Nutrient Trading Between Wastewater Treatment Plants in the Baltic Sea Region

We analyze nutrient trading between wastewater treatment plants as a tool for reducing nitrogen and phosphorus loads in the Baltic Sea. We build a numerical model and demonstrate that the goals of the Baltic Sea Action Plan can be achieved to a fairly large extent by nutrient trading between wastewater treatment plants. It is also a relatively inexpensive way to reduce nutrient loads. Furthermore, a nutrient trading scheme with properly designed initial allocations enables an evening out of the cost burden between wastewater treatment plants. We study alternative types of nutrient trading schemes and show that when trading is based on nitrogen equivalents, phosphorus abatement reaches its capacity limits. Moreover, we illustrate that transaction costs clearly increase the level of nitrogen abatement costs but only slightly the level of phosphorus abatement costs. Nevertheless, even though transaction costs reduce benefits from trading relative to command-and-control, huge cost differences between the installations create space for trading.