Rhetoric and Reality of Water Quality Trading and the Potential for Market‐like Reform1

Stephenson, Kurt and Leonard Shabman, 2011. Rhetoric and Reality of Water Quality Trading and the Potential for Market‐Like Reform. Journal of the American Water Resources Association (JAWRA) 47(1):15‐28. DOI: 10.1111/j.1752‐1688.2010.00492.x Abstract: Many public interest groups, government agencies, and professional economists argue that current approaches to water quality trading are a cost‐effective, politically practical innovation for achieving water quality standards, in part by addressing one of the most difficult water quality improvement challenges – limiting the discharge from nonpoint sources. A critical analysis shows that these claims for current water quality trading programs are often unrealized. This rhetoric, without adherence to principles of market‐like reform, can undermine the support of regulated parties for meaningful water quality policy reform, contribute to missed opportunities to implement cost‐effective programs, and postpone successfully meeting the challenge of limiting nonpoint source discharges. A better understanding and application of market‐like principles can result in an improved design of trading as well as general water quality management programs.     

Exploring Nontraditional Participation as an Approach to Make Water Quality Trading Markets More Effective

Water quality trading (WQT) has the potential to be a low‐cost means for achieving water quality goals. WQT allows regulated wastewater treatment plants (WWTPs) facing discharge limits the flexibility to either reduce their own discharge or purchase pollution control from other WWTPs or nonpoint sources (NPSs) such as agricultural producers. Under this limited scope, programs with NPSs have been largely unsuccessful at meeting water quality goals. The decision to participate in trading depends on many factors including the pollution control costs, uncertainty in pollution control, and discharge limits. Current research that focuses on making WQT work tends to identify how to increase participation by traditional traders such as WWTPs and agricultural producers. As an alternative, but complementary approach, we consider whether augmenting WQT markets with nontraditional participants would help increase the number of trades. Determining the economic incentives for these potential participants requires the development of novel benefit functions requiring not only economic considerations but also accounting for ecological and engineering processes. Existing literature on nontraditional participants in environmental markets tends to center on air quality and only increasing citizen participation as buyers. Here, we consider the issues for broadening participation (both buyers and sellers) in WQT and outline a multidisciplinary approach to begin evaluating feasibility.     

Economic and Ecological Rules for Water Quality Trading1

Horan, Richard D. and James S. Shortle, 2011. Economic and Ecological Rules for Water Quality Trading. Journal of the American Water Resources Association (JAWRA) 47(1):59‐69. DOI: 10.1111/j.1752‐1688.2010.00463.x Abstract: Emissions trading in textbook form uses markets to achieve pollution targets cost‐efficiently. This result is accomplished in markets that regulators can implement without knowing pollution abatement costs. The theoretical promise of emissions trading, along with real‐world success stories from air emissions trading, has led to initiatives to use trading for water pollution control. Yet, trading, particularly when it involves nonpoint sources of pollution, requires significant departures from the textbook concept. This paper explores how features of water quality problems affect the design of markets for water pollution control relative to textbook emissions markets. Three fundamental design tasks that regulators must address for pollution trading to achieve an environmental goal at low cost are examined: (1) defining the point and nonpoint commodities to be traded, (2) defining rules governing commodity exchange, and (3) setting caps on the commodity supplies so as to achieve an environmental target. We show that the way in which these tasks are optimally addressed for water quality markets differs significantly from the textbook model and its real‐world analogs. We also show that the fundamental appeal of emissions trading is lost in the case of realistic water quality markets, as market designs that reduce the costs of achieving water quality goals may no longer be implementable without the regulatory authority having information on abatement costs.     

A Watershed Approach to Improve Water Quality: Case Study of Clean Water Services’ Tualatin River Program1

Cochran, Bobby and Charles Logue, 2011. A Watershed Approach to Improve Water Quality: Case Study of Clean Water Services’ Tualatin River Program. Journal of the American Water Resources Association (JAWRA) 47(1):29‐38. DOI: 10.1111/j.1752‐1688.2010.00491.x Abstract: Over the last five years, Clean Water Services developed and implemented a program to offset thermal load discharged from its wastewater facilities to the Tualatin River by planting trees to shade streams and augmenting summertime instream flows. The program has overcome challenges facing many of the nation’s water quality trading programs to not only gain consensus on the frameworks needed to authorize trading, but also provide a broad range of ecosystem services. This paper compares the Tualatin case study with some of the commonly cited factors of successful trading programs.     

“Nutrient Inputs to the Laurentian Great Lakes by Source and Watershed Estimated Using SPARROW Watershed Models” by Dale M. Robertson and David A. Saad2

Richards, R. Peter, Ibrahim Alameddine, J. David Allan, David B. Baker, Nathan S. Bosch, Remegio Confesor, Joseph V. DePinto, David M. Dolan, Jeffrey M. Reutter, and Donald Scavia, 2012. Discussion –“Nutrient Inputs to the Laurentian Great Lakes by Source and Watershed Estimated Using SPARROW Watershed Models” by Dale M. Robertson and David A. Saad. Journal of the American Water Resources Association (JAWRA) 1‐10. DOI: 10.1111/jawr.12006 Abstract: Results from the Upper Midwest Major River Basin (MRB3) SPARROW model and underlying Fluxmaster load estimates were compared with detailed data available in the Lake Erie and Ohio River watersheds. Fluxmaster and SPARROW estimates of tributary loads tend to be biased low for total phosphorus and high for total nitrogen. These and other limitations of the application led to an overestimation of the relative contribution of point sources vs. nonpoint sources of phosphorus to eutrophication conditions in Lake Erie, when compared with direct estimates for data‐rich Ohio tributaries. These limitations include the use of a decade‐old reference point (2002), lack of modeling of dissolved phosphorus, lack of inclusion of inputs from the Canadian Lake Erie watersheds and from Lake Huron, and the choice to summarize results for the entire United States Lake Erie watershed, as opposed to the key Western and Central Basin watersheds that drive Lake Erie’s eutrophication processes. Although the MRB3 SPARROW model helps to meet a critical need by modeling unmonitored watersheds and ranking rivers by their estimated relative contributions, we recommend caution in use of the MRB3 SPARRROW model for Lake Erie management, and argue that the management of agricultural nonpoint sources should continue to be the primary focus for the Western and Central Basins of Lake Erie.     

Nutrient Inputs to the Laurentian Great Lakes by Source and Watershed Estimated Using SPARROW Watershed Models1

Robertson, Dale M. and David A. Saad, 2011. Nutrient Inputs to the Laurentian Great Lakes by Source and Watershed Estimated Using SPARROW Watershed Models. Journal of the American Water Resources Association (JAWRA) 47(5):1011‐1033. DOI: 10.1111/j.1752‐1688.2011.00574.x Abstract: Nutrient input to the Laurentian Great Lakes continues to cause problems with eutrophication. To reduce the extent and severity of these problems, target nutrient loads were established and Total Maximum Daily Loads are being developed for many tributaries. Without detailed loading information it is difficult to determine if the targets are being met and how to prioritize rehabilitation efforts. To help address these issues, SPAtially Referenced Regressions On Watershed attributes (SPARROW) models were developed for estimating loads and sources of phosphorus (P) and nitrogen (N) from the United States (U.S.) portion of the Great Lakes, Upper Mississippi, Ohio, and Red River Basins. Results indicated that recent U.S. loadings to Lakes Michigan and Ontario are similar to those in the 1980s, whereas loadings to Lakes Superior, Huron, and Erie decreased. Highest loads were from tributaries with the largest watersheds, whereas highest yields were from areas with intense agriculture and large point sources of nutrients. Tributaries were ranked based on their relative loads and yields to each lake. Input from agricultural areas was a significant source of nutrients, contributing ～33‐44% of the P and ～33‐58% of the N, except for areas around Superior with little agriculture. Point sources were also significant, contributing ～14‐44% of the P and 13‐34% of the N. Watersheds around Lake Erie contributed nutrients at the highest rate (similar to intensively farmed areas in the Midwest) because they have the largest nutrient inputs and highest delivery ratio.     

Long‐Term Water Quality and Biological Responses to Multiple Best Management Practices in Rock Creek,Idaho1

Abstract: Water quality and macroinvertebrate assemblage data from 1981 to 2005 were assessed to evaluate the water quality and biological responses of a western trout stream to the implementation of multiple best management practices (BMPs) on irrigated cropland. Data from Rock Creek near Twin Falls, Idaho, a long‐term monitoring site, were assembled from state and federal sources to provide the evaluation. Seasonal loads of the nonpoint source pollutants suspended sediment (SS), total phosphorus (TP), and nitrate‐nitrite (NN) were estimated using a regression model with time‐series streamflow data and constituent concentrations. Trends in the macroinvertebrate assemblages were evaluated using a number of biological metrics and nonmetric multidimensional scaling ordination. Regression analysis found significant annual decreases in TP and SS flow‐adjusted concentrations during the BMP implementation period from 1983 to 1990 of about 7 and 10%, respectively. These results are coincident with the implementation of multiple BMPs on about 75% of the irrigated cropland in the watershed. Macroinvertebrate assemblages during this time also responded with a change in taxa composition resulting in improved biotic index scores. Taxon specific TP and SS optima, empirically derived from a large national dataset, predicted a decrease in SS concentrations of about 37% (52 to 33 mg/l) and a decrease in TP concentrations of about 50% (0.20 to 0.10 mg/l) from 1981 to 1987. Decreasing trends in TP, SS, and NN pollutant loads were primarily the result of naturally low streamflow conditions during the BMP post‐implementation period from 1993 to 2005. Trends in macroinvertebrate responses during 1993 to 2005 were confounded by the introduction of the New Zealand mudsnail (Potamopyrgus  antipodarum), which approached densities of 100,000 per m² in riffle habitat. The occurrence of this invasive species appears to have caused a major shift in composition and function of the macroinvertebrate assemblages.     

Market‐based conservation: Aligning static theory with dynamic systems

This paper provides a broad evaluation of the implications of market‐based conservation (MBC) strategies from economic, social and ecological perspectives. After reviewing the economic theory that underlies MBC initiatives, we develop a list of approaches that have been labeled as “market‐based”, and categorize them according to the degree to which they are free‐standing markets or require the intervention of the state. A multidisciplinary critique reveals the potential problems and pitfalls of MBC are due to a lack of ability to deal with dynamic systems in the real world. The dynamics of these three systems can undermine the intended goals of MBC.     

Where Did the Agricultural Nonpoint Source Trades Go? Lessons from Virginia Water Quality Trading Programs

Governmental agencies, nongovernmental organizations, and agricultural organizations promote water quality trading programs as an innovative policy to engage agricultural producers in conservation activities. Cost analyses suggest regulated sources can reduce compliance costs by purchasing agricultural nonpoint source credits. Yet, such “point‐nonpoint” trades are rare. This article assesses the demand for agricultural nonpoint sources in well‐developed nutrient trading programs in Virginia for industrial and municipal wastewater treatment plants, municipal stormwater programs, and land developers. Evidence suggests nutrient trading programs in Virginia will not stimulate investments in pollutant reduction practices on working agricultural lands. The lack of demand for agricultural nonpoint source credits can be attributed to a substantial degree to the design features and incentives present in multiple overlapping regulatory programs. The legal setting that dampens regulated source demand for nonpoint source credits in Virginia is broadly representative of conditions found elsewhere in the United States.     

Water Quality Trading with Lumpy Investments,Credit Stacking,and Ancillary Benefits

This paper studies the economics of a water quality trading market in a predominantly agricultural watershed, and explores the effects of credit stacking in such a market when buyers and sellers of pollution credits can only reduce pollution with large, discrete investments that yield discontinuous supply and demand. The research simulates hypothetical water quality trading markets in the corn‐belt area of Illinois, where wastewater treatment plants (WWTPs) can pay farmers to reduce nutrients by installing wetlands and farmers may or may not be allowed to earn payments for multiple services from one wetland. We find that wetlands are a more cost‐effective way to mitigate nitrogen pollution than abatement by WWTPs. Stacking credits may improve social welfare while providing more ecosystem services if there is enough demand for the primary credit in the market (nitrogen) to cover most of the cost of installing the wetland but the supply of nitrogen credits is not exhausted. However, in the presence of lumpy pollution reduction activities, the effects of allowing stacked credit sales are idiosyncratic and not necessarily positive; stacked payments may or may not satisfy additionality. The results imply that credit trading for nitrogen is likely to make society better off, but the effects of allowing farmers to receive multiple payments from a single wetland depend on details of the situation.     

A Recourse‐Based Interval Fuzzy Programming Model for Point‐Nonpoint Source Effluent Trading under Uncertainty

In this study, a recourse‐based interval fuzzy programming (RIFP) model is developed for tackling uncertainties expressed as fuzzy, interval, and/or probabilistic forms in an effluent trading program. It can incorporate preregulated water‐pollution control policies directly into its optimization process, such that an effective linkage between environmental regulations and economic implications (i.e., penalties) caused by improper policies due to uncertainty existence can be provided. The RIFP model is applied to point‐nonpoint source effluent trading of the Xiangxi River in China. The efficiency of trading efforts between water quality improvement and net system benefit under different degrees of satisfying discharge limits is analyzed. The results are able to help support (1) formulation of water‐pollution control strategies under various economic objectives and system‐reliability constraints, (2) selection of the desired effluent trading pattern for point and nonpoint sources, and (3) generation of tradeoffs among system benefit, satisfaction degree, and pollutant mitigation under multiple uncertainties. Compared with the traditional regulatory approaches, the results demonstrate that the water‐pollution control program can be performed more cost‐effectively through trading than nontrading.     

ADDRESSING TOTAL PHOSPHORUS IMPAIRMENTS WITH WATER QUALITY TRADING1

ABSTRACT: Water quality trading is a voluntary economic process that provides an opportunity for dischargers to reduce the costs associated with meeting a discharge limitation. Trading can provide a cost effective solution for point sources (i.e., wastewater treatment plants) to meet strict effluent limitations set in response to total maximum daily loads (TMDLs). A successful trading program often depends on first determining the trading suitability of a pollutant for a particular watershed. A simple technical approach has been developed to identify sub‐watersheds within the Raritan River Basin, New Jersey, where water quality trading could provide a cost effective and scientifically feasible method for addressing total phosphorus impairments. The methodology presented will serve as a model to conduct similar analyses in other watersheds. The Raritan River Basin was divided into 12 subwatershed‐based study areas. Point‐nonpoint source trading opportunities were examined for each study area by examining the point and nonpoint source total phosphorus loading to impaired water bodies. Of the 12 subwatersheds examined, four had a high potential for implementing a successful trading program. Since instream phosphorus concentrations are closely related to soil erosion, an additional analysis was performed to examine soil erodibility. Recommendations are presented for conducting an economic analysis following the feasibility study.     

Variations in Base‐Flow Nitrate Flux in a First‐Order Stream and Riparian Zone1

Abstract: Nonpoint source pollution, which contributes to contamination of surface waters, is difficult to control. Some pollutants, particularly nitrate (), are predominantly transmitted through ground water. Riparian buffer zones have the potential to remove contaminants from ground water and reduce the amount of that enters surface water. This is a justification for setting aside vegetated buffer strips along waterways. Many riparian zone hydrologic models assume uniform ground‐water flow through organic‐rich soil under reducing conditions, leading to effective removal of ground‐water prior to discharge into a stream. However, in a small first‐order stream in the mid‐Atlantic coastal plain, base‐flow generation was highly variable (spatially and temporally). Average base‐flow loads were greater in winter than summer, and higher during a wetter year than in dryer years. Specific sections of the stream consistently received greater amounts of high ground water than others. Areas within the riparian zone responsible for most of the exported from the watershed are termed “critical areas.” Over this 5‐year study, most of the exported during base flow originated from a critical area comprising less than 10% of the total riparian zone land area. Allocation of resources to address and improve mitigation function in critical areas should be a priority for continued riparian zone research.     

A Review of Water Quality Responses to Air Temperature and Precipitation Changes 2: Nutrients,Algal Blooms,Sediment, Pathogens

In this paper we review the published, scientific literature addressing the response of nutrients, sediment, pathogens, and cyanobacterial blooms to historical and potential future changes in air temperature and precipitation. The goal is to document how different attributes of water quality are sensitive to these drivers, to characterize future risk, to inform management responses, and to identify research needs to fill gaps in our understanding. Results suggest that anticipated future changes present a risk of water quality and ecosystem degradation in many United States locations. Understanding responses is, however, complicated by inherent high spatial and temporal variability, interactions with land use and water management, and dependence on uncertain changes in hydrology in response to future climate. Effects on pollutant loading in different watershed settings generally correlate with projected changes in precipitation and runoff. In all regions, increased heavy precipitation events are likely to drive more episodic pollutant loading to water bodies. The risk of algal blooms could increase due to an expanded seasonal window of warm water temperatures and the potential for episodic increases in nutrient loading. Increased air and water temperatures are also likely to affect the survival of waterborne pathogens. Responding to these challenges requires understanding of vulnerabilities, and management strategies to reduce risk.     

Nutrient Loadings to Streams of the Continental United States from Municipal and Industrial Effluent1

Maupin, Molly A. and Tamara Ivahnenko, 2011. Nutrient Loadings to Streams of the Continental United States From Municipal and Industrial Effluent. Journal of the American Water Resources Association (JAWRA) 47(5):950‐964. DOI: 10.1111/j.1752‐1688.2011.00576.x Abstract: Data from the United States Environmental Protection Agency Permit Compliance System national database were used to calculate annual total nitrogen (TN) and total phosphorus (TP) loads to surface waters from municipal and industrial facilities in six major regions of the United States for 1992, 1997, and 2002. Concentration and effluent flow data were examined for approximately 118,250 facilities in 45 states and the District of Columbia. Inconsistent and incomplete discharge locations, effluent flows, and effluent nutrient concentrations limited the use of these data for calculating nutrient loads. More concentrations were reported for major facilities, those discharging more than 1 million gallons per day, than for minor facilities, and more concentrations were reported for TP than for TN. Analytical methods to check and improve the quality of the Permit Compliance System data were used. Annual loads were calculated using “typical pollutant concentrations” to supplement missing concentrations based on the type and size of facilities. Annual nutrient loads for over 26,600 facilities were calculated for at least one of the three years. Sewage systems represented 74% of all TN loads and 58% of all TP loads. This work represents an initial set of data to develop a comprehensive and consistent national database of point‐source nutrient loads. These loads can be used to inform a wide range of water‐quality management, watershed modeling, and research efforts at multiple scales.     

Modeling the Potential Impact of Seasonal and Inactive Multi‐Aquifer Wells on Contaminant Movement to Public Water‐Supply Wells1

Johnson, R.L., B.R. Clark, M.K. Landon, L.J. Kauffman, and S.M. Eberts, 2011. Modeling the Potential Impact of Seasonal and Inactive Multi‐Aquifer Wells on Contaminant Movement to Public Water‐Supply Wells. Journal of the American Water Resources Association (JAWRA) 47(3):588‐596. DOI: 10.1111/j.1752‐1688.2011.00526.x Abstract: Wells screened across multiple aquifers can provide pathways for the movement of surprisingly large volumes of groundwater to confined aquifers used for public water supply (PWS). Using a simple numerical model, we examine the impact of several pumping scenarios on leakage from an unconfined aquifer to a confined aquifer and conclude that a single inactive multi‐aquifer well can contribute nearly 10% of total PWS well flow over a wide range of pumping rates. This leakage can occur even when the multi‐aquifer well is more than a kilometer from the PWS well. The contribution from multi‐aquifer wells may be greater under conditions where seasonal pumping (e.g., irrigation) creates large, widespread downward hydraulic gradients between aquifers. Under those conditions, water can continue to leak down a multi‐aquifer well from an unconfined aquifer to a confined aquifer even when those multi‐aquifer wells are actively pumped. An important implication is that, if an unconfined aquifer is contaminated, multi‐aquifer wells can increase the vulnerability of a confined‐aquifer PWS well.     

NUTRIENT AND β17‐ESTRADIOL LOSS IN RUNOFF WATER FROM POULTRY LITTERS1

ABSTRACT: A main water quality concern is accelerated eutrophication of fresh waters from nonpoint source pollution, particularly nutrient transport in surface runoff from agricultural areas and confined animal feeding operations. This study examined nutrient and β₁₇‐estradiol concentrations in runoff from small plots where six poultry litters were applied at a rate of about 67 kg/ha of total phosphorus (TP). The six poultry litter treatments included pelleted compost, pelleted litter, raw litter, alum (treated) litter, pelleted alum litter, and normal litter (no alum). Four replicates of the six poultry litter treatments and a control (plots without poultry litter application) were used in this study. Rainfall simulations at intensity of 50 mm/hr were conducted immediately following poultry litter application to the plots and again 30 days later. Composite runoff samples were analyzed for soluble reactive phosphorus (SRP), ammonia (NH₄), nitrate (NO₃), TP, total nitrogen (TN) and β₁₇‐estradiol concentrations. In general, poultry litter applications increased nutrient and β₁₇‐estradiol concentrations in runoff water. Ammonia and P concentrations in runoff water from the first simulation were correlated to application rates of water extractable NH₄ (R²= 0.70) and P (R²= 0.68) in the manure. Results suggest that alum applications to poultry litter in houses in between flocks is an effective best management practice for reducing phosphorus (P) and β₁₇‐estradiol concentrations in runoff and that pelleted poultry litters may increase the potential for P and β₁₇‐estradiol loss in runoff water. Inferences regarding pelleted poultry litters should be viewed cautiously, because the environmental consequence of pelleting poultry litters needs additional investigation.     

Relationship of Land‐Use/Land‐Cover Patterns and Surface‐Water Quality in The Mullica River Basin1

Abstract: We describe relationships between pH, specific conductance, calcium, magnesium, chloride, sulfate, nitrogen, and phosphorus and land‐use patterns in the Mullica River basin, a major New Jersey Pinelands watershed, and determine the thresholds at which significant changes in water quality occur. Nonpoint sources are the main contributors of pollutants to surface waters in the basin. Using multiple regression and water‐quality data for 25 stream sites, we determine the percentage of variation in the water‐quality data explained by urban land and upland agriculture and evaluate whether the proximity of these land uses influences water‐quality/land‐use relationships. We use a second, independently collected water‐quality dataset to validate the statistical models. The multiple‐regression results indicate that water‐quality degradation in the study area is associated with basin‐wide upland land uses, which are generally good predictors of water‐quality conditions, and that both urban land and upland agriculture must be included in models to more fully describe the relationship between watershed disturbance and water quality. Including the proximity of land uses did not improve the relationship between land use and water quality. Ten‐percent altered‐land cover in a basin represents the threshold at which a significant deviation from reference‐site water‐quality conditions occurs in the Mullica River basin.     

Surface Water Seepage Effects on Shallow Ground‐Water Quality Along the Rio Grande in Northern New Mexico1

Abstract: Interactions between surface irrigation water, shallow ground water, and river water may have effects on water quality that are important for both drinking water supplies and the ecological function of rivers and floodplains. We investigated water quality in surface water and ground water, and how water quality is influenced by surface water inputs from an unlined irrigation system in the Alcalde Valley of the Rio Grande in northern New Mexico. From August 2005 to July 2006, we sampled ground water and surface water monthly and analyzed for concentrations of major cations and anions, specific conductance, pH, dissolved oxygen, and water levels. Results indicate that irrigation ditch seepage caused an increase in ground water levels and that the Rio Grande is a gaining stream in this region. Temporal and spatial differences were found in ion concentrations in shallow ground water as it flowed from under the ditch toward the river. Ground‐water ion concentrations were higher when the ditch was not flowing compared with periods during peak irrigation season when the ditch was flowing. Ditch inputs diluted ion concentrations in shallow ground water at well positions near the ditch. Specifically, lower ion concentrations were detected in ground water at well positions located near the ditch and river compared with well positions located in the middle of an agricultural field. Results from this project showed that ditch inputs influenced ion concentrations and were associated with ground‐water recharge. In arid region river valleys, careful consideration should be given to management scenarios that change seepage from irrigation systems, because in some situations reduced seepage could negatively affect ground‐water recharge and water quality.     

An Ex Post Evaluation of Ohio’s Great Miami Water Quality Trading Program1

Newburn, David A. and Richard T. Woodward, 2011. An Ex Post Evaluation of Ohio’s Great Miami Water Quality Trading Program. Journal of the American Water Resources Association (JAWRA) 48(1): 156‐169. DOI: 10.1111/j.1752‐1688.2011.00601.x Abstract: Market‐based approaches to address water quality problems have resulted in only limited success, especially in trading programs involving both point and nonpoint sources. We analyze one of the largest point‐nonpoint trading programs – the Great Miami Trading Program in Ohio, administered by the Miami Conservancy District (MCD). Our evaluation focuses on the economic and institutional aspects of the program, including cost effectiveness, efficiency of bidding, transaction costs, trading ratios, and innovation. We use a unique dataset consisting of all bids from agricultural nonpoint sources and interviews of soil and water conservation district (SWCD) agents in the watershed. We find that the MCD’s reliance on county‐level SWCD offices to recruit and advise farmers has been essential to achieve relatively high rates of farmer participation. Additionally, the MCD is able to partly free ride on the administrative costs that SWCD offices receive to assist federal conservation programs, which is helpful to lower costs for a fledgling trading program. However, the involvement of SWCD offices reduced the potential cost savings from the reverse auction structure because some agents were able to learn about the threshold price over the six rounds of bidding and help farmers bid strategically. Overall, the program structure serves as an effective model for future trading programs in other regions that seek to involve agricultural nonpoint sources.