Developing Water Quality Trading Markets

For Farmers and the Environment

As the largest manager of land and water resources in the country, the nation's farmers and ranchers feel a deep responsibility to help keep the environment clean. Reducing nutrients like phosphorus and nitrogen in water is one of the nation's most challenging environmental issues. More than half of the country's water bodies fail to meet Clean Water Act standards.

Many farmers already take steps to keep nutrients out of the water, but they can be limited by the cost and risk of adopting new conservation practices. That's where water quality trading (WQT) markets play an important role. The voluntary markets pay farmers for the environmental benefits they create – helping to achieve water quality goals at a low cost.

What is WQT?

Water quality trading is an innovative market-based approach that allows permitted dischargers (such as power plants) to purchase nutrient reduction credits from sources such as farmers. When designed well and combined with other watershed efforts, WQT can help keep water clean in a way that benefits landowners, communities and the environment. Check out this excellent, short video overview of WQT produced by the Electric Power Research Institute (EPRI), our partners in the Ohio River Basin project.

How Do WQT Markets Work?

Typically, farmers implement conservation practices that reduce soil erosion and runoff, generating a credit. A buyer (e.g., a permitted source such as a municipal wastewater facility) purchases these water quality improvements, or credits, from farmers. The transaction compensates the farmers for the costs of their conservation practices while improving the overall health of the environment.

How Do Farmers Benefit?

WQT markets allow farmers to receive financial benefits from generating and selling nutrient reduction credits. Specifically, markets can provide:

  • Funds to implement critical conservation practices that reduce water pollution and help farms avoid costly regulations in the future;
  • Technical assistance that maximizes the benefit of farm conservation practices;
  • A fair payment based on transparent measurements of reduced nitrogen, phosphorus or sediment;
  • A consistent, straight-forward process for signing up and receiving payments; and
  • A potential mechanism to keep farmers on leased lands for a longer period (e.g., contracts of five years or longer).

Results:

Increasing the number of farmers and ranchers participating in WQT programs in the U.S. would greatly increase the water quality of our rivers, lakes, and oceans. These markets provide verifiable improvements in water quality at a lower cost than most current mechanisms.

Our Role:

American Farmland Trust is part of an innovative, award-winning project that reduces pollution and improves the health of the Ohio River. AFT's role is ensuring the market works for producers and coordinating on-the-ground activities of farmers and conservation districts. Check out this short clip featuring AFT's Brian Brandt talking to one of the farmers participating in the project.

Launched in 2009, the Ohio River project is a collaboration between EPRI, AFT, power companies, farmers, state and federal agencies, and environmental interests. These partners have come together to develop the first interstate water quality trading program in Ohio, Indiana and Kentucky. Going forward AFT will explore how to expand this trading model to integrate other environmental benefits, such as reductions in greenhouse gases.

In addition, AFT plays a leadership role in several national WQT efforts. AFT is on the advisory committee of the National Network on WQT and helped develop the recently released comprehensive reference "Building a Water Quality Trading Program: Options and Considerations," that provides the essential tools for new and evolving water quality trading programs. AFT also drafted a summary for the farm and conservation community that highlights the key issues involved in the development of WQT markets.