Water-quality trading is an attractive way for clean-water agencies to meet phosphorus reduction goals.
In essence, instead of relying solely on plant upgrades and process changes to meet an effluent phosphorus limit, the treatment facility contracts with a landowner who agrees to deploy best practices to reduce phosphorus runoff into the facility’s receiving stream.
So, the theory is great, but the challenge has been actually putting treatment agencies and landowners together in trading partnerships. Meeting that challenge is the aim of the Wisconsin Water Quality Trading Clearinghouse.
The clearinghouse is a marketplace and facilitator for water quality trading, connecting nutrient credit sellers (landowners and agricultural producers) with credit-buyers (effluent discharge permit holders). It creates a central place for buyers and sellers to engage in trades that ensure long-term certainty while minimizing risk for all parties.
The clearinghouse operates through an agreement between the Wisconsin Department of Administration and Resource Environmental Solutions, a private ecological restoration company. Chris Murphy, nutrient trading manager, talked about the clearinghouse and its benefits in an interview with Treatment Plant Operator.
TPO: What was your background before you took on your role with the clearinghouse?
Murphy: I worked for more than 25 years with the National Resource Conservation Service and county land and water conservation departments in Wisconsin, helping landowners install conservation practices to reduce soil erosion and improve water quality. While at the Rock County Land Conservation Department, I completed water-quality trading plans for the cities of Janesville and Beloit. Those were win-win projects for the landowners and the treatment facilities.
TPO: Who came up with the idea for the clearinghouse?
Murphy: It came about through legislation created by former State Sen. Robert Cowles and his staff. The state legislature passed the bill on March 3, 2020. The Department of Administration then issued a request for proposals to operate the clearinghouse. RES was the successful bidder.
TPO: How is RES compensated for its work on the clearinghouse?
Murphy: RES gets paid by charging fees to the credit-buyers and the credit generators.
TPO: What was involved in setting up the clearinghouse?
Murphy: The main focal point is a website portal, which documents the transactions and allows the credit generators and credit-buyers to communicate and negotiate the terms of the trading agreements. The clearinghouse does not establish the price of the nutrient credits. We allow that to be established through the negotiations.
TPO: How do the parties make connections through the clearinghouse?
Murphy: Within our website portal, credit-buyers register and indicate how many credits they desire. Then, if we have a landowner within their eligible trading area registered on the clearinghouse, I inform the credit-buyer who can then select that landowner’s project and send them an email. From that point, they can begin negotiations.
TPO: Does the clearinghouse play a role in the negotiations?
Murphy: During that entire process, I can provide guidance. For example, I inform them what our previous trade prices have been. Right now, our trade price ranges from $65 to $118 per annual credit, one credit equating to one pound of phosphorus removed. Before that, I work with the landowner to estimate the number of credits they can generate. For example, if they have a crop field they want to convert to perennial vegetation, I perform the modeling and run the calculations to determine how many credits the project would generate on an annual basis.
TPO: How do you determine the number of credits?
Murphy: We use models that can determine the amount of phosphorus runoff from, for example, a field or a barnyard. We use the SnapPlus Soil Nutrient Application Planner, which is accepted by the DNR. We model the site in its current condition and in its planned condition. The difference is the pounds of phosphorus running off at the field’s edge that can be reduced by the project.
TPO: What is the DNR’s involvement in the transactions?
Murphy: The DNR has to approve the credits before they are traded. They also regulate the entire process, provide guidance and set requirements. They assign an uncertainty factor to each landowner practice. For example, the uncertainty factor for replacing a crop field with perennial vegetation plantings is 1.2. So if we determine that the project reduces 120 pounds of phosphorus runoff at the site’s edge, we divide that by 1.2. That yields the number of credits, which in this case is 100. So the treatment facility is purchasing 100 credits, but the landowner has to provide 120 pounds of reduction to meet those 100 credits.
TPO: How quickly did interest in the clearinghouse develop?
Murphy: The first year, 2024, was slow. We may have completed one trade. Since then, we have picked up a lot of momentum. We’ve completed nine trades and are working toward completing 11 more. We now have 48 credit-buyers and 12 credit generators registered in the clearinghouse.
TPO: How have you promoted the clearinghouse to treatment agencies and landowners?
Murphy: We made phone calls to individual discharge permit holders, giving priority to those whose permits would soon be expiring. We also make presentations at the Wisconsin Wastewater Operators Association and Wisconsin Rural Water Association annual conferences. On the landowner side, we interact with organizations like the Farm Bureau, the Farmers Union, and land and water conservation departments throughout the state. We’ve also exhibited at the University of Wisconsin Water and Soil Health Conference.
TPO: Is it still challenging at times to connect treatment facilities and landowners for trades?
Murphy: We’ve had several farmers call and say they want to do trading, but then if we don’t have an eligible credit-buyer, what do we do? I’m aggressive in seeking to get credit-buyers registered, and then I go find credit generators. I do that in part by taking a desktop inventory, picking out spots where good land management practices would be needed. Then I contact the land and water conservation department, and finally start calling the landowners and explaining to them what the trading process is all about.
TPO: What does the water-quality trading process look like in the absence of something like the clearinghouse?
Murphy: There are two ways to create a trading plan. One is with the clearinghouse, which aims to make the process as easy and user friendly as possible for everyone involved. The second way is a traditional trading plan, where the discharge permit holder takes full responsibility, working with a consultant or the community’s engineering firm. Now the challenge is to find the landowners, do all the legwork, write the agreement and make sure the projects get installed and are maintained for a specified number of years. The clearinghouse takes responsibility for all of that. A trading plan using the clearinghouse involves hours of discharge permit holders’ time instead of months.
TPO: How would you briefly summarize your approach to trading?
Murphy: We don’t push water-quality trading unless it’s a win-win for both sides. We’re a private company, and we want to earn a profit, but we’re not going to do it at the expense of one party or the other. The clearinghouse is designed to facilitate trades in an easy and efficient manner that results in benefits for all concerned.
