Assessing the Feasibility of Water Quality Trading to Address Agricultural Sources of Pollution in Canada - Water and Agriculture: Sustainability, Markets and Policies - page 83

Pollutant fate and transport - determination of the critical load
Pollutant fate and transport of a contaminant in the natural environment are important
for determining the critical load, which is necessary for the design of a water quality
trading programme.
The behaviours of phosphorus, nitrogen, and sediment are well understood, which
allows the prediction of nutrient behaviour if the watershed itself is well understood. The
behaviour of sediment depends almost entirely on water flow and particle size that will
determine if and when the particles settle or become suspended.
Beneficial management practices
The ability to confidently quantify the effect beneficial management practices (BMP)
or other pollution abatement technologies is crucial to creating a supply of pollution
reduction credits. Quantification is significant, as the likely range of pollution reduction
achieved through the implementation of a BMP on a particular farm will be converted to
credits for trading purposes.
It is not practical to directly measure changes in the amount of pollutant that is
emitted from most farms. Rather, the reduction due to a BMP is derived from scientific
research, and may be a function of characteristics such as the type of tillage, crop, soil
and slope where the BMP is being used.
A wide range of agricultural BMPs for managing sediment and nutrient loss have
accepted methods for estimating pollution reduction. Other agricultural pollutants can be
reduced using BMPs designed to manage nutrients and/or sediment. As an example,
methods for reducing surface run-off and soil erosion may reduce the amount of any
pollutant that is water soluble or sediment-bound, including certain pesticides and
pathogens. Such positive side effects could only generate additional pollution reduction
credits if those reductions were quantifiable.
Trading ratios, hot spots and scientific uncertainties
“Trading ratios” may be used to deal with scientific uncertainty regarding the
behaviour of a pollutant and to avoid the possibility of creating a localised environmental
degradation or hot spot. Formulas for pollution reductions can express a probable range
of pollution reduction as opposed to a specific value. An appropriate trading ratio
accounts for the range in values. For example, a purchaser who needs to reduce emissions
by 100 kg of phosphorus may have to buy pollution reduction credits worth two to four
times this amount to take into account uncertainties. The higher the trading ratio, the
greater the expense for the purchaser of the pollution reduction credits, underscoring the
importance of science in reducing trading ratios.
Trading ratios can be used to ensure the equivalence of trades by accounting for the
influence of the landowner's locations (e.g. upstream, downstream, on a tributary), as is
proposed for the Lower Boise River Trading system in the United States (Schary and
Fischer-Vanden 2005). Another possibility is to define trading zones, restricting the
direction of trades into predefined zones of a river system or its tributaries (Tietenberg
2001).