DC Stormwater Retention Credit Trading Programme

Summary

The Stormwater Credit Trading Programme is a credit scheme designed to reduce the amount of polluted stormwater entering waterways in Washington D.C., United States. Implemented in 2013, the scheme was designed to support developers to meet all or part of their stormwater obligations. Developers can purchase credits from property owners who have installed green infrastructure in sites across D.C. One credit equates to one gallon of stormwater retention for one year. As of 2024, more than USD 1.7 million worth of credits have been sold.

The Issue

Washington D.C. faces considerable challenges with stormwater runoff. Some 43% of the District’s land is impervious, meaning that a single 1.2 inch storm can produce 525 million gallons of stormwater runoff. Up to three billion gallons of polluted stormwater enters D.C.’s local rivers each year [1]. An additional challenge is the sewer system itself. Washington D.C. has two separate sewer systems:

1. The Combined Sewer System (CSS): this serves the downtown central core of the district, and is where stormwater and sanitary sewage mix together in one pipe network to the D.C. wastewater treatment. During heavy rainstorms, the overflow of water dumps raw sewage into the District’s rivers.
2. The Municipal Separate Storm Sewer System (MS4): this serves the outer two-thirds of the district and is directly connected to waterways. In the event of high levels of rain, stormwater runoff drains directly into the area’s rivers and streams with little or no treatment, taking waste, sediment and other harmful pollutants with it.

The District’s Department of Energy and Environment (DOEE) is responsible for addressing stormwater runoff in the MS4 region. The total cost of capital needed to address these issues was estimated to be USD 7 billion, however, prior to the implementation of the program, the DOEE only had USD 10 million to allocate to green investments annually. To bridge this funding gap, the DOEE designed a solution to implement green infrastructure retrofits, which would be funded by the private sector.

The Solution

In 2013, to meet its Clean Water Act obligations, the DOEE created new stormwater management regulations, requiring large development sites to reduce stormwater runoff by installing new green infrastructure onsite. Developers can comply with regulations in a number of ways. They can either install green infrastructure on-site or pay an in-lieu fee (paying a fee in-lieu of constructing onsite stormwater controls).

However, the DOEE recognised that some developers may not be able to meet all their obligations onsite and created the Stormwater Credit Market, allowing developers to purchase Stormwater Retention Credits (SRCs) in order to meet part, or all of their stormwater requirements off-site.

For any project in the centre of the city, which uses the Combined Sewer System (CSS), developers can achieve 100% of their retention requirement with SRCs, provided that those SRCs are generated in the MS4. All other sites must achieve 50% of the requirement on-site before using SRCs, unless they obtain DOEE approval for extraordinarily difficult site conditions, in which case they can meet more than 50% of their requirement off site [2].

Each SRC has a variable, market-driven price and corresponds to one gallon of stormwater retention for one year. Developers that want to purchase these as a way to meet their stormwater reduction obligations buy them directly from sellers. Sellers are property owners who have voluntarily installed green infrastructure, such as rain gardens and green roofs.

The DOEE certifies and verifies the projects in order to generate credits. The DOEE can certify up to three years’ worth of SRCs at one time and developers are required to comply with the regulations for at least one year at a time. Developers have the option to purchase a larger number of SRCs upfront to comply for multiple years. The DOEE hosts a public registry where developers can purchase the credits. As of 2024, there were 26 individual sellers listed on the registry [3].

See below a video of the Stormwater Retention Credit Scheme:

Source: DOEE (2020)

Support from the DOEE

To support the programme and reduce the financial uncertainty for sellers and buyers, a Price Lock Programme was added to the D.C. Stormwater Credit Program in 2016 (please see below diagram). The programme enables eligible sellers to have the option to sell credits to the DOEE at a fixed price [4]. However, prices on credits sold through the program still vary and are based on where the project is located in the city. As of 2024, credits sold to the DOEE varied between USD 0.42 – 2.03 per credit. The programme effectively establishes a price floor in the SRC market, offering revenue certainty for a SRC-generating project. Sellers can participate without losing the option to sell to another buyer. If participants sell to another buyer, DOEE also pays a portion of the purchase price on behalf of the buyer.

Since its launch in 2013, the programme has grown significantly. As of 2024, more than USD 1.7 million worth of credits have been sold privately and through the Purchase Agreement Program. See below graphic for the number of SRC sales over the past 10 years. According to the DOEE registry, as of October 2024, buyers paid an average price of USD 1.41 for an SRC [5].

Source: Conservation Finance Network (2018)

Measuring Outcomes

The programme provides a model for how cities around the world can harness private investment to address the problem of stormwater runoff. The establishment of the programme and the subsequent purchase agreement programme have had a number of positive outcomes. It has increased stormwater retention, restored local water bodies, maximised cost savings, and with the installation of more green infrastructure, created new green jobs and new green spaces in the city.

The long-term objective of the programme is to retrofit the entire MS4 area of the city with privately funded green infrastructure and remove DOEE as a source of funding. As the programme continues to grow, the aim is to reach a point where regulated demand for stormwater retention credits replace the need for DOEE to act as a buyer.

Scaling and Replicating the Model

Since implementation in 2013, the Stormwater Credit Trading Programme has expanded throughout D.C. and has demonstrated to be an effective way to channel private investment into reducing polluted stormwater runoff. While the DOEE is looking at additional ways to scale the model, including encouraging SME businesses to participate in the market, states such as Michigan and Illinois have both developed similar markets to meet their regulatory requirements. Taking the learnings from the D.C. programme, both states have adjusted the programme to meet their local needs.

Updated as of October 2024

Sources:

1. The Nature Conservancy (2024) Ten Years in, D.C.’s Stormwater Credit Market is Thriving and Still Growing
2. DOEE (2024) FAQ: Meeting Stormwater Management Requirements through Off-Site Retention Volumes
3. The Nature Conservancy (2024) Ten Years in, D.C.’s Stormwater Credit Market is Thriving and Still Growing
4. DOEE (2024) SRC Price Lock Program
5. DOEE (2024) Surface and Groundwater Registry