In January 2003 the Environmental Protection Agency created a nutrient trading program for water within a watershed. Nutrient trading is a market-based approach for protecting and improving water quality. After establishing the total amount of nutrients that may enter a watershed, the total amount of allowed pollution is then divided among the participating sources. Sources able to reduce pollution at a low cost are incentivized to reduce nutrient loads beyond their required level and to then sell the excess credits. Through those trades, pollution reduction efforts get reallocated to the sources that have the lowest-cost opportunities to cut pollution, reducing the total cost of improving water quality.
Nutrient trading is a way of using markets to achieve water quality goals most cost-effectively that doesn’t let polluters off the hook. It allows sources with high pollution-reduction costs to purchase less costly reductions from other sources. Reductions must be made and polluters still pay, and those sources that pollute the least benefit financially.
The most effective and economical way to reduce pollution is to provide incentives to encourage action by those who can achieve reductions cost-effectively. We should seek ways to apply its principles in other areas of environmental protection as well as government overall.
Former EPA Administrator Christine Todd Whitman runs The Whitman Strategy Group.