An example of market-based environmental theory put into practice:
Faced with a planned federal mandate to cut water pollution from power plants, American Electric Power and other utility companies might simply pay farmers to do the job for them.
In a “water quality trading” test program recently announced by environmental regulators in Ohio, Indiana and Kentucky, farmers could cut polluted stormwater runoff from their fields and sell the reductions as credits to power companies.
Either way, proponents say, streams, rivers and lakes would be cleaner.
Installing and operating pollution-treatment systems at power plants would be much more expensive, according to officials with the Electric Power Research Institute.
“There are substantial savings,” Jessica Fox, senior scientist for the institute’s Water and Ecosystems Program, said of the credit concept.
And that's the point. Efficiency is gained if society gets the same (or more) reduction in pollution for less money (that is the fewer resources necesaary to achieve a given level of pollution reduction, the more resources available to be used for other productive activities).
But how much saving can be achieved? If power companies are to be believed...a bunch:
AEP’s Cardinal station, located along the Ohio River near Brilliant, Ohio, would be among the first plants to participate in the program, said Melissa McHenry, a company spokeswoman.
She said it would cost $52 million to install a system to keep Cardinal’s ammonia out of the Ohio River and at least $3 million a year to operate it.
Paying farmers to cut a similar amount of phosphorus, she said, could cost as little as $100,000 a year.
Farmers typically plant buffer strips of grass along ditches and streams instead of using those areas to grow crops. The strips absorb manure and fertilizers washed from fields during storms.
Whether farmers participate depends on whether they can make more money from selling credits than they could growing corn or soybeans.
Larry Antosch, the Ohio Farm Bureau Federation’s environmental policy director, said many farmers likely will consider the offer.