November 2012, Vol. 24, No.11

First interstate water quality trading program begins

News Pilot program in Ohio River Basin kicks off world’s largest trading effort

The first interstate water quality trading program in the United States has entered the pilot-testing phase after three states recently signed on to the effort. Known as the Ohio River Basin Interstate Water Quality Trading Project, the voluntary program is designed to reduce nutrient loadings throughout the massive watershed that drains the Ohio River, making it the world’s largest trading program operating under a common trading plan, according to its backers. 

On Aug. 9, representatives from Indiana, Kentucky, and Ohio formally committed to the trading plan, becoming the first states to do so. Initiated in 2009 by the Electric Power Research Institute (EPRI; Palo Alto, Calif.), the Ohio River Valley Water Sanitation Commission (Cincinnati), and other partners, the trading program is designed to enable point sources within the Ohio River Basin to purchase water quality credits from farmers who have implemented certain agricultural best management practices (BMPs) on their lands to reduce nutrient loads entering nearby waterways. In this way, point sources conceivably can comply with nutrient limits more cost effectively than if they were to make capital improvements or other expensive changes. 

Generating credits

Comprising portions of more than eight states, the Ohio River Basin is home to approximately 230,000 farmers, thousands of municipal wastewater treatment plants, and 46 power plants. Between late 2012 and late 2015, the pilot trading program is expected to facilitate trades involving as many as 30 farms implementing BMPs on up to 8100 ha (20,000 ac). Overall, the practices are expected to reduce nutrient loads annually by roughly 20,400 kg (45,000 lb) of nitrogen and 6800 kg (15,000 lb) of phosphorus. 

Thanks to a federal grant, the program has $300,000 available to fund conservation projects, said Jessica Fox, senior project manager for EPRI. At press time, the first contracts with farmers were expected to be signed in mid-October. By year’s end, the program likely will have approximately 15 contracts in place, roughly half of the overall number expected for the 3-year pilot, Fox said. 

For the pilot program, local soil and water conservation districts will work with farmers in 16 counties in Indiana, Kentucky, and Ohio, conducting outreach, identifying potential projects, entering into contracts with farmers, and overseeing implementation of BMPs. State resource agencies must verify BMPs before related credits may be offered for sale. For each trade, various modeling programs will be used to determine such factors as the load reduction associated with different BMPs, the fate of nutrients passing downstream, and uncertainty. In this way, an ecologically optimal trading ratio will be determined for each transaction. 

EPRI will sell available credits by means of an online trading registry. The first round of credit trading could begin as soon as early 2013, Fox said, and the second round is expected to occur 6 months later.  


Incentives for point sources 

The developers of the trading program wanted to test it before such expected “regulatory hammers” as numeric nutrient criteria came down on point sources, Fox said. In this way, the program could gain experience in advance of a potentially sudden demand for nutrient reduction credits. However, this goal meant that the pilot program would have to begin before point sources had a financial motivation to participate. Therefore, the program developers recognized that they needed to create incentives for buyers of credits to participate. 

To this end, point sources that purchase credits during the pilot program will have first right of refusal for future credits. Such an option could prove advantageous if, as expected, future demand for credits exceeds the available supply, Fox said. Along with gaining firsthand experience with the trading process in advance of having to meet stringent new discharge limits, point sources that participate in the pilot program will receive recognition for their efforts from permitting authorities. Such recognition could take the form of increased flexibility, Fox said, including extended deadlines for meeting tightened nutrient limits.   

In Kentucky, the pilot program involves six counties located along the Ohio River in the northernmost section of the state. Although limited in geographic scope, the pilot is generating interest among wastewater utilities throughout the state, said Wesley Sydnor, president of the Kentucky–Tennessee Water Environment Association (Louisville, Ky.). “Many people are looking at the program with an open mind, watching to see how well the trading mechanism works and how the program affects water quality,” Sydnor said. 

— Jay Landers, WE&T  


When the river runs dry

The public and legislators are putting more focus on natural gas drillers during times of drought

With 81% of Americans concerned about increased drought and other extreme weather conditions, according to a recent survey conducted by ORC International (Princeton, N.J.) for the nonprofit Civil Society Institute (Newton, Mass.), industries that use large volumes of water for their operations are now more on the public’s radar screen. These industries include natural gas drilling, which uses hydraulic fracturing, a process by which fluid and additives are pumped into the ground to create fractures in the rock to enable more natural gas to flow and be withdrawn. The same survey reports three out of four Americans think that “with all the current concern about severe drought and the risk of water shortages, America needs to start focusing more on alternative energy sources, such as wind and solar, that require less water,” according to a news release.

Many drillers argue that compared to other industries, natural gas drilling is not a huge water consumer.

“When you compare it to, say, keeping golf courses watered,” drilling isn’t “really a drain on water resources,” said Julia Bell, public affairs and communications coordinator at the Independent Petroleum Association of America (Washington, D.C.).

That argument may be true on a national or statewide level, said Luke Metzger, director of Environment Texas (Austin). “But [drillers] account for about 40% of local water use in southern Texas.” And unlike wastewater produced by other industries, “the water from fracking is injected into the ground and is forever removed from the hydrological cycle, which is why it is a major concern for us,” he said.

Metzger added that thanks to droughts and hydrofracking in the Barnett Shale — a geological formation that underlies the city of Fort Worth and at least 17 counties in Texas — there are likely to be spot shortages in some parts of Texas.

In Pennsylvania, authorities already have restricted hydraulic fracturing in some areas because a lack of snowfall last winter and a lack of rain this spring contributed to abnormally low streamflows and drought. Because of this, 64 separate water withdrawals for natural gas drilling that previously had been approved by Susquehanna River Basin Commission (SRBC; Harrisburg, Pa.) were suspended, according to a July 16 SRBC news release.


Finding solutions and alternatives

Because of worries about water shortages and the impact of hydraulic fracturing on groundwater quality, some legislatures are examining drillers’ water use more closely.

In 2011, the Texas Legislature became the first in the country to require disclosure of the chemicals drillers use in fracking, Metzger said. The House Energy Resources and Natural Resources committees also held a joint hearing in which oil and gas drilling companies testified about water use and water conservation practices.

“Climatologists have said that [Texas is] still in a drought cycle,” said Rep. James Keffer (R), chairman of the Texas House Energy Resources Committee.

“More than 70% of the state is in drought,” Metzger said. “At least 11 reservoirs are less than 10% full.”

This means Texas has to maintain an even keener focus on its water supply.

“Even though [drillers] are a small percentage of water consumers compared to irrigation and energy production, they’re basically the last guys to the party, which puts more focus on them,” Keffer admitted.

Keffer said that the oil and gas industry “isn’t sitting on its hind end,” and seems to be trying to find solutions to curtail its use of fresh water. There is a considerable amount of research and development going on regarding reuse of fracking water, he said.

Keffer said he knows of one manufacturer that has patented a down-hole device that enables drillers to use less water for drilling but to have the same level of natural gas production. “The average water use for a drilling site is about 8 million gal [30 million L],” he said. “But with this device you only have to use 5 million gal [19 million L] of water.”

Some companies are trying to remove the use of water from the drilling process entirely, Keffer pointed out. Those such as Gasfrac (Calgary, Alberta) are using gelled propane instead of fracking water at their sites.

Brent Giles, analyst for Lux Research (Boston), said the gelled propane technology initially was founded at Chevron (San Ramon, Calif.). “But that person jumped ship and went to Gasfrac,” he said. “Their first job was in 2008, and they’ve done hundreds of jobs since then. They’re already at $150 million in business.”

Texas legislators are hoping that they can get drillers to use less fresh water on a voluntary basis, Keffer said. “I really feel it’s going in that direction anyway. We are monitoring their efforts.”

Lawmakers want to avoid passing a bill that requires drillers to do it. “Sometimes, when you try to legislate a particular measure, you introduce more problems,” Keffer said.

Environment Texas is of a different mindset. Metzger said the organization is planning to ask at the next legislative session that the Texas Legislature require drillers to recycle all fracking wastewater onsite.


Crisis also can mean opportunity

The natural gas industry acknowledges that there needs to be some restrictions on its water use. “But it should really be a state issue,” Bell said. “States know what is best to do. The federal government should not get involved.”

Bell said as far as she knows, so far the federal government has not restricted water use by drillers.

And though it is the states’ job to help make sure drillers are “good citizens,” Keffer acknowledged that natural gas drilling also comes with its paybacks.

“Texas has benefited greatly from the oil and gas activity insofar as the economy with jobs and the tax dollars these companies contribute,” Keffer said.

And if done responsibly, the entire country can benefit from the natural gas drilling, Keffer argued.

“It’s amazing — these different deposits that are being found around the country,” he said. “Especially when you consider that 20 to 25 years ago, they were warning the [oil and gas] industry that these resources are played out and you should start looking into something else. This is a real boon for our country, but the companies need to learn to work within the confines of the laws of the state.”

— LaShell Stratton-Childers, WE&T 

©2012 Water Environment Federation. All rights reserved.