REGULATORY AND FUNDING INSTRUMENTS TO MANAGE AGRICULTURAL NITRATES

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: HATCH
• Reporting Frequency: Annual
• Accession No.: 0226924
• Project Start Date: Oct 1, 2011
• Project End Date: Sep 30, 2016
• Program Code: [(N/A)]- (N/A)

Recipient Organization
UNIVERSITY OF CALIFORNIA, DAVIS
410 MRAK HALL
DAVIS,CA 95616-8671

Performing Department
Agricultural and Resource Economics

Non Technical Summary
Many residents in the Tulare Lake Basin and Salinas Valley consume unsafe drinking water supplies due to nitrate contamination. The primary producer of nitrate pollution, agriculture, is also the dominant employer and industry in these counties. Further compounding the problem of excessive nitrate in drinking water is the complication that this pollutant is regulated under two separate environmental regulations - nitrate in drinking water is governed under the Safe Drinking Water Act while nitrate pollution from non-point sources falls under the jurisdiction of the Clean Water Act. Broadly, SB X2 1 will measure current nitrate concentrations in the Salinas Valley and Tulare Lake Basin and quantify the abatement that would need to occur to conform with drinking water quality standards. After stating both the current problem and setting abatement targets, the project will then propose mechanisms to address nitrate contamination in both the near term and long-run. This AES project focuses on two pieces of SB X2 1. First, building on abatement targets determined by my collaborators, I outline, analyze and compare regulatory instruments necessary to manage nitrate pollution in the future. Second, I propose mechanisms to fund the provision of safe drinking water supplies to residents in these communities. A third technical component of this AES project will utilize data collected from the nitrate pilot project to evaluate the suitability of market based instruments to regulate non-uniform mixing pollution.

Animal Health Component

(N/A)

Research Effort Categories

Basic

(N/A)

Applied

(N/A)

Developmental

(N/A)

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
133	0210	3010	12%
133	5210	3010	11%
133	6050	3010	11%
605	0210	3010	11%
605	5210	3010	11%
605	6050	3010	11%
723	0210	3010	11%
723	5210	3010	11%
723	6050	3010	11%

Knowledge Area
133 - Pollution Prevention and Mitigation; 605 - Natural Resource and Environmental Economics; 723 - Hazards to Human Health and Safety;

Subject Of Investigation
0210 - Water resources; 6050 - Communities, areas, and regions; 5210 - Fertilizers;

Field Of Science
3010 - Economics;

Keywords

drinking water

water quality

non-point source pollution

nitrate pollution

regulatory design

Goals / Objectives
A recent California Senate Bill (SB X2 1) requires the State Water Board to develop a pilot project focusing on nitrate contamination, for the Tulare Lake Basin and the Salinas Valley, and to submit a report detailing the findings and recommendations of the project. More specifically, this project seeks "to improve the understanding of the causes of groundwater contamination, identify potential remediation solutions and funding sources to recover costs expended by the state for the purposes of this section to clean up or treat groundwater, and ensure the provision of safe drinking water to all communities." This project describes an interdisciplinary effort between engineers, hydrologists, GIS experts, scientists and economists at UC Davis. I am a co-author on this project and, along with Richard Howitt, bring an economists perspective to bear on the problem. My contribution to this project is two-fold. I will propose and evaluate regulatory instruments to manage agricultural nitrate, and more broadly non-point source groundwater pollution. Second, we outline mechanisms to fund groundwater remediation, groundwater treatment, the provision of alternative water supplies, providing examples of where similar funding mechanisms have been implemented.

Project Methods
In the first part of the project, as required in SB X2 1, we outline regulations that could be implemented to manage nitrates in groundwater. We compare regulatory instruments along four dimensions - compliance costs, administrative feasibility, information requirements and their ability to raise revenues. To rank and compare policy instruments, we perform a literature review that documents where and when similar policy instruments have been implemented. Lessons learned from these earlier case studies provide the foundation for the comparison of regulatory instruments. The regulatory instruments studied in this project include technology mandates, performance standards, a pollution or input tax, a cap and trade system for fertilizer or nitrate leachate, information disclosure, liability rules, payment for water quality, Coasian bargaining and redesignation of water use in the Tulare Lake Basin and Salinas Valley. Our second contribution to SBX2 is to propose future sources of funding to remediate groundwater, treat groundwater supplies, alter farming practices or fund the provision of alternative water supplies, providing examples of where similar funding mechanisms have been implemented. Broadly, we focus on two strands of funding sources - water fees and other fees. The array of water fees discussed include a fixed monthly fee on drinking water, a volumetric fee on drinking water, a volumetric fee on irrigated water, a fixed fee on agricultural water, a groundwater pumping fee or a fee on bottled water. The regulator could generate revenues by imposing fees on a range of goods aside from water. These potential instruments include a fertilizer tax, the auctioning of fertilizer application permits, a crop tax, an agricultural property tax, a fee on septic tank discharge or a wastewater fee. A third portion of this AES project comprises a technical study evaluating the suitability of market based instruments in the presence of non-uniform mixing. In collaborative work with Thomas Harter, a hydrologist, we will set a nitrate standard and consider two regulatory instruments - an undifferentiated nitrate tax and a prescriptive standard - to manage nitrate contamination. In this study, we will use hydrology models to simulate the impact of the tax and the prescriptive standard on nitrate concentrations in drinking water. This exercise will allow us to quantify if the policy instruments achieve the nitrate standard, and the extent to which actual nitrate concentrations differ from the intended standard. We will then quantify the prescriptive standard and undifferentiated tax necessary to meet this nitrate standard, and the compliance costs that would be incurred to achieve this standard.

Progress 10/01/11 to 09/30/16

Outputs
Target Audience:My work on water resources includes a strong policy element that fits within the AES mission. To disseminate my work on the management of water resources I use a variety of outlets that are intended to reach a variety of targeted audiences including academics, regulators, policymakers, water utilities and the general public. This includes involvement with the Public Policy Institute of California on a peer-reviewed publication, interviews with the media such as the New York Times on the current drought ("California Image vs. Dry Reality"), a blog posting posted on the California Water Blog, and both formal presentations and informal conversations about water policy in California. During the proposal period, I also traveled throughout the state of California to meet with the managers of many utilities. Among other things we discussed the water quality issues (including nitrate contamination) that small community systems face, as well as options to fund alternative water supplies and to manage nitrate contamination. A key deliverable from this project was a policy report written for stakeholders. This is a non-academic brief that synthesizes our research and is written for and aimed at a non-technical audience. The stakeholders involved in the project had an active role in the evolution of our research. We solicited feedback, both written and verbal, from them throughout the project and updated our technical report to reflect their comments and suggestions. The participating agencies and target audience include California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?Outputs include activities and events surrounding SBX2. The primary activity that has resulted from this project is mentoring. Three graduate students have been collaborators in this work. All the students have a background in engineering and through this project, I have had the opportunity to provide them with some economics training. Another substantial activity is informal teaching. As mentioned in the AES project proposal, this nitrate bill is an interdisciplinary collaboration. I have assumed the role of the economist on the project, and have spent time teaching members of our team on how economists would approach and analyze policies to regulate nitrate contamination of groundwater. How have the results been disseminated to communities of interest?Numerous events have already occurred related to SBX2 and many more are planned. In particular, Interagency Task Force Meetings which included representatives from California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board were held in Davis on May 3, 2011 and August 8, 2011 and in Sacramento on December 11, 2011. These task forces updated stakeholders and other policy makers on our findings and the progress of our study. In addition to these events, drafts of technical reports (documenting our findings) have been peer-reviewed and edited by many agencies including SWRCB and CDFA. Both formal events and the peer-review process have allowed for the dissemination of this work among policymakers and the above agencies. The work with the PPIC has been disseminated in a workshop that was held on April 20 in Sacramento. This workshop was open to the public. I also gave a presentation to the California Water Association that provided an overview of this publication. What do you plan to do during the next reporting period to accomplish the goals? Nothing Reported

Impacts
What was accomplished under these goals? As mentioned in my AES proposal, my contribution to SBX2 was to evaluate regulatory instruments to manage agricultural nitrate and to outline potential funding mechanisms to fund the provision of safe drinking water in the affected communities of the Tulare Lake and Salinas Basins. After evaluating an array of regulatory instruments, we provided many recommendations to the State Water Resources Control Board. We also recommended a handful of funding sources. We provide justifications for our recommended regulatory and funding policies. This work has contributed to a change in knowledge about the existing and potential regulatory options available to policymakers and the funding sources available to regulators. The SWRCB synthesized our recommendations and issued a report to the State Legislature. They concurred with our recommendations, and suggested that the legislature consider a fertilizer fee as an instrument to fund safe drinking water supplies in impacted areas. Our work has contributed substantially towards understanding how to effectively fund safe and drinking water supplies in the affected communities of the Tulare Lake and Salinas Basins. Earlier work outlined potential funding sources, but in our latest iteration of work we have started to seriously consider the feasibility and effectiveness of various funding options. The PPIC water briefs represent one area of research under the newly established PPIC Water Policy Center. The purpose of the center is to spur innovative water management solutions that support a healthy economy, environment, and society--now and for future generations. More generally, I have expanded the scope of my research to focus on the management of water resources, particularly during times of drought.

Publications

• Type: Other Status: Published Year Published: 2016 Citation: Ellen Hanak, Ken Baerenklau, Caitrin Chappelle, Brian Gray, Jay Lund, Dean Misczynski, Katrina Jessoe, and David Mitchell. "California's Water: Paying for Water." PPIC Water Policy Center.
• Type: Other Status: Published Year Published: 2016 Citation: Alvar Escriva-Bou, Ellen Hanak, Jay Lund, Newsha Ajami, Katrina Jessoe, Kaveh Madani, Kelly Sanders, Joshua Viers, and Robert Wilkinson. Califorrnia's Water: Energy and Water. PPIC Water Policy Center.

Progress 10/01/13 to 09/30/14

Outputs
Target Audience: During the proposal period, I contributed to two publications disseminated by the PPIC (Public Policy Institute of California) on how the future of water financing in California. This is relevant to the AES project since one facet of this project focused on providing small communities with safe and reliable drinking water supplies, a focus on the broader nitrate project. These articles will be of use to policymakers, legislators and water utilities. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? Nothing Reported How have the results been disseminated to communities of interest? These results have been disseminated in a workshop that was held on April 20 in Sacramento. This workshop was open to the public. I also gave a presentation to the California Water Association that provided an overview of this publication. What do you plan to do during the next reporting period to accomplish the goals? One primary goal of the next reporting period is to continue digging into how to best supply these low income rural communities with safe and reliable drinking water supplies. A second objective over the reporting period is to continue with ongoing work that assesses the impact of the SDWA on drinking water quality in California. This is particularly relevant for many small rural systems since they do not fall under the purview of the regulation.

Impacts
What was accomplished under these goals? Our work over the past year has contributed substantially towards understanding how to effectively fund safe and drinking water supplies in the affected communities of the Tulare Lake and Salinas Basins. Earlier work outlined potential funding sources, but in our latest iteration of work we have started to seriously consider the feasibility and effectiveness of various funding options.

Publications

• Type: Other Status: Published Year Published: 2014 Citation: Hanak, Ellen, Brian Gray, Jay Lund, David Mitchell, Caitrin Chappelle, Andrew Fahlund, Katrina Jessoe, Josue Medellin-Azuara, Dean Misczynski, James Nachbaur and Robyn Suddeth. (2014). "Paying for Water in California." Public Policy Institute of California

Progress 01/01/13 to 09/30/13

Outputs
Target Audience: During the proposal period, I traveled throughout the state of California to meet with the managers of many utilities. Among other things we discussed the water quality issues (including nitrate contamination) that small community systems face, as well as options to fund alternative water supplies and to manage nitrate contamination. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? To date, outputs include activities and events surrounding SBX2. The primary activity that has resulted from this project is mentoring. Three graduate students have been collaborators in this work. All the students have a background in engineering and through this project, I have had the opportunity to provide them with some economics training. Another substantial activity is informal teaching. As mentioned in the AES project proposal, this nitrate bill is an interdisciplinary collaboration. I have assumed the role of the economist on the project, and have spent time teaching members of our team on how economists would approach and analyze policies to regulate nitrate contamination of groundwater. How have the results been disseminated to communities of interest? Numerous events have already occurred related to SBX2 and many more are planned. In particular, Interagency Task Force Meetings which included representatives from California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board were held in Davis on May 3, 2011 and August 8, 2011 and in Sacramento on December 11, 2011. These task forces updated stakeholders and other policy makers on our findings and the progress of our study. In addition to these events, drafts of technical reports (documenting our findings) have been peer-reviewed and edited by many agencies including SWRCB and CDFA. Both formal events and the peer-review process have allowed for the dissemination of this work among policymakers and the above agencies. What do you plan to do during the next reporting period to accomplish the goals? There are two goals I plan to work on during the next reporting period. First I am planning to finish up a co-authored publication tangentially related to my AES project. The focus of the report is on the future financing gaps for California Water, one of which is the provision of safe drinking water supplies in small rural communities. My second objective over the reporting period is to continue with ongoing work that assesses the impact of the SDWA on drinking water quality in California. This is particularly relevant for many small rural systems since they do not fall under the purview of the regulation.

Impacts
What was accomplished under these goals? As mentioned in my AES proposal, my contribution to SBX2 is to evaluate regulatory instruments to manage agricultural nitrate and to outline potential funding mechanisms to fund the provision of safe drinking water in the affected communities of the Tulare Lake and Salinas Basins. After evaluating an array of regulatory instruments, we provided many recommendations to the State Water Resources Control Board. We also recommended a handful of funding sources. We provide justifications for our recommended regulatory and funding policies. This work has contributed to a change in knowledge about the existing and potential regulatory options available to policymakers and the funding sources available to regulators. The SWRCB synthesized our recommendations and issued a report to the State Legislature. They concurred with our recommendations, and suggested that the legislature consider a fertilizer fee as an instrument to fund safe drinking water supplies in impacted areas.

Publications

• Type: Journal Articles Status: Published Year Published: 2013 Citation: Medell�n-Azuara J, Rosenstock TS, Howitt R, Harter T, Jessoe K, Dzurella KN, Pettygrove SG, Lund JR. 2013. Agro-Economic Analysis of Nitrate Crop Source Reductions. Journal of Water Resources Management and Planning ASCE. 139(5):11.

Progress 01/01/12 to 12/31/12

Outputs
OUTPUTS: In March 2012, SBX21 a report to the state legislature was provided to the State Resources Water Control Board. The public release of this report was coupled with numerous outreach efforts both in Sacramento, and the communities of interest. On March 13, 2012 the public release workshop occurred in Sacramento. Participants in this meeting included representatives from California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board. In May public workshops disseminating the results from this study occurred in the Salinas Valley and the Tulare Lake Basin. In addition to direct stakeholders, our results have been disseminated to the public at large through various media outlets. The main messages from this report were reported/discussed in the New York Times, the LA Times, the Sacramento Bee, The SF Chronicle, KQED News, MSNBC, to name a few. Lastly, the policy brief, executive summary and technical reports, as well as recordings of all the public meetings, are available at groundwaternitrate.ucdavis. PARTICIPANTS: I acted as a co-PI on this large interdisciplinary project, where my role is to spearhead the evaluation of regulatory tools to manage nitrate in groundwater and funding sources to provide affected communities with clean drinking water sources. Other team leaders on the project include Jeannie Darby (Civil and Environmental Engineering), Graham Fogg (Land, Air and Water Resources), Thomas Harter (Land, Air and Water Resources, and Watershed Sciences Center), Richard Howitt, Jay Lund (Civil and Environmental Engineering and Watershed Sciences Center), Jim Quinn (Environmental Science and Policy), Stu Pettygrove (Land, Air and Water Resources) and Joshua Viers (Environmental Science and Policy). Thomas Harter and Jay Lund are the PIs on the project. TARGET AUDIENCES: From a policy perspective, the key deliverable from this research is a policy report written for stakeholders. This is a non-academic brief that synthesizes our research and is written for and aimed at a non-technical audience. This report is listed above under publications. The stakeholders involved in the project had an active role in the evolution of our research. We solicited feedback, both written and verbal, from them throughout the project and updated our technical report to reflect their comments and suggestions. The participating agencies and target audience include California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
As mentioned in my AES proposal, my contribution to SBX2 is to evaluate regulatory instruments to manage agricultural nitrate and to outline potential funding mechanisms to fund the provision of safe drinking water in the affected communities of the Tulare Lake and Salinas Basins. After evaluating an array of regulatory instruments, we provided many recommendations to the State Water Resources Control Board. We also recommended a handful of funding sources. We provide justifications for our recommended regulatory and funding policies. A concise overview of these can be found in the policy brief and executive summary located at groundwaternitrate.ucdavis.edu. This work has contributed to a change in knowledge about the existing and potential regulatory options available to policymakers and the funding sources available to regulators. Based on our recommendations, we are currently engaging with stakeholders to discuss the implementation of various regulatory and funding sources, and in particular the possibility of a fertilizer tax. This tax would be used to fund the provision of clean drinking water supplies for affected communities. A change in condition will occur if the state turns our recommendations into actions.

Publications

• Harter, T., J. R. Lund, J. Darby, G. E. Fogg, R. Howitt, K. K. Jessoe, G. S. Pettygrove, J. F. Quinn, J. H. Viers, D. B. Boyle, H. E. Canada, N. DeLaMora, K. N. Dzurella, A. Fryjoff-Hung, A. D. Hollander, K. L. Honeycutt, M. W. Jenkins, V. B. Jensen, A. M. King, G. Kourakos, D. Liptzin, E. M. Lopez, M. M. Mayzelle, A. McNally, J. Medellin-Azuara, and T. S. Rosenstock. (2012). Addressing Nitrate in California's Drinking Water with a Focus on Tulare Lake Basin and Salinas Valley Groundwater. Report for the State Water Resources Control Board Report to the Legislature. Center for Watershed Sciences, University of California, Davis. 78 p. http://groundwaternitrate.ucdavis.edu.
• Medellin, J., T.S. Rosenstock, R.E. Howitt, T. Harter, K.K. Jessoe, K. Dzurella, G.S. Pettygrove, J.R. Lund. (2012). "Agro-economic analysis of nitrate crop source reductions," J. Water Resources Planning and Mgmt. (accepted).
• Canada, H.E., Harter T., Honeycutt, K., Jessoe, K., Jenkins, M.W. & Lund, J.R. (2012) Regulatory and Funding Options for Nitrate Groundwater Contamination. Technical Report 8 in Addressing Nitrate in California's Drinking Water with a Focus on Tulare Lake Basin and Salinas Valley Groundwater. Report for the State Water Resources Control Board Report to the Legislature. Center for Watershed Sciences, University of California, Davis.

Progress 01/01/11 to 12/31/11

Outputs
OUTPUTS: To date, outputs include activities and events surrounding SBX2. The primary activity that has resulted from this project is mentoring. Two graduate students have been collaborators in this work. Both students have a background in engineering and through this project, I have had the opportunity to provide them with some economics training. Another substantial activity is informal teaching. As mentioned in the AES project proposal, this nitrate bill is an interdisciplinary collaboration. I have assumed the role of the economist on the project, and have spent time teaching members of our team on how economists would approach and analyze policies to regulate nitrate contamination of groundwater. Numerous events have already occurred related to SBX2 and many more are planned. In particular, Interagency Task Force Meetings which included representatives from California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board were held in Davis on May 3, 2011 and August 8, 2011 and in Sacramento on December 11, 2011. These task forces updated stakeholders and other policy makers on our findings and the progress of our study. In addition to these events, drafts of technical reports (documenting our findings) have been peer-reviewed and edited by many agencies including SWRCB and CDFA. Both formal events and the peer-review process have allowed for the dissemination of this work among policymakers and the above agencies. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: From a policy perspective, the key deliverable from this research is a policy report written for stakeholders. This is a non-academic brief that synthesizes our research and is written for and aimed at a non-technical audience. The stakeholders involved in the project had an active role in the evolution of our research. We solicited feedback, both written and verbal, from them throughout the project and updated our technical report to reflect their comments and suggestions. The participating agencies and target audience include California Environmental Protection Agency, California Department of Food and Agriculture, California Department of Public Health, California Department of Pesticide Regulation, California Department of Toxic Substances Control, California Department of Water Resources, Fresno County Department of Public Health, Kern County Department of Public Health, Kings County Department of Public Health, Monterey County Health Department, Tulare County Health Services, State Water Resource Control Board, Central Coast Regional Water Quality Control Board, Central Valley Regional Water Quality Control Board PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
As mentioned in my AES proposal, my contribution to SBX2 is to evaluate regulatory instruments to manage agricultural nitrate and to outline potential funding mechanisms to fund the provision of safe drinking water in the affected communities of the Tulare Lake and Salinas Basins. After evaluating an array of regulatory instruments, we provided many recommendations to the State Water Resources Control Board. We also recommended a handful of funding sources. We provide justifications for our recommended regulatory and funding policies. These recommendations will not be publicly available until March 13, when the report will be publicly released. This work has contributed to a change in knowledge about the existing and potential regulatory options available to policymakers and the funding sources available to regulators. A change in action will occur once the SWRCB synthesizes our recommendations and issues a report to the State Legislature. Finally, a change in condition will occur if the state turns our recommendations into actions. Future annual reports will document the specific changes in knowledge, actions and conditions (once the report is made publicly available).

Publications

• No publications reported this period