Optimal Pollution Trading Without Pollution Reductions: A Note

Authors

  • Jorge H. García,

    1. Respectively, Assistant Professor (García), Departamento de Economía, Pontificia Universidad Javeriana, Edificio Gabriel Giraldo SJ, Calle 40 No 6-23 P7, Bogotá, Colombia
    Search for more papers by this author
  • Matthew T. Heberling,

    1. Economist (Heberling, Thurston), USEPA National Risk Management Research Laboratory (NRMRL), Cincinnati, Ohio 45268.
    Search for more papers by this author
  • Hale W. Thurston

    1. Economist (Heberling, Thurston), USEPA National Risk Management Research Laboratory (NRMRL), Cincinnati, Ohio 45268.
    Search for more papers by this author

  • Paper No. JAWRA-09-0151-P of the Journal of the American Water Resources Association (JAWRA). Discussions are open until six months from print publication.

(E-Mail/García: jgarcia-l@javeriana.edu.co)

Abstract

García, Jorge H., Matthew T. Heberling, and Hale W. Thurston, 2011. Optimal Pollution Trading Without Pollution Reductions: A Note. Journal of the American Water Resources Association (JAWRA) 47(1):52-58. DOI: 10.1111/j.1752-1688.2010.00476.x

Abstract:  Various 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: (1) emissions are steady or constant over time and, in this sense, have relatively larger environmental impact; and (2) certain kinds of runoff management cause delayed environmental damages.

Ancillary