Water Quality Trading

The Clean Water Act and subsequent amendments have helped reduce nutrients such as nitrogen and phosphorus from the United States waters. Regulating point source discharges of pollutants, such as industrial effluents and wastewater treatment plants, has significantly improved water quality. However, nonpoint discharges from agricultural lands, exempt from regulation, still contribute large amounts nitrogen and phosphorus.

When water bodies and rivers reach maximum nutrient levels, new developments that will have a point source discharge need cost-effective, innovative methods in order not to contribute pollutants beyond the allowable limits. One such innovation is a market-based water quality trading system.

A developer can offset potential pollutant discharges by trading pollution credits with a nonpoint source polluter, most often an agriculturalist, in the same water basin. These point-nonpoint trades typically involve lowering nutrient levels from phosphorus and nitrogen from agricultural lands.

A variety of best management practices can be utilized to lower nonpoint source pollution from agricultural lands by including bank stabilization, crop tillage rotation, wetland restoration, conservation buffers along the fringe of croplands, grazing management practices, alternative pest control methods as well as other erosion and sediment controls.

Rather than allowing a waterbody keep its pre-trade nutrient levels, an established trading ratio can be designed to decrease the net pollution, thus improving water quality. For example, for every two units on nonpoint source pollution mitigate, one unit of point source pollution will be allowed.

In 2003, the U.S. Environmental Protection Agency released its Final Water Quality Trading Policy report. The report recommends the following seven general elements be included in all water quality trading programs:

* Legal authority and mechanisms for trading to occur
* Clearly defined units of trade
* Creation and duration of credits
* Quantifying credits and addressing uncertainty
* Compliance and enforcement provisions
* Public participation and access to information
* Periodic program evaluations

The American Farmland Trust and several state agencies are in the planning process of implementing a point-nonpoint source trading system on the Susquehanna and Potomac rivers in Pennsylvania and the Minnesota River in Minnesota. Since wastewater sources have greatly reduced nutrient emissions into these rivers and now face high costs for incremental gains, they believe a market for farmers to reduce nutrient emissions has been created.

The stated objectives for reductions in the Minnesota, Potomac and Susquehanna river watersheds are 760,000 pounds of nitrogen use; 40,000 pounds of phosphorus loading; 30,000 tons of sediment loading, 25,000 pounds nitrous dioxide and 5000 tons carbon dioxide greenhouse gases through nutrient management, conservation tillage, and ditch on roughly 34,000 acres in the watersheds. The program will also concentrate on reducing nutrient emissions through best management practices on 51 million acres of corn in 13 Mid-Atlantic and Midwest states.

In the SOSA region, the City of Reno, City of Sparks, Washoe County and Nevada Division of Environmental Protection have included point-nonpoint source trading as a management tool to fulfill the Truckee River Water Quality Settlement Agreement. The Truckee Meadows Water Reclamation Facility intends to engage in point-nonpoint source trading along the Truckee River watershed to reduce nutrient and sediment loading from nonpoint sources. Utilizing the Watershed Analysis Risk Management Framework model, potential nonpoint nutrient and sediment sources will be identified and will help define units of trade between the Truckee Meadows Water Reclamation Facility and nonpoint source polluters.

In 2003, “Lessons from the Trading Pilots: Applications for Wisconsin Water Quality Trading Policy” examined issues from three water quality trading programs in Wisconsin. Written for policy analysts considering possible design and implementation options to promote water quality trading, the report focuses on pilot programs in Wisconsin, but it’s overall themes can be applied nationwide. By identifying issues affecting water quality programs and matching issues with appropriate tools to mitigate these issues, the report provides some signposts to address identified encountered problems with water quality trading programs.

For nationwide comparative purposes, researchers at Dartmouth College have provided a valuable tool with the “Water Quality Trading and Offset Initiatives in the U.S.” The comprehensive survey of water quality trading programs examines trading initiatives in 17 states, statewide policies for water quality and nutrient trading in six states, and proposed programs in 21 states.