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Fact Sheet · October 2012
What Is Water Quality Trading?
n 1977, Congress passed a set of amendments to the 1972 Federal Water Pollution
Control Act. Together, the original act and the amendments came to be known as
the Clean Water Act (CWA). The CWA set a strong and simple standard that polluting
is illegal, and that the national goal is zero discharge of pollution into our public
Failing achievement of zero discharge, the CWA set limits on discharges.
Some of those limits were straightforward. If a pipe lets
out on a waterway, the CWA limits what can come from
that pipe. It also ensures a cleaner future environment
by requiring new permits that continue to ratchet down
discharges using the “Best Available Technology.”
sort of direct pollution is referred to as point source pol-
lution, as the pollution comes from a single source, and
is regulated under the CWA. However, many non-point
sources of pollution exist under less stringent CWA con-
trols. For example, many row crops are largely unregu-
lated under the CWA.
Although the CWA focuses on individual polluters, oc-
casionally the U.S. Environmental Protection Agency
(EPA) establishes pollution limits for individual water-
ways and, in the case of the Chesapeake Bay, an entire
watershed. Waterways that can’t atain the required
level of pollution control, whether due to point source or
non-point source polluters, should be managed under a
Total Maximum Daily Load (TMDL), a level of pollution
that will allow the body of water to meet the standards.
States are given significant leeway in finding ways to
meet the TMDL.
A recent trend in meeting TMDLs is “water quality trad-
ing.” Under these schemes, point source and non-point
source polluters essentially enter a cap-and-trade system
for water pollution.
(For more on cap-and-trade, see
Food & Water Watch’s report, Bad Credit: How Pollution
Trading Fails the Environment.) The EPA suggests that,
through trading, watersheds can be cleaned at a lower
total cost than through regulation.
Puting aside the fact that water pollutant trading turns
the CWA, which made trading illegal,
on its head by
allowing people to sell the “right” to pollute, and that
trading abandons the successful point source permiting
program, trading fails on a number of counts. Pollution
abatement, particularly from non-point sources, is ofen
uncertain and unverified, which may result in fraudu-
lent reductions and further environmental harm. Even
where pollution abatement from a credit generator is
verified, increases of pollution from the credit purchaser
may lead to localized impacts or “hotspots.”
likely to create disproportionate environmental impacts
on low-income populations that use waterways most
susceptible to localized impacts.
The many problems with trading mean that, despite
great fanfare and seed money, the first 20 years of
point-nonpoint pollution trading have yielded few, if
any, positive results.
Indeed, a Rutgers University report
detailing four “successful” trading projects admits that
two were not traditional trading regimes at all, one was
a regulatory ofset program for point sources, and the
fourth listed as its accomplishment that, “No actual
This apparent definition of success by
the proponents of the idea suggests that trading can’t
pass even a very low bar.
Vague, Uncertain and
In order to make the most economically eficient pol-
lution changes, regulators allow traders to purchase
“ofsets,” pollution reductions from other, frequently
unregulated, sectors. In water, this frequently involves
Although concentrated animal feeding operations (CA-
FOs), or factory farms, are regulated as point sources,
other farms including smaller animal operations and
farms raising crops are nonpoint sources. While it is
technically possible to monitor these farms’ discharge,
the political will is lacking. As such, these ofsets are at
best vague. An actual trading regime would require a
massive measurement change. In practice, atempts to
quantify agricultural runof have faced overwhelming
opposition from farmers.
We’ve seen some of this weakness in other trading pro-
grams. Whether it is farms geting credits for pollution
reduction for best management practices that have al-
ready been implemented, leading to no additional reduc-
tion, or outright fraud in the carbon ofset market, ofset
markets are subject to abuse. Measuring ofsets is vague
and dificult at best, and the temptation for cheating is
overwhelming. Indeed, a 2012 case saw a Maryland man
convicted for selling over $9 million worth of carbon
credits for biofuels he had never created.
The Delmarva Poultry Industry, Inc. knows the real ef-
fect of pollution trading. In their June 2010 newsleter,
they described the idea as “a program … to help farmers
earn money while providing polluters with the op-
portunity to increase their pollution to the Chesa-
peake Bay and its tributaries.”
Not So Cool: Hot Spots and Trading
Water quality trading is concerned about pollution at a
given endpoint, whether in a stream or a whole water-
shed. While trading might have some efect on pollution
avoidance in one place, it allows point sources to pollute
at a higher level, and may not have suficient efect
downstream to achieve goals for pollution control. This
unequal distribution of responsibility can allow for “hot
spots,” areas where more pollution accrues than would
be the case with more direct pollution controls.
Trading assumes that, since the total load on the overall
watershed will not go up, local conditions will not get
worse. But trading will allow certain polluters to emit
more pollution, buying ofsets from other sectors. That
trade, which might or might not help the health of the
total watershed, will assuredly lead to worse pollution in
certain hot spots.
The question for someone contemplating a new pollu-
tion market boils down to a simple one: Where will the
pollution land, and where do I live? That is not a fair
solution for those negatively afected.
Let the Seller Beware:
The Market for Nature
Waterways and watersheds are common resources,
available and needed for many uses by all of us. That’s
why water has long been considered a public trust,
something that we all have a stake in and protect.
order to do that, we require compliance from users.
A market in water quality turns this on its head. It re-
places compliance with compensation. Instead of saying
that a polluter doesn’t have the right to pollute our com-
mon resources, markets sell that right. You are allowed
to pollute if you simply pay enough.
But this introduces a new and unmanageable bargain.
Once a price is put on nature, all of our common re-
sources can be bought, sold and packaged. Worse, as
we’ve seen in the past five years, a market can be ma-
nipulated, repackaged and resold as derivatives, bonds
and other market measures. But the common resource
doesn’t gain from this trade. Only the traders and the
Markets are not the answer to the challenge of water
quality. Instead, we need to regulate those who dump
pollutants into our waterways. We should not be selling
the right to pollute, but reinforcing the idea that nobody
has the right to pollute everybody’s water.
1 Federal Water Pollution Control Act. (33 U.S.C. 1251 et seq., [As
Amended Through P.L. 107–303, November 27, 2002]) Title I,
Section 101 (a).
2 Ibid., Section 304 (b)1.
3 Ribaudo, Marc. “Agriculture and Water Quality Trading: Exploring
the Possibilities.” Amber Waves, U.S. Department of Agriculture,
Economic Research Service. March 2009.
4 Federal Water Pollution Control Act. (2002), Section 303.
5 U.S. Environmental Protection Agency. “EPA Water Quality Trad-
ing Evaluation.” October 2008, at 1-1.
6 See, e.g., Federal Water Pollution Control Act. (2002), Section
402, which lists acceptable permitting options for point source
discharges, but which does not include any option but obtaining a
permit, which is absent in water quality trading.
7 Steinzor, Rena. “Great potential, but huge problems.” The Environ-
mental Forum. March/April 2003 at 69.
8 Steinzor, Rena et al. “Water Quality Trading in the Chesapeake
Bay.” Center for Progressive Reform. May 2012 at 18.
9 Fang, Feng, et al. “Point-nonpoint source water quality trading: a
case study in the Minnesota River basin.” Journal of the American
Water Resources Association. American Water Resources Associa-
tion. June 2005 at 646.
10 Rutgers University Water Resources Program. “Further Details of
the Four Successful Water Quality Trading Projects.” Available at
accessed July 2012.
11 Breetz, Hanna L. et al. “Water Quality Trading and Offset Initia-
tives in the U.S.: A Comprehensive Survey.” Dartmouth College.
August 5, 2004, at 168.
12 Wheeler, Timothy B. “Perry Hall man convicted in biodiesel fraud
case.” The Baltimore Sun. June 25, 2012.
13 Delmarva Poultry Industry, Inc. “Maryland Develops an Agricul-
tural Nutrient Trading Program.” Timely Topics. June 2010 at 13.
14 Shortle, James. “Water Quality Trading in Agriculture.” Organisa-
tion for Economic Co-operation and Development, 2012 at 15.
15 California State Lands Commission. “The Public Trust Doctrine.”
September 17, 2001 at 1.
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Copyright © October 2012 Food & Water Europe
This action might not be possible to undo. Are you sure you want to continue?