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The Economics of Eutrophication

As was explained in Chapter 1, nutrients leading to eutrophication are generated as byproducts of industrial and agricultural activity as well as being contained in the discharge of municipal waste. In all of these cases, nutrient generation is done inadvertently or to save money. For example, agricultural processing generates large volumes of waste which at a cost may be composted or treated; it is cheaper to simply discharge the waste into a water body.

Nutrient discharges which lead to eutrophication degrade the quality of water bodies causing harm to water users. Harm may be increased costs for water users, such as hydroelectric facilities or drinking water suppliers. Fishermen may suffer yield losses that translate into lost income. The well being of people may suffer from lost recreation opportunities or a loss of biodiversity.

The phenomenon whereby one agent (a farmer or a factory) discharges pollution to reduce its own costs but in the process increases costs for others is known as a negative externality. For example, a coffee processing facility saving money by discharging its wastes into the lake is increasing the costs of those who use the lake. The coffee waste discharge is an externality, increasing costs for water users. If the coffee processor took the effect of its discharges into account, it would most likely take steps to treat the waste and there would be no problem. But in fact, those effects on others are external effects that are not considered when the coffee producer decides how to operate. Thus, it is necessary for a regulatory body to correct the externality.

A distinction should be made between point and non-point sources of nutrients. Point sources, defined as a stream of pollution coming from a pipe or other "point" are easier to control because of the ease of monitoring and the ease with which the responsible party can be identified. Non-point sources, such as agricultural fields, are more difficult to deal with because of problems in identifying which of many possible sources is responsible for the pollution and also because of the difficulty in measuring discharges.

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