Dairyman Jeff Beavins is getting paid to build a structure that stores six months' manure. Most of the $130,000 cost will be paid for by water quality credits from local wastewater treatment plants. The Miami (OH) Conservancy District is the intermediary exchange.

The manure containment will divert his farm's nitrogen (N) and phosphorus (P) runoff from the Great Miami (OH) River watershed. Paying Beavins to avert contaminants from the river, in the form of water quality credits, is more cost-effective than upgrading wastewater treatment plants, say environmental scientists.

Beavins and 35 other farmers are participating in an experimental project that is a sign of things to come. Managed by The Miami Conservancy District, the pilot water quality credit program has approved $586,000 for 36 Ohio farmers and their soil and water conservation districts (SWCDs) to implement conservation plans reducing fertilizer and manure runoff.

In one year, Beavins' manure containment structure will prevent 3,536 lbs. of N and P from entering the watershed. In 20 years, that amounts to 70,720 lbs. This makes Beavins' $107,000 payment a win-win for all sides. The downstream wastewater treatment plant avoids costly upgrades for removing N and P that Beavins keeps out of the watershed.

He and other participating growers have worked with their local SWCD technical staff to submit competitive bids. SWCDs aggregate those water credits into a contract between the SWCD and the Miami Conservancy District and verify the on-farm practices. To measure the effectiveness of the program, automated water samplers collect river water every eight hours at four watershed locations.

Together, these Ohio farmers' plans will cut P and N loads in local waterways by about 215 tons over the next 20 years. Reductions are used to comply with a stream or river's total maximum daily load (TMDL). A TMDL identifies the amount of a particular pollutant (N, P or sediment) that a particular stream, lake or river can handle without violating state water quality standards.

This Great Miami River Water-shed Water Quality Credit Program could save an estimated $385 million in costly technology upgrades over 20 years, if all wastewater treatment plants in the watershed participated, says a Kieser & Associates 2004 report (see www.envtn.org/docs/Great_Miami_Trading_Analysis.pdf).

This voluntary, collaborative local approach is more cost-efficient than adding a new bureaucracy or upgrading treatment plants, says Dusty Hall, program development manager for the Miami Conservancy District. “The idea is to leverage existing local Soil and Water Conservation Districts and their relationships with producers,” he says.

Water quality credit trading is favored by USDA-NRCS, which funded a portion of this three-year, $2.17-million program.

TO APPRECIATE THE effectiveness of this approach, consider the following: Farmers in the Great Miami River watershed bid from 33¢ to $1.90/lb. of N and P reduced. That compares to $422.5 million to install P- and N-removal technology at 314 watershed wastewater treatment plants over the next 20 years, says Miami Conservancy District Program Development Specialist Sarah Hippensteel. Buying credits for agricultural best management practices (BMPs) would cost $37.8 million over the same period, she estimates, for a savings of $384.7 million.

This watershed is ideally suited for water quality credit trading. It has agricultural uses upstream from both the Great Miami River and from participating municipal wastewater treatment plants. About 80% of the land use is agricultural, with a good supply of both farms and large wastewater treatment plants, to create market liquidity, Hall adds.

Winning water quality credit bids in Beavins' Darke County SWCD have ranged from $1.20 to $1.80/lb. of N and P reduced.

“I work with producers who may receive from $10,000 to $90,000 for their manure reductions,” says Tim Brunswick, Darke County (OH) SWCD. He helped Beavins design the 50 × 135-ft. manure storage structure for his conservation plan.

Although Beavins is a dairy producer, growers can qualify for water credits from BMPs such as no-till, conversion to pasture, adding cover crops or filter strips, grass waterways, grid soil sampling, variable-rate fertilizer application, conservation crop rotations and others.

Unlike the voluntary Great Miami (OH) River water quality credit program, Chesapeake Bay's water-shed falls under a federal cap of N and P. Full-scale implementation of water quality credit trading there could save $1 billion in wastewater treatment costs, according to a 2004 EPA report.

Eighty percent of existing N and P contributions there come from agriculture, says Peter Hughes, Red Barn Trading Co., Lancaster, PA.

He sold the first nutrient credit there last November to help meet these federal obligations for Chesapeake Bay water quality.

RED BARN (AGRONOMIC) Consulting uses its agricultural client base to identify farm improvements that generate credits, and then pools credits for buyers. Red Barn holds the majority of Pennsylvania Department of Environmental Protection-certified credits and has applications for more than 100,000 more credits pending.

Red Barn Consulting also helps farms submit proposals for cost-sharing on future N- and P-reducing practices.

“For example,” Hughes says, “a grower might propose credits for 100 acres of no-till with a cover crop. Or, a poultry producer might earn credits of $10/lb. to sell poultry manure outside of the watershed. The practice is certified by the Department of Environmental Protection, and the credits will be sold on an open market.

“Because the regulations don't begin until 2010, we do not yet have an exchange for trading these credits,” Hughes says. “At this point we have a reverse-Economics 101, with a lot of supply but low demand.”

This type of market-based approach to environmental quality is on the rise. An EPA survey of water quality credit trading programs tallied 21 water quality trading programs in various stages of development. A 2004 Dartmouth College study found 40 credit trading programs in 17 states.

“What we see today is the tip of the iceberg in terms of the environmental benefits of trading programs and cost savings that can be achieved,” Hall says of water quality trading programs. “The EPA has strongly encouraged states to adapt stream criteria similar to what Ohio is doing.

“The best approach to trading programs is a locally based common-sense approach with voluntary partners at the table,” he says.

Editor's note: To learn more see: www.epa.gov/owow/watershed/trading/tradingmap.html
www.pca.state.mn.us/water/wqtrading/index.html