Water Quality Trading 101
This is the first of a number of posts planned to introduce you to the concepts central to Willamette Partnership’s work– a crash course in “water quality trading.” We see this as an important tool in bringing together watershed stakeholders and restoring resilient natural systems for clean water.
Setting the Stage: Why We Need Alternative Tools for Clean Water
Under the Clean Water Act, wastewater facilities, factories and hydropower plants are required to minimize their pollutant impacts on waterways. Those facilities are known as point sources because discharges can be tracked to a discrete source like a pipe. However, pollutants such as excess nutrients come from multiple sources in addition to point sources mentioned above including residential, forest, and farm lands, also known as non-point sources.
To accomplish the Clean Water Act’s goal to restore fishable, swimmable waters often means constructing expensive technologies that may not address broader clean water goals throughout the watershed. To meaningfully get to the goal of clean water while supporting healthy communities and economies means having a range of strategies to adapt to dynamic ecological, social, and economic conditions within a given watershed. This is where water quality trading comes in.
The Basics of Water Quality Trading
As an alternative to onsite technology solutions, facilities can work with farmers and landowners to implement conservation practices that are often lower in cost, such as installing livestock exclusion fencing along stream banks to reduce sediment. Facilities then pay for the water quality benefits– or credits resulting from these practices to meet their own clean water requirements. This is the most basic value proposition for water quality trading, economic efficiency – cleaner water, happening at lower cost. While water quality trading programs provide flexibility for participants in how they achieve pollution reduction targets, successful programs are well structured and follow guiding principles such as regulatory consistency, accountability and transparency, and appropriate compliance and enforcement provisions. Often, trades occur under regulatory permits, such as the National Pollutant Discharge Elimination System (NPDES) and therefore need to be consistent with 2003 U.S. EPA Trading Policy and Clean Water Act.
The Elements of a Water Quality Trading Program
A water quality trading program includes the following elements:
- Credits – A unit of pollution reduction (e.g., lbs/year) resulting from restoration projects or implementation of best management practices.
- Credit Project – Restoration of a site or implementation of best management practices that result in water quality benefits above what might be required for a given location. Examples include reduced fertilizer applications to crop fields or planting trees along stream banks.
- Buyers – Parties interested in improving water quality either voluntarily or to meet required regulations such as facilities operating under a permit issued by the Environmental Protection Agency.
- Sellers – Providers of water quality benefits through implementation of credit generating projects.
- Trading Program – Trading program rules defining who is eligible to participate and procedures for generating credits, monitoring and tracking credit projects, how transactions are executed, and public transparency.
More Than Just Water Quality Improvement
Providing flexible approaches to achieving pollutant standards and creating economic efficiency is only half the story. Crediting projects often provide a host of other benefits to the environment and communities throughout a watershed that would not occur through onsite water treatment. Such co-benefits may include fish and wildlife habitat improvements, public green spaces, and strengthening relationships between landowners and conservation community. Check out an earlier blog post on how co-benefits were generated in the City of Medford’s trading program. 
Where Programs are Happening
Water quality trading programs exist across the country and at varying scales. In Wisconsin the Great Lakes Commission is working with the Natural Resources Conservation Service (NRCS) and the Wisconsin DNR to develop a program to address high nutrient levels in the 638 square mile Lower Fox River Watershed. The state of Virginia has established a nutrient crediting exchange which currently includes 105 wastewater treatment facilities, aimed at reducing nitrogen and phosphorus levels to the Chesapeake Bay. In 2012, the states of Ohio, Indiana, and Kentucky signed an agreement creating the world’s largest trading program for the Ohio River Basin.
Growth of Water Quality Trading
While trading programs have existed for several decades, their use as a strategy to address water quality is still relatively new. In 2015, the National Network on Water Quality Trading published Building a Water Quality Trading Program: Options and Considerations, which provides guiding principles and options for eleven common elements to trading programs, as well as pros and cons to help stakeholders evaluate how best to build a program that meets local watershed needs. As is often the case, water quality trading is not a singular strategy to achieve clean water goals, but rather one of many tools necessary. By incorporating programs into existing watershed plans and programs, water quality trading can help achieve clean water goals in ways that are beneficial for landowners, communities, and the environment.
