Science Inventory





To inform the public.


The problem of managing stormwater runoff grows apace with continued urbanization, yet the management tools for this growing non-point source problem have not fully kept up. The rapid growth of stormwater utilities around the nation is an important step toward providing an effective institutional structure for stormwater management, but even within this relatively new structure, stormwater management will not be completely cost-effective until this traditionally viewed non-point source problem is converted into a point source problem.
Proliferation of impervious surface allows stormwater to reach a stream faster and in greater quantities than otherwise, causing higher peak flows that degrade stream form and habitat. In many older cities, such elevated peak flows greatly exacerbate combined sewer overflow (CSO) problems. Where impervious surface prevents rainfall from infiltrating the soil, less water is available for groundwater recharge, which can reduce stream base flow and impact aquifer recharge rates. Furthermore, depending upon the extent of impervious surface in the watershed, nutrients and toxics that are scrubbed off roadways and parking lots and transported overland and through storm drains into waterways can cause significant toxic loadings of streams.
Stormwater runoff managers need to achieve runoff control in a cost-effective and equitable manner, given limited local budgets. Instead of relying exclusively on large scale, centralized, and costly infrastructure to mitigate the effects of excess stormwater runoff (SWR) we propose a system of tradable credits that creates economic incentive for individual property owners to build small best management practices (BMPs) distributed throughout a watershed. We believe this method will control SWR in a cost-effective way that approximates a water retention profile in an unaltered watershed. With the sale of detention credits as the incentive to increase construction of BMPs in the watershed, parcel owners can trade responsibility for runoff detention, much like emissions allowances in the air quality trading market.
For a system of tradable credits to work, we need to have a targeted level of runoff reduction and detention, based on desired biophysical/ecological parameters, such as volume and velocity of peak flows, among others. Also, to yield cost advantages, there must be heterogeneity among property owners with respect to the cost of detention/retention. Further, we must assume that responsibility for SWR detention can be shared among many parcel owners regardless of where they are within the trading area.
Under the tradable credit system, a parcel owner who must control the excess SWR from his property has a choice of either installing a BMP or purchasing credits in the market. (There may be a variety of BMPs suitable to his site's area, soil type, slope, etc, each having potentially different cost.) If it will cost the parcel owner more to build an on-site BMP than to buy a credit, he will buy the credit in lieu of abating. Conversely, if a BMP is cheaper, he will create the on-site detention. Those parcel owners for whom it is relatively cheap to construct BMPs will find it financially advantageous to do so, and to detain SWR enough for those in the relevant trading area who do not find it financially advantageous. Those who construct BMPs will be compensated by those parcel owners for whom detention would be expensive.
At any time the intersection of credit supply and credit demand will determine the equilibrium price and quantity available of credits. An individual parcel owner thus faces two exogenous factors: the price of credits as decided in the market, and the quantity of excess runoff that must be abated from his or her property, which is stipulated for individual parcels by a watershed authority.
We envision a watershed authority managing the market. Our assumption is that the authority operates as a clearinghouse, computing appropriate prices for credits and acting as middleman in the buying and selling of credits from parcel owners, under a legal constraint that all property owners are responsible for the excess SWR from their property. An initial allocation of credits in the watershed would be decided by the authority, as well as an initial price. We expect this to be generated from an engineering and economic analysis of the overall public and private costs of meeting the relevant ecological constraint (peak stream volume and velocity, elimination of CSOs, groundwater recharge targets, etc.), in conjunction with whatever centralized investments in storage and conveyance would be indicated in a comprehensive cost-effectiveness analysis.
Our pilot analysis has focused on the Shepherd Creek, a 500 acre subbasin of the Mill Creek in Cincinnati, Ohio. This area was chosen because of its diverse land use, topography, and soil types, and because it lies in the Mill Creek basin, an impaired warm water habitat with well-documented SWR-associated problems.
Mount Airy Forest, a protected area, occupies a large piece of the study area, while proposed and ongoing subdivision developments provide us with the opportunity to research a dynamic system. To illustrate the trading mechanism, we've used a range of credit prices that might exist in the watershed, calculated excess runoff responsibilities for each land parcel, and simulated trading scenarios. We have compared the average cost of excess SWR detention/retention with the trading system to the expected cost of a proposed centralized remedy to flood and CSO control in the watershed as well as a command-and-control scenario.
In our preliminary analysis, a tradable credit system in the Shepherd Creek compares favorably to both an "engineering solution" to excess SWR (that is, a large centralized storage tunnel), as well as a command and control scenario, in terms of cost per cubic foot and amount of water retained. These initial findings support the hypothesis that, either on its own, or in conjunction with a large-scale centralized storage facility, a tradable credit system can, by promoting a significant amount of dispersed abatement, contribute to effective management of excess stormwater runoff and maintenance of the natural hydrologic regime in a watershed.
Currently we are working on the following issues to strengthen our analysis:
• Which BMPs are appropriate for residential/commercial use in an urbanizing area
• Appropriate cost functions for installation of BMPs, including the opportunity costs associated with the portions of land parcels used for installation
• Transactions costs associated with a tradable credit program
• Potential institutional arrangements to facilitate operation of a tradable credit program
• Potential legal framework necessary, including contracts between governing authority and traders
• Better quantification of ecological limits
• Multi-period simulation of trading scenarios, perhaps in a general equilibrium framework

Record Details:

Product Published Date: 04/11/2002
Record Last Revised: 09/30/2008
OMB Category: Other
Record ID: 95734