WRI Publications Feed: NutrientNet: Performance-Based Incentives for Improving Environmental Quality

Water Quality Trading Programs: An International Overview

Tim Herzog — Mon, 09 Mar 2009 18:07:59 -0400

Water quality trading is gaining traction in a number of watersheds around the world. It is a market-based approach that works alongside water quality regulation to improve water quality, providing flexibility in how regulations are met and potentially lowering regulatory compliance and abatement costs. Our research identified 57 water quality trading programs worldwide. Of these, 26 are active, 21 are under consideration or development, and 10 are inactive or are completed pilots with no plans for future trades. The majority of programs were located in the United States, with only six programs existing outside the United States—four in Australia, one in New Zealand, and one in Canada.

From our assessment of these water quality trading programs, we identified five key factors that stakeholders believed were important for the successful implementation of their trading programs:

Strong regulatory and/or non-regulatory drivers, which helped create a demand for water quality credits;
Minimal potential liability risks to the regulated community from meeting regulations through trades;
Robust, consistent, and standardized estimation methodologies for nonpoint source actions;
Standardized tools, transparent processes, and online registries to minimize transaction costs; and
Buy-in from local and state stakeholders.

Before going to the expense of developing a water quality trading program, we recommend that the relevant bodies—either governmental or nongovernmental—ensure these factors are in place.

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Tim Herzog — Thu, 03 Jul 2008 13:06:41 -0400

A reverse auction in the Conestoga watershed in Pennsylvania demonstrated that auctions are a more cost-effective way to allocate conservation funding than the traditional funding allocation process used in the U.S. Department of Agriculture’s Environmental Quality Incentives Program (EQIP). On average, the reverse auction resulted in a seven-fold increase in the reduction of phosphorus runoff per dollar spent compared to EQIP during the same period and in the same watershed.

In a reverse auction, multiple sellers compete to provide services (environmental outcomes) to a single buyer. In the context of conservation programs, sellers are typically land managers such as farmers or ranchers; the buyer is typically a governmental entity. The Conestoga Reverse Auction differed from traditional funding allocation strategies in three ways:

It quantitatively estimated the expected reduction in phosphorus runoff from proposed changes in management practices.
It allowed farmers and ranchers to compete for funding through unrestricted bidding.
It prioritized program payments based on how cost-effectively reductions in phosphorus runoff could be achieved. Cost-effectiveness was measured as the expected reduction in phosphorus runoff per program dollar spent.

Policy Implications

Government could improve the cost-effectiveness of their conservation funding by implementing reverse auctions or incorporating the principles of reverse auctions into their conservation program design. Specifically, policy-makers could improve the allocation of conservation funding in three ways:

Increase the use of quantitative measurements of performance (e.g., measuring the reduction in nutrient runoff for water quality improvement) to rank funding applicants.
Use measures of cost-effectiveness to rank funding applicants.
Allow competitive bidding between funding applicants.

Paying for Environmental Performance: Estimating the Environmental Outcomes of Agricultural Best Management Practices

admin — Tue, 01 May 2007 00:00:00 -0400

This Policy Note outlines how the environmental performance of agricultural BMPs can be estimated, and what steps are necessary for improving these estimations–both important elements for effectively allocating conservation funding. This Policy Note sets forth the following recommendations:

Standardize estimation methodologies to quantify the environmental outcomes of agricultural best management practices.
Conduct site-specific assessments of environmental performance through programs such as the Conservation Effects Assessment Project (CEAP) to:
- increase site-specific research on estimating environmental outcomes and environmental co-benefits;
- Establish a monitoring framework to validate estimation methodologies and test their accuracy; and
- Create a central repository to provide access to estimation methodologies and monitoring data.
Utilize online tools to make standardized estimation methodologies widely available.

Paying For Environmental Performance: Using Reverse Auctions to Allocate Funding For Conservation

admin — Mon, 01 Jan 2007 00:00:00 -0500

Can reverse auctions be used to achieve cost-effective improvements in environmental quality?

This Policy Note explains how reverse auctions can be used to allocate funding in agricultural conservation programs or environmental trading programs with constrained or limited budgets. Reverse auctions are competitive bidding systems where sellers compete to supply buyers with a specified good or service, ensuring cost-effective environmental improvements are purchased with conservation dollars.

The Policy Note outlines the findings and lessons learned from the Conestoga Reverse Auction Project in Pennsylvania, where a reverse auction was used to allocate funding to agricultural conservation or Best Management Practices based on their ability to reduce phosphorus losses.

The World Resources Institute is releasing a series of Policy Notes outlining issues and providing recommendations relating to environmental markets, energy, climate, and trade. These recommendations are based on the World Resources Institute’s independent analysis of biofuel policies, experience with developing and testing environmental markets, and our expertise in climate and trade issues.

We hope that you find the Notes informative and useful in helping define policies that promote environmental sustainability, rural vitality, and a healthy farm sector. Additional Policy Notes can be downloaded from http://www.wri.org/publications/policy-notes.

Agriculture and Climate Change: The Policy Context

Tim Herzog — Sun, 01 Oct 2006 00:00:00 -0400

Agriculture and Climate Change: The Policy Context is the first in a series of two Farm Bill Policy Notes that look at opportunities and reasons for the U.S. agriculture industry to participate in climate policy discussions. This note analyzes the impact of climate change on U.S. agriculture, discusses sources of greenhouse gas (GHG) emissions from the agricultural sector, and explains the possible roles for agriculture in proposed climate change legislation. U.S. agriculture producers stand to benefit from proposed climate policy, but only if they become active participants in the climate policy dialogue. With public perception and understanding of climate change at an all-time high, this is an opportune time for farmers to act so future legislation is in their best interest.

Paying for Environmental Performance: Investing in Farmers and the Environment

admin — Sun, 02 Jul 2006 00:00:00 -0400

This Policy Note explores the allocation of funding in Farm Bill conservation programs, and offers recommendations on how to more efficiently and effectively allocate conservation funding. The authors identify a number of areas where the allocation of public monies for conservation could be improved.

This policy note is largely written in the context of EQIP because it has one of the largest budgets of the Farm Bill conservation programs. Our recommendations, however, apply to the funding of conservation practices in general.

The first three sections of this Policy Note contain background information, while the remaining sections provide supporting information and conclusions for our recommendations.