Phase-in of nonpoint sources in a transferable discharge permit system for water quality management: setting permit prices

The composite market design is a proposal for a transferable discharge permit system that specifically includes agricultural non-point-source dischargers and addresses both property rights and transaction cost problems. The first step to implementation of a composite market scheme is the estimation of a supply curve for abatement measures in the catchment area. Estimation is performed by combining costs with modeled loss reductions from selected best management practices and then using this information to estimate the supply curve for abatement, which in turn can then be used to set permit prices. The R?nne? catchment in southern Sweden is used as a pilot study area for making this type of estimate. Costs for existing measures that reduce nutrient losses from farmland (catch crops and spring planting) are based on existing programs financed by the Swedish Agricultural Board. A set of supply curves is calculated for these measures using retention estimates for seven subcatchments and three soil types in the area. Although existing information is sufficient to calculate partial supply curves and may be used to set permit prices, additional measures should be included as well as an increased number of variables for differentiating site specific reduction costs.