An Evaluation of Nutrient Trading Programs

Transcription

1 An Evaluation of Nutrient Trading Programs Yuko Ashida Emilia Deimezis Carla Fowler Joe Sambatoro NTRES 318: Environmental Strategies March 3, 2003

2 Nutrient Loading Nutrient loading -> eutrophication -> > algal blooms -> > reduced dissolved oxygen -> > extensive fish kills Algae can block sunlight resulting in loss of SAV Toxic algal blooms can lead to human respiratory problems Harms drinking water and requires expensive treatment Threatens invertebrates, waterfowl, and other plants and animals Upsets biogeochemical cycles in watershed Damages economic viability of commercial fishing industries and recreational use Algal blooms = smelly, unfit water for swimming

3 Sources of Nutrient Loading Nonpoint 1. Diffuse source of pollution not attributable to an identifiable physical location 2. Sources: Nutrient that runoff from the ground from any land use (ie( ie: croplands, feedlots, lawns, parking lots, streets, forests, etc) into waterways 3. Also includes deposits from air pollution and effluent from septic systems h eg.. Industrial plants, municipal water treatment facilities Point 1. Source of pollution that is attributable to a specific physical location ( end( of pipe ) 2. Source: Discharge from wastewater treatment plants and industry h eg.. Agricultural runoff, residential septic systems, animal waste, erosion of roads

4 What is Nutrient Trading? inutrient trading uses a market based approach to control nutrient effluent by giving credit for excess pollution reductions inutrient trading is a way of allocating the absorption capacity of the watershed system iaccomplished by altering the pollutant caps placed on point or non-point sources itrading is done so that one polluter pays another polluter to undertake additional nutrient reductions itrading occurs within the same watershed and between sources close in proximity i Banks may be established where credits can be bought or sold

5 Nutrient Trading Background The Clean Water Act of 1972 Goal to develop and implement programs to protect fish, wildlife, and recreational uses of the nation s s waterways through the control of point and nonpoint source pollution Water Quality Trading Policy Modeled after trading program for SO 2 permits to reduce acid precipitation

6 Economic Theory Applied to Nutrient Trading Low transition costs Cap set at sustainable levels by governmental agency Involvement of point sources, nonpoint sources, and other stakeholders Low enforcement costs Prices set at margin Optimal trading ratios Well-established established property rights

7 Prices should be set at the margin Price should be set where MC of nonpoint sources equals MC of point source Inefficiency caused by average cost pricing DWL AFE At EFT, Point source removes 5 units and Nonpoint source removes 10 units (2:1 trading ratio)

8 A trading ratio is necessary The trading ratio specifies the rate at which nonpoint source abatement is substituted for point source abatement (C P P / C N C N = -t*) Reduces willingness to trade but important to adjust for differences in costs and uncertainty of nonpoint nutrient loading The model requires accurate info on abatement costs, loadings, technology, farmer profits, risk aversion, and many other factors.

9 Dillon Reservoir, Colorado

10 Dillon Reservoir Statistics Elevation of 9,000 feet in the Rocky Mountains Constructed in 1963 to supply drinking water to Denver Contains 254,000 acres feet deep water in a surface area of 3,300 acres Copper Mountain drains into Dillon Reservoir

11 Water Quality of Dillon Reservoir Declines Year-round round resident total 22,000, but population swells to 121,000 in peak seasons Summit County- 232% population spike between 1970 and 1980 Dillon Lake (Reservoir)- experiences frequent algal blooms Early 1980 s Studies reveal that blooms are due to excess phosphorus levels caused by: municipal wastewater effluent, urban runoff, seepage from septic systems, agriculture, and other non-point sources Fiscal Impact Statement finds that social and economic costs of allowing the reservoir to become eutrophic would be in the millions. 1982, the State Water Quality Commission imposes caps on four wastewater treatment plants

12 Developed nutrient trading plan to offset point source effluent by reduction in discharge from nonpoint sources Summit County Phosphorus Policy Committee (SCPPC) Created by a group of stakeholders with the purpose of improving reservoir conditions and to protect it from future phosphorus loading

13 The Dillon Reservoir Trading Plan Features of the Plan Caps on major point sources to maintain 1982 lake levels Daily maximum load cap Trades between 1) nonpoints 2) point and nonpoint No trade with nonpoints established after 1984 No banking of nutrient credits Permits approved case by case analysis The Result The treatment plants installed filters that reduces effluent so significantly, that only one point/nonpoint nonpoint trade has occurred since 1984 No credit banking rule creates no incentive for nonpoints when no demand from point source is present Time and hassle to obtain permit is a barrier to market

14 The Tar-Pamlico Basin Lake Mattamuskeet National Wildlife Refuge

15 Tar-Pamlico The Environment: The Tar-Pamlico Basin covers 5,440 square miles Nine threatened or endangered freshwater mussel species 37% agricultural land-mostly row crop and intensive livestock operations

16 Tar-Pamlico The Nutrient Trading Program: Point source dischargers required to reduce nutrient loads from 625 kg/yr to 425 kg/yr by 1994 Dischargers formed association to help fund trading program, BMPs for non-point polluters, and water-quality assessment models Credits trading at $29/kg based on average cost of dischargers 3:1 trading ratio for cropland BMPs and a 2:1 ratio for confined animal farms

17 Tar-Pamlico Successful? Association reduced nutrient loadings by 37% to 420,000 kg/yr by 1994, surpassing the cap Therefore, no need for trades under the Nutrient Trading Program Achieved low abatement and transaction costs Needs to set a credit price at the margin, optimal trading ratio,, and reduce the cap to stimulate trade Program should consider issues of property rights, enforcement, and water quality assessment

18 Chesapeake Bay Chesapeake Bay has 64,000 square miles of watershed that covers VA, MD, DE, PA, NY, WV and D.C. ( 2001)

19 Chesapeake Bay The population is growing rapidly Population growth contributes to the increase in nutrient runoff into the waterways Eutrophication is a major problem in Chesapeake Bay ( 2000)

20 Chesapeake Bay Chesapeake Bay Program created by Congress Chesapeake Bay Program created a multiple stakeholder Nutrient Trading Negotiation Team Delivered Nitrogen 2000 Delivered Phosphorus 2000

21 Chesapeake Bay Nutrient Trading

22 The Kalamazoo Watershed

23 Kalamazoo

24 Kalamazoo Equity and Accountability Major challenges Equity - Use GAAMP as baseline Accountability-NRCS sends planner and conducts follow up testing

25 Encourage a dialogue between stakeholders that may facilitate future trades or inspire water quality management improvements Conclusion: Nutrient Trading Benefits: Environmental: Equal or greater reduction of pollution achieved Creates incentive to reduce effluent below caps Encourages innovative pollution prevention technologies Social: Economic: Reduces overall cost of addressing water quality problem in watershed Creates market demand for innovative technologies Provides point source with alternative to immediate and costly capital improvements

26 Conclusion: Few Transactions Occurred Possible Reasons for Low Number of Trades Limited buyers and sellers in the market Caps are set higher than current loads Unbalanced trading ratios Excessive government involvement Programs that do not allow nonpoint nonpoint credit banking Lack of public understanding and/or support Ambiguous methods of monitoring nutrient loading Overall high transaction costs Exclusion of stakeholders within watershed

27 The Future of Nutrient Trading Nonpoint source effluent will increase with population growth and human activity surrounding watersheds Nutrient trading is a vehicle to reducing pollution from nonpoint sources without: creating complex nonpoint source caps that are difficult to assess and/or regulate Creating major economic impairment to those sources Nutrient trading will likely increase as public awareness increases, more potential traders enter the market, and point sources approach nutrient caps within the watershed Nutrient trading (and other economic incentive programs) complement point source regulation Creation of good guidelines and principles can be the the key to a successful nutrient trading program