John Talberth, Cy Jones, Michelle Perez, Mindy Selman and Evan Branosky
This working paper evaluates the opportunities for Virginia farms to sell nutrient credits in a proposed nutrient trading program in the Chesapeake Bay Watershed.
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.1 This cost advantage opens a window
of economic opportunity for farms—selling nutrient credits to sources
facing more expensive nutrient control options.
The combination of existing government agricultural best management
practice cost-share programs and the proposed baywide nutrient trading
market could yield benefits to Virginia 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 factors. Third, a baywide nutrient trading program
could increase demand for credits generated from Virginia
farms beyond the demand from a nutrient trading program
restricted only to Virginia.