MM-13 (6/23/05 version)
Water Quality Credit Trading

On January 13, 2003, US EPA released guidance for a new National Water Quality Trading Program. This policy calls on states to develop programs for trading water pollution reduction credits, similar to what has been done with air pollutants for several years. This approach is consistent with an increasing preference for market-based solutions to environmental issues. There is potential for pollutant trading to be helpful in restoring water quality in watersheds where it is more economical to address sediment and nutrient causes of impairment through NPS controls (unregulated) versus point source controls that are regulated by the Clean Water Act.

Ohio River Basin Environmental Credit Trading Pilot Project

This is the first interagency effort to conduct environmental credit trading within a large watershed. The originating partners include the US Environmental Protection Agency, the Ohio River Valley Water Sanitation Commission (ORSANCO), USDA, and the Ohio River Basin states. The partners are working to establish and implement voluntary market-based approaches that will improve water quality within the Ohio River Basin and reduce nutrient loads to the Gulf of Mexico. Goals of this project include improving water quality and, where possible, achieving ancillary environmental benefits through trading; and leveraging investments in agriculture that increase productivity and improve environmental performance.

Great Miami River Basin

In cooperation with the partners referenced above and community stakeholders, The Miami Conservancy District (MCD) has worked to develop and pilot a water quality credit trading program to address water quality concerns in the Great Miami River Watershed. The MCD initiative utilizes a watershed framework within which trading occurs. For example, a downstream wastewater treatment plant (WWTP) facing expensive treatment requirements could invest money in less expensive upstream agricultural management practices. The upstream water quality improves, the water at the treatment plant downstream improves, and so does the water quality in between. The WWTP customers benefit from lower costs and everybody benefits from cleaner water.

Water quality credits may be generated by implementing voluntary agricultural management practices that prevent the runoff of phosphorus (TP) and nitrogen (TN) into the Great Miami River watershed. Other opportunities to generate credits may include treatment plant enhancements, urban stormwater management, and on-site septic system upgrades that go beyond what is required. The water quality credits generated by these practices may be purchased by regulated dischargers (that become eligible buyers) for the purpose of complying with regulations related to the particular nutrient for which the credit is generated. Eligible buyers are public and private entities that: 1) hold a state-issued National Pollutant Discharge Elimination System (NPDES) permit; 2) have their NPDES permit modified to reflect their participation in the Trading Program; and 3) participate (by written agreement) in funding the administrative and analytical costs for the Trading Program.

The cost of a water-quality credit will be driven by market competition and the cost for the nutrient management practice (including applicable capital, operating, and maintenance costs). Management practices that achieve the greatest nutrient reductions for the least amount of money will have a competitive advantage. Local soil and water conservation professionals working directly with agricultural producers will propose the specific agricultural practices that generate credits. An advisory group with broad-based stakeholder representation will review all proposals submitted and make recommendations for funding projects based on criteria. The advisory group will be charged with the development of the criteria by which the evaluations will be conducted.

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