Market-Based Programs for Water Quality Improvement: (Part of) the solution to diffuse pollution?

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1 Market-Based Programs for Water Quality Improvement: (Part of) the solution to diffuse pollution? Tom Simpson, Ph.D. Water Stewardship, Inc Annapolis, MD USA PH: Web Site: waterstewardshipinc.org

2 Nutrient Pollution: Grand Challenge of the 21 st Century Healthy Eutrophic

3 Nutrient Sources Causing Water Pollution

4 The Situation (Globally, I think) Nutrient impairment of lakes, rivers and coastal waters is widespread in developed(ing) countries Intensive agricultural(ag) production & wastewater discharges are the dominant nutrient sources Current regulations, voluntary cost share/incentive programs and industry self assessment programs for diffuse Ag sources have yielded limited improvements but not nearly enough to restore water quality (WQ) Perhaps it is time to see if the supply chain or markets can provide mechanisms to help meet WQ goals

5 The Chesapeake Bay and its watershed About 64,000 mi 2 /165,000 km 2 land area Bay is shallow with narrow deep trench Huge land area to water volume ratio 58% forest, 28% agricultural and 14% urban Population is 16 million, growing and concentrated near head of tide Three major animal productions regions with major nutrient imbalances Cropping systems near Bay dominated by short/no rotation with annual crops

6 Phosphorus Yields in The Chesapeake Bay Watershed

7 From Draft Strategy for Protecting and Restoring the Chesapeake Bay November 9, 2009 (Executive Order report) Watershed Model Estimated Nutrient Sources to Chesapeake Bay 2008

8 Chesapeake Bay Program Partners (since 1983) Signatories to all Chesapeake Bay agreements EPA (representing the Federal government) Jurisdictions of Maryland (MD), Pennsylvania (PA), Virginia (VA) and District of Columbia (DC) Chesapeake Bay Commission (MD, PA and VA state legislatures) Headwater states DE, NY and WV Signed 2001 Memorandum of Understanding committing to Chesapeake 2000 water quality goals

9 Chesapeake Bay Agreements General agreement to work together to restore Bay 40% reduction in nutrient pollution by 2000 Tributary specific nutrient reduction strategies Remove all nutrient and sediment impairments (by 2010!) Bay-wide Total Maximum Daily Load(TMDL)(regulatory program)

10 Chesapeake Bay Program Lessons Learned Over optimistic estimation of progress Limited accountability/verification of BMP implementation 2003 Trib. Strategies were model driven; not feasible No implementation or financing plans for Trib. Strategies No repercussion when progress inadequate to reach goals Lacked authority and funding to make it happen Allowed worry about right goal and right strategy to detract from focus on accelerated implementation Until recently, reactive, rather than adaptive management

11 The Challenging Bottom Lines From the Chesapeake Experience This is really hard!!!! Requires major efforts by all sources to succeed Actual BMP impacts are likely to be less than expected Voluntary, incentive based programs have not achieved high implementation levels or performed as well as hoped Current Bay state diffuse source regulatory programs have not been a solution The Chesapeake Bay restoration effort has 23 years of experience, some good, some bad, that can help others improve the good experiences and avoid the bad ones.

12 The 2011 Chesapeake Bay TMDL Due by court order by May 2011 Draft Watershed Implementation Plans complete The US Clean Water Act(CWA) requires permitted dischargers primarily wastewater treatment plants, to take actions to achieve Bay TMDL All dischargers must achieve limit of technology Problem: LOT or even elimination of loads from these dischargers will not achieve needed load

13 Uh-Oh! How do you achieve TMDL? Diffuse sources are exempted under CWA States must provide reasonable assurance that they have programs that will address diffuse sources Reasonable assurance is currently the programs cited earlier that are not achieving needed reductions EPA is trying to make states have enforceable mechanisms for reasonable assurance but Can EPA make states do things it lacks authority to do? Current enforceable mechanisms for diffuse sources not resulting in needed reductions. What will change? Could a market-based program offer verified reasonable assurance better than enforceable mechanisms?

14 What are possible market-based programs for Agriculture (Ag)? Consumer driven change Supply chain requirements (consumer or CSR driven) Verified WQ performance to avoid government intervention WQ performance for market premium Access to subsidies and cost-share Credit and insurance access Hank s bio-economy, including a more sustainable approach to bio-fuels

15 Keys to engaging the Ag supply chain and markets in WQ improvement Set targets for all sectors, not just Ag Set clear, performance-based targets Make it a Do it or else situation Must be a whole farm systems based approach Develop Continuous Improvement Plans (CIP)to meet target Using an adaptive management approach Require independent, third party verification and ongoing assessment of CIP implementation progress Government oversight and accountability

16 Applying a Traditional Industrial Pollution Control Approach to Agricultural Nutrient Pollution Control Industrial Pollution Control Systems Approach Pollution Prevention Process Management Facility Management On-site Treatment Off-site Remediation Agricultural Nutrient Pollution Control Systems Approach Nutrient Balancing Nutrient Use Efficiency Field Management In-field Treatment Edge of Field Management Examples of Agricultural Nutrient Pollution Control System Practices Feed Management Nutrient rate reduction Nutrient Management Precision Ag Conservation Tillage Erosion Control Cover Crops Soil P Remediation Riparian Buffers Wetland Treatment T Simpson,

17 Source: U.S. DOI Adaptive Management Manual

18 Establish farm or small catchment scale agricultural nutrient reduction targets Repeat Assessments and CIP Revisions Until Farm Level Goal Achieved (WSI uses 6 CIP cycles) Conduct Water Quality Assessment of Farm Two Year Progress Assessment; Revise and Expand CIP Water Stewardship s Approach to Adaptive Management In the Chesapeake Verify Current Conservation Implementation Farmer Implements CIP in Two Year Cycles Develop Continuous Improvement Program (CIP) with farmer

19 Supply chain and market based options Supply chain edict do it if you want to sell to us Pre-recession Corporate Social Responsibility Shareholders and analysts encouraged corporate engagement Still occurs but focused on revenue generators or low hanging fruit Only WQ efforts were based on self assessments Has occurred for animal welfare, IPM, packaging Not popular with processors, farmers; Top down: Big Dog rules Enhanced processor market position/price point Combine with other branding such as natural, organic, local to enhance market and premium Local market name recognition (Manitoba Clean Lakes?)

20 WQ Payment for Ecosystem Services Regulated entities given load caps ; buy verified credits from Ag Require 2 for 1 purchase or similar scheme to get net reduction Also use to offset growth in load Must have rigorous verification and monitoring of operation and maintenance since being used to offset permitted discharge

21 Market and revenue based options at the farm level Set substantial, but doable, farm-level baseline nutrient reduction requirements to enter PES markets Allow trading between Ag sectors/farms within local watersheds for efficiency in meeting target Link subsidies, production payments and cost share to participation in CIP to meet target Credit and insurance incentives for CIP participants

22 The Bio-Economy of the Future? Bio-based products (e.g. bio-plastics, etc) Develop viable biomass to bio-crude markets Bio-crude can go to current/future oil refineries Can use both biomass and dry manures Gradually replace corn-ethanol with bio-crude so biomass not competing with feed or food crop for acreage Biomass uses in agriculture as wood byproduct prices increase Bedding for cows and beef cattle Litter for poultry

23 Why is a biomass based Ag economy so important for WQ and the environment? Perennial grasses as major biomass source Focus on environmentally sensitive soils (e.g. steep) Use on high P soils to mine down P levels Use as riparian buffers or row crop field buffers Plant as strip crops over tile drains Reduce grain acreage going to ethanol with biomass crops Also provides carbon sequestration and habitat benefits Direct use of dry manures Anaerobic digestion of liquid manures and use remaining solids in biomass applications Recycle P and use char as amendment on soils that need P Do not harvest residue from annual feed/food crops for biomass use. Our soils need them too much and they also reduce sediment and P reaching water ways.

24 Government roles in market and supply chain programs Set the target load and allocate spatially and by sector Develop or endorse the measuring stick (probably a model) Provide cost share/incentives to those who enroll in CIPs Encourage participation as opportunity to avoid regulatory/permitting program Regulate/oversee independent verifiers and CIP developers Conduct/contract adequate WQ monitoring to determine impacts over time and need to adapt and refine efforts

25 Concluding Thoughts Controlling diffuse Ag nutrient pollution much harder than was thought; traditional approaches have not been adequate Making WQ protection an expectation of the supply chain or consumer and/or creating new markets/premiums can incorporate cost into product Avoidance of direct government regulation motivates farmer and supply chain to succeed Independent, third party verification with continuous improvement, and government oversight, essential to any market-based or supply chain program Time, adaptive management and monitoring are all needed to assure and measure success of program

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