Assessing the Feasibility of Water Quality Trading to Address Agricultural Sources of Pollution in Canada - Water and Agriculture: Sustainability, Markets and Policies - page 79

Chapter 6.
Assessing the Feasibility of Water Quality Trading to Address
Agricultural Sources of Pollution in Canada

Bernard Cantin, 1 Sarah Kalff 2 and Ian Campbell 2

This paper reports on a study exploring the feasibility of water quality trading to address
pollution from agricultural non-point sources in Canada and the potential role of
Agriculture and Agri-Food Canada in such initiatives. The paper provides brief
background material on water quality trading and presents the main findings organised
around biogeochemical considerations, regulatory/policy considerations, and key design
aspects of trading programmes, including roles of stakeholders and government.
Preliminary findings indicate that there are no strong legal or regulatory barriers at the
provincial or federal level to the development of trading systems in Canada.

Introduction

Like many OECD countries, Canada is assessing market-based instruments to manage
natural resources efficiently. This paper explores the use of water quality trading to
address water pollution from agricultural non-point sources (NPS) in a Canadian context. 3
Water quality trading (WQT) can achieve water quality objectives at reduced costs
compared to command and control approaches. Despite its theoretical potential, there are
few examples of water quality trading involving non-point sources of pollution
worldwide. Existing programmes have not been very successful, judging by the limited
number of trades that have occurred (Breetz et al. 2004, King 2005). Authors have
advanced a number of explanations, including the low supply and demand for pollution
reduction credits, the fact that non-point sources are not regulated (King and Kuch 2003,
King 2005); high transaction costs (Woodward et al. 2002); and lack of trust among
stakeholders (Breetz et al. 2005).

1. Policy Research Initiative, Canada.

2.

Agriculture and Agri-Food Canada, Ottawa.

3. The study was undertaken in collaboration with Policy Research Initiative, a federal government

think tank, Environment Canada and the Canadian Water Network. This paper presents
preliminary results from an AAFC perspective. Additional analysis will be available in 2006 on
Policy Research Initiative's website (www.policyresearch.gc.ca).