Water Quality Trading: Glossary of Terms
Additionality: Would this pollution reduction have occurred without the trading provisions in place? If not, then it is “additional.”
Aggregators: Private actors who develop contracts with sellers of credits (like farmers), bundle them together and offer them to buyers (like industry), saving the buyers the hassle of dealing with hundreds or thousands of individual farmers and ranchers.
Baseline: Minimum conditions that must be met in order to be eligible for credit generation or trading.
BMP or Best Management Practices: refers to management techniques that farmers can adopt that lessen the impact of farming and ranching on the environment. These can include a variety of techniques including low tillage and the use of cover crops (to reduce erosion), reduced chemical fertilizer applications, and Integrated Pest Management (IPM) techniques to lessen pesticide use on the farm.
Clean Water Act:
The Clean Water Act, passed in 1972, is a key piece of legislation that to ensures the protection of the water resources. The Clean Water Act has developed a series of standards to measure water quality, as well as the ability to establish some designated uses of the resource.
Credit Bank: A quasi-public entity that “holds” environmental credits generated by farmers and can provide these extra “emergency” credits to the market in case of credit failure due to extreme circumstances like massive flooding.
Credit Exchange: A private platform where credit bundling, risk assessment and trading occurs, in a private, competitive market setting.
Early Actor: Someone who installs the requisite conservation practices before credit generation and trading rules are in place. Because their actions would have occurred regardless of any market, they are not eligible for credits. In other words, the market will not reward them for their early actions.
Leakage: When the actions of one group to reduce pollution loads creates perverse incentives for others to increase loads. For example, leakage can occur when a piece of land or wetland set aside for preservation results in a different piece of land being cleared instead.
Pollution Credit: A legal entity that represents one unit of pollution reduced, and can be used to fulfill discharge permits.
Point Source Pollution: Pollution that comes from a single source. It is also known as “end of pipe” pollution.
Non-Point Source Pollution: Pollution loads that come from various non-centralized, hard to pinpoint sources.
Pollution trading: A scheme that allows pollution reductions beyond a given baseline to generate credits, which can be bought and sold in private markets.
Transaction Costs: The cost, in time, specialized councils, etc, that is required to maintain the infrastructure that supports a trading market. These costs are in addition to the actual cost of credits or compliance.
Total Maximum Daily Load (TMDL): The amount of pollution that a waterway can withstand while still be able to meet its designated use.
National Pollution Discharge Elimination System (NPDES): A permitting system, administered by the EPA, which allocates pollution load limits to point sources.
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