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NONPOINT SOURCES AND WATER QUALITY TRADING
Citation:
SIEGEL, L. S., D. S. CHERRY, E. BRITNEY, T. J. CANFIELD, J. P. SCHUBAUER-BERIGAN, AND K. JURLD. NONPOINT SOURCES AND WATER QUALITY TRADING. Presented at The 18th Annual Nonpoint Source Pollution Conference, Newport, RI, May 21 - 23, 2007.
Impact/Purpose:
To inform the public.
Description:
Management of nonpoint sources (NPS) of nutrients may reduce discharge levels more cost effectively than can additional controls on point sources (PS); water quality trading (WQT), where a PS buys nutrient or sediment reductions from an NPS, may be an alternative means for the PS to comply with their regulatory discharge limits. Shaw, under contract with the USEPA, evaluated the technical, economic, and regulatory aspects of such markets that utilize the services of wetlands. The fate and transport of nutrients in wetlands is a function of dynamic biological, physical, and geochemical processes. Wetland use for WQT would require quantification of baseline and reduced discharges, appropriate trading ratios to achieve equivalency with the PS reductions that would otherwise be necessary, and the expected duration of the wetland’s ability to generate credits. Wetlands as credit generators in WQT may provide other ecological benefits, e.g., flood control, species habitat, and recreation, which may have value in other markets. WQT involves buyers, sellers, and to varying degrees, regulators. Simplified modeling of natural systems, uncertainties regarding wetland performance and equivalency, high transaction costs, undefined property rights, and ambiguous authority to trade could all hinder transactions within a WQT program. Research is needed to address various challenges to improve the viability of WQT. Insight into the complexities of wetland performance would reduce uncertainty. A successful trading program would require that market mechanisms optimize the trade’s value, including the wetland’s other services, and risks. The characteristics of a successful trading program would likely include mechanisms to promote NPS participation, minimize transaction costs, establish clear authority to trade and explicit legal agreements for using purchased credits to meet established regulatory requirements, and implement strict compliance and enforcement provisions