Water Quality Trading

Water Quality Today

Eutrophication, the over-enrichment of freshwater and coastal ecosystems with nutrients (nitrogen and phosphorus), is a rapidly growing environmental crisis. Worldwide, the number of coastal areas impacted by eutrophication stands at over 500. In coastal areas, occurrences of dead zones, which are caused by eutrophic conditions, have increased from 10 documented cases in 1960 to 405 in 2008. In addition, many of the world’s freshwater lakes, streams, and reservoirs suffer from eutrophication. Ecologically and economically valuable water bodies like Long Island Sound, the Chesapeake Bay, the Gulf of Mexico and Puget Sound are severely affected.

While nutrient pollution is a global problem, the causes vary. In developing countries, a lack of infrastructure means that most nutrients come from untreated or inadequately treated sewage and agricultural runoff. In developed countries with better waste management, nutrient pollution largely comes from agricultural runoff (chemical fertilizers and manure), urban stormwater runoff and other dispersed “non-point” sources, including significant contributions from atmospheric deposition.

Designing an effective response to nutrient pollution is a challenge. Some pollutant sources are regulated but others are not. Nutrient pollution can impact water bodies great distances from the discharges. Yet there are emerging best practices that can address the sources of pollution and protect water quality efficiently and cost-effectively.

Nutrient Trading and Reverse Auctions

Point source practices (such as upgrades to wastewater treatment plants and retrofits to stormwater systems) generally cost more than nonpoint source practices (like grass buffers along streambeds).

This cost differential creates an ideal environment for nutrient trading. Trading allows sources with higher pollution control costs to purchase pollution reductions from sources with lower costs. Those with higher costs can save money, while those with lower costs can earn new revenue.

In addition, moneys spent for nutrient reductions from nonpoint sources could be better distributed in order to achieve more pollution reduction per dollar spent. A reverse auction can accomplish this goal. Farmers in a reverse auction bid against each other for a limited amount of funding, and awards are given to the bidder who can reduce the greatest amount of pollution runoff for the lowest cost.

WRI’s Work on Water Quality Trading

The World Resources Institute (WRI) is a leading expert in using performance- and market-based mechanisms for watershed management. We research best practices and helps to implement programs in watersheds that could benefit from nutrient trading or reverse auctions. WRI contributes to the development of water quality trading and reverse auction programs by:

• Performing financial analyses of nutrient trading: WRI forecasts potential revenue to farmers and cost savings to wastewater treatment plants and municipal stormwater programs under an interstate-interbasin nutrient trading program for the Chesapeake Bay watershed.

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    How Nutrient Trading Could Help Restore the Chesapeake Bay
    

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    How Baywide Nutrient Trading Could Benefit Virginia Farms
    

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    How Nutrient Trading Could Benefit Maryland Farms
    

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    How Nutrient Trading Could Benefit Pennsylvania Farms
    

• Designing nutrient pollution reduction programs: WRI works with local, state, and federal government, the private sector, and civil society to develop effective performance- and market-based mechanisms for addressing water quality.

• Developing nutrient trading tools: WRI developed NutrientNet, an online credit estimation tool and marketplace, for nutrient credit buyers and sellers in existing and planned state trading programs.

• Performing feasibility analyses of nutrient trading: WRI is currently assessing the feasibility of large-scale nutrient trading in the Mississippi River basin to reduce the Gulf of Mexico hypoxic zone.

Photo credit: flickr/ronzzo1