Water Quality Trading: Polluting Public Waterways for Private Gain

Clean water is not only the most vital natural resource on Earth — it is also something that many people in the United States take for granted, since clean drinking water is readily available for most of our communities. However, as Toledo, Ohio experienced in the summer of 2014, there are no guarantees that clean water will always flow from our taps. As industries continue to pollute and use their increasing political influence to move away from the protective environmental policies that we now have in place, clean water will become even more scarce.

Now, a tidal wave of deregulation is sweeping across our nation’s waterways. Corporations and governments that are charged with protecting their citizens are pushing for deregulation of pollution controls with market-based approaches. In the United States, the marketplace is replacing our suite of environmental laws, such as the Clean Water Act.

After over forty years of effective Clean Water Act control of many of our biggest sources of pollution, industries have finally found a way to evade meaningful and enforceable limits on their discharges. Water pollution trading — or water quality trading, as proponents call it — is allowing polluters to opt out of installing pollution reduction technologies and, instead, purchase pollution “credits” from other sources who may or may not be controlling their own discharges. This pay-to-pollute scheme is not only endangering our rivers, streams and lakes, but threatening the very underpinnings of our successful water quality laws.

This report provides an in-depth examination of how water pollution trading is being implemented in two key states: Pennsylvania and Ohio. While this market-based approach to water pollution control is quietly being introduced throughout the country, its supporters, including many in the environmental movement, continue to focus on trading as an abstract concept full of promise. This report cuts through the theory and abstractions and establishes what water pollution trading really is: a regulatory avoidance scheme fraught with unaccountability that is destined to destroy waterways and communities.

Food & Water Watch filed Pennsylvania Right to Know Law requests for two trading participants there — Red Barn, a nutrient credit broker, and Brunner Island, a power plant — and received 942 documents. We also requested documents related to the Alpine Cheese trading program through Freedom of Information Act requests to the Ohio Environmental Protection Agency. These documents showed what water pollution trading has meant in these places:

• In Pennsylvania, all of the authority, verification and trading of water pollution credits has been placed in the hands of for-profit companies like Red Barn. A significant number of pollution credits in the state is being generated through what can only be described as a shell game, whereby piles of manure move from place to place to pollute local waterways while middlemen brokers skim profits from sales of highly questionable credits.
• Water pollution trading has put an end to accountable Clean Water Act permitting at Brunner Island, which now operates under a fictitious “net zero” nutrient discharge permit, whereby the facility is free to discharge as much nutrient pollution as it can purchase credits for. It was the third largest buyer of nitrogen credits in Pennsylvania in both 2013 and 2014, purchasing 87,000 credits in 2013 and 78,000 in 2014 — amounting to almost 10 percent of all credits purchased statewide in those years.
• Under its expansion and subsequent participation in the Ohio River Basin trading program, Alpine Cheese Company was permitted to increase its phosphorous discharge levels to 36.4 million gallons per year — a 600 percent increase in wastewater discharge over what should have been allowed to protect local water quality. Between 1999 and 2014, the company had 1,251 permit violations — the bulk of them occurring between 2005 and 2011, while the nutrient trading pilot program was being developed and later implemented.

Key Findings

The findings of this report, based on the analysis of these documents, reveal the systemic problems with water pollution trading:

• Water pollution trading seriously undermines the Clean Water Act, allowing previously accountable pollution dischargers to hide behind pollution credits and discharge without any real limits;
• Regulatory agencies that should be overseeing these practices and protecting our waterways are subjected to political interference, leaving them uninvolved while for-profit companies and pro-industry entities control our water quality future;
• Pollution credits generated by agricultural operations for sale to other industry polluters are unverified and uncertain, and often based on unsustainable practices that lead to likely increased pollution in our waterways. 

Recommendations

To hold polluters accountable and protect our waterways, Food & Water Watch recommends that:

• Congress needs to reaffirm the Clean Water Act does not allow for point source pollution trading by, among other things, defeating attempts to amend it to include a trading program and prohibiting states from spending any funds on implementing trading programs.
• Federal agencies, particularly the United States Department of Agriculture, need to stop spending taxpayers’ dollars to promote these pay-to-pollute schemes across the country.
• State and federal governments need to replace voluntary pollution control approaches with mandatory measures in the nonpoint and agricultural source sector.
• Federal agencies must fund agricultural Best Management Practices without compromising current point source controls. 
• The environmental community needs to wake up to the dangers of water pollution trading.
• Advocacy groups need to legally challenge water pollution as a violation of the Clean Water Act.

Read the full report for our detailed findings and recommendations.

Report Contents

• Introduction to Water Pollution Trading
• Background on Water Pollution Control in the United States
  • Water Pollution Crisis: Declining U.S. Water Quality in the 1960s
  • The Clean Water Act and Source-by-Source Controls: 40+ Years Controlling Point Source Pollution
  • The Move to the Market in the Chesapeake Bay and the Ohio River Basin
• The Theory of Water Pollution Trading
  • Point Source Control: Economic Cost Avoidance
  • Nonpoint Source Control: Agriculture and Voluntary Incentive Programs
• Water Pollution Trading Case Studies: Where Reality Contradicts Theory
  • Red Barn and the Pennsylvania Program
  • Alpine Cheese Company in Ohio
• Summary and Recommendations