GEP6: Eutrophication

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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?

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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

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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

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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

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The issue Eutrophication

• Eutrophication is a problem because
• It affects human health
• Drinking water
• Blue babies
• Algal blooms
• It affects human recreation
• Turbidity
• Fishing
• Nature
• It affects nature

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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

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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 n272
• 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

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Recreation

• 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

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Visitor Numbers
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Travel Costs
Visits/1000 300 7.755 Travel Costs
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An Entrance Fee
So now we have two points on our demand curve.
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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

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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)

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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

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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

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Broiler Farms
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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

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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

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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

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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

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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

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Cost-Effectiveness Analysis

• The type of analysis above is called
  cost-effectiveness 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

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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

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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

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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

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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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Benefits are recreation and drinking water
purification only!
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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