IWRA Proceedings

AbstractIntroduction Water pollution from agricultural sources is plagued with uncertainty of various proveniences. In the face of this uncertainty, catchment management authorities in Australia and elsewhere have been recently attempting to classify agricultural areas in their catchments in so called ‘risk classes’ according to their potential to contribute to ambient water pollution. This classification is intended to be used to aid decision making in relation to allocating financial assistance to supporting abatement. Objectives The objective of the paper is to examine the classification of agricultural areas in ‘risk classes’ from an economic perspective, and to explicitly establish the link between the underlying uncertainty and ‘risk classes’. A specific objective is to determine the significance of the classification in ‘risk classes’ for making decisions about allocating efficient level of abatement to agricultural areas in the catchment. In particular, the principle of achieving most reduction of water pollution per monetary unit spend on abatement is applied to the ‘risk classes’. Methods The paper uses analytical economic methods to conceptualise the problem and to derive optimality conditions. Results It is found that classification in risk classes is nothing more than expressing the uncertainty about pollution loading parameter from given agricultural areas in discrete groups of expected realisations. Further, this classification tends to imply that priority should be given to abatement efforts in areas classified as high-risk. The paper shows that this is not the case, and that abatement should be prioritised according to the cost-effectiveness criterion. Conclusion The key conclusion from the paper is that financial assistance for abatement should be offered to those agricultural areas where greatest expected reduction of ambient water pollution can be achieved at least-cost. Those agricultural areas are not necessarily coinciding with the agricultural areas classified into ‘high risk classes’. Conference sub-topic: WATER AVAILABILITY, USE AND MANAGEMENT Water quality management: surface and ground water WATER CONSERVATION AND DEMAND MANAGEMENT Economic instruments and water pricing