Point‐Nonpoint Trading – Can It Work?1

Ribaudo, Marc O. and Jessica Gottlieb, 2011. Point‐Nonpoint Trading – Can It Work? Journal of the American Water Resources Association (JAWRA) 47(1):5‐14. DOI: 10.1111/j.1752‐1688.2010.00454.x Abstract: Water quality trading between point and nonpoint sources is of great interest as an alternative to strict command and control regulations on point sources for achieving water quality goals. The expectation is that trading will reduce the costs of water quality protection, and may speed compliance. The United States Environmental Protection Agency has issued guidance to the States on developing point‐nonpoint trading programs, and United States Department of Agriculture is encouraging farmer participation. However, existing point‐nonpoint trading programs have resulted in very few trades. Supply side and demand side impediments seem to be preventing trades from occurring in most trading programs. These include uncertainty over the number of discharge allowances different management practices can produce, high transactions costs of identifying trading partners, baseline requirements that eliminate low‐cost credits, the reluctance of point sources to trade with unfamiliar agents, and the perception of some farmers that entering contracts with regulated point sources leads to greater scrutiny and potential future regulation. Many of these problems can be addressed through research and program design.