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Water Quality Cap-and-Trade Wins USDA Funds

The U.S. Department of Agriculture has awarded $1 million to an industry-led cap and trade system for water quality.

The Electric Power Research Institute (EPRI) will use the Conservation Innovation Grant to initiate water quality pilot trades in the Ohio River Basin, which covers parts of Illinois, Indiana, Kentucky, Maryland, Ohio, Pennsylvania, Tennessee and West Virginia.

The institute is now starting Phase II of the project, a market-based approach designed to enable facilities facing high pollution control costs to buy reduction credits from entities with lower costs. Industry participants including American Electric Power and Duke Energy are providing $400,000 in additional funds, bringing the total Phase II funding to $1.4 million.

EPRI describes the initiative, launched in 2009, as a first-of-its-kind, interstate multi-credit trading program. The institute says the project represents a comprehensive approach to designing and developing markets for nitrogen, phosphorus and potentially greenhouse gas reduction credits.

The project is also designed to support the adoption of an agricultural conservation regimen and best management practices to reduce nutrient loads in Ohio River Basin waters and improve local and regional water quality. These upstream improvements may also reduce hypoxia – the oxygen deprived zones – in the Gulf of Mexico.

EPRI expects pilot trades to take place among at least three power plants or other participants, and up to 50 farms implementing conservation best management practices on up to 20,000 acres across Ohio, Indiana, Kentucky, West Virginia, Illinois or Tennessee. Nutrient reductions are expected to range up to 45,000 pounds of nitrogen and 15,000 pounds of phosphorus a year.

At full scale, the project would become the world’s largest water quality trading program, EPRI says. It would potentially create credit markets for 46 power plants, thousands of wastewater facilities and other industries, and about 230,000 farmers.

“Using scientific research, this project could result in a multi-industry market that may accelerate water quality improvements in the Ohio River Basin and establish a model for other domestic regional trading markets,” said Jessica Fox, senior scientist for EPRI’s Water and Ecosystems Program.

EPRI will lead the research effort and be supported by American Farmland Trust; Hunton & Williams LLP; Kieser & Associates, LLC; and the University of California at Santa Barbara. The project is also receiving regional support from the Ohio Farm Bureau Federation, Miami Conservancy District, and the Ohio River Valley Water Sanitation Commission, which recently passed a resolution endorsing an interstate water quality trading program for the Ohio River Basin.

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8 thoughts on “Water Quality Cap-and-Trade Wins USDA Funds

  1. I am all for protecting our natural resources. I am not for new taxes. This is a new tax. Yet another drag on the economy & every Americans check book. Cap & Trade is Bad for America. We have enough laws, we need to fine tune the laws that are already in place.

  2. Todd is just about 40 years too late. The cap — on point sources of water pollution regulated under the Clean Water Act — was authorized when the CWA was signed by President Nixon in 1972. What this project seeks to to is explore the potential of trades. That is, can regulated point sources contribute to cleaner rivers and lakes by paying farmers and other landowners for pollution prevention measures less expensively than they would have to by building more water treatment infrastructure? It’s an interesting and important trial of a way to fine tune a law that has been in place for a very long time.

  3. Todd: whoa, there pardner. Looks like your hair-trigger ‘Cap&Trade = bad’ gun has discharged prematurely. If you had actually investigated the link provided in the article, you would have learned that there is no tax involved here.

    One quote from the FAQ sublink reads “No laws or regulations require industries or landowners to participate in water quality trading programs. The Ohio River Basin Trading Project is entirely voluntary. The incentive to participate is based on the likelihood that credit sellers will receive attractive financial benefits by selling credits, and that permitted dischargers will have the flexibility to cost-effectively meet their environmental permit requirements”. Such voluntary programs are clearly not examples of the imposition of a “new tax”. And the entity proposing the system is not a government – it is a private industry group, the Electric Power Research Institute (EPRI).

    Furtheremore, Cap&Trade programs in general are not taxes; even if imposed by legislative mandate. They are merely methods of attaching a financial price for previously unvalued ‘external costs’ (i.e. costs that are not captured in traditional economic accounting practices). Paying the newly attached ‘price’ for those external costs can easily be reduced or entirely avoided through judicious use of tradable permits, combined with decisions to reduce the external cost directly through investment in pollution reduction schemes of various sorts. None of the above is a “tax”; since taxes are in principle unavoidable payments that are directly linked to some measure of economic activity or capital asset. They are all simply private market forces and responses. Even if the ‘price’ paid goes directly to the governing authority, it is still not a traditional “tax”; since as noted the ‘price’ can actually be avoided by other means.

  4. Cap and trade for water just seems odd. Is it just me or isn’t this a way for the electric companies NOT to do what they should do, and allow water to continue to be poisoned?

    “The institute is now starting Phase II of the project, a market-based approach designed to enable facilities facing high pollution control costs (aka electric companies) to buy reduction credits from entities with lower costs (aka farmers)…”

    Carbon is one thing…but water is a finite RESOURCE. Poisoning it at any time is unacceptable and there “should be” zero tolerance. Punishment should be severe. If a company poisons the water and puts thousands of innocent people at risk, why doesn’t the company see the same justice a terrorist would receive who planted a failed bomb in an office tower? No one was hurt in the end. However, intent is certain in both cases. Punishment should be similarly severe. There should be no doubt that companies choose to poison the water…it is virtually never an accident. Protection from spilling into waterways and public systems is VERY preventable and in fact very easy…however, it is also VERY expensive and high maintenance costs are associated with constant testing.

  5. Water quality should not be compromised. The resource is already scarce. Doesn’t cap & trade mean big polluters keep polluting at high levels, but just pay for it? Many or most on the receiving end would likely be reducing impacts anyway due to both compliance and consumer demand drivers.

  6. Tom: Cap&Trade for water means that the water resources would eventually be less polluted. This is true for the following reasons:

    1) Polluters can keep on polluting at high levels, but only by paying $$ for additional permits. Therefore there is an economic incentive to find ways to pollute less.

    2) With the passage of time, the number of pollution permits declines, meaning that the price to buy those permits will tend to keep on rising, adding ever more pressure on poluters to change their polluting ways.

    3) Those who want to sell their permits to others, can only do so by ensuring that their own pollution levels are low enough to free up some of their permits in order to sell them. So even if the big polluters are buying permits like mad and continuing to pollute, the entities that sell their permits to them are actually polluting less. In combination with point 2) above, this means that the water will be receiving less and less pollution from all sources combined.

    Cap&Trade adds to the other reasons you cite for why companies might tend to pollute less in the future.

  7. A couple of very good responses that very succinctly explain the workings of Cap and Trade. Sorry, Todd, but that now worn out mantra about taxes has no place here. Hopefully, you’ve read the several explanations above and now are more educated about cap and trade situations. I invite you to search the web and read more. with all due respect, as the old saying goes, “Why spend time getting educated when ignorance is instantaneous” Educating yourself about these situations is the best way to contribute to the national dialogue on these issues and others. Bob

  8. Another point about this cap & trade program (as well as many others) that has not been emphasized above is that this method of trading credits also gives the “little guy” like farmers more of an incentive to reduce their pollution. It pays landowners such as farmers for their work in helping to address a water quality problem that we all contribute to (unless of course, you don’t use electricity). It harnesses these many small actions to add up to a lot. I see cap & trade as not only good for the environment, in this case water quality, but also as putting a greater value on good land and stewardship. Since the cost of any such program is ultimately borne by the regulated industries (the power companies in this case) – the cost will be paid by anyone who purchases their power (i.e. us, the consumers). Isn’t it preferable to pay a LOWER price for pollution control because cap & trade costs LESS than megatreatment plants, and wouldn’t you prefer to see farmers and landowners benefiting from some of those pollution control payments?

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