The Case Against Water Quality Trading

My recent legal article, "The Case Against Water Quality Trading," is primarily aimed at lawyers and is thus pretty technical. Its conclusion, however, is rather simple: The Clean Water Act simply does not allow pollution trading at the expense of tried-and-true methods for reducing water pollution (issuing and enforcing permits). 

While Clean Water Act permits have been largely successful in forcing certain industrial or “point” sources of pollution to sharply curtail their pollution discharges, much more work is needed to clean up our nation’s waterways, especially with “non-point” sources of pollution, including run-off from factory farms. Close to half of our nation’s lakes are unhealthy, and more than half of the water in our nation’s rivers is in poor condition. Agriculture is the single largest known source of pollution—coming from animal waste and other fertilizers irresponsibly applied to farmland or stored in storage ponds, which, when dissolved in rainwater, flows into waterways, causing toxic algae blooms and dead zones. Agricultural operations such as factory farms have largely been left unregulated, and only a small subset has to get permits under the Clean Water Act.

In 2003, the EPA rolled out a controversial policy endorsing pollution trading, in part, to get at this pollution. Part of its aim was to create a market in which traditional permit holders that would otherwise have to more strictly limit their pollution to improve water quality could instead purchase credits generated by unregulated pollution sources such as agricultural operations, which would thereby be incentivized to reduce their pollution.   

What the EPA neglected, however, is that this pollution trading is simply not permissible under the Clean Water Act. By promoting such an approach, the agency has kicked the pollution-cleanup can down the road—banking on an illusory regime based more in fantasy than fact.

At its core, there is no language whatsoever in the Clean Water Act that allows pollution trading, and trading undermines the act’s provisions mandating that each point source adhere to the strictest discharge limitation possible. Nothing in the statute allows some facilities to buy their way out of compliance. Moreover, pollution trading undermines the act’s goal of eliminating all discharges into our waterways by incentivizing the development of the most stringent pollution control technologies. Pollution trading is also contrary to the public participation and transparency provisions of the Clean Water Act, as private market trades determine how much pollution will be allowed.

Finally, even if pollution trading were not unlawful on its face, pollution trading involving agriculture likely violates the Clean Water Act in practice because it undermines the act’s requirement that permits assure the attainment of water quality standards. 

Pollution trading results in point sources increasing their discharges, thus causing spikes in pollution, or “hotpots” that will have negative local impacts. Since these sources are typically located in low-income communities, these discharges disproportionately harm the waters where the neediest fish and swim. The supposed offsets are to come from agricultural sources, which are not usually regulated. Thus, the amount of pollution reduced by such sources is inherently uncertain. And states do not have sufficient tools to ensure that so-called agricultural best management practices actually reduce pollution. Neither the EPA nor states have required point sources to engage in water quality monitoring of agricultural sources as permit conditions. Last, pollution trading with agriculture incentivizes the use of brokerage houses that are not regulated and get commissions on trades, meaning they have a strong incentive to generate paper trades regardless of actual pollution reductions.

In 2010, Food & Water Watch joined Friends of the Earth and sued the Environmental Protection Agency for authorizing state trading programs for the Chesapeake Bay Watershed. Unfortunately, a federal district court dismissed the case on procedural grounds. But the court did leave the door open for future suits. As states move forward with allowing pollution trading, there is more than a good case to be made that this is not allowed under the Clean Water Act.