Cy Jones, Evan Branosky, Mindy Selman and Michelle Perez
This working paper describes the rationale for nutrient trading in the Chesapeake Bay region and estimates the economic benefits, including potential benefits to the agriculture, wastewater, and stormwater sectors.
Preliminary analyses indicate that the economic benefits of
a baywide nutrient trading market for nitrogen could be
significant for the agricultural, wastewater, and municipal
stormwater sectors in the Chesapeake Bay watershed.
Depending on credit prices, trading potentially could:
Generate new revenue for the agricultural sector and
other credit generators at an amount comparable to
current levels of annual public funding for agriculture
conservation cost-share programs for the bay;
Reduce nitrogen removal costs for some in the wastewater
sector by as much as 60 percent; and
Save the municipal stormwater sector hundreds of
millions of dollars per year.
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 have placed the bay on the Environmental
Protection Agency’s (EPA’s) List of Impaired Waters. This nutrient pollution
is responsible for creating large algal blooms that lead to “dead zones”
in the bay. Despite decades of restoration
efforts, progress has been slow, and the rivers and streams that drain
into the Bay remain polluted.
The proposed “Chesapeake Clean Water and Ecosystem Restoration Act of
2009” (H.R. 3852/S. 1816) would provide signifi cant new resources and
new approaches to help restore the bay. Nutrient trading is one such
approach. In a nutrient trading market, sources that reduce their nutrient
runoff or discharges below target levels can sell their surplus reductions or
“credits” to other sources. This approach allows those that can reduce
nutrients at low cost to sell credits to those facing higher-cost nutrient
reduction options. Nutrient trading, therefore, could allow sources of
pollution such as WWTPs and municipal stormwater programs to meet
their pollution targets in a cost-effective manner and could create new
revenue opportunities for farmers, entrepreneurs, and others who implement
low-cost pollution reduction practices.
The bill would establish a baywide nutrient trading market for the Chesapeake
Bay watershed, allowing credits to be exchanged across
state lines and among the watershed’s nine major river basins. A baywide
nutrient trading market would build on the existing and pending state-level
nutrient trading programs in Maryland, Pennsylvania, Virginia, and West Virginia. A baywide nutrient trading market could help
states and sectors more cost-effectively achieve courtordered
nutrient pollution limits called Total Maximum
Daily Loads (TMDLs) that are being developed by the
EPA. These TMDLs will set limits on nutrient loads to the
bay and its tributaries for the agricultural, wastewater,
municipal stormwater, and other sectors.