John Talberth, Cy Jones, Michelle Perez, Mindy Selman and Evan Branosky
This working paper evaluates the opportunities for Pennsylvania farms to sell nutrient credits in a proposed nutrient trading program in the Chesapeake Bay Watershed.
Chesapeake Bay, the largest estuary in the United States, is a vital economic,
cultural, and ecological resource for both the region and the nation.
But the water quality and the overall ecology of the bay have been harmed
by excess runoff and discharges of nutrients, particularly nitrogen and
phosphorus, from farms, pavement, wastewater treatment plants (WWTPs),
and other sources responsible for creating excess algal growth.
In response, 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 interbasin) nutrient trading program. With nutrient trading,
entities that can reduce below target levels the runoff of nutrients like
nitrogen would be able to sell their surplus reductions as “credits” to
entities with higher nutrient reduction costs. Nutrient trading thus offers a
cost-effective, market-based mechanism for accelerating the achievement
of the baywide cleanup goals.
Agricultural sources typically have lower nutrient reduction costs per
pound than do other sources of nutrients, such as wastewater treatment
plants and municipal stormwater systems.1 This cost advantage opens a
window of economic opportunity for farms to sell nutrient credits to those
sources facing more expensive nutrient control options.
The combination of the government’s cost-sharing agricultural best
management practices (BMPs) and the proposed baywide nutrient trading
market could benefit Pennsylvania’s farms. First, these cost-sharing
programs and conservation payments would cover many of the expenses of
the practices that are required before trading can begin. Second, nutrient trading could be a source of new revenue and profit for
many (but not all) farms, with the benefits likely varying
according to location, preexisting implementation of
BMPs, and other factors. Third, a baywide nutrient trading
program could increase the demand for credits generated
from Pennsylvania farms beyond that of a nutrient trading
program restricted to Pennsylvania.