Nutrient pollution is a serious problem in the United States. Nutrient discharges promote excessive algae growth in affected watersheds that exhaust available oxygen eliminating plant and animal life. The United States Environmental Protection Agency (EPA) has recognized a need for flexible and innovative solutions to nutrient pollution. In response, states have explored a variety of options to address this problem including establishment of a water quality trading regime and numeric nutrient standards. This update reviews recent developments in the effort to control nutrient pollutants, including the first interstate water trading plan in the Ohio River Basin, the potential for "stacking" of environmental mitigation credits, and Wisconsin's "flexible" implementation plan.
On August 9, 2012, representatives of Ohio, Indiana, and Kentucky agreed to launch a pilot program to reduce water pollution in the Ohio River Basin through the trading of credits for nutrient pollutants, including nitrogen and phosphorus. It is the first interstate trading plan where a water quality credit generated in one state can be applied in another. The pilot program could serve as a model to establish market-based approaches to combat water pollution in other affected watersheds.
In the last 15 years, approximately 80 water quality trading pilot projects, feasibility assessments, and trading programs have been conducted in the United States, but only a few have resulted in actual trading. The developers of the Ohio River Basin project reviewed each of these earlier programs to guide the development of the pilot project.
Water quality trading allows one discharge source to purchase reduction credits from another source in a way similar to that permitted by the EPA Acid Rain cap and trade program for nitrogen oxide (NOx) and sulfur oxide (SOx). Eligible facilities hold permits allowing discharges subject to water quality standards for nutrient discharges. The discharges can be reduced or eliminated through operational modifications or control technologies. The control costs can differ from one discharger to another.
For example, farmers can implement low-cost land management techniques to reduce fertilizer and manure-laden runoff. These reductions generate credits that the farmers could then sell to industrial facilities where similar reductions require expensive technologies. The reductions would not only improve the water quality, but could also enhance the economic viability of farm operations.
Trading is scheduled to begin in 2015 between at least three power plants and up to 30 farms implementing management practices on up to 20,000 acres of land. This trading system should eliminate an estimated 45,000 pounds of nitrogen and 15,000 pounds of phosphorus runoff annually. The project could eventually include all eight states located in the Ohio River Basin and create a credit market with 46 power plants, thousands of wastewater treatment facilities, and approximately 230,000 farmers.
The developers of the Ohio River Basin project are also evaluating opportunities to stack environmental credits. Credit stacking is a practice where a conservation project is allowed to produce credits in multiple markets. For example, wetlands can filter pollutants from surface water runoff and store carbon. If a farmer were to create or restore wetlands, the farmer could earn credits for the reduction of pollutant loads as well as for reducing emissions of greenhouse gases.
In February 2011, the developers published the initial results of their investigation into the current state of credit stacking. The report offered a consensus definition for credit stacking and highlighted a need for improved clarity in the rules on transactions involving stacked credits. The developers are using the initial findings to develop a series of guiding principles that will lay the foundation for a defensible, effective, and appropriate credit stacking protocol.
Although supporters applaud the ecological and economic benefits of the pilot project, water quality trading is not the only method to address nutrient pollution. In March 2011, EPA released a memorandum recognizing "a one-size-fits-all solution to nitrogen and phosphorus pollution is neither desirable nor necessary." The agency appears to be willing to allow states to use a variety of creative methods to combat nutrient pollution.
For example, Wisconsin developed an implementation plan for numeric nutrient criteria. The plan provides permit holders the flexibility to work with the largest contributors of nonpoint source pollution and identify methods to reduce phosphorus discharges.
EPA completed its review of the implementation plan in July 2012 and commended Wisconsin for being the first state to establish numeric water quality criteria. Supporters of the plan argue the numeric criteria will reduce nutrient pollution without the need for a complicated trading regime.
The plan places the burden on permit holders to obtain reductions from nonpoint sources, but allows permit holders and nonpoint source dischargers the flexibility to utilize any number of methods to achieve reductions. Permit holders could work with farmers to install vegetative buffer zones, provide financial assistance to incentivize actions to reduce phosphorus loads, or even buy the farmer out.
The plan provides permit holders five years to identify the largest source of nonpoint source phosphorus loading in their watersheds. The permit holders then have another two permit cycles to work with nonpoint source dischargers to attain reductions or find alternative ways to achieve compliance. If the watershed remains out of compliance after those two cycles, the permit holder must reduce their pollutant loads within the next permitting cycle. This reduction may require installation of expensive control technologies or process changes.
EPA's recognition of the need for innovative approaches to combat nutrient pollution has provided states room to innovate. The Ohio River Basin water quality trading project and Wisconsin implementation plan are examples of the flexible solutions being developed by states.
It remains to be seen whether these programs will address local water quality needs and generate benefits for a range of commercial, agricultural, and environmental stakeholders. If so, the programs could serve as models for how to deal with nutrient pollution in other watersheds, such as the Chesapeake Bay or the Mississippi River Basin (which discharges into the "dead zone" in the Gulf of Mexico).
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