C(r)ap and Trade: The Brave New World of Non-Point Source Nutrient Trading and Using Lessons from Greenhouse Gas Markets to Make It Work

Abstract

After several decades of improvement, water quality in the United States is getting worse, and the problem is primarily caused by run-off from non-point sources, such as farms and urban development. These non-point sources have never had regulatory mandates in the Clean Water Act, and have proven very difficult to control. With little likelihood of comprehensive statutory changes, the EPA and the states that administer the Clean Water Act have looked to other regulatory means to address this problem. One of the most prominent has been the use of markets in pollution (particularly for nutrient pollution from run-off) to provide incentives for control. In short, the agencies and the regulated private sector have latched on to the possibility of highly regulated sources (such as industrial emitters) paying largely unregulated sources (such as agricultural lands) to reduce run-off into the nation’s water bodies. In theory, this is consistent with the regulatory push towards efficiency and using markets as rational arbiters of pollution control. While this theory has been used on many small scales over the last 15 years, recently the EPA and many states have announced a reliance on it at a very large scale in order to reverse water pollution decline, particularly in large water bodies with dead zones, like the Chesapeake Bay. While I believe these markets could work in theory at this scale, I do not believe the administrative agencies have addressed problems with doing so. Because of the similarity in problems concerning environmental integrity and efficiency between non-point agricultural runoff and biological offsets in a carbon trading system, I believe that much of the analysis of addressing these offsets from a series of legislative proposals could provide a regulatory template for dealing with non-point source agricultural pollution. This article proposes such a regulatory template based on these ideas.