Overview of IWA DIPCON Water Quality Trading Workshop Series: Instalment 1 – Seoul, Korea 2010
The workshop was co-chaired by Ray Earle and Sean Blacklocke. The objectives of the session were to:
- Introduce and then demonstrate the concept of water quality trading (WQT),
- Present the myriad of international WQT programs and projects, and
- Explain the environmental forensics and institutional foundations required for initiating WQT and detail the distinctions between WQT and the global carbon cap-and-trade scheme.
The objectives were addressed by an introductory presentation which was followed by a demonstration in which Sean, Ray, and a number of volunteer delegates ran through a mock WQT scenario. The session ended with a lively discussion of a number of the salient issues common to WQT programmes and investigative studies.
1. Presentation (Download the Presentation - PDF Document)
Sean gave an hour-long presentation in which he attempted to give an overview of WQT. He started by giving a general chronology of water quality management in the United States (US) (and to some extent the European Union (EU)). He showed how water pollution control had evolved from simply mitigating barriers to navigation in the early 20th Century to regulating many activities on agricultural, municipal and industrial lands. He highlighted major milestones, such as the introduction of industrial discharge permits in the 1970’s pursuant to the Clean Water Act, the shift of focus to diffuse pollution that came about in the late 1980’s and early 1990’s, and the general watershed permitting and wasteload allocation processes that became prominent in the US in the 2000’s, and that are now similarly emerging in the EU pursuant to the Water Framework Directive.
Sean then gave an explanation of the theory of WQT. The take-home message was that in the United States and in Europe, the cost-effectiveness of contemporary water pollution control policies – by giving way to political expedience – are coming at an increasingly high monetary cost (particularly to the industrial and municipal sectors) and are protracting or even sometimes prohibiting cleaner waterways. WQT was presented as only one of a number of ‘economic instruments’ that might be tested and then applied in an effort to appease political constraints while also redirecting scarce management resources to the water pollution sources that put high-priority public health and natural resource objectives in the most jeopardy.
Sean then showed a US map of where WQT had been either experimented with or applied and a series of maps showing locations of WQT initiatives in Europe, China, Australia, New Zealand and Canada. He concluded by listing the main technical and cultural challenges common to WQT efforts and reminded the delegates that the three-part workshop series would address technical and cultural challenges in more detail in Canada (2010) and New Zealand (2011), respectively. Finally, he pointed out the differences between WQT and global carbon cap and trade schemes.
2. Demonstration
By allocating coloured rings to represent current wasteloadings consistent with water quality contraventions, and by adorning volunteers with hats to indicate to which sector they belong (e.g., Anne-Grete’s cow ears), a typical TMDL –based wasteload allocation process was simulated by taking rings away from the municipal and industrial sectors to the point in which total loadings no longer exceeded ‘the cap’ (i.e., water quality standards would not be violated). All potential traders were given toy cash in which to buy water pollutant reduction credits in lieu of forfeiting all of their loadings (again - symbolised by the rings) except the pig farmer and cow farmer, who were assumed in this scenario to lack the resources or access to the financial capital necessary to install or implement best management practices to significantly reduce their diffuse pollutant loadings. Each loading source was given a schedule of cost per unit of pollutant loading reduction.
The mock market generally performed as expected – the industrial and municipal dischargers, both of whom faced relatively high-cost pollutant reduction requirements, opted to pay the farmers to install relatively low-cost best management practice structures in lieu of meeting their new reduction requirements via expensive wastewater plant upgrades. The government agent also imposed an ‘uncertainty fee’ to ensure that the reallocation of wasteload due to the trades could only err on the side of caution with respect to achieving water quality standards (i.e., margin of safety below the cap was applied). A conservationist was also given cash and told he could purchase pollutant reduction credits and simply hold them or retire them in an effort to effectuate a higher-than-standards level of water quality in the hypothetical waterway. He noted his uneasiness with the idea of paying farmers to stop polluting and thus did not exercise this option.
The delegates reported the demonstration to be quite valuable in beginning to recognise the many challenges and nuances that can arise in implementing a WQT policy – even in a political economy (i.e., society) in which environmental forensics (i.e., tools to attribute water quality standards violations to individual pollutant sources) are relatively advanced and market principles are generally perceived by participants as effective and reliable in delivering many types of social benefits.
3. Discussion
A number of important issues were raised during the discussion session. Most, however, related to the finer details regarding the technical and cultural challenges. Sean and Ray attempted to defer rigorous discussions of many of these issues to their respective proceeding workshops in 2010 and 2011. However, of the three main strings of dialogue that dominated the session, two pertained to cultural appropriateness of WQT and the other revolved around applicability of WQT in the absence of a total maximum daily load (TMDL)-type wasteload allocation process: The first two addressed the appropriateness of applying market concepts to water pollution control and of making de facto loading allocations to agricultural enterprises (or any other low-cost cleanup source). The third related to the practical applicability of WQT in the absence of a TMDL-style wasteload allocation process like the one in the US.
a) Markets as a pollution remedy? Perhaps not the dominant issue raised with respect to time, but certainly with respect to context, was the question of commonly perceived unreliability of markets or market mechanisms to produce social benefits - especially ones such as water quality improvements and protection – ones that have a long legacy of nearly sole reliance on government interventionist mechanisms (e.g., regulations). Sean mainly addressed this issue by attempting to draw clear fundamental distinctions between recent financial market improprieties and the heavily regulated programs common to water quality management that introduce incremental market mechanisms such as WQT. Sean didn’t dismiss such concerns, but he did note that this issue was scheduled for detailed discussion at the 2011 workshop in New Zealand.
b) Pay Farmers to stop polluting? The issue that probably dominated the discussion with respect to time was the unsettling idea that municipalities, industries, conservationists or taxpayers would pay farmers to install structures and adopt practices that are or should be already required under literal interpretations of existing generalised statutory mandates. Again, Sean did not dismiss this and agreed that buying farmers’ pollution reduction credits effectively amounted to further subsidising the agricultural sector. But again, Sean noted that this was a topic to be addressed in New Zealand in 2011.
c) Trust crude environmental forensics and allocate wasteloads as known quantities? It was remarked that WQT was only an ambitious theory, and that it was unproven and impractical in actual practice. Furthermore, it was contested that the uncertainty associated with estimates of the cause-and-effect relationships between wastewater and diffuse runoff discharges and water quality in receiving waters were too high to serve as the basis of a cap for a cap-and-trade programme. Sean disagreed with this and pointed to both the actual trading schemes mentioned earlier in his presentation and noted that the uncertainty that is inherent in assigning permit limits and the lack of precision associated with redistributing those limits are no different – both have to be based on best available calibrated models. Sean did, however, concede that WQT could not take hold in the absence of reasonably advanced environmental forensics and without a durable acceptance of initial wasteload allocations to contributing loading sources.
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