## BMP Auctions, **a Market Based**  **Approach to Improving Water Quality** 

John Leatherman Professor Office of Local Government K- State Research and Extension FRRCC To ur September 9, 2008 Josh Roe, Wa tershed Economist, Of fice of Local Government K- State Research and Extension Craig Smith Graduate Research Assistant K- State Research and Extension

# Issue
• Adoption of BMPs is critical for restoring/protecting water quality • Many cost- share & incentive programs in place • Many producers still choose not to participate and/or adopt BMPs • Why is this the case? • How can we increase BMP adoption rates?

# K **- State Study** 

• Data from 136 producers from KS and several surrounding states • Full survey results and discussion: Journal of Soil and Water Conservation - September/October, 2007Why do some producers choose not to participate

in conservation programs?

Low P aym en ts 15%

Governm en t c on tro l / L ac k

of fl exib ility 36% Pa per wo rk 19% Has sl e 11% Edu catio n unavai lab le 4% Hi ghp en al tie s 2%

Compl ic ated 13%

# Summary of Findings

• Many producers uncomfortable with govt. control over their land - use decisions

– Conservation Programs should limit the amount of restrictions placed upon enrollees

– More flexibility • Increasing payment levels could increase participation, but was not a major factor

# Market **- based Approaches** 
• Much interest in market- based approaches • NRCS Strategic Plan (2005 - 2010) lists “Market- Based Approaches” as one of three overarching strategies • Success in Air Quality Trading • Concepts now being applied to Water Quality Trading • One hybrid - type approach used in Kansas: BMP Auction

## Possible Alternative **– BMP Auctions** 

• Producers submit bids to supply the watershed with WQ improvements • Bids are ranked by amount of WQ improvements generated per dollar • Producer who offers WQ improvements at lowest price is contracted with first • Process repeated until a predetermined point is reached • BMP auctions identify and purchase the most cost- effective WQ improvements for a specified budget

# BMP Auction **- benefits** 

• Several benefits to coupling a BMP Auction with flexible implementation funding:

– Funds can be targeted to highest impact investments and exceed limits of existing programs

– Producers offered flexibility of choosing alternative BMPs that work best for their operation and name their price

– Apply stakeholder input & science to guide change in the watershed

– Provides valuable insights into the incentive levels required to adopt BMPs • Guide future policies and investments

# Kansas BMP Auctions

• Pomona Auctions:

- Round #1 in 2007, 24 bids received for $19,062 in total

- Round #2 in 2008, 21 bids received for $39,508 • Marais des Cygnes Targeted Watershed Grant

– Simultaneous Kansas and Missouri Auctions • Upper Arkansas, Toronto, Tuttle Creek, Pomona round #3, Eagle Creek

# K **- State Watershed Manager** 

Determining the optimal number

of BMPs

## Watershed **Management in the** 

**Past** • 3 main assessment activities took place

– Models predicted pollutant loading from various parts of the watershed

– Identified BMPs that could reduce pollutant loading

– Cost estimates may have been given for some of the BMPs 

### • Information was provided in a disaggregated form – difficult to use for making management decisions

## Watershed **Management in the** 

**Future** • 3 assessment activities (modeling, BMPs, and costs) are brought together allowing comprehensive evaluation of alternative management plans • Evaluate economic & environmental effects of plans • Evaluate combinations of BMPs • Optimize plans to achieve the greatest “bang for the buck” • Calculate annualized and investment costs • Calculate potential cost - share payments and outof - pocket investment costs

# K **- State Watershed Manager** 

• Developed to optimize soil and nutrient loss reduction, it can approach the problem in two ways: • Determine the optimal amount of BMPs to install to reduce a given amount of loss.

OR • Maximize the amount of soil and nutrient loss reduction given a set budget.• User friendly spreadsheet. • Does require at least mid - level watershed modeling. • Utilizes powerful optimization techniques.

# Thank You!

**Josh Roe roe@ksu.edu**