One way of mitigating the external effects is by building larger water intake ponds; however, the question of who should bear the external cost of dredging and the forgone net benefits or the construction cost of the larger water intake pond still remains. Since logging is an alternative option to the status quo or TP option, the Forestry Department could incorporate in the licensing agreement a requirement for logging contractors to internalize the external cost of increased sediment yield. This is similar to purchasing the rights to pollute/release sediment. In the event that this policy is accepted, there remains the difficulty of estimating the appropriate sediment yield since sediment yields would only return to normal after about six years after logging. flow for running the turbines. The water intake ponds are built by the independent
power supplying company. As such, it can claim any resource rent from water use.
But there is still a moral issue involved in that the forest cover plays a role in
regulating water flow into the stream. There are time lags between the rain falling on
the forest canopies and the eventual flow of water as surface runoff and as
groundwater flow into the streams. In this sense, the state government as trustee of
forested catchments may want to extract a portion of the water resource rent.