Water Pollution Trading Programs Under Fire as Report Finds Lax Oversight

A little-noticed federally-backed program is chipping away at the foundation of the Clean Water Act, one of the nation’s core environmental laws, allowing major polluters to evade responsibility for contaminating rivers, streams and other waterways, an environmental group said in a report released Thursday.

So called “water quality trading” programs have quietly spread into more than 20 states, the report said, with a goal of establishing a water pollution credit trading market — essentially a cap-and-trade system, like those controversially proposed for climate change, but covering the dumping of pollutants like nitrogen and phosphorus into America’s waterways.

Those nutrients are behind algae blooms that suck oxygen out of water supplies, killing fish and other wildlife and sometimes making people sick. The EPA calls nutrient pollution “one of America’s most widespread, costly and challenging environmental problems” and warns that the hazards are likely to grow worse as the climate warms.

Programs to trade credits for nutrient pollution are still relatively small scale, but have gained the backing of the Environmental Protection Agency and the United States Department of Agriculture. They are based on the idea that a free market can help identify the cheapest ways to cut pollution in a watershed.

“Trading programs allow facilities facing higher pollution control costs to meet their regulatory obligations by purchasing environmentally equivalent (or superior) pollution reductions from another source at lower cost, thus achieving the same water quality improvement at lower overall cost,” the EPA explains on its website.

But after reviewing over 1,000 documents from pilot trading programs in Pennsylvania and Ohio, Food and Water Watchresearchers came to the conclusion that the programs, though they sound reasonable on paper, operate very differently than predicted in the real world.

With little state oversight, private contractors have been permitted to run pollution trading markets that offer highly-regulated industrial polluters the chance to essentially swap places with farms, concentrated animal feeding operations (CAFOs) and feed lots whose runoff is not as tightly controlled under the Clean Water Act.

“The big, big problem that we see on the credit generating side is that agriculture operations never have to monitor, sample, never have to verify that they actually generated the pollution that underlies these credits,” said Food and Water Watch attorney Scott Edwards. “It’s all based on modeling. “

Although the researchers did not uncover any direct evidence of fraud, they described lax record-keeping that made any attempt to audit the programs difficult.

The programs also cross an important line in the Clean Water Act, operating in a way that environmentalists described as legally dubious, although a lawsuit challenging the emerging programs was dismissed in 2013 when a court ruled that it was premature to sue.

The Clean Water Act draws a sharp distinction between pollution that happens at a single point, like a pipe that spews chemicals into a river, and pollution that happens when rain waters flood over an area and pick up pollutants as the water flows across land. Pollution from specific point sources requires a permit, and individual people who get their water downstream from those points can sue if those permits are breached. Run-off pollution, on the other hand, is exempt from those rules, and managing that pollution is left to the discretion of state governments.

The pollution trading programs described in the Food and Water Watch report, Water Quality Trading: Polluting Public Waterways for Private Gain, allow industrial polluters like power plants to buy credits for their point source pollution, in exchange for preventing pollution from run-off. But tracking how credits move around is far more difficult than enforcing a permit with a clear limit, advocates warn.

In Pennsylvania, the researchers found, the private company running the state’s trading program issued pollution credits for moving over 15 million pounds of chicken manure out of the Chesapeake Bay watershed, allowing industrial polluters like coal-fired power plants to buy up the rights to dump an equal amount of nitrogen. But 90 percent of that chicken manure was shipped to a single hay farm, the documents showed — in the Ohio River Basin rather than the Chesapeake Bay watershed, but less than a mile from a creek that’s already considered “impaired,” or too heavily polluted, under the Clean Water Act.

But the trail doesn’t end there. That hay farm, the researchers found, acts as a manure broker, meaning that the chicken waste could be resold. And regulators weren’t checking to make sure that the manure didn’t wind right back up in the Chesapeake Bay watershed, the report said, labeling the end result “what can only be described as a shell game.”

Earlier this month, New York state rejected a similar trading proposal, citing the cost of preventing fraud or abuse.

“While they may appear on the surface to be beneficial, market-based water quality trading programs that include trading with agricultural operations require significant verification protocols that favor neither agricultural landowners nor point source dischargers,” Department of Environmental Conservation spokesperson Benning DeLaMater told EP News Wire. “Such programs also include significant management overhead.”

Asked about the critiques raised in the Food and Water Watch report, Pennsylvania Department of Environmental Protection officials did not respond to questions as of press time.

Water quality trading programs in Ohio also came under scrutiny, with researchers concluding that one facility, Alpine Cheese Company, which had a long history of violating its Clean Water Act permits, pollution trading effectively allowed the company, in the Ohio River Basin, to raise its annual phosphorus pollution six-fold.

This track record has some environmentalists concerned that the trading programs have made things worse rather than better.

“I work every day with communities across the Bay states, including Pennsylvania, who struggle to get access to clean water,” said Maria Payan, regional consultant for the Socially Responsible Agriculture Project. “Now, with pollution trading, one of our most important tools in that struggle — the Clean Water Act — is being taken away.”

“We can no longer hold polluters accountable,” she said, “when they simply buy their way out of permit compliance.”