Role of Conservation Adoption Premiums on Participation in Water Quality Trading Programs

Over half of lakes, reservoirs, and ponds in the United States are threatened or impaired, mostly by nutrients. One policy to improve water quality is water quality trading (WQT). While the concept is appealing, adoption of conservation practices in these programs has been anemic at best. Using a case study in the newly-formed WQT market in Jordan Lake, North Carolina, we propose that part of the problem is a large adoption premium (AP) for this program. AP is the amount that farmers require over and above direct adoption costs to participate. In this study, farmers were asked at in-person interviews about their willingness to accept (WTA) a payment to adopt a particular conservation practice (riparian buffers) in order to generate and sell credits. We compared farmers’ WTA to their direct cost of participation, which allowed us to estimate an AP. On average, the AP more than doubles the cost of purchasing credits. The AP sums all of the known indirect costs already cited in the literature, and more, into a single value and is relatively simple to estimate. Knowing the AP would improve the ability of policy makers to accurately estimate what is needed to boost adoption rates in WQT programs and other conservation programs as well