NACWA - Clean Water Advocacy

Home

Clean Water Advocacy Newsroom

Clean Water Advocacy - Newsroom - AMSA in the News

Tasha Eichenseher, Land Letter reporter

Glenn Harvey spends most of his days dealing with the intricacies of sewage pipe networks and the composition of discharges from a wastewater treatment facility in Virginia that serves 350,000 customers. But this week, Harvey got a peek at life at the opposite end of the Chesapeake Bay, playing a farmer with 150 head of cattle on the banks of the Potomac River in upstate Maryland. As the engineer of special projects for the Alexandria Sanitation Authority, Harvey is partially responsible for making sure the effluent from the wastewater treatment facility meets state nutrient standards. In his imaginary role as a farmer this week, he set out to find the most cost-effective way to reduce manure-laden runoff and nutrient pollution from his land.

Using a computer software tool called NutrientNet, he estimated the amount of nitrogen his livestock would produce and then adopted a "best management practice," such as including a riparian buffer zone, to mitigate the pollution. He assigned the reduced nutrient load a per-pound price and posted it on an online registry, hoping the market would pair him up with an interested buyer, most likely a sewage treatment facility manager unable to meet water quality standards and shopping for nutrient credits.

Harvey's virtual day on the farm was part of a workshop Monday on nutrient trading sponsored by the World Resources Institute and the Metropolitan Washington Council of Governments in Washington, D.C. The workshop was part of WRI's efforts to familiarize potential stakeholders in the Chesapeake Bay area with market-based approaches to improving water quality.

WRI's NutrientNet helps regulators allocate nutrient credits among farmers, water treatment facilities, factories and other sources by setting up an online interface for trading. It has been used in Michigan's Kalamazoo River watershed and is under development for a pilot project on the Potomac River in the Chesapeake Bay.

Excess nutrients discharged into the bay have created a dead zone, in which algal blooms deplete oxygen, threatening aquatic habitat and damaging commercial crabbing and fishing industries. The agriculture industry is the largest source of nutrient loading in the bay, releasing an estimated 47 percent of the bay's phosphorus and 41 percent of its nitrogen, according to officials involved in the Chesapeake Bay restoration effort (Greenwire, Oct. 28). Under a 2000 agreement, the District of Columbia, Maryland, Pennsylvania and Virginia agreed to reduce nutrient and sediment pollution flowing into the bay as part of a multibillion dollar state and federal effort to restore the 64,000 square-mile watershed.

The Chesapeake Bay Commission estimates that bay cleanup by 2010 would cost close to an additional $19 billion. State and federal agencies have already contributed $6 billion to restoration efforts (Greenwire, Aug. 23).

The role of trade

In March 2003, regulators from the six states and Washington, D.C., agreed to to reduce nitrogen deposits in the Chesapeake Bay by 40 percent by 2010 (Greenwire, March 24, 2003). The Chesapeake Bay Program's new standards, backed by federal and state agencies, mandated a decrease in nitrogen discharges from 275 million pounds annually to no more than 175 million pounds and a drop in phosphorus discharges from 18.8 million pounds per year to no more than 12.8 million pounds.

Part of Pennsylvania's strategy, unveiled Aug. 12, is to incorporate trading schemes. The state is working with WRI to refine NutrientNet. "We hope it would become one of the tools we utilize to meet 2010 goals" to reduce bay nutrient levels, said Andy Zemba, assistant director of the state Department of Environmental Protection's water planning office.

Pennsylvania also has found other uses for NutrientNet that could eventually compliment the trading schemes. The Pennsylvania Environmental Council plans to use the software to hold a reverse auction for Agriculture Department Conservation Innovation grants in the Conestoga River watershed in Lancaster County. The council would financially reward farmers that propose the most cost-effective management practices for nutrient reduction.

"By using an Internet trading platform and estimation tool, we can try to allocate conservation dollars to ... projects that are going to result in the greatest nutrient reduction per dollar spent," said Scott Vandemark, the council's director of special projects, adding that the agency plans to hold a trial auction next spring.

Pennsylvania DEP Secretary Kathleen McGinty has also advocated for market-based solutions. "Today's environmental challenges require new ideas," she said. "Harnessing market forces can be an effective means of achieving environmental regulatory goals, especially those outlined in the Chesapeake Bay Agreement, at less expense than traditional command and control regulations."

Pennsylvania is ahead of other Chesapeake Bay states in terms of developing trading strategies, said Roy Hoagland, vice president for environmental protection and restoration at the Chesapeake Bay Foundation. While he is quick to point out the flaws with market-based strategies, noting that the "last time we used the free market for environmental protection, we had rivers burning," Hoagland adds that "any tool that reduces nutrient pollution is worthwhile."

The foundation has recommended that trading should be done on a permit basis with state oversight within riversheds only, said Hoagland. Anything else could be unwieldy. "We don't believe you can manage pollution reduction accurately across the whole watershed and know what nutrient reductions you're getting and not getting," he said.

Paul Faeth, executive vice president of WRI, agrees that transboundary trading is tricky. "The divergence of state approaches is a problem for the application of trading," he said. "Even if two states share a watershed, right now it's unlikely that trading across state lines will happen anytime soon, even though it would make sense to keep the costs down."

WRI's NutrientNet evolved from a 2000 WRI report on nutrient trading potential in three Midwestern states. According to that report, market solutions are 60 percent to 80 percent less costly than traditional "command and control" regulations, said Faeth. In Michigan, WRI found that trading reduced phosphorus at a cost of $2.90 per pound, while conventional point-source regulations cost $24 per pound.

WRI's workshop and increased local interest in trading solutions to meet the nutrient pollution reduction goals outlined in the Chesapeake Bay agreement coincide with the Nov. 10 release of the U.S. EPA's Water Quality Trading Assessment Handbook. The handbook outlines a market-based framework for watershed nutrient pollution reductions.

"Where it is the appropriate tool, trading is a powerful and effective market-based approach to achieving cleaner water," according to EPA. The handbook helps stakeholders determine whether they can develop a tradeable commodity based on the type, impact, timing and quantity of the pollutant.

"NutrientNet is an example of a tool that could be used with market infrastructure design," said Katharine Dowell at EPA's Office of Water. "It's by no means the only way to go, but it is a tool that may be useful. It's something that we funded the development of, starting a couple years back just as a prototype example."

Prospects for success

Most trading advocates agree that a successful market needs regulatory legs to stand on. The EPA model assumes that nutrient discharge standards are in place in the affected watershed. While no such standards actually exist for non-point sources, such as farms, EPA recently proposed nutrient limits from point-source sewage treatment plants in the bay area (Greenwire, Sept. 2). Many states have established limits in lieu of federal regulations.

And bay advocates are fighting to force EPA to take a harder line on pollution control in the Chesapeake. The Chesapeake Bay Foundation filed a lawsuit earlier this month, alleging EPA should enforce nitrogen and phosphorous discharge limits for treatment plants (Greenwire, Nov. 10). "A lot of proponents have sold trading as a panacea ... but if you're going to reduce pollution in the bay you need strict regulations consistent with the Clean Water Act and funding for (treatment plant) upgrades," Hoagland said.

Due to the regulatory differences in non-point and point sources, there are uncertainties embedded in the effectiveness of agricultural management practices, which can vary from one parcel of land to the next, that throw another wrench in any trading scheme. Comparing apples to apples, or in this case nitrogen load to nitrogen load, from point and non-point sources, requires commodification, explained Zemba.

While many regulators and stakeholders have high hopes for trading, they recognize other obstacles outside of a lack of regulatory standards for non-point sources.

For starters, said John Rhoderick, administrator for resource conservation at the Maryland Department of Agriculture, there are political challenges. "Politically, it's suicide. Rate payers want to see those improvements in their own county" instead of sending money to farms outside of the treatment plant's jurisdiction, said Rhoderick, who has been investigating trading for nearly a decade.

Rhoderick said the consensus among most stakeholders in the Chesapeake Bay area is that trading has a role in nutrient pollution control only after wastewater treatment facilities and farms are doing everything they can to meet requirements. Trading would then be used to manage the required level of pollution control and offset any permit that exceeds that level as populations increase and wastewater treatment jurisdictions grow.

Beyond political barriers lie other roadblocks, including monitoring, administrative oversight, customized software design, and quantifying the value of a best management practice. "It's premature to say whether it's a solution," said Jeff Harn, environmental planning office coordinator for the Arlington County Department of Environmental Services.

The most cited and successful nutrient trading program has come out of the Long Island Sound, according to Chris Hornback, director of regulatory affairs for the Association of Metropolitan Sewerage Agencies. However, the Long Island Sound program deals only with trades between point sources. Trading between point and non-point sources of pollution is "where we'd all like to go in terms of trading," because you get more bang for your buck, said Hornback. However, he said, there is currently not enough backing from public wastewater treatment agencies to push such a trading scheme forward.

Under the current system, efforts to control point and non-point pollution sources are exclusive of each other, even though they contribute to the same water quality problems in the same watershed, Faeth said.

While market-based solutions to water pollution problems have been relatively slow to evolve, trading schemes for air pollutants are better established and enjoy broader support. The 1990 amendments to the Clean Air Act established a market-based system to reduce emissions that cause acidification from power plants. And the White House has touted the acid rain program as a success, largely because 10 million tons of sulfur dioxide emissions have been eliminated at one-fifth to one-tenth the cost of the original estimates put forth by Congress and EPA (Greenwire, June 3, 2002).

One of the more recent experiments in trading air emissions is the Chicago Climate Exchange, which trades in carbon dioxide, a greenhouse gas (GHG) unregulated by the U.S. government. The system is a voluntary four-year pilot program that allows member companies to earn credits for reducing their GHG emissions below a certain point. They can then sell those credits at the Chicago Climate Exchange to companies with high levels of emissions (Greenwire, Nov. 11).

After trying out the system this week, Harvey called NutrientNet "a very slick implementation of a very bad plan." He doubts many treatment facilities will want to participate in such trading schemes. As with most market-based solutions, equity is the primary issue, explained Harvey.

"Why should urban [treatment facilities] that have gone to the limit of technology for years making demonstrable reductions in nutrients be responsible for non-point programs also?" he said, explaining that the proposed trading systems he knows about in Virginia would require the point sources to administer the trades. "There comes a point when the [public wastewater treatment facility] operators say 'enough.' It begins to look like a tax on urban populations to get rural populations to do their part. You're talking about sending Fairfax money to Shenandoah chicken farmers."

But NutrientNet developers believe the trading plan will take off. "I'd love to see nutrient credits traded on the Chicago board of trade in 10 years," Faeth said. "I think it's definitely the way to go, and there's no reason you couldn't do it for the entire Mississippi River watershed."