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In an effort to restore ecological functions within the Bay watershed, five of the seven Chesapeake Bay jurisdictions – Maryland, Virginia, Pennsylvania, West Virginia, and the District of Columbia – signed the Chesapeake Bay Water Quality Initiative. In which, each jurisdiction agreed to develop a Tributary Strategy for its portion of the Bay watershed that would outline steps and goals for achieving agreed-upon pollution allocations for nutrient and sediment loads by 2010.

As a result of nutrient reduction obligations and adopted water quality standards in 2005, the Bay states are now planning for the issuance of permits to cap nitrogen and phosphorus discharges from point sources regulated under the Clean Water Act. In order to lower the costs associated with meeting nutrient limits, and to allow for growth under the discharge caps, many jurisdictions have developed (or are developing) nutrient trading programs.

This emerging market offers landowners additional financial incentives to incorporate conservation strategies while maintaining farm and fores land uses. However, even as these trading programs are being established, policies are developing that will affect the way programs operate, as well as the potential for supply and demand of credits within the watershed.

The Pinchot Institute collaborated with World Resources Institute to release “Nutrient Trading in the Chesapeake Bay Region: An Analysis of Supply and Demand” that provides an overview of nutrient trading programs as they currently exist in the Bay watershed and examines the potential for supply and demand of credits within those markets. In addition, the analysis considers the potential impacts of Bay-wide Total Maximum Daily Loads on nutrient trading – particularly those on the agricultural sector’s ability to generate credits.

Key findings included:

• All trading basins in West Virginia and Pennsylvania will experience a short-term demand for nutrient credits, and credits from farms will likely be needed.
  
• Long-term demand from new and expanding wastewater treatment plants is expected as facilities must offset 100% of new and expanded capacity.
• The Maryland Patuxent, Virginia James, and Virginia Potomac trading basins will likely experience the greatest long-term demand for credits.
• There is likely to be a geographical mismatch between potential supply of nonpoint source credits and demand for credits within trading basins.
• Supply of agricultural nonpoint source credits greatly depends on agricultural "baselines."

Key recommendations include:

• Facilitate the financing of practices that help farmers meet the agricultural baseline and qualify to participate in nutrient trading.
• Encourage innovative practices for reducing nutrients.
• Allow for interstate-interbasin water quality trading.

As the Chesapeake’s conservation marketplace, Bay Bank has the ability to fill many of the recommendations by connecting farmers and forest landowners to conservation programs and to related markets for ecosystem services, lower participation costs by increasing market awareness, aligning buyers and sellers, and ensuring verifiable environmental outcomes.