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GLIN==> Market-Based Water Quality Management Yields Cleaner Water at Lower Cost

Embargoed for release on Wednesday, May 24, 2000

Adlai Amor, Media Director
Tel: 202-729-7736, Email: aamor@wri.org

Market-Based Water Quality Management
Yields Cleaner Water at Lower Cost

WASHINGTON, DC, May 24, 2000 - A new report released today by the World
Resources Institute (WRI) concludes that market-based approaches to water
quality management, including nutrient trading, can provide greater
improvements in water quality at much lower cost than traditional regulatory
approaches alone.

"As a more flexible form of regulation, nutrient trading can provide a wide
range of benefits to industry, communities, and even farmers," said Paul
Faeth, author of Fertile Ground: Nutrient Trading's Potential to
Cost-Effectively Improve Water Quality.

Despite the success of the Clean Water Act in reducing water pollution
through tighter regulations on industrial and municipal "point" sources of
pollution, there are still about 3,400 waterways in the US that are impaired
by nutrients, primarily nitrogen and phosphorus. Excess nutrients are
largely the result of "nonpoint-source" run-off from agricultural fertilizer
and animal waste. Such runoff can cause algal blooms that die and leave too
little oxygen in the water for fish and other species to survive.

The "mahogany tide" now invading the lower Chesapeake Bay and its
tributaries, is an example of this sort of problem. The current bloom is the
largest in twenty years and has caused at least two major fish kills.

Faeth contends that further water quality improvements depend on developing
low-cost, innovative approaches that can effectively cut pollution from
agricultural sources, as well as making regulatory requirements more
economically feasible for point source dischargers.

The WRI report documents case studies in three watersheds of the Upper
Midwest: the Saginaw Bay in Michigan, the Rock River in Wisconsin, and the
Minnesota River Valley. The study compares the cost-effectiveness and
environmental performance of four different approaches to reduce levels of
phosphorus in the study sites:

 standard regulations on point sources,
 conservation subsidies for agricultural "best management practices",
 nutrient trading to meet a regulatory requirement for point sources, and
 nutrient trading combined with performance-based agricultural subsidies.

The study found that policies utilizing market-based approaches, such as
trading, were much more cost-effective in meeting regulatory limits for
nutrients in the waterways studied than conventional regulatory approaches.
Nutrient trading, when combined with agricultural subsidies that are tied to
reductions in nutrient runoff and subsequent improvements in water quality,
provided the greatest overall cost savings. According to Faeth, "policy
approaches using nutrient trading are dramatically less expensive than those
using conventional point-source performance requirements, amounting to
savings of up to 82 percent in the Michigan study."

Trading makes it profitable for sources with low treatment costs to reduce
their own effluents beyond legal requirements, generate a credit from the
surplus reductions, and sell these credits to dischargers with higher
treatment costs. This flexibility produces a less expensive outcome overall
while achieving-and often going beyond-the mandated environmental target.

With the option of trading to meet regulatory requirements, dischargers like
municipal sewage and industrial waste treatment plants can choose to upgrade
their facilities with technology designed to meet new requirements, or to
share in the cost of an upgrade of another facility that will exceed
regulated reductions. Thus, it generates a reduction credit for the first
facility -- a point-point trade.

Alternatively, a treatment facility might opt to pay farmers within the same
watershed to adopt conservation practices to reduce their fertilizer runoff,
thereby generating a credit for the treatment facility -- a point-nonpoint
trade.  In both cases, each facility and the farmer save money, while the
new requirement is effectively met.

Trading has been successfully applied to achieve cost-effective reductions
in other areas of environmental concern, including lead, sulfur dioxide, and
other air emissions. In addition, trading is the leading option proposed to
address the build-up of greenhouse gas emissions that could cause climate

"Conventional regulatory approaches to water quality management can work,
but they can be very expensive, and often don't target the biggest sources
of pollution" said Faeth, "Our report shows that trading could save a lot of
money in the watersheds we studied. With 3,400 waterways impaired by
nutrients in the U.S., we're going to need a cost-effective solution to this

Faeth also noted that great potential may exist for the use of nutrient
trading in large watersheds as well, such as the Mississippi River Basin and
the Chesapeake Bay. WRI is currently undertaking new research on the
potential for nutrient trading to address the "dead zone" in Gulf of Mexico,
caused by nutrient pollution from the Mississippi River. The Institute will
soon launch a new Website designed to facilitate on-line trades among
industry, communities, and farmers in six U.S. watersheds.


The World Resources Institute (WRI) is a Washington, DC-based center for
research that provides objective information and practical proposals for
change to foster environmentally sound and sustainable development. WRI
works with institutions in more than 50 countries to bring the insights of
scientific research, economic analyses and practical experience to
political, business and nongovernmental organizations around the world. For
more information, visit WRI's website at: http://www.wri.org/wri

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