Economic and environmental modelling for pollution control in an estuary

This paper reports on results from an environmental-economic modelling exercise aimed at quantifying the potential cost savings from a Tradable Pollution Permits (TPPs) scheme in the Forth Estuary, Scotland. Such a scheme might be introduced to control inputs of biological oxygen demand more cheaply than the current regulatory system. A 'MIKE 11' water-quality model is combined with step-wise integer and linear programming models representing firms' abatement costs. Cost savings under a deterministic scenario are compared with savings under a stochastic scenario, where transfer coefficients, relating discharges to ambient water quality, are allowed to vary. Potential cost savings appear to exist in both cases, although these cost savings are less in the stochastic case. The paper concludes by considering potential barriers to any real-life TPP market actually achieving these potential cost savings.