Cap & Upgrade
Benjamin H. Grumbles

For carbon credits and climate change, “cap and trade” may be dead in the water for now in some jurisdictions and political theaters, but in the water quality arena, a version of it is gaining traction. That’s good news for water and communities. With the right sidebars and safeguards, water quality trading can improve watershed protection, particularly when excess nutrients, sediments and temperature problems among multiple parties are involved. 

Efficient exchanges of credits and offsets among watershed players can save time and money and grow partnerships for holistic, sustainable protection. Yet, the promise from over a decade ago—when a national water quality trading policy was issued—still hasn’t been realized, at least not at the scale and degree possible. The U.S. Environmental Protection Agency (EPA) said only 49 water quality programs are active or in development, and the World Resources Institute said only a minority of those are geared specifically to address nutrients. It’s time to understand why, and to consider improvements, new tools and new partnerships to increase the slow pace of water quality restoration.

Best Face Forward

The picture is not pretty if you focus on the number of nutrient impairments across the country or the financial needs of communities, large and small, under the Clean Water Act. Based on EPA total maximum daily load (TMDL) website information, there are 4,200 nutrient-impaired water segments and 5,400 state-approved nutrient TMDLs. Simply “clustering” the TMDLs or seeking greater funding of implementation plans that may eventually be developed for each of the TMDLs is not a solution. There is a deeper, broader need for innovation and efficiency. 

This led EPA to issue its 2003 Water Quality Trading Policy, which recommends basic ground rules for trading, such as which pollutants can be traded, how to set baselines, when trading can occur and elements of credible trading programs. 

EPA also has provided funding for pilot projects, coordinated with the U.S. Department of Agriculture (USDA); state, local, and regional officials; stakeholders; and others to foster trading programs. The agency also took an important step in 2007, issuing a Water Quality Trading Toolkit for Permit Writers handbook. 

More recent developments include EPA’s December 2010 TMDL for the Chesapeake Bay; litigation challenging the legality of the Bay TMDL and the use of trading in implementation of the TMDL; emerging nutrient and sediment trading programs in states such as Virginia, Pennsylvania and Wisconsin; a first-of-its-kind multistate trading pilot project for nitrogen and phosphorus in the Ohio River Basin (launched in 2012 by the Electric Power Research Institute with support from Ohio River state and interstate agencies, EPA and USDA); and continuing progress on market-based tools from organizations such as The Freshwater Trust, The Willamette Partnership and the World Resources Institute (one of the leading organizations involved in reviewing EPA’s 2003 policy). 

The Senate Environment and Public Works Committee also is focusing on nutrient trading. A May 22, 2013, hearing underscored the need for innovative, cost-effective tools and the importance of clarifying roles and responsibilities before the current number of trading projects and programs can grow significantly.

 Here is my take on the biggest questions:

  1. 1.  Is trading legal under the Clean Water Act?
  2. Answer: Yes, as a general matter of statutory authority. That also is the basic answer EPA gives, although lawsuits by opponents of trading will continue to challenge general and specific aspects. As EPA points out, specific trades in specific watersheds may run into problems if not designed properly and in accordance with existing requirements.
  3.  2. Is trading doable? 
  4. Answer: Yes, although there are many hurdles and risks to establishing a trading program, particularly when the scope is interstate and multijurisdictional. Some environmental and community groups also are concerned about toxic hotspots and disproportionate impacts. There is a premium on having scientifically defensible data and using effective processes.  
  5.  3. Is trading worth doing? 
  6. Answer: Yes, if it is designed and implemented properly. The benefits need to be real, the credits verifiable and the commitments enforceable. Cleaner, cheaper, fairer.

The U.S. Water Alliance, the organization for which I work, agrees this is one of the most important topics of the day—one that will only grow in significance as watershed stresses increase, source water protection stakes heighten and public funds diminish. That is why we have agreed to convene dialogues with key leaders and stakeholders to discuss trading and other market-based solutions to accelerate the cleanup of impaired waters around the nation. The dialogues should highlight advances made in trading over the past decade, continuing concerns and the future of trading based on growing needs, new technologies, developing standards, and greater transparency and accountability. We’ll discuss whether it’s time for updating and improving a national water quality trading policy. We’ll ask: How do we find common ground on the best ways to accelerate the pace of environmental progress?

Water, food and money are all in the mix. It is important we all work together to get it right.