State Water Resources Research Institute Program

Project ID: 2009SC67B
Title: Developing a theoretical framework for water quality trading in the Saluda-Reedy watershed, South Carolina
Project Type: Research
Start Date: 3/01/2009
End Date: 2/28/2010
Congressional District: 3rd
Focus Categories: Water Quality, Law, Institutions, and Policy, Nutrients
Keywords: Environmental markets, water quality trading, institutions, nutrients, watershed, point sources, nonpoint sources
Principal Investigators: Carey, Robert T.; Mikota, G. Michael; Parkey, Jeffrey R.
Federal Funds: $ 30,000
Non-Federal Matching Funds: $ 60,246
Abstract: The Saluda and Reedy Rivers flow through a 745,000 acre watershed in the northwest portion of South Carolina. The upper portions of the Saluda-Reedy watershed include the major urban areas of Greenville, Mauldin, and Simpsonville, while the lower portion of the watershed has a rural character with more land in forests and agricultural uses. The Saluda-Reedy watershed terminates in Lake Greenwood, an 11,400 acre lake used primarily for recreation, in Greenwood county. The upstate of South Carolina, like much of the rest of the state, has experienced increased population growth and economic development in recent decades. With continued growth and development, point and nonpoint source effluent loads in the Saluda-Reedy watershed have also increased, placing greater environmental stress on the surface waters of the system. Nutrient effluent has been particularly challenging in the watershed, with the subsequent algae problems and oxygen depletion arising in Lake Greenwood well documented (McKellar, Bulak, and Taylor, 2008).

Water quality issues like those experienced in the Saluda-Reedy watershed have been occurring across the country in recent years, prompting an interest in "market-based" environmental management approaches as a compliment, or substitute, to traditional "command and control" regulatory techniques. The United States Environmental Protection Agency (USEPA) has recently encouraged the creation of markets for buying and selling water pollution between industrial, municipal, agricultural and other emitters. In a pollution trading market, emitters with high pollution mitigation costs can purchase pollution reduction from emitters with lower mitigation costs. Environmental pollution trading theory finds that by using markets rather than conventional regulatory means, acceptable pollution levels can still be achieved, but with greater efficiency.

This study proposes to examine the feasibility of a water quality trading program for the Saluda-Reedy watershed. Specific to the Saluda-Reedy, a market for the trade of nutrient reduction would require several components. These include: an in-depth understanding of the nutrient problem, the in-stream capacity in the watershed, the source of effluent inputs, an agreed nutrient cap, priced nutrient reduction, willing buyers and sellers, enforceable contracts, institutional rules, and continued monitoring and verification of watershed conditions (Mikota, 2008). Much of the just mentioned information has been compiled in previous studies. The study proposed here will investigate the acceptability of water quality trading to key market participants. We assert that an understanding of the willingness of potential buyers and sellers of nutrient reduction to trade and the readiness for environmental managers to administer a pollution trading market is fundamental to policy development. To this end, the study will interview critical stakeholders with expert information in the Saluda-Reedy watershed to assess their potential for market participation. Critical stakeholders include but are not limited to: Western Carolina Regional Sewer Authority, South Carolina Soil Conservation Service, South Carolina Department of Environmental Control (SCDHEC), South Carolina Department of Natural Resources (SCDNR), USEPA, and others. An important question that will be put to these stakeholders will be what are the conditions necessary for participation and what conditions would prohibit participation in a water quality trading market. The information obtained from the interviewees can be arranged within the larger theoretical framework of a market-based policy to achieve improved water quality for the watershed under study.

Progress/Completion Report, 2009, PDF

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