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Emissions Trading Goes Online, Great Lakes Radio Consortium Story, dated December 10, 2001.

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Market-Based Water Quality Management Yields Cleaner Water at Lower Cost
WASHINGTON, DC - A report released recently by the World Resources Institute (WRI) concludes that market-based approaches to water quality management, including nutrient trading, can provide greater improvements in water quality at much lower cost than traditional regulatory approaches alone.

"As a more flexible form of regulation, nutrient trading can provide a wide range of benefits to industry, communities, and even farmers," said Paul Faeth, author of Fertile Ground: Nutrient Trading's Potential to Cost-Effectively Improve Water Quality.

Despite the success of the Clean Water Act in reducing water pollution through tighter regulations on industrial and municipal "point" sources of pollution, there are still about 3,400 waterways in the US that are impaired by nutrients, primarily nitrogen and phosphorus. Excess nutrients are largely the result of "nonpoint-source" runoff from agricultural fertilizer and animal waste. Such runoff can cause algal blooms that die and leave too little oxygen in the water for fish and other species to survive.

The "mahogany tide" now invading the lower Chesapeake Bay and its tributaries, is an example of this sort of problem. The current bloom is the largest in twenty years and has caused at least two major fish kills.

Faeth contends that further water quality improvements depend on developing low-cost, innovative approaches that can effectively cut pollution from agricultural sources, as well as making regulatory requirements more economically feasible for point source dischargers.

The WRI report documents case studies in three watersheds of the Upper Midwest: the Saginaw Bay in Michigan, the Rock River in Wisconsin, and the Minnesota River Valley. The study compares the cost-effectiveness and environmental performance of four different approaches to reduce levels of phosphorus in the study sites:

The study found that policies utilizing market-based approaches, such as trading, were much more cost-effective in meeting regulatory limits for nutrients in the waterways studied than conventional regulatory approaches. Nutrient trading, when combined with agricultural subsidies that are tied to reductions in nutrient runoff and subsequent improvements in water quality, provided the greatest overall cost savings. According to Faeth, "policy approaches using nutrient trading are dramatically less expensive than those using conventional point-source performance requirements, amounting to savings of up to 82 percent in the Michigan study."

Trading makes it profitable for sources with low treatment costs to reduce their own effluents beyond legal requirements, generate a credit from the surplus reductions, and sell these credits to dischargers with higher treatment costs. This flexibility produces a less expensive outcome overall while achieving-and often going beyond-the mandated environmental target.

With the option of trading to meet regulatory requirements, dischargers like municipal sewage and industrial waste treatment plants can choose to upgrade their facilities with technology designed to meet new requirements, or to share in the cost of an upgrade of another facility that will exceed regulated reductions. Thus, it generates a reduction credit for the first facility -- a point-point trade.

Alternatively, a treatment facility might opt to pay farmers within the same watershed to adopt conservation practices to reduce their fertilizer runoff, thereby generating a credit for the treatment facility -- a point-nonpoint trade. In both cases, each facility and the farmer save money, while the new requirement is effectively met.

Trading has been successfully applied to achieve cost-effective reductions in other areas of environmental concern, including lead, sulfur dioxide, and other air emissions. In addition, trading is the leading option proposed to address the build-up of greenhouse gas emissions that could cause climate change.

"Conventional regulatory approaches to water quality management can work, but they can be very expensive, and often don't target the biggest sources of pollution" said Faeth, "Our report shows that trading could save a lot of money in the watersheds we studied. With 3,400 waterways impaired by nutrients in the U.S., we're going to need a cost-effective solution to this problem."

Faeth also noted that great potential may exist for the use of nutrient trading in large watersheds as well, such as the Mississippi River Basin and the Chesapeake Bay. WRI is currently undertaking new research on the potential for nutrient trading to address the "dead zone" in Gulf of Mexico, caused by nutrient pollution from the Mississippi River. The Institute will soon launch a new Website, NutrientNet, designed to facilitate on-line trades among industry, communities, and farmers in six U.S. watersheds. Fox-Wolf Basin 2000 has been working with WRI in offering feedback for the development and participating in the testing of this website.

The World Resources Institute (WRI) is a Washington, DC-based center for research that provides objective information and practical proposals for change to foster environmentally sound and sustainable development. WRI works with institutions in more than 50 countries to bring the insights of scientific research, economic analyses and practical experience to political, business and nongovernmental organizations around the world. For more information, please contact Paul Faeth at 202/729-7688 or visit WRI's website at: http://www.wri.org/wri.

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