Nutrient trading, also known as water quality trading (WQT), is a major issue for the U.S dairy industry, though many probably do not realize that yet.

The way nutrient trading works is this: One party goes beyond the regulatory requirements in water-related nutrient reductions, which generates a credit that can be sold in a marketplace. Another party, one that cannot reduce its nutrient levels for whatever reason, buys credits to meet its requirements.

Typically, the party selling the credit is a farmer or landowner (a nonpoint source), and the one buying the credit is a regulated entity under the Clean Water Act, usually a publicly owned treatment works (POTW) or municipal separate storm sewer system (MS4), which are both point sources.

Lower costs from trading

For example, if it costs a farmer $10 to remove a pound of phosphorus from the environment and it costs a POTW $150 to remove that same pound, the POTW would be better off paying the farmer some amount between $10 and $150. In this way, trading can help improve water quality and generate significant environmental benefits at a lower cost than the conventional pollution reduction efforts that have not delivered the fishable, swimmable waters we desire.

Though the POTWs and the MS4s are funded by taxpayers, WQT saves money for citizens and, more importantly, provides a new source of revenue for the agriculture industry. Over the years, substantial investments in wastewater treatment plant technology have contributed to significant progress in cleaning up our rivers, streams and lakes. Despite that progress, today more than half of the nation’s waterways are still not meeting water-quality standards. We need new approaches and new tools.

I recently attended a symposium on WQT in Maryland with a focus on improving water quality in the Chesapeake Bay. The audience and speakers were very diverse, but most of them shared a common sentiment: What we have done thus far is admirable, but we need to do things differently or we will never reach the end game. I am impressed with Maryland’s effort and timeline, and have high hopes for its success.

The state of Virginia unveiled a highly acclaimed nutrient trading program last year, though it is largely based on implementing best management practices (planting trees, buffer strips, etc.).

The merits of nutrient recovery

I like technology-based nutrient recovery because it allows one to recover nutrients, take them from where they are not needed and put them to beneficial use elsewhere. I like technology-based trading because it offers a revenue stream that makes technology work economically and overcomes one of the major criticisms against nutrient trading programs: verifiability.

When trades are based on best management practices, there is uncertainty around the actual amount of the nutrient that is being sequestered or removed from the watershed. To counter that, most trading programs discount the credits to address the uncertainty. Pennsylvania recently revisited its trading program and was forced to discount the credits generated by a factor of three. The Chesapeake Bay model “recommends a minimum credit ratio of 2:1 for trades between nonpoint and point sources (i.e. 2 pounds of pollution reductions from nonpoint sources are needed for every pound of pollution from a point source).”

With technology-based nutrient recovery, there is no uncertainty or need to discount. If the technology is supposed to remove 10,000 pounds of phosphorus, the phosphorus can be weighed as it is recovered. It is visible, palpable, quantifiable and anything but uncertain.

Last November, EPA announced its Nutrient Recycling Challenge with the hope that it “would help us find technologies that are a win-win for the environment, farmers, and the economy.” See 

As a member of the steering committee and a judge, I can tell you there are a lot of promising ideas. The question in my mind is not whether these technologies will work, but rather if they will work economically. Those technologies will be more affordable and adopted with a greater frequency if we can establish nutrient trading where these technologies can be used. Technology will be adopted if the sum of the revenue streams from the products that come from the technology – including credits – are equal to or greater than the sum of the costs to finance, install and operate the technology.

Meeting goals with lower costs

If we do not embrace nutrient trading, drinking water authorities, MS4s and POTWs will need to invest hundreds of billions of dollars in necessary upgrades over the next 25 years to meet pollution requirements. Advancement of water quality trading, on the other hand, would enable us to meet water quality goals at a much lower cost than would be required if the pollution reductions are addressed through massive public infrastructure investments. It’s time to get smart about our future and embrace nutrient trading.