Last week, the Ohio Environmental Protection Agency announced via its draft 2020 water quality report that it will be developing a limit on the amount of phosphorus that can be dumped into the Lake Erie watershed.
This was a big announcement for Lake Erie. Four years ago, Ohio signed a pact with Ontario and Michigan to reduce phosphorus runoff into Lake Erie feeding the lake’s toxic algae blooms that are decimating both its ecosystem and its tourism industry. To this point, though, the state has leaned on cleanup dollars and tech incentives to reduce phosphorus runoff, leaving the state well short of the 40% phosphorus reduction goal in the 2016 agreement.
This element of the water quality report signals the state’s first willingness to tackle algae blooms directly. But what options does the state have to finally choke off the flow of fertilizer running into Ohio’s most notable natural resource?
The most straightforward way to reduce phosphorus runoff would be to enforce a 40% reduction in phosphorus runoff distributed between Ohio’s farms. This approach would mean apportioning limits to phosphorus-based fertilizer to all the farms in the state and enforcing these limits through fines if farms exceed their limit.
While this approach would certainly achieve the goal of reducing phosphorus runoff by 40%, it would also come with two challenges. First would be enforcement. Monitoring and levying penalties cost resources and those would have to be expended in order to give the caps teeth. This would likely be a more cost-effective strategy than current education and cleanup strategies, but could still be costly.
A bigger issue is the economic cost of phosphorus caps. Presumably, larger farms could absorb the costs associated with more expensive or less use of fertilizer more than smaller farms, so caps might need to be set lower for larger farms and higher for smaller farms. It will be hard for the state to equitably and efficiently set caps in light of these complications.
Enter limit trading. One way to get the benefits of phosphorus reductions at a lower cost than state-mandated caps is to set caps but then allow farms to trade allowances for phosphorus runoff with one another. This will allow less fertilizer-intensive, smaller, and more innovative farms to sell their allowances to more fertilizer-intensive, larger, and less efficient farms, providing incentives for innovation and reductions in pollution while apportioning limits more efficiently.
While some may balk at allowing a market in pollution, this is the strategy the state of California has taken to reducing carbon emissions and allows regulators to balance the benefits of runoff reduction with the benefits of farm innovation.
A final strategy would be to attach a usage fee to fertilizer. This would theoretically work similar to tradable limits on phosphorus runoff because it would essentially price the use of fertilizer but would require the state to estimate the correct price needed to bring about sufficient reduction in phosphorus runoff.
The benefit of a usage fee, however, is that it would greatly reduce monitoring and compliance costs since it would come in the form of a fee paid on each unit of phosphorus fertilizer sold. Fee administration would have a cost, but this cost would likely be much lower than monitoring and enforcing limits for dumping on farms across the state since it would be levied at the retail level. Fees could be spent on cleanup, environmental measures, or even remitted to farmers to reduce their costs incurred while still maintaining the incentive to reduce pollution.
Each approach has costs and benefits, though hard caps may only have political benefits with significant economic costs for farmers without the benefits that tradable limits or usage fees provide.
It will be up to the EPA and other policymakers to decide which path they want to take to mitigate this significant environmental issue for northern Ohio.