Economic Incentives for Controlling Trade-Related Biological Invasions in the Great Lakes

Agricultural and Resource Economics Review,  Apr 2005  by Horan, Richard D,  Lupi, Frank

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Ballast water from commercial ships engaged in international trade has been implicated as the primary invasion pathway in over 60 percent of new introductions of invasive alien species (IAS) in the Great Lakes since 1960. Recent policies have recognized that IAS are a form of biological pollution and have become focused on preventing new introductions. Given that emissions-based incentives are infeasible for the case of biological emissions, we investigate the cost-effectiveness of various performance proxy-based and technology-based economic incentives to reduce the threat of new invasions of Ponto-Caspian species in the Great Lakes.

Key Words: aquatic nuisance species, ballast water, uncertainty, risk management, performance-based incentives, environmental subsidies

The economic and environmental impacts of invasive alien species (IAS)-species that establish and spread in ecosystems to which they are not native-can be significant (Perrings, Williamson, and Dalmazzone 2000). Invasive alien species are argued to be the second-most important cause of biodiversity loss worldwide (Holmes 1998, U.S. Environmental Protection Agency 2001) by, for example, out-competing or preying upon native species. In addition, IAS can cause or spread diseases to cultivated plants, livestock, and human populations, and they often encroach on, damage, or degrade assets (e.g., power plants, boats, piers, and reservoirs). In the Great Lakes, at least 145 IAS have been introduced since the 1830s. Many early invasions such as sea lamprey and alewife were associated with the opening of shipping canals that, although they facilitated trade, removed natural barriers. About one-third of the documented invasives in the Great Lakes have been introduced during the past thirty years, in part as a result of increased trade-related shipping following the opening of the St. Lawrence Seaway (Michigan Department of Environmental Quality [MDEQ] 1996, Great Lakes Commission 2000). Although only about 10 percent of introduced species are suspected of having caused any damage (Mills et al. 1993), the impacts that have occurred are extensive (U.S. Environmental Protection Agency 2001, MDEQ 1996, Coscarelli and Bankard 1999, Reeves 1999). The zebra mussel alone is predicted to cost society $5 billion over the next decade (MDEQ 1996).

Until recently, most IAS management efforts focused on post-invasion control or eradication (Lupi, Hoehn, and Christie 2003). But there is now an increasing emphasis on prevention (National Research Council Committee on Ships' Ballast Operations [NRC] 1996). This shift in focus has possibly occurred because most new IAS introductions are now recognized as a form of "biological pollution," with the risk of new invasions being an endogenous function of human activities such as trade and travel. For example, commercial shipping in the Great Lakes has been implicated in over 60 percent of new introductions since 1960 (Mills et al. 1993), with the primary pathway being ballast water.1 Ballast water is often carried in the hulls of ships to maintain stability and hull integrity. Ballast water levels are altered in ports to adjust for changes in cargo, or in transit to improve stability or to change hull depth. During ballast water exchange, species may be inadvertently transferred into or out of a ship. To understand the risk in the Great Lakes, consider that each year, approximately 200-300 ocean-going vessels enter the Great Lakes, and these vessels account for 400-600 round trips in and out of the region. Over 70 percent of these vessels are engaged in the "triangle trade" route, which moves grain, coal, and ore from the Great Lakes to the Mediterranean, and then on to Northern Europe (Reeves 1999). Major overseas markets are Western Europe, the Baltics, the Mediterranean, and the Middle East. This "triangle trade" route involving the Ponto-Caspian region has supplied approximately 70 percent of Great Lakes invaders between 1985 and 2000 (Reid and Orlova 2002). Thus, in the Great Lakes there is increased emphasis on the prevention of trade-related biological invasions associated with ballast water.

Mandating oceanic ballast water exchange has been the predominant preventive approach to IAS in the Great Lakes, beginning in 1993 with the implementation of the U.S. Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990, and later by the U.S. National Invasive Species Act of 1996 and the Canadian Shipping Act of 1998 (Reeves 1999).2 However, the success of oceanic exchange programs is imperfect because new introductions have occurred since 1993 and because there are known limitations to the practice of ballast water exchange.3

The limitations of current regulatory approaches are now generally recognized, as is the need for new policy options that promote both safety and cost-effectiveness (NRC 1996, Rigby and Taylor 2001). Economists traditionally prescribe emissions-based incentives to encourage reductions in emissions, or emissions-based regulatory standards to mandate the reductions, at least when dealing with conventional pollutants. But such emissions-based approaches are not applicable in the IAS case. Two features of vessels' biological emissions complicate matters (Horan et al. 2002). First, not every vessel will actually emit a species, yet ex ante each vessel is a potential emitter, and so society is expected to benefit from all vessels undertaking biosecurity actions to reduce the probability of an invasion. second, biological emissions are highly stochastic and essentially unobservable given current monitoring technologies-much like nonpoint source pollution (Shortle and Dunn 1986). Consequently, there is no obvious method for directly observing or otherwise indirectly measuring whether a vessel caused an introduction.