Cost effective policies for alternative distributions of stochastic water pollution

Abstract

This study investigates the role for cost effective coastal water management with regard to different assumptions of probability distributions (normal and lognormal) of pollutant transports to coastal waters. The analytical results indicate a difference in costs for a given probability of achieving a certain pollutant load target whether a normal or lognormal distribution is assumed. For low standard deviations and confidence intervals, the normal distribution implies a lower cost while the opposite is true for relatively high standard deviations and confidence intervals. The associated cost effective charges and permit prices are higher for lognormal distributions than for normal distributions at relatively high confidence intervals and probabilities of achieving the target. An application to Himmerfjärden—an estuary south of Stockholm, Sweden—shows that the minimum costs of achieving a 50 per cent reduction in nitrogen load to the coast varies more for a lognormal than normal probability distribution. At high coefficient of variation and chosen probability of achieving the target, the minimum cost under a lognormal assumption can be three times as high as for a normal distribution.