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.

Key Findings

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.

Executive Summary

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.