Agriculture Reference
In-Depth Information
In all three watersheds, tightening the point source regulatory requirements was the
most expensive option, and a trading programme coupled with performance-based
conservation subsidies was the least-cost option (Table 1).
Table 1. Cost of phosphorus control under different policy options
U.S. $/pound
P removed
Trading
programme with
performance-
based
conservation
subsidies
Point source
performance
standard with
trading
Point source
performance
standard
Conventional
agricultural
subsidies
Least-cost
Solution
Case
Study
Watersheds
Minnesota River,
Minnesota
19.57
16.29
6.84
4.45
4.36
Saginaw Bay,
Michigan
23.89
5.76
4.04
2.90
1.75
Rock River,
Wisconsin
10.38
9.53
5.95
3.82
3.22
Source: Faeth, 2000.
Giving point sources the flexibility to meet their performance requirements by either
upgrading their facilities or by trading with other point sources or non-point sources
considerably lowers the cost of meeting regulatory requirements. Annex Figure A.3
illustrates the costs associated with achieving different levels of phosphorus reductions
for the Michigan case study.
Challenges to implementing nutrient trading
Based on the comparative assessment of various policy options for improving water
quality, nutrient trading emerged as the most cost-effective solution. However, while the
concept of water quality trading has found favour with many in the environmental,
agricultural and policymaking communities, the application of water quality trading has
achieved only limited success in the few watersheds where it has been applied. Water
quality trading faces some unique challenges given that it includes both regulated and
unregulated sources, must address nutrient fate and transport, and must be able to
quantify reductions from non-point sources that are not directly measurable. Outlined
below are some of the challenges and issues that face organisations or government
agencies in implementing nutrient trading programmes.
Establishing the rules
There are a number of issues that need to be considered when establishing the rules of
a trading programme. Some of these issues are briefly discussed below.
Market design
The design of the market for trading programmes is important for establishing who
can trade, how the trading mechanism would work, and the rules that would sanction a
trade. Trading programmes can be designed in a number of different ways including:
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