Taking Environmental Markets to a New Frontier
Time 3 Minute Read

The application of economic principles to environmental law decisions has come a long way. Today’s conflicts over cost-benefit analysis and the value of mitigation projects and trading markets are more a sign of the important and well-accepted role that economics has come to play in environmental decision-making than a fight over the threshold question of whether economics matters at all. The battle lines have shifted. Economic concepts must be taken into account. The turf on which we now fight concerns to what extent economics should drive environmental decisions.

Examples abound of well-functioning regulatory programs in which values are assigned, based on ecological and economic concepts, to “credits” that are bought and sold to secure compliance or mitigate harm. They include sulfur dioxide emission credit trading under the Clean Air Act, mitigation banking to compensate for filling of wetlands and other waters of the United States, and nutrient trading under certain wastewater permit programs. E.g., VPDES Watershed General Permit for Nutrient Discharges to the Chesapeake Bay.

A recent judicial settlement in a wholly different context demonstrates both benefits and promise of trading programs. In a typical “Superfund” natural resource damage (NRD) case, a defendant performs or pays for a project to restore natural resources injured by a release of oil or a hazardous substance. The city of Seattle and natural resource trustees took a different approach at the Lower Duwamish Waterway, a US EPA-designated Superfund site that is part of the Duwamish River in Seattle. The city is one of hundreds of potentially responsible parties (PRPs) at the site. Over a long period of time, the city, the trustees and a private firm that builds habitat restoration projects worked together to build projects along the waterway. The city resolved the trustees’ NRD claims by purchasing credits in one of the restoration firm’s projects. The settlement also requires the city and the firm to monitor and maintain the ecological value of the project. According to the US Department of Justice, this is the first instance of a PRP resolving its NRD liability through the purchase of credits in a restoration project.

This author respectfully suggests that, in follow up to the Seattle case, natural resource trustees should change their approach to settling claims in two significant ways. First, the trustee agencies should alter programmatic requirements to allow for—and even to encourage—the purchase of credits from existing restoration projects as a way to settle NRD claims. The Seattle case was a promising start, but the process there was too cumbersome for broader application: the parties had worked together on the restoration project for ten years before settling the trustees’ claims. In future cases, where credits in a project with demonstrated ecological value are available, those credits should be accessible to a PRP to resolve its NRD liability.

Second, trustee representatives should take a cooperative approach at sites where liable parties wish to resolve claims by purchasing credits in an existing project. Both program managers and field personnel should be open to the use of existing projects to resolve claims as quickly and efficiently as possible. Trustees and PRPs should look for existing projects with ecological value in the vicinity of the release and work together to match the harm that the release caused with the credits needed to compensate for it.

NRD law identifies as its paramount goals prompt restoration of injured resources and compensation to the public for lost uses during the period of resource injury. Authorizing PRPs to resolve claims by purchasing credits in existing projects with known ecological value will advance both of those goals.

  • Senior Counsel

    Through his nearly 30 years working with clients to protect their interests and mitigate their exposure to risk, Dan used his practical knowledge to advance development, manufacturing, transactional and remediation projects ...


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