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Optimal Pollution Trading without Pollution Reductions : A Note
Citation:
Garcia, J., M. T. HEBERLING, AND H. THURSTON. Optimal Pollution Trading without Pollution Reductions : A Note. Presented at 4th World Congress of Environmental and Resource Economists, Montreal, QC, CANADA, June 28 - July 02, 2010.
Impact/Purpose:
To inform the EPA
Description:
Many kinds of water pollution occur in pulses, e.g., agricultural and urban runoff. Ecosystems, such as wetlands, can serve to regulate these pulses and smooth pollution distributions over time. This smoothing reduces total environmental damages when “instantaneous” damages are marginally increasing. This paper introduces a water quality trading model between a farm (a pulse-pollution source) and a firm (a more steady pollution source) where the object of exchange is the ‘temporary’ retention of runoff as opposed to total runoff reductions. The optimal trading ratio requires firm emissions to be offset by more than a proportional retention of the initial agricultural runoff pulse. The reason is twofold: a) emissions are steady or constant over time and, in this sense, have relatively larger environmental impact, and b) certain kinds of runoff management cause delayed environmental damages.