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Improving Water QualityControlling Point and Nonpoint Sources
Chapter 16
© 2007 Thomson Learning/South-Western Thomas and Callan, Environmental Economics
Point Source Controls
Technology-Based Effluent Limits
Permits
3
Technology-Based Effluent Limits
End-of-pipe limits that differ by various groups, such as direct dischargers and indirect dischargers Within any group, the limits are applied uniformly
For direct industrial dischargers, the standards are industry-specific and vary by facility age (new versus existing) and type of contaminant released New sources must meet standards based on the best available
demonstrated control technology (BADCT) Existing sources must meet two sets of standards: those based
on best conventional control technology (BCT) for conventional pollutants and those based on best available technology economically achievable (BAT) for nonconventional and toxic pollutants
4
Technology-Based Effluent Limits(continued)
Limits are based on technological capability, but polluters can choose the method to achieve them Therefore, the limits are performance-based standards Policy intent is to lower limits over time until the zero discharge
goal met Limits are conveyed through a permit system called the
National Pollutant Discharge Elimination System (NPDES) NPDES prohibits any discharges into navigable waters without
a permit Each permit states what the effluent limitations are and the
monitoring and reporting requirements
Analysis of the Effluent Limitations
6
Major Problems
Imprecise statutory definitions Meeting the zero discharge goal Lack of an efficiency criterion Cost-ineffective decision making
7
Imprecise Statutory Definitions
Limits are based on what is technologically achievable instead of what is needed to achieve water quality
As a result, total maximum daily loads (TMDLs) had to be established for all polluting sources if water quality goals were not being met, even if the technology-based limits were being satisfied TMDLs are the maximum amount of pollution a water body
can receive without violating the standards
8
Meeting the Zero Discharge Goal
Overly ambitious Inefficient because it is benefit based Unsatisfactory track record
EPA was to tighten the standards toward a zero limit, but this has occurred rarely
9
Lack of an Efficiency Criterion
No mandate in the law to set standards to maximize net benefits where marginal benefits and costs are equal
BAT standards refer only to associated costs BCT standards make only a vague reference to
the relationship between costs and benefits
10
Cost-Ineffectiveness
Cost-effectiveness requires that firms abate to the point where their associated MACs are equal
Since the limits are applied uniformly, this criterion would not be achieved unless firms were identical
Empirical evidence suggests that the command-and-control (CAC) approach used is more costly than using economic incentives Various studies estimate the ratio CAC policy cost to that of
a least-cost, market-based approach O’Neil (1980): 2.29 to1 Faeth (2000): 5.9 to 1 Johnson (1967): 3.13 to 1
Publicly Owned Treatment Works (POTW) Programs
12
POTW Funding Programs
Federal Grant Program (pre-1987) Federal monies to municipalities to help fund POTW
construction Federal share set at maximum of 75% of the cost until
1984, when it was reduced to 55%
Clean Water State Revolving Fund (CWSRF) (1987 to present) States loan to municipalities for POTW construction
All 50 states and Puerto Rico have these programs
Analysis of the POTW Program
14
Identifying Accomplishments
Invalid to argue that federal funding has been effective simply because municipal waste treatment has progressed
Research suggests that the majority of federal grants only displaced local funding It is estimated that ⅔ of every federal dollar was only a
substitute for local funds Because only a portion of federal funds was incremental to
what would have been spent at the local level, only a fraction of improvements can be linked to federal program
15
Inefficiencies
Cost-sharing dampened the municipality’s incentive to minimize costs Led to excess capacity
This problem motivated the change from grants to loans, the reduced federal cost share, and other restrictions
16
Equity Implications
Some municipalities had not been funded when the grant program was eliminated, so these communities faced a higher cost burden Inequity was more severe for smaller, rural communities that
were unable to exploit available scale economies
The CWSRF program may have provided some offset because state-managed loans can be tailored to accommodate lower income or wealth levels through lower interest rates or grace periods
Nonpoint Source Controls
Controls on polluted runoff
18
Nonpoint Source Management ProgramWater Quality Act of 1987
3-stage, state-implemented plan1. Report on waters not achieving standards without
action taken against nonpoint sources
2. Develop programs to reduce pollution, specifying strategies* other than effluent limits
*called best management practices (BMP)
3. Implement the programs Federal grants are available to support plans
19
Analysis of Nonpoint Source Controls
Advantages of state control better knowledge of local waterbodies, precipitation,
runoff, etc. nonpoint pollution is linked to land use practices, which is
controlled locally
Disadvantages of state control lack of good data inadequate monitoring systems controls are not consistent across states; can cause
problems if contamination flows across state borders
20
Analysis of Nonpoint Source Controls(continued)
Inadequacies at the federal level Insufficient resource allocation to nonpoint controls
relative to point source controls Not supported by relative risk analysis
Lack of coordination with other federal programs e.g., crop restriction programs that promote greater
dependence on agrichemicals might worsen runoff
US Spending: Point vs. Nonpoint ($2003 millions)
Program 1987 1995 2000
Point $56,479 97.7%
$79,409 98.1%
$95,029 98.3%
Nonpoint $1,308 2.3%
$1,499 1.9%
$1,610 1.7%
Source: U.S. EPA, Office of Policy, Planning, and Evaluation (December 1990), p. 3-3, Table 3-3.
Market-Based Solutions
Pollution Charges
Tradeable Effluent Permits
Pollution Charges
Effluent Fees on Point Sources
24
Effluent Fees
These can be volume-based or pollutant-based Real-world usage
Some states in the U.S. are using these fees as well as other nations, including France, Germany, Malaysia, and China
Usage can lead to cost-effectiveness If government sets a per-unit marginal effluent fee (MEF),
each polluter would abate as long as their marginal abatement cost (MAC) is less than MEF and continue until MAC = MEF
So all polluters abate to the point where their MACs are equal, which indicates a cost-effective result
Modeling an Effluent Fee
$ $
A A
MACX MACY
unit fee MEF
AX AY
Polluter X Polluter Y
Notice that both firms are abating at levels where their respective MACs are equal tothe MEF, which means they are equal to each other – a cost-effective result.
26
Are the Effluent Fees Efficient?
Combined abatement level reached by both polluters would not be efficient unless the MSB of abatement were equal to the associated MSC Even if MSB and MSC could be determined (which would
be difficult in practice), result would be efficient only in the aggregate, and not at each site unless the MSB and MSC at each site were identical – highly unlikely
For example, consider two pollution sites – a low population and a high population site, with differing MSB. What is the outcome if both face a single, national effluent fee?
Inefficiency of a National Effluent FeeCompare low population to high population region
$
Nationally set at $50
MEF
MSCLOW = MSCHIGH
MSBLOW
MSBHIGH
AALOW AHIGHAO
Each region would abate AO units, which would be above the efficientlevel in low population region, with the opposite result for the high population region.
Pollution Charges
Product Charges on Nonpoint Source
29
Product Charge Example: Tax on fertilizers
Tax effective Pfertilizer QD Optimal tax equals MEC at QE
Issue is degree of response of Qd Anecdotal evidence in the U.S. suggests D for
fertilizer is relatively inelastic and tax rate is too low Result: insufficient Qd response
46 states use this; rates tend to be < 2.5%, so the decline in QD is negligible
Some European nations, such as Austria and Sweden, have used fertilizer taxes with measurable effects
Tradeable Effluent Permit Markets
Point and Nonpoint Sources
31
Tradeable Effluent Permits
Set an abatement objective for watershed Issue tradeable effluent permits
Low-cost abaters sell as long as P > their MAC High-cost abaters buy as long as P < their MAC Trading continues until MACs equal, which yields a
cost-effective abatement allocation Tradeable permit markets involving both point and
nonpoint sources exist in some states e.g., CA, CO, FL, NY, and WI
Watershed Approach
33
Watershed Approach
A watershed refers to all land areas draining into a particular water body
Focusing on the watershed instead of a specific water body allows for better assessment of water quality better identification of polluting sources
Underlying motivations are: to integrate policy initiatives, using pollution prevention
where possible coordinate tasks and resource use among all
stakeholders associated with the watershed
34
Watershed Grants in the U.S.
Targeted Watershed Grants Program provides monies for projects that use watershed-based strategies to achieve environmental goals Looks to support comprehensive, collaborative
projects, anticipating some will use market-based policy instruments
35
Primary U.S. Policy Instruments
Watershed-based NPDES permits issued to multiple point sources within a watershed Might be achieved by reissuing individual permits and
setting effluent limits to support watershed objectives, or by issuing general permits to a group of sources within a watershed, or by issuing an individual permit to a group of point sources
Water quality trading U.S. policy explicitly states that all trading activity should
occur within a watershed Supported by economic arguments, including cost
savings, scale economies, and greater efficiency