Enhancing Efficacy of Water Quality Trading with Automation: A Case Study in Virginia’s Nutrient Trading Program

Abstract

The complexity of water quality trading (WQT) policy can lead to the promulgation of regulations that are challenging to comply with and to enforce. As a result, transaction costs may be high and administrators have limited ability to monitor the program outcomes. These concerns can be alleviated in part through increased automation of trading compliance procedures. We present a case study of a pilot system designed for the Virginia Department of Transportation that automates compliance and streamlines brokering processes that are a part of the Virginia nonpoint source WQT program. Outcomes of this work reveal opportunities and challenges for implementing automated systems in WQT and suggest a framework for developing automated programs. We conclude that use of automated procedures to facilitate compliance with WQT rules can help identify gaps in data reporting and availability, amend inconsistency in rule interpretation, and reduce transaction costs for credit purchasers by enabling efficient analysis of trading opportunities. Persistent limitations to automation exist, including lack of standardized, machine accessible, and open data sources. Potential long‐term benefits of automating WQT processes include minimizing transaction costs, enabling new environmental data collection and policy analysis, and ultimately yielding improved WQT program efficacy and water resources outcomes.

Multi-Pollutant Water Quality Trading: An Approach for Groundwater Quality Management in Varamin Plain, Iran

“…WQT refers to the establishment of a local market to achieve a sustainable condition by water quality enhancement and economic motivation, simultaneously (Cook & Shortle, 2022;Saby et al, 2021). In this study, different WLA scenarios were designed to evaluate their possible impacts on 10-year groundwater quality and related economical issues.…”

River Basin Export Reduction Optimization Support Tool; a tool to screen options for reducing nutrient loads while minimizing cost

“…This approach has been taken in the Chesapeake Bay basin (Chesapeake Bay Program, 2020), and could potentially be applied in other estuaries as well, including in the Long Island Sound. As automated water quality trading programs are being developed (Saby et al, 2021), tools like RBEROST that use standardized methods and data sources may be incorporated as a basis for tracking and accounting. Additionally, uncertainty bounds evaluated by RBEROST could be used to inform the development of margins of safety in TMDLs or (informally) in alternative TMDLs.…”

A geographic information system approach for estimating state‐wide water quality credit need: Application for planned transportation projects in Virginia

“…Buyers and sellers may be disincentivized from participating if the transaction costs or market uncertainty is high. Strategies have been proposed to facilitate trades and lower transaction costs (Saby, Goodall, et al., 2021), yet there remains a lack of approaches for facilitating the coordination of future credit trading in WQT programs (Motallebi et al., 2017; Walker & Selman, 2014).…”

“…(2021). In these examples, these tools implement methods to support (1) the estimation of sellable credits for mitigation activities, (2) the tracking of credit sales, (3) finding valid trading partners, and/or (4) the reduction of errors in credit transactions through automation (Duke et al., 2020; OECD, 2006; Saby, Goodall, et al., 2021; USACE, 2021; CBNTT v.3 User Guide, accessed on January 2024, http://www.cbntt.org/pdfs/CBNTT_User_Guide.pdf). However, despite its potential benefit in WQT markets, in the existing WQT decision support tools available from state and federal agencies, trading is not currently informed by a future estimate of credit needs, particularly at the state level, thus limiting the matching of credit supply with credit need.…”