Multi-instrument Pollution Abatement from Multiple Sources: The Case of Nitrogen Pollution in Groundwater

Abstract

Managing pollution in accordance with marginal abatement costs is optimal only if based on both direct (end-of-pipe) and indirect (input substitution and limitation) controls. Using the example of nitrogen pollution in groundwater, we show that the marginal abatement cost function for any given pollution source can be directly derived from a social-welfare maximization problem, wherein both direct controls and inputs to pollution-generating production of a good or service are included. The solution to the optimization model reveals that abatement instruments for each source should be used according to least-marginal-abatement-cost-first, and the sources should in turn abate in order of least cost. The least-cost result remains optimal, even when the abatement target is exogenously determined.