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The Great Miami River Watershed Water Quality Credit Trading ProgramEPA Grant Number: R833674
Title: The Great Miami River Watershed Water Quality Credit Trading Program
Investigators: Woodward, Richard T. , Shaw, W. Douglass
Institution: Texas A & M University
EPA Project Officer: Wheeler, William
Project Period: September 1, 2007 through February 28, 2009
Project Amount: $197,435
RFA: Market Mechanisms and Incentives: Case Studies and Experimental Testbeds for New Environmental Trading Programs (2006) RFA Text | Recipients Lists
Research Category: Economics and Decision Sciences
Using the case study of The Great Miami Watershed Water Quality Credit Trading Program (GMT Program) we will study three issues that are relevant to all point-nonpoint water quality trading programs:
- To what extent has the program suffered from slippage, in which the pollution reductions being sought in the program are offset by practice changes not controlled by the program?
- How efficient is the current market design in achieving the cost-effective reduction of the multiple pollutants that are included in the program, and in providing the other ancillary benefits such as wetland restoration and habitat improvement?
- Is the sequential auction structure of the program leading to efficient prices being paid for credits?
The answers to these three questions will shed light on the efficiency of the GMT Program and, as this program is the leading example of point-nonpoint trading nationally, will help guide the design of point-nonpoint water quality programs in the future.
Two sources of data will be used: (1) early proposals to and results from the reverse auction used in the GMT Program to obtain commitments by land managers to introduce pollution-reducing best-management projects, and (2) surveys of land managers in the watershed, including participants and nonparticipants. Using these data, a variety of empirical tasks will be carried out. First, we will test the hypothesis that slippage has occurred. Second, we will estimate the cost to a land manager of providing multiple environmental services including reducing multiple-pollutants and providing other ecosystem services. The estimated cost function will then be used to assess alternative designs that might be used when multiple environmental services are created. Finally, combining the two sources of data and using the estimated cost function, we will estimate overbidding in the sequential auction design by comparing actual bids with those predicted by theoretical model.
The study will yield insights about the efficiency of point-nonpoint WQ trading based on actual experience in the program. As the most substantial point-nonpoint WQ trading program to date, the GMT Program will serve as a model for many future efforts in this arena. Understanding what is and what is not working in the program will provide important insights for the development of future programs.