WRI Publications Feed: Water Quality Trading

Comparison Tables of State Nutrient Trading Programs in the Chesapeake Bay Watershed

Maggie Barron — Wed, 18 May 2011 14:43:50 -0400

Over the last ten years, four Chesapeake Bay states—Maryland, Pennsylvania, Virginia, and West Virginia—introduced nutrient trading programs to provide wastewater treatment plants with flexible options for meeting and maintaining permitted nutrient load limits. At least one other bay state, Delaware, also convened a work group to discuss developing such a program. Through these programs, wastewater treatment plants may purchase credits or offsets generated by other wastewater treatment plants or farms that reduce the nutrients they release to impaired water bodies. States are also exploring options for construction and urban stormwater programs to buy and sell credits and offsets.

To date, most credit transactions have occurred between buyers and sellers in the same state. Efforts to enact the recent Chesapeake Bay total maximum daily loads (TMDLs), however, could provide more opportunities for interaction by trading partners from different states. For example, regulated entities could seek credits or offsets from other states when the supply in their own state has been exhausted. In addition, entities in states that do not have a trading program could seek credits or offsets from entities in states that do have such a program.

Although the elements of many of the trading programs are identical or very similar, such as calculation platforms, included pollutants, and allowable participants, there are several differences as well. Examples are the time period that defines the life of a credit or offset and the varying types and values of trading ratios. States may need to address these and other differences before permitting more cross-state transactions. Regardless of how these differences are resolved, government regulations require credit transactions to be documented in the public record.

The World Resources Institute (WRI) has compiled into comparison tables the key design elements of the four state trading programs. The tables comprise a reference document for policymakers and others addressing the programs’ differences. These design elements are grouped into twelve categories based on their common characteristics. All the information is current as of May 2011; was paraphrased directly from the statute, regulation, policy, or guidance documents; and has been reviewed by trading experts. Nonetheless, this information will undoubtedly change as the states refine their strategies for implementing the TMDLs.

List of Tables

Legal Authorities and Guidance Documents
Pollutants and General Eligibility Requirements
Point Source Participation Requirements
Market Functionality
Baseline Requirements
Trading Ratios
Credit or Offset Restrictions
Certification and Verification Processes
Septic Hookup Provisions
Compliance and Enforcement Provisions
Risk Management Provisions
Registry Vehicles and Oversight Agencies

How Baywide Nutrient Trading Could Benefit Pennsylvania Farms

Maggie Barron — Thu, 05 Aug 2010 12:11:33 -0400

Summary

Chesapeake Bay, the largest estuary in the United States, is a vital economic, cultural, and ecological resource for both the region and the nation. But the water quality and the overall ecology of the bay have been harmed by excess runoff and discharges of nutrients, particularly nitrogen and phosphorus, from farms, pavement, wastewater treatment plants (WWTPs), and other sources responsible for creating excess algal growth.

In response, Congress is considering proposals to improve the health of the Chesapeake Bay watershed.. The “Chesapeake Clean Water and Ecosystem Restoration Act of 2009” (S. 1816, H.R. 3852) would provide significant new resources and tools to help restore the bay, including a baywide (interstate and interbasin) nutrient trading program. With nutrient trading, entities that can reduce below target levels the runoff of nutrients like nitrogen would be able to sell their surplus reductions as “credits” to entities with higher nutrient reduction costs. Nutrient trading thus offers a cost-effective, market-based mechanism for accelerating the achievement of the baywide cleanup goals.

Agricultural sources typically have lower nutrient reduction costs per pound than do other sources of nutrients, such as wastewater treatment plants and municipal stormwater systems.1 This cost advantage opens a window of economic opportunity for farms to sell nutrient credits to those sources facing more expensive nutrient control options. The combination of the government’s cost-sharing agricultural best management practices (BMPs) and the proposed baywide nutrient trading market could benefit Pennsylvania’s farms. First, these cost-sharing programs and conservation payments would cover many of the expenses of the practices that are required before trading can begin. Second, nutrient trading could be a source of new revenue and profit for many (but not all) farms, with the benefits likely varying according to location, preexisting implementation of BMPs, and other factors. Third, a baywide nutrient trading program could increase the demand for credits generated from Pennsylvania farms beyond that of a nutrient trading program restricted to Pennsylvania.

Additional Information

How Nutrient Trading Could Help Restore the Chesapeake Bay

How Baywide Nutrient Trading Could Benefit Maryland Farms

How Baywide Nutrient Trading Could Benefit Virginia Farms

How Baywide Nutrient Trading Could Benefit Maryland Farms

Maggie Barron — Tue, 01 Jun 2010 12:36:14 -0400

Congress is considering proposals to improve the health of the Chesapeake Bay watershed. The “Chesapeake Clean Water and Ecosystem Restoration Act of 2009” (S. 1816, H.R. 3852) would provide significant new resources and tools to help restore the bay, including a baywide (interstate and inter-basin) nutrient trading program. Nutrient trading provides a cost effective market-based mechanism for accelerating achievement of the upcoming baywide clean-up goals. With nutrient trading, entities that are able to reduce runoff of nutrients such as nitrogen below target levels are able to sell their surplus reductions as “credits” to entities facing higher nutrient reduction costs.

Agricultural sources typically have lower nutrient reduction costs per pound than other sources of nutrients such as wastewater treatment plants and municipal stormwater systems. This cost advantage opens a window of economic opportunity for farms—selling nutrient credits to sources facing more expensive nutrient control options.

The combination of existing government agricultural best management practice cost-share programs and the proposed baywide nutrient trading market could yield benefits to Maryland farms.

First, existing government cost-share programs and conservation payments could cover many of the costs associated with practices that are required before trading can occur.
Second, nutrient trading could be a source of new revenue and profit for many (but not all) farms, with the benefits likely varying among farms based on location, pre-existing implementation of best management practices (BMPs), and other factors.
Third, a baywide nutrient trading program could increase demand for credits generated from Maryland farms beyond the demand from a nutrient trading program restricted only to Maryland.

Additional Information

How Nutrient Trading Could Help Restore the Chesapeake Bay

How Baywide Nutrient Trading Could Benefit Virginia Farms

How Nutrient Trading Could Benefit Pennsylvania Farms

How Baywide Nutrient Trading Could Benefit Virginia Farms

Maggie Barron — Thu, 29 Apr 2010 15:28:30 -0400

Summary

Congress is considering proposals to improve the health of the Chesapeake Bay Watershed. The “Chesapeake Clean Water and Ecosystem Restoration Act of 2009” (S. 1816, H.R. 3852) would provide significant new resources and tools to help restore the bay, including a baywide (interstate and inter-basin) nutrient trading program. Nutrient trading provides a cost effective market-based mechanism for accelerating achievement of the upcoming baywide clean-up goals. With nutrient trading, entities that are able to reduce runoff of nutrients such as nitrogen below target levels are able to sell their surplus reductions as “credits” to entities facing higher nutrient reduction costs.

Agricultural sources typically have lower nutrient reduction costs per pound than other sources of nutrients such as wastewater treatment plants and municipal stormwater systems.1 This cost advantage opens a window of economic opportunity for farms—selling nutrient credits to sources facing more expensive nutrient control options.

The combination of existing government agricultural best management practice cost-share programs and the proposed baywide nutrient trading market could yield benefits to Virginia farms. First, existing government cost-share programs and conservation payments could cover many of the costs associated with practices that are required before trading can occur.

Second, nutrient trading could be a source of new revenue and profit for many (but not all) farms, with the benefits likely varying among farms based on location, pre-existing implementation of best management practices (BMPs), and other factors. Third, a baywide nutrient trading program could increase demand for credits generated from Virginia farms beyond the demand from a nutrient trading program restricted only to Virginia.

Additional Information

How Nutrient Trading Could Help Restore the Chesapeake Bay

How Nutrient Trading Could Benefit Maryland Farms

How Nutrient Trading Could Benefit Pennsylvania Farms

How Nutrient Trading Could Help Restore the Chesapeake Bay

Cy Jones — Mon, 22 Feb 2010 09:58:20 -0500

Summary

The largest estuary in the United States, the Chesapeake Bay is a vital economic, cultural, and ecological resource for the region and the nation. Excess runoff and discharges of nutrients—particularly nitrogen and phosphorus—from farms, pavement, wastewater treatment plants (WWTPs), and other sources have placed the bay on the Environmental Protection Agency’s (EPA’s) List of Impaired Waters. This nutrient pollution is responsible for creating large algal blooms that lead to “dead zones” in the bay. Despite decades of restoration efforts, progress has been slow, and the rivers and streams that drain into the Bay remain polluted.

The proposed “Chesapeake Clean Water and Ecosystem Restoration Act of 2009” (H.R. 3852/S. 1816) would provide signifi cant new resources and new approaches to help restore the bay. Nutrient trading is one such approach. In a nutrient trading market, sources that reduce their nutrient runoff or discharges below target levels can sell their surplus reductions or “credits” to other sources. This approach allows those that can reduce nutrients at low cost to sell credits to those facing higher-cost nutrient reduction options. Nutrient trading, therefore, could allow sources of pollution such as WWTPs and municipal stormwater programs to meet their pollution targets in a cost-effective manner and could create new revenue opportunities for farmers, entrepreneurs, and others who implement low-cost pollution reduction practices.

The bill would establish a baywide nutrient trading market for the Chesapeake Bay watershed, allowing credits to be exchanged across state lines and among the watershed’s nine major river basins. A baywide nutrient trading market would build on the existing and pending state-level nutrient trading programs in Maryland, Pennsylvania, Virginia, and West Virginia. A baywide nutrient trading market could help states and sectors more cost-effectively achieve courtordered nutrient pollution limits called Total Maximum Daily Loads (TMDLs) that are being developed by the EPA. These TMDLs will set limits on nutrient loads to the bay and its tributaries for the agricultural, wastewater, municipal stormwater, and other sectors.

Preliminary analyses indicate that the economic benefits of a baywide nutrient trading market for nitrogen could be signifi cant for the agricultural, wastewater, and municipal stormwater sectors in the Chesapeake Bay watershed. Depending on credit prices, trading potentially could:

Generate new revenue for the agricultural sector and other credit generators at an amount comparable to current levels of annual public funding for agriculture conservation cost-share programs for the bay;
Reduce nitrogen removal costs for some in the wastewater sector by as much as 60 percent; and
Save the municipal stormwater sector hundreds of millions of dollars per year.

Additional Information

How Baywide Nutrient Trading Could Benefit Virginia Farms

How Baywide Nutrient Trading Could Benefit Maryland Farms

How Baywide Nutrient Trading Could Benefit Pennsylvania Farms

Eutrophication: Policies, Action, and Strategies to Address Nutrient Pollution

Maggie Barron — Mon, 21 Sep 2009 14:58:51 -0400

Nutrient overenrichment of freshwater and coastal ecosystems—or eutrophication—is a rapidly growing environmental crisis. Worldwide, the number of coastal areas impacted by eutrophication stands at over 500. In coastal areas, occurrences of dead zones, which are caused by eutrophic conditions, have increased from 10 documented cases in 1960 to 405 documented cases in 2008. In addition, many of the world’s freshwater lakes, streams, and reservoirs suffer from eutrophication; in the United States, eutrophication is considered the primary cause of freshwater impairment.

In order to reverse eutrophication trends and mitigate nutrient losses to aquatic ecosystems, policymakers should:

Implement research and monitoring programs to characterize the effects of eutrophication, collect water quality data, and inform adaptive management strategies. Information is a key element in the development of robust strategies to reduce eutrophication.
Raise awareness of eutrophication. Eutrophication and its effects are not well understood by the public or policymakers. Public awareness campaigns, school environmental education programs, and targeted outreach and technical assistance are all important components of raising the profile of eutrophication within communities and building a foundation and support for effective actions to reduce nutrient losses and eutrophication.
Implement regulations to mitigate nutrient losses, such as standards, technology requirements, or pollution caps for various sectors.
Create fiscal and economic incentives to encourage nutrient reducing actions using taxes and fees, subsidies, or environmental markets.
Preserve and restore natural ecosystems that capture and cycle nutrients.
Establish strong, engaged, and coordinated institutions to address eutrophication. Effective institutions to implement and enforce policies are important to the success of any eutrophication strategy, especially where multiple jurisdictions are involved.
Capitalize on environmental synergies when designing comprehensive policies to address eutrophication. Many policies and activities associated with reducing nutrient pollution have synergies with other environmental problems such as climate change, smog, and acid rain. Policies selected and implemented should seek to maximize environmental benefits.

Additional Links

This policy note is third in a series. Click below to read the other two:

Water Quality Trading Programs: An International Overview

Tim Herzog — Mon, 09 Mar 2009 18:07:59 -0400

Water quality trading is gaining traction in a number of watersheds around the world. It is a market-based approach that works alongside water quality regulation to improve water quality, providing flexibility in how regulations are met and potentially lowering regulatory compliance and abatement costs. Our research identified 57 water quality trading programs worldwide. Of these, 26 are active, 21 are under consideration or development, and 10 are inactive or are completed pilots with no plans for future trades. The majority of programs were located in the United States, with only six programs existing outside the United States—four in Australia, one in New Zealand, and one in Canada.

From our assessment of these water quality trading programs, we identified five key factors that stakeholders believed were important for the successful implementation of their trading programs:

Strong regulatory and/or non-regulatory drivers, which helped create a demand for water quality credits;
Minimal potential liability risks to the regulated community from meeting regulations through trades;
Robust, consistent, and standardized estimation methodologies for nonpoint source actions;
Standardized tools, transparent processes, and online registries to minimize transaction costs; and
Buy-in from local and state stakeholders.

Before going to the expense of developing a water quality trading program, we recommend that the relevant bodies—either governmental or nongovernmental—ensure these factors are in place.

Paying for Environmental Performance: Potential Cost Savings Using a Reverse Auction in Program Signup

Tim Herzog — Thu, 03 Jul 2008 13:06:41 -0400

A reverse auction in the Conestoga watershed in Pennsylvania demonstrated that auctions are a more cost-effective way to allocate conservation funding than the traditional funding allocation process used in the U.S. Department of Agriculture’s Environmental Quality Incentives Program (EQIP). On average, the reverse auction resulted in a seven-fold increase in the reduction of phosphorus runoff per dollar spent compared to EQIP during the same period and in the same watershed.

In a reverse auction, multiple sellers compete to provide services (environmental outcomes) to a single buyer. In the context of conservation programs, sellers are typically land managers such as farmers or ranchers; the buyer is typically a governmental entity. The Conestoga Reverse Auction differed from traditional funding allocation strategies in three ways:

It quantitatively estimated the expected reduction in phosphorus runoff from proposed changes in management practices.
It allowed farmers and ranchers to compete for funding through unrestricted bidding.
It prioritized program payments based on how cost-effectively reductions in phosphorus runoff could be achieved. Cost-effectiveness was measured as the expected reduction in phosphorus runoff per program dollar spent.

Policy Implications

Government could improve the cost-effectiveness of their conservation funding by implementing reverse auctions or incorporating the principles of reverse auctions into their conservation program design. Specifically, policy-makers could improve the allocation of conservation funding in three ways:

Increase the use of quantitative measurements of performance (e.g., measuring the reduction in nutrient runoff for water quality improvement) to rank funding applicants.
Use measures of cost-effectiveness to rank funding applicants.
Allow competitive bidding between funding applicants.

Paying for Environmental Performance: Estimating the Environmental Outcomes of Agricultural Best Management Practices

admin — Tue, 01 May 2007 00:00:00 -0400

This Policy Note outlines how the environmental performance of agricultural BMPs can be estimated, and what steps are necessary for improving these estimations–both important elements for effectively allocating conservation funding. This Policy Note sets forth the following recommendations:

Standardize estimation methodologies to quantify the environmental outcomes of agricultural best management practices.
Conduct site-specific assessments of environmental performance through programs such as the Conservation Effects Assessment Project (CEAP) to:
- increase site-specific research on estimating environmental outcomes and environmental co-benefits;
- Establish a monitoring framework to validate estimation methodologies and test their accuracy; and
- Create a central repository to provide access to estimation methodologies and monitoring data.
Utilize online tools to make standardized estimation methodologies widely available.

Agriculture and Climate Change: Greenhouse Gas Mitigation Opportunities and the 2007 Farm Bill

admin — Thu, 01 Mar 2007 00:00:00 -0500

Note: This policy note is the second in a series of policy notes on the 2007 Farm Bill, and the role that U.S. agriculture might play in addressing global warming.

This policy note addresses the following questions:

How can managers of agricultural operations reduce their greenhouse gas emissions?
What opportunities exist under the Conservation Title of the 2007 Farm Bill to enhance climate change mitigation opportunities from the U.S. agricultural sector?

Recommended Actions

Ensure that 2007 Farm Bill legislative language includes greenhouse gases specifically as a resource of concern under air quality.
Ensure that 2007 Farm Bill implementation language for conservation programs includes opportunities for reductions in all agricultural greenhouse gas emissions, including nitrous oxide and methane and enhanced carbon storage as national priorities.
Require that environmental tradeoffs are assessed when evaluating applications for cost-share or incentive payments in the 2007 Farm Bill. Include in the United States Department of Agriculture (USDA) implementation language the need to establish protocols to assess environmental tradeoffs within broader conservation program implementation language, e.g., between enhancing wildlife benefits and reducing greenhouse gas emissions.
Explicitly specify nitrous oxide and methane mitigation opportunities in any existing climate change language.