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December 23, 2013
New fed push for water quality trading

The EPA and the U.S. Department of Agriculture (USDA) announced that they would increase cooperative efforts to induce more farmers and ranchers to participate in water quality trading.

While not a regulatory requirement, water quality trading can be used by an entity to meet its Clean Water Act (CWA) obligations, sometimes at a lower cost than would be incurred if the entity acted independently.  Water quality trading has been available for years, but it can be a complex process and has never achieved the popularity envisioned by the EPA.  Accordingly, the EPA/USDA partnership focuses on outreach and education involving both agricultural entities and the states, which are usually responsible under the CWA for ensuring that trades meet regulatory requirements.  

Simple in concept

The basic principles of water quality trading were established by the EPA in its 2003 Water Quality Trading Policy .  Trading is based on the concept that certain point sources or nonpoint sources can economically reduce their pollutant loadings.  These sources can therefore achieve reductions beyond what is required by federal or state regulations.  The additional reductions can then be turned into pollutant credits that can be traded to other entities that face higher reduction costs.  The purchased credits can then be used to meet compliance obligations.

Complex in practice

While the concept of water quality trading is straightforward, implementation, particularly regarding agriculture, is not. 
When nonpoint agricultural facilities are involved in trading, it is necessary to establish a baseline of pollutant reduction; only those reductions achieved beyond the baseline can be traded.  Since measuring pollutant reductions from an agricultural facility is extremely difficult, a farmer or rancher can acquire credits by undertaking voluntary best management practices (BMPs).  But the types of BMPs favored by regulators tend to be costly—for example, removing land from production, creating buffer strips, or changing fertilization practices. 

Many farmers are resistant to undertaking these actions because of uncertainty about return on investment if trading partners are not available or are not able to buy credits.  Also, regulators that must approve trades tend to create trading ratios that account for the uncertainty in agricultural practices, which farmers view as undervaluing their actions and, therefore, their credits. 

Federal assistance

In their announcement, the EPA/USDA emphasize their desire to show farmers and ranchers that they can indeed benefit economically from water quality trading.  The agreement consists of five steps:

  • Coordinate and enhance communications and outreach to states, agricultural producers, regulated sources, and interested third parties on water quality trading.
  • Engage expertise across agencies in the review of grants, loans, or technical assistance programs focused on water quality trading.
  • Share information on the development of rules and guidance that have the potential to affect water quality trading.
  • Collaborate on developing tools and information resources for states and credit generators to guide decision making, reduce costs in program design and implementation, improve environmental performance, and foster consistency and integrity across regional initiatives.
  • Cohost a workshop by 2015 to share tools and resources available to assist in stakeholder decision making and opportunities.

Chesapeake Bay experience

This is not the first time the EPA and the USDA have announced an agreement to promote water quality trading; in 2006, the two agencies went into partnership to establish and promote water quality credit trading markets through cooperative conservation, particularly in the Chesapeake Bay watershed.  The Chesapeake Bay program is still developing, highlighting the difficulty of establishing sound and long-lasting trading agreements.

Nonetheless, the National Association of Clean Water Agencies (NACWA) welcomed the more-recent federal announcement.
“NACWA commends the U.S. Department of Agriculture and the U.S. Environmental Protection Agency for entering into such an important partnership,” said the NACWA.  “Their continued support is critical to ensuring that water quality trading remains a viable tool for achieving water quality goals more efficiently, and we look forward to working closely with them on this important issue.”

A copy of the EPA/USDA agreement 

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