In a first-of-its-kind trading plan involving three states of the Ohio River Basin, an interstate water quality pilot trading program has been initiated.

Under the trading plan, farmers in Ohio, Indiana and Kentucky reducing their nutrient run-off using conservation best practices can be credited for nutrient run-off reduction. And emitters of similar nutrients such as power plants and sewage treatment plants can purchase the nutrient reduction credits and not have to invest in hugely expensive changes to their operations in order to meet lower pollution standards/environmental permit requirements.

This water quality exchange program is similar to the carbon exchange programs that have existed for farmers to receive credit for no-till farming to trap carbon so that industries can have a larger carbon footprint in their operations.

The water-quality program, as with the carbon trading, will be handled in a market-based approach. The three states initially participating are the core states of the Ohio River Basin drainage area. Water quality exchanges have not been extremely common and those that have been enacted have been a state or less per program.

“Although some states have adopted trading policies or rules to govern trading within their jurisdictions, this is the first time that several states have come together to develop or implement an interstate trading program where all states operate under the same rules and a water quality credit generated in one state can be applied in another,” explained an announcement issued by the American Farmland Trust.

The three-state trading is being termed a pilot program with trades beginning this year and proceeding through 2015 under the pilot program descriptor. Apparently, the program is also being termed a pilot as research into how to handle all aspects of the trading, appropriate actions for credits and other details are worked out while the program proceeds. The organizers promise in their announcement that water quality trading will be simpler than what farmers have found to be the case with other incentive payment programs “because of the valuable input from agriculture in the trading plan.”

There is a wide coalition of companies, associations and government agencies involved to assure all the legal aspects and protocol for expanding this program to the whole Ohio River Basin can be worked out.

“The Electric Power Research Institute (EPRI) is leading the research effort with support from American Farmland Trust (AFT); Hunton & Williams LLP; Kieser & Associates, LLD; and the University of California at Santa Barbara. The pilot project is also receiving regional support from the Ohio Farm Bureau Federation and the Ohio River Valley Water Sanitation Commission; federal support from the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Agriculture Natural Resources Conservation Service (USDA NRCS); and industry support from American Electric Power, Duke Energy and Hoosier Energy,” the announcement noted.

“This trading plan is a win-win for utility companies, agriculture and ultimately consumers and the environment,” said AFT President Jon Scholl. “For farmers, water quality trading creates opportunities to work within their communities to implement conservation practices that improve water quality and protect and enhance valuable farmland soils.”

Jessica Fox, senior scientist for EPRI’s Water and Ecosystems Program and the project director, was quoted as saying, “Trading provides point sources with a cost-effective option for meeting nutrient reduction targets and has the added benefits of improving water quality, restoring wildlife habitat, reducing greenhouse gas emissions and top-soil losses, improving soil health on farms and providing financial support for farmers and local counties.”

AFT contends that the program has strong agricultural support and leadership and is being designed to reflect the input of more than 150 Ohio River Basin growers/producers, soil and water conservation district staff and agricultural professionals. Additionally, a 16-member agricultural stakeholder advisory committee is to provide guidance for the project as it proceeds. Various meetings have been ongoing since October 2011.

“Strong participation from the agricultural community is essential to developing a water quality trading market that works for both buyers and sellers,” said Rick McLellan, senior vice president, commercial, with the Mosaic Company and a board member. The Mosaic Company Foundation is a supporter by also providing funds.

Apparently the kick-off for pilot trades are set as it was announced that trades are expected to take place in 16 counties. This should involve 30 farmers implementing agricultural “conservation best management practices” on up to 20,000 acres. The water quality credits from these operations are expected to be purchased by an initial three power plants.

From this planned pilot beginning, nutrient reductions have been calculated to total approximately 45,000 pounds of nitrogen and 15,000 pounds of phosphorus annually.

The organizers’ goal is for success to eventually be an eight-state trading area in the Ohio River Basin with farmers creating enough credits for 46 power plants, thousands of wastewater treatment facilities and other industries purchasing credits from about 230,000 farmers. The states targeted are Illinois, Indiana, Kentucky, New York, Ohio, Pennsylvania, Virginia and West Virginia.