Exploring Options, Obstacles, and Innovative Approaches
In 2020, NEIWPCC began an exploratory study into the opportunities and obstacles to expanding water quality trading to further improve water quality and ecosystem health in the Long Island Sound watershed.
For an introduction to water quality trading, view the EPA FAQ and this primer from the Chesapeake Bay Foundation.
This project supports the Long Island Sound Study (LISS) in implementing their Comprehensive Conservation and Management Plan (CCMP). LISS, a NEIWPCC program partner, is committed to reducing nutrient pollution in the Sound as part of their work towards clean waters and healthy watersheds.
NEIWPCC convened an interdisciplinary team to identify opportunities, obstacles, and potential innovative approaches to build on the success of existing point source nutrient trading programs in the region, notably Connecticut’s successful Nitrogen Credit Exchange. This team of ecologists, economists, and policy experts explored the issue from many perspectives to analyze how an expanded trading program could support LISS goals.
The study findings are clear: expanded water quality trading is unlikely to be an effective tool to meet water quality goals under current ecological, economic, and regulatory conditions in the Long Island Sound watershed.
Limited Potential for Expanded Trading
The team’s extensive research drew a clear conclusion informed by case study review and data analysis. Key findings are below; read the full reports for additional detail.
Lack of Regulatory Drivers: Nutrient trading relies on a clear driver, usually regulatory, to create demand for trading credits. The existing Nitrogen Credit Exchange successfully helped wastewater treatment facilities meet and exceed the reductions required in their waste load allocations under the 2002 LIS nitrogen TMDL. Likewise, most point sources across the LIS watershed discharge nitrogen well within their applicable regulatory limits, providing no clear driver to expand participate in nutrient trading.
Market is Unsupported: Without a clear regulatory driver, there is insufficient demand for nutrient reduction credits to support a trading program. Without adequate demand, there is no financial incentive for dischargers to reduce “extra” pollution to generate credits.
Limited Water Quality Capacity: Many streams across Connecticut and the Long Island Sound watershed are already stressed by nutrient loading and other factors linked to development. These stressed streams do not currently have the capacity to generate trading credits without sacrificing ecological integrity or creating pollution hotspots.
Organizational Capacity: Successful water quality trading relies on a strong network of potential partners to build support for and manage the trading program. The Long Island Sound Study, NEIWPCC, state agencies, and existing networks across the region have a long history of the types of successful collaboration and leadership which could support an expanded trading program under different regulatory and water quality conditions.
Under Different Conditions, Trading Could Be Reevaluated
Though this extensive analysis found extremely limited potential for expanded water quality trading to meet current LISS goals, changes to the regulatory or ecological conditions in the watershed may create favorable trading conditions in the future.
Such changes could include reevaluated standards and water quality goals focused on ecosystem function and capacity, and/or expanded regulatory, financial, or political incentives to participate in trading. LISS’ existing organizational and scientific capacity could play a critical role in overcoming existing obstacles and set strong, science-based foundations for a trading program.
However, trading is just one tool of many available and must be considered within the context of other available tools to support water quality improvements in Long Island Sound. Even under conditions more favorable to trading, this evaluation suggests that reducing pollutants from the source may be a more efficient and cost-effective strategy to meeting LISS goals.
Read the Reports
The component reports for this study, linked below, provide a comprehensive body of work focused on water quality trading for Long Island Sound and beyond.
- Obstacles & Opportunities for Water Quality Trading in the Long Island Sound Watershed provides more in-depth information on the study and its findings, including details on the factors limiting water quality trading and the conditions under which trading may become more favorable. (Emma Gildesgame, NEIWPCC)
- Lessons from Water Quality Trading Case Studies is a literature review focused on research and case studies of water quality trading programs from across the United States and around the world. (Raphaella Mascia and Emma Gildesgame; NEIWPCC)
- Water Quality Trading in The Long Island Sound Study Area: A Preliminary Look at Some Economic Issues is a literature review focused on the economic decisions and conditions that lead to successful trading programs. (Rachel Bouvier, Joie Grandbois, Averi Varney, and Claire James; rbouvier Consulting)
- Summary of Interviews with Selected Trading Programs and Individuals provides insights from trading program managers, economists, and policymakers involved with active trading programs. (Rachel Bouvier, Joie Grandbois, Averi Varney, and Claire James; rbouvier Consulting)
- Feasibility Of Point-Nonpoint Nutrient Trading In The Long Island Sound Watershed applies the lessons summarized in the economic issues and interview reports and applies them to evaluate the potential for water quality trading within the LIS watershed. (Rachel Bouvier, Joie Grandbois, Averi Varney, and Claire James; rbouvier Consulting)
- An Alternative, Ecosystem-Based Analytical Platform to Test and Facilitate Water Quality Trading evaluates an innovative approach to water quality trading which focuses on bio-integrity and ecosystem-based management to improve water quality. (Paul Stacey; Footprints in the Water, LLC)
- The recording and slides are available from a June 2021 presentation of preliminary project findings. Members of the project team summarized findings and recommendations from the comprehensive review of existing trading programs and analyses of the economic and ecosystem components of a successful water quality trading program.
In addition to the project team members listed above, NEIWPCC is grateful for the extensive contributions of Jane Stahl, NEIWPCC Commissioner and advisor for this project, Richard Friesner, NEIWPCC Director of Water Quality Programs, and Bessie Wright, EPA Project Officer.
For more information on this project, please contact Richard Friesner.