Wisconsin just launched the first marketplace for trading water quality credits. What is that, and how will it cut pollution?

Wisconsin now has a private marketplace for people to buy and sell water quality credits, believed to be the first such deal in the nation.

So, what's a water quality credit, and why is this important?

First, the goal is simple: to improve water quality in lakes, rivers and streams across the state. It can make at least a dent in the persistent problem of phosphorus and other pollution in waters.

After that, admittedly, it gets a little more complicated. But it's important, and we're here to break it down.

How does credit trading work now?

The state has strict rules on the amount of phosphorus that can be discharged from wastewater treatment plants. To meet those limits, the plants may need to be upgraded, a solution that is expensive and often is passed on to taxpayers.

Further, most phosphorus in Wisconsin waters doesn't come from treatment plants, known as "point source" polluters because they discharge directly into the water. More than 80% comes from "nonpoint sources," such as runoff from farm fields — which don't face specific limits.

More: It's been more than a decade since Wisconsin cracked down on phosphorus. Has it helped protect our lakes and rivers?

In 2011, lawmakers created a statewide water quality trading program. The program allows treatment plants to discharge pollutants over their limit if they buy credits from nearby farmers who are reducing field runoff. It's a little like if the state said each person could own no more than two cars, but someone with three could buy "credit" from someone with one to balance it out.

The program was slow to catch on; it was difficult for farmers and facilities to make connections.

In 2019, state Rep. Joel Kitchens, R-Sturgeon Bay; Sen. Rob Cowles, R-Green Bay; and former Sen. Jerry Petrowski, R-Marathon authored the bill that ultimately would create the third-party marketplace.

"It just seemed to make so much sense," Kitchens told the Journal Sentinel.

At that time, just 15 of the trades had been approved by the Department of Natural Resources. Today, the agency reports 55, a number that could grow substantially if the clearinghouse is successful.

How will the clearinghouse make it easier?

The state Department of Administration signed a contract with a Texas-based group, Resource Environmental Solutions, to create the clearinghouse, which isn't a physical location, but an online one. Someone at a wastewater treatment plant, for example, can submit a request for credits, and clearinghouse staff will match the request up with a farmer who is selling them.

On the flip side, they also can help farmers sell credits to offset the cost of practices to reduce runoff and soil erosion — like cover cropping, no-till farming or taking a field out of production and restoring it to prairie or grassland.

For the most part, the trades have to occur in the same watershed.

The clearinghouse is already advertising places where credits are available, including along the Mississippi River and in the Upper Fox and Wolf River watersheds, which stretch from the north woods to southwest of Lake Winnebago.

More: These 3 bills from a bipartisan group of lawmakers seek to improve Wisconsin's water quality

Who's in charge of making sure it's working?

There are a few layers of oversight, beginning with the clearinghouse, which will review the trade based on existing modeling to make sure it's fair. Then the DNR takes a look. In each trade, the buyer has to pay more than the minimum of what's needed to hit their pollutant limit to account for something that may affect the accuracy of the modeling — like a year with a lot of rainfall, for example.

Once the sale is authorized, the clearinghouse will conduct annual inspections to ensure phosphorous cutting practices are happening as they should, and submit those reports to the DNR. The inspections could be more frequent depending on the situation, said Erin Delawalla, regional client solutions manager for the Texas company — such as after a heavy rainstorm that could accelerate runoff.

The inspections can also act as an extra level of certainty for the buyer of the credits that it's helping them be compliant with their limits, she said.

More: Heavy winter rains are happening more often in Wisconsin. That's a problem. Here's why we should care.

By and large, practices are happening as agreed to in trades that already exist, said Matt Claucherty, the DNR's phosphorus implementation coordinator.

But there's no requirement for testing nearby waters to make sure phosphorus or other pollutants are being reduced. This is because changes are often undetectable from a single practice on a single farm field, he said.

Who's paying for it?

The clearinghouse is not funded by the state, but instead will pay its staff by recouping fees from those who participate, Delawalla said.

The person selling the credit will have that fee subtracted from the sale, while the buyer will pay it up front to cover the work of finding credits and facilitating the trade.

But the lack of state funding for the project could cause issues if it becomes successful too quickly. Claucherty said the DNR could have too big a workload if the clearinghouse brings in a large number of trades at one time. Compared to the 55 currently authorized trades, there could be several hundred of them if many of the state's wastewater treatment facilities want to get involved.

If the influx of trades stays consistent with their existing permitting cycle, he said, then it's unlikely to stress the department too much.

How will people know to get involved?

Since there are so many wastewater permittees across the state, it would take a long time to reach out to all of them individually, Delawalla said.

Kitchens said he hopes the clearinghouse will rely on the state's producer-led watershed groups, and collectives of farmers who are interested in land conservation for better water quality, to spread the word about trading.

The southern parts of Kitchens' district, in Kewaunee County, have a large agricultural footprint that has led to water quality concerns over the years. He said he looks for opportunities for "win-wins" to protect the environment and farmers' bottom lines. The clearinghouse, he believes, is an example of that.

"One of the reasons this happened is we had the trust of the farmers," Kitchens said. "They were willing to trust us and enter into these kinds of things. We weren't selling them downriver."

This story previously incorrectly reported that the Wisconsin Department of Natural Resources signed the contract with RES. The state Department of Administration was the agency that signed the contract.

Madeline Heim is a Report for America corps reporter who writes about environmental issues in the Mississippi River watershed and across Wisconsin. Contact her at 920-996-7266 or mheim@gannett.com.

This article originally appeared on Milwaukee Journal Sentinel: Wisconsin DNR creates clearinghouse for trading water quality credits