Water quality trading markets – Integrating land and marine based measures under a smart market approach

Raphael Filippelli, Mette Termansen, Syezlin Hasan, Berit Hasler, Line Hansen and James C.R. Smart

Ecological Economics, 2022, vol. 200, issue C

Abstract: Implementation of effective policy instruments to reduce emissions from non-point agricultural sources has been challenging. Mussel farming has the potential to mitigate diffuse nitrogen losses from agricultural production, and a Water Quality Trading Market (WQTM) between agricultural and mussel farmers could potentially be an efficient mechanism. We simulate a hypothetical WQTM in a catchment in northern Denmark using a relatively new approach referred to as a smart market for water quality. Building on previous work, we integrate mussel farmers as nitrogen permit sellers in a WQTM involving agricultural farmers and analyze the effect of the market on the cost of meeting water quality improvement targets. In addition, we set-up scenarios with decreasing levels of participation by agricultural farmers (−10%, −20% and − 30%). The results show a clear benefit from allowing trading between agricultural and mussel farmers, reducing the total costs by as much as 11.9%. Lower participation results in reductions in the benefits from trade. However, allowing mussel-based mitigation to supply N permits at modest cost can potentially partially circumvent the well-documented challenge that agricultural farmers are reluctant to act as N permit suppliers in WQTMs. The study illustrates the economic and environmental potential of integrating land- and marine-based farmers in a joint policy scheme to reduce nitrogen emissions to coastal and marine areas.

Keywords: Water quality trading; Non-point pollution; Mussel farming; Farmer participation (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:200:y:2022:i:c:s0921800922002117

DOI: 10.1016/j.ecolecon.2022.107549

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