Establishing a Clearinghouse to Reduce Impediments to Water Quality Trading

Pennsylvania adopted a water quality trading program to reduce Chesapeake Bay nutrient pollution. It is the first such program to provide regulated point sources the option of purchasing nutrient reduction credits via arms-length market transactions to achieve mitigation requirements. After the program initially experienced limited trading, the Pennsylvania Infrastructure Investment Authority designed a nutrient credit clearinghouse to reduce some of the transaction costs and risks that impeded market activity. We review the clearinghouse functionality, examine initial results of its implementation, and evaluate its effectiveness. Nutrient credit auctions conducted by the clearinghouse revealed that the clearinghouse provided benefits for participants seeking to buy credits and that purchasing credits could be a least-cost compliance alternative for many regulated point sources. To our knowledge, this is the first clearinghouse to successfully administer a nutrient credit auction on behalf of regulated point sources seeking to comply with a discharge permit