Cost efficiency of transferable discharge permit markets for control of multiple pollutants


  • Barbara J. Lence,

  • J. Wayland Eheart,

  • E. Downey Brill Jr.


Transferable discharge permit (TDP) programs for managing multiple pollutants may be complicated by interdependent treatment costs. Under such systems pollutants may be managed as several individual commodities or grouped together and managed as a single commodity. This paper presents an approach for evaluating the cost efficiency of TDP programs in which permits for several pollutants are traded as individual commodities. Two market scenarios, representing simultaneous and sequential TDP markets, are developed to provide high and low benchmarks for cost efficiency, respectively. The scenarios demonstrate the control of biochemical oxygen demand (BOD), phosphorus, and nitrogen discharges in a typical river basin. A method for estimating feasible transfer payments under the market scenarios is also described and demonstrated for markets for BOD and phosphorus permits. The costs of these scenarios are compared with each other and with that of a uniform treatment approach. These comparisons suggest that a TDP program that manages several pollutants on an individual basis is a cost effective management strategy for conventional municipal pollutants and that any interdependencies that exist among these pollutants in terms of waste treatment costs do not limit the effectiveness of this simple program.