Spatial economic optimization

Lake Erie is the most vulnerable Great Lake to eutrophication where excess nutrient loadings cause harmful algal blooms. In order to address eutrophication impacts, the Canada-US Great Lakes Water Quality Agreement includes a commitment to reduce total phosphorus (TP) loads into Lake Erie’s central and western basins by 40% from 2008 levels. Best Management Practices (BMPs) have been used to reduce nutrient runoff from agriculture-dominated watersheds. While BMPs are typically evaluated based on their effectiveness in reducing nutrient loads, evaluations that also include implementation costs help to identify least cost approaches to achieve environmental targets.

The objective of this study was to identify the optimal spatial distribution of BMPs to reduce TP runoff from agricultural land in the largest Canadian watershed draining into Lake Erie. The Grand River watershed (GRW) in southern Ontario covers an area of approximately 6,800 km² and flows for around 300 km from its source to Lake Erie. The watershed is more than 70% agricultural and in 1998 a voluntary cost-sharing program called the Rural Water Quality Program (RWQP) was launched to provide financial assistance to farmers to adopt water quality BMPs (Figure 1). The study was transdisciplinary, where economists worked hand-in-hand with agricultural and environmental scientists and the Grand River Conservation Authority who provided a unique BMP database from the RWQP.

Modeling results estimated that the Grand River discharged an average of 386.5 tons of TP annually into Lake Erie between 1989 and 2017, with sub-basins with intensive agricultural activities (so-called critical source areas) contributing by far the greatest loads (Figure 3). Table 2 summarizes the impact of BMPs on reducing baseline TP runoff into Lake Erie and shows that i) the efficacy of BMPs is highly dependent on the location and size of the sub-basin where it is implemented and ii) implementing individual BMPs will not achieve the 40% TP reduction target, meaning that combinations of BMP will likely be required.

Figure 3: Spatial distribution of average total phosphorus baseline loads.

Table 2: TP load reductions and average BMP program implementation and abatement costs (2020 prices).

The variation in BMP implementation costs across sub-basins was large, however nutrient management plans were found to be the most cost-effective BMP from a PIC perspective. The ranking of BMPs changed when considering farmer costs or PAC, where cover crops were the preferred BMP (Table 2).

The optimization showed that PAC are initially lower than PIC; intersecting at a 30% TP reduction after which the PAC exceed PIC. The increase in costs when going from a 10% to a 50% TP reduction showed diminishing returns. Should a 40% reduction be imposed on the discharge of TP from the Grand River into the eastern basin of Lake Erie, the estimated total economic costs based on the crop-related BMPs in the study amount to almost $52 million per year (Figure 4).

Figure 4: Estimated cost functions to reduce TP loads from the Grand River watershed into Lake Erie.

The optimal spatial composition of BMPs varied depending on the imposed TP restriction and cost type (PIC or PAC). Figure 5 shows the difference between selected BMP programs for a 40% TP reduction and shows that wetland restoration dominates BMPs when optimizing for PIC, whereas cover crops prevail when optimizing for PAC.

Figure 5: Composition of the optimal combination of BMPs to reduce TP discharge to Lake Erie by 40% based on program implementation costs (top) and farmer pollution abatement costs (bottom).

Note: Numbers on the horizontal axis refer to the 90 sub-basins in the Grand River watershed. Upstream starts on the left-hand side with number 1 (near Dundalk) and the outlet downstream is number 90 (near Dunnville).