Report Touting Water Quality Trading Dismissed by Advocates

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By Amena H. Saiyid

Aug. 5 — Pollution credit trading programs still have not shown that they can help clean up impaired waters, attorneys for a nonprofit opposed to such strategies said Aug. 5, despite a report from trading proponents claiming otherwise.

“There are no examples of how it has worked, whether there has been a drop in temperature through trading programs in Oregon, or nutrient reduction in the Chesapeake Bay states,” Scott Edwards, co-director of the Food and Water Justice program of the nonprofit Food &Water Watch (FWW), told Bloomberg BNA in a phone interview.

Edwards was responding to the “Case for Water Quality Trading” report. The National Water Quality Trading Alliance released this report recently to refute the objections leveled by groups such as Food & Water Watch that oppose water quality trading programs.

The trading report, which was penned by attorneys with Troutman Sanders LLP, argued that water quality trading is one of the tools that states can use to improve water quality, but the firm did not claim it to be the silver bullet that will improve water quality and remove waters listed as impaired.

“We are trying to be realistic, not Pollyannaish about water quality trading being the solution, and it would be misguided of us even if we tried,” Brooks Smith, the report's chief author and a Troutman Sanders partner, told Bloomberg BNA in an Aug. 5 phone interview.

In its simplest form, water quality trading involves two parties—a credit buyer and a credit seller. The buyer typically faces a permit obligation to reduce its pollutant loading into the water while the seller is usually in a position to reduce this loading more cost-effectively than the buyer.

“So the buyer pays the seller for having taken the steps necessary to achieve this reduction (at lower cost than the buyer could do on its own), and the seller transfers the resulting `credits' (expressed in terms of the amount of pollutant loading that was reduced) to the buyer to apply toward the buyer’s compliance obligation,” the report said.

The report highlighted that trading fosters partnerships between disparate sources, such as electric utilities and farmers in the Ohio River Basin, accelerates restoration in fact, rather than simply on paper, and produces additional environmental benefits in the form of riparian buffers, wildlife habitat, pollinators, land conservation, human health improvements and carbon reductions.

The trading alliance report emphasized the point about fostering partnerships, noting that the Clean Water Act directly regulates only point sources.

“By contrast, water quality trading has the potential to bring all affected sources to the table—not just regulated point sources but also unregulated nonpoint sources, who, together, and voluntarily, can achieve greater reductions at lower cost than simply point source controls alone,” the report said.

Trading Is ‘Not Appropriate.'

At the same time, the report said trading is not appropriate in all cases.

“But under the right conditions, water quality trading has the potential to be more than simply a lower-cost compliance option for regulated point sources,” the report said.

Clean Water Services, a utility in Oregon, has a trading program for the Tualatin River that was cited as a successful example. The utility, which provides both wastewater and stormwater services, paid farmers to plant trees that would provide shade to the adjoining streams in lieu of purchasing a $16 million refrigeration unit to lower the temperature of wastewater effluent discharges into the Tualatin River. Since 2005, the report said more than 5.7 million trees and shrubs have been planted in partnership with more than 21,000 volunteers and contractors in addition to the reductions in the carbon footprint.

Food & Water Watch attorneys dismissed the report, however, saying the alliance was using circular reasoning to make its point that trading will improve quality and drive technology, but provides no examples of technology-driven improvements at wastewater or electric utilities that have taken advantage of the trading program.

The post-assessment analysis of the Tualatin River trading program showed improvements based on “counting trees,” said Michele Merkel, who co-directs the FWW Food & Justice program with Edwards. Merkel said there is no data showing reduction in thermal temperatures, only a model based on calculating the shade that planting trees generates over the adjoining streams in the Tualatin watershed.

“Did they stick a thermometer in the water to find out whether the temperature was really lowered?” asked Edwards. Not only are the trading programs not measuring the reduction in temperature, but they aren't showing whether the temperature drop happened at the point where the facility discharges effluent into the river.

Troutman Sanders's Smith countered the objections by saying trading programs ultimately will have monitoring data to support modeling projects. “As we gain more and better data, all these programs will be even better at restoring water quality,” he said.

Reliance on Modeling

Regarding the reliance on modeling data rather than actual measurements, Smith said, “end-of-pipe measurements may not always be feasible.”

As an example, the report points to regulated stormwater sources—industrial, municipal and construction—that comply with non-numeric limits that are expressed in the form of best management practices that are verified by visual inspections. Such practices are rarely subjected to the analytical type of monitoring commonly seen for industrial and wastewater discharges, the report said.

The Environmental Protection Agency has been a proponent of water quality trading since it first articulated its policy in 2003. The EPA has defined water quality trading as “an innovative, market-based approach that if used in certain watersheds can achieve water quality standards more efficiently and at lower cost than traditional approaches.”

Edwards and Merkel point to an e-mail exchange in June between Fred Tutman, chief executive officer of the Patuxent Riverkeeper, and Jessica Fox, senior program manager with the Electric Power Research Institute (EPRI), which is responsible for creating and managing the first interstate Ohio River Basin Water Quality Trading Project. In that e-mail, which Bloomberg BNA obtained, Fox said trading is one of many approaches that states would need to improve water quality, but trading would not solve all watershed issues, “which I think is part of the inappropriate over-selling of the approach.”

She emphasized that “WQT will NOT get a waterbody into alignment with the water quality standard for the foreseeable future, and that actually isn't the goal of water quality trading.”

Brooks, however, pointed to the grassland trading program in San Joaquin Valley, where farmers traded among themselves to reduce selenium discharges from irrigation practices, thereby restoring the impaired waters.

Next Steps

Meanwhile, the EPA and the Department of Agriculture jointly released a report summarizing the proceedings of a November 2015 workshop that discussed the obstacles to water quality trading and the next steps that should be taken to promote such programs.

That report discussed the concept of developing a national registry or one-stop shop for credits. The report said such a registry would remove a large hurdle to developing a robust water quality trading market by providing consistency and reducing startup costs for many markets.

Among the recommendations, the report also discussed developing a list of tools that can be used to quantify the credits generated through trading.

To contact the reporter on this story: Amena H. Saiyid in Washington at asaiyid@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

For More Information

The joint EPA-USDA report on the 2015 National Water Quality Trading Workshop is available at http://src.bna.com/htw.

The National Water Quality Trading Alliance report, “The Case for Water Quality Trading,” is available at http://src.bna.com/htu.

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