Duke Study Supports Water Quality Trading

New research led by Duke University shows that water quality trading has the potential to significantly reduce water pollution in river basins and estuaries faster and at a lower cost than requiring facilities to meet compliance costs on their own.

The research paper, “Optimizing the Scale of Markets for Water Quality Trading,” was published in the September issue of Water Resources Research. The research comes at a time when regulators are debating the optimal scales and types of trading programs to reduce water pollution in some of the nation’s largest and most troubled watershed systems. New programs often are delayed because regulators want to create the perfect conditions upfront. While achieving the right scale and other details is important, researchers say any water quality trading approach can lower Clean Water Act compliance costs and yield benefits over the no-trading scenario. Concerns include how big or small a trading market should be, whether it should include interstate trading, and whether it should be based on one-for-one trades or trading ratios. However, researchers recommend starting with the river basin scale and moving to larger spatial scales if abatement costs increase.

For the study, researchers developed a coupled hydrologic-economic model that measured the impacts of one-for-one trading and trading ratios among wastewater treatment plants in river basins draining into North Carolina’s Albemarle-Pamlico Sound, the nation’s second largest estuary. They assessed the advantages and disadvantages of each program type over the entire length of the basins, not just downriver or in the estuary. They also looked at how costs were affected when market scale was expanded from sub-basin to basin-wide, and then to a larger area that included adjacent basins extending into Virginia.

With larger markets, facilities could more easily find suitably sized trading partners to reduce compliance costs, but above the basin scale, the risks of creating pollution hot spots increased.

The study found only modest differences in the effectiveness of programs allowing one-for-one trading versus trading ratios. The optimal scales of markets remained the same under either scenario. The team’s findings also reinforce the need for interstate trading, as river basins and pollution issues do not follow state lines.

Check it Out
The District Department of the Environment in Washington D.C. has approved a trade of 11,013 Stormwater Retention Credits (SRCs). This trade, valued at $25,000, is the first in the District’s nascent SRC trading program, which is also the first of its kind in the nation. Additionally, the District’s SRC trading program was recently recognized as one of the world’s most innovative climate programs. The program was one of 31 finalist projects chosen from 87 applications submitted by cities around the world. Read more about the program.

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