Water-Quality Trading

Sept. 12, 2015

Under its “watersheds” subheading, EPA’s website explains water-quality trading (WQT) this way: “Water-quality trading is an innovative approach to achieve water-quality goals more efficiently. Trading is based on the fact that sources in a watershed can face very different costs to control the same pollutant. Trading programs allow facilities facing higher pollution control costs to meet their regulatory obligations by purchasing environmentally equivalent (or superior) pollution reductions from another source at lower cost, thus achieving the same water-quality improvement at lower overall cost.”

One “pollutant” regulated under the Clean Water Act’s National Pollutant Discharge Elimination System (NPDES) is temperature, also referred to as the thermal load. Temperature parameters are significant to organisms and their ecosystems.

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Restoration on the
Applegate River.

Medford, OR’s wastewater treatment plant, the Regional Water Reclamation Facility (RWRF), serves 170,000 customers in southern Oregon’s Rogue watershed. Data shows the population increasing to over 204,600 in 2020. Although the RWRF discharges treated effluent, as population grows and requirements get tighter, it has the potential to exceed its temperature or thermal limits, especially during low-flow periods in the fall. To keep this from happening, RWRF plant engineers studied several solutions, including installing mechanical chillers and storing treated wastewater in an expanded pit. If the city had decided to upgrade the wastewater treatment facility, the cost would have totaled about $16 million.

Instead, the city signed a $6.5 million contract with the Freshwater Trust, a not-for-profit river restoration organization. Medford chose water-quality trading to solve the projected exceedance of thermal load and the Trust was hired to implement and maintain the ongoing 20-year project. The Rogue River draws native coldwater fish, including Chinook salmon and steelhead trout. They are listed as “threatened” under the Federal Endangered Species Act and, the two species are adversely affected by warm water. The Rogue River is also used for recreation, with participants taking jet boat tours, white­water rafting, and kayaking.

The water-quality trading program adapted by the Trust features riparian restoration—that is, planting and maintaining trees and shrubs along the banks of the Rogue and its tributaries. This streamside vegetation on 10–15 miles of the river will cool the water temperature by blocking solar load in this ongoing project, according to the plan. The Trust usually provides buffers of trees up to 60 feet from the riverbank. Seven sites have been implemented from 2012–2014, covering 3.63 miles. More sites will be set up between now and 2022.

The Trust hired local contractors to remove invasive plants such as cutleaf blackberry, periwinkle, and reed canarygrass. Local nurseries replaced them with native trees and shrubs such as black cottonwood, willow, tall Oregon grape, red osier dogwood, ponderosa pine, blue elderberry, and white alder toblock solar loading.

The benefits of the riparian plantings beyond the solar load reduction are that they act as a stimulus for birds and other wildlife to make the restored areas their homes again. Since the start of the water-quality trading program, some animals are returning to their habitats including deer, otters, rabbits, Canada geese, kestrels, king fisher, song sparrows, cedar waxwing, gray warblers, and wild turkey.

Solar load is measured by the number of millions of kilocalories per day. The goal is to have enough of the area planted with trees to reduce the solar load on the water by 600 kilocalories per day, says a Trust representative.

“It’s extremely important to quantify the specific environmental improvements that result from watershed restoration actions,” says David Primozich, senior director of ecosystem services with the Freshwater Trust. “From a regulator’s point of view, they don’t want to know how many trees were planted to address a temperature load issue. Rather, they want to see a program that uses a proven model to calculate the resulting benefit of planting trees using a consistent and comparable metric, such as kilocalories of solar load avoided.”

Here’s how water-quality trading is working for Medford and The Fresh­water Trust:

  1. The city of Medford’s wastewater treatment facility (a regulated entity) signed a contract with The Freshwater Trust to generate thermal credits to offset the effects of its warm discharge and maintain compliance with temperature regulations approved by Oregon’s Department of Environmental Quality (DEQ).
  2. Eventual cooling and filtering benefits of planted vegetation are calculated using standards and models approved by the DEQ and converted into credits. Local partners such as nurseries and contractors are hired, and landowners are recruited.
  3. After planting and calculating credit value, a verifier checks the credit calculations and visits the site to ensure the project is completed as drawn up. The Trust registers the credits on the Markit Credit Registry where they can be tracked, according to a Trust spokesperson. A trading ratio is a numeric value that is multiplied by the number of credits to ensure that the environmental benefit of a credit-generating project is equivalent to or greater than the reduction that would occur if the buyer installed treatment technology onsite (EPA 2007). Trading ratios are often expressed as a number of credits needed per unit of discharge (e.g. a 2:1 ratio means that two credits need to be bought per one unit of impact).
  4. Once credits are registered, the credit producer (The Freshwater Trust, in this case) submits an invoice to the regulated entity for the temperature credits. The landowners who allowed trees to be planted on their property, are paid an annual rental fee.
  5. Projects are maintained and monitored annually for five to 20 years to ensure sites are performing as intended and meet approved temperature credit standards. One of the monitoring tasks includes spawning and juvenile fish surveys. Outside partners such as consulting engineers and equipment operators come into play.

A credit is not valid unless the land underlying the credit is secured by a formal agreement with the landowner, and there must be legal protection for the project for the duration of the credit life—usually 20 years. Access to the project site for implementation, monitoring, and maintenance must be provided. If the landowner sells the land, the lease must remain in place with the new owner.

Smaller and midsize utilities are now seeing trading as a feasible alternative, because with local regulatory support and standards in place, it is now possible for utilities to contract with a third party for a watershed solution that compares well with traditional end-of-pipe technology options. A turnkey approach managed by a third party removes risk and uncertainty for a utility, making the purchase of water-quality credits an affordable and viable compliance alternative for addressing new limits.

Water-quality trading is not formally included in the Clean Water Act, however EPA and USDA support water-quality trading programs at the national level. The state regulatory agencies approve WQT programs within their boundaries. The DEQ is the go-to agency in Oregon.

There are activists who dislike water-quality trading because they say polluters get by without lessening the offending conditions. While his answer will seem indirect to some, Primozich says trading helps with not only what he sees as the minimal pollution coming from regulated entities, but also starts to address the pollution that is not regulated:

“As a conservation nonprofit, we focus on programs that have proven net environmental benefits—and water-quality trading programs can provide that. Because the Clean Water Act rules have been so effective in eliminating large pollutant loads from the entities they regulate, these dischargers now find themselves contributing a very small percentage of the total input in a watershed. However, other sources in the same watershed are not regulated and are now contributing the larger percentage of the pollutant load. We think there are great opportunities to collaborate and address this watershed-wide disparity to create big wins for the environment.

“These collaborations often include nonpoint sources of pollution that are not regulated like a wastewater treatment plant is. Nonpoint sources could include agricultural operations (sediment, phosphorus, and nutrient runoff from their irrigationand fertilizer practices that affect overall water quality) and the results from landowners having cleared all the trees and native vegetation from their streamside property, for aesthetic reasons or for animal grazing purposes, not realizing how changingthis natural landscape negatively impacts the river.”

Clean Water Services
Clean Water Services, a regional public utility in Oregon, protects the valuable Tualatin River Watershed through its NPDES permit. The utility, referred to as the District, services more than 550,000 customers in the urban portion of Washington County, including 12 cities.

In 2004 the District received a new watershed-based permit that allowed “water-quality trading” for temperature. The District owns and operates four wastewater treatment plants in the Tualatin River watershed, and charged with meeting its NPDES requirements for temperature chose to “offset excess thermal loads of its wastewater treatment facilities by establishing a thermal trading program.”

“With the classic approach we would have had to install chillers at the lower end of the basin that would reduce the water by a few degrees, but it would not have had a big impact on the environment,” says Bruce Roll, the Director of Watershed Management for the District.

The District studied this techno­logical alternative, but dismissed it after the estimate totaled about $150 million for installing chillers and running them for 20 years. Also, the District had other ideas. In a 2006 presentation by Charles Logue, director of the regulatory affairs department, it was noted that WQT offered “active restoration in lieu of passive restoration and watershed-wide improvements in lieu of local improvements.”

To reiterate, “Water-quality trading is an approach that offers greater efficiency in achieving water-quality goals on a watershed basis. It allows one source to meet its regulatory obligations by using pollutant reductions created by another source that has lower pollution control costs,” according to EPA.

The District developed a two-pronged thermal water-quality trading program to meet its regulatory obligations: Riparian corridor planting, that is planting trees and shrubs alongside the river, and also flow restoration in the Tualatin. The District is responsible for site monitoring and maintenance over 20 years, the length of the contract.

Coho salmon, steelhead, and cutthroat swim in the Tualatin’s tributaries, and the WQT plan is to mitigate the warm effluent from the four wastewater treatment plants owned by the District. The steelhead is on the endangered species list, a District spokesperson says. The 83-mile-long Tualatin is used for regional drinking water, agricultural irrigation, and water recreation such as canoeing and kayaking.

Local vendors provided about 30 species of trees and shrubs grown right in the area and planted alongside the river including oak, ponderosa, fir, ash, and maple. “A whole industry evolved for plant propagation,” says Roll. The director made plant diversity a priority, concluding that although some plants fail because of climate change, others may survive. Currently there are over 50 species along the river’s banks, increasing the amount of shade and thereby lowering the solar input.

The effects of the habitat-friendly environment have been encouraging. “In year four or five, we had an explosion of songbirds,” says Roll. “We also have one of the largest blue heron rookeries in the state as well as wood ducks, mallards, and a variety of geese,” he added.

For WQT to be valid, a system of credits and payments is set up. Here’s how the credits and payments for WQT were handled in 2004 when the District entered the program: The District arranged for the farmers owning land on the Tualatin to lease their land for 20 years. The District (the buyer) earns credits converted into money for the farmers (the sellers) to offset the farmer’s loss of the properties for production. The payments in this case were arranged through institutions including the local Soil and Water Conservation District, the Farm Service Agency, Natural Resources Conservation Service (NRCS), and a Conservation Reserve Enhancement Program (CREP, and Enhanced CREP, or ECREP). Roll brought the agencies together to deliver as a single unit, a strategy that included visits to Washington DC. The credits are not valid unless the land underlying the credit is secured by a formal agreement such as a lease with the landowner.

The second part of the program to mitigate the water temperature in the Tualatin is about restoring flow in critical months, from late July to October. By adding water, the temperature can be reduced. “We push our water from the Hagg Lake reservoir through the Tualatin Valley Irrigation system. The water is diffused into the channel and flows to tributaries where it is needed,” says Roll. The Tualatin Valley Irrigation District owns about 50% of the water while Clean Water Services and municipal drinking water purveyors own 25% each. Water is also sent directly down the main stem of the Tualatin.

Beavers returned in the fifth year of the WQT program in numbers not seen in decades, according to Roll, who says although they are controversial, they perform valuable functions. Beavers build ponds covering one or two acres, stabilizing the water flow and cooling the water temperature. They also build up woody, organic material that young trout and salmon fish use to hide in to keep safe from predators during their first year. Beavers also prevent erosion. “They are one of the best stormwater tools you’ll ever have,” says Roll.

Brubaker Farms
The Brubaker family, a multi-generational farm-owning family near Lancaster, PA, was one of the first to enter the Water-Quality Training program benefitting the Chesapeake Bay Watershed.

The Brubakers operate over 1,000 acres on their dairy farms, installed solar panels on their barns, and learned to use an anaerobic methane digester that changes manure from the farm to electricity.

Since 1929, there has been a Brubaker farm on the land. About a year ago Luke Brubaker turned over ownership of the farms to his sons, Mike and Tony, who are handling the day-to-day operations of the farm with, as Luke says, “additional guidance from their father.” There are 970 cows on the farm.

As part of the WQT plan, the Brubakers worked several practices into their farming, such as no-till farming, stream bank fencing, buffers of trees, and grass on the areas taken out of food production. They also plant cover crops such as barley, rye, and wheat. After a main crop such as corn is played out and picked, cover crops are planted. They’re useful in holding down the soil until spring planting and suck up nitrogen from the fertilizer used for the corn plants.

The plan worked like this: Mike Brubaker set up arrangements with the Mount Joy Borough Authority to reduce nitrogen runoff at the wastewater treatment plant in Mount Joy. Just about every year since the Brubakers have reduced the nitrogen runoff by more than 8,000 pounds and the wastewater treatment plant uses the reduction for compliance with the Chesapeake Bay Watershed. “It’s a win-win situation for us and the Borough,” says Luke. Streams flow through some of their farms, with the water moving into the Susquehanna River, and onto the Chesapeake Bay Watershed and the Brubakers are “trying to make our water the best we can to protect the Chesapeake Bay,” says Luke.

“By using these credits as an offset in the yearly pounds of nitrogen discharged, the electrical and chemical costs at the wastewater facility are reduced,” says Joseph Ardini, operations manager, Mount Joy Borough Authority.

There is a nutrient trading agreement between the Mount Joy Borough and Brubaker Farms, and the entity “Brubaker Farms” is paid for its work depending on how the credits are verified. Luke says the CREP pays the Brubaker farms for the land taken out of production.

In 2014, Luke Brubaker was awarded the Chesapeake Bay Alliance Environmental Leadership Award for 2014 for demonstrating a long-standing commitment to the protection of the Chesapeake Bay’s lands and waters. “I’m not taking it lightly,” says Luke. “I’d like to think we’re doing something right.” In 2012, Brubaker Farms won an award for Outstanding Achievement in Energy by a farm for producing energy from an anaerobic digester system, creating electricity from manure.

As for Pennsylvania’s WQT program, “We’re experiencing healthy growth in our nutrient trading program,” says Amanda Witman, informa­tion specialist, Department of Environmental Protection. The amount of water-quality trading buyers has doubled since 2011 from 31 to 62 and the number of trades is nearly 50%, five credits off from being doubled, from 78 in 2011 to 151. “If the numbers are any indication, we do expect growth to continue in the nutrient trading program,” she added.

Other Solutions for Water-Quality Problems
Water-quality trading does not provide the answers for all environmental challenges in a watershed. “Not all environmental restoration projects need or require the WQT component. About one-third of our projects now involve WQT—either the development or the implementation of a trading program,” says a Freshwater Trust representative. “However, the Trust has restored fish habitat and water quality for more than 30 years through a variety of ecological approaches and funding mechanisms, and water-quality trading is just one tool in the tool box.”

Roll at the District has extended his work beyond the traditional water-quality trading pattern because he says there are many additional sources of funds that can be leveraged as shade credit is acquired. Roll now says WQT was a catalyst, enabling the scale needed to transform watershed health. He says the administrative costs of his program are very low when compared to other market based trading programs. The majority of credit projects are acquired through no-cost restoration easements. In 2007, he started changing the administrative process, adding additional outside funding sources. At the time, the District partnered with the local conservation district to create credits on agricultural lands where farms received lease payments for access to their land. As the program evolved, additional funding sources helped expand the program. “I wanted to be able to bring huge areas for restoration by leveraging sources and partnerships.”

Roll has developed new programs for farmers and urban projects. He describes the agricultural program as incentive-based and voluntary, providing farmers with funds for items such as irrigation efficiency, lease payments for access, and water right transfers. Farmers are not bound by NPDES, but some states are trying to enforce water-quality laws that would affect farmers.

Currently, a farmer will go to the local Conservation District, receive information about obtaining funds from the US Farm Program and its agencies such as Farm Services Agency and NRCS, the same agencies that helped start the program. The local Conservation District implements the program on the behalf of the District, and the District has an account with the local Conservation District with funds available.

The District also works on urban projects. Take Fanno Creek, for example. It was a defunct urban stream, 13 miles long and owned by Tualatin Hills Parks and Recreation, according to Roll. Three cities, Beaverton, Portland, Tigard, and Metro regional government contributed funds. Seven miles have been restored and a bike path has been established. Roll did riparian planting and quantified his riparian credits, writing up an annual report for the state, giving the kilocalorie points. Roll’s fees come from sewer fees from his company, Clean Water Services.

Roll is now working on a mile of the stream. He is restoring the riparian plantings and eliminating weeds by signing an interlocal agreement. If he has to install a pedestrian bridge, Tualatin Hills Parks and Recreation will pay The District. Roll is getting paid for the riparian plantings by ratepayer money, or sewer money—funds from his employer who gets shade credits.

“As defined by the EPA and State Agencies, I’m doing trading,” says Roll. “If you wish to act on a truly meaningful scale across the broadest landscape possible to uplift watershed health, it requires that you invest in community partnerships.”

Roll has put almost 500 projects in the ground in 10 years and restored over 100 river miles in the Tualatin Watershed. 
About the Author

Harriet Weinstein

Harriet Weinstein writes about business and the environment.

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