45
The Economics of Eutrophication
Eirik Romstad
E. Romstad ()
UMB School of Economics and Business,
Norwegian University of Life Sciences,
PO Box 5033, NO-1432 Aas, Norway
e-mail: eirik.romstad@umb.no
Abstract
This chapter focuses on how economists deal with nonpoint source pollution where individual farm field emissions are not observed. This causes problems for the standard emissions marginal abatement cost framework used in environmental economics as it renders
emission-oriented policy instruments not applicable. The advantages and disadvantages of
the three main approaches of dealing with this issue—procedural regulations, input regulations, and regulations formulated to solve the information asymmetry issues—are briefly
summarized. Finally, a brief overview on computable economic modeling is given.
Keywords
Bodeled emissions · Environmental damages · Eutrophication · Modeling · Nonpoint
source pollution
4.1 Introduction
This chapter is bit special in a book on eutrophication with
such a strong natural science orientation as it involves another science: economics. Therefore, parts of this chapter
deal with some central economic concepts that will make it
easier for natural scientists and economists to communicate
with each other. The economic analyses presented in this
chapter are limited to how to implement physical measures
that emerge from the natural scientific analyses. Physical
measures commonly entail some agricultural practice—like
reduced fertilization and the planting of catch crops—that
are expected to reduce eutrophication. If these physical measures were the most profitable, they would already have been
implemented. In brief, reducing nutrient and pesticide leakages is costly for farmers, implying that many farmers resist
or are opposed to undertaking these changes.
This is where economic analysis comes in. It seeks to devise some policy instruments that make the desired changes
in their agricultural practices from a eutrophication perspective the most profitable. Adoption of the desired practices is
obviously straightforward if the desired practices coincide
with the most profitable practices. Paying farmers to adopt
desired practice is therefore one way of resolving the discrepancy between what is most desirable from an environmental perspective and what is most profitable for farmers.
There are several problems with payments to reduce pollution. First, if agriculture were entitled to such payments, we
would quickly see other polluting industries demand similar
payments. That could quickly be quite costly for taxpayers.
Second, paying someone not to do bad, i.e., pollute, comes
at odds with widespread notions of fairness going back to
kindergarten—those who make a mess are responsible for
cleaning it up. Third, such payments may attract other firms
into polluting sectors, which would further increase the
strain on public funds.
A more realistic approach to reduce the differences in
profits between the desired and current practices is to introduce taxes on pollution. Unfortunately, nonpoint source
4
A. A. Ansari, S. S. Gill (eds.), Eutrophication: Causes, Consequences and Control,
DOI 10.1007/978-94-007-7814-6_4, © Springer Science+Business Media Dordrecht 2014
The Economics of Eutrophication
Eirik Romstad
E. Romstad ()
UMB School of Economics and Business,
Norwegian University of Life Sciences,
PO Box 5033, NO-1432 Aas, Norway
e-mail: eirik.romstad@umb.no
Abstract
This chapter focuses on how economists deal with nonpoint source pollution where individual farm field emissions are not observed. This causes problems for the standard emissions marginal abatement cost framework used in environmental economics as it renders
emission-oriented policy instruments not applicable. The advantages and disadvantages of
the three main approaches of dealing with this issue—procedural regulations, input regulations, and regulations formulated to solve the information asymmetry issues—are briefly
summarized. Finally, a brief overview on computable economic modeling is given.
Keywords
Bodeled emissions · Environmental damages · Eutrophication · Modeling · Nonpoint
source pollution
4.1 Introduction
This chapter is bit special in a book on eutrophication with
such a strong natural science orientation as it involves another science: economics. Therefore, parts of this chapter
deal with some central economic concepts that will make it
easier for natural scientists and economists to communicate
with each other. The economic analyses presented in this
chapter are limited to how to implement physical measures
that emerge from the natural scientific analyses. Physical
measures commonly entail some agricultural practice—like
reduced fertilization and the planting of catch crops—that
are expected to reduce eutrophication. If these physical measures were the most profitable, they would already have been
implemented. In brief, reducing nutrient and pesticide leakages is costly for farmers, implying that many farmers resist
or are opposed to undertaking these changes.
This is where economic analysis comes in. It seeks to devise some policy instruments that make the desired changes
in their agricultural practices from a eutrophication perspective the most profitable. Adoption of the desired practices is
obviously straightforward if the desired practices coincide
with the most profitable practices. Paying farmers to adopt
desired practice is therefore one way of resolving the discrepancy between what is most desirable from an environmental perspective and what is most profitable for farmers.
There are several problems with payments to reduce pollution. First, if agriculture were entitled to such payments, we
would quickly see other polluting industries demand similar
payments. That could quickly be quite costly for taxpayers.
Second, paying someone not to do bad, i.e., pollute, comes
at odds with widespread notions of fairness going back to
kindergarten—those who make a mess are responsible for
cleaning it up. Third, such payments may attract other firms
into polluting sectors, which would further increase the
strain on public funds.
A more realistic approach to reduce the differences in
profits between the desired and current practices is to introduce taxes on pollution. Unfortunately, nonpoint source
4
A. A. Ansari, S. S. Gill (eds.), Eutrophication: Causes, Consequences and Control,
DOI 10.1007/978-94-007-7814-6_4, © Springer Science+Business Media Dordrecht 2014