Baseline requirements can hinder trades in water quality trading programs: Evidence from the Conestoga watershed

Gaurav Ghosh, Marc Ribaudo, James Shortle

Research output: Contribution to journalArticlepeer-review

39 Scopus citations


The U.S. Environmental Protection Agency (USEPA) and the U.S. Department of Agriculture (USDA) are promoting point/nonpoint trading as a way of reducing the costs of meeting water quality goals. Farms can create offsets by implementing management practices such as conservation tillage, nutrient management and buffer strips. To be eligible to sell offsets or credits, farmers must first comply with baseline requirements. USEPA 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 offsets until the minimum practice standards are met. An alternative baseline is those practices being implemented at the time the trading program starts, or when the farmer enters the program. The selection of the baseline affects the efficiency and equity of the trading program. It has major implications for which farmers benefit from trading, the cost of nonpoint source offsets, and ultimately the number of offsets 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 watershed in Pennsylvania to evaluate the implications of baseline requirements on the cost and quantity of offsets that can be produced for sale in a water quality trading market, and which farmers benefit most from trading.

Original languageEnglish (US)
Pages (from-to)2076-2084
Number of pages9
JournalJournal of Environmental Management
Issue number8
StatePublished - Aug 2011

All Science Journal Classification (ASJC) codes

  • Environmental Engineering
  • Waste Management and Disposal
  • Management, Monitoring, Policy and Law


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