From The Editor | September 23, 2016

Workshopping The Water Quality Trading Market

Peter Chawaga - editor

By Peter Chawaga

Workshopping The Water Quality Trading Market

Operations within a single watershed can often face vastly disparate costs for satisfying treatment regulations. For instance, one might have to satisfy combined sewer overflow (CSO) consent decrees while another operates an efficient nutrient removal system.

To level the playing field, a few communities have established “water quality trading markets.” The markets allow facilities that face high pollution-control costs to satisfy their regulatory commitments by purchasing lower-cost pollution credits from facilities that control it more efficiently, essentially paying them to reduce pollution from their operations in lieu of reducing their own. The idea is that this leads to lower costs overall while still satisfying total regulatory standards.

As examples of the efficacy of the concept, the U.S. EPA points to a savings of $300 to $400 million in statewide costs to reduce nitrogen discharges in Connecticut and 90 percent savings for an Oregon facility that decided to have trees planted to reduce stream temperatures rather than install a wastewater plant chiller.

“Markets create a pivotal link between ecosystem service providers and those who need or desire the service,” a U.S. Department of Agriculture (USDA) representative told Water Online. “They promote public awareness of the importance of nature to human health and wellbeing, and they provide an economic incentive for private landowners to sustainably manage their land and to prove these public goods and services. This can boost investment in rural American and provide benefits to the environment at the same time.”

State Of The Market

While it may seem like a no-brainer for meeting increased regulations with ever-shrinking budgets, the markets have relatively few participants. The EPA counts 14 states that have trading programs, while the USDA puts the figure at 16, mostly in Connecticut, Pennsylvania, and Virginia.

To help communities that are struggling to get their markets off the ground, the agencies teamed up in 2015 for a national workshop on water quality trading markets. This summer, a report on the effort became available.

“The 2015 EPA-USDA National Workshop on Water Quality Markets report highlights many real challenges once the decision is made to consider trading as a tool,” a representative of the EPA told Water Online. “There is a general lack of understanding of the legal mechanisms needed for trading by the public, or if trading is even allowed under the Clean Water Act … Many states are silent on whether trading is acceptable, which is often viewed as a signal that it is not allowed when in fact it is.”

The EPA representative said that workshop participants recommended sending clearer signals that trading is legal, clarifying the baseline requirements for entry into trading programs, and transparently verifying and certifying the credits issued.

“Uncertainty is the greatest obstacle to market development,” the USDA representative said. “Public agencies can play a major role in reducing uncertainty by establishing clear policies and regulations, promoting uniform standards and measurement protocols, developing qualification tools and streamlining processes for calculating environmental credits, reducing risk for buyers and sellers, and ensuring [that] the integrity of the evolving markets protects the public’s interest.”

Continued Efforts

The workshop was one of many EPA/USDA efforts to encourage more communities to participate in trading markets.

When asked what primary efforts they would highlight, the EPA representative listed a dialogue series by the National Network On Water Quality Trading to take place over the next three years, support for increased awareness from the Association of Clean Water Administrators, pursuing a national registry for water quality trading programs, and developing a guide to the tools that exist to calculate potential credits, among others.

“The partnership between the USDA and EPA will continue to provide new tools, resources, and policies to promote the development of water quality markets,” the USDA representative said when asked the same question.

Among USDA-highlighted efforts are the National Resources Conservation Service’s grant program, which has invested about $15 million to develop water quality markets, and the National Network on Water Quality Trading’s “Building a Water Quality Trading Program: Options and Considerations” guide.

Image credit: "Workshop," Nathan Duprey © 2011, used under an Attribution 2.0 Generic license: https://creativecommons.org/licenses/by/2.0/