The regional economic effects of the Great Lakes Water Quality Initiative (GLI)

The theoretical literature on environmental economics generally concludes that incentive-based pollution controls are better than command-and-control strategies. This study estimates the quantitative effects of incentive-based and command-and-control measures on an actual regional economy. The cost effectiveness of industrial and agricultural pollution controls is examined in the Maumee River Basin region of Ohio. The industrial pollution controls examined here were promulgated by the U.S. Environmental Agency under the Great Lakes Water Quality Initiative (GLI). The agricultural pollution controls were ones that farmers in the region have begun implementing to various degrees to reduce the flow of soil sedimentation in waterways leading into Lake Erie. The study evaluates pollution control instruments in terms of their cost effectiveness. For industrial pollution, a tax instrument is compared with a permit trade instrument. For agricultural pollution, three tillage systems are compared.; An environmental computable general equilibrium (ECGE) model is developed to capture the region-wide effects of pollution controls. Industrial pollution control is modeled by introducing a pollution cleaning sector that utilizes intermediate and primary inputs. Agricultural pollution control is modeled by altering the pattern and levels of input purchases per unit of agricultural output. The analysis suggests that incentive-based pollution control strategies are more cost effective than command-and-control strategies. An emission tax is better than a command-and-control strategy as long as the revenues generated by the tax net of the cost of controlling pollution in excess of the pollution standard are returned to polluters. Tradable permits reduce compliance costs and are likely to generate welfare gains. The study finds further that pollution-reducing tillage practices increase the profitability of agriculture, but most of these cost savings are internalized within the crop production sector, and regional economic activity outside of agriculture is altered relatively little by the changes in agricultural technology.