Nutrient Trading 101
Nutrient trading is a way for farmers, foresters, businesses and other facilities to reduce pollution more than is legally required and to sell such additional reductions as credits to other businesses, facilities, and local municipalities so they can meet their reduction requirements.
Trading offers a tool to reduce costs associated with reducing pollution, to expedite water quality improvements, and stimulate innovation. Trading can help localities and businesses to reduce pollution and meet their requirements more cost-effectively and often more quickly.
Why would we want to allow an entity to buy credits rather than take their own action to reduce pollution?
That's a sentiment we sometimes hear in relation to trading programs. Here's a simplified example in which trading makes economic sense and benefits water quality:
Let's say a river basin has two wastewater treatment plants, A and B.
Treatment plant A is upstream from B.
Pollution limits have been set for each plant to ensure the water downstream from both of them meets water quality standards.
The population served by B has doubled since those limits were put in place. That means the plant will have to treat a much larger pollution load, with the result that it will exceed its pollution limits by 1,000 pounds of nitrogen unless it upgrades its facility. Treatment plant B can and will upgrade its facilities, but that will take time and additional financial resources, which it does not yet have.
Meanwhile, A, the plant upstream, has already upgraded its plant so that it is reducing pollution by 1,500 pounds more than is legally required.
Enter nutrient trading
From that additional 1,500-pound reduction, treatment plant A can now sell 1,000 pounds of nitrogen credits to treatment plant B.
Treatment plant B can buy credits (at a lower cost than immediately upgrading its facility) and use those credits to offset the additional 1,000 pounds of nitrogen it is discharging, enabling it to meet its legal requirements.
In this way, trading allows treatment plant B to meet its legal limits—through purchased credits—and lets treatment plant A defray its costs. The result is a reduced amount of pollution entering the river and a healthier river basin overall.
This sort of trading example can also extend to trades between different kinds of entities, such as a wastewater treatment plant and a municipal stormwater system (the pipes, culverts, drainage ditches, etc. that carry rainwater off the land into a body of water) or between point source and nonpoint pollution sources, such as a municipal stormwater system and a farm that has implemented more pollution reduction practices than required.
What's CBF's Take?
CBF supports nutrient trading with certain caveats.
Blueprint First: Trading programs must ensure that the actual nutrient reductions being made exceed the requirements of the Blueprint for the Chesapeake Bay.
Accountability: Trading programs must be stringent enough to ensure that trading sources are properly constructed, operated and maintained. .
Accessibility: Trading programs must ensure that the public is fully informed when credits are created and when a facility is using credits. Those who are potentially affected must have full access to the information.
Verified Technology: Trading programs must ensure that the credit-generation practices have been assigned a science-based "pollution reduction efficiency" approved by the scientists at the Chesapeake Bay Program and the Department of Environmental Quality. (Innovative technology is encouraged, but new practices must be scientifically vetted to earn credits.)
Local Water Quality Protection: Trading programs must prohibit trades that will allow the degradation of local water quality.
Timeliness: Trading programs must ensure that the use of credits makes sense for the time frame it takes to generate them.