New mining, agricultural, and electrical interests are being encouraged to invest in the region because they will facilitate economic growth and propel communities out of poverty. An outright ban on the discharge of effluents into the Olifants River will have the net result of undermining economic growth and crippling the communities that already rely on this economic base for their livelihood. Many communities and governments, however, are experimented with market-based solutions to situations in which the interests of many firms, individuals, and organizations must be balanced with the larger desire to protect valuable environmental resources so that all can utilize them. The Australian government, in particular, has pioneered efforts to introduce market economic into pollution control and regulation. Their experiences with this method of environmental resource protection have been remarkably positive and indicate that market-based approaches may be well suited for application in South Africa.

To understand the nature of a market-based approach to pollution control, it is worthwhile to examine some of the methods employed and lessons learned by the Australian government. Simply taxing firms for discharging pollutants into the river is one method of placing a tangible price on the act. However, placing a cost on the act of discharging effluents does not necessarily mean that polluters will change their behaviors; they may be willing to simply absorb this tax as an increased cost of doing business. In theory, any tax will eventually reach the point when it will force firms to invest in alternative pollution control methods. However, in the meantime, the river system in question will continue to face pollution excesses that could permanently damage the resource.

This is why even if discharge taxes are applied that it is important to combine them with the concept of discharge credit trading. The concept of discharge credit trading is a relatively simple and harkens back to basic economics. A central authority, such as the national government or environmental protection agency, determines the total environmental load that the river system can reasonably bear and still meet the diverse needs of those individuals who rely on the river for industrial needs, agricultural projects, and drinking water. Said central authority then issues discharge credits that can be bought, sold, and traded between interested parties (James). The advantage to a system like this should be obvious: the market can allow the highest valued uses to be prioritized while limiting the discharges that the river system can accept. With a limited number of discharge credits, the market should be able to value and decide which activities are most desirable and then only permit those, all within the limits previously set by a central authority. In theory this means that even environmentalists who wanted to end discharges altogether could purchase pollution credits and prevent them from being used.

While there can be some limitations in distributing the original pollution credits and deciding who deserves them and in what amount, this system has proven quite effective at managing river discharges. The experience of the Australian government in the Hunter River Valley in New South Wales is a useful example. There, the NSW EPA wanted to control the salinity levels of the Hunter River. By presetting salinity levels permitted and then issuing 1000 credits, each worth 0.1% of the total salinity level allowed, the government created an artificial market that could self-regulate discharges into the river system ("How the Scheme Works"). Once the credits were initially distributed, controlling parties were free to trade the credits amongst themselves. This allows for individual variability -- firms could trade credits to account for varying levels of desired discharge -- while still maintaining system level controls of salinity levels. The success of the Hunter River Valley credit trading scheme illustrates the usefulness of the approach for regulating a precious water resource.

Application: Feasibility in the Olifants River Situation

The feasibility of such a market-based solution in the Olifants River region of South Africa is dependent upon a number of factors. Primarily, we need to evaluate whether or not the nation and the consequent communities possess the institutional and infrastructural sophistication to support the creation and development of a new market based on the trading of pollution credits. The system may have been successful in Australia, but that is a First World nation with all the benefits of the modern world -- both technically and politically. As already admitted, the Olifants River Valley is comprised mostly of...

Their capacity for integrating a pollution-trading scheme into the local economies may be asking too much. An analysis of some recent attempts to control pollution in the region should be illustrative as to the potential that exists in South Africa for such a scheme.
As a strike against institutional suitability, a recent case study found that the political organization of the agencies involved in managing water quality in South Africa is complicated and sometimes in conflict (Helmer and Hespanhol 347). This means that there are different agencies that manage the environmental health of the region, separating roughly by land, water, and air. This complicates the application of any market-based solution because river effluent pollution is not simply a matter for one agency to regulate or control. The same pollution that affects the water table will probably contaminate the land as well as clog the atmosphere. Further problems arise as we consider the variety of sources that all vie for a piece of the limited resources available and the different ways in which they all can negatively impact the overall quality of the water. Since any market approach will depend on the careful application of credit value by a central authority that sets the environmental loads permissible, the institutional climate in South Africa may prevent the easy application of such a mechanism.

Currently, efforts are under way in South Africa to provide a purely regulatory solution in the Upper Olifants River region that stress interagency cooperation in a bid to set and control levels of all forms of pollution that could occur from any activity in the region (Helmer and Hespanhol 349-351). While preliminary results indicate that some progress is being made, the environmental agencies in the country have decided to favor a purely regulatory approach to the matter of water quality, rather than setting limits and allowing stakeholders to compete for their share of a strictly controlled pie. While the market based approach could be ultimately much more efficient in this type of situation, it would require a level of institutional sophistication that may not be possible yet in South Africa.

Indeed, other studies seem to indicate that this is exactly the case after all. A feasibility study of a market-based solution to water quality and quantity issues in the Lower Olifants River Basin concluded that the region lacked the institutional and infrastructural capability to support a market solution at this time (Wise and Musango 13). In short, better support in both these aspects would be required to successfully implement the pilot plan suggested. The study examined the possibility of allowing downstream stakeholders to purchase more quality or quantity from upstream stakeholders, money which could be invested in better catchment systems, more efficient water use, and less polluting runoff. Since access to water in quantity and quality is an issue along the Olifants, especially during period of low flow, a market approach seemed at least feasible for solving the problem by allowing stakeholders to pay for as much improvements in the available resource as they were willing (Wise and Musango 11-13).

Unfortunately, the study found a lack of clear support for a mechanism that would support such a new market in the region. Clearly, in order to function correctly, the participating stakeholders would need easy access to credit, clearly defined property rights, enforceable water use rights, and water monitoring systems to ensure buyers got what they paid for (Wise and Musango 5). It was the conclusion of the study's authors that these preconditions did not exist in sufficient force or consistency to support the creation of a market solution to the problem of high quality water supply in the Olifants River Basin. The implication for the application of any market based approach to pollution control is equally clear. While the market solution of trading pollution credits is theoretically simple and straightforward, it relies upon preexisting conditions that are largely taken for granted in First World nations. Many developing nations and communities, like the Olifants River Basin in South Africa simply lack the institutional and infrastructural history to support the successful implementation of such a solution, at least as it was implemented in our earlier example in Australia.

Conclusion and Policy Recommendations

In the final analysis, market-based pollution controls offer one of the best means of improving the quality of the water resources in the Olifants River. By associating a firm cost with dumping effluent into the river, firms can evaluate the value of investing in desalination facilities, investigating alternative pollution controls, or trading their pollution credits…