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BEI Spotlight Series: Profiling Stories of Progress

No. 1

To Market We Go

Water quality trading treats pollution as a commodity, could yield significant environmental - and economic - results By Kerry Freek

Few people would argue against investments to prevent or treat water pollution. But a developing market for water quality trading, credits, and offsets could make a strong economic case for environmental protection. In July 2012, the U.S. Environmental Protection Agency approved Wisconsin’s program to reduce phosphorus levels in the Great Lakes and Wisconsin’s inland waters. Nutrients, including phosphorus, remain one of the most significant causes of water pollution. As regulators seek to combat excessive loading to source waters, they’re looking to implement rigorous new phosphorus limits. Once approved, it’s up to wastewater dischargers to meet the limits, but immediate compliance can be a costly endeavour involving consultations, upgrades and retrofits, and even new capital purchases.

August 2012

Recognizing this challenge, Wisconsin’s new program allows permit holders to meet discharge requirements through partnership arrangements with others who release phosphorus. The goal is to economically reduce overall phosphorus levels in the watershed. “Trading could provide point sources with a costeffective option for meeting nutrient reduction targets,” says Jessica Fox, senior scientist for the Electric Power Research Institute (EPRI) Water and Ecosystems Program. “It could also have added benefits of improving water quality, restoring wildlife habitats, reducing greenhouse gas emissions and top-soil losses, improving soil health on farms and providing financial support The South Nation River near Casselman, Ontario ©Wikipedia for farmers and local counties.” times, the watershed has exceeded the provincial water quality objective for phosphorus, in some cases State analysis, it is anticipated, could also reveal that rising to over four times the limit. In response, SNC the positive economic impacts of cleaner water on developed and implemented a water quality trading property values will outweigh the capital costs of program called Total Phosphorus Management (TPM) pollution controls. as part of its Clean Water Program. Other trading programs are gaining momentum. In TPM allows dischargers to release excess phosphorus collaboration with power companies, federal and into the waterways as long as they offset the increased state agencies, agricultural organizations, academia, load by helping to control phosphorus from non-point the private sector and other industry organizations, sources, such as agricultural runoff. Agreements with Fox leads the Ohio River Basin Trading Project, the SNC stipulate that dischargers will pay a specific amount world’s largest water quality trading project operating of money in exchange for credits. The Clean Water under a common trading plan. At full-scale, it could Program awards those funds to projects designed to include up to eight states in the Ohio River Basin and prevent phosphorus from entering the watercourse, would potentially create credit markets for 46 power such as barnyard runoff control. Reducing the overall plants, thousands of wastewater facilities and other load to the treatment plants protects the watershed, industries, and approximately 230,000 farmers. In and the program achieves environmental, economic, August 2012, Indiana, Kentucky, and Ohio signed a and social benefits. plan to be the first to implement water quality pilot trades. According to Environment Canada, cost-benefit studies conducted in the watershed estimate that Seizing the opportunity the cost of removing phosphorus through the TPM program is $1,200 per kilogram, compared to $2,000 in Canada per kilogram for traditional wastewater treatment methods. The TPM has leveraged over $100,000 Water quality trading tools such as offsets and credits since the year 2000 for the Clean Water Program to are rare—but not new—in Canada. In fact, one of the implement phosphorus reduction projects, which most successful and globally recognized programs have stimulated economic development in many originates with South Nation Conservation (SNC), a sectors including consulting, permitting, construction watershed-based organization in eastern Ontario. labour and equipment, and materials. The South Nation River watershed supports farming along with regular municipal water usage and, at

Movement and pick-up Ontario’s Regional Municipality of York is also considering phosphorus offsets. Due to the Lake Simcoe Protection Act and associated Phosphorus Reduction Strategy, there are limits placed on each of the 15 sewage treatment plants around the lake. “If you have population growth, you have more phosphorus,” says Adrian Coombs, senior project manager for the Region’s Upper York Sewage Solution (UYSS) project, a treatment plant aimed at accommodating expected growth in the area. Coombs says her team is looking at several options for offsets, including removing septic tanks from within 100 metres of a watercourse, or rebuilding or retrofitting stormwater management ponds built in the mid-1990s. “It’s up to the Ministry of Environment (MOE) to set the ratio,” she says. “If you’re discharging one kilogram above your limit into a watercourse, you might have to take two away, for example.”

found in Lake Winnipeg’s phosphorus loading woes. The immediacy of the issue is a signal that we’re ready to enter the age of the bioeconomy, he says. It’s a way of doing business that will result in a combination of economic and environmental benefits. In partnership with IISD and the University of Manitoba, the provincial government pledged $150,000 in November 2010 for a proof-of-concept pilot project at Lake Winnipeg’s Netley-Libau Marsh. Over a few years, the project has seen about 200 hectares of marsh grasses harvested. These grasses naturally store phosphorus— think of the wetland as the lake’s kidneys—and can be turned into a renewable, clean biofuel product, such as pellets, that can be used in place of fossil fuels for space heating. With similar projects, IISD and its partners could generate carbon credits.

In theory, the solution is a win-win: while encouraging the restoration and maintenance of wetlands Lake Simcoe, ON for Lake Winnipeg’s clean (image provided courtesy of NASA) future, it generates capital Project-specific offsets are a and provides an alternative highly appropriate way to combat loads in excess of to coal. rated capacity, says Coombs, but they’re probably a short-term solution. “Large phosphorus loads should Venema estimates the market to be worth billions. ultimately be prevented from entering the watershed. “We’re not just spending on an environmental issue; It’s a matter of how you protect the lake,” she says. we’re investing in new value chains,” he says. Like Broader water quality trading, however, may allow water quality trading in Wisconsin and the Ohio River dischargers to acquire credits that aren’t necessarily Basin, and the forward-thinking model in the South in the same watershed. That’s part of what the MOE Nation River watershed, the bioeconomy mentality in is considering around trading, in addition to questions practice could herald the shift from capital-intensive about governance and brokering. measures to collaborative, efficient pollution control— and help fuel a thriving environment and economy.

Level up

In Manitoba, Henry David Venema is taking the language of water quality trading, credits, and offsets to the next level. The director of the International Institute for Sustainable Development’s (IISD) Water Innovation Centre says that there’s opportunity to be

Water Quality Trading : To Market we go