Agriculture Reference
In-Depth Information
traditional market structures where individual regulated sources (e.g., point sources) can
purchase credits from non-regulated (e.g., many non-point sources) or other regulated
sources to meet their compliance obligations. The Dillon Reservoir and Cherry Creek
trading programmes in Colorado, U.S. are examples of these markets;
a market where an aggregate cap is established for regulated sources and trading with
sources outside of the cap is allowed for compliance purposes. The Tar-Pamlico and
Long Island Sound trading programmes in the U.S. are characterised as being this type
of market structure;
using a bank to aggregate credits from non-regulated sources. Reductions from non-
regulated sources are often small compared to the reductions needed by the regulated
sources. A bank can serve three roles—to bundle credits into larger trading lots,
potentially reduce the liability for these small sources (see liability discussion below),
and to help stimulate markets that are not yet fully functioning. This structure is being
discussed widely in the U.S. as a way to more successfully incorporate non-point
agricultural sources into these trading markets. The South Nation trading programme in
Ontario, Canada, is structured similar to a bank model. Regulated dischargers purchase
phosphorus reduction credits from South Nation Conservation (SNC), a community-
based watershed organisation. In turn, the SNC uses this money to pay farmers to
reduce phosphorus through implementation of BMPs.
Ensuring fungibility
Because non-point source nutrient reductions are difficult to measure and quantify,
there is real concern in any nutrient trading programme about the fungibility of credits:
how does a trading programme quantify non-point source reductions and ensure that a
credit from a non-point source is equal to that of a point source?
Most of these fungibility concerns are addressed through the use of discount factors.
For instance,
1.
The uncertainties involved with non-point source reductions can be addressed through
the establishment of sound and consistent estimation tools. Using the same method to
calculate all non-point source reductions will ensure that they are all comparable (see
NutrientNet discussion below). Uncertainties within the estimation method itself can
then be addressed through the application of trading ratios. Trading ratios are discount
factors related to the uncertainty associated with the actual measurement of reductions,
e.g., the uncertainty associated with the effectiveness of an agricultural BMP in
achieving nutrient reductions. Applying a 2:1 trading ratio means that a point source
whose nutrient discharge is known with certainty has to purchase two units of nutrient
reduction from a non-point source whose actual achieved reduction is more uncertain
for every unit of reduction they require.
2.
Another factor with credit fungibility is the variability in nutrient fate and transport
depending on the location of the source within the basin. Nutrient trading programmes
can be designed to address the variability in nutrient delivery by using location-specific
attenuation factors or spatial delivery ratios. For non-point sources this means
estimating the delivery of nutrients from the source to the stream as well as the
attenuation of the nutrient from where it enters the stream to the point of interest within
the watershed. Spatial delivery ratios are frequently determined from existing bio-
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