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Figuring out how to encourage individuals to do something voluntarily for the greater good has perplexed philosophers for centuries, and the nascent market for Water Quality Trading (WQT) in the U.S. is bumping up against a more prosaic version of the same dilemma.
WQT schemes aim to do for water what emissions trading schemes have done for air pollution: drive down levels of water pollutants, especially agricultural "nutrients" (nitrogen, phosphorous, and potassium), by letting emitters trade credits among themselves to find the most cost-efficient way of reducing them.
Voluntary water-trading schemes have spread in recent years, with a June 2007 survey by the U.S. Environmental Protection Agency (U.S. EPA) identifying 23 WQT programs operating across the U.S. that have traded credits at least once.
But WQT faces the same problem globally as the carbon-trading market does at present in the United States: participation isn't yet mandatory, and polluters have different reasons for deciding whether or not to participate in local voluntary WQT schemes.
So, what's driving them there? And will more incentives to trade bring laggards on board? For that matter, are voluntary drivers alone incentive enough to keep trading viable -- or can WQT schemes fully succeed only when accompanied by strict enforcement of clear limits on specific pollutants by all emitters?
The answer appears to be somewhere in the middle.
"Pointed" Argument
Industry and agriculture typically represent the two major types of tradable water pollution. The first, called "point source," is easily recordable from definable outflow points like discharge pipes from industry and municipal wastewater treatment plants; the second, called "nonpoint source" is spread across areas like fields and pastures and is therefore difficult to measure.
Not only that, but point sources tend to be regulated under the Clean Water Act (CWA) in the United States, while nonpoint sources are not -- for reasons covered in Water Trading: the Basics.
The Meaning of the Word "Voluntary"
People often compare the burgeoning water markets to the booming carbon markets -- but that comparison can be taken only so far before creating a distorted view of how WQT schemes work. Nowhere is this truer than in the use of the term "voluntary" trading.
In carbon markets, a "voluntary" offset is just that: a transaction that happens because people want to do it, and not because the Kyoto Protocol or another mandatory cap-and-trade scheme has forced compliance (although even voluntary offsets need to meet certain standards to be credible).
The 2006 Soccer World Cup, for example, was subject to no mandatory carbon cap, but went carbon neutral anyway by funding clean development projects in Africa and India that would have passed muster under the Kyoto Protocol's Clean Development Mechanism (CDM).
Purely voluntary schemes exist in water as well. The classic example is the Vittel bottling plant's payment to French farmers to protect the watershed feeding the aquifer that feeds the wells from which it draws its mineral water.
But that oft-cited example is the exception that proves the rule. Voluntary water transactions are rarely served up with a single entity so clearly willing -- let alone able -- to pay for reductions from scores of smaller entities dribbling gunk into their water.
All in the Watershed
What's more, unlike greenhouse gas emissions, water pollution doesn't spread itself equally across the world, but instead kills some bodies of water while sparing others. A polluter in the Red Sea does his neighbors no good if he offsets his emissions by reducing runoff into Lake Victoria (although polluters in Ohio do have an impact on, say, the Gulf of Mexico).
For now, WQT schemes focus on a single watershed, and the big focus is on promoting transactions between regulated point-source entities and unregulated nonpoint-source entities.
These hybrid point-nonpoint schemes are "voluntary" in the sense that credit sellers aren't regulated, but the key driver is almost always a law mandating a reduction by point-source emitters. In this sense, they are analogous to the CDM: buyers of credits in a compliance regime are working with sellers of credits that are usually outside of the regulatory protocol -- and in water trading, those outside the regime usually want to stay there.
In "voluntary" WQT schemes, the sellers of credits are in the same watershed as the buyers -- but outside the regulatory apparatus.
Nevertheless, it is the regulatory pressure on buyers to reduce emissions that drives demand.
No Regulatory Driver, No Market
Indeed, as we saw in U.S. WQT: Growing Pains and Evolving Drivers, many schemes that are "failing" are doing so because they were implemented in anticipation of mandatory emission limits that never materialized.
