‘Nutrient trading’ proposed to prevent algal blooms in US waterways

Market-based approaches to the problem of non-point source run-off could bring about greater improvements in water quality in US rivers and at a lower cost than traditional regulatory approaches alone, a report claims.

The World Resources Institute (WRI) report claims that market-based approaches, such as nutrient trading, could be essential if water quality is to improve in the 3,400 US waterways affected by non-point source run-off, particularly from agriculture (see related story).

The report Fertile Ground: Nutrient Trading’s Potential to Cost-Effectively Improve Water Quality looks at case studies in three watersheds of the Upper Midwest: the Saginaw Bay in Michigan, the Rock River in Wisconsin and the Minnesota River Valley. The study compares the cost-effectiveness and environmental performance of four different approaches to reduce levels of phosphorus in the study sites:

  • standard regulations on point sources
  • subsidies for agricultural best management practices
  • nutrient trading to meet regulatory requirements for point sources
  • nutrient trading combined with performance-based agricultural subsidies

The study found that policies utilising market-based approaches, such as trading, were much more cost-effective in meeting regulatory limits for nutrients in the waterways studied than conventional regulatory approaches. Nutrient trading, when combined with agricultural subsidies that are tied to reductions in nutrient runoff and subsequent improvements in water quality, provided the greatest overall cost savings.

According to the report’s author, Paul Faeth, “policy approaches using nutrient trading are dramatically less expensive than those using conventional point-source performance requirements, amounting to savings of up to 82% in the Michigan study.”

Faeth claims that trading makes it profitable for sources with low treatment costs to reduce their own effluents beyond legal requirements, generate a credit from the surplus reductions, and sell these credits to dischargers with higher treatment costs. This flexibility produces a less expensive outcome overall while achieving – and often going beyond – the mandated environmental target.

With the option of trading to meet regulatory requirements, dischargers like municipal sewage and industrial waste treatment plants can choose to upgrade their facilities with technology designed to meet new requirements, or to share in the cost of an upgrade of another facility that will exceed regulated reductions. Thus, it generates a reduction credit for the first facility.

Alternatively, a treatment facility might opt to pay farmers within the same watershed to adopt conservation practices to reduce their fertiliser run-off, thereby generating a credit for the treatment facility. In both cases, Faeth says, each facility and the farmer save money, while the new requirement is effectively met.

“Conventional regulatory approaches to water quality management can work, but they can be very expensive, and often don’t target the biggest sources of pollution” says Faeth, “Our report shows that trading could save a lot of money in the watersheds we studied.”

Faeth also noted that great potential may exist for the use of nutrient trading in large watersheds as well, such as the Mississippi River Basin (see related story) and the Chesapeake Bay (see related story). WRI is currently undertaking new research on the potential for nutrient trading to address the ‘dead zone’ in Gulf of Mexico (see related story), caused by nutrient pollution from the Mississippi River.

The World Resources Institute will soon launch a website designed to facilitate on-line trades among industry, communities, and farmers in six US watersheds.

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