1. Water Quality Trading and Conservation Markets in the U.S. May 5, 2006 Mark S. Kieser Senior Scientist Kieser & Associates and Acting Chair Environmental Trading Network Environmental Trading Network

2. Water Quality:  Nutrients (most WQT programs)  Sediment (Illinois River, Lake Tahoe)  Temperature (Tualatin, OR)  Bacteria (NJ)  Heavy metals (CA)  Stormwater flows (CA, NC) Conservation Banks:  Endangered species habitat for invertebrates, reptiles, birds, mammals (CA, CO) What’s being traded… Carbon:  Sequestered C ( Timber & agriculture-Voluntary markets) Wetland Mitigation Banks:  Wetlands Stream Mitigation Banking:  Stream channel, banks, buffers, hydrology

3.  Wetland Mitigation Banks (>550 in over 30 states)  Conservation Banks (CA – 50 banks with 40,000 acres; OR - ODOT)  Stream Mitigation Banking (NC – Ecosystem Enhancement Program $180M; OH, others)  Water Quality Trading (MN, MI, ID, OH, PA, FL, VA, CT…)  Chicago Climate Exchange (Midwest agriculture) Where it’s happening…

4.  PA (conservation tillage for nutrients, sediment, C)  Great Miami River, OH (P, N, instream habitat)  Akron/Streetsboro, OH – “Ecosystem Service District” (flow, nutrients, green space)  Florida rangelands (water storage, P, habitat enhancement)  Vermillion River, MN (flow, temperature, sediments, riparian quality)  Great Lakes (water quantity/water quality offsets) Early Signs of Success (Multiple markets including WQT) Early Signs of Success (Multiple markets including WQT)

5. Challenges for Wetland Banking: On-site & in lieu fee program alternatives Banking instruments – extended process Inconsistent or non-existent state policy/regulations Challenges for Conservation Banks: Lack of enabling legislation Highly entrepreneurial Challenges for Water Quality Trading: Lack of market drivers (enforceable/enforced standards) Lack of supply/demand information Infrastructure needs (tracking, marketplace tools) Lack of enabling legislation (creates uncertainty) High administration/monitoring costs Standardized quantification/crediting protocols Thin markets

6. 1. Can all these challenges be overcome? Programmatically, yes! Institutionally, maybe or maybe not… 2. Are the regulatory agencies and legislators supportive of conservation markets? If yes, then that’s the largest part of the battle. If no, then success of future markets uncertain. Critical Questions