Pollution Trading: Questions and Answers
For the first time in the history of the Clean Water Act, the U.S. Environmental Protection Agency has officially embraced water pollutant trading in a final agency action: the Chesapeake Bay Total Maximum Daily Load. The Bay TMDL is an attempt to allocate the loads of nutrients and sediments among various industries in the Chesapeake Bay watershed. While TMDLs are common mechanisms to try to control pollutants, the Bay approach allows, for the first time, industries to wheel and deal in pollutants with very little control and oversight. Following is a short Q&A about pollution trading, its efficacy and the impacts on our public-trust waterways.
1. What is pollution trading?
Pollution trading is an attempt to introduce market-based principles to pollution control—an activity that has been achieved historically through strict regulatory oversight of pollutant sources under federal laws like the Clean Water Act and the Clean Air Act. These and other air and water laws are premised on the notion that it is illegal to pollute, and they employ a “technology-driving” effort to force more stringent and more protective discharge standards on polluting industries. Pollution trading, in contrast, allows for dischargers of pollutants to buy and sell from one another the right to pollute our public-trust resources — our air and water.
Supporters of pollution trading claim that the variability in pollution-control costs among different polluting sectors will lead to economic incentives to eventually reduce pollution. They also argue that, in the water context, pollution trading allows for some level of control over sources of pollution that have proven harder to address under the current regulatory approach (such as agricultural runoff and other sources identified as “nonpoint” under the Clean Water Act). Under trading schemes, it is argued that the industries responsible for these nonpoint sources will reduce their pollutants voluntarily in order to sell tradeable “credits” to point source industries that can’t or don’t want to meet the strict regulatory standards that apply to point sources. Supporters of pollution trading argue that it brings a level of flexibility that the current approach lacks.
2. What are some of the problems with pollution trading?
Pollution trading is built on several faulty premises. First, it’s a form of water privatization that contributes to the undermining of our public trust. Second, from a philosophical perspective, it turns on its head the notion that pollution is illegal and that industries don’t have a right to poison our shared water and airsheds. The Clean Water Act begins with the idea that it is illegal to pollute and that, as a nation, we should strive to eliminate water pollution from our lakes, rivers and bays. Water pollution trading runs up the white flag on both of those ideals.
From a legal perspective, the Clean Water Act was not set up to allow for a market-based approach, and it does not authorize pollution trading under any of its provisions. Point sources of pollution should be operating under permits that reflect the “Best Available Technology” for pollution reduction; as new permits are issued, these technologies should improve, and the discharge limits should be ratcheted down. There is no allowance in the Clean Water Act for point sources to “buy their way” out of these technology-forcing standards. Under water quality mechanisms like the Bay TMDL, trading provisions are in violation of the law and should be removed. Polluters should have to comply with their load and waste-load allocations without profiting from the “right” to pollute the Chesapeake Bay.
As a practical matter, the trading of pollution credits is inherently fraught with problems and is virtually guaranteed to result in worse water quality wherever it’s practiced. Although nonpoint sources like farms will provide the main source of pollution credits, no trading program in the country, including in the Chesapeake Bay, has any way to verify that reductions of pollutants are indeed being achieved in these industries. In Maryland, there is still a law on the books that keeps farm Nutrient Management Plans out of the hands of the public. Pollutant credits are generated through self-certification—essentially baseless reduction estimates that are based on “Best Management Practices” (BMPs), with no accountability.
In the case of the Bay TMDL, the EPA is allowing pollution trading without setting clear and enforceable minimum limits on this activity. The agency does not provide any safeguards to prevent fictitious or overstated pollution reductions from being used as offsets. For example, the EPA suggests that it would be permissible for states to “validate” credits based on the mere claim that a particular BMP is “expected to generate the credits offered,” even if no actual pollution reductions are documented. Instead of working toward eliminating their pollution, point sources will now have the right to discharge above their limits by purchasing credits from agricultural sources that will be difficult, if not impossible, to verify. As one agricultural industry trade newsletter puts it, nutrient trading is “a program [that] has been created to help farmers earn money while providing polluters with the opportunity to increase their pollution to the Chesapeake Bay and its tributaries.”
Another major problem with pollutant trading is that it creates financial incentives to claim reductions of pollution where none occur. Additionally, in the case of agriculture, taxpayers are already footing the bill for many of the pollutant reduction BMPs that are being implemented on farms, so incentives to reduce pollutant loads from these facilities already exist without the need to further incentivize false claims of reductions.
3. Hasn’t pollution trading worked in other places?
No. Many states have tried to implement nutrient trading schemes around the country, but there is no documented, successful nonpoint-to-point source trading program implemented in any watershed in the United States.
Trading proponents like to point to alleged successes in the Clean Air Act arena with emissions trading of sulfur dioxide (SO2) under the Acid Rain Program (ARP). Those who evoke the ARP to support trading of pollution ignore other air trading programs, such as California’s RECLAIM initiative, that were an abject failure and resulted in pollution “hotspots” among many poor communities in the region. Even with the acclaimed ARP, the EPA now admits that at least a good portion of the reductions were achieved due to the availability of cheaper, low-sulfur coal to burn in power plants, and to lower coal transportation costs — not trading. Nevertheless, even if we credit emissions trading under the ARP for some reductions in SO2 emissions, these reductions were nowhere near those achieved during the same time period under the European Union’s traditional regulatory control approach, where SO2 reductions were 2–3 times greater than in the United States.
In addition, air-to-water pollution trading comparisons make little sense for the following reasons:
• Even in the Clean Air Act context, it is widely recognized that trading is inappropriate and illegal for many pollutants, specifically those listed as Hazardous Air Pollutants under Section 112 of the Clean Air Act. In fact, the environmental community was unified in its opposition to President George W. Bush’s attempt to introduce trading as a technique for controlling mercury emissions from coal-fired power plants. With a mandate that is determined facility by facility, and based on Maximum Achievable Control Technology, Section 112 is more analogous to the point source-by-point source Best Available Technology standards under the Clean Water Act.
• Airsheds are not the same as watersheds. The danger of local buildup of pollutants (hotspots) is generally much more likely with water pollution than it is with air pollution. Sediment, and its propensity to deposit locally, is a prime example of why trading of water pollutants makes little sense and is harmful to local waterways. As in the case of California’s RECLAIM program, heavy local deposition patterns will typically impact poorer communities, raising significant environmental justice concerns.
4. Hasn’t the Clean Water Act failed the Bay, and isn’t it time to try something new?
The Clean Water Act has not failed the Bay — the states have. The Clean Water Act has all the tools needed to turn this watershed around. And if any actions are lacking, the states have the authority and obligation to go above and beyond the Clean Water Act to implement, in state laws and regulations, anything that they think might be needed to meet water quality goals. The six Chesapeake Bay states (Delaware, Maryland, New York, Pennsylvania, Virginia and West Virginia), to date, have refused to do so, and that is why water quality in the Bay continues to decline.
For 30 years, as Bay clean-up plans have unsuccessfully come and gone, these states have refused to deal with the biggest source of pollution in the Chesapeake Bay: agriculture. Instead of doing the things that have proven to work in the point-source sector so well, such as monitoring, enforcement and strict regulatory control, the states have chosen to implement a series of voluntary avoidance schemes designed to not deal with the real problem. These include a host of approaches that are laden with financial incentives for industrialized agriculture: programs to truck manure out of the Bay watershed, subsidies for best management practices, and, now, allowing industrial agriculture operations the opportunity to sell off the right to pollute the Bay to other industries.
Pollution trading does nothing to fix the problem. It is doing more of the same thing that has been tried and failed so many times in the past. If people really wanted to try something different, they’d insist that the states crack down on all sources of pollution, including nonpoint sources like agriculture, in a way that has forced changes to so many other industry sectors during the 40-year history of the Clean Water Act.