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Do baseline requirements hinder trades in water quality trading programs?

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  • Ribaudo, Marc
  • Ghosh, Gaurav S.
  • Shortle, James S.

Abstract

The Environmental Protection Agency and the U.S. Department of Agriculture are promoting point/nonpoint trading as a way of reducing the costs of meeting water quality goals while giving nonpoint sources a larger role in meeting those goals. Farms can create offsets or credits in a point/nonpoint trading program by implementing management practices such as conservation tillage, nutrient management, and buffer strips. To be eligible to sell credits, farmers must first comply with baseline requirements. The EPA defines a baseline as the pollutant control requirements that apply to a seller in the absence of trading. EPA guidance recommends that the baseline for nonpoint sources be management practices that are consistent with the water quality goal. A farmer would not be able to create credits until the minimum practice standards are met. An alternative baseline is those practices being implemented at the time the trading program starts. The selection of the baseline has major implications for which farmers benefit from trading, the cost of nonpoint source credits, and ultimately the number of credits that nonpoint sources can sell to regulated point sources. We use a simple model of the average profit-maximizing dairy farmer operating in the Conestoga (PA) watershed to evaluate the implications of baseline requirements on the cost and quantity of credits that can be produced for sale in a water quality trading market, and which farmers benefit most from trading.

Suggested Citation

  • Ribaudo, Marc & Ghosh, Gaurav S. & Shortle, James S., 2009. "Do baseline requirements hinder trades in water quality trading programs?," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49258, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea09:49258
    DOI: 10.22004/ag.econ.49258
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    References listed on IDEAS

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    1. Ribaudo, Marc, 2009. "Agriculture and Water Quality Trading: Exploring the Possibilities," Amber Waves:The Economics of Food, Farming, Natural Resources, and Rural America, United States Department of Agriculture, Economic Research Service, pages 1-1, March.
    2. King, Dennis M., 2005. "Crunch Time for Water Quality Trading," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 20(1), pages 1-5.
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    7. Ribaudo, Marc & McCann, Laura M.J., 2012. "Accounting for Transaction Costs in Point/Nonpoint Water Quality Trading Programs in the Chesapeake Bay Watershed," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123509, Agricultural and Applied Economics Association.
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    9. Harmsen - van Hout, Marjolein & Ghosh, Gaurav & Madlener, Reinhard, 2013. "An Evaluation of Attribute Anchoring Bias in a Choice Experimental Setting," FCN Working Papers 6/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    10. Horowitz, John K. & Just, Richard E., 2013. "Economics of additionality for environmental services from agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 105-122.
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