Can nutrient pollution markets bring aquatic ‘dead zones’ back to life?

Under water quality trading programmes, a regulated entity still has to reduce a certain amount of pollutant units.

By James Workman


In 2018 researchers estimated that humans annually emit a whopping 1.47 teragrams of phosphorus into major freshwater basins. That’s too fast for nature to digest. In landscapes that host 90 percent of humanity, “there’s not enough water to assimilate the phosphorus, or the pollution load is so huge that the water system can’t assimilate everything,” says Mesfin Mekonnen, the study’s co-author.

Nutrient pollution and the resulting eutrophication, or hypoxic ‘dead zone’ is a decades-old problem, with well-known sources: agricultural fertilizers, suburban runoff and sewage treatment fertilizers, suburban runoff and sewage treatment. Today these drivers compound what was once a gradual diffuse problem into a sudden, acute, and near universal health crisis.

Yet some basins have quietly begun to deploy new incentives that mitigate risks faster, at lower costs.

The standard approach has been command and control: make public and private establishments use treatment plants to clean up their messy discharge. ‘Polluter pays’ is fine in principle. Yet centralised treatment plants are all too often cumbersome, slow to build, energy intensive, prohibitively costly, badly overworked and rapidly ageing. Compliance is also difficult to enforce, limiting effectiveness. Despite years of top-down restrictions, countless lakes and estuaries around the world have remained polluted.

Regulators are keeping the enforcement stick firmly in one hand. But some have begun to extend a juicy carrot with the other, an alternative approach known as nutrient markets or water quality trading (WQT).

Under WQT programmes, a regulated entity–like a wastewater treatment plant (WWTP) or municipal stormwater system–still has to reduce a certain amount of pollutants units usually measured in pounds equivalent. Permitted pollutants may include total phosphorus, total nitrogen, and sediment load. Yet now, under WQTs, the same regulated polluter can buy up credits earned by diverse other riparian sources, like farmers or developers, who find ways to reduce their own nutrient runoff or discharges below target levels, and sell the difference as part of compliance.

Nutrient trading is based on the principle that various polluters face very different costs to comply with the laws controlling the same amount of pollutant. The tipping point comes through economic incentives. Landowners gain strong motives to voluntarily cut back fertilizer application, cultivate cover crops, or plant stream tree or grass buffers that act as natural filters.

This voluntary option holds obvious political advantages. Green farmers and residents are handsomely rewarded; sewage and stormwater plants save time and money; regulators gain higher compliance; and fresh water gets cleaner with less fuss.

But does it work?

Beyond gains in flexibility on the timing and level of technology to deal with non-point pollution, US regulators at the Environmental Protection Agency argue that it succeeds well beyond the minimum threshold: “Water quality trading can provide ancillary environmental benefits such as carbon sinks, flood retention, riparian improvement, and habitat.”

Regulators aren’t alone in their enthusiasm. Networks of local and global environmental advocacy groups have also endorsed this “market-based approach that works alongside water quality regulation to improve water quality, providing flexibility in how regulations are met and potentially lowering regulatory compliance and abatement costs.”

Within the last 20 years, the World Resources Institute has shown, that the once radical concept has gone from fringe theory to mainstream practice to an accepted regulatory option enshrined into law with 57 water quality trading programmes in Australia, New Zealand, Canada, and the United States.

Pilots have expanded in number and scope, with a shift from testing the waters to operationalising mature WQT markets in a transparent and inclusive way. Of course, WQT markets aren’t ‘free’ of either expense, friction or regulatory oversight and they need strong regulatory drivers to create a demand for water quality credits in the first place. What’s more, oversight requires “robust, consistent, and standardised estimation methodologies for nonpoint source actions” to track progress and ensure fair enforcement.

Yet each year has unlocked an ongoing explosion of cheap, standardised, and transparent monitoring tools–technologies range from iPhone test kits to remote sensing to satellite imagery downloads. These tools bring down transaction costs, broaden rapid inclusion of registered stakeholders, and allow programme replication or scaling to other basins, including those in emerging economies.

WRI has concluded there’s no turning back, because water quality trading works in a “manner that maximises economic efficiency and maintains environmental integrity”.