Working with stakeholders across Pembrokeshire

Developing a market-based nutrient trading scheme

Exploring new ways to improve catchment water quality

Developing a potential structure of a PES scheme

A catchment based approach to reduce nutrients

Working with land managers to identify opportunities

Water Quality Trading

Water quality trading is an innovative, market-based approach that if used in certain watersheds can achieve water quality standards more efficiently and at lower cost than traditional approaches.

Water quality trading is a tool that offers a flexible, more cost-effective approach to reducing pollution in our waterways than more traditional engineered solutions.​

An alternative to installing expensive technology to meet requirements, point sources, like wastewater facilities, can work with landowners within the watershed to implement conservation and restoration practices that reduce pollutants at a lower cost. ​

Landowners are compensated for their efforts, and after the water quality benefits are verified, which can be used by point sources to meet regulatory requirements.​

Water quality trading can create new sources of revenue for farmers, land managers, and conservation groups. In addition, trading projects may provide a range of additional environmental benefits, such as air quality improvements, fish and wildlife habitat creation, and climate change mitigation.

Nutrient Trading Credits

To generate tradable credits, a source would need to reduce loadings below the allocation set by the regulatory authority. A source buying credits would be able to increase its discharge over what would otherwise be allowed, but only by the amount of the credits purchased from another source (or sources) and subject to other conditions specified in the permit and trading program.

In water quality trading there are point source and nonpoint source participants. Point source on the most basic level, is pollution that comes from a single, discrete place, typically a pipe.  Nonpoint source refers to pollution from diffuse sources such as runoff from agricultural areas.

Trading between point source buyers and nonpoint source sellers provides an opportunity to meet water quality standards by capitalising on the cost discrepancy of reducing pollutants at a point source than reducing pollutants at a nonpoint source.

Taking the concept of PES into account a water quality trading system could look like the figure to the left (below on mobile devices).

Nutrient trading diagram
How PES Works
If a goal of the trading program is to accelerate achievement of water quality standards a credit retirement ratio can be applied.  These ratios retire a percentage of all credits generated, and these credits cannot be sold. Therefore, the overall loading to the waterbody is reduced with each trade yielding net water quality improvement.  Where retirement ratios are used, they should always be greater than 1:1 because their purpose is to accelerate water quality improvements and usually are set by the regulator responsible for the water quality.