Market-Based Nutrient Trading Could Clean Up Water

Dec. 28, 2000

Market-based approaches to water quality management, including nutrient trading, can provide greater improvements to water quality at a much lower cost, according to a new report issued by the World Resources Institute (WRI).

"As a more flexible form of regulation, nutrient trading can provide a wide range of benefits to industry, communities and even farmers," said Paul Faeth, author of Fertile Ground: Nutrient Trading's Potential to Cost-Effectively Improve Water Quality.

There are about 3,400 U.S. waterways impaired by nutrients, primarily nitrogen and phosphorus. Nutrients come as "nonpoint-source" runoff from agricultural fertilizer and animal waste, causing algae blooms that die and leave too little oxygen in the water for fish and other species to survive.

Currently, an algae bloom in the lower Chesapeake Bay and its tributaries, causing the largest "mahogany tide" in 20 years, has led to at least two major fish kills.

Faeth suggests that water quality improvements depend on developing low-cost, innovative approaches that can effectively cut pollution from agricultural sources, as well as making regulatory requirements more economically feasible for point source dischargers.

The WRI report documents case studies in three watersheds of the Upper Midwest: the Saginaw Bay in Michigan, the Rock River in Wisconsin and the Minnesota River Valley. It found that policies utilizing market-based approaches, such as trading, were much more cost-effective in meeting regulatory limits for nutrients 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 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 percent in the Michigan study."

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 and the Chesapeake Bay. WRI is currently undertaking new research on the potential for nutrient trading to address the "dead zone" in Gulf of Mexico, caused by nutrient pollution from the Mississippi River.

(Source: World Resources Institute)