Energy and Environmental Economics

Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of market-based and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost effective than implementing nonprice conservation programs, similar to results for pollution control in earlier decades. Price-based approaches may also compare favorably to prescriptive approaches in terms of monitoring and enforcement. Neither policy instrument has an inherent advantage over the other in terms of predictability and equity. As in any policy context, political considerations are also important.

This paper investigates strategic noncompliance with the Total Coliform Rule (TCR) under the U.S. Safe Drinking Water Act. The structure of the TCR provides incentives for some piped drinking water systems to avoid violations by taking additional water quality samples. We estimate the prevalence of this behavior and its potential impact on violations using monthly data for more than 500 Massachusetts water systems, 1993_2003. We find evidence that strategic oversampling is occurring. Water systems most likely to avoid violations by oversampling are most likely to oversample. A significant number of additional violations would have occurred if systems had adhered to legal sampling requirements, rather than oversampling. Our analysis of potential impacts of regulatory avoidance under the current rule suggests that alternative policies for monitoring bacteria in drinking water should be considered.

There have been significant improvements over the past four decades in our ability to estimate the economic value of environmental amenities and disamenities. The development of many new techniques has broadened what can be measured to include climate change impacts, damages from hazardous waste sites and air pollution emissions, and the value of many ecosystem services. We review the major economic valuation techniques, as well as numerous applications of these valuation methods. However, there remain challenges ahead. The interface between economics and the natural and physical sciences must be strengthened. Additional well-controlled

This article surveys selected contributions of economics to the literature on water pollution and the regulation of water quality. While not a comprehensive review, the article highlights water pollution issues to which economics has made important contributions, as well as areas in which further research might illuminate critical questions from the perspective of theory, empirics, or applied policy analysis. The focus is on drinking water regulation and provision; water quality standards in local, national, and transboundary settings; and the issue of policy instrument choice for water quality regulation.

This article surveys the literature on the economics of water scarcity and water demand. We examine demand estimation in diverted uses (urban, agricultural, and industrial), as well as the demand for instream uses such as recreation and habitat preservation. The article also assesses what is known about efficient water pricing, water allocation, and water trading within and across sectors. The literature examining the efficiency and distributional impacts of large water projects such as dams for irrigation and hydroelectric power is also discussed. Water conservation is examined from the perspective of efficiency and cost-effectiveness. We highlight water management issues to which economics has made important contributions, as well as areas where further research is needed.

Rather than allowing urban water prices to reflect scarcity rents during periods of drought-induced excess demand, policy makers have mandated command-and-control approaches, primarily rationing the use of water outdoors. While such policies are ubiquitous and likely inefficient, economists have not had access to sufficient data to estimate their economic impact. Using unique panel data on residential end-uses of water in 11 North American cities, we examine the welfare implications of urban water rationing in response to drought. Using estimates of expected marginal prices that vary both across and within markets, we estimate price elasticities specific to indoor and outdoor water use. Our results suggest that current policies do target water uses that households, themselves, are most willing to forgo. Nevertheless, we find that rationing outdoor water in cities has costly welfare implications, primarily due to household heterogeneity in willingness-to-pay for scarce water. We find that replacing rationing policies with a market-clearing

While nearly three dozen water pollution trading programs have been established in the United States, many have seen no trading at all, and few are operating on a scale that could be considered economically significant.The global experience with water quality trading is not much more extensive. While water quality trading holds substantial promise, many challenges remain to be worked out by economists and by environmental managers. These challenges involve both physical aspects of water pollution problems that require modifications to the typical structure of pollution trading as practiced for air quality, as well as constraints imposed by current regulatory approaches to water pollution control that limit market function, including the implied assignment of rights to pollute. This paper assessors the current status of water quality trading and identifies possible problems and solutions. We offer some background on US water pollution regulation, present an informal assessment of the current status of water quality trading, describe six criteria for successful pollution trading programs, and consider how these apply to standard water quality problems, as compared to air quality. We then highlight some important issues to be resolved if current water quality trading programs are to function as the

Concern has been raised in the scientific literature about the environmental implications of extracting natural gas from deep

shale formations, and published studies suggest that shale gas development may affect local groundwater quality. The potential for surface water quality degradation has been discussed in prior work, although noempirical analysis of this issue has been published. The potential for large-scale surface water quality degradation has affected regulatory approaches to shale gas development in some US states, despite the dearth of evidence. This paper conducts a large-scale examination of the extent to which shale gas development activities affect surface water quality. Focusing on the Marcellus Shale in Pennsylvania, we estimate the effect of shale gas wells and the release of treated shale gas waste by permitted treatment

facilities on observed downstream concentrations of chloride (Cl_) and total suspended solids (TSS), controlling for other factors. Results suggest that (i) the treatment of shale gas waste by treatment plants in a watershed raises downstream Cl_ concentrations but not TSS concentrations, and (ii ) the presence of shale gas wells in a watershed raises downstream TSS concentrations but not Cl_ concentrations. These results can inform future voluntary measures taken by shale gas operators and policy approaches taken by regulators to protect surface water quality as the scale of this economically important activity increases.

Extant literature documents that wind generation can reduce wholesale electricity market prices by displacing conventional generation. But how large is the wholesale price effect of wind generation in an electricity market dominated by hydroelectric generation? We explore this question by analyzing the impact of wind generation on wholesale electricity prices in the Pacific Northwest region of the United States. This hydro-rich system tends to be energy-limited, rather than capacity-constrained, with its marginal generation during the hydro runoff season often a hydro unit, instead of a natural-gas-fired unit. We find that increased wind generation reduces wholesale market prices by a small, but statistically-significant, amount. While a hydro-rich system can integrate wind generation at a lower cost than a thermal-dominated region, the direct economic benefits to end-users from greater investment in wind power may be negligible