Credits Where They’re Due–Will Trading Work?

Earning and trading “credits” to achieve environmental compliance is garnering much attention these days, especially in light of a recent EPA proposal. Trading takes many different forms, but the basic idea is that overachievers–those who reduce more air emissions from their factories, stormwater runoff from their property, or point-source discharge from their outfalls–earn credits that they can sell to property owners or dischargers who are doing less to control what’s escaping from their property. Some see trading as an effective tool for achieving the overall water- or air-quality goals, perhaps more cost-effectively for everyone involved. Others view it as a misguided way to let some of the worst polluters finagle their way out of complying with the rules–conjuring images of shady back-room deals, or simply smacking of cheating, like paying someone to write a term paper for you.In May, USEPA brought the issue to the forefront with a proposed Water Quality Trading Policy designed to speed up clean-water objectives. Careful to point out that the overall federal standards are as stringent as ever, the agency is attempting to move toward a market-based approach to water quality, and it cites numerous demonstration projects in which trading has successfully been used to meet water-quality goals. In its new Draft Framework for Watershed-Based Trading, on which it is now soliciting public comment, EPA offers several examples of how trading might work in practice. In addition to trades among individual companies or property owners, a state may collect fees from developers–as Maryland is now doing in some cases from developers who would otherwise be obligated to create or restore small wetlands in the areas they’re developing–and use the funds for larger, and presumably more beneficial, restoration projects. “Trading Stormwater Abatement Credits in Cincinnati’s Shepherd Creek” on page 50 of this issue describes in detail how trading might work in a specific watershed. Written by members of EPA’s Office of Research and Development National Risk Management Research Laboratory, the article suggests the obverse of the Maryland example–that forgoing small projects in favor of larger that property-level increases in stormwater retention and detention will necessarily have advantages over centralized end-of-pipe approaches. The trading itself as described in the article is a decentralized, market-driven process.Trading can occur both within and across pollutant types: among point sources or among nonpoint sources, between point and nonpoint sources, and within a single point source (as when a plant with several outfalls reallocates the discharges among them to save money, without increasing the combined overall discharge). Pretreatment is another option: An industrial plant that discharges to publicly owned treatment works (such a plant is known as an “indirect source”) can pay other indirect sources to increase pretreatment of their discharges rather than upgrading its own measures.This doesn’t mean point-source dischargers can do whatever they like, even if they can afford to pay; everyone must meet certain minimum discharge standards. For those who are buying credits, however, those standards might be well below the level needed to achieve water-quality goals for the particular watershed. The very flexibility of trading–one of its greatest advantages–poses its own set of problems. How can we monitor the process to ensure accountability and to see if the new arrangements are really helping meet the overall goals? As EPA points out, data in some cases are lacking, and it’s often difficult to estimate nonpoint-source load reductions. Strict water-quality monitoring will be essential. And all this will take place as the TMDL rule is undergoing changes of its own, aimed at introducing more flexibility there as well. Whether TMDLs need to be in place before trading can occur is already a point of contention. In general, anything that makes it easier for people to comply, or gives at least some of them a strong, financial incentive to increase to do more to improve water quality than they otherwise would, will move us more quickly in the direction we want to be headed. EPA is asking for comments, as well as for examples of where trading is working or might reasonably be applied. We urge you to offer your comments and to see what others have said on earlier drafts of EPA’s framework (see www.epa.gov/owow/watershed/tradecom.html). While you’re at it, let us know what you think. Under what conditions is trading feasible? You can write to us at [email protected].