From Carbon Credits to Water Quality Trading

October 15, 2009

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Similar to a carbon cap-and-trade scheme, a forthcoming water quality trading program will allow emitters to purchase pollution reduction credits from another source. The Electric Power Research Institute (EPRI) has received $1.3 million in federal grants from the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Agriculture (USDA) to launch a regional water quality trading program in the Ohio River Basin, aimed at the reduction of nitrogen and phosphorus discharges into the Ohio River.

The market-based trading program allows facilities facing high pollution control costs to buy reduction credits from another facility or entity with lower pollution control costs. The goal is to achieve the same or even better water quality improvements more efficiently and at lower costs, said EPRI.

EPRI recently completed a feasibility study for a regional water quality trading program in the Ohio River Basin and will now work with regional stakeholders to develop a first-of-its-kind working project in the Basin. A few states have trading frameworks in place or in development but none operate on an interstate basis, according to EPRI.

The project will focus on nitrogen and phosphorus discharges from sources within the Basin, which is expected to result in water quality improvements throughout the region, which includes portions of Illinois, Indiana, Kentucky, New York, Ohio, Pennsylvania, Virginia and West Virginia.

EPRI says implementation of an interstate trading program will require participation by multiple stakeholders and trading partners, including power companies, publicly-owned treatment works, regulators and non-point sources such as farmers.

Project participants include Kieser Associates LLC, Ohio River Valley Water Sanitation Commission, American Farmland Trust, Hunton Williams LLP, The Miami Conservancy District, University of California at Santa Barbara, Texas Institute for Applied Environmental Research, American Electric Power, Hoosier Energy, The Tennessee Valley Authority and Duke Energy. Participants are providing $700,000 in matching funds, bringing the total project funding to $2 million.

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