Free Market Approach to Reducing Nutrient Loading?

[Student]

Here’s a topic I’ve been thinking about.

Nutrient loading is creating significant water quality problems in the United States. This is where nutrients such as nitrogen and phosphorous are washed off farms (in the form of manure or fertilizer) and other areas into streams and lakes. As the amount of nutrients build, particular in downstream areas like estuaries, algae blooms are created that can kill significant amounts of fish and plants (Ex:see the Dead Zone where the Mississippi river dumps into the Gulf of Mexcio: http://en.wikipedia.org/wiki/Dead_zone_(ecology)).

This week, the EPA recognized this growing problem by proposing the first ever federal numerical limits on nutrient runoff in the state of Florida:
http://www.msnbc.msn.com/id/34882731/ns/us_news-environment/

There is no indication yet as to how this limit will be met. In states like North Carolina, there is movement toward using a “cap and trade” type approach that might be considered. This approach involves the creation of a nutrient trading market.

Of course, even though this approach is “market based” it still requires the government to set nutrient loading limits. So it obviously isn’t a free-market. Personally, I am fine with that. But I know a lot of people on this forum would not be. So, absent any form of government regulation, how could we solve the problem of nutrient loading creating “dead zones” through out the United States?

PS* Please do not simply say “assign property rights to all waterways and all oceans and everything will be fine.” First, that type of glib answer ignores the central insight of the Coase Theorem, which is that the initial allocation of property rights won’t matter for efficiency purposes only when transaction costs are low. In the case of the Gulf of Mexico, you will be talking about coordinating negotiants between millions of people across thousands of miles, so transaction costs are not low in that case. Second, this response ignores the insights of Lin Ostrom, that non-government solutions can be found to negative externalities even when property rights are fuzzy or non-existent.

[nirgrahamUK]

@Student

Please do not simply say “assign property rights to all waterways and all oceans and everything will be fine.” First, that type of glib answer ignores the central insight of the Coase Theorem, which is that the initial allocation of property rights won’t matter for efficiency purposes only when transaction costs are low. In the case of the Gulf of Mexico, you will be talking about coordinating negotiants between millions of people across thousands of miles, so transaction costs are not low in that case.

so assuming what you say is correct, and transactions costs are high. this only means that initial allocations of property rights ‘matter’. so what? that Bob owned property first, and that this Bob owning it as opposed to that John owning it effects the price which Jill must pay to buy it… is supposed to be a point against the proposal to permit and respect the assignation of property rights to all waterways and all oceans ? how so?

@Student

second, this response ignores the insights of Lin Ostrom, that non-government solutions can be found to negative externalities even when property rights are fuzzy or non-existent.

So go ask Ostrom.

[JosephBright]

Have you ever considered that maybe the massive farm waste problem is a consequence of government intervention in that industry in the first place? That is, the government through its numerous subsidies, favorable laws, and other interventions grows the factory farming industry to a grotesque level beyond what the free market would have decided upon. Take for instance the corn industry and the interventions initiated by the Secretary of Agriculture Earl Butz.

My point is, do not treat the symptoms of state intervention, but the cause itself.

[Student]

Jospeh,

Well, I am also opposed to farm subsidies. But, I am not sure that eliminating them would solve this particular problem. First, not all nutrient runoff is associated with agriculture. Second, even if the subsidies were eliminated that by itself would not create an incentive for farmers to better manage runoff.

[Runyan]

Using the EPA’s pollution tool, it becomes evident that nearly all of the top US water polluters are either a government owned facility, a government contractor, or in industries with heavy government involvement (subsidies, regulations, etc). Also, there is historical president showing that removing government involvement can greatly improve the situation:

from Mee, Laurence (November 2006). “Reviving Dead Zones”. Scientific American.

THE BLACK SEA offers a dramatic example of how undersea ecosystems can be destroyed by a surplus of nutrients and also provides insight into how they can be resuscitated. The waters of the northwestern area of the sea fell prey to eutrophication when flows of nitrogen and phosphorus compounds from the land doubled between the 1960s and 1980s. The principal pipeline for these chemicals was the Danube, which drains much of the watersheds in 11 countries across central Europe, from Germany to Romania. The main culprits were agricultural runoff, urban and industrial wastewater, and, in the case of nitrogen compounds, atmospheric transport. At least half the increased nitrogen poured into the Black Sea resulted from modernized farming practices, including intensive use of fertilizers and the establishment of huge animal production facilities. These agricultural activities also contributed to the rise in the phosphorus effluent, but industrial and urban waste discharges laden with polyphosphate detergents played an even more significant role.

Before the 1960s the shallow northwestern region of the Black Sea was a diverse and highly productive system that included extensive near-shore mats of bottom-living brown algae and, further offshore, the largest red algae community on earth–a field of Phyllophora the size of the Netherlands. These natural algae meadows coexisted with enormous beds of mussels and other bivalves, and the whole system supported a large number of invertebrate and fish species. The algae helped to oxygenate the bottom waters, and the mussels filtered the seawater, thereby maintaining good light conditions for photosynthesis. This ecosystem was highly resilient, being able to accommodate large variations in climate conditions and natural disturbances. As nutrient effluents escalated, however, dense phytoplankton blooms appeared in the surface waters. Such luxuriant growth lowered water transparency, which in turn deprived the bottom algae of light and eventually led to their loss, which altered the entire natural ecosystem.

During the summer months, when the water column became stratified, oxygen levels, particularly near the seabed, began to fall. Many of the affected bivalve communities could survive hypoxia for as long as 20 days by closing their shells and living on internal reserves of glycogen–an animal’s chief energy-storage carbohydrate. But when these supplies were exhausted, the mollusks died en masse, which led bacteria and other organisms to consume the remaining local oxygen as they degraded the dead animals and to release even more plant nutrients. By the time nearly all the oxygen was gone, all the fauna that normally lived in the area had either migrated away in search of food and oxygen or perished. The region’s natural ecosystem was thus seriously degraded.

The area began to recover only when the communist regimes in eastern Europe fell at the end of 1989, ending central economic planning. Suddenly farmers there had little capital to buy fertilizer, so agricultural activities slowed. Likewise, many giant animal farms closed, thus profoundly reducing nutrient runoff. One former pork production facility in Romania with more than a million pigs had generated the equivalent emissions of a city with five million inhabitants.

Within six years the profound drop-off in nutrient influx led to shrinkage of the dead zone. Recovery of the sea bottom, however, was gradual. For example, studies by my Ukrainian colleagues have shown that mussel beds in devastated parts of the northwestern shelf became firmly reestablished only in 2002, many years after other communities had recovered substantially. This past August a research expedition we conducted to examine the state of the sea revealed major reestablishment of benthic algae communities, though generally not the same species that had dominated before the onset of dead zone conditions.