Water Quality Trading

Improving water quality in an agricultural watershed

Three out of every four acres in the 500 square miles of the Big Bureau Creek watershed are used to grow corn and soybeans. That statistic makes the watershed comparable to much of the upper Midwest, and also makes it the ideal location for a case study for a new voluntary water quality trading market. The Wetlands Initiative is leading an interdisciplinary team to study how farmers could use restored wetlands and grade control practices to remove excess nutrients and sell the nutrient removal “credits” to other dischargers. (Click here for an update on the partners' work with local farmers in this study.

Data show that the Big Bureau Creek (BBC) watershed in Bureau, Lee, and LaSalle counties is contributing significant nutrient levels (nitrogen and phosphorus) and sediment loads to the downstream backwater lakes and the Illinois River. Approximately 1,850 tons of nitrogen and 66 tons of phosphorus from surface runoff, agricultural field erosion, and subsurface tile drainage are discharged out of the watershed on an annual basis. These excess nutrients flow to the Mississippi River and into the Gulf of Mexico, where excess nitrogen fuels a low-oxygen “dead zone” destructive to marine life and coastal economies. Illinois is the #1 contributor of nutrients to the Gulf. 

The region’s high loss of wetlands only compounds the problem of excess nutrients. In Illinois, more than 90 percent of the wetlands that once filled the state are now drained. Without these wetlands, water cannot move slowly through the watershed, and nutrient cycling cannot occur.

Water quality trading study

The Wetlands Initiative is conducting a two-year research study (2009-2011) to assess whether a water quality trading market for nutrient removal is environmentally and economically feasible in the BBC watershed. The study is supported by a U.S. Environmental Protection Agency Targeted Watershed Grant awarded to the Wetlands Initiative in a national competition. 

Water quality trading is a market-based strategy to improve water quality. In a trading market, farmers would use restored wetlands or other practices to remove excess nutrients or sediments from a watershed, then sell water quality “credits” to municipal or industrial facilities who must meet regulatory obligations to reduce their own nutrient discharges. Most programs center on trades between regulated point-source dischargers, such as wastewater treatment plants, and non-point sources, such as agricultural producers. (Click here for a Q&A by Dr. Jill Kostel, Initiative environmental engineer and project leader, for more on how trading works.)

If a program is properly designed and implemented, it should produce nutrient removal credits aimed at protecting watersheds at lower overall costs than traditional “concrete and steel” treatment methods. For agricultural producers, water quality trading could provide an opportunity to earn money on marginally productive land and help finance their conservation efforts.

In a water quality trading program, landowners could restore and manage wetland areas to optimize the natural processes that remove nutrients. Nutrient-laden waters would be diverted to the wetland, then returned to the channel or stream after a portion of the nutrients was removed. Once the removed nutrient load is measured and verified, these credits could be sold to local dischargers.

Setting up a market framework

An interdisciplinary team of environmental economists, market and legal experts, soil and water scientists, and local stakeholders are conducting the research  to set up the technical, legal, and social framework for a water quality trading market (see table below). The team is examining nitrogen and phosphorus loadings throughout the watershed, identifying key potential restoration areas, determining potential buyers (point-source dischargers), estimating buyer credit demand, determining NPDES permit language, identifing willing sellers, determining buyer and seller willingness to participate in a market, creating suitable monitoring methods, and developing a market trading structure suitable for the watershed based on the input of stakeholders.

While a number of conservation practices can be implemented to avoid, control, or trap nutrient and sediment runoff, this study focuses on in-stream grade control and wetland restoration. Grade control structures are low weirs that can reduce the streamflow’s speed and power, which reduces erosion of streambed and banks, and can develop wetlands upstream in the channels and streams. Both practices provide multiple environmental benefits, such as improved wildlife habitat and floodwater storage, and allow water quality changes to be measured and monitored easily.

About 44% of the BBC watershed was formerly wetlands (indicated by the presence of hydric soils), creating significant potential for wetland restoration projects, particularly in the headwaters. A key component of the study will be determining the best location for restored wetlands—locations that will capture the nutrient- and sediment-rich streamflow, while not adversely impacting nearby cropland drainage.

Conclusions drawn from this research could enable landowners and producers to help improve their area's water quality by voluntarily implementing conservation practice options. The restored wetlands would yield many other critical benefits to the community. The market framework this study will develop could serve as a model for water quality trading throughout the state.

Match funding for the Initiative's Targeted Watershed Grant has been generously provided by Siragusa Foundation, American Corn Growers Foundation, Northwestern University, Patagonia, Winnetka Garden Club, Drive Current Inc., and Sheffield Foundation.

For further reading:

Growing wetlands for clean water: Can new water quality trading markets improve water quality in the Corn Belt? (Initiative Fact Sheet PDF)

Measuring a test market for nutrient farming: Finding profits in the Illinois River Watershed (Initiative Fact Sheet PDF)

U.S. EPA Water Quality Trading EPA web site