Many advocates of water quality trading in the United States frequently assume that agricultural nonpoint sources will be the primary trading partner for regulated point sources. Virginia requires regulated point sources to offset new nutrient discharges. Nutrient offsets generated by agricultural nonpoint source reductions are compared against urban nonpoint source and nutrient assimilation offsets. Evidence suggests that agricultural nonpoint source offsets may not be a technically feasible or particularly cost effective compliance option for regulated point sources.

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A proposed Yield Reserve Program designed to compensate farmers for any reduced yields resulting from nitrogen (N) application rates reduced to below recommended rates is evaluated. Assuming that farmers currently follow Extension recommendations for applying N, Yield Reserve Program participation reduces expected net revenue by $10 to $13/ha. The Yield Reserve Program reduces expected net revenue by $17 to $20/ha for farmers who apply N to maximize expected net revenue. Farmers' costs of participation increase with lower probabilities of inadequate rainfall and higher corn prices and decline with higher N prices. The Yield Reserve Program can significantly reduce N applications to cropland, which may reduce N content of surface waters, but the costs to taxpayers and farmers will depend on how the program is implemented.

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