Environmental markets

Water quality markets provide a mechanism whereby water companies can deliver their environmental obligations, via landowners and farmers bidding to deliver nature-based projects. Landholders can earn money from delivering nature-based projects such as woodlands, wetlands and arable reversion to grassland.

One of the first auctions for water quality improvements in the UK, Severn Trent Water’s scheme (2017-2019) for the rivers Dove and Wye in Derbyshire, in which landowners bid to undertake actions to reduce phosphate pollution, with the market discovering prices, rather than predetermined fixed prices.

Wessex Water and EnTrade’s pioneering Poole Harbour nitrate reduction auction enabled farmers to bid to plant cover crops that reduce the amount of nitrogen run-off entering rivers.

Following our advice, the pay-as-bid format  for the Poole Harbour nitrate auction was changed to one where everyone pays the same uniform price, making bidding more straightforward for famers and landowners. This change in auction design resulted in a cost saving of 30% compared to under the previous auction rules. Moreover, removing this quantity of nitrogen through a built  infrastructure/traditional approach would have cost £11.45M. An estimated 275 tonnes of nitrogen was prevented from entering Poole Harbour as a result of these re-designed auction schemes.

Our work on the water quality markets in the rivers Dove and Wye substantially reduced nutrient pollution entering rivers. Farmers also benefited from payments that increased their income. Cost savings for water companies avoided the need for large infrastructure investments to reduce nutrient pollution and benefited customers where passed onto them.