An evaluation of the economic impacts of the Great Lakes Water Quality Initiative

The proposed Great Lakes Water Quality Initiative (GLI), which was finalized in 1995, is aimed to reduce and virtually eliminate the discharges of persistent toxic pollutants into the Great Lakes. To successfully implement the GLI, it is important that the virtual elimination of persistent toxic pollutants be accomplished efficiently and with minimal adverse impacts on the Great Lakes economy. This study examines the potential economic impacts of the GLI on the Great Lakes economy and the major industries under an effluent standard policy and a permit trading system in a computable general equilibrium (CGE) modeling framework.;Eight scenarios were designed and executed to investigate the economic impacts of the GLI in both the short run and long run. The focus of the experiments is to compare the economic impacts of the GLI between two environmental policy instruments: an effluent standard and a permit trading system. A sub-model that solves for the abatement level and price of permits is incorporated into the basic CGE model to examine the economic impacts of the GLI under a permit trading system. The trade ratio of permits between different toxic pollutants is adjusted using the environmental equivalence system that is based on the degree of toxicity. The experiment results reveal that a permit trading system will outperform an effluent standard policy in both the short run and long run. And those industries that are hardest hit by the GLI tend to benefit most from a permit trading system since they have relatively larger savings in the direct compliance cost.;This study has not attempted to assess the positive economic impacts of cleaner lakes and increasing demands for environmental protection goods and services that may result from the implementation of the GLI. This may have led to overestimate of the overall economic impacts on the economy. The progress in abatement technology is also ignored due to data limitation. When data becomes available, efforts should be made to incorporate the benefits of the GLI into the model. To provide better estimate on the economic impacts of the GLI under a permit trading policy, it is desirable to build a multi-regional CGE model and to capture the progress in abatement technology in the model. It is also worth the effort to increase the dimension of industries in the model to allow a more detailed examination of the economic impacts of the GLI.