Fertile Ground: Nutrient Trading's Potential to Cost-Effectively Improve Water Quality

by Paul Faeth

Jan 1, 2000
After nearly three decades of effort, the United States can take considerable pride in answering the mandates of the 1972 Clean Water Act. At great expense, much of the municipal and industrial pollution emanating from pipes, or "point" sources, has been reduced. But the largely voluntary effort to reduce "nonpoint" pollution from farms and elsewhere has been less successful. As we enter a new millennium, progress in improving water quality seems to have leveled off and our hopes of meeting the goals of the Clean Water Act seem to be receding.

Some 3,600 waterways across the nation are listed as either impaired by nutrients or by algal blooms, which are typically caused by excess nutrients. The U.S. Environmental Protection Agency is locked in a contentious legal battle with many states over additional requirements to improve water quality.

Part of the problem is the complex nature of water pollution and the difficult challenge of controlling nonpoint pollution. Clearly another part of the problem is the question of costs. States are heavily constrained by cost considerations and reluctant to embark on another costly round of stricter point source controls.

In Fertile Ground: Nutrient Trading's Potential to Cost-Effectively Improve Water Quality, the Director of WRI's Economics Program, Paul Faeth, proposes a way out of this dilemma. Using case studies in three states, he develops a framework to assess the cost-effectiveness of various policies and combinations of policies to reduce phosphorus loads in specific watersheds. In all three cases, policy approaches incorporating nutrient trading programs are dramatically less expensive than conventional approaches and can achieve comparable benefits.

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