Nutrient Trading – A Water Quality Solution? - Water and Agriculture: Sustainability, Markets and Policies - page 92

U.S. lakes, rivers and estuaries come from non-point sources (Carpenter et al., 1998). The
nutrient pollution from non-point sources, such as agricultural or urban runoff, is
typically diffuse in nature. Its precise origin cannot be identified, and because of this,
non-point sources are frequently not regulated. The other source of nutrients is point
sources, such as wastewater treatment facilities. Point source pollutants can be pinpointed
to a specific source of origin, e.g., discharge from a pipe into a water body, and therefore
are typically regulated.
This paper takes a closer look at policy instruments to improve water quality,
comparing the traditional command-and-control approaches to the more innovative
performance-based instruments. Given the apparent cost-effectiveness of performance-
based instruments, it goes on to outline some of the challenges and issues with
establishing successful nutrient trading programmes, one type of performance-based
instrument. Finally, the paper describes an on-line marketplace, NutrientNet, which we
have developed to facilitate the implementation of these programmes. The paper also
recognises some of the significant synergies between the efforts undertaken to reduce
nutrient losses and a number of other environmental problems, such as climate change
and soil erosion, highlighting the need to start addressing environmental problems more
holistically.

Policy approaches for improving water quality

There are a number of policy instruments that can be used to address environmental
problems — traditional policy instruments such as regulations, taxes and subsides, and
the more innovative performance-based instruments. All of these instruments can be
applied directly or indirectly to water quality concerns.

Traditional policy instruments

Regulations
One popular policy instrument for addressing water quality problems (as well as
many other environmental problems) is the use of regulations, also referred to as a
command-and-control approach. Regulations are typically technology-based or
performance-based standards aimed at point sources such as wastewater treatment and
industrial facilities. Non-point source pollution—whose source is more difficult to
identify than point-source discharges—cannot be as easily controlled through regulation.
Technology-based standards specify the type of equipment or processes that each
facility needs to adopt to meet a water quality target, while a performance standard
specifies a target and gives facilities greater flexibility in how they meet that target.
Performance standards are often in the form of limits placed on the amount of a pollutant
discharged into a waterway (e.g., USEPA NPDES programme 2 ).
2. The National Pollution Discharge Elimination System (NPDES) programme of the U.S.

Environmental Protection Agency (USEPA) sets specific pollutant discharge limits for all point
sources discharging into U.S. waters. The programme was developed in 1974 and has been
expanded to include dischargers such as large concentrated animal feeding operations (CAFOs),
municipal wastewater treatment facilities, and commercial and industrial facilities.