Transactions costs of expanding nutrient trading to agricultural working lands: A Virginia case study

•Transactions costs are important to the success of nutrient trading programs.•Transactions costs can vary substantially across types of agricultural BMPs.•Agricultural management BMPs generate highest transaction costs.•Credit creation, certification, and monitoring drive transaction costs differences.•Transactions costs for nonpoint source credits vary inversely with abatement costs.

Agricultural nonpoint sources (NPS) figure prominently in the design of many water quality trading programs. In concept water quality trading programs can create incentives for agricultural operators to supply low cost pollutant reductions while still keeping land in agricultural production. In practice water quality trading programs in the United States have produced few trades involving agricultural NPS. Transactions costs are a critical, but poorly understood, feature of water quality trading programs. The objective of this study is to examine the transactions costs associated with expanding the use of NPS credits in a water quality trading program in Virginia (United States) to include credits generated from agricultural working lands best management practices (BMPs). Findings indicate that transactions costs for agricultural NPS trades in Virginia are currently relatively low, due to the activity being credited: simple land conversion. Based on best available evidence, transactions costs of creating credits using management and structural BMPs will be 2 to 16 times more costly on a per project basis than for land conversion credits. Compliance monitoring protocols are a significant driver of costs for working lands credits. Our results suggest an important cost/risk tradeoff between verification costs and compliance certainty for program designers to consider.