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Optimizing the scale of markets for water quality trading
Author(s) -
Doyle Martin W.,
Patterson Lauren A.,
Chen Yanyou,
Schnier Kurt E.,
Yates Andrew J.
Publication year - 2014
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1002/2014wr015395
Subject(s) - emissions trading , scale (ratio) , watershed , water quality , water trading , environmental science , unit (ring theory) , quality (philosophy) , environmental economics , pollution , point (geometry) , damages , business , natural resource economics , environmental resource management , economics , water resources , computer science , climate change , geography , ecology , water conservation , mathematics , philosophy , cartography , epistemology , biology , mathematics education , geometry , machine learning , law , political science
Abstract Applying market approaches to environmental regulations requires establishing a spatial scale for trading. Spatially large markets usually increase opportunities for abatement cost savings but increase the potential for pollution damages (hot spots), vice versa for spatially small markets. We develop a coupled hydrologic‐economic modeling approach for application to point source emissions trading by a large number of sources and apply this approach to the wastewater treatment plants (WWTPs) within the watershed of the second largest estuary in the U.S. We consider two different administrative structures that govern the trade of emission permits: one‐for‐one trading (the number of permits required for each unit of emission is the same for every WWTP) and trading ratios (the number of permits required for each unit of emissions varies across WWTP). Results show that water quality regulators should allow trading to occur at the river basin scale as an appropriate first‐step policy, as is being done in a limited number of cases via compliance associations. Larger spatial scales may be needed under conditions of increased abatement costs. The optimal scale of the market is generally the same regardless of whether one‐for‐one trading or trading ratios are employed.