Tuesday, September 20, 2011

Water Quality Trading to scale WAY up

I listened in on a webinar last week that laid out a possible future for water quality trading.  The problem for WQT is that no one has "gone big" so most people have gone home -- whereas carbon credits can be traded worldwide, and wetland/habitat credits usually are traded within a service area that is large enough to support a market, no one really knows how big a market area for water quality credits CAN be, to provide ecological benefits, or HAS to be, to survive economically.

The Ohio River Basin Trading Project wants to find out.  Previous WQT projects have spun up where farmers generate water quality improvements that are quantified as credits, then sold to downstream end-of-pipe polluters (usually sewage treatment works) who exceed their permit limitations.  But the watersheds involved are typically very small -- the Greater Miami in Ohio, the South Nation in Ontario, etc.  Escape velocity and market thickness have never been achieved -- failure to thrive, failure to launch, whatever you want to call it.  WQT has always sputtered. The Ohio River Project is happening on the scale of the entire Ohio River basin, all the way from Pittsburgh, PA to Cairo, IL, and is getting everyone in the same room to figure out what kind of rules and conversations might be needed to allow a farmer in Ohio to sell credits to a power plant (say) in Indiana.

Can we avoid pollutant hotspots?  What differences from other environmental markets may exist because rivers flow directionally and carry pollutants only within their watersheds?  We just don't know. But we might in a few years.  Very interesting!

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