morgan and Wolverton 2005], One is an offset agreement. Traditionally, point sources of pollutants had to meet facility-specific emission limits under the Clean Water Act (CWA] by reducing their own facilities' emissions. Under offset agreements, they can meet the permit requirements through reductions of pollution at other facilities, providing a tool by which to resolve facility-specific permit compliance problems. Two prominent, successful examples (Rahr Malting Company in 1997 and Southern Minnesota Beet Sugar Cooperative in 1999] used agricultural and other nonpoint-source nutrient-pollution reductions to help industrial facilities on the Minnesota River meet the permit requirements. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.