FREE ESSAY ON ENVIRONMENTAL ECONOMICS

ENVIRONMENTAL ECONOMICS

Environmental Economic Impact of Pollution in the Chesapeake Bay
The Chesapeake Bay is the nation's largest estuary with six major tributaries, the James,
the Potomac, the Susquehanna, the Patuxent, the York, and the Rappahannock Rivers,
feeding into the bay from various locations in Maryland, Virginia, Pennsylvania, and the
District of Columbia (Chemical Contaminants in the Chesapeake Bay - Workshop Discussion
1). These areas depend on the Bay as both an environmental and an economic resource.
Throughout the last 15 years the Chesapeake Bay has suffered from elevated levels of
pollution. Nitrogen and phosphorous from wastewater treatment plants, farmland, air
pollution, and development all lead to reduced water clarity and lowered oxygen levels,
which harm fish, crabs, oysters and underwater grasses (Key Commission Issues 1). There
are other types of pollution in the bay such as toxic chemicals, but because nutrient
pollution is the most significant and most widespread in the Bay its effects are the most
harmful to fisheries. Nitrogen and phosphorous fuel algal blooms which cloud the water
and block sunlight from reaching underwater grass beds that provide food and habitat for
waterfowl, juvenile fish, blue crabs, and other species (Blankenship 11-12). Algae plays
a vital role in the food chain by providing food for small fish and oysters. However,
when there is an overabundance of algae it dies, sinks to the bottom of the Bay, and
decomposes in such a manner that depletes the oxygen levels of the Bay (11). The reduced
oxygen levels in the Bay reduce the carrying capacity of the environment and these "dead
areas" sometimes kill off species that can not migrate to other areas of the Bay, such as
oysters (11). Increased abundance of algal blooms also led to the overabundance of
harmful and toxic algae species and microbes such as the microbe Pfiesteria, which was
responsible in 1997 for eating fish alive and making dozens of people sick (12). The
heightened awareness of diseases that can be contracted through consumption of
contaminated fish also has an economic impact. Therefore, the excess levels of nitrogen
and phosphorous have fueled an overabundance of algal blooms, which has reduced water
clarity and lowered oxygen levels, affecting many species within the bay and ultimately
the industries that rely on these species.
The signing of the 1987 Chesapeake Bay Agreement marked the first joint venture between
Virginia, Maryland, Pennsylvania, the District of Columbia, the Environmental Protection
Agency, and the Chesapeake Bay Commission to improve water quality by reducing point and
non-point source pollution (The Chesapeake Bay Watershed 1). The goal of this program was
to reduce the level of nitrogen and phosphorous flowing to the Bay by 40% by the year
2000, from their 1985 levels (Blankenship 2). The first step in this program was to
reduce the amount of nutrient pollution from point sources (end-of-the-pipe) such as
wastewater treatment facilities that feed into the many tributaries of the Chesapeake Bay
(The Chesapeake Bay Watershed 1). However, the results of these cleanup efforts were not
enough to reach the goal of the program. Therefore, the areas involved now had to target
the non-point sources of nitrogen and phosphorous. The non-point sources are storm water
run off from agricultural and developed sites, air pollution, and the development of
sensitive forests that act as buffers for tributaries and the Bay (1). The Chesapeake Bay
Preservation Act of 1989 took aim at these sources in Tidewater Virginia by requiring
resource management practices in the use and development of environmentally sensitive
land (1). The Chesapeake Bay Preservation Area Ordinance of 1991 also took aim at these
non-point sources by designating environmentally sensitive areas in Virginia Beach as
Resource Protection Areas and Resource Management Areas which are intended to protect the
integrity of the lands that effect the Chesapeake Bay (2). The States involved also
enforced tougher car emissions policies so that the air pollution contribution would be
reduced (2). These ordinances were aimed at reducing the pollution of the Chesapeake Bay
by reducing high levels of phosphorous and nitrogen. The government's policies effect the
economy in the Chesapeake Bay by changing the ways in which industries distribute their
waste. 
The pollution and over-harvesting of the Chesapeake Bay have greatly effected the economy
of the area. The net economic condition of the region is caused by the downward swing of
fishery output and sales due to the pollution in the Bay as well as the businesses that
are effected by the government mandates. There has been a significant downturn in the net
profit of the fisheries due to sewage runoff and development around the Bay. The
government has recognized the pollution as a problem for economics and bio-diversity.
Stated governments, mainly Maryland, have made attempts to reduce pollution by making
command and control policies that further hurt the inland economy in an attempt to
alleviate Bay damage. The solutions to the pollution problems in the Bay are not easily
defined because the government must weigh the rights of the polluters to those being hurt
by the pollution and try to come up with ways to get closer to the optimal points for
both inland and off-land firms at least cost to both parties. 
The Oyster fisheries that depend on the Chesapeake Bay are also suffering greatly due to
pollution and over-harvesting. The added nutrients, mainly Nitrogen and Phosphorous, are
lowering the oyster population and causing fisheries to harvest a significantly lower
number of bushels each day. "The Oysters importance as a prized food, a vital industry,
and an organism that filters pollution is universally recognized" (Meyer 1991, 26). The
Supply of oysters has decreased greatly causing the price to rise. Restaurant owners in
the Bay area say that the price of oysters and crabs has risen so greatly that they can
no longer make a profit off of the victuals (Lipske). The hazard of serving oysters has
increased because they are usually served raw and pollution related diseases that the
oysters carry could harm humans. The fisherman themselves have decreased their profit due
to a disease that is wiping out a great deal of the oyster population in the Chesapeake
Bay. The parasite is called Multinucleated Sphere X (MSX), it may be caused by the fact
that oysters feed by filtering particles suspended in water which helps to clear
pollution. These particles, due to the excessive amount of pollution have weakened their
immune system, making them more susceptible to disease (Impacts of Disease and Disease
Resistant Oysters). To counteract the downturn in oyster harvesting the government,
economists, as well as environmental theorists have offered a number of plausible
solutions. 
Due to the disease, harvest output has decreased causing some to contend that the easiest
way to fix the problem is to increase the population artificially. A Japanese Oyster
species could be introduced to the Bay area, the oyster is resistant to the MSX parasite.
The benefit to the oyster fisheries would be great because these oysters are more
desirable on the market due to their size and they would multiply quickly. The major risk
of this project is that if the oyster does not act precisely like the native oyster the
costs to the habitat would be great. Introducing a non-native organism into a habitat has
great costs if it overtakes the environment, which happens often when no native predators
exist to keep the population under control. If the new oyster species over populated the
bay the costs to the other industries that depend on the bio-diversity of the Bay would
be greater than its benefits to the oyster industry. 
Another solution offered to help the Bay is mandates on development in certain zones
surrounding the Bay. Although the decrease in sediment runoff into the Bay from
construction and development helps the oyster and marine life population, the costs to
agriculture and industry have an impact on the net economy. In 1986 Maryland enacted the
Chesapeake Bay Critical Area Protection Program, which gave the government the right to
regulate the land usage in the critical areas of pollution surrounding the Bay. Beaton
and Pollock did an in depth survey using the Critical Valuation Method and Hedonistic
pricing in order to define how this mandated change would affect the land value of the
areas selected, affecting agriculture, industry and residential housing. The project is
difficult because it is hard to compare different land values because of the many
variables that effect land prices. They were able to include a variable comparison ratio
in order to limit their price result to the one variable they were interested in, which
was the CAPP act. They found that the value of residential property in the selected areas
went up by almost 100%, while the value of the agricultural and industrial land went down
greatly. The pecuniary externality of this method upon the industry and agricultural land
proves that large businesses are not readily willing to decrease their waste without
government mandates. Therefore the government has to control part of the Bay pollution
through command and control, permits and subsidies. Command and control, combined with
other solutions, such as privatization, could help to significantly reduce pollution in
the long run. The shared costs and benefits of these two methods would have the least
cost to both parties because they could share the costs, even though the fisheries reap
most of the benefits.
Privatization of the oyster industry is a feasible solution to the pollution problem in
the Chesapeake Bay. Since oysters tend to be rather stagnant, a harvester could buy a
spot of the Bay to dredge. The government would have to find a way to enforce this method
through fines or coast guards; the cost of enforcement would probably be fairly low as
compared to the benefits for fisheries. This would be a radical change in the industry
because fisheries are considered a near perfect example of a common property resource.
Through this method over-harvesting would be diminished as well as pollution greatly
lessened. The problem with this method is the polluters would cause a technical
externality upon the oyster bed owners. Their pollution would directly effect the
economic value of the bed. Hence the government would have to mandate waste controls for
on-land industry to protect the fisheries. The owners, through bed pricing and innovative
pollution technology control in the water, would deal with the pollution that is still
left over. Capital, in this instance, would be substituted for labor; so many sea-men
would lose their jobs, but most are losing their opportunity cost through fishery labor
anyway. So the loss of their preferred job is offset by their ability to make better
wages elsewhere (Santopietro and Shabman, 413). The Privatization of Oyster fisheries
seems to be the least cost solution to the government in attempting to find the optimal
satisfaction between land industry and Bay fisheries. 
Privatization does not work for all Bay industry. Fisheries that specialize in fish and
crabs cannot be privatized because of the migration of their products. The fishing
industry in the Chesapeake Bay has declined in sales by and average of 10% during 1996
and 1997 (University System of Maryland). The loss in seafood sales is due to a fish
disease called Pfiesteria. The Pfiesteria problem became very publicized in 1997. People
in the Bay area became aware of the dangers of eating infected seafood and began buying
less fish. Lipton did a major survey of 360 seafood businesses to find out how the
disease was effecting the local economies of the Chesapeake Bay areas in Maryland. He
found the industry suffered a 43 million-dollar loss in 1997 due to the disease awareness
among consumers. The hardest hit by the decline in sales were grocery stores and local
restaurants. The actual fisheries were able to sell their extra fish in other markets
where Pfiesteria awareness was low, so they did not suffer as badly as others did.
Grocery stores sold almost 13% less Chesapeake Bay seafood then the year before.
Restaurants were also unable to sell the local seafood so they had to import more
expensive seafood. These results do not show the entire economic effect because people
substituted meats for fish. The grocery stores and restaurant sold more of their other
products that helped to counter balance the decrease in seafood sales. The true economic
losers in the situation were the stores and restaurants that specialized solely in
seafood (Lipton).
To help reduce the outbreaks of Pfiesteria, Maryland has enacted a Water Quality
Improvement Act. The WQIQ is meant to lessen the nutrients in the Bay spurring growth of
its inhabitants. The government is currently willing to spend a great deal of money to
clean up the Bay, they spent over 80 million dollars in making sewage treatment plants
more efficient, proving the economic benefits of fisheries are worth protecting. The act
encourages subsidies to agriculturists, which will cost the government greatly. The urban
impacts of the WQIQ are minimal; parks, state owned lands, golf courses and large
landscapers must test and record the nutrient balances in the soil; proper management
will ensure the simplicity of this law (Parker 1). The WQIA costs the agricultural
farmers the most. Fertilizer runoff creates a great amount of pollution for the
Chesapeake Bay. The act mandates that poultry litter, which is rich in Phosphorous, will
be rationed as fertilizer. The farmers must buy special chicken food that will reduce
phosphorous output and they will have to supplement phosphorous free fertilizer for the
low cost poultry litter they usually use. Maryland is making the change less costly to
the farmers through subsidies. The state government is making fertilizer 50% tax free,
paying $3 an acre for fertilizer and assisting the farmers in finding buyers further
inland for their poultry litter. The government is even paying farmers who switch from
poultry litter to approved fertilizers 4,500 dollars per year for up to three years
(Parker 5). The government has not found the optimal solution in reducing Pfiesteria in
the Bay because the cost of the WQIA are very high to the government and the benefits to
the Bay are smaller then the costs. Since Pfiesteria has only infested small parts of the
Bay, and Phosphorous is not the only agent causing the problem, it seems that the
government has not found equilibrium between costs and benefits through the WQIA.
Reducing Phosphorus is important, but the subsidy money could be put to better uses. For
example, there are plants that use phosphorus and reduce the amount in the soil.
Supplying an abundance of these plants to farmers in the critical zones around the Bay
area would be a low cost alternative to subsidizing farmers. Also enforcing the poultry
litter mandate would be fairly difficult and expensive. There are better solutions for
the amount of money the government is spending to reduce phosphorous levels. 
The importance of the fishery industry in the Chesapeake Bay is obvious because the
government is willing to spend huge amounts of money in order to clean it up. The most
plausible solution to the problem is a sharing of cost between inland and water dependent
firms. The costs to inland industry and agriculture are minimized by the government's
willingness to subsidize. The benefits to the Chesapeake Bay economy are larger then the
government costs, if they choose the best options, because it is the nations largest
estuary. The solutions are not easily attainable, but through costs and benefits of
pollution control it is possible to find feasible solutions that help to minimize the
problems that the Bay faces in the long run.
Bibliography
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