Trading Away Your Right to Clean Water

Trading and the Financialization of Nature
Fact Sheet · September 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 waterways.
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 dis-
charges using the “Best Available Technology.”
That sort
of direct pollution is referred to as point source pollution,
as the pollution comes from a single source, and is regu-
lated under the CWA. However, many non-point sources
of pollution exist under less stringent CWA controls. For
example, many row crops are largely unregulated under
the CWA.

Although the CWA focuses on individual polluters, occa-
sionally the U.S. Environmental Protection Agency (EPA)
establishes pollution limits for individual waterways and,
in the case of the Chesapeake Bay, an entire watershed.
Waterways that can't attain 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.
Putting 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 permitting
program, trading fails on a number of counts. Pollution
abatement, particularly from non-point sources, is often
uncertain and unverified, which may result in fraudulent
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.”
Trading is 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-non-
point pollution trading have yielded few, if any, positive
Indeed, a Rutgers University report detailing four
“successful” trading projects admits that two were not tra-
ditional trading regimes at all, one was a regulatory offset
program for point sources, and the fourth listed as its ac-
complishment that, “No actual trades occurred.”
apparent definition of success by the proponents of the
idea suggests that trading can't pass even a very low bar.
Vague, Uncertain and
Downright False: Offsets and Policy
In order to make the most economically efficient pol-
lution changes, regulators allow traders to purchase
“offsets,” pollution reductions from other, frequently un-
regulated, sectors. In water, this frequently involves agri-
cultural runoff.
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 offsets are at
best vague. An actual trading regime would require a
massive measurement change. In practice, attempts to
quantify agricultural runoff have faced overwhelming
opposition from farmers.
We've seen some of this weakness in other trading
programs. Whether it is farms getting credits for pollu-
tion reduction for best management practices that have
already been implemented, leading to no additional
reduction, or outright fraud in the carbon offset market,
offset markets are subject to abuse. Measuring offsets is
vague and difficult at best, and the temptation for cheat-
ing is overwhelming. Indeed, a 2012 case saw a Mary-
land 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 newsletter,
they described the idea as “a program … to help farmers
earn money while providing polluters with the oppor-
tunity to increase their pollution to the Chesapeake
Bay and its tributaries.”
(emphasis added)
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 effect on pollution
avoidance in one place, it allows point sources to pol-
lute at a higher level, and may not have sufficient effect
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 offsets 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 so-
lution for those negatively affected.
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
polluters gain.
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, Sec-
tion 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 Trading
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 Association. June
2005 at 646.
10 Rutgers University Water Resources Program. “Further Details of the
Four Successful Water Quality Trading Projects.” Available at, ac-
cessed July 2012.
11 Breetz, Hanna L. et al. “Water Quality Trading and Offset Initiatives
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 Agricultural
Nutrient Trading Program.” Timely Topics. June 2010 at 13.
14 Shortle, James. “Water Quality Trading in Agriculture.” Organisation
for Economic Co-operation and Development, 2012 at 15.
15 California State Lands Commission. “The Public Trust Doctrine.” Sep-
tember 17, 2001 at 1.
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