Energy & Environment

Can Credit-Exchange Programs Clean Up Lakes?

The concept has been used for the past 40 years as a means of restoring the health of rivers, streams, lakes and oceans -- but it's getting new attention.
by | October 2012

Suddenly, lots of people are talking about “water quality trading.” It’s not a new concept -- cities, counties and states have utilized water quality trading programs on and off for the past 40 years as a means of restoring the health of rivers, streams, lakes and oceans. But the concept is getting new attention. President Obama has been touting the idea, including during a speech on conservation in March. And in August, three states launched the nation’s first multistate water quality trading program.

Why now? For one thing, this year’s drought -- the worst in more than half a century, according to the National Oceanic and Atmospheric Administration -- has shone a spotlight on the health of America’s waterways, many of which are in seriously poor condition. Of the 3.6 million miles of streams and rivers in this country, more than a third are designated as impaired under the Clean Water Act.

On top of that, advocates say that water quality trading has dual benefits of economic savings and environmental improvements. That makes the program attractive to governments looking for healthy-living solutions in an era of tight budgets. In Obama’s March speech, he told the story of Medford, Ore., which had been returning its treated wastewater to the Rogue River. But the wastewater was too warm and was threatening the river’s native species. Medford faced two options: build a $15 million cooling tower or spend $8 million to plant trees along the river and cool it naturally. Medford chose the latter. Today, the city is in compliance with the Clean Water Act, and it has saved millions of dollars. “The water quality trading model creates for the first time a lingua franca between the economy and the environment,” wrote Joe Whitworth, president of the Freshwater Trust, which oversees the Medford project, in an August op-ed in the Portland Oregonian. “With this, the two biggest forces in the biosphere can now do business together, rather than just fight.”

So what exactly is water quality trading? It’s similar to carbon trading programs, and it involves the voluntary exchange of pollution reduction credits from sources with low costs of pollution control to those with high costs of pollution control. In Medford, the city paid farmers to plant trees in strategic spots along the river. Officials monitored the ecological impact of the restoration to ensure it was working.

In the Midwest, the Ohio River Basin Water Quality Trading Program is striking a similar deal with farmers and industrial facilities. Starting in 2015, at least three power plants and 30 farms in Indiana, Kentucky and Ohio will implement best practices and then trade credits in an effort to eliminate annual run-off of up to 45,000 pounds of nitrogen and 15,000 pounds of phosphorus into the river. “Trading provides point sources with a cost-effective option for meeting nutrient reduction targets and has the added benefits of improving water quality … and providing financial support for farmers and local counties,” Jessica Fox, senior scientist for EPRI’s Water and Ecosystems Program, told an audience at the agreement’s signing ceremony.

In fact, the commission overseeing the restoration of the Chesapeake Bay is considering a similar multistate compact. RTI International, an economic consulting firm from North Carolina, has found that savings could range from 20 to 80 percent, depending on how trading is structured. That could be welcome news for state officials in Delaware, Maryland, Pennsylvania and Virginia, who are grappling with how to pay for a clean-up plan imposed by the Environmental Protection Agency.

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