Testing Policies That Use Continuous Nutrient Sensing by Drinking Water Utilities to Reduce Non-Point Source Pollution under Climate Variability
Date
2017-03
Journal Title
Journal ISSN
Volume Title
Publisher
Department of Applied Economics and Statistics, University of Delaware, Newark, DE.
Abstract
More-frequent extreme weather events due to climate change are expected to increase operation costs
for drinking water utilities, in part from increased non-point source (NPS) pollution from agricultural
land. High-frequency, high-quality sensors can help utilities better monitor water quality and utilities
could use this information in programs that subsidize upstream producers to improve the quality of
water they receive. Such a subsidy could be based on ambient pollution—paying producers directly
based on their pollution abatement—or targeted production—paying producers to implement specific
practices that reduce pollution. This distinction has implications for the structure of contracts,
distribution of payments, and, most notably, allocations of damage from extreme weather events to
producers and the utility. Under an ambient-based subsidy, risks associated with weather are shared by
producers. Under a production-targeted subsidy, the utility bears risk posed by severe weather. We use
an economic experiment involving operational data from a municipal water utility to study producer
responses to a theoretically equivalent ambient-based and targeted subsidy to improve water quality
under various weather scenarios. We find that the level of risk associated with weather variability
affects producers’ behaviors in response to subsidies. The results suggest that both types of subsidies
lead to improved social welfare and decreased pollution and that production-based subsidies, which can
be implemented using real-time sensing technologies, minimize the utility’s economic cost and the
social cost of damage. We also find that both types of subsidies become more effective as weather
variability and the likelihood of extreme events increase.
Key Points:
• By offering subsidies to upstream producers for watershed protection, drinking
water utilities can decrease their costs.
• High-quality data from continuous water-quality sensors can increase the
effectiveness of subsidies by targeting individual producers
• As the likelihood of extreme weather events increases, both ambient pollution and
targeted production subsidies become more effective
Description
Keywords
Research Subject Categories::FORESTRY, AGRICULTURAL SCIENCES and LANDSCAPE PLANNING, Interpretive strategies, Sustainable landscape practices, Public horticulture institutions, Botanical gardens, Survey, Efficacy, Knowledge