Spitting In The Ocean
Worrying About the Fundamentals
It is not clear why the Chesapeake Bay restorazzi wants to use their economic analysis opportunities measuring the benefits of cleaning up the Chesapeake Bay. A TMDL is being developed for the drainage, as mandated by the regulations governing surface waters in the US. These regulations do not require that the benefits of removing impairments rise to the cost of doing so.
Like most of the populace, I believe that the real benefits of restoring the Chesapeake Bay outweigh the real costs. Also in keeping with my populace, I think that the operative question is whether we will attempt to restore the Bay at its true cost or at cost-plus-black-hole.
It is difficult to know the true costs to restoring the Chesapeake Bay because it is a very large waterbody with a lot of disparate sources of pollution loads. Given all those sources, most of which are in private hands, it is very fiddly and time consuming to estimate load reductions and costs for the total supply of pollution mitigation. To my knowledge, no one has undertaken such a study for the entire Bay.
Instead, Blue Ribbon Panels estimate what it would cost to get privately held sources to achieve the necessary pollution reductions to remove the Bay’s impairments if the next million pounds of abatement cost about the same as the last million pounds. In doing this, all the abatement is calculated as an average, which misses any cost minimization opportunities.
When researchers from UVA (www.cbf.org/economic-report) use average costs to estimate economic impacts of spending tax dollars to clean up the Bay, they are effectively saying that even if you waste a great deal of money by inefficiently pricing pollution mitigation, it still works out great for economic growth. I am not sure that this is going to be a compelling argument for the taxpaying public.
Does it matter if we buy pollution reduction by the acre, accepting average costs for the pounds of reduction that we really want, instead of buying it by the pound? The graph at the bottom of this piece provides a basis for answering that question. To build it, I have used a fixed cost per acre (an annualized average of what USDA currently pays for forested buffers (RFB) under CREP) and then calculated the pounds of nitrogen (N) reduced per acre for each land use and hydro-geomorphic region. I then allocated those rates across estimated streamside miles (at 100 ft widths) in Maryland. From dollars of cost per acre and N reduction per acre I know dollars per pound RFB N reduction across all the acres in all their possible land uses and hydro-geomorphic facets.
If you sort the set of N reductions from all the land uses and hydro-geomorphic regions from cheapest to most expensive, you define a marginal cost curve for the supply of N reduction through the use of forest buffers in Maryland. You can compare this with the average cost curve that is implied by buying all the acres at average rates of N reduction. Keeping in mind that total expenditure is equal to price times quantity, which supply curve would any sane buyer want to operate from?
