Evaluating and Improving the Outcomes of Nonpoint Source Water Quality Trading

Abstract

Nonpoint source (NPS) water pollution is a leading cause of ecosystem degradation around the globe. It is also exceedingly costly to control through regulations. NPS Water Quality Trading (NPS WQT) has been lauded as a means to cost-effectively improve water quality by permitting NPS pollution to be traded within a watershed. Despite theoretical economic and environmental benefits, NPS WQT markets have a high risk of unintended consequences. There is considerable uncertainty in landscape-scale environmental tradeoffs between participating buyers and sellers, and it is challenging to quantify the impact of these programs to local water bodies. Further, regulators are often under-resourced to monitor, report, and correct unintended program outcomes, which can lead to non-compliance and data gaps that further obscure environmental impacts. For these reasons, the ability for NPS WQT to address water quality problems remains uncertain. The overarching objectives of this dissertation are to assess the outcomes of an active NPS WQT market, mitigate the potential for unintended consequences, and ultimately advance fundamental knowledge for building effective NPS WQT programs. I focus on the emerging NPS WQT market in Virginia, which provides a leading example of an innovative and highly active program design. The first study implements geospatial software development tools to create a prototype automated system for credit purchasing to address the problem of data management in NPS WQT. The second study uses geospatial and statistical analysis to assess the landscape-scale outcomes and parameterize trends in environmental tradeoffs between NPS WQT buyers and sellers. The third study zooms in to the catchment scale to assess the impact of NPS WQT credit purchases on urban water quality and hydrology compared with other regulatory compliance options. Key findings are that i) automated brokering procedures can reduce transaction costs while improving consistency and data management for program implementation, ii) integration of NPS WQT with existing water quality policy programs could improve landscape-scale trends, and iii) use of consistent methods for quantifying nutrients for buyers and sellers is important to market outcomes. Given recent renewed interest in NPS WQT as a way to cost-effectively control NPS pollution, this dissertation provides important insights into an innovative and highly active trading model. Research presented here can inform how the Virginia program can continue and be improved, and how this market structure can be implemented elsewhere.