Water quality markets: a slippery slope towards carbon trading?

EKO ECO Guest Blogger on September 4, 2009 Comment

by Caroline Ott, Intern for the Carbon Markets and Water Programs

The Ohio River Basin Trading Pilot Project, managed by the Electric Power Research Institute (EPRI), held its third quarter webcast last month. The publicly available webcast delivered a whole slew of updates, from an overview of WARMF modeling to project funding developments. One such update turned quite a few heads: EPRI's progress towards using a water quality market to also generate voluntary carbon credits.

Project Manager Jessica Fox explains that while it was water quality that launched the Ohio River Basin pilot, EPRI has recently begun to explore a fuller range of ecosystem crediting schemes. Specifically, EPRI plans to spend the next two years determining how reductions in fertilizer use could generate both water quality and voluntary carbon credits.

Because fertilizer use is associated with both nitrous oxide emissions and high nutrient loadings in water streams, reductions could create two distinct ecosystem improvements. EPRI, in collaboration with Michigan State University, has spent the past few years recording the amount of nitrous oxide emitted from farmland. (1 ton of N2O emissions has the same global warming potential as a whopping 296 tons of CO2.) After extensive data collection, the researchers were able to develop a nitrogen calculator, a tool converting fertilizer loadings into tons of greenhouse gas emissions. With this tool in hand, EPRI hopes to develop carbon credits under the Voluntary Carbon Standard.

While the concept of generating multiple credit streams from the same project may be new to the Ohio River Basin, EPRI is not the only program taking a "water-up" approach. The Willamette Partnership in Oregon tells a similar story. This project also used water quality trading to launch its crediting program, and most recently approved a protocol allowing for the trading of three additional currencies.

These two cases reveal one underlying irony: water quality has yet to gain traction as a single-commodity market, despite giving a leg up to its sister ecosystem credits. Could such low profile water trades actually be serving as a springboard for the more liquid ecosystem markets?