Nutrient Trading

• What is nutrient trading?
• What trading is not.
• Is trading the same everywhere?
• Explore trading as an option for your watershed.

What is nutrient trading?

Nutrient trading is a market-based approach for protecting and improving water quality. Trading involves two basic steps:

1. Setting a goal for the total amount of nutrients that enter waters in a watershed. This goal usually takes the form of a mandatory cap on the total quantity of nutrients entering the water, but the goal could be a percentage reduction goal that's pursued through a voluntary, open program. The total amount of allowable pollution is then allocated among the sources that will participate in the trading program.


2. Allowing sources to trade in ways that meet local and watershed-wide water quality goals. Once pollution allowances are allocated, sources with low-cost pollution reduction options have an incentive to reduce nutrient loadings beyond what is required of them and to sell the excess credits to sources with higher control costs. Through a series of trades, pollution reduction efforts get re-allocated to the sources that have the lowest-cost opportunities to reduce pollution. This flexibility greatly reduces the total cost of improving water quality.

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What trading is not.

Trading is not a substitute for a regulatory framework. It is a policy tool that can be used alongside regulation. In the United States, it is usually considered within the Total Maximum Daily Load (TMDL) process under the Clean Water Act.

Trading is not a way of letting a market decide the environmental outcome. It is a way of using markets to achieve water quality goals most cost-effectively.

Trading does not let polluters off the hook. It does allow sources facing high pollution reduction costs to purchase less costly reductions from other sources; but the reductions must be made and paid for.

Trading does not exclude other policy approaches. Trading can be used in conjunction with other policy tools such as targeted subsidies, mandatory Best Management Practices, or public education campaigns.

Is trading the same everywhere?

Although there are some common elements across trading programs, a good nutrient trading program will be designed to suit the watershed in question. For example:

Trades might be restricted in certain ways to ensure that water quality goals are met all along the waterway. These restrictions would be based on the characteristics of the watershed and the sources involved in the program.

The types of industries and groups that can trade might vary from one watershed to another. In some programs, only point sources might trade; but others might allow point and nonpoint sources to trade. The trading groups could include municipalities, irrigation districts, farmers, wastewater treatment plants, food processing plants, and livestock operations.

Explore trading as an option for your watershed.

If your watershed is not already incuded in this site, NutrientNet can be adapted to help people in your watershed explore trading as a policy option. Please contact the World Resources Institute for more information.