Trading Ratio Research Articles

Linking Policy to Statistical Uncertainty in Air Pollution Damages

Abstract This study uses Monte Carlo analysis to characterize the uncertainty associated with per-ton damage estimates for 565 electric generating units (EGUs) in the contiguous United States (U.S.) This analysis focuses on damage estimates produced by an Integrated Assessment Model (IAM) for emissions of five local air pollutants: sulfur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOCs), ammonia (NH3), and fine particulate matter (PM2.5). For each power plant and pollutant, the Monte Carlo procedure yields an empirical distribution for the damage per ton, or marginal damage. The paper links uncertainty in marginal damages to air pollution policy in two ways. First, the paper characterizes uncertainty in the magnitude of the marginal damages which is relevant to policymakers in determining the stringency of pollution controls. Second, the paper explores uncertainty in the relative damages across power plants. Relative damages are important if policymakers elect to design efficient regulations that vary in stringency according to where emissions are released. The empirical section of the paper finds that the marginal damage distributions are positively skewed and they are more variable for sources in urban areas than rural locations. The paper finds that uncertainty in three input parameters has the greatest impact on uncertainty in the magnitude of damages: the adult mortality dose-response parameter, the mortality valuation parameter, and air quality modeling. The analysis also finds that for each pollutant except for NOx only uncertainty in air quality modeling impacts efficient trading ratios calibrated to each firm's marginal damages.

A Laboratory Experiment to Compare Two Market Institutions for Emissions Trading

We report results from an economic experiment where two markets institutions for controlling water pollution are compared. In the status quo institution, permit trades between point and nonpoint sources are subject to a trading ratio. In the alternative, nonpoint abatements are converted into permits with multiple attributes. The test bed captures important features of existing markets for water quality trading. First, pollution is stochastic, poorly observed and imperfectly controlled by nonpoints. Second, the market is characterized by oligopsony. The results indicate that the multi-attribute market generates a superior environmental outcome to the trading ratio market. Furthermore, the average cost of pollution control is lower in the multi-attribute market. Market power is found to be independent of the type of market institution, but sellers of permits learn to resist market power as they gain experience. This is at the cost of market efficiency since their resistance reduces the number of trades.

An Environmental Trading Ratio for Water Quality Trading

Uncertainty is considered the major barrier that limits water quality trading (WQT) programs. One aspect of WQT uncertainty is caused by differences between point source (PS) and nonpoint source (NPS) timing and processes. A method that could separate NPS pollutant and environmental process uncertainties from other WQT program structure and market uncertainties would improve the design of a WQT program and provide a consistent procedure for other applications, such as achieving total maximum daily load (TMDL) targets, that require site-specific quantification of source loads and reductions. The objectives of this study were to develop and demonstrate a method to explicitly define an environmental trading ratio (eTR) that quantifies the environmental equivalence of PS to NPS effluent trades with statistical analysis of watershed modeling results. A pilot study modeled five selected scenarios with the SWAT watershed model and 36 years historical climate data in the Lower Kansas watershed in northeastern Kansas. Minimum tillage, surface fertilizer application, and no edge-of-field vegetative filter strips (VFS) produced greater total N loads, whereas no-till with surface fertilizer application and no edge-of-field VFS produced greater total P loads. The potential pollutant load reductions for a given shift in scenarios varied by subbasin. The eTR values of potential pollutant load reductions showed similar trends, indicating that the best alternative scenario might change from one subbasin to another. The eTR values in this study reflected significant total N and total P load reductions at a known confidence level and were substantially less than the programmatic trading ratios typically fixed at 2 to 1. These analyses show solid evidence that using a site-specific eTR system can address the uncertainty of environmental equivalence of source loads in a WQT program.

Localization of sound in rooms. V. Binaural coherence and human sensitivity to interaural time differences in noise.

Binaural recordings of noise in rooms were used to determine the relationship between binaural coherence and the effectiveness of the interaural time difference (ITD) as a cue for human sound localization. Experiments showed a strong, monotonic relationship between the coherence and a listener's ability to discriminate values of ITD. The relationship was found to be independent of other, widely varying acoustical properties of the rooms. However, the relationship varied dramatically with noise band center frequency. The ability to discriminate small ITD changes was greatest for a mid-frequency band. To achieve sensitivity comparable to mid-band, the binaural coherence had to be much larger at high frequency, where waveform ITD cues are imperceptible, and also at low frequency, where the binaural coherence in a room is necessarily large. Rivalry experiments with opposing interaural level differences (ILDs) found that the trading ratio between ITD and ILD increasingly favored the ILD as coherence decreased, suggesting that the perceptual weight of the ITD is decreased by increased reflections in rooms.

Optimal Pollution Trading Without Pollution Reductions: A Note1

Garcia, Jorge H., Matthew T. Heberling, and Hale W. Thurston, 2011. Optimal Pollution Trading Without Pollution Reductions: A Note. Journal of the American Water Resources Association (JAWRA) 47(1):52-58. DOI: 10.1111/j.1752-1688.2010.00476.x Abstract: Various kinds of water pollution occur in pulses (e.g., agricultural and urban runoff). Ecosystems, such as wetlands, can serve to regulate these pulses and smooth pollution distributions over time. This smoothing reduces total environmental damages when “instantaneous” damages are marginally increasing. This paper introduces a water quality trading model between a farm (a pulse-pollution source) and a firm (a more steady pollution source) where the object of exchange is the “temporary” retention of runoff as opposed to total runoff reductions. The optimal trading ratio requires firm emissions to be offset by more than a proportional retention of the initial agricultural runoff pulse. The reason is twofold: (1) emissions are steady or constant over time and, in this sense, have relatively larger environmental impact; and (2) certain kinds of runoff management cause delayed environmental damages.

Water Quality Trading When Nonpoint Pollution Loads are Stochastic

We compare two tradable permit markets in their ability to meet a stated environmental target at least cost when some polluters have stochastic and non-measurable emissions. The environmental target is of the safety-first type, which requires probabilistic emissions control. One market is built around the trading ratio, which defines the substitution rate between stochastic and deterministic pollution, and is modeled on existing markets for water quality trading. The other market is built around a new definition of the pollution credit as a multi-attribute good, where the attributes supply information to the market on the environmental risks associated with stochastic pollution loads. The market with multi-attribute credits is found to out-perform the trading ratio market in its ability to satisfy the safety-first environmental target at least cost. This result comes about because polluters are able to directly price risk in this market. In the trading ratio market risk is not a factor in polluters' trading decisions and is only controlled, through the trading ratio, under highly restrictive conditions.

Potential cost savings from discharge allowance trading: A case study and implications for water quality trading

Applying a trading ratio system similar to that proposed by Hung and Shaw (2005), we estimate the potential cost savings of a phosphorus emissions trading program that meets overall total maximum daily load allocations among 22 wastewater treatment plants (WWTPs) in the Passaic River watershed (United States) to be a modest 2–3% relative to a no‐trade baseline. These results may be typical of those in relatively small watersheds such as the Passaic, where there are limited numbers of potential traders and relatively homogeneous abatement technologies across WWTPs. More substantial gains from trade may accrue to a concentrated group of WWTPs, suggesting that watershed managers should focus on a targeted set of traders within a watershed. Under certain conditions, additional gains may be achieved by aggregating WWTPs into zones within which there can be one‐to‐one allowance trading.

Efficient Pollution Regulation: Getting the Prices Right

This paper argues for efficient environmental regulations that equate the marginal damage of pollution to marginal abatement costs across space. The paper estimates the source-specific marginal damages of air pollution and calculates the welfare gain from making the current sulfur dioxide allowance trading program for power plants more efficient. The savings from using trading ratios based on marginal damages are between $310 and $940 million per year. The potential savings from setting aggregate emissions efficiently and from including more sources of air pollution are many times higher. (JEL H23, Q53, Q58)

Relative influence of interaural time and intensity differences on lateralization is modulated by attention to one or the other cue: 500-Hz sine tones

When interaural time differences and interaural intensity differences are set into opposition, the measured trading ratio depends on which cue is adjusted by the listener. In an earlier article [Lang, A.-G., and Buchner, A., J. Acoust. Soc. Am. 124, 3120-3131 (2008)], four experiments showed that the perceived localization of a broad band sound for which differences in one cue were compensated by differences in the other cue such that the sound seemed to originate from a central position shifted back toward the location from which the sound appeared to originate before the adjustment. It was argued that attention shifted toward the effect of the to-be-adjusted cue during the compensation task, leading to an increased weighting of the to-be-adjusted cue. The use of broadband stimuli raises the question whether the "shift-back effect" was caused by attentional shifts to the effect of the to-be-adjusted binaural cue or by attention shifts to the particular frequency range which is most important for localizations based on the to-be-adjusted cue. Two experiments are reported in which sine tones of 500 Hz were used instead of broadband sounds. The shift-back effect could still be observed, supporting our original hypothesis. A control experiment showed that participants had accurate representations of the critical central position.

Assessment of the role of the cochlear latency effect in lateralization of click sounds in humans

Interaural time and intensity disparities (ITD and IID) are the two cues to sound lateralization. "Time-only" hypothesis claims that an IID is first converted to an interaural afferent delay (Delta t), and is then processed by the central ITD mechanism, rendering a separate IID processor unnecessary. We tested this hypothesis by assessing the contribution of the cochlear latency effect to the psychophysical ITD/IID trading ratio. Auditory brainstem responses (ABRs) were used to measure the interaural afferent delays (Delta ts) that developed with a 20/sec dichotic click train used in the trading experiment. Except for small IIDs at low loudness levels, the physiological Delta t delay produced by an IID was significantly smaller than the ITD psychophysically traded for the same IID. We concluded that the cochlear latency effect alone cannot explain the psychophysical ITD/IID trading ratios and a separate IID mechanism must be involved.

Relative influence of interaural time and intensity differences on lateralization is modulated by attention to one or the other cue

When setting interaural time differences and interaural intensity differences into opposition the measured trading ratio depends on which of the cues is adjusted by the listener. This paper provides some evidence that the different trading ratios may be an effect of a shift of attention toward the to-be-adjusted cue. The experiments consisted of two phases. In the compensation phase, participants canceled out the effect of one preset binaural cue by adjusting a compensatory value of the other cue until the sound was located in the center. In the localization phase participants assessed the virtual location of the sounds, again using the preset values of the fixed cue, but using the values of the other cue as previously adjusted. The sounds were no longer perceived as originating from the center. Instead, their perceived location was shifted back toward the location from which they appeared to originate before the adjustment. These findings suggest that during the compensation task the to-be-adjusted sound localization cue received an increased weight compared to the other cue. We propose shifts of attention between the cues as a mechanism that could account for this finding.

Point/Nonpoint Effluent Trading with Spatial Heterogeneity

AbstractPotential earnings from permits sales may provide an incentive for farmers to accept water quality regulation. We derive optimal adjustments of point/nonpoint effluent trading ratios for heterogeneity in marginal environmental damage and degradation/retention of the pollutant across locations in a watershed. A simulation based on data from the Kymi River Valley, Finland, indicates that farmers are the greatest suppliers of permits, as expected, but that gains from trading vary substantially. Some farmers may become net buyers of permits and thus net losers from regulation. The benefits of effluent trading are distributed unevenly among point sources as well.

Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan

By using a newly proposed tradable permit system built under the current air pollution fee regulation for the control of Total Suspended Particulates in Taiwan as an example, a mixed-integer non-linear programming model that minimizes the total regulatory costs of firms is applied to investigate how different permit trading ratios and the design of banking might affect firms’ technology adoption decisions and permit trading behavior. By incorporating binary variables in the model to represent firms’ decisions as to whether or not to install new control equipment, the results show that when the unit air pollution fee rate is higher than the firms’ abatement costs, the design of banking causes many firms to install new control equipment that results in an over-reduction of emissions. If no air pollution fee is imposed, the trading ratio plays a more important role than the reservation rate for banking in determining the firms’ emission reduction strategies under a pure permit trading scheme. While the conclusion from this study that uses a non-uniformly mixed pollutant as an example may hold only when certain conditions are met, the framework can be applied to other uniformly mixed pollutants through parameter changes without any limitation. In addition, the modeling technique presented here offers policy-makers a very convenient approach to empirical analysis.

Linking trading ratio with TMDL (total maximum daily load) allocation matrix and uncertainty analysis

An innovative approach for total maximum daily load (TMDL) allocation and implementation is the watershed-based pollutant trading. Given the inherent scientific uncertainty for the tradeoffs between point and nonpoint sources, setting of trading ratios can be a contentious issue and was already listed as an obstacle by several pollutant trading programs. One of the fundamental reasons that a trading ratio is often set higher (e.g. greater than 2) is to allow for uncertainty in the level of control needed to attain water quality standards, and to provide a buffer in case traded reductions are less effective than expected. However, most of the available studies did not provide an approach to explicitly address the determination of trading ratio. Uncertainty analysis has rarely been linked to determination of trading ratio.This paper presents a practical methodology in estimating "equivalent trading ratio (ETR)" and links uncertainty analysis with trading ratio determination from TMDL allocation process. Determination of ETR can provide a preliminary evaluation of "tradeoffs" between various combination of point and nonpoint source control strategies on ambient water quality improvement. A greater portion of NPS load reduction in overall TMDL load reduction generally correlates with greater uncertainty and thus requires greater trading ratio. The rigorous quantification of trading ratio will enhance the scientific basis and thus public perception for more informed decision in overall watershed-based pollutant trading program.

Effect of Water Quality Model Uncertainty on the Passaic TMDL and Water Quality Trading Program for Total Phosphorus

Water quality modeling is a major source of scientific uncertainty in the Total Maximum Daily Load (TMDL) process. The effects of these uncertainties extend to water quality trading programs designed to implement TMDLs. This study identified how water quality model uncertainty affects outcomes related to the Non-Tidal Passaic River Basin TMDL for total phosphorus (TP) and potential trades of TP between point sources. Although the TMDL scenario showed greater than 10% probability of exceeding TMDL targets for chlorophyll-a (chl-a) at Dundee Lake and TP load diverted to the Wanaque Reservoir, the efficacy of TMDL measures was clearly demonstrated when compared directly to actual conditions in Water Year (WY) 2002. Trading scenario simulations suggest that trading ratios have been well designed. Each scenario demonstrated parity with or improvement from the baseline at the TMDL critical locations of Dundee Lake and the Wanaque South intake, and low risk of hot spots elsewhere.

Modelling a mixed system of air pollution fee and tradable permits for controlling nitrogen oxide: a case study of Taiwan*

A mixed‐integer non‐linear programming model that minimises the total regulatory costs of controlling nitrogen oxide is used to investigate how a newly proposed permit trading scheme in Taiwan, which incorporates the features of banking and a non‐one‐to‐one trading ratio, may affect firms’ emission reduction strategies and permit trading decisions. Compared to the previous regulation where only an air pollution fee is used, the new regulation that requires a reduction in emissions by 10 per cent from the emission level in the year 2000 for a 5 year period will increase the costs by 77 per cent, which is equivalent to US$9.87 million. The design of banking and the increasing returns to scale characteristic of pollution control among firms might lead to an uneven reduction in emissions in each year. Setting a lower reservation rate for banking would, however, help maintain a more stable environmental quality without a significant loss to the government in terms of air pollution fee revenue.

Neural mechanisms for calculation of the interaural intensity difference in the chicken auditory brainstem

Interaural time differences in the envelope of a sound (envelope ITDs) can potentially provide spatial information at high frequencies where interaural phase differences (IPDs) are not available. Interaural intensity differences (IIDs) also provide important spatial information at high frequencies. Both IIDs and envelope ITDs can influence spatial perception at high frequencies, but behavioral and physiological studies suggest that IIDs dominate perception. This study examines envelope ITD sensitivity in the auditory cortex of the pallid bat, a species that uses passive sound localization at the low end of its audible range to find prey. Its auditory system is entirely ‘high-frequency’ in that phase-locking does not occur at the low end of its audible range. If the bat uses ITDs, they must be derived from the envelope of the signal. A previous study of envelope ITD sensitivity in its inferior colliculus (IC) reported that neurons are sensitive to the small ±70 μs range of available ITDs. This study extends these findings to the cortical level to assess the transformation of ITD sensitivity and the binaural response properties that underlie this sensitivity. Two measures of sensitivity were used. The dynamic ITD range measures the range of ITDs over which the maximum response of a neuron decreases by 80%. When presented with square-wave amplitude-modulated tones statically delayed in arrival time, the average dynamic ITD range in the IC is 304 μs, but dropped to 175 μs in auditory cortex. IC neurons average a 38% change in maximum response over the relevant ITD range, while cortical neurons average a 67% change. Also measured were time–intensity trading ratios, which index the extent to which a change in IID can cause a shift the dynamic ITD range. Average trading ratios are approximately the same in the IC and auditory cortex (17.9 μs/dB vs. 16.7 μs/dB, respectively). Binaural interactions changed from the IC to auditory cortex. In IC, ITD sensitivity is an inhibitory, subtractive process in which ITDs reduce the response evoked by contralateral monaural stimulation. In the auditory cortex, both binaural inhibition and facilitation occur. In the majority of cortical neurons, IID and ITD functions were remarkably similar in shape, having stepped, step-peaked or peaked functions. The binaural interactions (inhibition and/or facilitation) evoked by ITDs and IIDs were also typically similar. These results suggest that IIDs and envelope ITDs are having similar effects on output of the same binaural comparator system.

Watershed-based point sources permitting strategy and dynamic permit-trading analysis

Permit-trading policy in a total maximum daily load (TMDL) program may provide an additional avenue to produce environmental benefit, which closely approximates what would be achieved through a command and control approach, with relatively lower costs. One of the important considerations that might affect the effective trading mechanism is to determine the dynamic transaction prices and trading ratios in response to seasonal changes of assimilative capacity in the river. Advanced studies associated with multi-temporal spatially varied trading ratios among point sources to manage water pollution hold considerable potential for industries and policy makers alike. This paper aims to present an integrated simulation and optimization analysis for generating spatially varied trading ratios and evaluating seasonal transaction prices accordingly. It is designed to configure a permit-trading structure basin-wide and provide decision makers with a wealth of cost-effective, technology-oriented, risk-informed, and community-based management strategies. The case study, seamlessly integrating a QUAL2E simulation model with an optimal waste load allocation (WLA) scheme in a designated TMDL study area, helps understand the complexity of varying environmental resources values over space and time. The pollutants of concern in this region, which are eligible for trading, mainly include both biochemical oxygen demand (BOD) and ammonia-nitrogen (NH 3-N). The problem solution, as a consequence, suggests an array of waste load reduction targets in a well-defined WLA scheme and exhibits a dynamic permit-trading framework among different sub-watersheds in the study area. Research findings gained in this paper may extend to any transferable dynamic-discharge permit (TDDP) program worldwide.

Air Quality Modeling of Interpollutant Trading for Ozone Precursors in an Urban Area

Emission trading is a market‐based approach designed to improve the efficiency and economic viability of emission control programs; emission trading has typically been confined to trades among single pollutants. Interpollutant trading (IPT), as described in this work, allows for trades among emissions of different compounds that affect the same air quality end point, in this work, ambient ozone (O3) concentrations. Because emissions of different compounds impact air quality end points differently, weighting factors or trading ratios (tons of emissions of nitrogen oxides (NOx) equivalent to a ton of emissions of volatile organic compounds [VOCs]) must be developed to allow for IPT. In this work, IPT indices based on reductions in O3 concentrations and based on reductions in population exposures to O3 were developed and evaluated using a three‐dimensional gridded photochemical model for Austin, TX, a city currently on the cusp of nonattainment with the National Ambient Air Quality Standards for O3 concentrations averaged over 8 hr. Emissions of VOC and NOx from area and mobile sources in Austin are larger than emissions from point sources. The analysis indicated that mobile and area sources exhibited similar impacts. Trading ratios based on maximum O3 concentration or population exposure were similar. In contrast, the trading ratios did exhibit significant (more than a factor of two) day‐to‐day variability. Analysis of the air quality modeling indicated that the daily variability in trading ratios could be attributed to daily variations in both emissions and meteorology.

Alternative intertemporal permit trading regimes with stochastic abatement costs

We examine the social efficiency of alternative intertemporal permit trading regimes. The role of uncertainty and information asymmetry is discussed. For banking to be welfare improving, uncertainty itself does not matter, while information asymmetry does. Three effects of banking are identified: externality effect, information effect, and total permit effect. In the absence of total permit effect, banking is welfare improving if information effect is positive and dominates the externality effect. The relative efficiency of banking regimes with different intertemporal trading ratios is affected by the slope of the benefit and damage functions and the covariance of the shocks.