By MEGGIE I. FOSTER
Associate Editor

GREENFIELD, Ind. — In an effort to generate discussion on a relatively new concept known as water quality trading, the Conservation Technology Informa-tion Center (CTIC) hosted a farmer focus group meeting last week in Greenfield, Ind.

“I believe when done right this (water quality trading) can be a cost effective way to advance the environment,” said Jim Klang, an engineer with Kieser and Associates, who shared findings from a two-year feasibility study on water quality trading.

In Klang’s feasibility study, he researched opportunities within the Wabash River Basin that covers Indiana and eastern Illinois and a very small area in western Ohio. His project focused on nitrogen and phosphorous discharges from sources within the Basin.

Essentially, water quality trading is similar in nature to carbon credit trading in that it is an innovative approach to achieving water quality goals more efficiently, said Klang.

Trading is based on the fact that sources in a watershed can face very different costs to control the same pollutant such as phosphorous, sediment or nitrogen.

Trading programs allow facilities such as waste water treatment plants facing higher pollution control costs (via the Environmental Protection Agency) to meet their regulatory obligation by purchasing environmentally equivalent (or superior) pollution reduction from another source, for instance – a farmer, at a lower cost, thus achieving the same water quality improvement at a lower overall cost.

More simply, farmers implement conservation practices known as Best Management Practices such as buffers, grass waterways, etc., and sell the amount of nutrients or sediment kept from escaping the farm. Facilities like waster water treatment plants purchase the reductions to help meet these higher water quality regulatory requirements. Many of these facilities find that it is less expensive to pay producers to implement conservation practices than it is to expand the facility or install new treatment technologies, he explained.
“Through water quality trading, producers, regulated facilities and the environment all benefit. It’s basically a win-win-win when it all works right,” Klang said, further adding that water quality trading is still in the development phase until all parties including the waste water treatment plants, state regulatory agencies and farmers are all on board with the policy.

Klang explained that in order for water quality trading to work effectively, the trading has to produce a real reduction. In other words, there has to be a surplus. A surplus in pollution reduction equals credits, he said, adding that the trading ratio has to be greater than 1:1.

“Otherwise, no one will believe in it, no one is going to participate in it,” he said. “There has to be surplus. This is an equity issue.”

Klang added that this program if implemented at the state level will not benefit producers with BMPs currently in place.

The reason – because the sediment, phosphorous or nitrogen reduction is not an additional reduction, he said. “This could leave a sour taste in the mouth of early innovators, and it could help others catch up,” Klang said. “This is not always an equitable program. But when you think about BMPs, this is a program that could help pay for the investment up front.”

Klang confirmed that there are numerous policy issues at the federal and state levels that still need to be negotiated.

“If a regulator (ie. Indiana Department of Environmental Management) doesn’t believe in the benefits of this program, then it isn’t going to happen,” he said.
However, if implemented and offered as a voluntary program option for producers, the cost and credit value will be market-driven.

The benefits of the program would include price discovery because everyone is competing for a low price, low cost for the buyer (waste water treatment facility), farmers quickly under price target to get funding and may avoid failed negotiations. The negatives – farmers are competing against each other, the true cost of the program is not always available and the focus is slow on the credit cost.

According to Klang, there are multiple drivers behind the implementation of this program including the Gulf of Mexico, the Clean Water Act and a new requirement being set-up that is pushing waste water treatment facilities to change pollutant guidelines.

“As waste water treatment plants increase pollutant levels (it is currently 4 percent reduction in Indiana), it may offer new opportunities for farmers,” he said, explaining that Maryland has a 60 percent pollutant reduction.
Water quality trading if implemented would fall under a rule within the National Pollutant Discharge Elimina-tion System of the EPA and would be a voluntary producer program.

“This is a complex program, but the principles are simple,” Klang said, encouraging interested farmers in the focus group to participate in policy discussion.

“However, if no one participates then this program won’t go anywhere.”