DESIGNING A MULTIPLE MARKET TRADING SYSTEM FOR WATERSHED MANAGEMENT

Over the last 30 years, water quality has been a priority in the United States. Over 54 billion was spent on public point source water pollution control and 74.7 billion on private point-source pollution abatement (National Forum for Non-point Source Pollution, 1995). By 1990, over 87% of the major municipal facilities and 93% of major industrial facilities were in compliance with NPDES permit limits (USEPA, 1990). Unfortunately, the quality of almost 40% of our rivers, streams and lakes still do not allow the prescribed uses, due to health related issues (EPA, 1996). The EPA is projecting a funding “gap” in excess of 500 billion over the next 20 years for water and waste Water facilities (Albee, 2001). In the future, we need to find smarter, more cost-effective ways to deal with water quality and watershed restoration.The progress that has been made has come at a cost. Every new law, regulation and program has added to an already heavy regulatory burden, for both the regulated community and the regulators. Unfortunately, most of today's environmental laws violate the basic principle of ecology. Nature teaches us connectedness of all activities, but current generation law regulates separate pollutants with little consideration for the ecosystem as a whole. Regrettably, these efforts to protect the environment have been developed around a single media (e.g., air, water, hazardous waste) or a single issue (acid rain, environmental cleanup). Now after years of activity, we are left with a “stovepiped” set of regulatory programs, each with its own unique goals, scope, programs, funding sources, and stakeholders.The success of controlling pollution from point sources has made the water quality impacts from non-point sources more evident. The goal of “zero discharge,” by developing more stringent point source technology-based control through NPDES permits, has been challenged as not being equitable. The regulated point source community has nearly reached a reasonable limit, while the essentially unregulated non-point source community has been shown to be the leading source of estuarine pollution (Clean Water Action Plan, 1998 and USDA, 1998). Work in the Saginaw Bay Region shows that the balance of cost favors non-point users through a point-source and non-point source trading program (Faeth, 1995). Faeth's work illustrates that cheaper and more equitable solutions are available.This paper is an explanation of two important points: (1) the current regulatory system needs a major change to implement incentive- based systems; and (2) trading systems can work for integrated water quality, air quality and natural resource programs. A trading program, using watersheds as the basis for trade should be able to provide major watershed restoration in the fastest time and for the least money, while also proving a tool to help equity in payments between point and non-point sources.