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Water Credit Trading – Has its time arrived?

GEC’s VP of EHS&S Management Services, Henry Balikov, spoke at the recent National Environmental Partnership Summit (NEPS) on wastewater credits and developing markets. Henry noted, “Pollution credit trading has proven to be a good thing for industry and the environment. The market for emission credits has grown steadily and it could be time to consider adding wastewater credits.”

As discussed at NEPS, today 39 percent of assessed river miles, 45 percent of assessed lake acres, and 51 percent of assessed estuary miles are impaired. That is, they are not meeting water quality standards based on designated uses—fishing, swimming, drinking—and their supporting technical criteria. Can the trading of credits be useful? EPA published a January 1996 Effluent Trading in Watersheds Policy and a May 1996 Draft Framework for Watershed-Based Trading. GEC’s VP of Engineering Services, Brian Donahoe, served on EPA’s national panel when this was being evaluated. Brian states, “this market may not be as lively as air emission credits but it could be very valuable if there was enough flexibility to address the anti-backsliding provisions in the current regulations.”

Because this work was not completed, EPA’s Office of Water on January 13, 2003, put forward the Water Quality Trading Policy (“WQ Policy”). The WQ Policy states: “The purpose of this policy is to encourage states, interstate agencies and tribes to develop and implement water quality trading programs for nutrients, sediments and other pollutants where opportunities exist to achieve water quality improvements at reduced costs. More specifically, the policy is intended to encourage voluntary trading programs that facilitate implementation of TMDLs [Total Maximum Daily Loads], reduce the costs of compliance with CWA [Clean Water Act] regulations, establish incentives for voluntary reductions and promote watershed-based initiatives.”

Christopher L. Rissetto, Esq. (Reed Smith) noted in materials presented at the NEPS: The movement toward creating water trading markets is based on the limitations of achieving further water quality improvements under the standard regulatory compliance and enforcement model developed through the CWA. The initial success of the carbon trading marketplace was also influential in expanding other “conservation markets.” Providing flexibility within a regulatory environment permits participants to obtain economic incentives while better achieving public interest goals. Essentially, as the EPA Water Quality Policy states, … “[trading] allows one source to meet its regulatory obligations by using pollutant reductions created by another source that has lower pollution control costs.” To further expand on the development of its water quality trading initiatives, EPA, and the United States Department of Agriculture (“USDA”) through its Natural Resources Conservation Service (“NRCS”), entered into a formal “Partnership Agreement” (“Agreement”), on October 13, 2006, with the announced purpose to establish a “working relationship” for “collaboration efforts to establish viable water quality credit trading markets.

The press release reflects both USDA and EPA policies to be achieved: “Water quality credit trading uses a market-based approach that offers incentives to farmers and ranchers who implemented conservation practices that improve water quality. While reducing pollution, they can earn credits they can trade with industrial or municipal facilities that are required by the Clean Water Act and other laws to reduce the amounts of pollution in wastewater.” A pilot project within the Chesapeake Bay basin is intended to “showcase the effectiveness of environmental markets.”