John Talberth, Cy Jones, Michelle Perez, Mindy Selman and Evan Branosky
This working paper evaluates the opportunities for Maryland farms to sell nutrient credits in a proposed nutrient trading program in the Chesapeake Bay Watershed.
The combination of existing government agricultural best management
practice cost-share programs and the proposed baywide nutrient trading
market could yield benefits to Maryland farms.
First, existing government
cost-share programs and conservation payments could cover many of the
costs associated with practices that are required before trading can occur.
Second, nutrient trading could be a source of new revenue and profit for many (but not all) farms, with the benefits likely varying
among farms based on location, pre-existing implementation
of best management practices (BMPs), and other
Third, a baywide nutrient trading program could
increase demand for credits generated from Maryland
farms beyond the demand from a nutrient trading program
restricted only to Maryland.
The largest estuary in the United States, the Chesapeake Bay is a vital
economic, cultural, and ecological resource for the region and the nation. Excess runoff and discharges of nutrients—particularly nitrogen and phosphorus—from farms, pavement, wastewater treatment plants
(WWTPs), and other sources is responsible for creating excess algal growth that degrades water quality and harms the ecology of the bay.
Congress is considering proposals to improve the health of the Chesapeake Bay watershed. The “Chesapeake Clean Water and Ecosystem Restoration Act of 2009” (S. 1816, H.R. 3852) would provide significant new resources and tools to help restore the bay, including a baywide (interstate and inter-basin) nutrient trading program. Nutrient trading provides a cost effective market-based mechanism for accelerating achievement of the upcoming baywide clean-up goals. With nutrient trading, entities that are able to reduce runoff of nutrients such as nitrogen below target levels are able to sell their surplus reductions as “credits” to entities facing higher nutrient reduction costs.
Agricultural sources typically have lower nutrient reduction costs per
pound than other sources of nutrients such as wastewater treatment plants and municipal stormwater systems. This cost advantage opens a window of economic opportunity for farms—selling nutrient credits to sources facing more expensive nutrient control options.