A Watershed Approach to Improve Water Quality: Case Study of Clean Water Services’ Tualatin River Program1

Cochran, Bobby and Charles Logue, 2011. A Watershed Approach to Improve Water Quality: Case Study of Clean Water Services’ Tualatin River Program. Journal of the American Water Resources Association (JAWRA) 47(1):29‐38. DOI: 10.1111/j.1752‐1688.2010.00491.x Abstract: Over the last five years, Clean Water Services developed and implemented a program to offset thermal load discharged from its wastewater facilities to the Tualatin River by planting trees to shade streams and augmenting summertime instream flows. The program has overcome challenges facing many of the nation’s water quality trading programs to not only gain consensus on the frameworks needed to authorize trading, but also provide a broad range of ecosystem services. This paper compares the Tualatin case study with some of the commonly cited factors of successful trading programs.     

ADDRESSING TOTAL PHOSPHORUS IMPAIRMENTS WITH WATER QUALITY TRADING1

ABSTRACT: Water quality trading is a voluntary economic process that provides an opportunity for dischargers to reduce the costs associated with meeting a discharge limitation. Trading can provide a cost effective solution for point sources (i.e., wastewater treatment plants) to meet strict effluent limitations set in response to total maximum daily loads (TMDLs). A successful trading program often depends on first determining the trading suitability of a pollutant for a particular watershed. A simple technical approach has been developed to identify sub‐watersheds within the Raritan River Basin, New Jersey, where water quality trading could provide a cost effective and scientifically feasible method for addressing total phosphorus impairments. The methodology presented will serve as a model to conduct similar analyses in other watersheds. The Raritan River Basin was divided into 12 subwatershed‐based study areas. Point‐nonpoint source trading opportunities were examined for each study area by examining the point and nonpoint source total phosphorus loading to impaired water bodies. Of the 12 subwatersheds examined, four had a high potential for implementing a successful trading program. Since instream phosphorus concentrations are closely related to soil erosion, an additional analysis was performed to examine soil erodibility. Recommendations are presented for conducting an economic analysis following the feasibility study.     

An Ex Post Evaluation of Ohio’s Great Miami Water Quality Trading Program1

Newburn, David A. and Richard T. Woodward, 2011. An Ex Post Evaluation of Ohio’s Great Miami Water Quality Trading Program. Journal of the American Water Resources Association (JAWRA) 48(1): 156‐169. DOI: 10.1111/j.1752‐1688.2011.00601.x Abstract: Market‐based approaches to address water quality problems have resulted in only limited success, especially in trading programs involving both point and nonpoint sources. We analyze one of the largest point‐nonpoint trading programs – the Great Miami Trading Program in Ohio, administered by the Miami Conservancy District (MCD). Our evaluation focuses on the economic and institutional aspects of the program, including cost effectiveness, efficiency of bidding, transaction costs, trading ratios, and innovation. We use a unique dataset consisting of all bids from agricultural nonpoint sources and interviews of soil and water conservation district (SWCD) agents in the watershed. We find that the MCD’s reliance on county‐level SWCD offices to recruit and advise farmers has been essential to achieve relatively high rates of farmer participation. Additionally, the MCD is able to partly free ride on the administrative costs that SWCD offices receive to assist federal conservation programs, which is helpful to lower costs for a fledgling trading program. However, the involvement of SWCD offices reduced the potential cost savings from the reverse auction structure because some agents were able to learn about the threshold price over the six rounds of bidding and help farmers bid strategically. Overall, the program structure serves as an effective model for future trading programs in other regions that seek to involve agricultural nonpoint sources.     

Water Quality Model Uncertainty Analysis of a Point‐Point Source Phosphorus Trading Program1

Kardos, Josef S. and Christopher C. Obropta, 2011. Water Quality Model Uncertainty Analysis of a Point‐Point Source Phosphorus Trading Program. Journal of the American Water Resources Association (JAWRA) 47(6):1317–1337. DOI: 10.1111/j.1752‐1688.2011.00591.x Abstract: Water quality modeling is a major source of scientific uncertainty in the Total Maximum Daily Load (TMDL) process. The effects of these uncertainties extend to water quality trading programs designed to implement TMDLs. This study examines the effects of water quality model uncertainty on a nutrient trading program. The study builds on previous work to design a phosphorus trading program for the Nontidal Passaic River Basin in New Jersey that would implement the watershed TMDL for total phosphorus (TP). The study identified how water quality model uncertainty affects outcomes of potential trades of TP between wastewater treatment plants. The uncertainty analysis found no evidence to suggest that the outcome of trades between wastewater treatment plants, as compared with command and control regulation, will significantly increase uncertainty in the attainment of dissolved oxygen surface water quality standards, site‐specific chlorophyll a criteria, and reduction targets for diverted TP load at potential hot spots in the watershed. Each simulated trading scenario demonstrated parity with or improvement from the command and control approach at the TMDL critical locations, and low risk of hot spots elsewhere.     

Achieving Nutrient Water Quality Goals: Bringing Market‐Like Principles to Water Quality Management*1

Abstract: Market‐like trading programs for water quality management begin with enforceable limits on the amount of the pollutant allowed in a watershed. Properly designed market‐like trading programs then create incentives for dischargers to reduce nutrient control costs over time by making pollution prevention innovations. However, the structure of the Clean Water Act can be a barrier to establishing market‐like trading programs. First, we describe the general features and advantages of market‐like trading programs. Then we offer practical suggestions for bringing market‐like design concepts to nutrient trading programs within the existing legal and regulatory setting.     

Point‐Nonpoint Trading – Can It Work?1

Ribaudo, Marc O. and Jessica Gottlieb, 2011. Point‐Nonpoint Trading – Can It Work? Journal of the American Water Resources Association (JAWRA) 47(1):5‐14. DOI: 10.1111/j.1752‐1688.2010.00454.x Abstract: Water quality trading between point and nonpoint sources is of great interest as an alternative to strict command and control regulations on point sources for achieving water quality goals. The expectation is that trading will reduce the costs of water quality protection, and may speed compliance. The United States Environmental Protection Agency has issued guidance to the States on developing point‐nonpoint trading programs, and United States Department of Agriculture is encouraging farmer participation. However, existing point‐nonpoint trading programs have resulted in very few trades. Supply side and demand side impediments seem to be preventing trades from occurring in most trading programs. These include uncertainty over the number of discharge allowances different management practices can produce, high transactions costs of identifying trading partners, baseline requirements that eliminate low‐cost credits, the reluctance of point sources to trade with unfamiliar agents, and the perception of some farmers that entering contracts with regulated point sources leads to greater scrutiny and potential future regulation. Many of these problems can be addressed through research and program design.     

Water Quality Trading with Lumpy Investments,Credit Stacking,and Ancillary Benefits

This paper studies the economics of a water quality trading market in a predominantly agricultural watershed, and explores the effects of credit stacking in such a market when buyers and sellers of pollution credits can only reduce pollution with large, discrete investments that yield discontinuous supply and demand. The research simulates hypothetical water quality trading markets in the corn‐belt area of Illinois, where wastewater treatment plants (WWTPs) can pay farmers to reduce nutrients by installing wetlands and farmers may or may not be allowed to earn payments for multiple services from one wetland. We find that wetlands are a more cost‐effective way to mitigate nitrogen pollution than abatement by WWTPs. Stacking credits may improve social welfare while providing more ecosystem services if there is enough demand for the primary credit in the market (nitrogen) to cover most of the cost of installing the wetland but the supply of nitrogen credits is not exhausted. However, in the presence of lumpy pollution reduction activities, the effects of allowing stacked credit sales are idiosyncratic and not necessarily positive; stacked payments may or may not satisfy additionality. The results imply that credit trading for nitrogen is likely to make society better off, but the effects of allowing farmers to receive multiple payments from a single wetland depend on details of the situation.     

Application of an Environmental Decision Support System to a Water Quality Trading Program Affected by Surface Water Diversions

Environmental decision support systems (EDSSs) are an emerging tool used to integrate the evaluation of highly complex and interrelated physicochemical, biological, hydrological, social, and economic aspects of environmental problems. An EDSS approach is developed to address hot-spot concerns for a water quality trading program intended to implement the total maximum daily load (TMDL) for phosphorus in the Non-Tidal Passaic River Basin of New Jersey. Twenty-two wastewater treatment plants (WWTPs) spread throughout the watershed are considered the major sources of phosphorus loading to the river system. Periodic surface water diversions to a major reservoir from the confluence of two key tributaries alter the natural hydrology of the watershed and must be considered in the development of a trading framework that ensures protection of water quality. An EDSS is applied that enables the selection of a water quality trading framework that protects the watershed from phosphorus-induced hot spots. The EDSS employs Simon’s (1960) three stages of the decision-making process: intelligence, design, and choice. The identification of two potential hot spots and three diversion scenarios enables the delineation of three management areas for buying and selling of phosphorus credits among WWTPs. The result shows that the most conservative option entails consideration of two possible diversion scenarios, and trading between management areas is restricted accordingly. The method described here is believed to be the first application of an EDSS to a water quality trading program that explicitly accounts for surface water diversions.     

Periphyton Nutrient Limitation and Maximum Potential Productivity in the Beaver Lake Basin,United States1

Ludwig, Andrea, Marty Matlock, Brian Haggard, and Indrajeet Chaubey, 2012. Periphyton Nutrient Limitation and Maximum Potential Productivity in the Beaver Lake Basin, United States. Journal of the American Water Resources Association (JAWRA) 48(5): 896‐908. DOI: 10.1111/j.1752‐1688.2012.00657.x Abstract: The objectives of this study were to measure periphytic growth responses to enrichment with nitrogen (N), phosphorus (P), and simultaneous N and P using in situ bioassays in streams draining Beaver Reservoir Basin, Northwest Arkansas; compare periphytic growth responses measured with in situ bioassays with a range of land use and point sources; and test the lotic ecosystem trophic status index (LETSI) as a simplifying metric to compare effects of nonpoint‐source pollutant‐limiting variables of N, P, and sediment across the basin. P limitation was observed at sites across a transect of stream orders throughout the basin; however, at the two sites with highest ambient nitrogen concentrations, limitation was often coupled with nitrogen limitation. Nutrients were at nonlimiting levels at both of two sites below wastewater treatment plants in all seasonal deployments. A Michaelis‐Menten growth equation described LETSI as a function of ambient PO₄‐P concentrations (p < 0.05); the midpoint (LETSI of 0.50) corresponded with a PO₄‐P concentration of approximately 3 μg/l. Change‐point analysis indicated a threshold point at LETSI of 0.80 and 15 μg/l PO₄‐P. These low values show that the periphytic community has a high affinity for available P, and that the watershed as a whole is sensitive to available nutrient inputs.     

Where Did the Agricultural Nonpoint Source Trades Go? Lessons from Virginia Water Quality Trading Programs

Governmental agencies, nongovernmental organizations, and agricultural organizations promote water quality trading programs as an innovative policy to engage agricultural producers in conservation activities. Cost analyses suggest regulated sources can reduce compliance costs by purchasing agricultural nonpoint source credits. Yet, such “point‐nonpoint” trades are rare. This article assesses the demand for agricultural nonpoint sources in well‐developed nutrient trading programs in Virginia for industrial and municipal wastewater treatment plants, municipal stormwater programs, and land developers. Evidence suggests nutrient trading programs in Virginia will not stimulate investments in pollutant reduction practices on working agricultural lands. The lack of demand for agricultural nonpoint source credits can be attributed to a substantial degree to the design features and incentives present in multiple overlapping regulatory programs. The legal setting that dampens regulated source demand for nonpoint source credits in Virginia is broadly representative of conditions found elsewhere in the United States.     

Baseline requirements can hinder trades in water quality trading programs: Evidence from the Conestoga watershed

The U.S. Environmental Protection Agency (USEPA) and the U.S. Department of Agriculture (USDA) are promoting point/nonpoint trading as a way of reducing the costs of meeting water quality goals. Farms can create offsets by implementing management practices such as conservation tillage, nutrient management and buffer strips. To be eligible to sell offsets or credits, farmers must first comply with baseline requirements. USEPA guidance recommends that the baseline for nonpoint sources be management practices that are consistent with the water quality goal. A farmer would not be able to create offsets until the minimum practice standards are met. An alternative baseline is those practices being implemented at the time the trading program starts, or when the farmer enters the program. The selection of the baseline affects the efficiency and equity of the trading program. It has major implications for which farmers benefit from trading, the cost of nonpoint source offsets, and ultimately the number of offsets that nonpoint sources can sell to regulated point sources. We use a simple model of the average profit-maximizing dairy farmer operating in the Conestoga watershed in Pennsylvania to evaluate the implications of baseline requirements on the cost and quantity of offsets that can be produced for sale in a water quality trading market, and which farmers benefit most from trading.     

POINT‐NONPOINT SOURCE WATER QUALITY TRADING: A CASE STUDY IN THE MINNESOTA RIVER BASIN1

ABSTRACT: Contrary to the general trend of only a few actual trades occurring within point‐nonpoint source water quality trading programs in the United States, two trading projects in the Minnesota River Basin, created under the provisions of National Pollutant Discharge Elimination System (NPDES) permits, have generated five major trades and numerous smaller ones. In this paper, these two projects are described to illustrate their origins, implementation, and results. It was found that several factors contributed to the relatively high number of trades in these projects, including the offsetting nature of the projects (hence a fixed number of credits that the point sources were required to obtain), readily available information on potential nonpoint source trading partners, and an effectively internal trading scheme used by one of the two projects. It was also found that long term structural pollution control measures, such as streambank stabilization, offered substantial cost savings over point source controls. Estimates of transaction costs showed that the total costs of the trading projects were increased by at least 35 percent after transaction costs were taken into account. Evidence also showed that in addition to pollution reduction, these two trading projects brought other benefits to the watershed, such as helping balance environmental protection and regional economic growth.     

Optimal Pollution Trading Without Pollution Reductions: A Note1

García, Jorge H., Matthew T. Heberling, and Hale W. Thurston, 2011. Optimal Pollution Trading Without Pollution Reductions: A Note. Journal of the American Water Resources Association (JAWRA) 47(1):52‐58. DOI: 10.1111/j.1752‐1688.2010.00476.x Abstract: Various kinds of water pollution occur in pulses (e.g., agricultural and urban runoff). Ecosystems, such as wetlands, can serve to regulate these pulses and smooth pollution distributions over time. This smoothing reduces total environmental damages when “instantaneous” damages are marginally increasing. This paper introduces a water quality trading model between a farm (a pulse‐pollution source) and a firm (a more steady pollution source) where the object of exchange is the “temporary” retention of runoff as opposed to total runoff reductions. The optimal trading ratio requires firm emissions to be offset by more than a proportional retention of the initial agricultural runoff pulse. The reason is twofold: (1) emissions are steady or constant over time and, in this sense, have relatively larger environmental impact; and (2) certain kinds of runoff management cause delayed environmental damages.     

Policy Utopias for Nutrient Credit Trading Programs with Nonpoint Sources

A promising program to address water contamination from nutrients is water quality trading (WQT), whereby entities with high abatement costs purchase credits from entities with lower abatement costs. The concept has found some success with point source water pollution, but very few trades have occurred in over 50 programs in the United States (U.S.) that have focused on nonpoint sources (NPSs). To understand why success has been slow, we identified three environments needed for programs to succeed: physical, economic, and institutional. We estimate that only 5% of watersheds in the U.S. currently listed as nutrient impaired provide a viable physical environment for trading nitrogen; 13% are suitable for phosphorus. Economic and institutional challenges would shrink that domain even further. Therefore, we find places with the ideal physical, economic, and institutional environments necessary for feasible WQT programs are virtual policy utopias — rare places with ideal environments. Fortunately, a growing literature provides the tools necessary to identify where these policy utopias are and to expand that domain through a better understanding about how to manage WQT programs more effectively.     

Multicriteria Evaluation of Water Resources Sustainability in the Context of Watershed Management1

Kang, Min‐Goo and Gwang‐Man Lee, 2011. Multicriteria Evaluation of Water Resources Sustainability in the Context of Watershed Management. Journal of the American Water Resources Association (JAWRA) 47(4):813‐827. DOI: 10.1111/j.1752‐1688.2011.00559.x Abstract: To evaluate water resources sustainability at the watershed scale within a river basin’s context, the Water Resources Sustainability Evaluation Model is developed. The model employs 4 criteria (economic efficiency, social equity, environmental conservation, and maintenance capacity) and has 16 indicators, integrating them using their relative weights. The model is applied to evaluate the water resources sustainability of watersheds in the Geum River basin, South Korea. A geographic information system is employed to efficiently build a database for the indicators, and the values of the indicators are normalized using the probability distribution functions fitted to the datasets of the indicators. The evaluation results show that, overall, the water resources sustainability of the watersheds in the upper basin is better than other areas due to the good environmental conditions and the dam management policies of South Korea. The analysis of the correlations among the model’s components and the comparison between the results of the model and the Water Poverty Index show that the model can provide reasonable evaluation results for the water resources sustainability of watersheds. Consequently, it is concluded that the model can be an effective tool for evaluating the states of water resource management from the perspective of sustainable development and provide a basis on which to create policies for improving any inadequacies in watersheds.     

Rhetoric and Reality of Water Quality Trading and the Potential for Market‐like Reform1

Stephenson, Kurt and Leonard Shabman, 2011. Rhetoric and Reality of Water Quality Trading and the Potential for Market‐Like Reform. Journal of the American Water Resources Association (JAWRA) 47(1):15‐28. DOI: 10.1111/j.1752‐1688.2010.00492.x Abstract: Many public interest groups, government agencies, and professional economists argue that current approaches to water quality trading are a cost‐effective, politically practical innovation for achieving water quality standards, in part by addressing one of the most difficult water quality improvement challenges – limiting the discharge from nonpoint sources. A critical analysis shows that these claims for current water quality trading programs are often unrealized. This rhetoric, without adherence to principles of market‐like reform, can undermine the support of regulated parties for meaningful water quality policy reform, contribute to missed opportunities to implement cost‐effective programs, and postpone successfully meeting the challenge of limiting nonpoint source discharges. A better understanding and application of market‐like principles can result in an improved design of trading as well as general water quality management programs.     

REGION,LANDSCAPE, AND SCALE EFFECTS ON LAKE SUPERIOR TRIBUTARY WATER QUALITY1

ABSTRACT: In 1998 and 1999, third‐order watersheds in high mature forest (HMF) and low mature forest (LMF) classes were selected along gradients of watershed storage within each of two hydrogeomorphic regions in the Lake Superior Basin to evaluate threshold effects of storage on hydrologic regimes and watershed exports. Differences were detected between regions (North and South Shore) for particulates, nutrients, and pH, with all but silica values higher for South Shore streams (p < 0.05). Mature forest effects were detected for turbidity, nutrients, color, and alkalinity, with higher values in the LMF watersheds, that is, watersheds with less that 50 percent mature forest cover. Dissolved N, ammonium, N:P, organic carbon, and color increased, while suspended solids, turbidity, and dissolved P decreased as a function of storage. Few two‐way interactions were detected between region and mature forest or watershed storage, thus threshold based classification schemes could be used to extrapolate effects across regions. Both regional differences in water quality and those associated with watershed attributes were more common for third‐order streams in the western Lake Superior drainage basin as compared with second‐order streams examined in an earlier study. Use of ecoregions alone as a basis for setting regional water quality criteria would have led to misinterpretation of reference condition and assessment of impacts in the Northern Lakes and Forest Ecoregion.     

Farmers' willingness to participate in best management practices in Kentucky

This paper investigates farmers' willingness to participate in Best Management Practices (BMPs) through a proposed Water quality trading (WQT) program in Kentucky. This analysis includes two parts: the first part is to investigate the factors influencing farmers' current usage of BMPs; the second part is to estimate farmers' willingness to implement BMPs given different levels of compensation given in a survey. The results show that farmers who participate in the conservation programs are more likely to use BMPs, but these farmers may not accept the offer to implement additional BMPs. Farmers' experiences about BMPs are more likely to persuade them to adopt additional BMPs than the level of compensation. The results find that using riparian buffers, fencing off animals and building up waste storage facilities are responsive to the levels of compensation offered.     

A Question of Boundaries: The Importance of “Revenuesheds” for Watershed Protection1

Patterson, Lauren A., Jeffrey Hughes, Glenn Barnes, and Stacey I. Berahzer, 2012. A Question of Boundaries: The Importance of “Revenuesheds” for Watershed Protection. Journal of the American Water Resources Association (JAWRA) 48(4): 838‐848. DOI: 10.1111/j.1752‐1688.2012.00655.x Abstract: Watersheds transcend jurisdictional boundaries; raising important questions of who should pay for watershed protection, and how can watershed governance be funded? The responsibility and cost for watershed protection has progressively devolved to local governments, resulting in additional negative externalities and financing challenges. Watershed governance structures have formed at the scale of the watershed, but they often lack the financing mechanisms needed to achieve policy goals. Financing mechanisms via local governments provide a reliable source of revenue and the flexibility to address watershed specific issues. We develop a “revenueshed” approach to access the initial challenges local governments face when seeking to finance trans‐jurisdictional watershed governance. The revenueshed approach engages local governments into discussion and implementation of financial strategies for collaborative watershed governance. Legislation places water quality regulations primarily on local governments inside the watershed. The revenueshed approach extends the financial and stewardship discussion to include local governments outside the watershed that benefit from the watershed. We applied the revenueshed approach to the Mills River and Upper Neuse watersheds in North Carolina. Mills River had a partnership governance seeking revenue for specific projects, whereas the Upper Neuse sought long‐term financial stability to meet new water quality legislation.     

A Recourse‐Based Interval Fuzzy Programming Model for Point‐Nonpoint Source Effluent Trading under Uncertainty

In this study, a recourse‐based interval fuzzy programming (RIFP) model is developed for tackling uncertainties expressed as fuzzy, interval, and/or probabilistic forms in an effluent trading program. It can incorporate preregulated water‐pollution control policies directly into its optimization process, such that an effective linkage between environmental regulations and economic implications (i.e., penalties) caused by improper policies due to uncertainty existence can be provided. The RIFP model is applied to point‐nonpoint source effluent trading of the Xiangxi River in China. The efficiency of trading efforts between water quality improvement and net system benefit under different degrees of satisfying discharge limits is analyzed. The results are able to help support (1) formulation of water‐pollution control strategies under various economic objectives and system‐reliability constraints, (2) selection of the desired effluent trading pattern for point and nonpoint sources, and (3) generation of tradeoffs among system benefit, satisfaction degree, and pollutant mitigation under multiple uncertainties. Compared with the traditional regulatory approaches, the results demonstrate that the water‐pollution control program can be performed more cost‐effectively through trading than nontrading.