Trading over troubled water

How much will you pay for the right to dump sewage?


Andrew Leonard
October 19, 2006 12:24AM (UTC)

"The world just became a more efficient place to live," writes John Whitehead at the Environmental Economics blog, responding to the news that on Oct. 13 the EPA and the USDA signed a "partnership agreement" to encourage "water quality trading."

Water quality trading is an attempt to apply the same cap-and-trade strategy that has worked for limiting sulfur dioxide emissions (and is at the heart of the Kyoto Protocol strategy for limiting greenhouse gas emissions) to the problem of water pollution. In the ideal scenario, big "point source" producers of water pollution, such as sewage plants, who have high costs for reducing emissions, would buy pollution credits from farmers or other landowners whose costs for restoring wetlands or reducing agricultural runoff would be relatively low. Practically speaking, such markets would focus on specific watersheds and specific chemicals, such as phosphorus or nitrogen. Success in getting such markets going has been limited, even though water quality trading has a been a hot topic for years with "getting the price right" environmentalists who believe market-based trading solutions are likely to be cheaper, more effective and, yes, more efficient than the old heavy-handed command-and-control "cut your emissions or you'll pay a big fine" approach.

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I'll put aside my bemusement at two government agencies signing an "agreement" with each other as if they were a couple of independent-minded corporations looking to corner a new market. I guess it's too much to hope that agencies of our own goverment could be partners even without a formal bond. I'll also manfully restrain myself from wondering why it's possible for the EPA to laud market-based solutions for water quality control with such energy and enthusiasm, while the Bush administration simultaneously resists with all its might any steps toward a cap-and-trade system for greenhouse gas emissions.

More to the point is whether anyone really believes that the EPA and the USDA will do what is required to make water quality trading markets function efficiently.

Here's the funny thing: Market-based solutions and command-and-control regulation are not matter and anti-matter. They don't blow up at first contact with each other. In fact, you actually need one to make the other work. As Dennis King, a research professor at the University of Maryland Center for Environmental Science, notes in an excellent article on water quality trading published early last year, strong monitoring and strict enforcement are essential elements of a successful trading system. As he points out, every market player considering buying a pollution credit will make a cost-benefit decision that involves asking the question: What will the cost be of not complying with government restrictions on how much crap I can dump into the river? If the answer to that question is, less than what buying a pollution credit would cost, then the likely result will be no purchase.

Water quality standards are governed by a complex mix of community, state and federal standards. Some are tougher than others. But anyone who thinks that the current EPA is sufficiently dedicated to strict enforcement and monitoring of industrial emissions hasn't been paying much attention over the last six years. Sure, the EPA wants to promote water quality trading. Because from their perspective, it's a way of passing off the pain that comes from regulating and fining campaign finance contributors to the Republican Party. But water quality trading is unlikely to flourish unless somebody is willing to whack non-compliers with a big stick. For that to happen, there will have to be a change in which party controls the White House.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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