OECD Touts Market-Based Solutions to Solving Complex Water Pollution

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Linking to a new OECD report that touts water quality trading and other innovative and market-based approaches to solving water pollution from diffuse sources.  The report begins,

Decades of regulation and large investments to reduce point source pollution have brought substantial gains for the economy, human health, environment and social values.  But water quality challenges endure in OECD countries as a result of under-regulated diffuse sources of pollution. Eutrophication, a form of water pollution due mainly to agricultural runoff of excess nutrients, is the most prevalent challenge globally. 

Controlling diffuse pollution is a complex task.  Diffuse pollution is comprised of multiple pollutants from diverse sources – mainly agriculture and urban runoff – and varies spatially and over time. Regulating such pollution generally entails high transaction costs and often meets with political resistance.  Lax enforcement of the regulatory measures that are in place weakens their impact. Climate change puts further pressure on water quality, exacerbating existing challenges due to altered precipitation, flow and thermal regimes, and sea level rise.

The cost of current water pollution from diffuse sources exceeds billions of dollars each year in OECD countries.  Water pollution has lasting negative impacts on human health, water security, economic productivity, freshwater ecosystem services (including their ability to process pollutants) and social values.  Polluted water decreases benefits from swimming, fishing and other recreational uses of water bodies and drags down property values of nearby real estate.  

With respect to the use of markets, the report goes on to say,

It is recognized that there can be inefficiencies associated with regulations, taxes and subsidies. Where property rights are established, market-based instruments, such as water quality trading, involve less control from government and offers a mechanism for achieving a cost-effective allocation of environmental effort across alternative sources, without environmental regulators knowing the abatement costs of individual agents.  When carefully designed, trading can address water quality problems by using trading rations that define allowable rates of exchange before sources that reflect the marginal damage of emissions from each source.

Although they can be complex in nature, water quality markets can stimulate innovation and often achieve water quality targets at a lower social cost than traditional performance standards, taxes and payments/subsidies.  Water quality trading can potentially enable continued growth in a capped watershed without jeopardizing water quality, and water quality goals may be met at a faster pace than without trading.  

To obtain a copy of the OECD report, please click on the following link.  Diffuse Pollution, Degraded Waters: emerging policy solutions.