Water quality trading
Ecosystem services for water include water supply. water damage
mitigation. and water-related cultural services (Brauman et aI., 2007).
Water quality trading is regulated by the EPA and a number of state
regulatory agencies and markets for water quality credits are established
from a regulatory structure that producers or developers
must follow in order to acquire permits for their operations.
Market-based schemes for improving water quality are generally limited
to local or regional programs within a specific watershed. Water
quality trading provides a market-based process for polluters to pay
for the reduction of pollutant levels to achieve targets for a watershed.
When conservation and protection efforts are employed by
landowners. additional benefits to the watershed include flood and
erosion control, habitat retention and wetland restoration. Water
quality trading programs must include key components that define
the types of pollutants that can be traded, who can trade, when trades
can occur and standards for enforcement, verification and liability
(Boyd, 2000). Water quality trading involves discharges of point
source pollution; these dischargers would be the buyers of credits.
Dischargers buy credits from sellers, who can be either point sources
or non-point sources of pollution or providers of improved habitat to
mitigate pollution. In 2010, there were 72 water quality trading programs
in the world with the majority (66) in the US (Stanton et al.,
2010). However, of these programs, only 27 had completed a market
design and were ready to support transactions and only 14 programs
had actually seen a trade (Stanton et al., 2010). One of the primary
benefits of water quality trading to the buyer is that it lowers the
transaction costs of permit requirements. Forest landowners and
farmers can be included as sellers of water quality credits in many
programs. Other participants include water quality permitting authorities,
third-party brokers, conservation organizations, watershed
councils and private industry groups. Local examples of water quality
trading include the EPA watershed-based permit for the Tualatin
River in Oregon that allows trading to achieve the permit requirement
for temperature (Cochran and Loque, 2011). Here, instead of
installing refrigeration systems at two Tualatin River treatment plants
(at a cost of $60 million). the wastewater utility paid upstream
farmers to plant shade trees in the riparian areas (at a cost of
$6 million). The total maximum daily load (TMDL) for water temperature
reduction is closely monitored by the EPA and Oregon Department
of Environmental Quality (ODEQ) and although future
temperature reduction and temperature credits will depend on
shade from riparian trees, the temperature credit calculation is
based on the robust Shade-a-Iator model developed in Oregon
(Lambrinos, 2010; ODEQ, 2010).