Marketable permits for the control of phosphorus effluent into Lake Michigan

Abstract

Transferable discharge permits (TDP) can be used to achieve desired abatement levels at costs that approach the minimum. The emphasis in the discussion is on the implementation of such a system, the public choice problem in its adoption, and an assurance that regardless of which polluters provide waste treatment there is a mechanism for equitable sharing in the costs of that abatement. The argument is applied to phosphorUs abatement in the Wisconsin portion of the Lake Michigan basin. The level of demand and supply for TDP's among 53 waste treatment plants is simulated, and the necessary steps to create a market are outlined. Enforcement, price changes, and future adjustments in the permissible effluent loading are shown to be compatible with the marketing process proposed.Marketable permits, called transferable discharge permits or TDP's, can be used to achieve any desired level of air or water pollution abatement. The emphasis in the discussion in this paper is on the implementation of such a system, the public choice problem in its adoption, and an assurance that regardless of which polluters provide waste treatment there is a mechanism for equitable sharing in the cos ts of that abatement. This paper examines the problems and practicalities of establishing a system of waste load allowances which is both more equitable and more efficient than direct regulation. Although the example we use is the treatment of waste water for phosphorus removal, the same principles apply to waste water and air pollution generally. We conclude that a marketable permit system is a viable alternative to direct regulation, once a total allowable loading to the waterway or air shed is established and an initial allocation of permitted discharges made.Although there are political hurdles which economists must recognize, they do not appear insurmountable. It is apparent, however, that strategies which ignore them are unlikely to succeed.As Tietenberg [1974] points out in his excellent article on the use of marketable permits for air pollution control (emission offsets), reCognition that economic efficiency in abatement could be achieved by establishing marketable permits has .not been .accompanied by discussion of the practical problems involved in 'unplernemation. (Only Tietenberg [ 1974], de-Lucia [1974], and Scott' and .Bransen [1974] have made serious efforts in that direction.) Dales [1968] discusses the general strategy of marketable permits.A marketable permit is not an effluent charge. Unlike the effluent charge, it does not purport to solve the problems of

Markets for pollution control when firms are noncompliant

“…In addition to criticizing existing standards-based policies on the grounds of allocative inefficiency, many analysts have emphasized the problems of enforcing these policies in the face of widespread noncompliance. 2 Little attention has been given, however, to the consequences of noncompliance for TDP markets.…”

Auctions and Alternative Procedures for Allocating Pollution Rights

“…The free initial distribution procedure examined here is based upon an approach considered by David et al (1980) and .16 Rights are initially distributed here on the basis of pollutant load, measured in pounds of phosphorus or BOD per day. By definition, this approach implies that the uniform treatment configuration is duplicated prior to exchanges of rights.17 The total numbers of rights distributed (3,120 pounds of phosphorus/day and 168,000 pounds of BOD/day) are identical to those sold in the single-price and incentive-compatible auction procedures above.…”

“…These cost data were originally collected by Braasch and Joeres (1975) and were subsequently used by David et al (1980) and to investigate rights programs using free initial distribution. The policy considered is one approach to implementing a 1969 order for Wisconsin to have 80% of all phosphorus removed from point-source discharges in the Lake Michigan basin (Braasch and Joeres 1975).…”

“…Under this approach, rights are initially distributed on a basis such as property value, or influent flow or load.10 Following their initial distribution, rights could be exchanged among dischargers for funds to allow attainment of an efficient allocation of rights. Under the centralized exchange suggested by David et al (1980), dischargers would submit supply and demand schedules and a single market-clearing price would be determined by the governmental pollution-control authority. The centralized exchange would facilitate large transactions and would prevent exchanges of permits just ahead of inspections ).…”

An Economic Analysis of the Eutrophication Problem of the Barwon and Darling Rivers in New South Wales

“…David et al (1980) and Eheart et al (1980) describe the solution to an example of this type of problem which involved ®nding the cost minimising allocation of treatment levels among 53 STPs in Wisconsin (which discharged phosphorus into Lake Michigan) to achieve an 85 per cent aggregate phosphorus removal. The optimal solution saved $750,000 in treatment costs as compared to a uniform 85 per cent phosphorus removal by each STP.…”