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NRCS, EPA Look to Water-Quality Trading in the United States

Amanda Hawn

The U.S. Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS) and the U.S. Environmental Protection Agency (EPA) recently announced a partnership agreement to encourage Water Quality Credit Trading nationwide. The Ecosystem Marketplace catches up with Mark Rey, under secretary of natural resources and environment, for a quick conversation about the exciting new partnership.

The U.S. Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS) and the U.S. Environmental Protection Agency (EPA) recently announced a partnership agreement to encourage Water Quality Credit Trading nationwide. The Ecosystem Marketplace catches up with Mark Rey, under secretary of natural resources and environment, for a quick conversation about the exciting new partnership. Standing on a Maryland farm above the banks of the Chesapeake Bay on October 13, 2006, Mark Rey, under secretary of natural resources and environment, and Benjamin H. Grumbles, assistant secretary at the Environmental Protection Agency's Office of Water (EPA OW), announced a major new partnership between the Natural Resources Conservation Service (NRCS) and the EPA OW. The agencies plan to integrate their work on water-quality trading, a market-based approach to reducing water pollution that many think holds the key to improved water-quality in watersheds throughout the United States. Most watersheds contain two types of polluters – point sources and non-point sources. Point sources are industrial enterprises that emit nutrients (i.e. pollutants) directly into a watershed from a single pipe or point. Non-point sources, on the other hand, are agricultural or municipal polluters whose pollution washes into a watershed over a diffuse area. For a variety of political, social, economic, and logistic reasons, point sources usually are regulated, while non-point sources are not. Here's the rub: Studies in the United States have found that non-point sources – in particular agricultural polluters – account for more than 80% of the country's nitrogen and phosphorous discharges. Clearly, if eutrophication (caused by an excess of nitrogen, phosphorous and/or silica) is to be avoided in many watersheds, non-point sources must be incorporated into schemes for curbing nutrient discharges. The idea of water-quality trading has risen to ascendancy during the last decade because it offers a cost-effective way of doing just this. After years of regulation, many factory owners have already invested enough in pollution abatement that further efforts to reduce their discharges (i.e. an upgrade to the next-better technology) would be prohibitively expensive. Farmers, by contrast, often can reduce their pollution levels relatively cheaply by changing tilling, planting and/or fertilization practices. Studies suggest that, in some instances, point source reductions can be up to 65 times as expensive as non-point source reductions. Water-quality trading capitalizes on this cost discrepancy by setting discharge limits for point sources without stipulating how the limits must be met. The result is that industrial polluters often opt to pay farmers to reduce their pollution emissions rather than invest in expensive technology to further limit their own discharges. In effect, the factories are purchasing pollution permits from farmers at a market price that is amenable to both parties. "When tighter standards are put in place," writes Paul Faeth, vice president of the World Resources Institute (WRI), "trading increases flexibility and reduces costs. This flexibility produces a less expensive outcome overall while achieving – and even going beyond – the mandated environmental target." This compelling logic has not been lost on policy-makers in the United States, but, to date, markets built around nutrient trading have been limited in scope and impact. The new partnership between EPA OW and NRCS, however, could change that. By integrating their efforts, the two agencies said in a press release that they hope to facilitate the development of viable water-quality credit trading markets. "[We] have been working on this agreement for several months because we felt that we could help one another achieve some of our common aims," said Rey. In particular, the partnership could prove important because the two agencies, together, can bring the right actors to the table for discussions about water-quality trading. The NRCS, which provides technical and financial assistance to private landowners undertaking conservation, is uniquely situated to enlist the cooperation of agricultural producers. The EPA OW, meanwhile, oversees implementation of the Clean Water Act and so can deliver the regulated public to the same set of discussions. According to Rey, the timing of the agreement is also fortuitous for three reasons: (1) the NRCS and the EPA OW have been looking at the interplay between point and non-point sources in recent years and, having done their homework, are now ready to act; (2) there is high-level support for the idea that water-quality trading should be woven into the new farm bill due out next year; and (3) a number of National Pollutant Discharge Elimination System permits are coming up for renewal under the Clean Water Act, fueling interest among point sources in trading as a mechanism for flexibility in the next round of regulation. Based, in part, on the above drivers, insiders say the next two quarters should see the two agencies focusing on integrating their metrics and standards concerning water-quality goals, before unveiling more concrete plans and programs in the second half of 2007. The agencies are looking at trading within watersheds initially, but Rey said they would not rule out cross-tributary trading as an eventual possibility. "The bottom line here," he said, "is that we see this as the future for water-quality improvements and for conservation more generally." Amanda Hawn is the Managing Editor of the Ecosystem Marketplace and may be reached at ahawn@ecosystemmarketplace.com First published: October 13, 2006 Download a copy of the signed agreement » Download the details of the new partnership »

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