LAUSR

Abstract We examine how nutrient load compensation could help a firm expand its production when production is a source of nutrient loads, threatening the ecological status of a water body. We ask whether compensation is technically feasible and whether it can be made in an ecologically sustainable way. Credits for compensation may be provided by point or nonpoint sources. We apply our approach to the case of Finnish Lake Kallavesi, where the Supreme Administrative Court, based on the Water Framework Directive, refused an environmental permit for a plan to build a large pulp mill. We employ a lake nutrient response model to determine water quality using probabilistic analysis of the ecological status of the lake. The supply potential of phosphorus credits from point sources was too low to keep the lake in good ecological status with at least 80% probability and must be complemented by credits from agricultural nonpoint sources. Using a trade ratio of 1:1.2 to reflect uncertainty on credits from nonpoint sources suggests that the reduction in agricultural phosphorus loading would suffice on its own to ensure the good ecological status by 90% probability. The cost of buying nutrient reduction credits would be at most 2% of the investment.