Water quality trading markets – Integrating land and marine based measures under a smart market approach

• Published in: Ecological economics Vol. 200; p. 107549
• Main Authors: Filippelli, Raphael, Termansen, Mette, Hasan, Syezlin, Hasler, Berit, Hansen, Line, Smart, James C.R.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.10.2022
• Subjects: Farmer participation; Mussel farming; Non-point pollution; Water quality trading; Mussel farming; Farmer participation; Water quality trading; Non-point pollution
• ISSN: 0921-8009; 1873-6106
• DOI: 10.1016/j.ecolecon.2022.107549

Implementation of effective policy instruments to reduce emissions from non-point agricultural sources has been challenging. Mussel farming has the potential to mitigate diffuse nitrogen losses from agricultural production, and a Water Quality Trading Market (WQTM) between agricultural and mussel farmers could potentially be an efficient mechanism. We simulate a hypothetical WQTM in a catchment in northern Denmark using a relatively new approach referred to as a smart market for water quality. Building on previous work, we integrate mussel farmers as nitrogen permit sellers in a WQTM involving agricultural farmers and analyze the effect of the market on the cost of meeting water quality improvement targets. In addition, we set-up scenarios with decreasing levels of participation by agricultural farmers (−10%, −20% and − 30%). The results show a clear benefit from allowing trading between agricultural and mussel farmers, reducing the total costs by as much as 11.9%. Lower participation results in reductions in the benefits from trade. However, allowing mussel-based mitigation to supply N permits at modest cost can potentially partially circumvent the well-documented challenge that agricultural farmers are reluctant to act as N permit suppliers in WQTMs. The study illustrates the economic and environmental potential of integrating land- and marine-based farmers in a joint policy scheme to reduce nitrogen emissions to coastal and marine areas.