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Setting Agricultural Baselines for Water Quality Trading
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KentuckyfReducing nutrients in water is one of the most costly and challenging environmental issues facing our nation. Water quality trading (WQT) allows regulated point source emitters like municipal wastewater treatment plants and utilities to invest in agricultural conservation practices that reduce nutrient run-off on farmland. The point sources can then use the resulting nutrient reductions to meet part of their permitted discharge limits.

Determining what farmers are required to do under current statutes and rules and deciding if they need to do more to reduce nutrient run-off before being allowed to generate a credit is one of the key elements that can affect the outcome of trading when agriculture is involved. Known as “baselines,” these are the pollutant control requirements that apply to both credit sellers (farmers) and buyers (regulated point sources) in the absence of trading. To enter the trading market and generate credits, farmers must first meet the market’s baseline requirements.

Getting the Facts on Water Quality Trading

As trading gains momentum nationwide and the first interstate water quality pilot trading demonstration begins in earnest in the Ohio River Basin, a suite of AFT research papers explore what WQT program participants need to know before setting agricultural baselines. A new report addresses this essential element of a WQT system— putting WQT and baselines into context, presenting current practices, identifying critical issues, assessing findings, and making recommendations. A shorter summary report, designed for policy makers and water quality trading program managers, discusses the types of agricultural baselines and why it is important to choose the right approach.   

A review of the literature coupled with the experiences of current trading programs confirm the need  for baselines that are easy to verify, and result in real and meaningful pollution reductions at a reasonable cost. If baselines require farmers to implement a number of conservation practices at their own expense before selling credits, few farmers may qualify and the rest may only participate if there is a suitable financial incentive for doing so (i.e. credits are selling at a high enough price). On the other hand, if credit prices are lucrative enough, perhaps setting a more stringent baseline can “encourage” farmers to implement more practices in order to qualify to sell credits

The report reviews several baseline options that seem to strike a balance between ensuring sufficient participation by farmers while maintaining confidence in overall net water quality improvements. The report also recommends several actions that clarify the impacts of baselines and improve our ability to set appropriate baselines. These range from expanded field testing of various baseline approaches to relaxing EPA’s guidelines of baselines set at the total maximum daily load (TMDL) level of load allocations for watersheds to allow for graduated baselines. Additionally, the report cites the need for continued leadership from USDA and EPA and the documentation and coordination of best practices within existing WQT programs in order to unleash the full potential of WQT.

Several other AFT papers provide background information to help WQT programs work more effectively with agricultural producers. For example, baselines are only one of many elements that can determine whether or not producers participate in WQT. AFT drew on producer listening sessions in Iowa, Minnesota, Ohio, Kentucky, Indiana, Oregon and Washington between 2008 and 2011 to identify possible barriers and solutions to participation. These producer recommendations for enlisting farmers in emerging WQT markets are summarized in a short paper titled Involving Agriculture in Water Quality Trading Markets.

Working with Agricultural Producers

To participate in WQT markets, agricultural producers implement best management practices (BMPs) which reduce run-off of nutrients from their fields so point sources can purchase the resulting nutrient offsets as credits. A supplemental white paper, Adoption of BMPs in Agriculture, sheds light on how BMPs are adopted and implemented by producers. The paper is designed to help WQT program managers focus on BMPs that farmers are receptive to implementing and better understand the degree of technical assistance that is needed.

Another white paper, Controlling Nutrient Run-off on Farms through Regulation, delves into the challenge of managing emissions of commercial and manure fertilizer into our waters. Even when farmers apply fertilizer at recommended agronomic rates, only 30-50 percent of the nitrogen added to the soil is taken up by the plant, with the rest lost to surface run-off, leaching of nitrates, ammonia volatilization or bacterial competition. The paper explores the social, geographic, economic and political factors which make directly regulating farms and ranches to reduce nonpoint pollution impractical and almost impossible.


AFT's research on agricultural baselines was supported by a grant from the Alex Walker Foundation. For more information on this topic, please contact AFT Research Director Ann Sorensen at (815)753-9349 or asorensen@niu.edu.


American Farmland Trust