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Program will pilot water quality trading in the Ohio River Basin
By MATTHEW D. ERNST
Missouri Correspondent

WEST LAFAYETTE, Ind. — A pioneering water quality credit trading pilot program is to launch in 16 Ohio River Basin counties in Indiana, Ohio and Kentucky during the next five years.

The program, led by the Electric Power Research Institute (EPRI), will allow up to 30 farms to trade water quality credits to permitted entities seeking to reduce nutrient loads released into the Ohio River Basin watershed. The program is projected to involve up to 20,000 acres.

Soil and Water Conservation District (SWCD) staff in the 16 counties will be reaching out to producers over the next two years to explain the program and determine their interest. Ohio counties involved are Columbia, Jefferson, Mahoning, Morgan and Washington. The Indiana SWCDs involved are Ripley, Switzerland, Ohio, Dearborn, and Wayne counties. In Kentucky, Boone, Mason, Carroll, Gallatin, Bracken and Lewis counties may be involved.

The trading program will allow water quality credits to be earned for nitrogen or phosphorous kept from leaving a field using best management practices. Farms will then trade the credits with an entity, such as an electrical power plant, that is required by law to reduce wastewater pollution. The farm will be paid for the trade.
“The logic behind water quality credit trading is that the cost for farmers to reduce nonpoint sources of nutrient loads in a watershed is much less than what it would cost point-source industrial users to accomplish similar reductions,” said Ben Gramig, assistant professor of natural resources and environmental economics at Purdue University.

“Simply put, farmers can clean up those total nutrient loads at lower cost than a point source can.”

Gramig, who has reviewed other pilot trading programs but is not directly involved with this project, said it is important to limit the geographical area when setting up a pilot. “You have to quantify what the change in nutrients will be, and that baseline could look very different in different parts of the Ohio River Basin,” he explained.

Another reason trading programs begin at a pilot level, said Gramig, is the significant institutional and administrative challenges in designing water quality trading programs.

“You have to verify that producers are using particular practices, and you have to pass that information along to agencies that are in charge of pollution control,” he noted.

The Ohio River Basin project is unique, as it marks the first time several states have come together in a pilot trading program. The program will also seek extensive input from farmers before launching, as one goal is to make the program simpler than state and federal incentive payment programs.

“Participation in pilot trades provides farmers with the unique opportunity to help shape the multistate nutrient trading program,” said Larry Antosch, Ohio Farm Bureau Federation senior director of policy development and environmental policy.

Water quality credit trading is championed as a market-based approach to improve water quality in specific watersheds. “It’s complex, but if the details are worked out to establish a working infrastructure and a clearinghouse for trading the credits, it can become a successful market-based approach to reducing nutrient impacts,” said Gramig.

“This is a wonderful opportunity to utilize the power and efficiency of a market to improve water quality, and everyone benefits at the end of the day.”

The Ohio River Basin project received more than $1.2 million in Natural Resources Conservation Service Conservation Innovation Grants in August. A $1 million grant to EPRI will allow for the development of the water quality credit trading infrastructure.
A $221,364 grant, administered by American Farmland Trust, will develop, test and refine a procedure for crediting variable rate application technology practices in water quality credit trading programs.
9/26/2012