Water Quality Trading

Eutrophication, the over-enrichment of freshwater and coastal ecosystems with nutrients (nitrogen and phosphorus), is a rapidly growing environmental crisis. Sources of nutrients include agriculture, sewage treatment plants, and urban and suburban stormwater. Designing an effective response to nutrient pollution is a challenge. Some pollutant sources are regulated but others are not. Point source practices (such as upgrades to wastewater treatment plants and retrofits to stormwater systems) generally cost more than nonpoint source practices (like nutrient management or grass buffers along stream banks). This cost differential creates an ideal environment for nutrient trading. Trading allows sources with higher pollution control costs to purchase pollution reductions from sources with lower costs. Those with higher costs can save money, while those with lower costs can earn new revenue.

Beginning with our seminal publication, Fertile Ground, over a decade ago, WRI has helped advance water quality trading from theory to practice. Since our initial emphasis on “making the case” for water quality markets, our focus has now shifted to operationalizing trading. We work primarily in the Chesapeake Bay watershed, the Mississippi River basin, and China on policy analysis, tool development, and policy design and implementation. In addition, WRI assesses the state of water quality trading globally, and works to strengthen and enforce best practices for water quality trading markets.