Emerging Markets are Helping Accelerate Environmental Restoration

Spent several days this week in Racine, WI, at the Johnson Foundation’s Wingspread, which the H.J. Johnson Family (think SC Johnson Wax) has set aside to convene environmental leaders to think and go big on matters of environmental restoration.  Great example of how a family who has been richly blessed in life and wingspread_thumbbusiness can use the fruits of their labor to give back to society.  We in the U.S. have a great opportunity to continue to advance and accelerate environmental restoration more than ever before through emerging innovative market-based approaches.  One thing that drove me nuts during my tenure at U.S. EPA’s Office of Water was the development of national policy and regulations wherein the value of many services and attributes provided by nature (e.g., wildlife diversity, soil and plants, carbon, nutrient cycling, endangered species, wildlife habitat, groundwater recharge, flood control, water quality) are not traded in the market place, not easily monetized, and thus are often undervalued or Screen-shot-2012-07-18-at-2_50_20-PMnot valued at all.  Think about it – what value do you place on having clean water to swim in, to fish in, or to drink from?  If it’s not valued, how can society best protect these things that we depend upon for life and our standard of living?  Groups, such as Ecosystem Marketplace, among others, are helping to fix that problem by creating markets – and the supply and demand – for these otherwise valuable things.

Linking to today’s post over on the U.S. Water Alliance’s blog where Ben Grumbles, the President of USWA, mentions some important groups working in this exciting space, and discusses the opportunities to leverage markets to accelerate environmental improvements.  Ben tees up the challenges and opportunities:

Smart market-based strategies aren’t just for carbon pollution and climate change–they can make a big difference in protecting water supplies and ecosystems. 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 to blame. Efficient exchanges of credits and offsets among watershed players can save time and money and grow partnerships for holistic, sustainable protection. And 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. It’s time to understand why and also to consider improvements, new tools, and new partnerships to increase the slow pace of water quality restoration.

The picture isn’t 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. The Agency’s Clean Watershed Needs Survey, under section 305(b) of the Clean Water Act, also estimates that communities will face a $300 billion to $1 trillion price tag for estimated needs over the next 20 years. EPA, “2008 Clean Water Needs Assessment Survey”.  It’s not a solution simply to “cluster” the TMDLs or seek greater funding of implementation plans eventually developed for each of the TMDLs. There’s a broader, deeper need for innovation and efficiency. This led EPA to issue its 2003 Water Quality Trading Policy.

In January 2003, EPA’s Administrator Christine Todd Whitman and Assistant Administrator for Water, G. Tracy Mehan, released the agency’s Water Quality Trading Policy which recommends basic ground rules for trading such as what pollutants can be traded, how to set baselines, when trading can occur, and elements of credible trading programs. To summarize from the document:

“Water quality trading programs must meet requirements of the Clean Water Act and trading must occur within the same watershed. EPA supports trading of nutrients and sediments as well as cross-pollutant trading of oxygen demanding pollutants. EPA may consider supporting trades of other pollutants but believes that these trades require a higher level of scrutiny. EPA does not support trading of persistent bioaccumulative toxics (PBTs) except on a pilot basis.EPA supports trading in unimpaired waters to maintain water quality standards as well as in impaired waters. EPA supports both pre-TMDL trading and trading under a TMDL. Trading scenarios include point source-point source trades, point source-nonpoint source trades, pretreatment trades, and intra-plant trades. EPA does not support trading that results in an impairment of an existing or designated use, adversely affects drinking water systems, or exceeds a cap established under a TMDL. In addition, the Trading Policy does not allow trading to meet a technology-based effluent limit (TBEL). Trading can be used to meet water quality based effluent limits (WQBELs) only.”

EPA 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 effective and credible trading programs. Its permitting, planning, and standards-setting offices have worked to understand the opportunities and obstacles. Some of the conclusions:

While trading can take many different forms, the foundations are that a water quality goal is established, that sources within the watershed have significantly different costs to achieve comparable levels of pollution control, and that facilities facing higher pollution control costs to meet their regulatory obligations can purchase environmentally equivalent (or superior) pollution reductions from another source at lower cost. Trading works best when:

1. There’s a driver, such as a TMDL or a more stringent water quality-based requirement in an NPDES permit.

2. Sources within the watershed have significantly different costs to control the pollutant of concern.

3. The necessary levels of pollutant reduction are not so large that all sources in the watershed must reduce as much as possible to achieve the total reduction needed—in this case there may not be enough surplus reductions to sell or purchase.

4. Watershed stakeholders and the state regulatory agency are willing to try an innovative approach and engage in trading design and implementation issues.

EPA also took an important step in 2007, issuing a Water Quality Trading Toolkit for Permit Writers Handbook . This detailed compilation, updated in 2009, includes steps for regulatory frameworks, as well as an appendix of projects and programs around the U.S., from Connecticut’s Nutrient Credit Exchange in the Long Island Sound, to the Neuse River and Tar-Pamlico Sound in North Carolina, to the Tualatin and Willamette Rivers in Oregon, and the lower San Joaquin River, California. The Handbook emphasizes the importance of transparency, verifiable credits, monitoring for results, legal and scientific support, and enforceability.

Since then, important developments have included: 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, recent and emerging nutrient and sediment trading programs in states such as Virginia, Pennsylvania, and Wisconsin, a first of its kind multi-state 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 is also focusing on nutrient trading. (A May 22, 2013 hearing is scheduled as this goes to print.) The attention is well deserved as different groups have different facts, policy agendas, and tactics to either advance or impede the use of trading.

The U.S. Water Alliance, the organization I work for, agrees this is one of the most important topics of the day and that it will only grow in significance as watershed stresses increase, source water protection stakes heighten, and public funds diminish. That’s why we’re enthused about convening key policy makers and regulators, industry leaders, agricultural and environmental groups, and others in Cincinnati Ohio on July 18, 2013, to discuss trading and beyond–practices and policies for advancing market-based solutions to accelerate the cleanup up of impaired waters around the nation.  The dialogue, led by our Business Advisory Council and chaired by Brent Fewell, will 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 based on lessons to date. We’ll ask the diverse group of individuals and organizations:  How do we find common ground on the best ways to accelerate the pace of environmental progress?

From my perspective, credible trading programs and other market-based tools can help ensure the proverbial cup is half-full rather than half-empty.

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2 thoughts on “Emerging Markets are Helping Accelerate Environmental Restoration

  1. Pingback: “Nudging” versus “Coercion” – Balancing Environmental Protection with Liberty and Freedoms | conservefewell

  2. Pingback: To EPA’s New Administrator – Don’t Forget About the Water | conservefewell

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