Obtaining the Point Value Estimates

Following the described procedure for obtaining the point coefficients, two sets of point coefficients are estimated for each watershed. The first set of points estimates the effectiveness of the abatement actions in reducing nitrogen emissions. The second set of points is estimated with respect to phosphorus emissions. A total of 2968 (fields) x9 (abatement actions) point coefficients are estimated for BRW and a total number of 1569 x 9 point coefficients are

estimated for RRW. Table 3-7 presents the estimates for point values as an area weighted average of the point estimates across the watershed. The point coefficients are expressed as per acre kilogram of abatement.

Table 3-4. Abatement point practices (area weighted average across watershed) No action NT CC NT CC RF RF NT RF CC RF,CC NT CRP

Boone River Watershed

Nitrogen 0.00 2.35 2.42 4.26 0.62 2.98 2.95 4.79 7.32 Phosphorus 0.00 0.17 0.11 0.16 0.00 0.17 0.11 0.17 0.29

Raccoon River Watershed

Nitrogen 0.00 1.50 2.66 3.33 0.79 2.28 3.31 4.02 7.97 Phosphorus 0.00 0.14 0.12 0.18 0.00 0.14 0.12 0.18 0.25

Next, I turn to discussing the point coefficients’ results. In general, the results follow prior expectations. The abatement practices that are known to be highly effective at reducing one pollutant emissions are awarded higher point values than less effective practices (i.e., land retirement receives the highest number of points for both pollutants). No till for N reductions in BRW receives a higher number of points than in RRW, but cover crops for P reductions receives more points in RRW than in BRW. Reduced fertilizer has the lowest number of points as it is the less efficient abatement practice for reducing nitrogen loss and has virtually no impact on

reducing phosphorus loss.

Interesting sub-additivity patterns are realized in the points’ estimation—the points associated with adopting a combination of conservation practices are not equal to the summation of the individual points. For example, the abatement action that combines no till and cover crops receives a lower number of points (4.26) than the sum of the points assigned to each of them individually (2.34 +2.42 = 4.76 BRW, nitrogen).

The difference in the magnitude of estimates for the two pollutants is explained by the difference in baseline overall emission levels, where the quantity of nitrogen measured at the main outlet is much higher than the quantity of phosphorus measured at the same outlet (the N baseline emissions are on average 200 times higher than the P baseline emissions—see Table 3-1 columns 2 and 3). Interestingly, the point estimates are comparable across the two watersheds (i.e., the point values for the same abatement practices are within comparable ranges).

Table 3-5. Efficiency of the abatement actions under uniform implementation (same abatement action is implemented by each field in the watershed)

Watershed NT CC NT, CC RF RF,NT RF,CC RF, NT, CC CRP BRW N red., % 28.8 25.1 48.1 6.3 35.2 30.5 53.5 81.0 P red., % 37.7 27.5 33.8 0.2 38.0 27.8 34.4 77.4 RRW N red., % 10.9 26.4 31.5 8.9 19.8 33.9 39.3 84.2 P red., % 37.5 34.1 48.5 0.8 37.7 34.5 48.9 72.7

Prior expectations on the point coefficients’ performance can be inferred from analyzing the obtained nutrient reductions assuming that the same abatement action is taken by each field in the watershed. Table 3-5 summarizes the overall reduction expressed both in relative and percentage terms that would be realized under this assumption. Among the abatement actions that represent a single conservation practice, land retirement offers the highest level of abatement for both N and P. Land retirement is followed by no till. Interestingly, more than double the overall N reductions are obtained under no till in BRW (28.10%) relative to the RRW (10.88 %). At the same time, similar P reductions across the two watersheds are obtained under the no till option. The N reductions obtained under cover crops are similar across the two watersheds (25%). However, more overall P reductions are obtained in RRW (34%) than in BRW (27.5%).

Reduced fertilizer is the conservation practice that has the least impact on N reductions and almost no impact on the P reduction, an outcome that it is expected.

The same pattern of sub-additivity is observed for the abatement actions that represent combination of two or more abatement actions, in the sense that less nutrient reductions are realized under the combination of conservation practice than the sum of the reductions obtained under the individual conservation practices. For example , in the case of BRW the combination no till and cover crops result in 48.1% N reductions which is less than the sum of individual reductions obtained under no till (28.8%) and cover crops (25.1%). This pattern is consistent across the two watersheds.

By using data provided by SWAT, I estimate a different set of point coefficients at different levels of aggregation: field, subbasin and watershed specific. A priori, the fields specific point coefficients should give a better approximation of the abatement function. However, a less specific set of point coefficients might be more appealing for the implementation of a trading program.

Figures 3-3 and 3-4 compare the point coefficients under three levels of specificity (field, subbasin and watershed) for BRW. The field and subbasin specific coefficients are obtained as an area weighted average. The nitrogen point coefficients are similar across the three types of estimation, with the exception of no till at field level, which has the average slightly below the average of no till subbasin and watershed point coefficients. More variation can be found across the phosphorus point coefficients, especially for no till, and the abatement actions that include no till, and land retirement

Figures 3-5 and 3-6 provide the same comparison for RRW. In the case of nitrogen, the no till average field level coefficient is higher than the other two types, while the land retirement

field level average point coefficient is higher. Similar patterns as in BRW are observed for phosphorus in RRW.

Detailed results of the point value estimation can be found in the Appendix B. The summary statistics for the field specific points for each pollutant are presented in Table A-1 (nitrogen) and A-2 (phosphorus) for BRW and Tables A-3 (nitrogen) and A-4 (phosphorus) for RRW. Next, the subbasin specific point coefficients are presented in Tables A-5 and A-6. For BRW and Tables A-7 and A-8 for RRW. Finally, Figures A-1 to A-4 describe the distribution of point coefficients, where the point coefficients are field specific.

Figure 3-3. Boone River Watershed: different sets of point coefficients, nitrogen

Figure 3-4. Boone River Watershed: different sets of point coefficients, phosphorus

Figure 3-5. Raccoon River Watershed: different sets of point coefficients, nitrogen

Figure 3-6. Raccoon River Watershed: different sets of point coefficients, phosphorus

Delivery coefficients

Estimating the delivery coefficients was an intermediate step in obtaining the field level point value estimates. The two additional approaches for estimating the point coefficients offer another two alternatives. The results for the delivery coefficients are presented in the Appendix B, Tables A-9 and A -10 for BRW, and respectively RRW.

Figure 3-7 compares the BRW distribution of the nitrogen delivery coefficients obtained under the three approaches. The delivery coefficients obtained under the three approach are labeled as Field, the ones obtained under the second approach are labeled as Subbasin, and finally the last ones are labeled as Watershed.

Figure 3-7. Boone River Watershed: nitrogen delivery coefficients

The “Field” and “Subbasin” delivery coefficients are very similar. Moreover, the t-test for equal means does not reject the equal mean hypothesis. However, the distribution of the Watershed delivery coefficients is different from the previous two (see subbasins 9 and 16 where

0.00 0.50 1.00 1.50 2.00 2.50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Subbasin

Delivery Coefficients

the delivery coefficients are larger and subbasin number 26 and 27 where the coefficients are lower).

The literature related to delivery coefficients assumes that the delivery coefficients should between zero and one, or constrained to be between zero and one. In my empirical

application, since my goal is to find a good linear approximation for the abatement function, I do not impose any constraint on the values the delivery coefficients can take. In the case of BRW, the delivery coefficients tend to be lower than one, however there are a few subbasins when the coefficients are higher than one. The average values across the watershed are 1.07 (Field), 1.14 (Subbasin) and 1.07 (Watershed).

Figure 3-8. Boone River Watershed: phosphorus delivery coefficients.

Table 3-8 summarizes the distribution of the delivery coefficients for the transport of phosphorus in BRW. The average values across the watershed are 0.59 (Field), 0.63 (Subbasin) and 1.12 (Watershed). Hence, in this phosphorus case there is higher variations across the three types. As in the nitrogen case, the same subbasins (9 and 16) have the largest “Watershed” delivery coefficients with values much higher than one. There are no negative delivery coefficient 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Subbasin

Delivery Coefficients

Figure 3-9. Raccoon River Watershed: nitrogen delivery coefficients. ‐7.90 ‐5.90 ‐3.90 ‐1.90 0.10 2.10 4.10 6.10 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 Subbasin

Delivery Coefficients

Delivery coefficients using  HRU data Delivery coefficients using  subbasin data Delivery Coefficient using watershed data

Figure 3-9 summarizes the delivery coefficients distribution for nitrogen in RRW. As in previous cases, the Watershed delivery coefficients present the highest variations, with a few subbasins having negative delivery coefficients (subbasins 85 and 112). The average value of the delivery coefficients is smaller than in the BRW case: 0.67 (Points), 0.68 (Subbasin), and 0.98 (Watershed).

The phosphorus delivery coefficients follow similar patterns as the nitrogen in RRW, in the sense that the “Watershed” delivery coefficients have higher variability and the highest values (their overall average is 1.70, compared to 0.43 and 0.44—the averages for “Point” and “Subbasin”). As in BRW, the phosphorus delivery coefficients have lower values than the nitrogen coefficients.

The flow of trading

Once the point coefficients and delivery coefficients are estimated, the regulator can set up an abatement-action-based trading program where farmers can trade points associated with the abatement actions, or alternatively they can trade emissions based on the trading ratios defined by the true delivery coefficients. Next, I present the steps that would be followed in setting up a trading program based on the estimated point coefficients.

Determining the watershed configuration that achieves a water quality goal, ̅

The regulator sets up a water quality goal, expressed as percentage reduction in the baseline level of total nitrogen or total phosphorus. Given no cost information is available, the regulator can identify a random placement of abatement actions such that the water quality goal is achieved.

Computing total number of points associated with a particular water quality goal ̅

Let ̅ be the water quality target and be the vector of abatement actions that is determined by a random watershed configuration that achieves the desired water quality target, then the number of points corresponding to that water quality target, , is equivalent to:

∑ ∑ , (17)

where ∗ is a dummy variable that takes a value of 1 if practice is assigned to field , and 0 otherwise, denotes the number of points corresponding to field , given the abatement action , and is the area of field .

Allocating a number of points to each field (this represent the field level constraints) Next, the regulator has to decide how he is going to set the field- or farm-level

constraints. In terms of practical implementation, farmers are provided with a set of point value estimates that specifies the points earned from the adoption of each abatement action. Given a watershed configuration that achieves a particular level of abatement, the corresponding total level of points is ∑ ∑ ∑ . The total number of points can be assigned as initial farm-level requirements in two ways: allocate the points according to the initial watershed configuration, or equally divide the total number of points among farms. The initial allocation of points will affect the final outcome of a performance-based program, but will not affect the final outcome in the case of a trading program.

The realization of the trading outcomes

Given the farm-level constraint, farmers choose the abatement actions and the number of points to trade. The final costs and abatement outcomes are realized.

Conclusion

In this chapter, I outlined the properties of three polices under different assumptions for the abatement function and proposed an approach for linearizing the abatement function using a system of point coefficients that measures the impact of an abatement function on the overall abatement level. I presented the results of estimating the point and delivery coefficients under different degrees of specificity.

In the next chapter, I evaluate these policies in a real watershed framework, where I anticipate potential tradeoffs between the cost efficiency and effectiveness of different policy programs, given that the complex water pollution process is simplified by using the proposed linearization.

CHAPTER 4. FLEXIBLE PRACTICE-BASED APPROACHES FOR