A new analysis of the nutrient trading program contained in the proposed federal Chesapeake Clean Water Act-- HR 3852/S 1816-- has determined Pennsylvania farmers could be paid as much as $117 million annually to reduce nitrogen pollution, creating jobs and bolstering the agricultural economy.

The analysis by the World Resources Institute, an international leader in market based environmental programs, found that water quality trading could potentially double conservation funding compared to what is currently available in the federal Farm Bill.

"The Chesapeake Clean Water Act puts farmers squarely in the driver's seat – directing significant public and private market dollars to farmers to address the problems," said Chesapeake Bay Foundation President Will Baker. "Even without this legislation, pollution from all sources including agriculture, local communities and future growth, will have to be reduced."

Farmers could be paid for adopting conservation practices that will strengthen their ability to produce over the long-term; for example, by planting cover crops that will help keep top soil in its place.

Water quality trading for nutrients, or "nutrient trading," makes it possible to achieve reductions efficiently and cost-effectively, and offers a new revenue source for those able to sell "nutrient credits."

The trading program works like this: once a farm has met and exceeded environmental requirements, the farmer is eligible to sell credits for additional pollution reduction.

Reducing pollution from agriculture is more cost effective than from other sources, so farmers will be able to sell the credits, for example to a municipality, for significantly less than that local government would pay to reduce a pound of pollution from stormwater.

This means that an urban center in Maryland or Virginia could fund conservation efforts on Pennsylvania farms that improve local streams that drain to the Chesapeake Bay.

With the proper safeguards, pollution trading can accelerate the reduction of pollutants that degrade many local streams and the Chesapeake Bay. It can save taxpayer money and provide vital income to farmers while dramatically reducing water quality pollution locally and regionally.

"WRI works to identify cost-effective ways to achieve environmental goals, and our analysis supports the concept that there is a significant market for nutrient trading in the region," said WRI President Jonathan Lash.

"The creation of a market for nutrient reductions would allow farmers to earn a reasonable return for making choices that benefit the Bay and its millions of users."

Because there is no significant interstate nutrient trading underway today, the WRI analysis looked at the current Pennsylvania market for credits, and then assessed the impact of increasing demand as a result of growth and the need for municipalities to reduce pollution from stormwater runoff -- the most expensive source of pollution to control.

The results showed that in today's market in Pennsylvania, approximately $18 million in annual revenue could be available. After pollution caps are put in place in 2010, the WRI analysis estimates demand driven by the need to reduce stormwater pollution and growth across the watershed could generate as much as $117 million annually for Pennsylvania farmers.

Congress is now considering the Chesapeake Clean Water Act, which proposes an inter-state trading program, complementing Pennsylvania's ongoing program, to reduce pollution through the marketplace. The bill also includes no less than $96 million, and possibly substantially more, for technical assistance to farmers, as well as $75 million for a new "Stewardship Grants" program to fund pollution reduction activities, and $1.5 billion to help local governments reduce stormwater runoff.

"We all are responsible for the Bay's poor condition, and we all must take responsibility for its revival – including farmers, local communities and future residents. This legislation has the provisions to ensure we have profitable farms and a restored Chesapeake Bay, because we believe you can't have one without the other." said Matt Ehrhart, Pennsylvania executive director for CBF. "In fact, the Chesapeake Clean Water Act will hold the federal government and states responsible for providing agriculture with the resources that have been insufficient and sporadic over the past twenty years."

"The technical assistance the proposed legislation will provide is critical, and has been lacking for many years," said Chesapeake Bay Commission Executive Director Ann Swanson. "This bill will provide funding for state and local governments, colleges, soil conservation districts and others to advise and assist farmers in developing and maintaining conservation practices."

The Chesapeake Clean Water Act sets scientifically-based standards for pollution reduction from local governments, sewage treatment plants, industries, farms, and others. It gives the states flexibility in how to reach these goals, while providing tools to help reach them.

A copy of the WRI trading report is available online.