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.