Abstract The objective of this study is to identify the optimal spatial distribution of Best Management Practices (BMPs) to reduce total phosphorus (TP) runoff from agricultural land in the largest Canadian watershed draining into Lake Erie, the Great Lake most vulnerable to eutrophication. BMP measures include reduced fertilizer application, cover crops, buffer strips, and the restoration of wetlands. Environmental SWAT model results feed into a spatial optimization procedure using two separate objective functions to distinguish between public BMP program implementation costs (PIC) on the one hand and farmers’ private pollution abatement costs (PAC) on the other hand. The latter account for the opportunity costs of land retirement and changing land productivity. PAC are initially lower than PIC but exceed the latter after 30% of the annual TP baseline load is eliminated. This suggests that under optimal conditions existing grant and incentive payments cover the economic costs farmers face up to a maximum of 30% of the baseline load reduction. Imposing further reductions of up to 40% results in a cost to farmers of almost $52 million per year. This is 45% higher than the optimal solution based on PIC and therefore not deemed incentive‐compatible under the watershed's existing cost‐sharing scheme.

The Great Lakes (GL) in North America are among the largest freshwater resources on the planet facing serious eutrophication problems as a result of excessive nutrient loadings due to population and economic growth. More than a third of Canada's GDP is generated in and around the GL. Hence, the economic interests affected by pollution and pollution control are high. New policies to reduce pollution are often insufficiently informed due to the lack of integrated models and methods that provide decision-makers insight into the direct and indirect economic impacts of their policies. This study fills this knowledge gap and estimates the impacts of different total phosphorus (TP) restriction policy scenarios across the GL. A first of its kind multi-regional hydro-economic model is built for the Canadian GL, extended to include TP emissions from point and non-point sources. This optimization model is furthermore extended with a pollution abatement cost function that allows sectors to also take technical measures to meet the imposed pollution reduction targets. The latter is a promising new avenue for extending existing hydro-economic input-output modeling frameworks. The results show decision-makers the least cost-way to achieve different TP emission reduction targets. The estimated cost to reduce TP emissions by 40% in all GL amounts to a total annual cost of 3 billion Canadian dollars or 0.15% of Canada's GDP. The cost structure changes substantially as policy targets become more stringent, increasing the share of indirect costs and affecting not only the economic activities around the GL, but the economy of Canada as a whole due to the tightly interwoven economic structure.

This paper presents a water-restricted multi-regional input–output model to evaluate the economic impacts of water supply reductions in the Canadian Great Lakes Basin (GLB), one of the largest fres...