Environmental and Resource Economics, lecture 1--GEP6 Eutrophication

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Environmental and Resource Economics, lecture 1--GEP6 Eutrophication Powered By Docstoc
					GEP6: Eutrophication
• The issue • Why are excess nutrient emissions and concentrations an economic problem? • What are the costs of nutrient emission reduction? • How to trade off the costs and benefits of nutrient emission reduction? • What are the gains and losses of countries and sectors from nutrient emission reduction?

The issue: The Rhine
• Total nitrogen emissions were 400 (520) kT/yr in 1995 (1985), 40% (35%) of which from agriculture, 35% (40%) from sewage treatment plants • Total phosphorous emissions were 32 (60) kT/yr in 1995 (1985), 32% (17%) of which from agriculture, 46% (51%) from sewage treatment plants • Although there is progress, particularly nitrogen lags behind the –50% (-70%) goal for 1995 (2000); main culprit: agriculture

2 .0 1.8 1.6

L o b ith M aasslu is

N itro g e n (m g N /l)

1.4 1.2 1.0 0 .8 0 .6 0 .4 0 .2 0 .0 19 8 0 19 8 5 19 9 0 19 9 5 2000

0 .7 0 .6

L o b ith M aasslu is

P h o sp h o u ru s (m g P /l)

0 .5 0 .4 0 .3 0 .2 0 .1 0 .0 19 8 0 19 8 5 19 9 0 19 9 5 2000

The issue: Solutions
• Eutrophication is hard to solve because sources are diffuse • It was relatively easy to take the phosphates out of washing powders: There are a handful of producers only, and they just had to be induced to switch to an alternative technology • Sewage is harder, as there are more and more diverse operations, but in the end it is just a matter of forcing them to filter better

The issue: Solutions -2
• Agriculture is hard because it is diverse and because there are many small firms; monitoring is hard, dialogue is difficult, technology may be inappropriate • A complication is that environmental regulators are stuck in the past, when environmental problems had point sources of toxic materials, while today we have diffuse sources of indirectly harmful substances

The issue: Eutrophication
• Eutrophication is a problem because • It affects human health
– Drinking water – Blue babies – Algal blooms – Turbidity – Fishing – Nature

• It affects human recreation

• It affects nature

Drinking Water
• Assessing the costs of eutrophication to drinking water is straightforward • Drinking water quality is measured by the MFI, an index for the concentrations of colloid and suspended materials • Intake water quality is measured by Chlorophyll A concentrations • The company is obliged by law to deliver water of a certain quality – if the chlorophyll concentrations go up, it simply has to filter more

Drinking Water -2
• In Andijk, the relationship is as follows: • Log(MFI) = C + bX + 8.38 10-4 ChlorophyllA – 8.99 10-2 Fe(II)SO4 – 1.14 10-2 Fe(III)SO4 + error • R2 = 0.77; n=272 • That is, if one wants to keep MFI the same, then FE(II)SO4 (FE(III)SO4) should go up by 0.0093 (0.0735) g/m3 if Chlorophyll A goes up by 1 mg/l • FE(II)SO4 (FE(III)SO4) costs 7 (43) ct/kg

• Recreation is more difficult because behaviour changes with quality and price, and the market is partially implicit • However, people spend money and time on travelling and entrance fees – and this is a measure for the price they are prepared to pay • From this, one can derive a demand function

Visitor Numbers


Population Visits/1000
1000 400





4 Total

0 1600



Travel Costs
Zone Distance Cost Distance Cost Cost Round trip $.3/m Time $.15/m Total 0 0 0 0 0 0
1 2 3 20 40 80 6 12 24 30 60 120 4.5 9.0 18.0 10.5 21.0 42.0

Visits/1000 = 300 – 7.755 * Travel Costs

An Entrance Fee
Zone Costs
0 1 2 10.0 20.5 31.0

Visits/1000 Population Visits
252 171 90 1000 2000 4000 252 342 360






So now we have two points on our demand curve.

Recreation -2
• The problem is that one would need recreation sites with different levels of eutrophication in order to estimate how much additional time and money people would be prepared to spend in order to avoid eutrophe waters • Alternatively, one would need good time series, controlling for all else • Alternatively, one would use a survey with a hypothetical case

Recreation -3
• In two surveys of visitors to recreation areas, people were asked who how much they would be prepared to pay more in entrance/parking fees to cover the costs of measures to increase the turbidity of the water • In Zwemlust, people would pay some additional 50 (6) cents per visit • In Wolderwijd, swimmers would pay some 49 (9) cents per visit; sailors some 29 (17); surfers some 31 (9); cyclists some 28 (7); and fishers some 23 (37)

Total Benefits
• The total benefits of recreation and drinking water are pretty small • This is not a big surprise, as eutrophication only has a limited influence • Eutrophication only affects a small part of the Rhine catchment, mostly the lakes fed by the river – because of the water flow, the effects in the main river are limited • The real issue, perhaps, with eutrophication is in coastal waters – beyond the current study

Nutrient emission reduction
• There is a large number of potential measures to reduce nutrient emissions • For hen and pig farms: change in diet, washing manure, drying manure, closure • For dairy farms: change in diet, manure flushing, chemical treatment, keeping cows inside, farm closure • For arable farms: less fertiliser, different timing, farm closure (note: soil) • For sewage plants: extended mechanical and biological treatment

Broiler Farms
Measure Floor isolation Bio-beds Air-washers Floor + protein restr. Air-washers + sep. feeding Closure Reduction Costs kg N/f/yr euro/f/yr 13,626 11 48,181 962 35,688 962 12,402 141 36,368 965 46,224 1,085

Emission reduction costs
• All these things cost money, some a little, some a lot • Note that farm closure may be cheaper than some of the other interventions • Emission reduction costs money because of the assumption (?) that farmers are smart – if they could make money by reducing emissions, they would do so • For instance, animal diets are optimised for meat and milk production; adding a nutrient constraint reduces production

Emission reduction costs -2
• A smart farmer, when confronted with an emissions constraint, would first implement the cheapest measures, gradually moving to the more expensive ones • The result is a cost curve – in this study, the cost curve from a linear programming study was approximated by a quadratic cost function, specific for sectors, soil type, location

Annual costs per farm (DFL/year)

35000 30000 25000 20000 15000 10000 5000 0 0 10 20 30 40 50 60 70 80 90 Percentage of nitrate emission reduction 60% 50% 40% 30% 20% 10% 0%

Policy analysis
• According to the Rhine and North Sea Action Plans of 1987, nutrient loads to the North Sea have to be cut by 50% in 1995 compared to 1985 • The planned way of implementation is to cut emissions everywhere by 50% • This is a bit peculiar, as emissions and concentrations are very different things • It reflects a primitive „no envy“ outcome, so often seen in international negotiations

Policy analysis -2
• Primitive „no envy“, because people presumably care more about costs than about efforts • The suggested implementation would costs some 4238 mln Euro a year • Switzerland covers 490, Luxemburg 57, Belgium 8, Austria 14, France 491, Netherlands 822 • Equity in effort does not imply equity in costs, because cost functions differ

Policy analysis -3
• If we reallocate the emission reduction so that costs are minimised, while the concentration is still –50%, costs fall from 4238 to 694 mln Euro • The bulk of this is sectoral reallocation; if all regions cut 50%, costs fall to 953 mln Euro • The reason is that emission reduction is cheap in sewage and arable farming, expensive in poulty and piggory farming • Phosphate is more important than nitrate

Cost-Effectiveness Analysis
• The type of analysis above is called costeffectiveness analysis: What are the minimum costs to acheive a given target? • Most, but not all, people would agree that cost-effectiveness is a good thing • (The exception being punishment) • However, we talked about a reallocation • Swiss sewage should cut 83% of ist phosphate emissions, Bavarian hen farming only 1% -- rather than 50%

Policy Analysis -4
• In any policy analysis, one should always distinguish between who is responsible (that is, pays the costs) and who takes action (that is, reduces emissions) • In our example, the Bavarians save a lot of money while the Swiss have to spend more (even though total costs fall) • The reallocation of effort to save costs should be accompanied by compensation • In a cost-effectiveness analysis, this is relatively easy, as everybody could gain

Policy Analysis -5
• In a cost-effectiveness analysis, we seek to meet a given goal at the lowest possible costs • Where does the goal come from? • In our example, the goal is reduce nutrient loads by 50% -- apparently because this would return the salmon to the Rhine • This claim, by the way, is unfounded • Is it worth to spend 700 mln Euro on a fish? The money could also be spend on AIDS, education, highways, defense

Cost-Benefit Analysis
• In a cost-benefit analysis, we seek to set a goal so as to maximise welfare (meeting that goal at the lowest possible costs) • In order to do so, we would need to quantify well-being, and express happiness in a single dimension • This inevitably entails a loss of information • In CBA, the metric is money and the projection is linear • Other methods use other metrics and projections, but the problems are the same

Cost-Benefit Analysis -2
• So, that is why we estimated the monetary costs of eutrophication in the beginning • The estimated benefits of avoided eutrophication were pretty trivial (1 mln Euro), not justifying much action, but this is because the estimates were very incomplete

Benefits are recreation and drinking water purification only!

Cost-Benefit Analysis -2
• So, that is why we estimated the monetary costs of eutrophication in the beginning • The estimated benefits of avoided eutrophication were pretty trivial (1 mln Euro), not justifying much action, but this is because the estimates were very incomplete

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