Economic policy and wetlands

When the pollution constraint is to be satisfied with a probability greater than 0.5, the PC-curve shifts out, since including the variance now re- quires increasing abatement efforts. Fig. 2a de- picts case 1, when construction of wetlands does not affect the uncertainty of emissions. In this case there are no possibilities to affect the vari- ance of emissions, and thus the only possibility is to reduce expected emissions such that the modified pollution constraint, PC 1 , is not vio- lated. It can be noted that the curvature and the slope of pollution constraint PC 1 is identical to the original PC , since neither WWTP reductions nor construction of wetlands affect the distribu- tion of nitrogen load. The optimal allocation in case 1 is given by Z 1 , L w 1 . Fig. 2b depicts case 2. Under this scenario construction of wetlands reduces the variability of total nitrogen load. This means that wetlands become more efficient with respect to fulfilling the abatement target, compared to case 1 see also Eq. 6. If the variance-reducing effect of wet- lands is higher for the first units of wetlands constructed, then the pollution constraint PC 2 is convex as shown in the figure this is formally shown in the appendix to this paper. Hence, a higher emission reduction is required in the waste water treatment plant in order to substitute for one unit of nitrogen reduction in wetlands com- pared to case 1. The optimal combination of wetlands and WWTP reductions is now given by L w 2 , Z 2 . The total cost is in this case given by IC 2 , which is lower than the total costs in the first case of Fig. 2a. The scenario under case 3 is shown in Fig. 2c. In this case construction of wetlands increases the uncertainty of emissions. If the rate of augmenta- tion in variance increases as larger areas of wet- lands are constructed, then the pollution constraint in case 3 is convex as indicated in Fig. 2c this is shown in the appendix. The effect on the pollution constraint as defined by Eq. 6 is in this case ambiguous and it is unclear whether construction of wetlands contributes to solving the pollution problem. In this scenario wetlands are less efficient compared to the situation when construction of wetlands does not affect the vari- ance, fewer units of WWTP reductions are re- quired to substitute for one unit of nitrogen reduction in wetlands. The three cases above depict the possible cases for wetlands in theory. In practice it can be expected that one of these situations prevails. But in which of the cases are wetlands economically relevant to use for nitrogen abatement, and in which case is the relevance of wetlands unambigu- ous? Under case 4, wetlands are clearly not eco- nomically relevant, since wetlands neither perform abatement, nor improve the distribution of emis- sions. Therefore case 4 can be ruled out directly. In case 3 wetlands have a positive abatement capacity, but construction of wetlands also in- creases the variability of total emissions, which makes the overall abatement effect uncertain, at least when the abatement target is to be achieved with some degree of certainty a \ 0.5, f a \ 0. In case 1 and 2 the expected abatement capacity of wetlands is positive. Moreover, in case 2 the abatement capacity, or the economic relevance, of wetlands increases with the introduction of a reli- ability requirement since wetlands in case 2 also reduce the uncertainty of emissions. In this case the abatement performed by wetlands is unam- biguous, and the abatement capacity is not dimin- ished if stricter reliability constraints are imposed. Three criteria for the economic relevance of using wetlands for nitrogen abatement can now be formulated. “ The abatement capacity of wetlands must be positive and increasing in wetland area. “ The use of wetlands for nitrogen abatement must not increase the uncertainty, or variance, of total nitrogen load. “ Given that the two first conditions are fulfilled, we also require that wetlands have sufficiently low abatement costs to be considered as a viable measure for pollution reduction in nitro- gen abatement programs. The relative prices are given by the slope of the IC-curves in Fig. 2a – c.

3. Economic policy and wetlands

There are two main implications of the estab- lished criteria. First, including uncertainty into the analysis of abatement costs means that wet- lands’ effect on the total variability of emissions influences the optimal allocation of abatement between point and nonpoint emissions. This is clearly displayed in Fig. 2 where the optimal area of wetlands varies, depending on the prevailing situation. Knowledge of how the use of wetlands affects uncertainty may therefore be crucial for identifying to what extent wetlands are beneficial to use for nitrogen abatement. Moreover, if the criteria of economic relevance are fulfilled, it can be shown that a stricter reliability require- ment implies that the pollution constraint shown in Fig. 2b becomes more convex McSweeny and Shortle, 1990. Consequently, an extended use of wetlands is suggested the stricter the reliability constraint. This result is a consequence of wet- lands, in this paper, being the only means by which the uncertainty of total emissions can be reduced. The second implication of the criteria above is perhaps more subtle. If the criteria are fulfilled, the use of wetlands reduces the uncertainty of nonpoint emissions. In addition, parts of the upstream nonpoint emissions are gathered in wetlands and the net emissions can be measured at the downstream exit of a wetland. Thus, construction of wetlands may in fact contribute to changing some of the characteristics of the nonpoint emissions in the watershed. Nonpoint emissions are characterized by their uncertainty and the difficulty by which they can be measured and monitored Malik et al. 1993; Shortle and Dunn, 1986. Wetlands reduce uncertainty and provide a natural point at which the upstream pollution can be measured. In this respect we can therefore conclude that wetlands are ‘pointifiers’ of nonpoint emissions, i.e. an abate- ment measure that makes nonpoint emissions assume the characteristics of point source emis- sions. Since some of the upstream pollution can be measured as the outflow from the downstream exit of a wetland, construction of wetlands implies that a portion of the upstream nonpoint emissions can be measured and monitored as point sources.

4. Example