Trading Away Your Right to Clean Water Trading and the Financialization of Nature

What Is Water Quality Trading?

In 1977, Congress passed a set of amendments to the 1972 Federal Water Pollution Control Act. Together, the original act and the amendments came to be known as the Clean Water

Act (CWA). The CWA set a strong and simple standard that polluting is illegal, and that the national goal is zero discharge of pollution into our public waterways.1 Failing achievement of zero discharge, the CWA set limits on discharges.

Some of those limits were straightforward. If a pipe lets out on a waterway, the CWA limits what can come from that pipe. It also ensures a cleaner future environment by requiring new permits that continue to ratchet down dis-charges using the “Best Available Technology.”2 That sort of direct pollution is referred to as point source pollution, as the pollution comes from a single source, and is regu-lated under the CWA. However, many non-point sources of pollution exist under less stringent CWA controls. For example, many row crops are largely unregulated under the CWA.3 Although the CWA focuses on individual polluters, occa-sionally the U.S. Environmental Protection Agency (EPA) establishes pollution limits for individual waterways and, in the case of the Chesapeake Bay, an entire watershed. Waterways that can't attain the required level of pollution control, whether due to point source or non-point source polluters, should be managed under a Total Maximum Daily Load (TMDL), a level of pollution that will allow the body of water to meet the standards. States are given significant leeway in finding ways to meet the TMDL.4A recent trend in meeting TMDLs is “water quality trad-ing.” Under these schemes, point source and non-point source polluters essentially enter a cap-and-trade system for water pollution.5 (For more on cap-and-trade, see Food & Water Watch's report, Bad Credit: How Pollution Trading Fails the Environment.) The EPA suggests that, through trading, watersheds can be cleaned at a lower total cost than through regulation.

Putting aside the fact that water pollutant trading turns the CWA, which made trading illegal,6 on its head by allowing people to sell the “right” to pollute, and that

trading abandons the successful point source permitting program, trading fails on a number of counts. Pollution abatement, particularly from non-point sources, is often uncertain and unverified, which may result in fraudulent reductions and further environmental harm. Even where pollution abatement from a credit generator is verified, increases of pollution from the credit purchaser may lead to localized impacts or “hotspots.”7 Trading is likely to create disproportionate environmental impacts on low-income populations that use waterways most susceptible to localized impacts.8 The many problems with trading mean that, despite great fanfare and seed money, the first 20 years of point-non-point pollution trading have yielded few, if any, positive results.9 Indeed, a Rutgers University report detailing four “successful” trading projects admits that two were not tra-ditional trading regimes at all, one was a regulatory offset program for point sources, and the fourth listed as its ac-complishment that, “No actual trades occurred.”10 This apparent definition of success by the proponents of the idea suggests that trading can't pass even a very low bar.

Vague, Uncertain and Downright False: Offsets and PolicyIn order to make the most economically efficient pol-lution changes, regulators allow traders to purchase “offsets,” pollution reductions from other, frequently un-regulated, sectors. In water, this frequently involves agri-cultural runoff.

Although concentrated animal feeding operations (CA-FOs), or factory farms, are regulated as point sources, other farms including smaller animal operations and

COMMONRESOURCES

farms raising crops are nonpoint sources. While it is technically possible to monitor these farms' discharge, the political will is lacking. As such, these offsets are at best vague. An actual trading regime would require a massive measurement change. In practice, attempts to quantify agricultural runoff have faced overwhelming opposition from farmers.11We've seen some of this weakness in other trading programs. Whether it is farms getting credits for pollu-tion reduction for best management practices that have already been implemented, leading to no additional reduction, or outright fraud in the carbon offset market, offset markets are subject to abuse. Measuring offsets is vague and difficult at best, and the temptation for cheat-ing is overwhelming. Indeed, a 2012 case saw a Mary-land man convicted for selling over $9 million worth of carbon credits for biofuels he had never created.12The Delmarva Poultry Industry, Inc. knows the real ef-fect of pollution trading. In their June 2010 newsletter, they described the idea as “a program … to help farmers earn money while providing polluters with the oppor-tunity to increase their pollution to the Chesapeake Bay and its tributaries.”13 (emphasis added)

Not So Cool: Hot Spots and TradingWater quality trading is concerned about pollution at a given endpoint, whether in a stream or a whole water-shed. While trading might have some effect on pollution avoidance in one place, it allows point sources to pol-lute at a higher level, and may not have sufficient effect downstream to achieve goals for pollution control. This unequal distribution of responsibility can allow for “hot spots,” areas where more pollution accrues than would be the case with more direct pollution controls.14Trading assumes that, since the total load on the overall watershed will not go up, local conditions will not get worse. But trading will allow certain polluters to emit more pollution, buying offsets from other sectors. That trade, which might or might not help the health of the total watershed, will assuredly lead to worse pollution in certain hot spots.

The question for someone contemplating a new pollu-tion market boils down to a simple one: Where will the pollution land, and where do I live? That is not a fair so-lution for those negatively affected.

Let the Seller Beware: The Market for NatureWaterways and watersheds are common resources, available and needed for many uses by all of us. That's why water has long been considered a public trust, something that we all have a stake in and protect.15 In order to do that, we require compliance from users.

A market in water quality turns this on its head. It re-places compliance with compensation. Instead of saying

that a polluter doesn't have the right to pollute our com-mon resources, markets sell that right. You are allowed to pollute if you simply pay enough.

But this introduces a new and unmanageable bargain. Once a price is put on nature, all of our common re-sources can be bought, sold and packaged. Worse, as we've seen in the past five years, a market can be ma-nipulated, repackaged and resold as derivatives, bonds and other market measures. But the common resource doesn't gain from this trade. Only the traders and the polluters gain.

Markets are not the answer to the challenge of water quality. Instead, we need to regulate those who dump pollutants into our waterways. We should not be selling the right to pollute, but reinforcing the idea that nobody has the right to pollute everybody's water.

Endnotes1 Federal Water Pollution Control Act. (33 U.S.C. 1251 et seq., [As

Amended Through P.L. 107–303, November 27, 2002]) Title I, Sec-tion 101 (a).

2 Ibid., Section 304 (b)1.3 Ribaudo, Marc. “Agriculture and Water Quality Trading: Exploring

the Possibilities.” Amber Waves, U.S. Department of Agriculture, Economic Research Service. March 2009.

4 Federal Water Pollution Control Act. (2002), Section 303.5 U.S. Environmental Protection Agency. “EPA Water Quality Trading

Evaluation.” October 2008, at 1-1.6 See, e.g., Federal Water Pollution Control Act. (2002), Section 402,

which lists acceptable permitting options for point source discharges, but which does not include any option but obtaining a permit, which is absent in water quality trading.

7 Steinzor, Rena. “Great potential, but huge problems.” The Environ-mental Forum. March/April 2003 at 69.

8 Steinzor, Rena et al. “Water Quality Trading in the Chesapeake Bay.” Center for Progressive Reform. May 2012 at 18.

9 Fang, Feng, et al. “Point-nonpoint source water quality trading: a case study in the Minnesota River basin.” Journal of the American Water Resources Association. American Water Resources Association. June 2005 at 646.

10 Rutgers University Water Resources Program. “Further Details of the Four Successful Water Quality Trading Projects.” Available at http://www.water.rutgers.edu/Projects/trading/FurtherDetails.pdf, ac-cessed July 2012.

11 Breetz, Hanna L. et al. “Water Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey.” Dartmouth College. August 5, 2004, at 168.

12 Wheeler, Timothy B. “Perry Hall man convicted in biodiesel fraud case.” The Baltimore Sun. June 25, 2012.

13 Delmarva Poultry Industry, Inc. “Maryland Develops an Agricultural Nutrient Trading Program.” Timely Topics. June 2010 at 13.

14 Shortle, James. “Water Quality Trading in Agriculture.” Organisation for Economic Co-operation and Development, 2012 at 15.

15 California State Lands Commission. “The Public Trust Doctrine.” Sep-tember 17, 2001 at 1.

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