The federal commitment to develop and support environmental markets could have national significance.
The most apparent challenge to restoring the Chesapeake Bay involves a balance between the competing needs of ecosystems and humans. Kingman and Heritage Islands Park, a tract of 50-forested acres along the Anacostia River in the District of Columbia, appeared to balance those needs pretty well on Wednesday morning. Great blue herons fed within walking distance of Metro’s Orange Line as the Chairperson of the White House Council on Environmental Quality, Administrator of the Environmental Protection Agency (EPA), Secretary of Agriculture, and other senior officials unveiled President Obama’s new Bay clean-up strategy.
The Strategy for Protecting and Restoring the Chesapeake Bay Watershed kicks-off the most comprehensive Bay restoration effort ever, and it does it in part though unprecedented support for environmental markets.
A New Federal Strategy for Bay Cleanup
The Bay is in bad shape, with just 12 percent of its waters having met Clean Water Act standards for dissolved oxygen between 2007 and 2009. Partially for this reason, President Obama issued an Executive Order on May 12, 2009 that required EPA and the departments of Agriculture, Commerce, Defense, Homeland Security, Interior, and Transportation to launch a new restoration effort based on collaborative action. The guiding strategy has four priorities: restoring clean water, recovering habitat, sustaining fish and wildlife, and conserving land and increasing public access.
The priorities will be achieved, in part, through four cross-cutting strategies, one of which is the development of environmental markets.
Environmental Markets and Nutrient Trading
The emphasis on environmental markets was welcome news for me and my colleagues on the Water Quality Team at WRI. Our team has worked on nutrient trading, a type of environmental market, for over ten years. With nutrient trading, regulated point sources, such as wastewater treatment plants, can comply with Clean Water Act regulations at the lowest possible cost.
Nutrient pollution has been a huge problem for the Chesapeake Bay in recent decades. When nutrients such as nitrogen and phosphorus (from sources like wastewater treatment plants, farms, and cement surfaces) run off into the Bay, they can cause algal blooms and hurt water quality.
Pollution controls can be expensive, which is where nutrient trading can provide a welcome solution. EPA policy shows how entities such as wastewater treatment plants that face high costs to reduce their nutrient discharge could purchase reductions from other sources in the form of “credits.” Farms, for example, can often reduce their runoff at a lower cost than wastewater treatment plants, so they can be a source of credits. The flexibility of market exchanges also lets new wastewater treatment plants and stormwater programs expand as more people demand the services they provide. Credit purchases reduce the impacts of additional discharges on water quality.
WRI works with states to develop nutrient trading guidance and regulations. We are also building support for linking those programs into a bay-wide trading program by forecasting the financial benefits of producing and acquiring nutrient credits from the agriculture, wastewater, stormwater, and additional sectors. Our most recent analysis found that a representative 200-acre farm in Virginia could realize $8,200 per year from participating in a bay-wide nutrient trading market under a modeled scenario.
A Template for Environmental Markets Nationwide
The strategy requires the Department of Agriculture to lead an “Environmental Markets Team” of seven agencies and the EPA. The Team will establish infrastructure for environmental markets in the Bay watershed, which includes developing tools that measure ecosystem benefits from land management practices; establishing “baseline” requirements that a farmer would need to meet before participating in a market; and establishing a platform for registering, reporting, and tracking practices to generate credits; among other tasks.
The federal commitment to develop and support environmental markets could have national significance. The strategy notes that:
Successful environmental markets in the Bay watershed might be used as a template for environmental markets nationwide.
Nutrient trading markets, of which 23 exist in various stages of development throughout the United States, could be used to achieve cost-effective reductions in nutrient pollution in other regions beyond the Chesapeake Bay watershed. WRI, for example, is evaluating the potential for markets to reduce the nitrogen and phosphorous pollution in the Gulf of Mexico (which each year suffers from a nutrient-induced “dead zone” the size of Massachusetts).
The federal effort will have the greatest impact if it involves as many stakeholders as possible. The Team should consult throughout the process—and not just at the end through public comment—with: a) the state environment agencies that ultimately decide whether or not credits count toward complying with discharge limits, b) the buyers and sellers in the markets that will provide real-world insight into the most cost-effective market designs, c) the finance community that will leverage market exchanges to achieve maximum savings, and d) the non-governmental organizations who can share their experience in market-development and analysis.
If stakeholders beyond the federal government are included during the development phase, the resulting bay-wide trading program is more likely to become the cost-effective policy mechanism we all are hoping for to help restore the Bay. In addition, it will serve as a model for impaired water bodies throughout the United States.