AN ECONOMIC ANALYSIS OF WATER QUALITY TRADING IN A TMDL FRAMEWORK: A STUDY OF THE CHEAT RIVER WATERSHED, WV

Understanding the economic issues that surround the development and implementation of TMDLs requires an understanding of both the underlying physical processes that drive water quality and the societal concerns that relate water quality to ecological values. This paper presents a modeling approach underway at West Virginia University that includes both aspects of the problem. The model presented is a spatially and temporally explicit economic watershed optimization model built upon an underlying water quality model where pollution loads are driven by pollution sources and alternative pollution control strategies. The objective function represents the present value of ecological services measured by an additively separable ecological condition index, for each stream segment, measured as a function of water quality over a specified planning horizon. The model can be used to assess the economic implications of watershed management, of watershed restoration approaches given constraints on restoration funds, and of alternative TMDL implementation strategies. The model is applied to water quality trading in the Cheat River watershed, WV, one of 11 pilot trading projects currently supported by USEPA. While the application is specific to the acid mine drainage (AMD) related water quality problems important in that watershed, the approach provides insight into the usefulness of economic analysis in TMDL implementation and other watershed management issues.