WATER POLLUTION: Three Ohio River states sign on to largest-ever credit-trading plan

By Paul Quinlan, Greenwire, E&E News
9 August 2012

Indiana, Kentucky and Ohio state officials signed an agreement this morning to launch a pilot program that aims to reduce water pollution in the Ohio River by allowing trading of pollution credits between industrial facilities and farmers.

It is the largest and most ambitious yet of about two dozen fledgling programs around the United States attempting to take a market-based approach to improving water quality and achieving the Clean Water Act’s goal of returning the nation’s waters to swimmable, fishable condition.

Architects of the Ohio River Basin Water Quality Trading Project — essentially an interstate cap-and-trade system for water pollution — say it will improve water quality more efficiently than simple regulatory mandates would.

Backers of the concept, including many — but certainly not all — environmentalists, hope similar trading programs can be used to fight nutrient pollution in the Chesapeake Bay or in the Mississippi River Basin that feeds the Gulf of Mexico "dead zone" (Greenwire, May 8).

The basic mechanism is modeled after the successful cap-and-trade program implemented in the United States in the 1990s to reduce sulfur dioxide emissions from smokestacks that contributed to acid rain.

The theory is that farmers in the three states could implement relatively low-cost land management techniques to reduce fertilizer- and manure-laden runoff.

Those reductions would generate "credits" that farmers could then sell to industrial facilities for which comparably effective pollution reduction technologies would be considerably more expensive to install.

"This trading plan is a win-win for utility companies, agriculture and, ultimately, consumers and the environment," said American Farmland Trust President Jon Scholl.

At a ceremony in Cincinnati, officials from the three states signed the plan, which was developed by the Electric Power Research Institute, a major electric utility coalition.

Pilot trades are expected through 2015 between at least three power plants or other participants and up to 30 farms implementing so-called best management practices on up to 20,000 acres of land, such as buffer zones and cover crops. They are designed to scrub polluted runoff of 45,000 pounds of nitrogen and 15,000 pounds of phosphorus annually.

Work on the project began in 2009 with $1.3 million in grants from U.S. EPA and the Department of Agriculture’s Natural Resources Conservation Service as well as $700,000 in matching funds from program partners.

EPA threw its support behind water quality trading with a March 2011 memo from the agency’s acting assistant administrator for water, Nancy Stoner.

"States need room to innovate and respond to local water quality needs, so a one-size-fits-all solution to nitrogen and phosphorus pollution is neither desirable nor necessary," Stoner wrote in the memo.

The project could eventually include up to eight states in the Ohio River Basin, potentially creating credit markets for 46 power plants, thousands of wastewater treatment facilities and other industries, and about 230,000 farmers.

The effort has the backing of major farm and industry groups as well as state and federal regulators.

"Trading could provide point sources with a cost-effective option for meeting nutrient reduction targets," said Jessica Fox, senior scientist for the Electric Power Research Institute’s Water and Ecosystems Program. "It could also have added benefits of improving water quality, restoring wildlife habitats, reducing greenhouse gas emissions and top-soil losses, improving soil health on farms, and providing financial support for farmers and local counties.