Market-based Incentives Market-based Incentives to Improve Water Quality: to Improve Water Quality: Trading Program Examples Trading Program Examples Mark S. Kieser Mark S. Kieser Senior Scientist Senior Scientist Kieser & Associates Kieser & Associates and and Acting Chair Acting Chair Environmental Trading Network Environmental Trading Network Environmental Environmental Trading Network Trading Network
Presentation Overview Presentation Overview • Water Quality Trading overview • Water Quality Trading overview • State of WQT Markets • State of WQT Markets • Trading in Michigan • Trading in Michigan - Trading infrastructure & tools - Trading infrastructure & tools - Calculating/registering credits - Calculating/registering credits - Emerging market information - Emerging market information • Lake Tahoe • Lake Tahoe • Streetsboro, Ohio • Streetsboro, Ohio • Important program considerations • Important program considerations
Trading Overview Trading Overview The Pollutants Traded The Pollutants Traded The Trading Currency The Trading Currency Phosphorus • Phosphorus • (Pollutant Reductions = (Pollutant Reductions = A market- -based tool based tool A market A market-based tool “Credits” = Unit of “Credits” = Unit of • Nitrogen Nitrogen • for water quality improvements… for water quality improvements… for water quality improvements… Exchange) Exchange) • Flows • Flows Real • Real • • Sediment • Sediment • Surplus Surplus One pollutant source with high • • Bacteria One pollutant source with high One pollutant source with high • Bacteria Quantifiable • Quantifiable Temperature • • Temperature • treatment costs pays another treatment costs pays another treatment costs pays another Heavy metals • Watershed- Watershed -based based • Heavy metals • • to make a voluntary and surplus to make a voluntary and surplus to make a voluntary and surplus Pesticides • Pesticides Net improvement • • • Net improvement pollutant reduction for a lower cost. pollutant reduction for a lower cost. pollutant reduction for a lower cost. (trading ratio) (trading ratio) “Legacy” pollutants • “Legacy” pollutants • The Market…Buyers and Sellers The Market…Buyers and Sellers of Pollutant Reductions of Pollutant Reductions
State of the Market… State of the Market… • Most “trades” have been Point Source/Point Source • Most “trades” have been Point Source/Point Source • Most trades focus on nutrients (and temperature) • Most trades focus on nutrients (and temperature) • Concerted efforts for PS/NPS (a few bilateral trades • Concerted efforts for PS/NPS (a few bilateral trades -- local & small; mostly Ag credit generation) -- local & small; mostly Ag credit generation) • Growing interest in urban NPS/NPS trades • Growing interest in urban NPS/NPS trades • Growing interest in multiple credits– • Growing interest in multiple credits– air/water/habitat air/water/habitat • EPA WQT/wetlands – High costs, scale issues, no • EPA WQT/wetlands – High costs, scale issues, no Wetland Mitigation Banking/WQT overlaps Wetland Mitigation Banking/WQT overlaps • Environmental Group participation • Environmental Group participation • Confusion over trading definitions • Confusion over trading definitions • High transaction costs • High transaction costs • Fragmented and thin markets • Fragmented and thin markets
Watershed Scale Trading Programs Watershed Scale Trading Programs
Statewide Trading Programs Statewide Trading Programs
Michigan Water Quality Trading Michigan Water Quality Trading • Rules were effective on November 22, 2002 • Rules were effective on November 22, 2002 • Program is Voluntary • Program is Voluntary • Goals: • Goals: � improve water quality, optimize cost of achieving � improve water quality, optimize cost of achieving and maintaining water quality standards and maintaining water quality standards � � create economic incentives for discharge create economic incentives for discharge reductions, pollution prevention & restoration reductions, pollution prevention & restoration programs programs � � facilitate TMDLs, stormwater control programs and facilitate TMDLs, stormwater control programs and non-point source management practices non-point source management practices � � provide incentives for development of reliable provide incentives for development of reliable quantification procedures quantification procedures � � provide greater flexibility in watershed provide greater flexibility in watershed management management
Statewide Rules Trading Statewide Rules Trading Rules (Michigan) Rules (Michigan) • Purpose • Discount Factors Discount Factors • • Water Quality Benefit • Banking Banking • • Restrictions • Notice Requirements Notice Requirements • • Eligibility • Registry Registry • • Closed/Open Trading • Trading ratios Trading ratios • • Pollutants Traded • Program Evaluations Program Evaluations • • Baselines • Compliance/Enforcement Compliance/Enforcement • • Credits Generated • Citizen Petitions Citizen Petitions •
Types of Trading Types of Trading • Point source/Point source • Point source/Point source (between permitted WWTPs) (between permitted WWTPs) • Point source/Non-point source • Point source/Non-point source (between permitted and non-permitted (between permitted and non-permitted sources with voluntary credits) sources with voluntary credits) • Non-point source/Non-point source • Non-point source/Non-point source (between regulated municipal (between regulated municipal stormwater permittees and stormwater permittees and unregulated agriculture) unregulated agriculture)
Michigan Ag Trading Framework Michigan Ag Trading Framework Producer Trading in Michigan - Planning: Producer works with local certification Planning process OR with a Planning Local TSP/Planner to develop TSP/Planner plan (privately or with a Certification Farm Bill program). - Payment: Farmer receives funds to Board of implement plan from a Bank/Broker Trade (NN) bank OR a private buyer (Hold/Purchases Credits) Payment Payment (Market Posting) (after posting on NutrientNet). - Notice: If credits formally Notice Notice offered for sale under MI Notice of Rules, notice is filed with Generation MDEQ including farmer information. (Site info.) - Use: Credits (and notice Use Use info.) get publicly posted on state registry. Registry
Eligible Practices Eligible Practices • Gully Stabilization • Gully Stabilization • Streambank Stabilization • Streambank Stabilization • Filter Strips • Filter Strips • Prescribed Grazing • Prescribed Grazing • Conservation Tillage • Conservation Tillage • Conservation Cover • Conservation Cover • Conservation Crop Rotation • Conservation Crop Rotation • Cover Crop & Green Manure • Cover Crop & Green Manure • Critical Area Planting • Critical Area Planting • Stripcropping, Contour • Stripcropping, Contour • Stripcropping, Field • Stripcropping, Field • Terraces • Terraces • Feed Lot Waste Management Systems • Feed Lot Waste Management Systems
New Trading Efforts in MI New Trading Efforts in MI ~ EPA 2004 Targeted Watershed Grant ~ ~ EPA 2004 Targeted Watershed Grant ~ • New trading infrastructure per MI rules • New trading infrastructure per MI rules • State registry (credit tracking/use) • State registry (credit tracking/use) • Marketplace tools (connecting buyers • Marketplace tools (connecting buyers & sellers) & sellers) • Banking schemes (credit aggregation) • Banking schemes (credit aggregation) • Brokerage opportunities • Brokerage opportunities
NRCS Conservation Planning Process NRCS Conservation Planning Process Standard edge of field Standard edge of field sediment load (no nutrient sediment load (no nutrient delivery to surface waters) delivery to surface waters) How do I use this information How do I use this information to get into a trading program? to get into a trading program?
So if I want to add cover crops: So if I want to add cover crops: • • What is the phosphorus reduction from my fields with this practice? What is the phosphorus reduction from my fields with this practice? • • How many credits could I generate for a trading market? How many credits could I generate for a trading market? STEP 1: Sign in at http://kalamazoo.nutrientnet.org (on-line marketplace)
STEP 2: Working with my NRCS planner, select desired practice from the list of 24 options (for example, “Conservation Cover”).
STEP 3: Planner or farmer enters data from conservation plan (contributing area, RUSLE2 values for before and after practice implementation, etc.) RUSLE 2 Filter strip: yes/no? Field connected to waterbody: yes/no?
STEP 4: Planner and farmer delineate field(s).
STEP 5: View phosphorus reductions and trading credits available. Farmer may wish to consider additional practices with planner for added value.
STEP 6: Register your credits online.
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