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Will Water-Trading Credits Help Reduce Pollution?

David McNew/Getty Images
Agriculture is a major polluter of waterways, dumping phosphorus, nitrogen and sediment into bodies of water all across the country. One market-based solution to limit such pollution is the water-trading programs available to farmers through the EPA and the USDA.

The concept sounds familiar: Polluters looking to meet certain emissions targets buy credits from other entities that have some leftover credits to spare. It’s a cap-and-trade program.

Only this one is for water pollution and the biggest players in this newly emerging environmental market are farmers. But some environmental advocacy groups dislike the idea and are looking to Congress for assistance after striking out in the courts.

While water quality trading — or water pollution trading, in the view of critics — isn’t new, it’s been gaining momentum over the past few years. Regulators and polluters are trying to minimize water pollution as they face possible tightening of discharge limits under the Clean Water Act.

In December, the Environmental Protection Agency and the Department of Agriculture, two agencies known to butt heads on pollution issues, announced an expanded partnership to support water-trading programs and market-based approaches to limit pollutants in waterways.

“New water quality trading markets hold incredible potential to benefit rural America by providing new income opportunities and enhancing conservation of water and wildlife habitat,” Agriculture Secretary Tom Vilsack said at the time. “Additionally, these efforts will strengthen businesses across the nation by providing a new pathway to comply with regulatory requirements.”

Agriculture is a major polluter, dumping phosphorus, nitrogen and sediment into waterways and contributing to low-oxygen “dead zones” in water bodies from the Gulf of Mexico to the Chesapeake Bay. But farms also have something that power generators and municipalities, which need to reduce their runoff to meet mandates of the Clean Water Act, don’t: the ability to generate water-trading credits cheaply.

While an aging power plant might have to undergo a costly upgrade of its facilities to meet runoff targets and a city might have to control unwieldy storm water in an urban environment, a farmer can transform some land into a buffer zone or plant a few acres of nitrogen-fixing cover crops.

Then the farmer can sell those credits to another entity in the same watershed, enabling that power plant or factory to meet its obligations under the law. “The cheapest pollution reductions are from agriculture,” said Beth McGee, a water scientist with the Chesapeake Bay Foundation. “Economists will say that agriculture will be the biggest seller in the market.”

For many farmers, that could mean money in the bank. In a statement circulated by critics, Delmarva Poultry, a group representing poultry producers in the Chesapeake Bay watershed, described water trading as a way to “help farmers earn money while providing polluters with the opportunity to increase their pollution.”

That’s raising hackles among environmental groups, which are unusually divided on the issue. “The idea has already gained some acceptance because of carbon trading and other schemes,” said Fred Tutman, head of an environmental watchdog group on Maryland’s Patuxent River, a tributary of the Chesapeake. “But these are money-raising schemes. They’re not pollution-reduction schemes. It’s creating a privatized interest in the resource.”

Under the Clean Water Act, regulators have to set total maximum daily loads for polluted waterways, specifying the amount of pollution that entities on that waterway can emit. “That sets the cap,” McGee explained. “It’s the driver for trading, if you will.”

The Clean Water Act makes a distinction between polluters. There are point source polluters — such as power plants, where pollutants emerge from a single pipe or point — or non-point source polluters, like most farms, where pollutants emerge from a diffuse area.

Point sources — including concentrated animal feeding operations — are required to have discharge permits, which set the allowable pollution they can emit. That would include factory farms or large livestock operations. But because most other farms are considered non-point sources, their pollution isn’t regulated under a permit.

The idea of trading credits between point sources is more straightforward because discharges can be measured more accurately. Not so between point sources and non-point sources. “The part of trading that gives people a lot of heartburn is when you start talking about trading between point sources and non-point sources,” McGee said. “The consternation is about the verification.”

In other words, some critics say, it’s difficult to gauge what a credit is worth and whether it’s actually reducing pollution. “Point sources have permits. They have to monitor their discharges, they have to report their results. There are public documents,” said Scott Edwards, who co-directs the Food and Water Justice Project at the environmental group Food and Water Watch. “Non-point sources like agriculture are not regulated by EPA. There are no monitoring requirements, no permitting requirements.”

The credits generated by farms are thus based largely on modeling and projections, although the requirements vary state by state. State regulators allot a certain amount of the pollution reduction targets under the Clean Water Act to certain sectors, giving agriculture or energy certain thresholds they have to meet.

Then, based on a model, and in some cases a visit to a farm, regulators will decide what percentage of that allotment a particular farm meets and what credit that generates. “They need to get up to a certain level of pollution reduction before they can sell credits,” McGee said of farmers. “They’re not getting a free pass.”

But that approach seems too imprecise for some critics. “It’s a crapshoot,” Edwards said. “No one will ever measure the runoff. We’re exchanging a clearly verifiable reporting system of pollution control for an unverified system based on modeling and guesswork.”

Food and Water Watch and Friends of the Earth sued the EPA in 2012, saying it doesn’t have authority under the Clean Water Act to allow water pollution trading because trading enables point sources to violate their discharge permits and emit more pollutants then they’re allowed under the law. The suit was dismissed in December — because, the court said, the groups couldn’t prove the EPA caused “injury” — and now the groups are turning elsewhere.

“We don’t think EPA has the authority under the Clean Water Act to allow trading,” said Food and Water Watch’s Michele Merkel at a briefing for Hill staffers in January. “We need Congress’ help.”

Edwards said in a statement that Congress needs to become educated about how the Clean Water Act is being undermined because of trading, and take steps to end it. Congress could also defund USDA support of trading programs and members of Congress could speak out more or call for hearings, he said.

But the concept of trading appears to be catching on and neither the courts nor regulators seem inclined to impede it. In 2003 the EPA issued guidance for water trading, and in 2010 President Barack Obama issued an executive order calling for the restoration of the Chesapeake, in part by developing markets for water trading. “The new limits on nutrients and sediment to be established in the TMDL will help establish demand for projects that reduce these pollutants and make a market for these reductions viable,” the order read.

Still, only a few farmers actually have participated in water-trading programs so far.

“There’s been way more debate, discussion, policy papers — you name it — than trading,” McGee said. “But the reality is we’re going to add new loads, so we’re going to need practices to offset them.”

As an environmental group, McGee conceded that the foundation’s position might seem contradictory. “It’s not that we’re pushing it,” she said. “It’s that we think it’s inevitable.”

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