Transcript Controlling Point & Nonpoint Sources

Chapter 16
Improving Water Quality
Controlling Point and Nonpoint Sources
© 2007 Thomson Learning/South-Western
Thomas and Callan, Environmental Economics
Point Source Controls
Technology-Based Effluent Limits
Permits
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
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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
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Analysis of the
Effluent Limitations
Major Problems
 Imprecise statutory definitions
 Meeting the zero discharge goal
 Lack of an efficiency criterion
 Cost-ineffective decision making
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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
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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
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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
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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-andcontrol (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):
Faeth (2000):
Johnson (1967):
2.29 to1
5.9 to 1
3.13 to 1
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Publicly Owned
Treatment Works
(POTW) Programs
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
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Analysis of the POTW
Program
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
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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
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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
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Nonpoint Source
Controls
Controls on polluted runoff
Nonpoint Source Management Program
Water Quality Act of 1987

3-stage, state-implemented plan
Report on waters not achieving standards without
action taken against nonpoint sources
2. Develop programs to reduce pollution, specifying
strategies* other than effluent limits
1.

3.

*called best management practices (BMP)
Implement the programs
Federal grants are available to support plans
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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
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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
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US Spending: Point vs. Nonpoint
($2003 millions)
Program
1987
1995
2000
Point
$56,479 $79,409
97.7%
98.1%
$95,029
98.3%
Nonpoint
$1,308
2.3%
$1,610
1.7%
$1,499
1.9%
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
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
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Modeling an Effluent Fee
$
$
MACX
MACY
MEF
unit fee
AX
Polluter X
A
AY
A
Polluter Y
Notice that both firms are abating at levels where their respective MACs are equal to
the MEF, which means they are equal to each other – a cost-effective result.
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?
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Inefficiency of a National Effluent Fee
Compare low population to high population region
MSCLOW = MSCHIGH
$
MSBHIGH
Nationally
set
at $50
MEF
MSBLOW
ALOW
AO AHIGH
A
Each region would abate AO units, which would be above the efficient
level in low population region, with the opposite result for the high population region.
Pollution Charges
Product Charges on Nonpoint
Source
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

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Tradeable Effluent
Permit Markets
Point and Nonpoint Sources
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
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Watershed Approach
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
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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 marketbased policy instruments
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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
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