Spatial effects of nutrient pollution on drinking water production

According to the U. S. Environmental Protection Agency (USEPA), nutrient pollution was viewed as America’s most “widespread, costly and challenging environmental problem” (USEPA 2020a, https://​www.​epa.​gov/​sites/​production/​files/​2015-03/​documents/​facts_​about_​nutrient_​pollution_​what_​is_​hypoxia.​pdf). The economic damages accruing to nutrient pollution are extensive and substantial. Not only do such “spillovers” affect tourism but also recreational and commercial fishing. Property values are impacted as drinking water is often tapped from aquifers, etc., when groundwater is either not available or its quality has been compromised by the sort of nutrient spillovers we analyze in our paper. The EPA estimates that home prices are up to 25% higher when clean water is available and waterfront property values can decline because of the many problems associated with algal blooms. The costs of treating water that has been polluted from nutrients are substantial. An example is the case of Minnesota where nitrate and algal blooms required nitrate-removal systems that increased the drinking water costs from 5 to 10 cents per 1000 gallons to over $4 per 1000 gallons (USEPA 2020b, https://​www.​epa.​gov/​nutrientpollutio​n/​effects-economy). Although the notion that “spillovers” from nutrient pollution exist is intuitive, such externalities have not been evaluated empirically using recent advances in spatial panel econometrics, especially in the context of how such externalities spillover into the supply of drinking water supplied by local water utilities. Such an analysis requires a substantial understanding of how water management decisions are made, the technologies in play, and how various environmental policies, regulations, and directives interact with the generation of clean drinking water when contagion caused by nutrient runoff and poor or illegal pollution abatement strategies by firms pollute our country’s drinking water. Although our study does not formally imbed such factors into a structural model, they do inform our modeling approach and motivate our discussion of sometimes arcane issues surrounding environmental policy, the science of nutrient generation, and how nutrient pollution impacts water quality spatially. Our study explores the spatial effects of nitrogen (N) and phosphorus (P) pollution and drinking water production patterns in agriculture. Two important examples are that water utilities that deliver and treat drinking water in agricultural areas have to deal with excess nitrogen and phosphorus released to the environment by crop and livestock operations, an externality created by the agricultural sector; also, the drinking water production sector in rural areas is highly fragmented, with a multitude of enterprise sizes, organizational forms and network densities that have spatial components. We analyze nutrient pollution based on data collected via the Safe Drinking Water Act of 1974 to estimate how water bodies and sub-basins impaired by nutrient pollution to spatially affect drinking water utilities based on input distance functions that address varying productive efficiencies of water utilities as well as their scale and scope of operations.