Nitrogen sources and Gulf hypoxia: potential for environmental credit trading

A zone of hypoxic and anoxic waters has become a dominant feature of the northern Gulf of Mexico. Nitrogen draining into the Gulf from the Mississippi Basin has been identified as the primary source of the problem. Reducing nitrogen loads from point and nonpoint sources in the basin is the primary goal of an action plan developed to address the problem. In this paper, we use data on point source dischargers and a model of the agriculture sector to examine whether the purchase of nitrogen reduction “credits” from nonpoint sources would reduce the cost of nitrogen control if point sources are required to reduce nitrogen discharges. Results indicate that a substantial degree of credit trading could affect agricultural commodity prices, thereby affecting agricultural production outside the basin.