Summer/Fall 1998: Pollutant Trading

Pollutant trading is a subject that produces strong feelings in both its supporters and detractors. Is it a way to reinvent environmental protection with a market sensibility and efficiency, achieving better results at less cost? Or is it an excuse for not directly taking on the challenges of achieving clean air and water through traditional regulatory and enforcement approaches? To help you decide for yourself, this issue of the UPDATE is dedicated to pollutant trading, particularly how a nitrogen trading program could help to achieve the reduction goals established by the LISS. The lead article will provide background on what pollutant trading is, how and why it evolved, and EPA’s eight principles of trading. Martin Overton, of the City of Norwalk’s Department of Public Works, will provide a local and self proclaimed enthusiast’s perspective on trading. That will be followed by the state perspective from New York and Connecticut and an example of an existing water pollutant trading program. Certainly, there are other views on trading and if, and how, a trading program for LIS should be structured, our objective here is to stimulate discussion and, hopefully, address the debate.

Pollutant trading has been implemented successfully on a large (national) scale as part of the acid rain program to reduce sulfur dioxide (SO2) emissions. But while a number of water pollutant trading programs have been implemented, the scale has been small and the results mixed. Why is that? One reason is that unlike the acid rain program that regulates private utilities, the sources of pollution causing water quality impairments are often publically-owned wastewater treatment plants, municipal stormwater, or even individuals contributing to polluted runoff. This is certainly the case with nitrogen loadings to Long Island Sound, which is dominated by municipal sewage treatment plants. Private sources, such as utilities, can more quickly adopt market principles than public sources that rely on public financing to upgrade their systems. To be successful, a nitrogen trading program for Long Island Sound must be integrated with the public financing available through the Connecticut Clean Water Fund and the New York Clean Water/Clean Air Bond Act, but still retain the market incentives that are the driving force behind an efficient trading program. Since the financing programs differ in each state, the approach to trading may sensibly differ as well, each tailored to the conditions in each state.

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