Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

developing_the_willamette_ecosystem_marketplacev3

VIEWS: 15 PAGES: 325

									  Developing the Willamette
   Ecosystem Marketplace



Targeted Watershed Grant # WS-96027101-0




                    Submitted to:
         U.S. Environmental Protection Agency
          Targeted Watershed Grants Program
                     Alan Henning




                  Submitted by:
         David Primozich, Executive Director
               Willamette Partnership
                    105 High St. SE
                    Salem OR 97128
                      503.434.8033




                  June 30, 2008
                      Special Acknowledgements

Dozens of people contributed to the development of the Willamette Ecosystem Marketplace
in substantial and meaningful ways. Special acknowledgement goes to the following
individuals who were engaged at every level of development, and those who took
responsibility for writing reports and documenting work of this project.

Ann Sihler                                     Kim Seymour
Alan Henning                                   Lisa Bacon
Bill Gaffi                                     Mack Martin
Bobby Cochran                                  Marv Lewallen
Bruce Alward                                   Michael Schindel
Cathy Macdonald                                Neil Mullane
Charlie Logue                                  Pamela Wright
Claire Schary                                  Peter Ruffier
Dana Erickson                                  Ranei Nomura
Dan Heagerty                                   Richard Schmid
Diane Taniguchi-Dennis                         Ryan Michie
Gillian Ockner                                 Sally Duncan
Gina Larocco                                   Sandra Quatier
Heather Hosterman                              Sara Vickerman
James Ollerenshaw                              Sonja Bjorn Hansen
Janet Gillespie                                Stewart Rounds
John Miller                                    Terry Buchholz
Jonathan Soll                                  Tom Dupuis
Kenna Halsey                                   Tom Lindley
Kevin Halsey
                                                  Table of Contents

Section 1 Introduction
Origins of the Willamette Marketplace...................................................................................................... 1-2
       An Opportunity in the Willamette Basin ..................................................................................... 1-2
       U.S. EPA Targeted Watershed Grant .......................................................................................... 1-3
               Task 1: Market Appraisal .................................................................................................. 1-4
               Task 2: Credit Definition and Currency Development ................................................ 1-4
               Task 3: Temperature Credit Portfolio ............................................................................ 1-4
               Task 5: Market Transaction ............................................................................................. 1-5
               Task 4: Marketplace Infrastructure ................................................................................. 1-5
Background on Ecosystem Services Markets ........................................................................................... 1-5
       Why Do We Need an Ecosystem Services Marketplace ........................................................... 1-5
       What Is an Ecosystem Services Marketplace .............................................................................. 1-6

Section 2 Roles and Responsibilities
Project Organization ..................................................................................................................................... 2-1
        Willamette Partnership and its Partners ........................................................................................ 2-1
        Board of Directors ........................................................................................................................... 2-2
        Mid Willamette Valley Council of Governments ........................................................................ 2-4
        Project Steering Committee ............................................................................................................ 2-4
Scientific and Technical Work ...................................................................................................................... 2-5
        Clean Water Services........................................................................................................................ 2-5
        Consulting Team .............................................................................................................................. 2-5
        Additional Consultants .................................................................................................................... 2-5
        Task Teams ....................................................................................................................................... 2-6
                Synthesis Map Working Group ........................................................................................ 2-6
                Practitioners Working Group ........................................................................................... 2-6
                Transaction Working Group ............................................................................................ 2-6
                Technical Team ................................................................................................................... 2-7
Additional Organizational Elements ........................................................................................................... 2-7
        Government Agencies ..................................................................................................................... 2-7
        Stakeholder Communication, Outreach, and Involvements ..................................................... 2-7

Section 3 Market Appraisal
Market Appraisal Process ............................................................................................................................. 3-2
       Step 1: Synthesis Map ...................................................................................................................... 3-2
       Step 2: Market Characterization ..................................................................................................... 3-5
       Step 3: Promising Markets .............................................................................................................. 3-5
       Step 4: Temperature Reduction Obligations According to the TMDL ................................... 3-7
       Step 5: Demand for Wetland Credits ............................................................................................ 3-9
       Step 6: Temperature Supply Using Shadelator........................................................................... 3-10
Time Frame, Participants, and Resources ................................................................................................ 3-12
What the Market Appraisal Revealed ........................................................................................................ 3-12
Lessons Learned ........................................................................................................................................... 3-13
Section 4 Credit Definition
Credit Definition and Currency Development Process ........................................................................... 4-3
       Step 1: USGS Heat Trading Tool .................................................................................................. 4-3
       Step 2: Survey of Credit Definition Methodologies..................................................................... 4-3
       Step 3: Assessment of Credit Definition Methodologies ........................................................... 4-4
       Step 4: Gaps in Methodologies ...................................................................................................... 4-5
       Step 5: Thermal Credit Calculator ................................................................................................. 4-6
       Step 6: Site Assessment ................................................................................................................... 4-7
       Step 7: Habitat Assessment Methodology .................................................................................... 4-8
       Step 8: Riparian Planting Protocols ................................................................................................ 4-9
Time Frame, Participants, and Resources ................................................................................................ 4-10
What Credit Definition and Currency Development Revealed ............................................................ 4-10
Lessons Learned ........................................................................................................................................... 4-11

Section 5 Credit Portfolio
Credit Portfolio Process ................................................................................................................................ 5-2
        Step 1: Temperature Supply Using Shadelator ............................................................................ 5-2
        Step 2: USGS Heat Trading Tool ................................................................................................. 5-3
        Step 2: Credit Rating System and Preliminary Issues ................................................................. 5-4
        Step 3: Preferred Policy ................................................................................................................... 5-5
        Step 4: Rapid Assessment Methodology and Albany Site Assessment .................................... 5-7
        Step 5: Methodology for Identifying and Prioritizing Restoration Projects ............................ 5-9
Time Frame, Participants, and Resources ................................................................................................ 5-11
What Development of the Temperature Credit Portfolio Revealed ................................................... 5-11
Lessons Learned ........................................................................................................................................... 5-13

Section 6 Market Infrastructure (Task 4)
Market Infrastructure Development Process ............................................................................................ 6-2
       Step 1: Market Structure Analysis .................................................................................................. 6-2
       Step 2: Centralized Credit Registry and Exchange Tracking System ........................................ 6-3
       Step 3: Standard Templates ............................................................................................................ 6-4
Time Frame, Participants, and Resources .................................................................................................. 6-6
What Development of the Market Infrastructure Revealed .................................................................... 6-7
Lessons Learned ............................................................................................................................................. 6-7

Section 7 Transaction Project and Regulatory Language Development (Task 5)
Transaction Project Development Process ................................................................................................ 7-2
       Step 1: Existing Restoration Projects Inventory .......................................................................... 7-2
       Step 2: Potential Transaction Sites ................................................................................................ 7-2
       Step 3: Investigation of Potential Transaction Project Sites ...................................................... 7-4
       Step 4: Transaction Project Initiation ........................................................................................... 7-5
       Step 7: Transaction Coordination................................................................................................... 7-6
Regulatory Language Development Process ............................................................................................. 7-7
       Step 1: Existing Permit Framework .............................................................................................. 7-7
       Step 2: Permit Language Development ........................................................................................ 7-7
Timeframe, Participants, and Resources .................................................................................................... 7-8
Section 7 Transaction Project and Regulatory Language Development (Task 5)
continued
What the Transaction and Regulatory Language Development Process Revealed ............................. 7-9
Lessons Learned ........................................................................................................................................... 7-10

Section 8 Policy Considerations Specific to the Temperature Market
Set a baseline date .......................................................................................................................................... 8-2
Encourage credit “banking” to promote early actions ............................................................................. 8-2
Encourage the use of a centralized credit registry ..................................................................................... 8-2
Encourage investment in priority areas ...................................................................................................... 8-2
Establish service areas ................................................................................................................................... 8-2
Do not discount credits for time and distance to points of maximum impact .................................... 8-3

Section 9 Continuing the Ecosystem Marketplace
An Integrated Ecosystem Services Marketplace ....................................................................................... 9-1
Why Is an Integrated Marketplace Needed ................................................................................................ 9-2
Core Area: Supportive Policies that Encourage and Enable Markets to Integrate
and Thrive ....................................................................................................................................................... 9-3
       Agree on Ecosystem Goals ............................................................................................................ 9-3
       Balance the Use of Outcome-based and Prescriptive Rules ...................................................... 9-4
       Encourage Adaptive Management and Risk-Taking ................................................................... 9-5
       Integrate Agency Responses across Ecosystem Services ........................................................... 9-5
Core Area: Third-Party Organization to Manage Centralized Market Infrastructure and Standards
That Ensure Efficiency and Credibility ...................................................................................................... 9-6
       Develop and Certify Measurement, Performance, and Verification Protocols ....................... 9-7
       Develop and Certify Credible Verification Entities for Each of the Markets ......................... 9-7
       Develop and Manage a Centralized Ecosystem Credit Registry ............................................... 9-7
       Manage Assurance Pools Needed to Buffer Against Failure of Mitigation and
       Offset Credits ................................................................................................................................... 9-8
       Foster Nationwide Coordination by Supporting Existing Efforts ........................................... 9-8
Core Area: Technically Sound Credit Accounting Protocols That Define Multiple Credit Types
Based on Ecological Functions .................................................................................................................... 9-8
       Coordinate Efforts to Create Credit Calculating Methods ........................................................ 9-9

Section 10 Lessons Learned
Know whether you are ready ..................................................................................................................... 10-1
Consider carefully whether or not to take a collaborative or advocacy role ....................................... 10-1
Harness the regulated community to push for regulatory changes ...................................................... 10-1
Be sensible about your infrastructure needs ............................................................................................ 10-2
Get to scale ................................................................................................................................................... 10-2
Plan for extensive, consistent, and persistent education and outreach ................................................ 10-2
Stay engaged with stakeholders................................................................................................................... 10-2
Balance technical work, communication, and process management ................................................... 10-2
Keep your eye on your ultimate goal ........................................................................................................ 10-3
Be willing to accept some imperfections .................................................................................................. 10-3
Plan for the post-grant period ................................................................................................................... 10-3

Section 11 References
Section 1 Introduction
SECTION 1

Introduction

In November 2004 the Willamette Partnership had an idea about creating incentives to restore the
ecosystems we care about and depend on. We thought that if people with no regulatory obligation
knew they could make profits restoring ecosystems that clean and cool our water and support the
fish and wildlife we care about, they would do it. We also thought that if people facing strict
regulations to reduce environmental impacts could choose to pay others to restore streamside
vegetation, wetlands, flow, and floodplains to meet those regulations, they would do so. We thought
that if regulatory agencies had technically sound and credible ways to compare the benefits of
restoration with the impact being regulated, they would allow it. Finally, we thought that if credible
and transparent infrastructure to support these transactions was in place to ensure integrity and
protect the public interest in its ecosystems, it would be accepted. Now, more than 4 years later, we
are a lot smarter about what it takes to make that happen, and an ecosystem services marketplace in
the Willamette Basin is well on its way to becoming a reality.
With the help of stakeholders and funding from the U.S. Environmental Protection Agency’s
Targeted Watershed Grant Program, over the last 2 ½ years the Willamette Partnership and its many
partners have developed the tools, templates, and market infrastructure needed to implement just
such a system. A marketplace for temperature improvements is ready for business and the
framework of a multi-credit marketplace where many types of ecosystem services credits are traded
is in place. The Willamette Partnership has registered three riparian restoration projects with a
significant number of temperature credits on a new centralized credit registry and exchange tracking
platform and the Partnership is prepared to work with partners to register dozens of additional
projects during the coming months. The framework is in place, and the Willamette Partnership is
poised to facilitate the first complete temperature trade between buyers and sellers in the
marketplace. This transaction can occur once legal issues that have temporarily postponed demand
for temperature credits are resolved.
The Willamette Partnership, its many active partners, and its consultants can count the following as
major accomplishments in the marketplace development process:
•   Created a tool to guide marketplace investment toward high-priority conservation and
    restoration areas in the Willamette Basin.
•   Developed protocols to ensure that restoration projects meet high ecological performance
    standards.
•   Identified technically sound methods for quantifying temperature credits generated from riparian
    shade restoration, wetland restoration, flow augmentation, and wastewater reclamation and
    reuse, and made substantial progress in developing a path forward to do the same for floodplain
    restoration.
•   Determined that there is enough potential supply of temperature credits from restoration actions
    in priority conservation and restoration areas in the Willamette Basin to meet the expected
    demand for temperature credits created by the Oregon Department of Environmental Quality’s
    new Willamette temperature total maximum daily load (TMDL).


SECTION 1 - INTRODUCTION.DOC                                                                    1-1
INTRODUCTION




•     Created an easy-to-use temperature credit calculator that potential sellers in the marketplace can
      use to estimate how many credits they could generate if they restored riparian shade, wetlands,
      or flow.
•     Created screening tools that facility managers can use to develop compliance strategies that
      include trading. Facilities managers can also use a calculator to evaluate the temperature benefits
      from wastewater reclamation or reuse.
•     Applied and tested a methodology to rapidly assess a restoration site’s ecological values and its
      potential to generate multiple types of ecosystem service credits.
•     Worked with the Oregon Department of Environmental Quality to develop (1) agency policies
      that will encourage participation in the marketplace and maximize investment in high-priority
      restoration areas; and (2) draft permit language that will allow dischargers to use temperature
      trading to comply with the requirements of the new Willamette temperature TMDL.
•     Created centralized market infrastructure—a credit registry and exchange platform—to register,
      certify, bank, and track different types of ecosystem service credits as they are generated, bought,
      and sold; created templates of contracts, agreements, and other documents needed to support
      transactions in the marketplace.
We know what the ecological problems in the Willamette Basin are. We know what to do—and
where—to improve conditions. We developed the techniques and tools to translate the ecological
benefits of things that need to be done into a temperature measurement that is strictly regulated. We
created permit language that enables cities and businesses facing strict temperature limits in their
discharge permits to pay people who can do the things that need to be done ecologically to off-set
their temperature impacts. We created the market infrastructure needed to enable these transactions
to occur in a transparent and credible way.
In short, we made it possible for people with regulatory obligations to buy the ecological services
created by others who restore ecosystems. We made the tools technically sound so that regulators
would allow this new approach and we put the infrastructure in place to make it credible so the
public would accept it.

Origins of the Willamette Marketplace
An Opportunity in the Willamette Basin
When functioning properly, the Willamette River and its tributaries would naturally have lots of
dispersed, cold-water habitat for salmon, steelhead, and trout. But changes to the environment that
keep our farms and forests productive and our cities clean and safe have decreased the availability of
the right type of cold-water habitat in the right places, at the right times of year. As a result, current
temperature conditions in the river are not good for native species that reside in and visit the river.
To help these species thrive, the river’s temperature conditions need to be improved.
The Oregon Department of Environmental Quality responded to this problem by designing a
temperature TMDL for the Willamette Basin—a regulation that requires permitted entities that
contribute to the warming of the river to reduce their impact. Under the TMDL, municipal and
industrial dischargers who release clean but warm water to the river are required to meet very



1-2                                                                          SECTION 1 - INTRODUCTION.DOC
                                                                                            INTRODUCTION




specific temperature load limits. The final Willamette temperature TMDL was signed in September
2006.
Development of the TMDL created an opportunity in the Willamette Basin to establish an
ecosystem marketplace where multiple types of ecosystem credits could be created and traded. The
temperature TMDL created the needed catalyst to build a framework that serves the emerging
temperature market, but it also laid the foundation for the transactions involving a wide range of
other credits for fish and wildlife habitat, water quality and quantity, and more. Significant demand
for temperature credits would be created by the TMDL because options to meet the requirements
under the regulation are limited. One expensive option is to install technology to cool water before it
is discharged to the river. Such solutions achieve the desired end-of-pipe conditions and ensure
regulatory compliance, but they do little to improve river conditions that fish depend on.
An ecosystem marketplace, on the other hand, would encourage restoration of streamside
vegetation, wetlands, and gravel in river channels by people who have no regulatory obligation to do
so. In addition to keeping the river water cool, these types of “natural infrastructure” would create
the full range of habitat conditions that fish and wildlife need. In addition, market-driven restoration
projects in the Willamette River and its tributaries would produce a wide variety of other ecological
benefits, such as habitat for other species, erosion control, water storage, and filtration. Thus, an
ecosystem marketplace could be used to achieve large-scale ecological goals and not just reduce the
cost of regulatory compliance.
Those with permits to discharge clean but warm water have not generally had the ability to “build”
or acquire natural infrastructure to meet their permit requirements or mitigate their impacts.
Likewise, landowners who could choose to “build” natural infrastructure have not had the financial
capacity or incentive to do so. If those required through permits to reduce water temperature could
pay for others to create the natural infrastructure that provides the conditions that fish need—
including cool water—then both permit compliance and significant ecological restoration could
occur simultaneously.

U.S. EPA Targeted Watershed Grant
In November 2005, the Willamette Partnership received a 2 ½-year Targeted Watershed Grant
worth $779,000 from the U.S. Environmental Protection Agency. The grant was to fund initial
development of an ecosystem marketplace, with a particular focus on temperature objectives. The
marketplace was to be designed to eventually accommodate trades of credits or currencies for a
range of other ecological services and to enhance general watershed integrity and function in the
Willamette Basin.
The overall goal of the project was to develop the technical, legal, and regulatory frameworks needed
to facilitate exchanges of ecosystem service credits that improve ecological health and sustainability
in the Willamette Basin. The ideal initial ecosystem marketplace would have the following
characteristics:
•   Be trusted by regulated parties, private land managers, regulatory agencies, and the public
•   Meet specific TMDL objectives for reducing temperature in the Willamette river
•   Drive investments to the restoration actions that will provide the greatest environmental return
    to the Willamette watershed
•   Provide financial incentives for land managers to restore ecological values in priority areas


SECTION 1 - INTRODUCTION.DOC                                                                        1-3
INTRODUCTION




•     Be capable of facilitating transactions in a variety of ecosystem service credit types that address a
      full suite of ecological values
The project work was broken down into five technical tasks: a market appraisal, credit definition and
currency development, temperature credit portfolio, development of the marketplace infrastructure,
and market transaction. The technical tasks are summarized below.

Task 1: Market Appraisal—Who needs what types of credits for what
purpose, and can supply be created through ecological restoration actions?
The market appraisal involves analyzing the demand for different types of ecosystem service credits
(in part by quantifying temperature reduction obligations under the TMDL) and developing an
understanding of the potential supply of credits, when and where they are located, and who would
generate them. Because the primary goal of the Willamette Ecosystem Marketplace is ecological
restoration, an important aspect of assessing the supply of credits was determining where the high-
priority restoration areas are in the Willamette Basin so the marketplace could be structured to
encourage activities in those locations and thus produce multiple ecological benefits.

Task 2: Credit Definition and Currency Development—How can the
ecological benefits of restoration actions be translated into units of measure
people understand and want to buy?
In ecosystem service markets, offset credits are the unit of trade. Offset credits can be measured in a
variety ways, such as tons of carbon, acres of wetlands, or kilocalories per day of water temperature.
The credit definition process establishes the basis for calculating the credits that would be generated
from different types of restoration projects. For the Willamette Ecosystem Marketplace, this meant
working to develop practical and technically sound methods for quantifying the water temperature
reductions that would result from wastewater reclamation and reuse, flow augmentation, riparian
shade restoration, wetland restoration, and floodplain restoration. Currency development refers to
examining the feasibility of a common or “universal” currency that multiple types of ecosystem
service credits (temperature reduction, wetlands habitat, carbon sequestration, etc.) could be
translated into for use in comparing or exchanging credits.

Task 3: Temperature Credit Portfolio—Is it possible to reach the goals
established in the temperature TMDL and create significant other
environmental benefits by restoring ecosystems?
Credit portfolios are developed at two scales: basinwide and site-specific. The basinwide portfolio
reflects investments that, if implemented, would result in attainment of the Willamette TMDL for
temperature and provide other ecological benefits. The site-specific portfolio characterizes the
potential for a specific site to generate multiple types of restoration-related credits for sale or trade in
a multi-credit marketplace.

Task 4: Marketplace Infrastructure—If people restore ecosystems instead of
building onsite or end-of-pipe controls, what systems need to be in place to
ensure that restoration actions are real and are being managed over time?
Ecosystem marketplaces require unique infrastructure to register, track, and account for credits and
ensure their validity and quality through time. A centralized credit registry is needed to operate a



1-4                                                                           SECTION 1 - INTRODUCTION.DOC
                                                                                            INTRODUCTION




credit ledger and the accounting tools that track ecosystem service credits. An administrative and
electronic exchange platform is needed to track and report transactions between buyers and sellers.
Agreed-upon, documented measurement criteria, performance standards, and verification protocols
for credit-generating activities help ensure their quality, and restoration projects need to be
monitored over time to ensure that they continue to provide the ecosystem services that give their
credits value. These and other regulatory, administrative, and transactional components of the
marketplace require a host of documents, databases, written protocols, agreements, and regulatory
instruments that together make up the marketplace infrastructure.

Task 5: Market Transaction—Can we make a deal?
The goal of this task was for the Willamette Partnership to coordinate, facilitate, or support one or
more real temperature-reducing actions as credit trading or banking transactions under the auspices
of the Willamette Ecosystem Marketplace. This included selecting, researching, and evaluating
potential transaction projects and working with agency staff to augment regulatory language to allow
temperature trading as a TMDL compliance option.
The activities, products, and results of Tasks 1 through 5 are described in detail in the following
chapters.

Background on Ecosystem Services Markets
Why Do We Need an Ecosystem Services Marketplace?
As a society, we generally value clean air, clean water, fish and wildlife, and natural landscapes. This
concern is demonstrated consistently in polls and validated by the willingness of voters and
policymakers at all levels of government to approve the use of public funds for conservation
purposes. There are also many regulations that constrain activities deemed harmful to the
environment, like destroying endangered species habitat, harming migratory birds, or harvesting fish
beyond a legal limit.
During the last 30 years, we have made progress addressing some of the most visible and egregious
sources of environmental degradation by applying landmark environmental laws such as the Clean
Water Act, National Environmental Policy Act, and Endangered Species Act. These laws were
intended to address specific environmental problems, such as industrial and wastewater discharges
into rivers and streams, site-specific habitat damage, and impacts on individual species.
Over time, the limitations of compliance options within existing regulatory frameworks have
become increasingly clear. For example, regulations are often effective for stopping or limiting
harmful acts, but they may not be particularly effective for encouraging positive or restorative
actions. There is growing concern that site-by-site, species-by-species, and pipe-by-pipe approaches
to conservation do not create the incentives needed to restore and conserve the ecosystems that
sustain the resources we depend on and care about.
Worldwide, there is growing interest in the use of market-based approaches for conserving and
restoring the important ecological processes that provide services to people. These “ecosystem
services” are produced by intact ecosystems: well-managed forests, functioning river floodplains,
contiguous bands of diverse streamside shrubs and woodlands, and healthy wet prairies and
wetlands. When these ecosystems are allowed to do their work, they purify, cool and store water;
they produce oxygen and store carbon; they reduce or prevent damage from flooding; they improve



SECTION 1 - INTRODUCTION.DOC                                                                      1-5
INTRODUCTION




pollination; and they provide fish and wildlife habitat. The shift worldwide is toward quantification
of these ecosystem services so the people who can restore and maintain them can get paid for doing
so.
It is also clear that despite significant investments in land protection and restoration, conservation is
not occurring at a scale that will substantially reverse the trend of major declines in native habitat,
plants and animals, and clean air and water. Development pressure is projected to continue,
especially in the Willamette Valley. Even with existing federal and state regulations, it is likely that
ecosystem health in the Willamette Basin will continue to degrade, undermining the region’s
economy, natural resource base, and quality of life. Given the current situation, it is difficult to avoid
the conclusion that something more is needed to protect and restore the natural resources we value.
The Willamette Partnership is seeking to demonstrate alternative compliance options within the
regulatory approach—options that reduce the cost and conflict of compliance with regulations while
delivering broader ecological results. One way the Partnership is doing this is by leading the effort to
build the Willamette Ecosystem Marketplace, which uses market-based incentives and a new suite of
tools to drive investment toward ecological priorities in the Willamette Basin.

        ⇒ The Willamette Partnership. The Willamette Partnership is a coalition of conservation, city,
               business, farm, and science leaders committed to increasing the pace, scope, and effectiveness of
               conservation in the Willamette Basin. Board members represent the many diverse interests in the basin
               that have a stake in its ecological and economic future. Board members have a long history of working
               together to build the relationships needed to form a consensus on innovative conservation action. The
               Willamette Partnership believes that restoring the health of an ecologically, socially, and economically
               complex watershed like the Willamette will require a coordinated approach that no jurisdiction, agency,
               or private interest has the resources or incentive to undertake alone.

What Is an Ecosystem Services Marketplace?
An ecosystem marketplace is an organizational structure that leverages the power of economics with
landowners and others investing to protect, restore, and maintain ecological values such as clean air,
clean and abundant water, fish and wildlife habitat, and other ecosystem “products” that are
generally considered public goods. These goods typically are not bought and sold in the way that
food, building products, and manufactured goods are, and protecting them for the benefit of
everyone usually does not offer the same type of financial rewards. An ecosystem marketplace
changes that dynamic by making ecosystem services—temperature or pollution reduction, water
purification, carbon sequestration, habitat preservation, natural flood control, and so on—tradable
items that can be priced and sold.
In the Willamette Ecosystem Marketplace, regulated entities that spend millions of dollars each year
on environmental compliance will be able to pay farmers, foresters, and other land mangers for
ecological restoration actions that control or offset impacts more effectively than traditional, site-
specific approaches to compliance do. Payment occurs through the purchase of offset credits
generated once a landowner completes a restoration project and registers the credits for sale in the
marketplace. As an example, cities and industries that are required to reduce the impact of their
discharges of clean but warm water into rivers and streams would be able purchase temperature
offset credits created when land managers plant streamside shade trees, restore wetlands, or
reconnect floodplains so that water is cooled naturally.




1-6                                                                                    SECTION 1 - INTRODUCTION.DOC
                                                                                            INTRODUCTION




Restoration of natural processes has the potential to create substantially more benefits to the larger
ecosystem than traditional engineered approaches to environmental compliance, and in many cases it
may be less expensive. In a ground-breaking temperature trading program in the Tualatin River
Basin, for example, Clean Water Services (the area’s wastewater utility) invested approximately $12
million to restore streamside vegetation that actually improved conditions for fish, instead of
spending $60 million in refrigeration technology that would have guaranteed compliance but
provided little environmental benefit.
There are many other advantages to developing an ecosystem marketplace that complements
existing environmental regulations:
•   An ecosystem marketplace would tap into sources of investment that currently are not
    participating in coordinated conservation activities. This increases the scope and scale of
    investment in conservation, providing additional ecological benefits for the public.
•   An ecosystem marketplace would provide greater ecological benefits at lower cost to the
    regulated parties, with the potential to reduce the costs of goods and services to taxpayers and
    consumers.
•   Development of industrial sites in the Willamette Valley is severely constrained because land
    zoned for industrial use within urban growth boundaries tends to be wet, requiring significant
    mitigation. A functional ecosystem marketplace will increase the availability of large, ecologically
    significant mitigation banks that have mitigation credits to sell. This expedites development
    where it belongs while directing investment in conservation to the areas that will provide the
    greatest environmental benefits.
•   Rural landowners find it increasingly difficult to remain profitable. Generating ecosystem service
    credits can create a new source of income, thereby diversifying revenue for rural landowners and
    providing society with ecological benefits.
For these reasons and others, the Willamette Partnership has pursued development of an integrated
ecosystem marketplace in the Willamette Basin that will accommodate the sale of multiple types of
offset credits, representing many different ecosystem services.




SECTION 1 - INTRODUCTION.DOC                                                                      1-7
Section 2 Roles and
  Responsibilities
SECTION 2

Roles and Responsibilities

A host of individuals, businesses, organizations, associations, municipalities, educational institutions,
and agencies played a role in the development of the Willamette Ecosystem Marketplace. Briefly, the
effort was led by the Willamette Partnership with the aid of its board of directors and partners and a
project steering committee. The Mid-Willamette Valley Council of Governments acted as the
Willamette Partnership’s fiscal agent. Much of the technical work was done by a consulting team
consisting of David Evans and Associates, Inc. and CH2M HILL. This was augmented with work
by Parametrix and three limited-duration task teams. Extensive financial and in-kind services were
provided by project partners and friends. Clean Water Services, Defenders of Wildlife, the City of
Albany, the City of Eugene, the Association of Clean Water Agencies, The Nature Conservancy, and
the Long Tom Watershed Council, in particular, supplied regular, consistent, and practical regulatory
and technical expertise that was invaluable. Representatives from Oregon Department of
Environmental Quality, the U.S. Environmental Protection Agency, and other government agencies
participated extensively in every stage of the project, both formally on the steering committee and
task teams and informally through review and advice as the project progressed. Roles,
responsibilities, and the administration and management of the project are described in more detail
below.

Project Organization
Willamette Partnership and its Partners
The EPA Targeted Watershed Grant was awarded to the Willamette Partnership in November 2005
after being nominated by Oregon Governor Ted Kulongoski and the Confederated Tribes of Grand
Ronde. The original proposal included letters of support from 23 Oregon-based organizations who
saw value in pursuing an ecosystem marketplace. Supporters included the following:

American Heritage Rivers Initiative                       Portland State University
Oregon Association of Conservation Districts              Conifer Group
Associated Oregon Industries                              SOLV
Oregon Business Association                               Defenders of Wildlife
City of Albany                                            University of Oregon Institute for a
Oregon Business Council                                    Sustainable Environment
City of Eugene                                            Heritage Seedlings, Inc.
Oregon Department of Environmental Quality                Wildwood Mahonia
City of Portland                                          Oak Lodge Sanitary District
Oregon Environmental Council                              Willamette Riverkeeper
City of Salem                                             Oregon Association of Clean Water
Oregon State University                                    Agencies
Clean Water Services




SECTION 2 - ROLES AND RESPONSIBILITIES.DOC                                                         2-1
ROLES AND RESPONSIBILITIES




Development of the Willamette Ecosystem Marketplace was led and managed by the nonprofit
Willamette Partnership, a coalition of conservation, municipal, industry, agriculture, development,
and academic leaders who represent the interests needed to develop consensus on innovative
conservation policy and action in the Willamette Basin. The project manager was Willamette
Partnership Executive Director David Primozich.
The Willamette Partnership was responsible for the strategic direction, general oversight, and
stakeholder access needed to establish the Willamette Ecosystem Marketplace. The organization also
convened, coordinated, and otherwise supported the activities of the project steering committee and
task teams, supervised contractors and consultants, and was responsible for all project deliverables
associated with grant-funded activities.

Board of Directors
The Willamette Partnership Board of Directors met quarterly throughout the project to inform and
direct the project management staff and offer strategic guidance and decisions. In addition, the
Willamette Partnership Executive Committee participated in day-to-day project oversight activities
and served on the project steering committee. Much of the outreach for the project was conducted
by board members, who have extensive business and political contacts. Board members worked to
ensure that project development occurred in an open and transparent manner and helped to create
opportunities for stakeholder input and feedback.
During the 2 ½ years of the project, the Willamette Partnership Board of Directors maintained a
broad view of the marketplace and helped the project stay focused on the financial and ecological
benefits of an integrated, multi-credit marketplace, not just a water quality trading program. The
board also worked on policy issues connected to the marketplace. In February 2007, it made the key
decision that the Willamette Partnership would take on the responsibility of managing the basic
marketplace infrastructure, until another organization could step into that role.
The following people serve on the board of directors:
      •   Bill Gaffi (President), General Manager of Clean Water Services, the wastewater
          management service for the Tualatin River Basin
      •   John Miller (Vice President), President of Wildwood, Inc., an urban design and development
          firm
      •   Sara Vickerman (Secretary), Senior Director of Biodiversity Partnerships for Defenders of
          Wildlife
      •   Mike Burton, Vice Provost and Executive Director for extended studies at Portland State
          University
      •   David Hulse, professor of Landscape Architecture at the University of Oregon and former
          chair of the Landscape Architecture department
      •   Jim Irvine, president of The Conifer Group, a multifaceted real estate development company
      •   Mark Krautmann, past president of the Oregon Association of Nurseries and the founder
          and owner of Heritage Seedlings Nursery
      •   Marv Lewallen, Weyerhaeuser’s Environmental Affairs Manager for Oregon


2-2                                                              SECTION 2 - ROLES AND RESPONSIBILITIES.DOC
                                                                                   ROLES AND RESPONSIBILITIES




    •    Tom Lindley, partner in the Portland office of the law firm of Perkins Coie LLP
    •    Dean Marriott, Director of Portland’s Bureau of Environmental Sciences
    •    John McDonald, Executive Director of the Oregon Association of Conservation Districts
         and Director of the Tualatin Soil and Water Conservation District
    •    Jack McGowan, Executive Director of SOLV, an organization that builds community
         though volunteer action
    •    Chris Mercier, Confederated Tribes of Grand Ronde Tribal Council member
    •    John Moriarty, Statewide Coordinator for the Network of Oregon Watershed Councils
    •    Liz Redon, North Santiam Watershed Council Coordinator
    •    Travis Williams, Executive Director of Willamette Riverkeeper
    •    Duncan Wyse, President of the Oregon Business Council, a nonprofit organization of
         business executives
The Willamette Partnership also received vital financial and in-kind support for its activities from:
         Clean Water Services
         City of Albany
         City of Eugene
         Defenders of Wildlife
         Oregon Business Council
         Oregon Department of Environmental Quality
         Oregon Association of Clean Water Agencies
         Associated Oregon Industries
         City of Portland
         City of Salem
         Conifer Group
         Heritage Seedlings Nursery
         Long Tom Watershed Council
         Network of Oregon Watershed Councils
         Oak Lodge Sanitary District
         Oregon Association of Conservation Districts
         Oregon Business Association
         Oregon Department of Agriculture
         Oregon Department of Fish and Wildlife
         Oregon Department of State Lands
         Oregon Department of Transportation
         Oregon Economic and Community Development Department
         Oregon Environmental Council
         Oregon Governor's Office
         Oregon State University
         University of Oregon Institute for a Sustainable Environment
         Portland State University



SECTION 2 - ROLES AND RESPONSIBILITIES.DOC                                                           2-3
ROLES AND RESPONSIBILITIES




          SOLV
          Wildwood Mahonia Nursery and Vineyard
          Willamette Riverkeeper

Mid-Willamette Valley Council of Governments
The Mid-Willamette Valley Council of Governments is the fiscal agent for the Willamette
Partnership and provided staffing, fiscal management for grants and other revenue and expenses,
contracting services, and reporting.

Project Steering Committee
The project steering committee consisted of the Willamette Partnership Executive Committee and
two additional board members, regulatory agency staff, interest group representatives, landowners,
and other individuals with knowledge and interest in marketplace development. The committee met
monthly for the first 1 ½ years of the project and then occasionally after that as needed. There was
less need for guidance from the steering committee as the project progressed and attention shifted
to completing tasks and project deliverables, rather than setting the direction for marketplace
development.
On the project steering committee, stakeholders worked closely with project staff, the consultant
team, and task teams; participated directly in development of the marketplace; and provided input
and guidance during the various stages of the project. Throughout the marketplace development
process, the project steering committee focused on the issues related to water temperature trading
and transactions. Key contributions of the project steering committee included pushing for simpler,
more easily understood marketplace documents and protocols, acting as a sounding board on policy
issues, and encouraging the development of a centralized market structure instead of decentralized
or facilitated.
The following people served on the project steering committee:
      •   Bill Gaffi, Clean Water Services
      •   Neil Mullane, Oregon Department of Environmental Quality
      •   Ranei Nomura, Oregon Department of Environmental Quality
      •   Sonja Bjorn-Hansen, Oregon Department of Environmental Quality
      •   Bobby Cochran, Clean Water Services
      •   John Miller, Wildwood Mahonia
      •   Allen Henning, U.S. Environmental Protection Agency
      •   Claire Schary, U.S. Environmental Protection Agency
      •   Sara Vickerman, Defenders of Wildlife
      •   Gina LaRocco, Defenders of Wildlife
      •   Bob Deal, U.S. Forest Service


2-4                                                              SECTION 2 - ROLES AND RESPONSIBILITIES.DOC
                                                                                ROLES AND RESPONSIBILITIES




    •    Travis Williams, Willamette River Keeper
    •    Marv Lewallen, Weyerhaeuser Company
    •    Louise Solliday, Department of State Lands
    •    Cathy Macdonald, The Nature Conservancy
    •    David Hulse, University of Oregon
    •    David Wester, Oregon Association of Conservation Districts
    •    Ray Jaindl, Oregon Department of Agriculture
    •    Jane Bacchieri, Oregon Governor’s Office
    •    Peter Ruffier, Metropolitan Wastewater Management Commission
    •    Larry Devroy, Port of Portland
    •    Tom Paul, Oregon Water Resources Department

Scientific and Technical Work
Clean Water Services
Staff of Clean Water Services—a wastewater management service that has been instrumental in
developing and implementing water quality trading in Oregon—provided regulatory assistance and
coordinated technical aspects of the marketplace’s creation. This included work by Charles Logue,
Clean Water Services’ Director of Regulatory Affairs, who managed scientific and technical
contractors, and Bobby Cochran, who managed market appraisal and marketplace infrastructure
tasks.

Consulting Team (Technical)
Much of the technical work for the Willamette Ecosystem Marketplace was done by consultants
David Evans and Associates, Inc. and CH2M HILL. Among other things, the consulting team
analyzed temperature reduction obligations under the TMDL, assessed potential credit definition
methodologies, developed a thermal credit calculator, researched existing credit trading programs,
developed marketplace infrastructure documents and protocols, designed a centralized credit
registry, helped prepare for a transaction, and worked to develop permit language that would allow
temperature trading as a compliance option.

Additional Consultants (Scientific)
The Willamette Partnership also contracted with scientists David W. Hulse (University of Oregon)
and Stanley V. Gregory (Oregon State University) to investigate the scientific foundation of
potential methodologies for defining temperature credits from floodplain restoration. Additional
scientific work was done by Parametrix under contract with the City of Albany and Clean Water
Services. For the City of Albany, Parametrix developed and applied a rapid assessment methodology
for evaluating existing and potential future ecosystem services at individual restoration sites. For


SECTION 2 - ROLES AND RESPONSIBILITIES.DOC                                                        2-5
ROLES AND RESPONSIBILITIES




Clean Water Services, Parametrix applied a multi-parameter accounting methodology to restoration
sites to quantify significant ecological values, beyond just temperature, that occur from restoration.
Parametrix also participated heavily in development of the Ecosystem Credit Registry, which records
and tracks credits in the marketplace.

Task Teams
Guided by input from the project steering committee and the Willamette Partnership Board of
Directors, project staff convened and coordinated three teams of experts and key stakeholders for
various marketplace development tasks. The task teams were intensive, limited-duration work
groups that provided input, data, and guidance to project staff and consultants.
Synthesis Map Working Group
The Synthesis Map Working Group met quarterly for the last year of the project to guide the GIS
analysis needed to re-delineate the conservation priorities synthesis map, as described in Chapter 3.
The team consisted of representatives from the Oregon Department of Fish and Wildlife, Oregon
Habitat Joint Venture, The Nature Conservancy, The Wetlands Conservancy, Oregon Biodiversity
Project, Oregon Parks and Recreation, Oregon Department of Environmental Quality, Defenders of
Wildlife, Willamette Futures (at Oregon State University), and the Willamette Partnership. The
revised synthesis map reflects more recent vegetation and land use data, uses consistent spatial units
to delineate high-priority conservation areas, and includes a confidence rating system to convey the
accuracy of the data sets. These changes make the synthesis map more meaningful to conservation
organizations and more accurate with regard to existing land use and vegetation than previous
analyses were.
Practitioners Working Group
The Practitioners Working Group brought together diverse restoration practitioners—the potential
suppliers of credits in the Willamette Ecosystem Marketplace—during the second half of the
project. The group’s purpose was to inform processes for project identification, planning,
implementation, maintenance, reporting, certification, and payments for offset credits that would
help ensure practical, high-quality restoration in the Willamette Basin. Among its activities, the
Practitioners Working Group prepared a white paper that explored structural and regulatory
incentives to encourage participation in the marketplace and developed a multi-tiered credit quality
rating system for temperature credits. The group also developed minimum riparian planting
protocols for shade restoration projects that are designed to generate temperature credits.
The following organizations were represented in the Practitioners Working Group: the Willamette
Partnership, Clean Water Services, Yamhill Soil and Water Conservation District, Tualatin Soil and
Water Conservation District, SOLV, Long Tom Watershed Council, Marys River Watershed
Council, The Nature Conservancy, Greenbelt Land Trust, McKenzie River Trust, Oregon Habitat
Joint Venture, Willamette Riverkeeper, Good Company, Parametrix, the Oregon Department of
Environmental Quality, the U.S. Environmental Protection Agency, and the U.S. Fish and Wildlife
Service. The group was convened jointly by The Nature Conservancy and Willamette Partnership.
Transaction Working Group
The transaction working group work intensively over a 2-month period to develop key credit trading
documents, such as the credit exchange and registration agreements (see Section 6). These
documents help to support near-term credit transactions by outlining (1) buyer and seller
responsibilities in exchanging credits, and (2) credit owner and registrar responsibilities in registering


2-6                                                                SECTION 2 - ROLES AND RESPONSIBILITIES.DOC
                                                                                 ROLES AND RESPONSIBILITIES




credits. The transaction working group consisted of representatives from the City of Eugene, the
Long Tom Watershed Council, a private landowner, and the City of Albany.
Technical Team
A technical team met several times in the summer of 2006 to explore ways of quantifying the
ecological outputs of floodplain restoration in the Willamette Basin. Members included scientists
from the University of Oregon and Oregon State University and representatives from the Oregon
Department of Environmental Quality, the Willamette Partnership, and private consulting firms.
Two main concepts emerged from the technical team: “stepping stones” and, as an outgrowth, fish
density conversion. “Stepping stones” refers to creation of appropriately located areas in the river
characterized by reduced temperature or improved habitat for migrating salmonid species or both.
The fish density conversion concept is based on a data-intensive model that incorporates habitat
characteristics into estimates of the impact of water temperature on salmon productivity. (See Step 4
of Chapter 4 for more information.) Initial research on the stepping stones concept was completed
in 2007, and additional research is under way. The fish density conversion concept also is being
explored for application in the Willamette Ecosystem Marketplace.

Additional Organizational Elements
Government Agencies
The Oregon Department of Environmental Quality and the U.S. Environmental Protection Agency
played a central role in development of the ecosystem marketplace, in part by serving on the project
steering committee and project task teams. The project management structure was designed to
encourage agency participation and involvement in marketplace development. In fact, the U.S.
Environmental Protection Agency, U.S. Fish and Wildlife Service, U.S. Forest Service, Oregon
Department of Environmental Quality, Oregon Department of State Lands, Oregon Water
Resources Department, and Oregon Department of Agriculture all were represented on the steering
committee or task teams. Less formally, agency personnel worked with project staff and consultants
via meetings and consultations to clarify the supply and demand for offset credits, identify and
resolve policy issues that affect the marketplace, modify permit language, and update an internal
management directive to guide trading of ecosystem service credits as a compliance option. The
Oregon Department of Environmental Quality, represented by Neil Mullane, Ranei Nomura, Sonja
Bjorn-Hansen, Pamela Wright, Ryan Michie, and Pete Dalke, and the U.S. Environmental
Protection Agency, represented by Alan Henning and Claire Schary, were both actively involved in
multiple task teams and the steering committee, providing valuable feedback and support
throughout every stage of the project.

Stakeholder Communication, Outreach, and Involvement
The project steering committee and task teams were the primary mechanism for active stakeholder
participation and involvement at all stages of marketplace development. Stakeholder communication
and outreach was conducted through the individual efforts of the members of the Willamette
Partnership Board of Directors and project staff. Executive Director David Primozich accompanied
members of the steering committee and the Willamette Partnership Board of Directors to numerous
meetings and conferences of stakeholder interest groups to deliver presentations and get feedback
on framework development. In addition, a Web site posted during the last year of the project


SECTION 2 - ROLES AND RESPONSIBILITIES.DOC                                                         2-7
ROLES AND RESPONSIBILITIES




describes ecosystem marketplaces work, the Willamette Partnership’s efforts to develop a
marketplace, and publications that document the marketplace development process. The challenges
of building an integrated ecosystem marketplace require a diverse set of spaces for information
sharing and decision making. It was important to have a core group of stakeholders involved in all
aspects of the project, but it was also important to reach out to diverse audiences to build awareness
and seek feedback.




2-8                                                              SECTION 2 - ROLES AND RESPONSIBILITIES.DOC
Section 3 Market Appraisal
SECTION 3

Market Appraisal (Task 1)

Assessing supply and demand for the potential Willamette Ecosystem Marketplace was a challenging
process. Supply and demand work differently in ecosystem markets than in markets for other kinds
of goods and services. In ecosystem markets, supply is driven by the existing natural resource base
and the willingness of landowners to manage their lands to produce ecosystem services—either
actively through restoration projects or passively by leaving a portion of the landscape to function
naturally, without interference. When it comes to demand in an ecosystem market, the drivers are
both regulatory (in the form of rules and regulations that require people who impact the
environment to buy credits to offset those damages) and voluntary (such as people purchasing
carbon credits to offset their own carbon-generating activities or a municipal or industrial discharger
seeking an alternative to costly investments in new infrastructure). Regulatory drivers are likely to
stimulate the greatest volume of trades and demand. Other factors that shape supply and demand
include transaction costs, uncertainty, ecosystem dynamics, and the political environment.



 Major Accomplishments

 •   Assessment of marketplace potential. Determined that temperature could be a viable market in the
     Willamette Basin, and that the potential supply of shade in high-priority conservation areas along
     temperature-impaired streams is more than enough to meet the demand for temperature credits created
     by the TMDL.

 •   Synthesis map. Delineated areas in the Willamette Basin where rivers and streams are temperature
     impaired and there is agreement among a variety of conservation organizations that restoration is a high
     priority. This “synthesis map” can be used to inform marketplace investments. Work is continuing to refine
     the synthesis map, incorporate more recent data, and develop a web-based spatial tool that will make the
     map data readily available for users. The Oregon Department of Environmental Quality expects to use
     data from the synthesis map as it sets its priorities for TMDL implementation.

 •   Market analysis. Characterized the drivers for various potential ecosystem service markets in the
     Willamette Basin, analyzed the potential demand for wetland mitigation credits in the basin, calculated the
     demand for temperature credits created by the Willamette temperature TMDL, and identified potential
     buyers of temperature credits, based on the requirements of the TMDL; also compiled and mapped the
     potential supply of temperature credits that could be created through restoration of riparian shade along
     the Willamette River and its major tributaries.




The market appraisal for this project examined supply and demand for ecosystem services credits in
the Willamette Basin, investigating who the initial buyers might be, what the drivers are for them to
participate in the market, and where to direct ecosystem marketplace investments for maximum
ecological value. The market appraisal focused on supply and demand at the basin level; however, as
part of the marketplace development process, a methodology was developed to perform rapid
assessments of ecosystem functions and services at the site level as well (see Chapter 5). This
methodology, which assesses a site for its general ecological characteristics, restoration potential, and


SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                                        3-1
MARKET APPRAISAL (TASK 1)




preservation opportunities, describes the general ecosystem market potential of individual sites and
is useful for understanding how supply can be created through different management alternatives.
Developing the market appraisal involved mapping the potential supply of ecosystem credits in the
Willamette Basin, analyzing demand in the basin for various types of ecosystem services credits, and
quantifying the supply and demand for water temperature reduction credits and wetland mitigation
credits over approximately the next five years. In conducting the appraisal, the Willamette
Partnership, its consultants, its partners, and various stakeholders performed the steps described
below.

Market Appraisal Process
Step 1: Synthesis Map. Created a synthesis map of conservation and restoration priority areas
based on existing plans, documents, and stakeholder input. The map includes responsibilities
identified in the Willamette TMDL for temperature and points to opportunities for investment.
         The Nature Conservancy compiled existing GIS layers to create a synthesis map that shows
         the priority conservation and restoration areas of six conservation organizations or agencies
         in the Willamette Basin and where those areas overlap. Locations with many overlaps were
         considered to be higher priority for conservation and restoration than locations with few or
         no overlaps. Given the somewhat different objectives of the conservation organizations
         (birds, wetlands, biodiversity, etc.), it was assumed that restoration projects in the locations
         with multiple overlaps would provide a broad range of ecosystem services that could be
         represented as different types of credits in the marketplace. Data layers for the synthesis map
         of conservation and restoration priorities were contributed by Oregon Habitat Joint Venture,
         the Oregon Biodiversity Project, the Oregon Department of Fish and Wildlife, Oregon’s
         Greatest Wetlands, The Nature Conservancy, and Willamette Futures.
         Once the initial map was completed, an overlay was added of the municipal and industrial
         entities with immediate thermal load reduction obligations under the TMDL; this was based
         on the review of the TMDL described under Step 4. The temporary addition of an overlay
         of temperature-impaired streams (obtained from the Oregon Department of Environmental
         Quality) showed where high-priority conservation and restoration areas overlapped with
         reaches where water temperatures exceed standards and, therefore, reductions are needed.
         Result and Findings of Step 1: The result of Step 1 was a two-dimensional synthesis
         map of the Willamette Basin that shows, at a coarse scale, locations where (1) temperature
         reduction credits might be created and there is scientific justification and stakeholder
         support for restoration; and (2) reductions in thermal loading are required under the TMDL.
         Temperature-affected high-priority restoration areas on the Willamette River are at the
         following locations: upstream of Albany, upstream and downstream of the Long Tom
         River’s confluence with the Willamette River, and downstream of the city of Santa Clara
         (outside of Eugene). Additional areas are located in the middle reaches of Muddy Creek and
         the upper reaches of the Long Tom River, where it exits Fern Ridge Reservoir. All six
         conservation groups or agencies had identified these areas as a high priority for restoration,
         which makes them potentially promising locations for marketplace investment.




3-2                                                                 SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
                                                                                                                              MARKET APPRAISAL (TASK 1)




The synthesis map of conservation priorities is available at http://www.willamettepartnership.org/tools-templates/synthesis-map.pdf.
Figure 3-1: Synthesis Map of High-Priority Conservation/Restoration Areas and Locations of Key Thermal Load Reduction




SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                                                 3-3
                                                                                                   MARKET APPRAISAL (TASK 1)




         ⇒ Adjunct work: The six conservation groups and agencies contributing data to the synthesis map of
           priority conservation areas used different processes to map their priorities, and some of the data sets were
           outdated. As a supplement to its work under this grant, The Nature Conservancy is continuing to refine
           the synthesis map with the aid of the Synthesis Map Working Group, which consists of The Nature
           Conservancy, The Wetlands Conservancy, Oregon Department of Fish and Wildlife, Oregon
           Department of Environmental Quality, Oregon Natural Heritage Information Center, Oregon State
           University, and University of Oregon. So far the synthesis map has been updated with more recent and
           reliable data (particularly vegetation data), and priority conservation areas have been re-delineated
           accordingly. The Nature Conservancy is in the process of using the map data to develop a GIS-based
           spatial tool that makes this information readily available for users. This tool will to be completed in
           August of 2008.

              The Oregon Department of Environmental Quality is interested in using ecological priority data from the
              synthesis map to implement the TMDL, and the agency has formed Stakeholder Technical Teams to
              help guide TMDL implementation and inform priority setting for trading and other implementation
              actions.

Step 2: Market Characterization.
Identified currently functioning and potential
future ecosystem markets in the Willamette                How Many for How Much?
                                                          A common question throughout this project has been “How
Basin and characterized their drivers,                    many temperature credits can I get for how much
participants (regulatory agencies, buyers, and            restoration?”
sellers), and potential growth.
                                                          Modeling done in support of the TMDL, combined with data
Step 3: Promising Markets. Identified                     on the results of restoration projects completed in the
markets that are ripe for inclusion in the                Tualatin Basin, suggests that restoration projects on
Willamette marketplace meaning markets                    streams roughly 16 to 20 feet wide block approximately 10
                                                          million kilocalories per day per mile of stream restored.
where the demand for credits is high and the
ecological and economic return on                         How does this relate to the amount of temperature
investment would be relatively quick (within              reduction needed in the Willamette Basin? A comparison
5 years).                                                 between TMDL allocations of thermal load and actual
                                                          current discharges shows that the immediate need for
         Findings of Steps 2 and 3: Steps                 temperature reductions exceeds 1.2 billion kilocalories per
                                                          day from just eight of the 25 point-source dischargers
         2 and 3 provided a picture of the                subject to the Willamette TMDL for temperature. That
         scope of potential market drivers in             number will exceed 3 billion in 10 years.
         the Willamette Basin, at a coarse
         scale, and which types of credits they           Is there enough supply to meet this need?
         might create demand for. Water
                                                          At an average of 10 million kilocalories per day per stream
         quality trading credits and wetland              mile restored, using riparian shade alone, we would need
         mitigation credits emerged as the                about 133 miles of stream restoration. In the Willamette
         most immediately marketable types                Valley—excluding the upper elevations of the Coast Range
         of credits—temperature credits                   and the Cascades— there are 6,069 stream miles. Of
                                                          those, 2,050 miles fall within areas identified as priorities
         because of the new Willamette                    by multiple conservation organizations. Of the 2,050
         TMDL for temperature and wetland                 stream miles in priority areas, 516 miles are “303d listed”
         credits because of continuing                    for temperature impairments, which means they are
         development along the I-5 corridor               warmer than they should be to support cold-water fish. So
                                                          even if restoration were to occur only in those areas listed
         that affects wetlands and thus                   as impaired for temperature and that fall within priorities
                                                          established by the Synthesis Map Working Group, there is
                                                          a potential supply of more around 5 billion kcals/per day.

SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                                            3-5
MARKET APPRAISAL (TASK 1)




          requires mitigation. Much of the known wetland credit demand comes from planned
          industrial facilities around Corvallis, Albany, and Lebanon. There also is high demand for
          wetland mitigation credits—and limited supply—in northwestern Clackamas County and
          western Multnomah County.
          Oregon already has an active wetland mitigation banking program and an approved
          conservation banking program for the endangered Oregon chub. These programs have the
          potential to be part of a multi-credit ecosystem marketplace in the Willamette Basin.
          Endangered species conservation banking could be expanded beyond chub to include
          endangered salmon and steelhead and plants and animals dependent on prairie and oak
          habitat. Other markets active in Oregon include the following:
                 • Columbia Basin Water Transactions Program (instream flow restoration).
                   www.cbwtp.org

                 • Deschutes River Conservancy (instream flow restoration and groundwater mitigation).
                   www.deschutesriver.org

                 • Oregon Water Trust (instream flow restoration)
                   www.owt.org

                 • Klamath Basin Rangeland Trust (instream flow restoration and water quality
                   enhancement)
                   www.kbrt.org

                 • Clean Water Services and DEQ Wastewater Effluent Trading
                   www.cleanwaterservices.org and www.deq.state.or.us/wq/trading/faqs.htm.

                 • Climate Trust (greenhouse gas offsets)
                   www.climatetrust.org

                 • Department of State Lands and Wetland Mitigation Banks
                   www.oregon.gov

                 • Oregon Department of Transportation Mitigation/Conservation Bank
                   www.fhwa.dot.gov/environment/ecosystems/or06.htm

          The existence of these other markets provides substantial motivation to build an integrated
          ecosystem services marketplace that can leverage investment to achieve broader ecological
          goals.
          Potential future markets that should be considered include markets for transferable
          development rights, renewable energy, stormwater, green certification, tradable recreation
          permits, flood hazard mitigation, and pollinator habitat.
          The findings of Steps 3 and 4 were captured in a primer on Existing and Emerging Markets for
          Environmental Offset Credits in the Willamette Basin.




3-6                                                                  SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
                                                                                        MARKET APPRAISAL (TASK 1)




Step 4: Temperature Reduction Obligations According to the TMDL. Reviewed the
final Willamette temperature TMDL to quantify demand for water temperature reduction credits in
terms of kilocalories per day (kcal/day).
         Demand for temperature credits was quantified by identifying point sources in the
         Willamette Basin that have temperature-related responsibilities under the TMDL,
         determining the existing thermal loads of those point sources, and, for three point sources,
         determining expected future loads. Current and future loads were then compared to the
         waste load allocation (i.e., the allowed discharge) under the TMDL during low-flow
         conditions. This comparison shows which point sources will need to reduce or offset their
         loads, such as by buying temperature credits, and the magnitude of load reduction or credits
         needed during low flow.
         Findings of Step 4: Step 4 showed that the potential demand for temperature reduction
         credits is concentrated among a few entities in the upper Willamette reach—namely the
         Metropolitan Wastewater Management Commission (MWMC, in Eugene-Springfield), the
         cities of Corvallis and Albany, the Wah-Chang metals plant, the University of Oregon’s heat
         plant, the Fort James and Pope and Talbot paper plants in Halsey, and Weyerhaeuser’s
         Albany paper plant. All major point sources in the upper Willamette reach have thermal
         loads that exceed their waste load allocations in the TMDL. If these point sources cannot
         cost-effectively reduce their thermal loads, they may have an interest in acquiring
         temperature reduction credits.
         Table 3-1 shows the amount of thermal           What Are Service Areas and Why Do They Matter?
         loading that major point sources must
         offset. Negative numbers indicate thermal       Service areas mark the geographic boundaries within which
         loads that are within the limits imposed by     buyers and sellers of ecosystem service credits can
                                                         interact. For example, water temperature credits created in
         the TMDL allocations, so these sources do       the Willamette Basin could not be sold to offset an impact
         not have to reduce or offset their thermal      in the Deschutes Basin because the two areas are not
         load; however, because the TMDL is based        hydrologically connected.
         on points of maximum impact, sources
                                                         The Willamette TMDL for temperature identifies three
         that discharge downstream of the point of       points of maximum impact in the Willamette River. These
         maximum impact for one portion of the           are the places where the river reaches its maximum
         Willamette River would not be able to sell      temperature. These points of maximum impact create
         their additional allocation to points           service areas for temperature offsets. These points occur
                                                         roughly at the confluence of the Santiam, Yamhill, and
         upstream.                                       Columbia rivers.
         Without exception, point sources in the
                                                         Water temperature credits generated anywhere in the
         middle and lower reaches of the                 watershed upstream of a point of maximum impact are
         Willamette River have thermal loads that        available for use by buyers within or below the service area
         are at or below their waste load allocations.   within which the credits are generated. Thus, credits can
         The City of Salem and SP Newsprint in           be traded upstream through one or more points of
                                                         maximum impact sections, but not downstream. Such a
         Newberg, in particular, are well below their    system creates a nested pyramid of trading areas in which,
         allocations (142 kcal/day for Salem in          for example, the City of Salem could buy credits from
         summer and 108 kcal/day for SP                  projects around Eugene, but the City of Eugene could not
         Newsprint).                                     buy credits from projects in the Salem area because Salem
                                                         is below the point of maximum impact to which Eugene is
                                                         subject.




SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                                  3-7
MARKET APPRAISAL (TASK 1)




          Table 3-1
          Major Willamette River Point Sources and Their Thermal Loads to be Offset (or Reduced)
          — September 2006
                                                       Load to Offset—Summer            Load to Offset—Spawning
            Point Source                   RM
                                                          (million kcal/day)               (million kcal/day)
            U of O Heat Plant             181.7                    36                                 141
            MWMC                          178.0                    25                                 266
            Fort James Halsey             148.4                    27                                 101
            Pope and Talbot               148.3                    70                                 261
            Evanite                       132.2                    3                                  10
            Corvallis                     130.8                    8                                   5
            Albany                        119.0                    8                                   8
            Wah Chang                     116.5                    19                                  73
            Weyerhaeuser Albany           116.5                    59                                 217
            Salem                          78.1                   -142                               -457
            SP Newsprint                   49.8                   -108                                NA
            Newberg                        49.7                     -9                                NA
            Wilsonville                    39.0                     -8                                NA
            West Linn Paper                27.7                    -22                                NA
            Blue Heron Paper               27.5                      0                                NA
            Tri-City                       25.5                    -32                                NA
            Tryon Cr                       20.2                    -10                                NA
            Oak Lodge                      20.1                     -9                                NA
            Kellogg Cr                     18.7                    -21                                NA
            Siltronics                      6.3                     -4                                NA



          Thermal loads in kcal/day and the amounts to be offset, both positive and negative, for
          point sources in the Willamette Basin are documented in Understanding Supply and Demand for
          Environmental Offset Credits in the Willamette Basin.

          ⇒ Key Decision: In reviewing the TMDL to quantify demand for temperature reduction credits based
            on future temperature loading, only three point sources were evaluated: Albany, Corvallis, and the
            Metropolitan Wastewater Management Commission. Analysis based on future thermal load was limited
            to these three point sources in part because data on these sources’ future loadings were readily available
            (the jurisdictions’ projections were included in their petitions to the Oregon Department of Environmental
            Quality for allocations from the reserve), but also because these three point sources account for so much of
            the demand for temperature credits in the Willamette Basin.

          When the final Willamette temperature TMDL was issued in September 2006, the
          Metropolitan Wastewater Management Commission and the cities of Albany and Corvallis
          were at imminent risk of exceeding their new waste load allocations under certain conditions.
          These jurisdictions promptly petitioned the Oregon Department of Environmental Quality
          for additional allocations from the thermal load reserve, which is included in the TMDL to
          allow for future population growth and associated increases in effluent discharge and
          thermal loading.




3-8                                                                           SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
                                                                                     MARKET APPRAISAL (TASK 1)




         These sources, Weyerhaeuser Company, and the Northwest Pulp and Paper Association
         ultimately filed suit against the Oregon Department of Environmental Quality, challenging
         the waste load allocations in the TMDL and the scientific rigor of the document. These
         sources generally have common issues and have argued that non-point sources, rather than
         point sources such as themselves, are the primary contributors of excess heat loads in the
         Willamette River. Because the TMDL does not account for variations in river temperature in
         assigning waste load allocations and pulp and paper mills draw water from the river, they
         contend that it violates DEQ’s rules for facilities to be required to control temperature
         increases not tied to their own operations.
         The litigating sources also argued that the waste load allocations should account for “natural
         thermal potential”—estimates of river temperature if there were no human impacts—instead
         of biologically based criteria. Another important issue was that the model DEQ used did not
         address influences on river temperatures, such as U.S. Army Corps of Engineers’ dams, and
         may have too large a margin of error. The model is reported to be accurate to plus or minus
         0.5 degree Celsius, but DEQ is proposing waste load allocations with resolution in the
         hundredths of a degree Celsius range.
         In addition, the litigants believe that, because the TMDL is based on only two years of
         meteorological and hydraulic data, it cannot accurately account for conditions outside of
         these two years. Finally, the litigants complained that waste load allocations should have
         been based on average daily effluent temperatures rather than maximum daily temperatures.
         In a separate case, in 2007 several environmental groups also sued the Oregon Department
         of Environmental Quality, maintaining that the compliance schedules (which are frequently
         used in National Pollutant Discharge Elimination System [NPDES] permits and
         implementing TMDLs) are not allowed under the Clean Water Act.
         These ongoing lawsuits have prevented the Oregon Department of Environmental Quality
         from issuing the new NPDES permits that would, in effect, implement TMDL limitations in
         NPDES permits. Because the need for temperature credits in the Willamette is driven by the
         waste load allocation limits in NPDES permits, immediate demand for credits does not exist.
         The market appraisal had been substantially completed before these events occurred.
         Despite the postponed current demand for temperature credits, implementation of a
         temperature market for the Willamette has merely been slowed, rather than stopped.
         Although it will be difficult to complete a full trade in the marketplace until the challenges to
         the TMDL have been resolved, it still is possible to conduct a transaction, in which credits
         are created and banked but not applied as an offset. Thus, for the time being, the
         temperature market in the Willamette may operate more as a banking program than a trading
         program.
Step 5: Demand for Wetland Credits: Worked with the Department of State Lands to
quantify (1) the number of wetland mitigation credits scheduled to be available from existing
wetland banks or banks in the process of being established; (2) the number of credits needed to
mitigate the impacts associated with some of the largest expected sources of development; and (3)
representative prices for wetland mitigation credits.
         Key information about the demand for wetland mitigation credits came via the Industrial
         Site Certification Program, which is led by the Oregon Economic and Community


SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                               3-9
MARKET APPRAISAL (TASK 1)




          Development Department. Wetland assessments are part of the process of certifying sites as
          ready for industrial development. Data from the certification program, adjusted to account
          for measures to avoid or minimize impacts to wetlands at development sites, were combined
          with estimates by the Oregon Department of Transportation and the West Cascades Council
          of Governments to establish projected demand for wetland mitigation credits in the
          Willamette Basin in the next several years. Average per-acre costs were calculated using
          information from the Department of State Lands. The supply of wetland credits was readily
          determined by checking with existing wetland mitigation banks or banks in the process of
          being established.
          Findings of Step 6: There appears to be a shortfall in wetland mitigation credits of about
          600 acre–credits. In 2007, at an average value of $60,000 per acre, this equated to an unmet
          demand value of $36 million. In most instances, demand is for small increments of less than
          1 acre. (See Understanding Supply and Demand for Environmental Offset Credits in the Willamette
          Basin.)

          ⇒ Policy issue: Third-party purchase of wetland credits: When the market appraisal was
            written, transactions of wetland mitigation credits were required to occur within the context of a wetland
            removal/fill permit, meaning that credits could not be sold to third-party buyers who were themselves not
            in need of credits. Since then, the Department of State Lands has received legislative authority to allow
            third parties to buy and hold wetland credits for later sale, with the approval of the director of the
            Department of State Lands. Allowing third-party purchases is expected to help stabilize the quantity
            and price of wetland mitigation credits in the Willamette Basin.

                The Oregon Economic and Community Development Department is the first to use this new authority,
                as part of a pilot program. The Department currently is midway through the process of purchasing
                between $500,000 and $2 million worth of wetland mitigation credits as a third party, for eventual sale
                to developers of 16 certified industrial sites in the Upper Willamette Basin where development will cause
                wetland impacts. The purchased credits must meet certain ecological criteria, as well as be price
                competitive. Goals of the program include guaranteeing the supply of wetland mitigation credits, bringing
                down the price of wetland mitigation credits, improving ecological integrity, and making the permitting
                process for wetland removal and fill more predictable.

Step 6: Temperature Supply Using Shadelator. Compiled data that calculated and
mapped, at 100-foot increments along much of the Willamette River and its major tributaries, the
estimated temperature reductions that would occur if riparian vegetation were restored.
          The calculations and maps in Step 6 were created in support of the TMDL. They were
          derived using Shadelator, a component of the Oregon Department of Environmental
          Quality’s HeatSource river temperature model. Shadelator, which the department developed
          in support of Clean Water Service’s Tualatin River temperature trading system, uses site
          characterization data and information on current vegetation to estimate site-specific
          temperature reductions that would result from various degrees of restoration of riparian
          shade at a particular site.
          For the market appraisal, the Oregon Department of Environmental Quality compiled
          Shadelator results for the bulk of the Willamette River and its tributaries, using
          comprehensive vegetation data and other site data (elevation, gradient, sun angle,



3-10                                                                            SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
                                                                                  MARKET APPRAISAL (TASK 1)




         surrounding topography, etc.) derived through the TMDL development process. The model
         was run assuming that riparian vegetation would be restored to the site’s potential
         conditions.

The model runs yielded calculations of the solar energy, in Langleys per day (1 Langley is equivalent
to 929.03 kcals per day) that would be blocked at each 100-foot segment of river if riparian
vegetation were restored within that segment. Results were color-coded and mapped on aerial
photos of river reaches to represent the reductions in water temperature that would result from
restoration of riparian shade. Red areas on the map represent areas with the greatest potential to
reduce heat from solar loads.

         Figure 3-2 Sample Shade Model Output: Calapooia River




SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                           3-11
MARKET APPRAISAL (TASK 1)




          Findings of Step 6: The analysis in Step 6 indicates that the potential supply of temperature
          credits in the Willamette Basin from riparian shade restoration alone far exceeds the
          estimated current and 10-year projected demand of around 3 billion kcal/day created by the
          TMDL. The potential supply from other restoration actions was not quantified because the
          complex, site-specific nature of flow and wetland restoration actions do not lend themselves
          to generalized analysis that would produce meaningful results.

Time Frame, Participants, and Resources
The market appraisal was essentially completed by October 2006, but the supply of temperature
credits from riparian shade restoration was not quantified until shortly before the end of the grant
period. Ongoing work (past the end of the grant period) will refine the synthesis map of priority
conservation areas and develop it into an interactive tool that reflects changing conditions in the
Willamette Basin.
The Department of State Lands, the Oregon Department of Environmental Quality, Clean Water
Services, and the Willamette Partnership’s consultants did most of the work to characterize potential
markets and quantify supply and demand for wetland mitigation and water temperature reduction
credits. Contributors to the mapping effort included The Nature Conservancy, the Wetlands
Conservancy, Oregon Resources Natural Heritage Information Center, Oregon Department of Fish
and Wildlife, University of Oregon, and Oregon State University.
Maps and data layers came primarily from the Willamette River Basin Planning Atlas (Pacific Northwest
Ecosystem Research Consortium 2002), The Wetland Conservancy’s Oregon’s Greatest Wetlands
map, The Nature Conservancy’s ecoregional priorities, Oregon Department of Fish and Wildlife’s
Conservation Strategy (ODFW 2006), Oregon Resources Natural Heritage Information Center’s
species lists (ORNHIC 2004), the National Oceanic and Atmospheric Administration’s National
Marine Fisheries Service critical habitat areas (NOAA 2005), and U.S. Fish and Wildlife Service
priorities. The Oregon Economic and Community Development Department, Oregon Department
of Transportation, and West Cascades Council of Governments contributed information on current
and near-term demand for wetland mitigation credits.
The final TMDL provided essential information on point sources’ thermal loads and allocations and
associated site data that were used in the Shadelator model, which itself was a key tool in completion
of Task 1. Municipalities’ petitions to DEQ for additional thermal load allocations also provided
useful data on future demand for temperature credits.

What the Market Appraisal Revealed
Thanks to earlier work by conservation organizations, Oregon’s public universities, and state and
federal natural resource management agencies, there already is considerable information about which
areas of the Willamette Basin are most important to restore to improve conditions for cold-water-
dependent fish and other native plants and animals. Priority areas for restoration have been
established, and many ecological restoration activities have been identified. These priority areas are
likely to supply water temperature reduction credits and other types of credits to the Willamette
marketplace.




3-12                                                                SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
                                                                                     MARKET APPRAISAL (TASK 1)




Demand for ecosystem service credits is strong when environmental regulations are enforced and
when a permittee’s ability to comply with regulations using traditional approaches is limited or
would require large expenditures. In these situations, an opportunity to meet regulatory
requirements using markets creates demand for environmental offset credits, as long as it is easier
and more efficient to participate in the market than it is to comply with regulations using traditional
options. Thus regulatory agencies play a key role in creating demand for credits, both through the
regulatory standards they establish and through particular policies that ease or complicate
participation in the market.
In the Willamette Basin, regulatory requirements create significant demand for wetland mitigation
and water temperature reduction credits; however, demand for temperature credits is concentrated
in a limited geographic region (the upper Willamette Basin) and involves only a few parties, the
largest of which are the cities of Albany and Corvallis and the Eugene-Springfield metropolitan area.
(The current thermal loads of most other point sources in the middle and lower Willamette are
below what they were allocated under the TMDL, so they have little or no need for credits.)
Given the limited number of parties in the Willamette Basin needing temperature credits, a fully
operational financial exchange platform is not needed at this time; however, some new and unique
infrastructure will be required, such as a credit registry. The registry is used to register, track, and
account for credits to ensure their validity and quality. This registry function is essential because
ecosystem services credits retain their value only if the restoration project that generated them
continues to perform its specified ecological function. Thus, the Willamette marketplace will need
infrastructure to track ongoing management, monitoring, and reporting regarding restoration
projects that generate credits sold in the market. (See Chapter 6 for information on the credit
registry and other marketplace infrastructure.)
The market appraisal indicates that the total potential supply of temperature credits from shade in
the Willamette Valley in priority areas alone is 5 billion kcal/day (not taking into consideration how
many landowners would actually conduct restoration projects on their property). This supply is more
than adequate to meet the total expected demand of 3 billion kcal/day in the Willamette Basin
created by the temperature TMDL, and riparian shade is only one of many types compliance
strategies that could be employed.

Lessons Learned
Focus the market appraisal on the information that is most relevant to your
situation and objectives. It is important to understand the general contour of supply and
demand, including the general amount, time frame, sources, and geographic range of the demand.
But key questions can be answered without comprehensive data about every aspect of the market.
For example, the Willamette marketplace appraisal focused on current demand for wetland
mitigation and temperature credits. Although it would have been advantageous to know more about
future demand for temperature credits, having that information would not have changed the
fundamental structure of the marketplace that is being created for the Willamette.
Monitor the market. Understanding market supply and demand is an ongoing process because
the market is always changing. If there is not already a structure for monitoring the market and
making market information available to others, resources may need to be allocated to do so.
Monitoring the market is easier if the number of trades is small.



SECTION 3 - TASK 1-MARKET APPRAISAL.DOC                                                              3-13
MARKET APPRAISAL (TASK 1)




When writing TMDLs, make sure that they are perceived as fair and that technical
issues are addressed. Perceived equity in the distribution of the waste load allocation heads off
legal challenges and spreads the responsibility for reducing temperature more widely. Additionally,
any technical weaknesses in the TMDL could be grounds for challenges that will slow
implementation and undercut demand for credits.




3-14                                                             SECTION 3 - TASK 1-MARKET APPRAISAL.DOC
Section 4 Credit Definition
SECTION 4

Credit Definition and Currency
Development (Task 2)

In order to buy and sell ecosystem services, the ecological outputs of specific land management
activities need to be quantified in units of measure that mean something to the people willing to buy
them. In the same way that various agricultural and forest products are described and sold in units
relevant to their markets, ecosystem services credits must be described in units of measure relevant
to water and air quality, endangered species populations, and habitat types. In other words, the
technical basis must be established for calculating the environmental benefits of various types of
restoration actions that will generate credits in the marketplace. This is the process of defining
credits.


   Major Accomplishments

   •    Temperature credit definitions. Identified technically sound methods for calculating the temperature
        reductions that would result from riparian shade restoration, wetland restoration, flow augmentation, and
        wastewater reclamation or reuse. These methods are based on existing agency flow and temperature
        models, precedents set by Clean Water Services in the Tualatin River Basin, and wetland demonstration
        sites in the mid-Willamette Valley.

   •    Thermal credit calculator. Developed a downloadable, Excel-based thermal credit evaluation tool that
        allows users to quantify the temperature credits that could be created through riparian shade restoration,
        wetland restoration, flow augmentation, and wastewater reclamation and reuse. The credit calculator
        allows individual landowners to do a rough estimate of the amount of temperature credits that would be
        generated through restoration on their property. The tool also provides detailed guidance on how to do a
        more accurate calculation of actual credits that would be generated, although this more detailed analysis
        requires additional, fairly sophisticated computer models and some modeling expertise.

   •    Riparian planting protocols. With a diverse group of practitioners, defined minimum revegetation
        requirements for shade restoration projects designed to generate temperature credits. Having riparian
        planting protocols and other performance and implementation measures ensures that restoration projects
        accomplish a range of ecological benefits while also achieving temperature goals.

   •    Floodplain restoration research. Convened and facilitated discussions by technical experts on how to
        calculate the temperature reductions that would result from floodplain restoration; funded preliminary
        research on the “stepping stone” concept (the concept of providing appropriately spaced refugia of high-
        quality habitat for cold-water fish) and developed a strategy for research needed to develop
        methodologies for calculating temperature reductions from floodplain restoration. Scientists at the
        University of Oregon and Oregon State University are continuing this research.




The suite of potential temperature reduction activities to be included in the Willamette marketplace
was limited to restoration activities—actions that improve the ecosystem and provide a variety of
ecosystem benefits, including temperature improvements. This decision reflects the Willamette
Partnership’s primary goal of restoring the ecosystem of the Willamette Basin, not just reducing the


SECTION 4 - TASK 2-CREDIT DEFINITION.DOC                                                                       4-1
CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




cost of compliance for NPDES permittees (although that is expected too). As described in this
section, work was done to define temperature credits from five types of activities:
      •   Riparian shade restoration: Planting trees within riparian areas to provide stream
          shading, which reduces water temperature.
      •   Wetland restoration: Developing constructed wetlands to cool effluent prior to
          discharge, restoring natural wetlands, and restoring floodplain wetlands.
      •   Floodplain restoration: Restoring a river’s access to side channels and other floodplain
          features.
      •   Flow augmentation: Increasing the flow of water instream to increase the velocity of the
          stream and thus reduce the amount of time water is exposed to solar warming; flow
          augmentation occurs by diverting water from other uses (for example, releasing water from
          upstream reservoirs and transferring and/or leasing surface water rights).
      •   Wastewater reclamation/reuse: Reducing the volume of clean, warm water that is
          discharged to the river.
In the first stages of the Willamette marketplace           Eyes on the Prize: Broad Ecological Goals
project, it was expected that temperature credits from
these activities would first need to be defined; however,   One of the things that distinguishes the
because the Willamette marketplace is ultimately            approach the Willamette Partnership is taking
                                                            to marketplace development from other
intended to be a multi-credit marketplace, the              programs around the country is the
Willamette Partnership also explored ways to define         organization’s emphasis on using markets to
other types of ecosystem services credits. For both, the    achieve broad ecological goals. The
goal was to develop practical and technically sound         Willamette Partnership approached markets
methods of estimating, measuring, reporting, and            with a clear understanding of what the
                                                            ecosystem needed and then attempted to
verifying the ecological benefits of various types of       translate those actions into units that could be
restoration. Getting agreement on these credit              applied to various regulatory drivers.
definitions and making credits easy to calculate are
essential in establishing an ecosystem marketplace.         The Willamette Partnership is interested in
                                                            building ecosystem service markets to improve
For the Willamette marketplace, the credit definition       ecosystem health and function, rather than
                                                            simply to reduce the cost of regulatory
process involved evaluating different ways of defining      compliance (although this is expected to
temperature reduction credits that would result from        happen, too).
restoration activities and wastewater reuse and then
developing an analytical tool that helps projects
sponsors calculates the number of market-ready credits that would be created as a result of those
activities. Environmental performance and implementation measures were identified, for use in
tracking the short-term biological performance of restoration projects and forecasting long-term
gains. Also as part of this task, other, non-temperature credits that could be created through
restoration projects were considered. In the credit definition and currency development process, the
Willamette Partnership, its consultants, its partners, and various stakeholders performed the steps
described below.




4-2                                                               SECTION 4 - TASK 2-CREDIT DEFINITION.DOC
                                                        CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




Credit Definition and Currency Development Process
Step 1: USGS Heat Trading Tool. Developed a point-source trading tool that quantifies the
likely effects on river temperature of any heat trade between two point sources along the length of
the Willamette River.
         This tool was developed by the U.S. Geological Survey (USGS) with support from the
         Willamette Partnership and the Oregon Association of Clean Water Agencies. Flow and
         temperature models that formed the basis of the Willamette temperature TMDL were used
         to determine a spatially indexed “heating signature” for each of the modeled point sources.
         Those signatures were then combined into a user-friendly, spreadsheet-based screening tool
         that allows a user to increase or decrease the heating signature of each source and thereby
         evaluate the effects of a wide range of potential point-source heat trades. The accuracy of the
         trading tool was tested by running the Willamette flow and temperature models under
         several different hypothetical trading scenarios. Potential users of the trading tool include
         regulatory agencies and various point sources in the Willamette Basin.
         Result of Step 1: The USGS heat trading tool quantifies and graphs the likely effects of
         temperature credit trades between point sources. The tool simulates the temperature effects
         of trades assuming that the point source generating the temperature credit is doing so by
         reclaiming or reusing some or all of its wastewater, and thus reducing its discharge. The tool
         allows potential trading partners to visualize the expected temperature effects of any
         particular trade along the entire length of the river, and to predict how a trade would change
         the water temperature at the point of maximum impact for the entire river or for just a
         certain portion. Metrics calculated by the tool include the number of river miles cooled, the
         cumulative temperature effect at intervals along the river, the integrated cooling effect at
         different river reaches, and the difference from the allocated condition at specific point
         sources. The tool generates plots for the McKenzie and Willamette rivers, including the
         Coast Fork Willamette.
         As described in Chapter 5, the U.S. Geological Society is poised to refine the heat trading
         tool to include components that will calculate the temperature effects of trades involving
         riparian shade reduction. This will extend the tool’s usefulness in evaluating opportunities
         for point sources to manage a portfolio of temperature compliance options.
         The latest version of the trading tool can be downloaded from
         http://or.water.usgs.gov/proj/will_temp/download/tools/trading_tool_v1p4.xls.
Step 2: Survey of Credit Definition Methodologies. Surveyed candidate methodologies for
defining temperature reduction credits that would result from wastewater reclamation or reuse and
four ecological restoration actions in the Willamette Basin: flow augmentation, riparian shade
restoration, floodplain restoration, and wetlands restoration.
         The survey focused on tools and protocols used by Clean Water Services as part of its
         temperature trading program for the Tualatin River that had already been applied and
         accepted by the Oregon Department of Environmental Quality, methodologies suggested by
         stakeholders, and approaches described in the literature. Clean Water Services’ program is
         the only formal temperature trading program in the country.




SECTION 4 - TASK 2-CREDIT DEFINITION.DOC                                                                4-3
CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         ⇒ Key decision: Consistent with the TMDL, kilocalories per day (kcal/day) will be the temperature
           currency for trading purposes in the Willamette marketplace.

Step 3: Assessment of Credit Definition Methodologies. Assessed whether the existing
analytical tools for credit definition are scientifically and mathematically sufficient for use in
calculating temperature reduction credits in the Willamette Basin and, if so, how a crediting protocol
could be formalized for the associated temperature reduction activity.

         Findings of Steps 2 and 3: As a
         result of work completed in support of         Multi-Party Collaboration to Meet Thermal
         Clean Water Services program for               Load Limits
         shade and flow, extensive efforts on
         the use of wetlands lead by the City of        The cities of Albany and Millersburg plan to cooperate
                                                        with Teledyne Wah Chang and Weyerhaeuser
         Albany, and reclamation and reuse              Company to improve the water quality of the
         considered under USGS tools,                   Willamette River by creating an integrated wetland
         analytical tools are in place for defining     treatment system. Using natural treatment processes,
         temperature credits in the Willamette.         the proposed project will create and restore wetlands
                                                        along the river and enhance wildlife habitat while
         The USGS heat trading tool described           reducing the temperature of wastewater treatment
                                                        effluent discharged to the river.
         in Step 1 provides a means of
         calculating temperature reductions             As part of the planning for this thermal load trading
         from wastewater reclamation and                project, it was determined that HeatSource could be
         reuse. In its program in the Tualatin          used to model temperature reductions from
                                                        evaporative and radiant cooling in constructed
         Basin, Clean Water Services set                wetlands, and the actual temperature-reducing
         precedents for defining temperature            effects of wetland construction or restoration can be
         credits from flow augmentation and             measured in the field. CH2M HILL and Watershed
         riparian shade restoration, using the          Sciences worked together to modify and calibrate the
                                                        HeatSource model using monitoring data from
         HeatSource model to calculate credits          another CH2M HILL constructed wetland project in
         from flow augmentation and                     the Willamette Valley. CH2M HILL then used the
         HeatSource’s Shadelator to calculate           modified HeatSource model to predict effluent
         credits from riparian shade restoration.       temperatures from the constructed wetland
         These analytical tools have received           complexes. The excess thermal loads predicted from
                                                        wetland effluent flows and temperatures were
         agency approval and support, and the           evaluated against the waste load allocations for
         analysis in Steps 2 and 3 indicates that       thermal load to determine whether the wetlands
         they can reasonably be applied to the          could be used to meet the new permit requirements.
         Willamette River as long as certain            The results of this project were vetted at wetlands
                                                        constructed by the City of Albany (Smesrud et al.
         temporal and spatial constraints               2007) and at a pilot project at the Willow Lake
         specific to the Willamette are taken           Pollution Control Facility (Salem-Keizer).
         into consideration.
                                                        This significant investment by the City of Albany
         Developing a methodology for                 created sound methods for quantifying temperature
         quantifying temperature reductions           credits from wetland systems. (For a more detailed
                                                      description of this work see the March 2008 issue of
         generated from floodplain restoration        Oregon Insider).
         that is scientifically and stakeholder
         approved continues to be difficult.
         Although a large amount of intellectual capital has been spent trying to understand the
         physical and ecological complexities of the relationships among floodplains, water
         temperature, fish viability and habitat conditions, more time and effort are needed.


4-4                                                                      SECTION 4 - TASK 2-CREDIT DEFINITION.DOC
                                                              CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         Ongoing research at Oregon State University and the University of Oregon is exploring the
         concept of conducting floodplain restoration in a way that would provide “stepping stones”
         of cold-water refugia for salmonid species along the mainstem Willamette. This research
         could yield valid methods for calculating temperature credits created through floodplain
         reconnection and recharge of hyporheic zones.
         In addition, the Oregon Department of
         Environmental Quality has been investigating a           Limits of Precision
         model developed by Cramer Fish Scientists that
         estimates the impact of water temperature on             The TMDL for temperature regulates NPDES
         salmon productivity. This data-intensive model           permittees on a very specific numeric
         incorporates information on current and                  standard. Even though the scientific
                                                                  evidence overwhelmingly demonstrates that
         potential habitat conditions and how they affect         floodplain restoration has substantial
         fish density. Potential habitat conditions are           temperature and habitat benefits for the
         determined by the model user and can represent           cold-water-dependent species the TMDL is
         habitat conditions based on historical data or           intended to protect, floodplain environments
                                                                  are complex and dynamic and they do not
         predicted habitat conditions created through             lend themselves to measurement of precise
         restoration. Potential fish densities can be             cause-and-effect relationships in
         determined by entering potential habitat                 kilocalories/day. As a result, it will take more
         characteristics using the Ecosystem Diagnosis            technical work and policy deliberations to
                                                                  include floodplain restoration actions as
         and Treatment model developed by Mobrand.                offsets to thermal load in the Willamette
         Theoretically, linking these two models could be         temperature market.
         used to associate habitat changes with
         improvements in both water temperature and fish density; this could be grounds for
         calculating the temperature impact—and therefore credits—of floodplain restoration.
         Although the model has been used to characterize thermal impacts in the Clackamas River, it
         is still at an early stage of development and its applicability to larger systems needs to be
         explored.
         The Oregon State University/University of Oregon research and the model by Cramer Fish
         Scientists represent promising approaches to defining temperature credits from floodplain
         restoration, but additional work is needed to develop and validate a modeling and analytical
         framework that all parties can agree on. Although the Oregon Department of
         Environmental Quality supports development of a mechanism to calculate credits from
         floodplain restoration, currently the agency lacks the ability to allocate staff time for
         necessary modeling and internal investigation.
         The findings of Steps 2 and 3 are captured in Methods for Defining Temperature Offset Credits.

         ⇒ Key decision: At this stage, the Willamette marketplace will not include temperature reduction
           credits generated from floodplain restoration because consensus has not been reached on a methodology for
           defining credits; however, Oregon State University and the University of Oregon have obtained significant
           grant funding to explore this topic, and it is reasonable to expect that sound methodologies will be
           developed for defining temperature credits from floodplain restoration in the near future.

Step 4: Gaps in Methodologies. Where existing tools are not sufficient to define temperature
credits for a temperature reduction activity, developed guidance to focus resources on the research
needed to support credit definition.



SECTION 4 - TASK 2-CREDIT DEFINITIONV2.DOC                                                                    4-5
CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         As part of the activities of the Willamette River Watershed Targeted Watershed Grant
         Program, David W. Hulse (University of Oregon) and Stanley V. Gregory (Oregon State
         University) identified locations where floodplain restoration could provide needed cold-
         water refugia in the Willamette River. They also assembled a group of experts to identify the
         highest priority scientific questions that need to be answered to move forward with
         floodplain restoration as means of generating temperature credits for the marketplace. Hulse
         and Gregory’s results are presented in a research prospectus in Linking Cold-Water Refuges into
         a Biologically Effective Network in the Southern Willamette River Floodplain: Outlining Key Locations and
         Knowledge Gaps (Hulse and Gregory et al. 2007).
         Other potential issues identified during the evaluation of credit definition methodologies
         include ensuring that credits are generated during the same time period in which they are
         traded (i.e., during spawning, rearing, or migration); accounting for the fact that credits may
         not be needed during high flows; avoiding localized impacts of permitted upstream
         discharges that may occur, even if the effects of the discharge are offset at the point of
         maximum impact via purchase of credits; calculating temperature impacts in the mainstem if
         restoration occurs in tributaries; assessing the length of river being benefited by a trade (the
         USGS point-source trading tool does this); accounting for shifts in the point of maximum
         impact as a result of trades; and determining the feasibility, desirability, and technical aspects
         of flow augmentation from existing reservoirs. These issues are described in more detail in
         Methods for Defining Temperature Offset Credits.
Step 5: Thermal Credit Calculator. Developed a thermal credit evaluation tool that allows
users to quantify the thermal credits, in million kilocalories per day that would result from four types
of restoration activities in the Willamette Basin: riparian shade restoration, wetland restoration, flow
augmentation, and wastewater reclamation and reuse.
         Analytical tools and approaches that had been previously approved by the Oregon
         Department of Environmental Quality were the building blocks for the thermal credit
         evaluation tool. For example, methodologies for calculating thermal reductions resulting
         from flow augmentation and riparian shade restoration are based on approaches that Clean
         Water Services uses in its Tualatin River trading program. The Oregon Department of
         Environmental Quality’s approval of the technique for calculating credits from wetland
         restoration is embodied in an internal management directive.
         Result of Step 5: The result of Step 5 is the downloadable, Excel-based Willamette River
         Thermal Credit Calculator, which can calculate the credits that would be generated from
         specific riparian shading, wetland restoration, and flow augmentation projects in the
         Willamette Basin or as a result of wastewater reclamation and reuse by an individual point
         source. Credits can be calculated at a screening or detailed level. The screening-level analysis
         allows a user to provide some relatively simple inputs to determine whether a particular
         activity—and the expected scale of the activity—would generate credits in the range that
         would motivate the user to participate in the market. The detailed analysis requires more
         comprehensive external analyses (generally fairly sophisticated computer modeling using
         models accepted by the Oregon Department of Environmental quality) to develop the
         inputs to the tool, which then calculates credits. The detailed analysis is robust enough that
         the credits it calculates can be brought to the marketplace for approval and verification.




4-6                                                                       SECTION 4 - TASK 2-CREDIT DEFINITION.DOC
                                                                  CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         For a specific action, the credit calculator calculates the resulting kcal/day reduction
         averaged for an entire season. This was the precedent set by Clean Water Service’s Tualatin
         water quality trading program. In the Willamette, calculating credits as a seasonal average is
         helpful in accommodating different levels of demand throughout the year. (For some
         NPDES permittees, thermal load allocations in the TMDL vary from season to season,
         depending on salmonid life stages and habitat use; thus, their need for credits varies during
         the year.)
         The thermal credit calculator was developed for the Willamette Partnership to help guide
         participants in the marketplace through the process of defining temperature credits from
         various activities. This tool is not an Oregon Department of Environmental Quality product,
         and results from this tool do not, by themselves, constitute market-ready credits.
         The Willamette River Thermal Credit Calculator is available online at
         http://www.willamettepartnership.org/tools-templates.

         ⇒ Key decision: Credit adjustment ratios frequently are applied in ecosystem services markets to account
           for the time that some restoration projects take to achieve their full benefit, the risk of project failure, and
           various unknowns. For example, the Department of Environmental Quality’s Internal Management
           Directive requires that riparian shade credits have a 2:1 ratio, meaning that two kilocalories would need
           to be secured for every one kilocalorie of credit actually needed. Credit adjustment ratios are not included
           in the Willamette River Thermal Credit Calculator because the number of kilocalories per day that
           would be offset varies from project to project. A buyer of credits would need to purchase the appropriate
           number of kilocalorie offsets, not just a specific number of stream miles.

Step 6: Site Assessment. Identified other types of ecological benefits and potential credit
(besides temperature) that would be created from candidate restoration project sites in the Tualatin
Basin and in the vicinity of Albany—i.e., other pollutant reductions, habitat, wetlands, or carbon
sequestration.
         Parametrix completed two separate analyses as part of this project. The first was in the
         Tualatin Basin, where Parametrix applied a functions-based ecological uplift approach to
         restoration sites in the Tualatin Basin. The purpose of the work was to determine whether
         additional ecological and potentially credit values could be quantified from projects designed
         to generate temperature credits.
         Parametrix also used a functions-based approach to do a rapid assessment of six potential
         restoration sites near Albany, on the Calapooia and Santiam rivers. The sites had been
         identified by The Nature Conservancy for their conservation value. (See Step 4 of Chapter 5
         for a more detailed description of this process.)
         Findings of Step 6: The sites evaluated have resources that could generate conservation-
         based revenue through the creation and sale of credits for a variety of markets, including
         temperature reduction, wetland restoration, floodplain restoration, Oregon chub
         conservation, restoration of ESA-listed plant species, and restoration of rare habitats
         (specifically, Oregon white oak woodlands).
         In applying a functions-based approach, it was clear that the Tualatin restoration projects
         contributed to enhanced wetland functions and salmonid habitat—benefits that stretch well
         beyond shade. These benefits were quantified in terms that could be communicated to


SECTION 4 - TASK 2-CREDIT DEFINITION.DOC                                                                           4-7
CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         regulatory agencies and other stakeholders for (1) the purposes of demonstrating the
         benefits of trading; (2) tracking the overall performance of projects; and (3) informing future
         decisions about how to design restoration to maximize overall ecosystem enhancements.
Step 7: Habitat Assessment Methodology. Reviewed a methodology to quantify the
ecosystem services that a given site provides—under existing and restored conditions—and to
express that as a single value.
         For this project, the Willamette Partnership sought an existing methodology for defining and
         calculating “ecological uplift” credits—a common currency that multiple types of ecosystem
         services credits (temperature reduction, wetlands habitat, carbon sequestration, etc.) could be
         translated into for use in comparing or exchanging credits.
         Findings of Step 7: Although several methodologies are currently being developed, the
         only established methodology available at the time this task was being performed is the
         Habitat Assessment Methodology (HAM), which was developed by Parametrix for the
         Oregon Department of Transportation for use in mitigation and conservation banking
         conducted as part of the agency’s state bridge delivery program. HAM quantifies a site’s
         existing natural resource value based on habitat type, structural conditions, and habitat
         elements, and it predicts the change in habitat value that would result from proposed habitat
         modifications. The foundation for HAM is the species and habitat associations documented
         in Wildlife-Habitat Relationships in Oregon and Washington (Johnson and O’Neil 2001). The
         methodology involves collecting field data, categorizing and mapping habitat types, querying
         the Interactive Biodiversity Information System (IBIS) database to determine the number
         and species that specific habitats support, and weighting results based on agency priorities
         and goals (such as watershed or species recovery goals). HAM calculates a single “habitat
         value” metric for a site that represents a comprehensive measure of the site’s ecosystem
         functions, but the methodology also tracks subsets of habitat value specific to regulated
         resources, such as wetlands, salmonids, and Oregon chub. HAM was developed in
         coordination with the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service,
         National Marine Fisheries Service, U.S. Environmental Protection Agency, Federal Highway
         Administration, Oregon Department of Fish and Wildlife, Oregon Department of
         Environmental Quality, and Oregon Department of State Lands.




4-8                                                                 SECTION 4 - TASK 2-CREDIT DEFINITION.DOC
                                                                CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         ⇒ Key decision: The HAM methodology is not yet ready for inclusion in a marketplace. Significant
           questions remain about using the method in heavily regulated wetland and species mitigation markets.
           The Willamette Partnership conducted significant stakeholder outreach to explore perceptions of the
           method and identify needed refinements and a process to get regulatory approval for its use.

              The research conducted to evaluate a common currency as part of this EPA grant enabled the Willamette
              Partnership to submit a proposal and secure grant funding from the Natural Resources Conservation
              Service to develop an accounting system—based on ecosystem functions—to turn known ecosystem
              impacts and benefits into credits that can be traded. Developing an index of ecological improvement that
              might be applicable in a multi-credit marketplace is a key component of this grant. The grant will fund
              (1) development of a trusted and transparent system to measure and account for multiple types of
              ecosystem service credits for use within the Willamette Ecosystem Marketplace, (2) a pilot project to
              compare results from a multi-credit accounting system with results from current approaches, (3)
              collaboration with regulatory agencies to refine and authorize use of a multi-credit accounting system in
              the Willamette Ecosystem Marketplace, and (4) development of the tools that farmers, foresters, and
              other land managers will need to evaluate and participate in emerging ecosystem service markets,
              prioritize restoration actions when making land management decisions, and access payments for actions
              that enhance water quality, habitat, species, and potentially carbon sequestration.
Step 8: Riparian Planting Protocols. Developed minimum revegetation requirements for
shade restoration projects that are designed to generate temperature credits; developed
recommended planting and maintenance procedures to guide riparian revegetation projects.
         Ecologically, not all shade is created equal. A hybrid poplar plantation and a diverse stand of
         native trees and shrubs might provide the same amount of shading and temperature
         reduction in the river, but their ecological outcomes are quite different. Because the primary
         goal of the Willamette marketplace is to restore the ecosystem of the Willamette Basin,
         protocols had to be established for riparian shade restoration to ensure that focus on a single
         parameter—temperature—would not result in one-dimensional projects that create shade
         but provide few other ecological benefits or—worse yet—cause other problems.
         The Willamette Partnership consulted with multiple restoration practitioners and Clean
         Water Services, which has years of experience with riparian shading projects, to determine
         the type of riparian plantings that would result in temperature benefits to the stream but also
         provide the other ecological benefits of a functioning riparian area. Clean Water Services also
         was able to offer specific, voluntary guidance on planting and maintenance procedures that
         contribute to long-term success of riparian shade restoration projects. The minimum
         requirements and voluntary guidance were developed specifically for use in the Willamette
         Basin.
         Results of Step 8: The riparian planting protocols have requirements related to the
         geographical source of plant materials and seeds, the amount of vegetation and type of plant
         community to be established, species diversity, the percentages of native species and shrubs
         versus trees, the flow requirements of the shaded stream, and the timeline for achieving the
         requirements. The voluntary guidance describes various recommendations related to site
         hydrology, soil cultivation, and weed control; planting materials and procedures; protection
         of plants from animal pests; and site maintenance. Together, the protocols and guidance are


SECTION 4 - TASK 2-CREDIT DEFINITION.DOC                                                                        4-9
CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




         valuable tools in ensuring the environmental performance measures of credit-generating
         shade restoration projects.
         Riparian planting protocols are available at http://www.willamettepartnership.org/tools-
         templates/draft_riparian_planting_protocols.pdf.

Time Frame, Participants, and Resources
The credit definition and currency development process lasted throughout the grant period, with the
refinements to the USGS point-source trading tool and the environmental performance and
implementation measures being completed last.
The credit calculator was developed by the consulting team, which also evaluated the potential
methodologies for defining credits. USGS created the point-source trading tool with the help of the
Oregon Department of Environmental Quality and the U.S. Army Corps of Engineers. Consultants
David Hulse and Stanley Gregory identified key data gaps regarding the use of floodplain restoration
to generate temperature credits, and the Oregon Department of Transportation provided
information on ecological uplift credits that, in theory, could serve as a common currency in a multi-
credit market. Parametrix contributed an assessment of candidate restoration sites for their potential
to create multiple ecosystem services credits. Information on appropriate riparian planting protocols
was developed by the Practitioners Working Group and Clean Water Services.
Key resources used to define temperature credits and explore other possible currencies in the
Willamette Basin included the HeatSource river temperature model and its Shadelator component,
the temperature and flow models used in the TMDL, Clean Water Services’ protocols for calculating
the temperature benefits of riparian shade and flow augmentation, and data from Albany’s potential
integrated wetlands restoration and enhancement project.

What Credit Definition and Currency Development
Revealed
The credit definition and currency development process highlighted the need for current, reliable
tools for defining temperature and other credits for the Willamette Ecosystem Marketplace,
particularly credits generated from floodplain restoration. Floodplain restoration provides myriad
ecological benefits, and incorporating a widely accepted, scientifically sound method of defining
credits from floodplain restoration into the protocols for the Willamette marketplace could
contribute meaningfully to ecological restoration in the basin. Again, the primary purpose of the
Willamette marketplace is to facilitate restoration of the ecosystem. Even though it will take
considerable effort to develop the scientific and technical tools needed to define credits from
floodplain restoration, this effort is worthwhile because it is these credits that will motivate the
investments needed to significantly improve ecosystem function. Time, money, and policy decisions
now that will advance the science of calculating temperature credits from floodplain restoration
could pay off in actual on-the-ground projects that start providing ecological benefits within a
decade.
The analytical tools developed during this task—the USGS point-source heat trading tool and the
thermal credit calculator—are designed to be user friendly and are, in fact, easier to use than their
component models. However, the credit calculator’s detailed analysis requires GIS software,


4-10                                                               SECTION 4 - TASK 2-CREDIT DEFINITION.DOC
                                                        CREDIT DEFINITION AND CURRENCY DEVELOPMENT (TASK 2)




comprehensive external analyses, and some fairly sophisticated computer modeling to develop the
inputs to the tool; developing these inputs most likely will need to be done by an experienced
outside party. This situation illustrates the type of adjunct business opportunities an ecosystem
marketplace can create. As the Willamette marketplace becomes established, private companies,
nonprofit organizations, and others are expected to carve out their own niches in performing these
types of analyses, doing the actual restoration, or both.
From an ecological perspective, the Willamette River is in desperate need of increased flows and
additional functioning floodplain, riparian, and wetland habitats. The process of defining
temperature credits illustrated how tied the regulatory system is to numerical standards in defining
ecological relationships and benefits, and how difficult it can be to describe desired habitats and
ecological conditions in terms of a few specific metrics, such as water temperature. The limitations
of a single parameter in describing ecosystem health reinforce the importance of developing an
integrated multi-credit marketplace—one that encompasses a wide range of ecological conditions
and functions and whose metrics relate more closely to the ultimate goals of species and habitat
conservation and overall ecological uplift.

Lessons Learned
Create standards and protocols that meet your ecological needs. The many
participants in an ecosystem marketplace have different processes, approaches, and motivations, not
all of which are consistent with ecological restoration. Therefore, it is important to develop specific,
carefully designed standards and protocols. These will guide marketplace participants toward actions
that will help achieve ecological objectives, and not just satisfy the letter of the regulatory
requirements. There is public skepticism about the emerging use of ecosystem service markets.
Developing credit protocols that achieve greater environmental benefits than would otherwise be
possible will be a key to public acceptance. If ecologically questionable or—worse—negative actions
are credited as offsets in a marketplace, the public will lose trust and the conservation community
and regulated community will lose the opportunity to use these powerful new tools to achieve our
ecological goals.
Understand your motivation in creating a marketplace and be clear and consistent
in your message. Ecosystem marketplaces can appear complex, uncertain, and overwhelming.
Communicating a consistent message to stakeholders is essential to building the relationships and
trust needed to launch a successful project. By repeatedly communicating its intentions, the
Willamette Partnership was able to garner support, turn skeptics around, and expand the network of
potential market participants.
Involve restoration practitioners early on. Restoration practitioners can provide specific
information about the species composition, planting procedures, and maintenance measures needed
for successful restoration projects. This information is useful in defining credits, identifying
appropriate performance and implementation measures, and laying the groundwork for project
verification protocols. The involvement of trusted practitioners also lends credibility to market
development.
Pay attention to how the TMDL or other regulations are written. Regulated
parameters may not correspond very directly to the ecological goals that you (and others) are trying
to achieve. If so, look for ways to expand the marketplace, revise policy, or advance scientific
understanding in a way that creates stronger linkages.


SECTION 4 - TASK 2-CREDIT DEFINITION.DOC                                                               4-11
Section 5 Credit Portfolio
SECTION 5

Temperature Credit Portfolio (Task 3)

A credit portfolio is needed to help guide market participants to projects that create desired
ecological outcomes, regulatory compliance, and monetary returns. The market appraisal shows
there is substantial future projected demand and significant potential supply for temperature credits.
Buyers, especially, will be considering a full range of options for compliance, including technology
controls, point-to-point trading, and ecosystem market options to meet their obligations. Sellers will
be weighing options about the types of activities that create credits and will be looking for places
that are likely to yield the greatest returns on their investments. Third parties such as the Willamette
Partnership would like to encourage investments in areas known to have significant conservation
value. There is no way to completely control where investment in a marketplace happens, but under
this task a variety of tools and methodologies were created that provide information about
opportunities in priority conservation and restoration areas that will help marketplace participants
make decisions that are right for them.


   Major Accomplishments

   •    Temperature supply calculation and mapping. Confirmed that the potential supply of credits that
        could be generated from restoration projects in priority areas alone is adequate to meet the demand
        created by the TMDL; compiled data to show the locations where significant temperature credits could be
        generated from riparian shade restoration.

   •    USGS heat trading tool. Contributed to development of a tool that quantifies and graphs the effects to
        river conditions from temperature credit trades between point sources in the Willamette Basin. The U.S.
        Geological Survey is poised to refine the tool so that it also enables users evaluate the use of temperature
        off-sets created through restoration projects, such as shade restoration, when drafting permit compliance
        strategies for temperature.

   •    Credit quality rating system. Developed a credit quality rating system for temperature credits that can
        be used to distinguish ecologically high-value restoration projects in a fully functioning ecosystem
        marketplace.

   •    Policy preferences. Worked with stakeholders to identify policy issues related to credit valuation that
        will influence buyers’ and sellers’ participation in the Willamette marketplace; recommended specific
        agency policies that would create incentives for participation and direct, but not limit, investments to
        areas with high conservation value.

   •    Rapid assessment methodology. Developed a methodology for rapidly assessing a candidate
        restoration site’s habitat functions and characterizing the site’s potential to generate multiple types of
        restoration-related ecological credits for sale or trade in a multi-credt marketplace.

   •    Albany site assessment. Applied a habitat-based rapid assessment methodology to six sites in the
        Albany area to evaluate their general ecological characteristics, restoration potential, credit potential, and
        preservation opportunities.




SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                                     5-1
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




Developing the temperature credit portfolio involved determining whether restoration of riparian
shade in the Willamette Basin would provide enough temperature reductions to achieve TMDL
goals; identifying those locations where shade restoration would provide the greatest reductions;
working with restoration practitioners, the Oregon Department of Environmental Quality, the U.S.
Environmental Protection Agency, and various stakeholders to identify preferred public policies
regarding the valuation of temperature reduction credits; and recommending policies that would
encourage participation in the market and direct investment in restoration projects to high-priority
locations in the Willamette Basin. Development of a quality rating system and a multi-credit site
assessment methodology also were part of the process. In developing the temperature credit
portfolio, the Willamette Partnership, its consultants, its partners, and various stakeholders
performed the steps described below.

Credit Portfolio Process
Step 1: Temperature Supply Using Shadelator: Determined the temperature reduction
potential of riparian shade restoration along the Willamette River and its major tributaries and
whether this is enough to meet the thermal load reductions specified in the Willamette temperature
TMDL.
         As described in Step 6 of the market appraisal, the Oregon Department of Environmental
         Quality used comprehensive vegetation and other data and the Shadelator component of the
         agency’s HeatSource river temperature model to calculate the solar energy that would be
         blocked at sites along the Willamette River and its major tributaries if riparian vegetation
         were restored. Reductions were calculated for 100-foot segments of river, color-coded, and
         mapped on aerial photos of river reaches. The resulting values represent specific amounts of
         temperature reduction that would result from restoration of riparian shade along the
         Willamette River and its major tributaries.
         Findings of Step 1: This analysis indicates that the potential supply of temperature credits
         from riparian shade restoration in priority areas that are also listed as temperature impaired
         on the state’s 303d list is likely well more than the projected 3 billion kcal/day demand
         created by the TMDL over 10 years. Moreover, the mapping shows where, at a basinwide
         level, substantial offset credits could be generated from riparian shade restoration, and the
         relative scale of potential reductions at specific sites. This information is useful in helping
         market participants understand where investments are needed. These assessments helped
         determine basinwide opportunities and priorities for a methodology developed in the Long
         Tom watershed described in Step 5 below.




5-2                                                                       SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                                     TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         ⇒ Adjunct work: OSU Shade Calculator. Independently of this targeted watershed grant,
           Oregon State University’s Department of Horticulture has developed a prototype shade calculator for the
           Willamette Basin with funding from the Natural Resources Conservation Service. This GIS-based tool
           allows individual landowners in the Willamette Basin to calculate the thermal load reduction that would
           be created through restoration of riparian shade on their property. The prototype was developed from the
           Oregon Department of Environmental Quality’s HeatSource model, which was adapted for a GIS
           platform and populated with existing hydrology, soil, vegetation, and landform data from the U.S.
           Geological Survey, Natural Resources Conservation Service, and Willamette River Basin Planning
           Atlas (Pacific Northwest Ecosystem Research Consortium 2004). Aerial photos also are included.

              To make the Shade Calculator accessible to potential sellers in the marketplace who do not have GIS
              software, Oregon State University developed a Google Maps interface for the tool. Landowners can use
              Google Maps to identify their property and delineate sections of stream for possible restoration. The tool
              compares current shading along that portion of stream to potential future shading if the area is restored.
              It then estimates the potential thermal load reduction, in kilocalories per day that would be created
              through riparian shade restoration on that property.

              The OSU Shade Calculator is in the process of being tested and reviewed by Willamette Basin
              landowners, after which the visual interface will be improved and various enhancements added. One of
              those enhancements will be estimates of the material and labor costs of shade restoration for individual
              properties. Because the data layers in the tool are tied to a national standard for stream data, it will be
              possible for the tool to link to other data sources that also are tied to streams, such as Oregon
              Department of Fish and Wildlife data on potential salmon habitat. It also may eventually be possible to
              connect the Shade Calculator with information about other ecosystem services, such as nutrient reduction.

              This work represents a giant leap forward in user interface tools available for market participants. The
              Willamette Partnership will work with OSU through the summer of 2008 as it tests the tool with
              landowners with the expectation that potential projects will be identified to register on the Ecosystem
              Credit Registry described in Section 6 of this report.


Step 2: USGS Heat Trading Tool. Developed a point-source trading tool that quantifies the
likely effects on river temperature of any heat trade between two point sources along the length of
the Willamette River.
         This tool was developed by the U.S. Geological Survey (USGS) with support from the
         Willamette Partnership and the Oregon Association of Clean Water Agencies. Flow and
         temperature models that formed the basis of the Willamette temperature TMDL were used
         to determine a spatially indexed “heating signature” for each of the modeled point sources.
         Those signatures then were combined into a user-friendly, spreadsheet-based screening tool
         that allows a user to increase or decrease the heating signature of each source and thereby
         evaluate the effects of a wide range of potential point-source heat trades. The accuracy of the
         trading tool was tested by running the Willamette River flow and temperature models under
         several different hypothetical trading scenarios.




SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                                   5-3
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         Result of Step 2: The USGS Willamette River Point-Source Heat-Trading Tool quantifies
         and graphs the likely effects of temperature credit trades between point sources. The tool
         simulates the temperature effects of trades assuming that the point source generating the
         temperature credit is doing so by reclaiming or reusing some or all of its wastewater, and
         thus reducing its discharge. The tool allows potential trading partners to visualize the
         expected temperature effects of any particular trade along the entire length of the river, and
         to predict how a trade would change the water temperature at the point of maximum impact
         for the entire river or for just a certain portion. Metrics calculated by the tool include the
         number of river miles cooled, the cumulative temperature effect at intervals along the river,
         the integrated cooling effect at different river reaches, and the difference from the allocated
         condition at specific point sources. The tool generates plots for the McKenzie and
         Willamette rivers, including the Coast Fork Willamette. Potential users of the trading tool
         include regulatory agencies and various point sources in the Willamette Basin.

         ⇒ Potential adjunct work: Heat trading tool refinements. At the time of this writing, the U.S.
           Geological Survey was poised to refine the heat trading tool so that permittees will be able to use it to also
           evaluate restoration projects as part of their compliance portfolio. With the refined heat source tool,
           potential credit buyers in the marketplace will be able to evaluate their compliance options by comparing
           the results of point-to-point trades side–by-side with the impacts of trades involving credits generated from
           restoration actions.

         The latest version of the trading tool can be downloaded from
         http://or.water.usgs.gov/proj/will_temp/download/tools/trading_tool_v1p4.xls.

Step 2: Credit Rating System and Preliminary Issues. Developed a credit quality rating
system for temperature credits that could be used to distinguish ecologically high-value restoration
projects; identified other incentives that would encourage participation in the market in a way that
maximizes ecological benefits.
         A Practitioners Working Group consisting of representatives from land trusts, soil and water
         conservation districts, watershed councils, environmental advocacy groups, conservation
         organizations, environmental consulting firms, the Oregon Department of Fish and Wildlife,
         the Oregon Department of Environmental Quality, the U.S. Fish and Wildlife Service, and
         the U.S. Environmental Protection Agency met to explore ways to create incentives that
         would encourage participation in the temperature market and completion of restoration
         projects that would result in the maximum ecological benefit.
         Findings of Step 2: The Practitioners Working Group identified structural and regulatory
         incentives that would encourage the generation of high-quality temperature credits in the
         Willamette marketplace. Regulatory incentives include trading ratios and trading areas (see
         Step 3). As an incentive that could potentially be built into the market structure, the group
         developed a multi-tiered credit quality rating system for temperature credits that would
         distinguish ecologically high-value restoration projects. Such a system could be used to
         encourage investment in the highest value projects, thus improving the quality of credits and
         reducing the risk of ecological failure of restoration projects conducted to generate credits.
         The Practitioners Working Group also described sources of risk and uncertainty in
         ecosystem marketplaces and identified various financial, legal, and procedural tools for
         managing risk that could be incorporated into the Willamette marketplace. Legal tools


5-4                                                                                  SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                         TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         include conservation easements, deed restrictions, and covenants; financial tools include
         enforcement funds, trust or endowment funds, revolving funds, irrevocable trusts,
         environmental performance bonds, escrow accounts, and letters of credit; and procedural
         tools include verification, certification, and monitoring and maintenance protocols, trading
         ratios, and assurance and insurance pools. Many of the structural characteristics identified by
         the Practitioners Working Group will be applicable to a fully functioning marketplace where
         transaction volumes are high and a wide range of credits are traded.
         Findings of the Practitioners Working Group are summarized in the Practitioners’ Working
         Group White Paper 2.
Step 3: Preferred Policy. Worked with the U.S. Environmental Protection Agency, Oregon
Department of Environmental Quality, and stakeholders to develop policy recommendations that
would encourage and enable initial temperature markets to work efficiently to achieve ecological
goals.
         The Willamette Partnership held numerous stakeholder meetings and worked with the
         Oregon Department of Environmental Quality and the U.S. Environmental Protection
         Agency to identify key policy issues associated with water temperature trading in the
         Willamette marketplace. Some of these policy issues relate to valuing temperature credits in
         the market. How the policy issues are resolved has a direct impact on the demand for credits,
         buyers’ and sellers’ incentives for participating in the market, and the extent to which
         restoration projects take place in high-priority locations.
         Findings of Step 3: Three policy issues emerged that relate directly to temperature credit
         trading: trading ratios, spatial and temporal discounting of temperature credits, and
         determination of service areas. The Willamette Partnership determined its policy preferences
         with respect to these and other policy issues (see the descriptions below) and is engaged in
         ongoing discussions with the Oregon Department of Environmental Quality about those
         preferences.
         Trading ratios. Agency-determined trading ratios have been used in other ecosystem
         services markets as a buffer against uncontrollable variables (such as a catastrophic storm)
         that might reduce the ecological benefit a restoration project performed to generate offset
         credits. For example, if a permittee needed 10 million kilocalories per day to meet its load
         obligations, an agency-determined trading ratio of 2:1 would require that 20 million
         kilocalories per day be secured. Translated into action on the ground, if 1 mile of restoration
         on average blocks about 10 million kilocalories per day, a permittee would need to secure 2
         miles of restoration. This would mean that, on average, about twice the restoration would
         occur to buffer against uncertainty and risk. (This is just a hypothetical example. Actual
         kilocalorie off-sets vary with each restoration project). In water quality trading programs
         around the country, ratios have varied widely, from 1:1 to 4:1 (Guiling et. al. 2007). Setting a
         trading ratio too low can inadequately account for risk, but setting it too high can make
         trading too costly. By themselves trading ratios do not necessarily create demand for credits
         generated in high-priority restoration areas, which is an important objective of the
         Willamette marketplace. Investment in high-priority locations could be encouraged by using
         a sliding scale of trading ratios. For example credits generated in high-priority areas could be
         traded at 1.5:1, and ratios for credits generated elsewhere would be traded at 2:1. The success
         of this approach in directing investment to high-priority areas is not guaranteed. If prices for



SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                      5-5
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         “non-priority” credits are significantly lower than “priority” credits, the different trading
         ratios may not provide much incentive.

Another policy option to ensure investment in high-priority locations is to require that a certain
percentage of offset credits in a given purchase come from restoration projects in high-priority
areas. (The required percentage could be tied to the amount of priority area within the particular
trading area. For example, if 50 percent of all land in a trading area were identified as priorities, 50
percent of all credits purchased would need to come from those areas.) Unlike trading ratios, the
percentage requirement influences portfolio composition, rather than the volume of credit demand.
Although it is possible that both options could achieve the same results, the Willamette Partnership
prefers the percentage requirement because only this approach would guarantee investment in
priority areas regardless of market prices and conditions.
Figure 5-1 Service Areas Map




5-6                                                                        SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                               TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         Service areas. Service areas mark the geographic boundaries within which buyers and
         sellers of an ecosystem services credit can interact and are based on the service being
         performed. The Willamette temperature TMDL identifies three points of maximum impact,
         which help define three service areas for temperature offsets. It is the Willamette
         Partnership’s policy preference that water temperature credits generated anywhere in the
         watershed upstream of a point of maximum impact be available for use by buyers within or
         downstream of that service area; trading should not be limited to areas upstream of a specific
         buyer’s point of discharge. Such a system would create a nested pyramid of trading areas in
         which, for example, the City of Salem could buy credits from projects around Eugene, but
         the City of Eugene could not buy credits from projects in the Salem area because Salem is
         below the point of maximum impact to which Eugene is subject.
         Spatial and temporal discounting. Given that flowing water is subject to multiple cycles
         of heating and cooling, spatial and temporal discounting is sometimes used to account for
         the difference between the temperature benefit provided at the site of a restoration project
         and the temperature benefit at some point downstream from the restoration site. For
         example, if a mile of streamside shade were planted along a tributary stream, modelers would
         estimate the actual cooling effect of that action at a specific point in the river downstream,
         such as at an agency-determined point of maximum impact or a specific credit buyer’s point
         of discharge. The Willamette Partnership supports the precedent set in Clean Water Services’
         point-to-non-point source trading program that a kcal/day produced by an ecological
         restoration or flow augmentation project is worth a kcal/day at the point of maximum
         impact, regardless of the distance between the credit generation site and the credit buyer’s
         physical location. Although the Willamette Partnership recognizes that spatial and temporal
         discounting may be appropriate when point sources are trading TMDL allocations amongst
         themselves, it is the Partnership’s view that applying spatial discounting to ecological
         restoration activities could discourage strategic actions that would provide substantial
         benefits to fish and wildlife habitat. Encouraging strategic investment in ecological
         restoration is one of the primary purposes of a point-to-non-point source trading program.

         ⇒ Key decision: At the time of this writing, the internal management directive that will guide
           temperature credit trading in the Willamette Basin was still being revised, but there appeared to be
           general agreement at the Oregon Department of Environmental Quality to implement the policies
           preferred by the Willamette Partnership and stakeholders who have worked on these issues. (An internal
           management directive is a form of policy guidance issued by the Oregon Department of Environmental
           Quality.)

Step 4: Rapid Assessment Methodology and Albany Site Assessment. Revised and
expanded the Oregon Department of Transportation’s Habitat Assessment Methodology to create a
functions-based, rapid assessment methodology for use in evaluating individual restoration sites for
their ability to generate multiple types of ecosystem credits. Parametrix applied the rapid assessment
methodology at six sites near Albany.
         For this project, the Willamette Partnership sought an existing methodology that could be
         used to describe to identify the specific types and amounts of ecosystem services credits that
         could be generated at a particular site via different restoration activities.


SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                            5-7
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         Oregon Department of Transportation’s HAM Methodology. Several methodologies
         are currently being developed for quantifying the natural resource value of a specific site
         under current and restored conditions. However, the only established methodology available
         at the time this task was being performed is the Habitat Assessment Methodology (HAM),
         which was developed by Parametrix for the Oregon Department of Transportation for use
         in mitigation and conservation banking conducted as part of the agency’s state bridge
         delivery program. HAM quantifies a site’s existing natural resource value based on habitat
         type, structural conditions, and habitat elements, and it predicts the change in habitat value
         that would result from proposed habitat modifications. The foundation for HAM is the
         species and habitat associations documented in Wildlife-Habitat Relationships in Oregon and
         Washington (Johnson and O’Neil 2001). The methodology involves collecting field data,
         categorizing and mapping habitat types, querying the Interactive Biodiversity Information
         System (IBIS) database to determine the number and species that specific habitats support,
         and weighting results based on agency priorities and goals (such as watershed or species
         recovery goals). HAM calculates a single “habitat value” metric for a site that represents a
         comprehensive measure of the site’s ecosystem functions, but the methodology also tracks
         subsets of habitat value specific to regulated resources, such as wetlands, salmonids, and
         Oregon chub. HAM was developed in coordination with the U.S. Army Corps of Engineers,
         U.S. Fish and Wildlife Service, National Marine Fisheries Service, U.S. Environmental
         Protection Agency, Federal Highway Administration, Oregon Department of Fish and
         Wildlife, Oregon Department of Environmental Quality, and Oregon Department of State
         Lands.
         Rapid Assessment Methodology. Parametrix revised and expanded HAM to automate
         and simplify its analysis and to incorporate additional elements useful in identifying site-level
         ecosystem functions and services that could be included in a multi-credit marketplace. The
         resulting functions-based, rapid assessment methodology uses existing site data (GIS layers,
         aerial photographs, mapping, natural resource survey information, etc.), fieldwork, and
         analysis to characterize the potential for a specific site to generate different types of
         restoration-related credits that could be sold or traded in the marketplace.
         Albany Site Assessment. Parametrix applied the rapid assessment methodology at a suite
         of candidate restoration sites to characterize their potential to generate multiple types of
         restoration-related credits for sale or trade in a multi-credit marketplace. Six potential
         restoration sites that had been identified by The Nature Conservancy for their conservation
         or restoration value were evaluated. The sites are located near Albany, on the Calapooia and
         Santiam rivers. The sites were assessed for their general ecological characteristics, restoration
         potential, and preservation opportunities. Special attention was paid to each site’s potential
         to generate marketable credits through riparian shading and other habitat improvements;
         wetland enhancement, restoration, or creation; improved floodplain functions and
         connectivity; provision of habitat for salmon, Oregon chub, and threatened or endangered
         plant species, such as Nelson’s checkermallow; and provision of habitat for other species of
         interest, such as Oregon white oak woodlands. Constructability issues also were identified,
         and recommendations were developed regarding preservation or restoration options at each
         site to maximize potential future revenue from ecosystem services credits.
         Findings of Step 4: Many of the sites evaluated provide opportunities for wetland
         mitigation, stream temperature regulation, and restoration or preservation of key habitat



5-8                                                                        SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                           TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         types. The most ecologically diverse site has large areas of key habitats, such as forested and
         emergent wetlands, backwater channels, riparian areas, floodplains, swales, an intermittent
         stream, and forested uplands. Another site has considerable habitat suitable for the
         endangered Oregon chub, and it is located adjacent to additional chub habitat.
         Overall, the restoration potential of the six sites is somewhat limited because of either small
         site size or constructability issues, particularly for riparian shade restoration. (Severely down-
         cut and eroded stream banks could require costly terracing and bioengineering.) However,
         investing in stream bank restoration that would create shade could also improve salmon
         habitat, floodplain function, and riparian habitat. It is possible that in a multi-credit
         marketplace, the various credits that would be generated from even a relatively expensive
         stream bank restoration project would still make the project financially rewarding.
         When considered individually, the six sites evaluated do not appear to be strong candidates
         for establishment of a multi-resource mitigation bank for regulated resources because the
         number of credits available is likely too low to offset the costs of the bank approval process.
         But there may be opportunities of scale if the properties are managed as a single restoration
         unit, rather than as individual sites. In addition, coordinating restoration actions with
         adjacent landowners would significantly increase the ecological value of restoration actions
         in this area and could lead to identification of sites where more passive restoration could be
         conducted and restoration benefits could be provided at lower expense. This would lower
         the cost of generating ecosystem services credits at the site and increase the profit margin for
         the seller.
Step 5: Methodology for Identifying and Prioritizing Restoration Projects. Under
contract with the City of Eugene, the Long Tom Watershed Council developed a methodology for
identifying and prioritizing water quality improvements that can be applied throughout the
Willamette Basin.

         As part of the City of Eugene’s TMDL options assessment, the Long Tom Watershed
         Council developed a process for identifying and prioritizing feasible temperature-reducing
         restoration projects in the Long Tom Basin. Technical assistance in developing and
         documenting the process was provided by landowners in the Long Tom River basin and
         representatives from the Oregon Department of Environmental Quality, U.S. Geological
         Survey, and Clean Water Services.

         Results of Step 5: Methodology. This step identified a series of techniques and
         methods for identifying and prioritizing feasible restoration projects that could be applied in
         the Willamette Basin to develop a basin-scale portfolio of restoration actions and benefits.
         While the data inputs used in the technical analysis were specific to the Long Tom Basin, the
         methods and technical framework could be implemented in other watersheds. Briefly, the
         process is as follows:

              1. Identify the problem, priority restoration areas, and types of restoration projects that
                 would mitigate the problem.

              2. Develop timelines for restoration project implementation and when benefits would
                 be achieved.



SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                        5-9
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




              3. Evaluate the feasibility of implementing each type of restoration project.

              4. Quantify the potential benefits of restoration projects.

              5. Develop a performance monitoring plan.

              6. Conduct a stakeholder feasibility evaluation.

         The methodology is documented in Ecosystem Restoration in the Long Tom River Basin for Water
         Quality Improvement in the Willamette River: Preliminary Findings (Long Tom Watershed Council
         2008), which provides recommendations regarding restoration project types and priority
         restoration areas in the Long Tom watershed as a method to accomplish water quality
         improvement in the Willamette River.

         Results of Step 5: Local application. The methodology was applied in the Long Tom
         basin, which was identified as a key opportunity area for temperature reduction by riparian
         shading restoration activities because the Long Tom River carries the distinction of being the
         most underperforming tributary for shade in the Willamette Basin. The Long Tom
         Watershed Council determined that restoration activities should be prioritized in the lower
         Long Tom because of the dramatic influence of Fern Ridge Reservoir on the temperature
         regime. Restoration activities in this area would not only decrease water temperature, but
         would also provide improvements to fish habitat and water quality. The following
         restoration project types were selected for temperature, water quality, flow, and habitat
         mitigation:

         •    Riparian shading—to improve stream temperature, water quality, and habitat for
              riparian-dependent species, such as amphibians and songbirds

         •    Instream impoundment—to improve stream temperature, dissolved oxygen, fish
              passage, and sediment transport

         •    Cool water stream connectivity—to reduce stream temperature

         •    Floodplain restoration and hydrologic reconnection—to increase off-channel and
              instream habitat and floodplain storage, reduce erosion, enhance the hydrologic regime,
              and potentially decrease water temperature

         The Long Tom Watershed Council determined that a combination of riparian planting, levee
         removal, historical channel reconnection, and bank sloping or terracing would provide
         multiple water quality and habitat benefits in the Long Tom River basin. These activities
         have different timelines for implementation and realized benefits. For example, the benefits
         of riparian planting could take 10 to 15 years to be realized, whereas floodplain and
         hydrologic reconnection benefits could take effect almost immediately.

         After evaluating the four restoration project types described above, the Long Tom
         Watershed Council determined that riparian restoration was the most viable restoration
         project type for meeting TMDL requirements because it lent itself to easy monitoring and
         quantification of benefits. However, multiple benefits would be achieved by all four types of


5-10                                                                        SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                        TEMPERATURE CREDIT PORTFOLIO (TASK 3)




         restoration actions and could be determined on a site-specific basis. The Long Tom
         Watershed Council and the Oregon Department of Water Quality used the HeatSource
         model to determine the potential thermal load reductions for selected reaches along the
         Long Tom River, and a riparian shading and bacteria reduction monitoring plan were
         developed to provide a framework for evaluating restoration project success. Lastly, the
         Long Tom Watershed Council contacted and interviewed landowners located in areas with
         high potential for creating riparian shade. Landowners were interviewed to gauge their level
         of acceptance, concerns, and goals regarding riparian shading restoration projects and
         market participation. The results of these interviews provided information that had not been
         revealed in the technical analysis and that offered an important perspective on riparian
         shading restoration project implementation in the Long Tom basin.

         A link to the final report will be made available in the Willamette Partnership’s Web site at
         http://www.willamettepartnership.org/publications/ecosystem-restoration-in-the-long-tom-
         river-basin-for-water-quality-improvement-in-the-willamette-river-preliminary-findings.pdf.


Time Frame, Participants, and Resources
Although development of the temperature credit portfolio was intertwined with the market appraisal
and credit definition tasks, much of the work for the portfolio development occurred during the last
half of the project. The site-level assessments near Albany were completed in the last year of the
grant period, and the Oregon State University shade restoration tool and the most cogent statements
of the Willamette Partnership’s policy preferences were developed shortly before the end of the
grant period.
The initial exploration of policy issues was led by the Practitioners Working Group, with follow-up
by the Willamette Partnership. Parametrix did significant work to adapt the Oregon Department of
Transportation’s Habitat Assessment Methodology for use in developing site-level portfolios, and
the City of Albany paid for Parametrix to apply the methodology at the six candidate restoration
sites. As described in the market appraisal, DEQ analyzed the volume and locations of potential
temperature reductions from riparian shade restoration.
Parametrix’s functions-based, rapid assessment methodology was a key resource in developing the
site level, multi-credit portfolios, and this methodology grew out of the Oregon Department of
Transportation’s Habitat Assessment Methodology. The Willamette River Basin Planning Atlas (Pacific
Northwest Ecosystem Research Consortium 2002) provided essential data for use in DEQ’s
Shadelator model, which calculated temperature reduction potential from shade restoration.

What Development of the Temperature Credit
Portfolio Revealed
The original objectives for the temperature credit portfolio task assumed that a great deal of
ecological and financial information related to the ecosystem marketplace could be quantified during
the grant period, and that development of an integrated, multi-credit marketplace would be far
enough along that the number and types of credits generated at specific sites could be calculated,
along with the costs of the associated restoration projects and the approximate value of the credits
in a prototype marketplace. This information could be used as the basis of a cost/benefit analysis to


SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                    5-11
TEMPERATURE CREDIT PORTFOLIO (TASK 3)




guide investors. The objectives for Task 3 also assumed that a single optimal temperature credit
portfolio could be developed for the Willamette Basin that, if pursued, would direct investment to
the highest priority restoration areas and thus maximize environmental gain.
Several obstacles emerged as the Willamette Partnership pursued these objectives, one being the
difficulty of gaining consensus on the restoration priorities and opportunities that would represent
an optimal portfolio for temperature credits across the Willamette Basin. Different agencies and
conservation organizations in the basin have different ecological priorities. Although these
stakeholders agreed that it was wise to invest strategically, the question of what should be included
in an optimal portfolio, and where, is a highly subjective one. Questions challenging the underlying
assumption that we need an “optimal portfolio” or that one was even possible hampered this effort.
In a marketplace, goals and rules should be set and participants would determine their individual
optimal portfolios. The idea of an “optimal” portfolio led to many questions about who would be
able to play in the market—anyone, or only those people who could create projects with multiple
values. For this reason, the portfolio portion of this project focused on development of information,
tools, and methodologies that would enable participants to develop their own strategies to fit their
specific situations.
The portfolio development process demonstrated the limitations of current technical tools and
methods; yet for a multi-credit marketplace to work, widely accepted methods for calculating
multiple types of ecosystem services credits are desperately needed. We cannot attract investment in
large-scale multi-parameter restoration in a market unless investors know the units they are to be
measuring. In the Willamette Basin, temperature credits from restoration of riparian shading have
been the easiest to quantify, and at this time, shade is the only type of restoration for which the
basinwide potential can be calculated with confidence. This is so in part because the number of
temperature credits that would be generated from other types of restoration—floodplain restoration,
wetland restoration, and flow augmentation—rely on so many site-specific and quite variable
conditions. Substantial additional technical work would be needed to calculate the total volume and
location of temperature credits that could be generated basinwide from floodplain restoration,
wetland restoration, and flow augmentation. But before going to this expense, the ultimate value of
such an exercise should be carefully considered. Even without detailed information about potential
credit supply from these types of restoration projects, we know that temperature reduction credits
from shade restoration alone are more than adequate to offset the thermal load demand generated
by the TMDL. Additional efforts related to these activities should focus on simplifying credit
calculation procedures so we can get these additional actions started, rather than estimating total
supply, especially related to floodplain restoration
In response to the limitations of current technical tools and methods, the Willamette Partnership
focused its portfolio development efforts on the type of activity where most activity is likely to occur
to generate temperature credits for the marketplace: riparian shade restoration. The Partnership has
been able to quantify the potential supply of temperature credits in the basin that could be created
from shade, map the credits’ locations, and provide market participants with a variety of tools to
help them structure their investments in shade restoration projects for maximum ecological benefit.
At the basin level, decisions about where to invest in shade restoration projects can be informed by
a new set of tools: the synthesis map developed for the market appraisal, DEQ’s Shadelator
mapping and analysis, and, eventually, Oregon State University’s shade tool once it is fully
developed. At the site level, temperature credits from riparian shade and other types of restoration
can be quantified using the credit calculator described in Chapter 4. In addition, using the rapid


5-12                                                                     SECTION 5 - TASK 3-PORTFOLIO.DOC
                                                                          TEMPERATURE CREDIT PORTFOLIO (TASK 3)




assessment techniques applied as part of this project at specific sites can help land managers evaluate
their property’s ecological value and potential to generate a variety of types of ecosystem services
credits that eventually could be sold in a multi-credit marketplace. This could encourage not just
restoration to generate temperature credits, but conservation of resources for which there is not yet
a market demand (such as pollinator habitat or oak woodlands) but that might generate credits that
could be traded in the future.

Lessons Learned
Try to keep administrative complexity low initially and expand as market conditions
require greater control. In exploring different policy options to direct investment to the highest
priority restoration areas, the Practitioners Working Group developed a detailed, descriptive quality
rating system for temperature credits. The rating system was too complicated for use in the fledgling
Willamette temperature market, which is expected to have a small volume of transactions. To attract
participants, ecosystem markets must have efficient mechanisms and procedures—ones that are
easier for participants to use than traditional approaches to compliance. If you expect a large volume
of market transactions, you have more leeway to use more complex options that could add
ecological value. But in low-volume markets, the need for efficiency demands simpler approaches.
Pay attention to the areas where most potential market participants will need the most
help. It can take considerable time and technical work to develop the tools and methodologies
needed to create a multi-credit marketplace, or even to accurately quantify a single type of credit that
would be created from a desired suite of desired restoration actions. For the types of restoration
actions considered for the temperature market, it is likely that riparian restoration will involve the
largest number of projects and the most people who need help participating in markets. So it made
sense to focus much of our technical effort toward that activity. Undertaking large-scale wetland
restoration and floodplain restoration will require significant initial capital and professional expertise
to undertake. Consequently, there are likely to be a limited number of people who initiate those
actions, and they will likely be well financed and have access to considerable professional expertise.
Focusing on the areas most in need allows you to continue to make progress and develop the
foundation for a larger marketplace by accessing a larger number of potential participants.
Pay attention to priority areas, but don’t exclude or minimize the value of restoration in
areas that do not fall within priority area designations. Markets represent a great opportunity
to leverage investments and direct them toward ecological priorities at a landscape scale. Market
rules need to create incentives for restoration in priority areas, but they should not create penalties
for taking restoration actions in areas that fall outside of priority areas. Markets need to balance the
need to encourage strategic investment with the risk of sending the wrong message to landowners in
non-priority areas that restoration on their land is not valued.




SECTION 5 - TASK 3-PORTFOLIO.DOC                                                                      5-13
   Section 6 Market
Infrastructure (Task 4)
SECTION 6

Market Infrastructure (Task 4)

Ecosystem services markets have unique characteristics. Because ecosystem services markets differ
from traditional commodity markets like wheat or corn, they require unique market infrastructure to
ensure credible transactions. In traditional commodity markets, once a transaction has been
completed the seller has no interest or responsibility for the product and the buyer has complete
freedom to decide how and where to use the purchased product. Traditional commodities are well
defined, steps for making a transaction are clear, and information is available to guide decisions.
In contrast, ecosystem services markets are characterized by a mix of stakeholders who form long-
term contractual relationships, transaction steps are minimally defined, and uncertainty levels are
high. “Offset credits” are the units of trade. Offset credits can be measured in a variety ways, such as
tons of carbon, acres of wetlands, or kilocalories per day. Unlike a commodity, an offset credit is
derived from—and forever attached to—a specific project that must be managed and maintained
over decades. This is so because an offset credit maintains its value only as long as the project that
generated it continues to perform the specific ecological function for which the credit was
purchased. In addition, ecosystem service markets trade on public goods governed by public goals.
As a result, market infrastructure needs to ensure accountability and legitimacy, yet it must also be
adaptable to the features—parameter, geography, and stakeholders—of specific local markets. Given
the nature of ecosystem markets, it can be challenging to design new infrastructure that will support
credible transactions of offset credits.



Major Accomplishments

•    Market structure. Determined that a centralized market structure would provide the greatest
     opportunity to ensure transparency and credit integrity for a multi-credit marketplace. A centralized model
     would offer the greatest opportunity to leverage investment for ecological goals by enabling tracking and
     accounting of multiple types of ecosystem service credits and trades.

•    Centralized credit registry and exchange tracking platform. Developed a self-contained desktop
     application that functions as a centralized registry and exchange tracking platform for use in registering,
     certifying, banking, and tracking credits as they are generated, bought, and sold.

•    Templates. Developed a set of standardized templates for contractual agreements, certificates,
     protocols, and other documents that support transactions in the marketplace, to guide participants in
     transactions.




For the Willamette marketplace, comprehending the unique characteristics of offset markets and
necessary infrastructure to support them involved interpreting market appraisal results, evaluating
different market structures for other trading programs, and working through tough issues of
transparency, credibility, and efficiency with stakeholders. To make matters even more challenging,
the Willamette Partnership, stakeholders, regulators, and the public were all thinking and learning


SECTION 6 - TASK 4-INFRASTRUCTURE.DOC                                                                              6-1
MARKET INFRASTRUCTURE (TASK 4)




together while at the same time working through the design and building process. In the end,
though, the market infrastructure that was needed to support credible and transparent transactions
was built.
Developing the market infrastructure involved reviewing and evaluating different market models to
determine the appropriate structure for the Willamette marketplace; creating a centralized credit
registry and exchange system to register, certify, bank, and track credits; and developing the
associated instructional templates to guide participants in transactions. In developing the market
infrastructure, the Willamette Partnership, its consultants, its partners, and various stakeholders
performed the steps described below.

Market Infrastructure Development Process
Step 1: Market Structure Analysis. Conducted the analyses needed to determine the
appropriate structure for the Willamette marketplace. This involved reviewing existing trading
programs, evaluating the feasibility of different market models in the Willamette Basin, selecting a
market structure, and performing a gap analysis.

         The consulting team researched and reviewed existing U.S. ecosystem services credit trading
         programs for applicability to the Willamette marketplace. This research involved
         characterizing three types of marketplace structures—decentralized, facilitated, and
         centralized—in terms of their rules and policies, key functions, eligible and preferred
         projects, transactions, accounting, performance oversight, and resources. The consulting
         team also analyzed and summarized the elements, roles, operations, and governing regulatory
         frameworks from several existing credit trading programs: the Lower Boise River Trading
         Pilot project, Virginia Nutrient Credit Exchange, and Connecticut Nitrogen Control
         Program. This information was used by the Willamette Partnership Board and Steering
         Committee to determine which market model could most feasibly be implemented for a
         multi-credit trading program in the Willamette Basin.

         ⇒ Key decision: The Willamette Partnership Board and Steering Committee determined that a
           centralized market structure would fit best for the multi-credit trading program in the Willamette Basin.
           A centralized model would offer the greatest opportunity to leverage investment for ecological goals by
           enabling tracking and accounting of multiple types of ecosystem service credits and trades

         Existing infrastructure components in Oregon and the Willamette Basin were then analyzed,
         a strategy was created for developing the components needed for a centralized market
         infrastructure, and key gaps were identified.
         Findings of Step 1: It was determined that many key market elements already exist, but
         they are generally in a decentralized or situation-specific form. Therefore, they would need to
         be augmented to become more centralized so the informational, transactional, and resource
         efficiencies necessary to operate a basin-wide multi-credit marketplace could be achieved.
         Key gaps were identified related to the technical and scientific basis for defining credits,
         regulatory frameworks that drive demand, credit quality standards, transaction rules, and
         processes for bringing buyers and sellers together and completing deals. These gaps
         highlighted considerable uncertainties related to marketplace development. If they could not



6-2                                                                          SECTION 6 - TASK 4-INFRASTRUCTURE.DOC
                                                                                      MARKET INFRASTRUCTURE (TASK 4)




         be resolved, potential buyers, sellers, and third parties would lack clear, easy, credible, and
         efficient ways of participating in the marketplace.
         Two technical memoranda emerged from Step
         1: Market Framework and Centralized
         Exchange Platform. The Market Framework                  Importance of Infrastructure
         technical memorandum describes how 10 key
                                                                  When first presented, the concept of a fully
         market elements (performance targets,                    operational centralized exchange platform
         program rules and policy, relationships among            was intriguing to the Willamette Partnership
         trading parties, information analysis and                Board of Directors and Steering Committee,
         dissemination, cost basis and pricing, decision          but also overwhelming. A full exchange
                                                                  platform would require development of a
         making, transactions, liability, resources, and          robust and complex infrastructure that
         results) function in centralized, facilitated, and       exceeded the organizational capacity in the
         decentralized markets. The technical                     basin and needs for existing markets;
         memorandum Centralized Exchange Platform                 however, the Centralized Exchange Platform
                                                                  technical memorandum helped stakeholders
         proposed the development of a state-endorsed             fully appreciate—for the first time—the role
         centralized administrative and electronic                that market infrastructure would play in
         marketplace for ecosystem-related credits; such          maintaining an efficient and credible
         a structure would help existing, decentralized           marketplace.
         market elements become more centralized.

Step 2: Centralized Credit Registry and Exchange Tracking System. Determined the
infrastructure components needed for the Willamette ecosystem marketplace; developed a
centralized credit registry and exchange tracking platform so different types of ecosystem service
credits could be registered, certified, banked, and tracked as they are generated, bought, and sold.
         In terms of infrastructure, a new ecosystem marketplace could require anything from just a
         few key components to an elaborate infrastructure along the lines of the New York Stock
         Exchange. The analysis in Step 1 showed that the components necessary for a fully
         operational centralized marketplace were beyond the current needs or capacity in the
         Willamette Basin, primarily because the expected volume of transactions would not be
         sufficient to support the type of robust infrastructure and staff required for a fully
         operational centralized marketplace. The costs to operate such a marketplace would be
         simply too high for the limited additional ecological gains such infrastructure would provide.

         ⇒ Key decision: It was determined that a centralized credit registry and exchange tracking platform was
           needed to provide both the information and the credibility required for a successful marketplace in the
           Willamette Basin. Such a system, which did not exist, could; (1) serve the initial transactions in the
           temperature market, and (2) lay the groundwork for eventual implementation of a fully functional Web-
           based system that could accommodate credit accounting and tracking across markets, jurisdictions, and
           regions.
         Result of Step 2: Step 2 resulted in a self-contained desktop application that functions as
         a centralized registry and exchange tracking platform, with a credit ledger and the accounting
         tools needed to register ecosystem service credits created through restoration projects and
         track them over time. The application has the following:




SECTION 6 - TASK 4-INFRASTRUCTURE.DOC                                                                       6-3
MARKET INFRASTRUCTURE (TASK 4)




         •    An administrator access point and accounting system to register, certify, verify, and bank
              ecosystem credits and track exchanges of credits
         •    A searchable database that records and tracks information about specific projects,
              individual credits, and buyer and seller accounts
         •    A reporting function that supports the sharing of compliance-based information
              between regulators responsible for permit enforcement and permittees who have
              purchased credits to offset environmental impacts
         The registry and exchange platform is intended to serve marketplace administrators
         (regulatory agencies, registry managers) and members (buyers, sellers, and verifiers).
         Currently, access and data management occur through a central administrator. A fully
         operational Web-based registry is envisioned that could be accessed directly by the several
         tiers of users: administrators (registry manager, regulatory agencies), members (sellers,
         buyers, and verifiers), and the interested public.
         ⇒ Key decision: In February of 2007, when it became clear that centralized infrastructure was needed,
           the Willamette Partnership Board of Directors voted unanimously to operate the infrastructure to serve
           initial transactions in the Willamette Ecosystem Marketplace. The Willamette Partnership has
           registered three projects on the Ecosystem Credit Registry and expects to register more in the coming
           months. The Partnership will operate the credit registry for buyers and sellers who voluntarily choose to
           use it. At the time of this writing, the Oregon Department of Environmental Quality appeared to
           support the use of a centralize credit registry, but had not adopted policy that would require it.

         The registry software is built in MS Access and a copy of an empty version is available for
         download at the Willamette Partnership’s “Tools and Templates” Web page:
         http://www.willamettepartnership.org/tools-templates

Step 3: Standard Templates. Developed standard templates for contractual agreements,
certificates, protocols, and other documents that support transactions in the marketplace, to guide
participants in transactions.

         In creating the contracts and other documents needed for marketplace transactions, the
         Willamette Partnership consulted technical advisory groups and incorporated elements of
         existing agreements, contracts, and standards that had been developed for other credit
         trading programs or regulatory standards. Technical advisory groups included representatives
         of watershed groups, technical experts, legal experts, regulatory agencies, and municipalities.
         Current literature on marketplace contractual documents also was reviewed.

         Results of Step 3: The results of Step 3 were the development of standard documents for
         exchanging credits between buyers and sellers, registering credits in the credit registry,
         conducting third-party verification of newly generated credits, and addressing certain
         business aspects of credit verification, such as ensuring confidentiality. These templates are
         described below and are available at the Willamette Partnership’s “Tools and Templates”
         Web page http://www.willamettepartnership.org/tools-templates.




6-4                                                                          SECTION 6 - TASK 4-INFRASTRUCTURE.DOC
                                                                                 MARKET INFRASTRUCTURE (TASK 4)




         Standard Agreement for Credit Registration. The Standard Agreement for Credit
         Registration is a template for describing credits that have been generated and are ready to be
         recorded in the registry. The standard agreement template guides users through information
         needed to register projects with credits and forms the basis of the relationship between a
         credit seller and the registrar. The agreement provides general information about the credits
         to be registered—including calculation methods, credit assurances, maintenance, monitoring
         and use—so that credits can be offered to prospective buyers.

         Standard Agreement for Credit Exchange. The Standard Agreement for Credit Exchange
         template was created to help buyers and sellers negotiate a contractually binding agreement
         for exchanging ownership of the credits. This template is essentially a checklist and overview
         document that provides the information needed to assure a potential buyer that the credits
         are real and meet regulatory standards and requirements. The agreement also provides
         general information about the credit to be exchanged, credit assurances, registration,
         maintenance, monitoring, compensation, and other information, such as the expiration of a
         credit offer.

         Standard Agreement for Credit Verification Services. Third-party verification of
         projects is one of the mechanisms used to ensure credit integrity and reduce risk in markets.
         The Standard Agreement for Credit Verification Services describes the tasks to be performed by the
         credit buyer or seller (the client) and the verifier. Under this agreement, the verifier audits the
         credits and associated documentation, procedures, processes, and plans submitted by the
         client to the verifier for compliance with applicable standards. These standards include credit
         generation practices, credit calculation methodologies, credit assurance protocols,
         maintenance requirements, and monitoring obligations. The agreement identifies the specific
         credits to be verified and the necessary components required for verification. It refers to
         guidance, standards, and other information specific to the types of credits being verified.

         Water Temperature Offset Verification
         Protocol. The Water Temperature Offset
                                                               Verification Services
         Verification Protocol, provides guidance on the
         review and assessment of temperature credit           Verification services will be an important
         projects. The protocol document provides              part of any fully functional marketplace.
                                                               The verification procedures and protocols
         background information on the process of              developed under this process will be
         becoming an accredited verifier, steps to be          adapted and refined when market
         completed by the verifier as part of the              transactions begin occurring. The
         verification process, how to complete                 protocols and procedures developed for
                                                               this project build heavily on other
         verification and certification, and situations that
                                                               programs around the country. They
         might constitute a conflict of interest. The          represent the structural framework
         appendixes include an overview of the                 needed for credible and transparent
         verification process, a verification checklist for    transactions but have not yet been
                                                               adopted by any regulatory authority.
         the verifier, and a verification opinion to
         document that the credits have been approved
         by the verifier. The protocol also provides an
         overview of the verifying process to ensure that credit generation information was gathered
         completely and accurately, proposed actions have been completed according to the credit
         generation schedule, appropriate monitoring plans are in place to ensure accurate reporting,
         and appropriate actions have been taken to verify the quantity of estimated credits.


SECTION 6 - TASK 4-INFRASTRUCTURE.DOC                                                                  6-5
MARKET INFRASTRUCTURE (TASK 4)




         Verifier Accreditation Agreement, Conflict of Interest Code, and Confidential
         Business Information Guideline. These documents, which are supplements to the registry
         and exchange tracking platform, are intended to ensure third-party, objective verification and
         confidentiality of sensitive credit transaction information. They build from existing
         frameworks and guidelines.

              •   The Verifier Accreditation Agreement functions as a regulatory-approved certificate of
                  professional capabilities to perform verification services. Every individual verifier
                  must meet the qualifications outlined in the accreditation agreement and become an
                  accredited verifier before providing verification services to market participants.

              •   The Conflict of Interest Code protects the integrity of the verification process and the
                  quality of a credit owner’s offsets by identifying situations in which a verifier may be
                  viewed as having an impaired ability to objectively review a potential participant’s
                  estimated offsets, usually because of a pre-existing business or personal relationship.
                  The accredited verifier must submit a conflict of interest form with a notice of
                  Standard Agreement for Credit Verification Services to the registry.

              •   The Confidential Business Information Guideline protects credit owners who may need to
                  divulge sensitive information in the credit verification process but want the
                  information to be kept confidential. The document is an agreement between the
                  verifier and the marketplace participant. It provides guidelines for how
                  confidentiality will be accomplished, while maintaining timely credit verification and
                  transaction processes. Any information submitted in a conflict of interest form
                  between a verifier and a credit owner is automatically kept confidential.


Time Frame, Participants, and Resources
The market infrastructure development process was initiated in the fall of 2006. This process is likely
to continue as transactions occur and refinements are made to the centralized registry, templates,
and verification protocols. The registry and exchange tracking system is operational and currently in
use and functional for the temperature market in the Willamette Basin.
The consulting team facilitated meetings with stakeholders throughout initial development of the
centralized marketplace, documenting questions, comments, and decisions to inform the analysis
conducted in the market framework memo and the prospectus/gap analysis. The consulting team
also completed the credit exchange agreements and credit registration documents with the help of
the advisory team, which included Clean Water Services, the Willamette Partnership, the City of
Eugene, Long Tom Watershed Council, a private landowner and potential credit seller, and the City
of Albany. Clean Water Services completed the Credit Verification Services Agreement and the
Verifier Accreditation Agreement using templates provided by the California Climate Action
Registry and International Organization for Standardization (ISO). Clean Water Services also
developed the supplementary centralized exchange documents (Conflict of Interest, Water
Temperature Credit Verification Protocol, and Confidential Business Information Guidelines) with
review by staff from Oregon Department of Environmental Quality, Oregon Department of Water
Resources, David Evans and Associates, Inc. and other Clean Water Services staff. Templates
provided by the U.S. Environmental Protection Agency were also used to create these documents.


6-6                                                                    SECTION 6 - TASK 4-INFRASTRUCTURE.DOC
                                                                               MARKET INFRASTRUCTURE (TASK 4)




Parametrix, working from specifications provided by the Willamette Partnership and Clean Water
Services, built the self-contained desktop application that will function as the centralized registry.
The Willamette Partnership, working with the Practitioners Working Group and the consulting
team, developed water temperature credit protocols. The Willamette Partnership is continuing to
work with the Oregon Department of Environmental Quality to clarify agency roles and
responsibilities for credit registration and verification.
Key resources used to develop market infrastructure documents included the California Climate
Action Registry Certification Protocol and General Reporting Protocol, International Standards
(ISO 14064-3, 14066, and 19011 – 2002(E)), U.S. Environmental Protection Agency Regulations on
the Confidentiality of Business Information (see 40 CFR part 2), Oregon Department of
Environmental Quality permit language (Section 1), and Oregon Department of Environmental
Quality’s internal management directives. Information gathered from the Lower Boise River Trading
Pilot project, Virginia Nutrient Credit Exchange, and Connecticut Nitrogen Control Program
regarding market elements, roles, operations, and governing regulatory frameworks was useful in
setting the stage for marketplace development.

What Development of the Market Infrastructure
Revealed
The market infrastructure development process highlighted the immediate need for a centralized
registry and exchange tracking system rather than development of a centralized marketplace. It was
clear that market transparency and credibility were key factors to implementing a successful
marketplace. The centralized registry and exchange tracking system is the information hub for
buyers, sellers, regulators, and the public that ensures credits sold on a market are real, that they are
not sold more than once, and that they are maintained and perform the services intended over time.
While developing a centralized marketplace could eventually be necessary when other regional or
local markets merge and transaction volumes are high, this level of infrastructure was not required,
nor could it be supported by the expected initial transaction volume in the Willamette Basin. Market
appraisal results revealed that there were potentially hundreds of sellers, but there are fewer than 10
buyers who will need temperature credits in the Willamette Basin in the short-term. Focusing efforts
on the development of a centralized registry and exchange tracking system would allow anticipated
restoration actions to be credibly documented and tracked over time. Credibility and integrity
emerged as a key element for a successful marketplace and will likely become so for other markets
emerging around the country.

Lessons Learned
Be aware of skepticism and be clear about credit quality and integrity. Markets for
ecosystem services are new, are not well understood, and are mistrusted. People are becoming more
familiar with ecosystem markets through increased media coverage of voluntary and anticipated
regulatory greenhouse gas markets. To date, those markets have lacked clear standards and a
centralized system to ensure credit quality. As a result, media have reported “bad-apple” examples
where offset credits were purchased but the offset actions were not credible. Markets are an
opportunity to improve the ecological effectiveness of planned regulation-driven investment. The
public needs to be assured that the people building markets have the best interest of the public’s
ecological resources in mind.


SECTION 6 - TASK 4-INFRASTRUCTURE.DOC                                                                6-7
MARKET INFRASTRUCTURE (TASK 4)




Don’t start from scratch – use other infrastructure that has been developed. When
the Willamette Partnership started this process there were no other entities working on similar
programs. Now there are at least five separate programs around the county that could share
infrastructure. The learning curve and costs of developing centralized market infrastructure are high.
When possible, use existing infrastructure to minimize costs and increase standardization of
programs.

Set goals that are achievable and meaningful. Before setting extremely ambitious goals,
make sure you have a diverse and inclusive understanding of the situation. There is always a natural
learning and evolution that is born through actually going through the process, but be aware of what
can be learned ahead of time and determine whether obtaining this knowledge would provide
assurance to the process, help in the long run, or provide other benefits.

Know the size of the market and what it means. Knowing current and projected quantities
of potential buyers, sellers, and transactions will improve efficiency in developing a market
infrastructure that (1) meets marketplace participants’ needs; and (2) is within the scope and
geographic scale of the trading program.

Understand resource capacities. Involving stakeholders and providing the necessary guidance
for successful marketplace development requires time and resources. It is important to know what
resources the stakeholder group has available, their level of commitment, and how that may affect
development of the marketplace. Avoid designing market rules that reduce all risk but leave few
resources to be invested in actual restoration.

Involve regulatory agencies early on. Current regulatory structures are not designed to
support quantification of multiple ecosystem services. Therefore, it is important for both market
enthusiasts and regulatory staff to understand that regulations will need to be augmented to allow
for ecosystem marketplace transactions. In addition, markets involve new roles for many
stakeholders, including agencies. Third parties may be in a position to lead activities previously done
by agencies, and vice versa. It is important to begin the discussion of roles and responsibilities early
on.




6-8                                                                  SECTION 6 - TASK 4-INFRASTRUCTURE.DOC
 Section 7 Transaction
Project and Regulatory
Language Development
       (Task 5)
SECTION 7

Transaction Project and Regulatory
Language Development (Task 5)

The policies, tools, and infrastructure to support transactions in the Willamette Ecosystem
Marketplace are in place. The best way to test the new tools and infrastructure is to conduct a
transaction to see if they work. As described in earlier chapters, challenges to the TMDL for
temperature have postponed the implementation of the market driver in the Willamette temperature
market. The sudden shift in market demand illustrated a long-held suspicion that focusing too
narrowly on a single credit market has important limitations, including risks for potential participants
and for the ecological goals we want to accomplish. Although the tools and infrastructure we
developed under this grant will support the Willamette temperature market when demand is created,
they are applicable to other markets, too. And we were able to demonstrate the value of the
infrastructure by banking three restoration projects in the Tualatin Basin, which is subject to its own
TMDL for temperature.




   Major Accomplishments

   •   Identified and evaluated multiple potential restoration projects that could supply credits.
       Conducted an assessment of existing and planned restoration projects and conducted stakeholder
       outreach and site assessments to evaluate their potential as an initial transaction in the Willamette
       Ecosystem Marketplace.

   •   Developed agency- and stakeholder-approved permit language to support trading when
       NPDES permits with temperature limits are issued. Worked with NPDES permittees, the
       Department of Environmental Quality, and other stakeholders to develop template permit language to
       support trading in NPDES permits.

   •   Banked three riparian restoration projects in the Ecosystem Credit Registry that can be used
       in one of three potential temperature credit markets in Oregon. Registered three riparian
       restoration projects representing more than 37 million kilocalories per day using market infrastructure
       developed as part of this grant.




Because of the large geographic scale and institutional breadth of the Willamette Ecosystem
Marketplace, identifying a pilot transaction and developing regulatory language to support basinwide
multi-credit trading required significant coordination, collaboration, and support from various
stakeholders and project partners.
At the beginning of the grant period, various types of restoration projects, coordinated by many
different organizations, were under way and anticipated in the Willamette Basin. Because of the wide
range of restoration efforts, existing restoration potential, and conservation opportunity maps and
tools were used as a filter to select meaningful transaction project sites that would generate a


SECTION 7 - TASK 5-TRANSACTION.DOC                                                                             7-1
TRANSACTION (TASK 5)




portfolio of ecosystem service credits. Once these potential transaction project sites were selected,
additional information was gathered from project supporters and technical experts to guide the
scope and development of those sites. Although the refined selection process for the potential
transaction sites took into consideration the scale of restoration and types of credits that would be
generated by the restoration actions, the objective of the transaction project was still to facilitate the
transaction of at least one thermal load credit through the Willamette Ecosystem Marketplace
framework.
For the exchange of credits to actually occur, many other requirements had to be met besides
generating at least one thermal load credit through the transaction project. Many of the contractual
and legal agreements required to support the centralized registry and exchange system were
completed under Task 4. However, the actual NPDES permit language needed to authorize and
facilitate temperature trading was completed under Task 5. For trading to work at the scale of the
Willamette, it was important for NPDES permits to share common language and trading
requirements. This process required working closely with the Oregon Department of Environmental
Quality to evaluate existing permit language, identify gaps, and secure approval of template permit
language for trading. Agency staff participated in meetings, provided guidance and support, and
helped officially approve the final version of the permit language. In the transaction project and
regulatory language development process, the Willamette Partnership, its consultants, its partners,
and various stakeholders performed the steps described below.

Transaction Project Development Process
 Step 1: Existing Restoration Projects Inventory. Identified (1) research that was
 under way to monitor and quantify ecosystem services, (2) opportunities for a “pilot transaction
 site,” and (3) academics and technical experts who could inform further development of the
 transaction project.

         Ongoing restoration projects in the Willamette Basin were surveyed and evaluated for their
         relevancy to development of the Willamette Ecosystem Marketplace. The information
         gathered on each restoration project included project activity and focus; partners and
         funding; and project location, scope, robustness, and goals. Among other things, the
         inventory process identified organizations, technical experts, and academics who were
         involved in highly relevant restoration projects. Some of these people were approached to
         determine their interest in participating in the development and selection of the pilot
         transaction project and site.

         Result of Step 1: The result of Step 1 was a matrix that identifies current and planned
         restoration projects with “high” relevancy that could potentially become a pilot transaction
         project the in the Willamette marketplace. It also identifies a key technical groups consisting
         of academics and technical experts who could serve as sources of technical information and
         scientific knowledge during development of the pilot transaction project. The Matrix of
         Current and Ongoing Research and Restoration in the Willamette Basin helped inform the selection of
         possible locations for the pilot transaction project, at a coarse scale.

Step 2: Potential Transaction Sites. Identified potential sites for a pilot transaction in
the Willamette marketplace and key factors that could affect the feasibility of a transaction project at
those locations.


7-2                                                                      SECTION 7 - TASK 5-TRANSACTION.DOC
                                                                                         TRANSACTION (TASK 5)




                                                         Consultants and the key technical group
            Figure 7-1: Priority Restoration Areas –
            Willamette River Basin Planning Atlas        identified in Step 1 met to review and evaluate
                                                         data sources and spatial databases for use in
                                                         helping select a transaction site. Possible sites
                                                        for the pilot transaction were identified using
                                                        information from the synthesis map created for
                                                        the market appraisal (including temperature-
                                                        impaired rivers and streams, according to the
                                                        state’s 303d list) and finer scale data in the
                                                        Willamette River Basin Planning Atlas (Pacific
                                                        Northwest Ecosystem Research Consortium
                                                        2002) to identify sites where water temperatures
                                                        exceed standards, conservation is a high priority
                                                        for many organizations, and restoration
                                                        potential also is high. The atlas incorporates
                                                        economic and demographic constraints when
                                                        rating 1-kilometer “slices” of the Willamette
                                                        River and floodplain for their restoration
                                                        potential. Another selection criterion that
                                                        became important was the spatial extent of the
                                                        potential transaction project site. The
                                                        restoration project needed to be large-scale and
                                                        be able to generate a portfolio of multiple types
                                                        of ecosystem service credits.

                                                        Findings of Step 2: Three potential transaction
                                                      sites were identified that contained
                                                      opportunities to reduce thermal load and
                                                      enhance other ecosystem services: Green
                                                      Island, the Long Tom, and a site near Albany.
                                                      Green Island was identified as a potential pilot
                                                      transaction site with an opportunity for fish
                                                      habitat and wetland restoration, the Albany site
         offered opportunities for wetland restoration, and the Long Tom was a potential riparian
         restoration site.

         At a meeting of the Willamette Partnership Board of Directors and the consulting team,
         constraints and opportunities at each potential site were examined. Factors that were
         considered included the ecological opportunities of each site, how the credits that would be
         generated at the site would fit into the concept of an ecosystem services portfolio, resource
         constraints, political constraints, and other issues regarding initiating a transaction project.

         The Partnership determined that each of the three potential pilot transaction sites would
         need to be explored further so that the ecological and political constraints and opportunities
         of each potential site could be better understood. Consequently, consultants and project
         partners scheduled meetings and site visits with selected potential transaction project



SECTION 7 - TASK 5-TRANSACTION.DOC                                                                   7-3
TRANSACTION (TASK 5)




         coordinators to gather more detailed information on how a transaction project could be
         implemented at the selected sites.

Step 3: Investigation of Potential Transaction Project Sites. Investigated the
suitability of the three potential transaction project sites through a site visit (at Green Island) and
meetings, research, and discussions.

         Technical experts, academics, regulatory agencies, conservationists, and landowners
         conducted a site visit at Green Island to learn about landowner needs, conservationist needs,
         and geophysical and river system needs, and to evaluate the feasibility of launching a pilot
         transaction project. Green Island had been identified as providing opportunity for fish
         habitat and wetland restoration.

         In addition, meetings were held to explore the feasibility of the Albany and Long Tom sites
         as potential transaction project sites. The Albany meeting focused on understanding current
         constructed wetlands projects, temperature reduction, and water quality improvement
         potential. The Long Tom meeting focused on understanding current riparian shading
         projects and temperature reduction potential.

         Findings of Step 3: Green Island. The ecological restoration opportunities at Green Island
         were enormous. However, Green Island site managers had adopted a U.S. Fish and Wildlife
         Service restoration plan, and this plan did not include some of the dynamic processes of the
         river, such as hyporheic restoration and other ecosystem services that the Willamette
         Partnership was interested in pursuing for ecosystem credit portfolio development. The
         Partnership wanted to include additional restoration efforts in the adopted management plan
         that would provide a portfolio of a broader range of ecosystem credits.

         Because a federal management plan for Green Island had been approved for funding and
         was in the process of being implemented, potential credits generated through these
         restoration projects could not be traded in a marketplace. In addition, during initial
         discussions with federal managers there was tremendous resistance to exploring credit
         opportunities at Green Island. For these reasons the Willamette Partnership and its
         consultants did not pursue launching a transaction project at Green Island.

         Findings of Step 3: Albany site. The Albany site was identified as providing various
         ecosystem services related to water quality, such as biological oxygen demand, nutrient and
         temperature reduction, and flow improvements through wetland restoration and habitat
         benefits. The restoration project at the Albany site would need to be completed in two
         phases. When fully implemented, it will represent one of the largest restoration projects on
         the Willamette River and will generate significant ecological value and potentially multiple
         ecosystem credit types. However, the first phase of the project, would address only
         temperature, through constructed wetlands.

         The first phase of the Albany project was not of a scale that would be large enough to
         generate a portfolio of ecosystem service credits. But the first phase would substantially
         address the City of Albany’s temperature load limits. Thus, the Willamette Partnership
         decided to continue to work closely with the City of Albany as the project developed but to
         not pursue developing an initial transaction project at the site in the short term.


7-4                                                                      SECTION 7 - TASK 5-TRANSACTION.DOC
                                                                                       TRANSACTION (TASK 5)




         Findings of Step 3: Long Tom. Long Tom was identified as an opportunity for providing
         temperature reduction through riparian shading restoration. TMDL data indicate that the
         Long Tom River is the most underperforming tributary for shade in the Willamette Basin.
         The difference between current and potential effective shade levels at the Long Tom is 32
         percent (Long Tom Watershed Council 2008). Modeling suggests that shading the entire
         lower section of the Long Tom River, from Fern Ridge Reservoir down to the southern
         confluence at Norwood Island, could reduce the temperature of the river as much as 4° C.
         Therefore, there is significant thermal load reduction potential along the lower Long Tom
         River (Long Tom Watershed Council 2008).

         The Long Tom Watershed Council also has a strong and ongoing relationship with the City
         of Eugene—one of the largest potential buyers in the Willamette temperature market. The
         City of Eugene contracted with the Long Tom Watershed Council to investigate
         opportunities for restoration to meet thermal load obligations and was actively engaged and
         interested in ecosystem service credit generation. In March 2008, The Long Tom Watershed
         Council produced a report for the city of Eugene titled Ecosystem Restoration in the Long Tom
         River Basin for Water Quality Improvement in the Willamette River. The report documents the
         process of identifying restoration opportunities and assessing landowner concerns and
         interest in participation in an ecosystem marketplace.

         The Willamette Partnership determined that the Long Tom was a suitable site to launch a
         pilot transaction project.

Step 4: Transaction Project Initiation. Created a transaction working group to
address details of a transaction between the Metropolitan Wastewater Management Commission
(Eugene-Springfield) and a land manager in the Long Tom watershed and drafted standard
agreements for use in this and other transactions.
         The Willamette Partnership convened a transaction working group to develop standard
         agreement templates using the City of Eugene and a landowner in the Long Tom watershed
         as buyer and seller representatives. The group consisted of representatives from the cities of
         Eugene and Albany, the Long Tom Watershed Council, and a landowner in the Long Tom
         watershed. The group communicated regularly over several months to provide comments
         and suggestions on key credit trading documents.

         Results of Step 6: The transaction working group drafted the Standard Agreement for
         Credit Exchange and Standard Agreement for Credit Registration, which are suitable for use
         in a transaction involving temperature credits generated in the Long Tom. These documents
         were intended to support near-term credit transactions by outlining buyer and seller
         responsibilities in exchanging credits and credit owner and registrar responsibilities in
         registering credits. At the end of Step 4, a riparian shade restoration project in the Long Tom
         was fully documented and ready to be registered.




SECTION 7 - TASK 5-TRANSACTION.DOC                                                                 7-5
TRANSACTION (TASK 5)




         ⇒ Key event: While the transaction working group was completing its work, The Metropolitan
           Wastewater Management Commission was still in the process of challenging the TMDL. As a result,
           the Long Tom transaction could not occur during this grant period. Until the uncertainty associated with
           future demand for temperature credits is resolved, it is unlikely that the Long Tom landowner will be
           willing to bear the expense of the riparian shade restoration project.


Step 7: Transaction Coordination. Coordinated a banking transaction using the new
Willamette Ecosystem Marketplace framework.
         As has been described in earlier chapters, multiple challenges to the regulatory driver for
         temperature credits in the Willamette Basin reduced the urgency of demand and created
         uncertainty for those who would be suppliers of credits. As a result, no permits with thermal
         load limits have been issued and no trading transactions can occur. The uncertainty about
         the level of demand for temperature credits that will ultimately exist when lawsuits are
         settled has eliminated speculative investment in credit banks in the same way as has occurred
         with other markets, such as wetlands.

         Clean Water Services operates an active temperature trading program internally for use in its
         own permits. Clean Water Services is subject to temperature TMDL for the Tualatin River
         that is separate from the TMDL in the Willamette. In the last 5 years, Clean Water Services
         has restored more than 30 miles of streams to off-set excess thermal load from four sewage
         treatment facilities. To date, Clean Water Services has managed registration and
         documentation of credits with internal systems geared to support regulatory compliance
         reporting.

         There are few, if any, other permittees in the Willamette Basin with the resources to develop
         and operate such a program internally in the way Clean Water Services has done. This very
         fact was one of the driving forces behind development of the Willamette Ecosystem Services
         Marketplace. The Willamette Partnership understood that if the ecological successes like
         those seen in the Tualatin were to be realized elsewhere, a new system would be needed that
         encouraged and enabled those with no regulatory responsibility to take restoration actions
         and bring the products—“credits”—to the market.

         Clean Water Services also sees the value in such a system to serve its own needs—registering
         credits that it has developed but not yet used against any permit obligation. While the
         regulatory driver in the Tualatin Basin is different, the need for credit registration and
         tracking is the same.

         Clean Water Services has committed to the first credit banking transaction using the new
         marketplace infrastructure.

         Results of Step 7: A June 27, 2008, letter stating Clean Water Services’ intent to register
         thermal load credits in the Ecosystem Credit Registry is being provided to the U.S.
         Environmental Protection Agency. In addition, a tour will be given to the Willamette
         Partnership’s EPA grants officer to demonstrate how three projects representing more than
         2 miles of stream restoration and 38 million kcal/day of thermal load reduction are
         registered and tracked on the Ecosystem Credit Registry operated by the Willamette


7-6                                                                           SECTION 7 - TASK 5-TRANSACTION.DOC
                                                                                     TRANSACTION (TASK 5)




         Partnership. Clean Water Services completed and submitted the Standard Agreement for
         Registration created under Task 4, and all information needed to populate the registry was
         included. This transaction represents a significant milestone for the Willamette Ecosystem
         Marketplace.


Regulatory Language Development Process
Step 1: Existing Permit Framework. Determined the types of restoration actions that
could be incorporated into the existing NPDES permitting framework for thermal load trading and
where additional research should be focused to further develop methods for quantifying thermal
load reductions from restoration actions.

         The Willamette Partnership, academics, technical experts, regulatory agencies, consultants,
         and other professionals involved in the research and technical development of the
         Willamette marketplace met to discuss the existing NPDES permitting framework and
         additional research needs. Ongoing technical work in the Willamette Basin was summarized,
         and research needs were identified that would aid in quantifying thermal load reductions
         from different restoration actions.

         Results of Step 1: It was determined that mechanisms for calculating riparian shading, flow
         augmentation, and wetland restoration temperature reduction credits had been developed
         and could potentially be extrapolated to other types of restoration. However, mechanisms
         for calculating credits from the floodplain restoration would need to be developed so that
         they could be incorporated into the permitting framework.

Step 2: Permit Language Development. Developed NPDES permit language that
will allow temperature credit trading as a compliance option for NPDES permittees.

         A regulatory working group consisting of the Willamette Partnership, technical experts, and
         representatives of the Oregon Department of Environmental Quality, the U.S.
         Environmental Protection Agency, and municipalities met to discuss incorporating the
         marketplace concept into the NPDES permitting process. Draft permit language was
         developed using information from Clean Water Services’ watershed-based NPDES permit
         and other existing NPDES permits and provided to the regulatory working group for review.
         The Partnership and the Oregon Department of Environmental Quality identified gaps
         between the draft permit language and the DEQ regulatory framework, after which the
         regulatory working group identified issues related to the permit language that would need to
         be addressed and drafted permit language.

         Consultants incorporated review comments from the regulatory working group and prepared
         a second draft of the NPDES permit language for thermal load issues. This second draft was
         reviewed by a permit language review team that had representatives from municipalities and
         industry (the City of Eugene and Weyerhaeuser Company), the U.S. Environmental
         Protection Agency, and Defenders of Wildlife. Again, comments from the review team were
         incorporated into the draft permit language and the language was finalized.




SECTION 7 - TASK 5-TRANSACTION.DOC                                                               7-7
TRANSACTION (TASK 5)




         Result of Step 2: The result of Step 2 is the Final NPDES Permit Language for Thermal Load
         Issues document, which provides NPDES permit language to allow for trading of water
         quality credits in the Willamette Basin.



         ⇒ Adjunct Work: Oregon Department of Environmental Quality staff will continue to meet internally
           and externally to coordinate and set protocols and mechanisms to serve credit trading through the
           Willamette Ecosystem Marketplace. The Oregon Department of Environmental Quality Water Quality
           Trading Internal Management Directive (IMD) (January 2005) describes the legal and policy basis for
           trading in Oregon. The IMD lists a number of policies dealing with regulatory compliance, enforceability,
           public participation, protection of designated uses, antibacksliding, antidegradation, baselines, credit
           creation and duration, compliance and enforcement, program evaluation, U.S. Environmental Protection
           Agency oversight, and dissolution of credits.

             These authorizations and policy pronouncements establish a solid framework for trading but will need to
             be supplemented by a variety of mechanisms to fully implement a trading program that includes Clean
             Water Act pollutants. Most of these supplementary documents were produced under Task 4.
             Mechanisms identified for such development and adaptation include (1) NPDES Thermal Load Issues
             (completed), (2) development of the Internal Management Directive for Willamette Partnership/Oregon
             Department of Environmental Quality framework, and (3) legal elements required to implement the
             ecosystem marketplace (completed; see Task 4, Step 3).


Timeframe, Participants, and Resources
The regulatory language was finalized in May of 2008, but it has not yet been applied to a permit
because of ongoing legal challenges at the Oregon Department of Environmental Quality. The
transaction project is represented by credits that are banked in the Ecosystem Credit Registry
managed by the Willamette Partnership. Ongoing work will refine Oregon Department of
Environmental Quality’s internal management directive to appropriately outline regulatory
responsibilities and roles in thermal credit trading processes in the Willamette Ecosystem
Marketplace.
The Willamette Partnership’s consultants, academics from Oregon State University and the
University of Oregon, and other technical experts were involved in selecting and developing a
transaction project site. Various other organizations, such as the U.S. Environmental Protection
Agency, U.S. Fish and Wildlife Service, McKenzie River Trust, technical experts from CH2M HILL,
the cities of Albany and Eugene, Wah Chang, Weyerhaeuser, and the Long Tom Watershed Council
provided guidance throughout the selection process and helped to shed light on the political,
ecological, and funding issues associated with the potential transaction sites.
Maps and data layers used to select the potential transaction project sites came from The Nature
Conservancy, the Willamette River Basin Planning Atlas (Pacific Northwest Ecosystem Research
Consortium 2002), and the Oregon Department of Environmental Quality. Academics from Oregon
State University and the University of Oregon provided input on other physical, hydrologic,
geologic, and spatial features incorporated in the transaction project site selection process. The
McKenzie River Trust, Oregon Department of Fish and Wildlife, the City of Albany, and the Long



7-8                                                                            SECTION 7 - TASK 5-TRANSACTION.DOC
                                                                                       TRANSACTION (TASK 5)




Tom Watershed Council provided restoration project information to the consultants and technical
staff working on transaction project development.
Consultants coordinated meetings with Oregon Department of Environmental Quality staff and
incorporated all comments and changes suggested by them and the review team. The permit
language review team was composed of representatives from the U.S. Environmental Protection
Agency, Defenders of Wildlife, Weyerhaeuser, and the City of Eugene. Oregon Department of
Environmental Quality staff provided integral feedback throughout development of the NPDES
Permit Language for Thermal Load Issues. The language development process was aided in
particular by Ranei Nomura, an Oregon Department of Environmental Quality employee, who was
assigned specifically to work with the Willamette Partnership in coordinating, approving, and
finalizing permit language development with the internal department staff.

What the Transaction and Regulatory Language
Development Process Revealed
The Willamette River Basin Planning Atlas (Pacific Northwest Ecosystem Research Consortium 2002)
and the synthesis map developed for the market appraisal provided extremely useful information
about which areas in the basin were opportune for restoration and thus helped guide the selection
and development of the transaction project.
Reviewing ongoing and planned restoration projects and using the restoration potential and
conservation opportunity area maps as screening tools revealed that, despite the quantity of ongoing
and planned restoration projects in the Willamette Basin, the majority of these efforts did not
represent an integrated, systems approach to holistic ecosystem restoration. Many of the planned
projects were focused on one species, one habitat type, or one restoration action, or they were too
small to provide an understanding of the multiple types of ecosystem services that could be
generated from different restoration actions. This realization became important in the Willamette
Partnership’s rationale for developing a marketplace and its efforts to further develop the synthesis
map into a user-friendly and interactive tool to facilitate larger scale restoration across the basin in
priority conservation opportunity areas. “Postage stamp” restoration projects will not achieve the
level of ecological integrity necessary to create a sustainable future for the basin. There clearly is a
growing need to match ecological opportunity areas with restoration actions and to facilitate
basinwide restoration actions.
Secure and sound drivers are fundamental to market success. The willingness of people to consider
restoration actions in advance of impacts with the expectation of using or selling them later vanishes
when drivers are uncertain.
The importance of developing an integrated multi-credit market was confirmed when the demand
driver for temperature was postponed. If an integrated ecosystem service market were operational
and markets for other ecological values existed, people who could take restoration actions to
participate in markets would be able weather the temporary loss of one market option, because
several would be available to them. An integrated, multi-credit marketplace would have the effect of
reducing risk for land managers and potentially lessening the dampening effect of a major regulatory
driver being postponed.




SECTION 7 - TASK 5-TRANSACTION.DOC                                                                 7-9
TRANSACTION (TASK 5)




Lessons Learned
Involve the regulatory agency early on. Consistent regulatory agency participation is essential
throughout the policy augmentation process to ensure approval and an easy, fluid adoption of the
altered regulatory language into the permitting process. While coordinating agency participation may
seem like a daunting task, it is crucial if trading of credits is to be incorporated into the permitting
framework.

Make it real for stakeholders early. Identify candidate buyers and sellers early and complete a
sample transaction, even if incomplete, as soon as possible. Much confusion about roles and
perceptions about the complexity of the marketplace were eliminated once contract agreements
started to be developed and interested parties talked through some of the details of a transaction
between actual buyers and sellers of credits—even though the exercise was hypothetical.

Use the tools you have. Restoration evaluation tools that had been previously developed for the
basin became extremely useful in selecting meaningful transaction project sites. Leveraging the work
of others saves resources, broadens support, and communicates a more collaborative and involved
message to stakeholders.

Allow yourself some options. The development and selection phase of a transaction project is
challenging because of the amount of coordination among parties, the technical and scientific effort
needed to validate the transaction project, and, sometimes, a lack of information about funding.
Because of the level of effort required to orchestrate a transaction project, you must
initiate conversations with potential transaction project partners early on in the process. It is
extremely important to start broad and have multiple options for potential transactions, so that if the
project that was originally envisioned does not pan out, you still have time to focus on another
potential project site for the transaction.




7-10                                                                   SECTION 7 - TASK 5-TRANSACTION.DOC
     Section 8 Policy
Considerations Specific to
the Temperature Market
SECTION 8

Policy Considerations Specific to the
Temperature Market

The amount and quality of conservation and restoration that is achieved in the Willamette
Ecosystem Marketplace will depend greatly on regulatory agencies—particularly the Oregon
Department of Environmental Quality. A water temperature credit program represents a significant
opportunity to facilitate restoration of natural conditions that cool water in streams and create
habitat for cold-water-dependent fish species—especially in rural parts of the Willamette Valley
where regulatory controls are limited. Agency policies obviously play a key role in creating demand
for ecosystem service credits that can be sold on a market. In the case of the Willamette, the
temperature TMDL is the single largest driver of demand for temperature credits. It is doubtful that
the Willamette Ecosystem Marketplace would have been initiated without the introduction of a
restrictive TMDL. But agency choices influence much more than demand. The right policies, rules,
and regulations can make it easier for people to participate in the marketplace, increase the
ecological quality of credits generated and sold, instill confidence about the long-term integrity of
the marketplace, and help marketplace organizers capitalize on the growing momentum to use
market forces to address pressing environmental challenges. Throughout the process of developing
the Willamette Ecosystem Marketplace, the Willamette Partnership has worked to identify and
explore relevant policy issues that will help the marketplace succeed as a vehicle for effective
ecological restoration.
The process of developing the marketplace has illustrated the delicate balance that exists between
supply and demand when a new market-based initiative is launched. In the Willamette marketplace,
demand for temperature credits is created largely by the TMDL. Supply is made available once credit
definition methodologies have been agreed upon, restoration protocols have been developed,
marketplace infrastructure has been created, and an adequate number of actual restoration projects
have been completed. In the early stages of the marketplace, supply will be partly a function of
capacity and motivation—how quickly can the restoration sector complete projects that generate
credits, and how certain is it that buyers will need or want the credits they produce? Development of
supply and demand needs to be coordinated so supply is available within a reasonable amount of
time after demand is created; otherwise, potential buyers will find other ways to meet their regulatory
obligations. At the same time, regulatory drivers need to be firm enough to give suppliers confidence
that demand is real. Also, knowledge and awareness of pending demand need to develop in a timely
manner so there is adequate time to develop supply before obligations need to be met.
Clearly, a lack of ready supply can hamstring early efforts at marketplace development. So, too, can
elaborate or complicated marketplace procedures. To attract buyers and sellers, an ecosystem
marketplace must be easier, faster, and less expensive to use than conventional options for permit
compliance. This is especially true in a low-volume marketplace like the Willamette, which does not
have the economies of scale that larger markets offer.
Recognizing the challenges of small size and the need to balance supply and demand, the Willamette
Partnership supports policies that speed development of supply, maximize marketplace efficiency,
and support “early adopters,” meaning those who choose to engage in market trading early on. The


SECTION 8 - POLICY CONSIDERATIONS.DOC                                                            8-1
POLICY CONSIDERATIONS SPECIFIC TO THE TEMPERATURE MARKET




Willamette Partnership has encouraged the Oregon Department of Environmental Quality to
consider the following policy issues that will improve the ecological effectiveness, administrative
efficiency, and credibility of marketplace activity for temperature credits in the Willamette. Policy
recommendations include:
      •   Set a baseline date. Allow restoration projects that meet minimum standards and were
          completed after the date the TMDL was adopted in September 2006 to be eligible to sell
          credits against a temperature TMDL obligation. The date the TMDL was signed represents
          the date that a cap on thermal load was officially established in the Willamette Basin.
          Enabling projects after that date will increase the early supply of credits.
      •   Encourage credit “banking” to promote early actions. When a project is
          completed in advance of an impact, credits generated from that project can be held for use
          or sale at a later date. Such credits are called “banked” credits. Such projects are similar to a
          savings account or an investment that is expected to grow in value over time. Early actions
          are good for the environment and should be encouraged. It does not appear likely there will
          be a large demand for immediate temperature credits driven by Willamette temperature
          TMDL permit requirements. Allowing credit banking would encourage third parties to make
          significant investments in credit projects that they could sell to buyers who need them at a
          later date.
      •   Encourage the use of a centralized credit registry. A centralized credit registry is
          the core of an ecosystem services marketplace. It provides the information needed to assure
          regulators, buyers, sellers, and the public that credits are valid. A registry must be
          transparent. The Willamette Partnership favors the use of a centralized credit registry
          operated by a third-party non-profit governed by a coalition of stakeholders who have an
          established interest in ensuring the integrity and quality of credits.
      •   Encourage investment in priority areas. Scientists and stakeholders have worked for
          more than a decade to identify conservation and restoration priorities in the Willamette
          Basin. Markets represent an opportunity to increase investment into the places and activities
          most likely to improve conditions for the cold-water-dependent species the TMDL for
          temperature is intended to address. After considering a wide range of options, the
          Willamette Partnership supports the use of a percentage requirement to direct marketplace
          investment to high-priority areas. This would mean that, for a given permit, a certain
          percentage of the offset credits used would need to come from restoration projects in
          priority areas. (The required percentage could be tied to the amount of priority area within
          the particular trading area.) The benefit of this policy is that it would guarantee investment in
          priority areas, regardless of market prices and conditions.
      •   Establish service areas. Service areas mark the geographic boundaries within which
          buyers and sellers of an ecosystem service credit can interact. Service areas are determined
          based on the service being performed. For temperature credits in the Willamette, three
          service areas should be established, defined by the three points of maximum impact
          identified in the TMDL. It is the Willamette Partnership’s preference that water temperature
          credits generated anywhere in the watershed upstream of a point of maximum impact be
          available for use by buyers within or downstream of that service area. Such a system would
          create a nested pyramid of trading areas in which, for example, the City of Salem could buy
          credits from projects around Eugene, but the city of Eugene could not buy credits from


8-2                                                                    SECTION 8 - POLICY CONSIDERATIONS.DOC
                                                        POLICY CONSIDERATIONS SPECIFIC TO THE TEMPERATURE MARKET




         projects in the Salem area because Salem is below the point of maximum impact to which
         Eugene is subject. The Willamette Partnership does not support a policy that would limit
         trading to areas upstream of a specific buyer’s point of discharge. Such a policy would reduce
         the opportunity to leverage the resources of multiple buyers for large projects in strategic
         areas.
    •    Do not discount credits for time and distance to points of maximum impact.
         Given that flowing water is subject to multiple cycles of heating and cooling, spatial and
         temporal discounting is sometimes used to account for the difference between the
         temperature benefit provided at the site of a restoration project and the temperature benefit
         at some point downstream from the restoration site. For example, if a mile of streamside
         shade were planted along a tributary stream, modelers would estimate the cooling effect of
         that action at a specific point in the river downstream, such as at an agency-determined point
         of maximum impact or a specific credit buyer’s point of discharge. The Willamette
         Partnership supports current DEQ policy that a kilocalorie per day produced by an
         ecological restoration or flow augmentation project is worth a kilocalorie per day, regardless
         of the distance between the credit generation site and the credit buyer’s physical location.
         Although the Willamette Partnership recognizes that spatial and temporal discounting may
         be appropriate when point sources are trading TMDL allocations amongst themselves, it is
         the Partnership’s view that applying spatial discounting to ecological restoration activities
         could discourage strategic actions that would provide substantial benefits to fish and wildlife
         habitat. The TMDL for temperature is driven by the needs of cold-water-dependent species
         that need more and better habitat at the right times of year. Encouraging strategic
         investment in ecological restoration is one of the primary purposes of a point-source to non-
         point-source trading program.
At the time of this writing, the internal management directive that will guide temperature credit
trading in the Willamette Basin was still being revised.




SECTION 8 - POLICY CONSIDERATIONS.DOC                                                                   8-3
Section 9 Continuing the
Ecosystem Marketplace
SECTION 9

Continuing the Ecosystem Marketplace

Significant financial investments in ecosystem conservation and restoration are needed to achieve a
sustainable future in which healthy and resilient ecosystems are the foundation of healthy
communities and economies. Ecosystem service markets can help, but to ensure that the Willamette
Ecosystem Marketplace grows and is capable of improving ecological conditions at a scale that will
make a difference, we need an integrated marketplace that trades in multiple credits driven by
multiple drivers.
One of the key lessons of this project is the limitation of single market drivers that have limited
scope and scale and are subject to political and legal challenges. The future of ecosystem
conservation and restoration will require us to achieve a higher degree of integration across
ecosystem objectives than currently exists. Ecological and economic goals must become aligned in
the marketplace so that they provide, the resources needed to finance restoration, drive new
business opportunities, and achieve an economic and environmentally sustainable future.
Strategies for moving forward to continue and expand the ecosystem marketplace need to focus on
three core areas:
    •    Supportive policies that encourage and enable markets to integrate and thrive
    •    Development of a third-party organization to manage centralized market infrastructure and
         standards that ensure efficiency and credibility
    •    Technically sound credit accounting protocols that define multiple credit types based on
         ecological functions
Activities in these three core areas will not succeed if they are undertaken in isolation. The policies,
infrastructure, and technical tools needed for an integrated ecosystem services marketplace to thrive
must be mutually supportive and must be developed and implemented together. The strategies
described in this section represent the next steps for bringing an integrated ecosystem services
marketplace to fruition.

An Integrated Ecosystem Services Marketplace
Even with the landmark state and federal environmental laws of the last 30 years in place, our most
fervent efforts at conservation and restoration are not keeping pace with ecological decline. We are
falling behind, despite the best of intentions. Continued degradation of ecosystem health will have
negative effects on our economies, resource base, and quality of life.
Oregon is home to many significant innovations that use market-based programs to provide
ecosystem services. For example, the Climate Trust, the Oregon Water Trust, the Deschutes River
Conservancy, and Clean Water Services have been national leaders in using carbon and water
markets to help achieve ecosystem goals. Leadership at the local and regional levels has been and
continues to be strong and creative, and business and political leaders at the highest levels across the
state are engaged in and informed about ecosystem service issues and tools.


SECTION 9 - CONTINUING THE MARKETPLACE.DOC                                                        9-1
CONTINUING THE ECOSYSTEM MARKETPLACE




Early in the development of the Willamette Ecosystem Marketplace, it was clear that the policy,
infrastructure, and technical innovations needed to ensure success of an integrated marketplace were
of statewide and even regional significance, not bound by the geography of a watershed like the
Willamette. The experience of developing the policies, tools, and infrastructure to support a multi-
credit marketplace under the auspices of the Willamette Ecosystem Marketplace enabled us to see
clearly that a fully integrated ecosystem marketplace will need to cross geographic, jurisdictional, and
institutional boundaries.

Why Is an Integrated Marketplace Needed?
There are many reasons to create an integrated ecosystem marketplace, the most significant being
that existing regulatory programs could realize greater ecological results than they currently do. As
we have seen in the Willamette temperature market, a narrow regulatory focus on temperature limits
our ability to address the full suite of habitat features needed by the species the regulation is
intended to protect. As a result, temperature for fish may be improved, but critical habitat elements
like gravel, food, and wood remain unchanged and will continue to degrade without other regulatory
or market drivers to reverse the trend. Such a system is equivalent to attempting to grow a plant by
spraying the roots with water but providing no soil or sunlight.
An integrated ecosystem services marketplace would enable a variety people who are regulated by a
variety of regulations that are enforced by a variety of regulatory agencies to pay for large-scale
restoration actions that address a whole spectrum of ecological conditions. In an integrated
ecosystem services marketplace, the policies, infrastructure, and tools would be in place to enable a
person who needs only temperature credits to buy just the temperature benefits of a restoration
project, while someone who needs habitat credits could buy the large wood and gravel recruitment
portions of the project. Such a system would create incentives for larger and more ecologically
holistic actions and would guard people who take voluntary restoration actions against the risk of
week or fickle demand drivers.
Existing markets address individual ecological elements like wetlands, water temperature, nitrogen,
phosphorus, endangered species, and carbon. Each operates at a different scale and is governed by a
unique set of laws and administrative rules. The effect of this approach is to discourage investors
and landowners from participating in multiple markets. Although there may be a smattering of
individual projects, it will be difficult to finance large significant restoration projects that provide
multiple ecosystem values if it is not easy for land mangers to sell the services they have created. In
an integrated ecosystem services marketplace, agencies would be able to coordinate programs more
effectively so that landowners are not intimidated by the administrative complexity of participating
in the market and transaction costs would not exceed the value of the credits generated.
A marketplace is simply a location—real or virtual—where buyers, sellers, and intermediaries meet
to exchange goods and services. Markets emerge where the buyer perceives that benefits exceed the
costs of engaging in trade. Two types of costs predominate in most markets. One is the payment
made to sellers to compensate them for providing the good or service. The other is payments to
intermediaries or other costs such as time, processing, fees, and appraisals. The latter are called
transaction costs. A fundamental requirement for markets to emerge is that there must be gains
from trade for the buyer and seller, after adding up the costs to participate.
Ecosystem services present a uniquely complex case in market development. With “products” such
as reduced water pollution, restored aquatic habitat, and sequestered carbon, the purchase costs are


9-2                                                            SECTION 9 - CONTINUING THE MARKETPLACE.DOC
                                                                       CONTINUING THE ECOSYSTEM MARKETPLACE




probably the most studied and relatively well known element of the equation. At the same time,
while many people have been convinced that ecosystem conservation and restoration provide
important benefits, these benefits are difficult for any one group or individual in society to capture.
As a result, the demand to buy these services has often seemed limited. Finally, the general
economic principle that transaction costs in new areas of exchange will typically be high has been
confirmed by initial experiences with market-based approaches in this field. Thus the emergence of
an integrated marketplace will require clear financial and economic incentives. Stimulating market
demand will be essential, as will efforts to keep transaction costs low and credibility high. Because
government regulations and agencies will be central to stimulating demand, many of the strategies
that need to be employed revolve around stimulating demand, minimizing transaction costs, and
ensuring credibility.
An ecosystem marketplace can be viewed as a broad umbrella covering the full suite of mechanisms
that promote investment in our ecosystems. Currently we have a well-intentioned but ad-hoc set of
programs, rules, initiatives, and pilots. There are a vast number of regulatory and non-regulatory
(“voluntary”) programs that span a number of ecosystems and specific ecosystem goods and
services. Creating a marketplace using a comprehensive and integrated approach involves finding
and resolving the gaps and overlaps in existing initiatives and moving to more efficient strategies for
stimulating demand and conducting transactions in the marketplace.

Core Area: Supportive Policies that Encourage and
Enable Markets to Integrate and Thrive
It is important to acknowledge that over the last 30 years, landmark changes in public policy and
new environmental laws have made progress addressing some of the most visible and egregious
sources of environmental degradation. However, these laws have too often focused solely on
specific impacts and individual species and habitats. In addition, legal requirements have typically
steered efforts toward the mitigation of specific impacts at or near the site of impact, leading to a
hodgepodge of small, localized efforts. Treating isolated problems fails to consider the overall health
of our natural environment. While such efforts may reduce the impacts, they may not effectively
cope with the cumulative nature of gradual erosion and degradation of our ecosystems.
The future of ecosystem conservation and restoration will require us to achieve a higher degree of
integration across ecosystem objectives. This will enable ecological and economic goals to become
aligned in the marketplace, providing the needed resources to finance restoration and drive new
business opportunities.
Integration across services in a market must start with public policies to encourage and support the
development and use of ecosystem service markets. In order to attract both buyers and sellers of
ecosystem services, markets need to be accessible, transparent, and not overly burdened by
administrative complexity. Agency policies, rules, and procedures need to balance precision and risk
avoidance with effectiveness and cost. Special attention to reducing risk for early market participants
may be necessary to launch marketplace initiatives and develop pilot projects.

Agree on Ecosystem Goals
In the Willamette Valley, different researchers and agencies have developed multiple conservation
and restoration priority schemes. The Nature Conservancy and Willamette Partnership integrated
these disparate schemes into a single synthesis map of conservation priorities and discovered, not


SECTION 9 - CONTINUING THE MARKETPLACE.DOC                                                          9-3
CONTINUING THE ECOSYSTEM MARKETPLACE




surprisingly, there was substantial alignment. The synthesis map can be used to direct ecosystem
marketplace investments in a much more strategic, ecologically viable manner. Adoption and use of
a framework for developing priorities based on the Willamette and other experiences may assist
other regions in undertaking similar efforts.
A coordinating body is needed to work with stakeholder groups at different scales to use existing
plans and information to select and agree upon priority ecosystems and sites. The Synthesis Map
Working Group that has already been convened by the Nature Conservancy and the Willamette
Partnership is a logical starting point for this coordinating body. Any effort to prioritize investments
must be adaptive and dynamic.
      •   Priority maps should be based on best available science (but will never be perfect).
      •   Priority maps and policies should be dynamic and flexible enough to include new
          information and knowledge and to adapt to unintended consequences.
      •   Policies should encourage and, where possible, reward the use of priority maps but should
          not imply that work happens only in priority areas.
      •   Policies must avoid sending a message to landowners and managers that lands that do not
          fall within priority maps are not ecologically valuable.
      •   Local priorities need to be included alongside state- or landscape-level priorities.

Balance the Use of Outcome-based and Prescriptive Rules
The prescriptive nature of many regulations can lead to a focus on fixing small, specific problems
using predefined approaches and existing technologies. Such rules may fail to harness market forces
and promote private-sector innovation. An alternative to a focus on narrow prescriptive measures is
to clearly state the desired outcomes of regulations and the acceptable indicators of having achieved
the outcomes. Specifying the outcome and leaving the path to achieving that outcome open spurs
innovation. Although the Willamette temperature market will certainly create significant ecological
improvements when fully implemented, the narrow focus of measurement criteria—kilocalories per
day—proved a significant barrier to including floodplain restoration actions in the marketplace.
Floodplain restoration is known to improve stream temperature regimes and provide significant
habitat for cold-water-dependent species, but the dynamic nature of floodplain systems currently
does not enable precise measurement of kilocalories per day. Still, not all ecosystem services are
amenable to measurement and enforcement. There is little point in developing an outcome-based
approach if the resulting rule will be unclear or lack “teeth.” The route to compliance needs to be
clear.
Identify opportunities to improve existing prescriptions and/or shift to outcome-based approaches.
Floodplain restoration is the most logical place to start this work for integrating market activities.
Floodplain restoration could generate significant offset credits for water quality, endangered species,
and flood damage protection. Floodplain restoration activities would be relevant to the full suite of
state and federal regulatory agencies involved in both driving demand through regulations and
regulating actions for restoration. When developing outcome-based policies, the following need to
be considered:
      •   Outcomes need to be tracked against restoration goals, so that it is clear how individual
          actions and projects contribute to meaningful restoration at scale.


9-4                                                              SECTION 9 - CONTINUING THE MARKETPLACE.DOC
                                                                         CONTINUING THE ECOSYSTEM MARKETPLACE




    •    Outcomes need to be measurable and enforceable to be meaningful.
    •    Straightforward surrogates for the outcome may be chosen as a second-best approach.
    •    Whether rules are prescriptive or outcome-based, regular monitoring and evaluation of
         outcomes and actions is required.
    •    Agencies may wish to certify third-party firms to carry out evaluations, particularly if similar
         outcomes or technologies are being evaluated in non-regulatory (voluntary) ecosystem
         markets.

Encourage Adaptive Management and Risk-Taking
The threat of third-party litigation makes agencies risk-averse, by training and experience. Risk
aversion is a fundamental cause of prescriptive rule-making as agencies seek to limit the ability of
those being regulated to deviate from a prescribed path for fear that the agency would then be
culpable. This can lead to long and costly routes to regulatory approval and discourages the adoption
of newer, outcome-based approaches. There are multiple of examples of programs where agency
risk-taking has resulted in dramatically better results for the environment. Altering institutional
incentives within agencies will be central to promoting a willingness to take risks, experiment with
new approaches, and then learn and adjust as needed. This is a large and complicated task and not
one to be taken lightly.
Large-scale, multi-agency pilot projects should be used to test innovative approaches and encourage
an agency culture of adaptive management. The Willamette Partnership will begin work in July 2008
with private and public partners to develop new ecosystem-based accounting approaches to credit
calculation. The project represents an opportunity to develop a large-scale multi-agency pilot that
will address multiple ecological values and potential credit types. The pilot would offer agencies an
opportunity to explore ways to:
    •    Provide for oversight but lighten the regulatory requirements so as to avoid litigation when
         testing out new and promising approaches.
    •    Use internal management directives to provide staff with incentives to take risks and develop
         new effective internal procedures that achieve ecological goals.
    •    Build safety margins (or trading ratios) into mitigation obligations to reduce risk.
    •    Find ways for agencies to adopt adaptive management approaches.

Integrate Agency Responses across Ecosystem Services
The agency-by-agency and service-by-service nature of regulatory response leads to “silo”
approaches and single-purpose markets, which are too thin to be economically viable and are likely
to be ecologically ineffective if they simply facilitate many small, disconnected conservation projects.
Instead, opportunities to bundle and stack credits and implement other incentive programs need to
be explored so landowners can capitalize on a sufficient set of ecosystem services to warrant
adoption of new land uses and practices.
Complementary ecosystem services should be identified and opportunities assessed for integrated
approaches to regulations and incentives, bearing in mind that integration is best achieved in a
particular location where all the silos and levels of government come together. Developing


SECTION 9 - CONTINUING THE MARKETPLACE.DOC                                                            9-5
CONTINUING THE ECOSYSTEM MARKETPLACE




approaches for agency integration could be accomplished through pilot projects tied to a large-scale
multi-credit project, with multiple public and private funding sources and agency regulations.

Core Area: Third-Party Organization to Manage
Centralized Market Infrastructure and Standards That
Ensure Efficiency and Credibility
Worldwide, environmental regulations, improving science, and consumer demand is driving an
explosion of ecosystem service markets. Carbon, water quality, habitat and species services are all
actively traded in markets. In 2005, the Katoomba Group estimated that these respective markets
will invest more than $1.7 billion per year in ecosystem protection and restoration by the year 2010,
a four-fold increase over 2005 investments
These predictions were validated as trading activity jumped significantly. In 2007, the value of trade
in the voluntary carbon market grew by 240 percent to $331 million (Hamilton, Sjardin, Marcello,
and Xu 2008). As of 2006, there were 48 water quality trading programs in North America (Guiling
et al., 2007), 31 states with wetland mitigation banking (Wilkinson and Thompson, 2006), and 10
states with endangered species conservation banking (Fox and Nino Murcia, 2005).
Ecosystem service trading programs have been established to improve water quality in Chesapeake
Bay and reduce carbon emissions in Europe. Similar programs in Oregon are reducing water
temperatures in the Tualatin River and offsetting carbon emissions from Oregon power plants.
However, most of these markets trade individual ecosystem services and operate in limited
geographic areas. This results in fragmented ecosystem investments with thin supply and demand
streams that limit opportunities to capitalize on investment efficiencies and economies of scale.
As these markets grow, they share common opportunities and challenges. Ecosystem credits can be
traded like commodities, but they differ from commodities in terms of their complexity, both before
and after the trade. Actions and technologies that create offset credits must meet specific and
rigorous performance standards to be sold in ecosystem service markets, and it requires significant
work to document and verify credit attributes and performance, both before a credit is sold and for
many years—or even decades—afterwards. Because the basic value and credibility of an individual
offset or mitigation credit depends on rigorous verification and ongoing monitoring of performance,
a centralized credit registry is a necessity. The registry consists of two parts: an institution that
inventories and accounts for all credits available and sold within a market by documenting their
generation, ownership, and trade; and the resulting database of information. A credit registry must
be transparent to regulators, the public, and market participants. In addition, it must be supported
by user-friendly technology and backed by the financial resources necessary to protect against
accounting errors.
In order to track ecosystem credits and provide overall transparency and credibility to the market,
credits need to be verified, certified, recorded, and tracked over time. The system has yet to be
designed, but progress has been made by the Willamette Partnership in defining what it should look
like. No Web-based infrastructure exists to accommodate multiple ecosystem services credit types
across jurisdictional boundaries. And none has been created with an independent mission of
accounting for and tracking credits over time to ensure transparency and quality.




9-6                                                           SECTION 9 - CONTINUING THE MARKETPLACE.DOC
                                                                       CONTINUING THE ECOSYSTEM MARKETPLACE




This limitation creates a unique opportunity for ecosystem market leaders. In Oregon, the
Willamette Partnership, the Nature Conservancy, Defenders of Wildlife, Eco-Trust, Earth
Advantage, Sustainable Northwest, the Climate Trust and others have begun to catalyze formation
of a national Ecosystem Services Council to develop accounting and tracking systems, vet credit
protocols, accredit third party verifiers, and oversee a credit registry and tracking system.
Such a council should be a consortium of non-profit organizations with a common interest in
ensuring that emerging ecosystem service credit markets are credible, efficient, and achieve the high-
quality ecological improvements that are needed. The primary function of the national council
would be to build and govern the centralized market infrastructure to support ecosystem service
markets. Roles of the national body could include the following.

Develop and Certify Measurement, Performance, and Verification Protocols
For ecosystem service markets to operate efficiently, the validity of individual credits must be
certain. Credits for various markets can be created in numerous ways. For example, to create stream
temperature reduction credits, investors can plant streamside shade trees, restore wetlands, make
technological upgrades, or take other actions. For credits to be exchanged in a market, buyers,
sellers, regulators, and the public need to understand and agree to the measurement criteria,
performance standards, and verification protocols for each credit-generating activity. A wide range
of organizations are working to develop the criteria and performance standards needed to generate
credits in both local markets and global markets. A national Ecosystem Services Council would
provide a credible venue to convene local, regional, and global experts to establish standards for
credit measurement, performance, and verification in global markets and procedures for local
markets.

Develop and Certify Credible Verification Entities for Each of the Markets
Each market type will require credible experts to verify that credit performance standards and
criteria are met. The credibility of credits in ecosystem markets depends on the integrity of the credit
sold. Working with regulatory entities, local experts, and other stakeholders, the national council
would train, certify, and monitor verification entities and audit procedures for ecosystem service
markets.

Develop and Manage a Centralized Ecosystem Credit Registry
A database and accounting system is needed as to register, certify, bank, and track ecosystem credits.
Parties generating credits need an efficient system to register credits and have them certified by a
third party. Buyers, regulators, and the public need a way to ensure that the credits created and
purchased are valid and performing the services intended and that an individual credit is not sold
more than once. In a credit registry, all relevant information about a credit (origin, vintage,
ownership, life expectancy, etc.) would be tracked and accounted for. The credit registry would
function similarly to a bank in that it would serve as the repository of credits deposited by sellers and
purchased by buyers. Credits deposited would be registered and held until they are certified and then
made available for sale. The repository would maintain records of accounts and transactions. The
system would produce selected reports about individual registry accounts and trading activities in
formats to serve a variety of tracking and evaluation needs, including regulatory reporting
requirements. The centralized system would help credit buyers and sellers find each other and
facilitate efficient transactions through the use of pre-approved credit verification and certification
procedures. It also would support and regulate credit standards that ensure the credibility of credits


SECTION 9 - CONTINUING THE MARKETPLACE.DOC                                                          9-7
CONTINUING THE ECOSYSTEM MARKETPLACE




for the protection of the participants, especially those using credits as part of a regulatory or
contractual compliance strategy.

Manage Assurance Pools Needed to Buffer Against Failure of Mitigation and Offset
Credits
An assurance pool of credits is needed to protect against project failures and other market risks. The
national council could manage a fund created as a percentage of total sales, or as insurance premium
to invest in ecological restoration projects and conservation activities. The assurance pool would
create a bank of credits that protect the public interest in the event of project failure in the market.
The portfolio of assurance credits would be geographically and functionally equivalent to cover
existing credits and transactions in the market.

Foster Nationwide Coordination by Supporting Existing Efforts
Work has already begun to develop such a National Ecosystem Services Council. In June 2008, a
coalition of not-for-profit organizations with a common need for infrastructure and standards to
support their local, regional, and national work on ecosystem markets developed a funding request
to the Oregon Economic and Community Development Department to:
      •   Develop a charter for the organization to formalize operating expectations and
          commitments and define a decision-making process.
      •   Define its role and services.
      •   Research and evaluate alternative organizational structures and evaluate the potential client
          base for the registry, develop protocols, test regulatory agency acceptance of a national
          organization and registry, and develop and explore potential revenue models to complete a
          proof of concept for the marketplace infrastructure and its operation.
      •   Develop a stepwise strategy for registry development, including interim management.
Dozens of new local market programs and initiatives are emerging throughout the United States.
Action to coordinate efforts now will improve the chances that markets develop in credible ways
that achieve ecological goals. If they do not, the public mistrust that will result from market failures
or mistakes could limit markets’ long-term sustainability.

Core Area: Technically Sound Credit Accounting
Protocols That Define Multiple Credit Types Based on
Ecological Functions
A key component of an ecosystem marketplace is the technical capability to clearly identify and
quantify relationships between development impacts and required mitigation or offsets. Developing
the scientific and technical ability to develop, certify, and track such ecosystem service obligations
and credits will be critical to the development of both supply and demand in an integrated
marketplace. Technically sound and agency-approved credit accounting protocols are a critical step
in making the full potential of an integrated ecosystem services marketplace a reality.
We know that restoration actions produce multiple ecological services that are difficult, expensive,
or impossible to replace once have been lost. As we have documented throughout this project,


9-8                                                             SECTION 9 - CONTINUING THE MARKETPLACE.DOC
                                                                        CONTINUING THE ECOSYSTEM MARKETPLACE




markets are emerging that attempt to assign values to these services, expanding the opportunities for
land managers to capitalize on the investments they have made in sustainable landscapes and to
generate revenue from larger, more comprehensive restoration.
However, a credible ecologically based accounting system to turn ecosystem benefits into credits
that can be traded is still missing. If we are to realize our vision of an integrated ecosystem services
marketplace, technically sound methods to quantify multiple ecosystem credit types must be
developed and receive regulatory approval for use.
A system to account for impacts and credits must be open for anyone to look into and must be
accepted by the public and private parties operating markets.

Coordinate Efforts to Create Credit Calculating Methods
Beginning in July 2008, the Willamette Partnership will begin a major effort with agency leaders and
stakeholders to:
    •    Obtain Oregon’s first multi-stakeholder agreement to use a shared accounting system to
         quantify impacts and credits to ecosystem services for application in ecosystem markets.
    •    Lead a pilot project to demonstrate real environmental benefits and compare the results
         from this functions-based accounting system with the results from current approaches.
Success in this effort will represent a significant milestone in development of an integrated
ecosystem services marketplace and will support development of centralized market infrastructure.
But other efforts at developing credit calculating methods are developing in other parts of the
country as well. It will take concerted, intentional effort to ensure that credit calculating methods do
not develop in ways that confuse market participants, regulators, and the public in different regions
of the county.




SECTION 9 - CONTINUING THE MARKETPLACE.DOC                                                           9-9
Section 10 Lessons Learned
SECTION 10

Lessons Learned

Developing the Willamette Ecosystem Marketplace was a process that involved lots of hard work,
technical and regulatory challenges, obstacles to effective communication and collaboration, and, as
a result, seemingly endless opportunities to learn. Some of the lessons that emerged from the
marketplace development process are listed in Sections 3 through 8 of this report in connection with
specific project tasks. Larger scale lessons that apply to the entire process are presented in this
section. This information is provided for the benefit of other entities who are considering
developing an ecosystem marketplace to help smooth their path to success.

Know whether you are ready. Before embarking on the process of developing an ecosystem
marketplace, you need to have (1) clear ecological goals so you can design the marketplace to
achieve them; (2) regulations or some other motivating factor in place that will drive demand for
credits; (3) well-informed, fully engaged partners and stakeholders who not only will support the
effort but who understand the basics of ecosystem markets; and (4) a neutral third party who can
lead development of the marketplace—someone who is trusted by the environmental community,
the regulated community, and regulatory agencies and does not have a financial or regulatory stake
in market outcomes.

The Willamette Partnership was clear and consistent about its ecological goals, but it experienced a
setback when the TMDL that was driving demand for temperature credits was challenged by four of
the largest potential buyers in the market. The sense of urgency that existed for the regulatory
agencies and buyers—and therefore their demand for a marketplace solution—waned when
implementation of the TMDL was postponed. This added to the Partnership’s workload. The
organization had to simultaneously develop the marketplace, educate potential buyers and sellers
about how they could benefit from a marketplace, and try to stimulate demand when the expected
demand driver—the TMDL—lost steam. Having firm regulations and a business community that
already understood ecosystem markets would have freed up time for the Willamette Partnership to
perform other activities such as additional technical work, project coordination, or broader outreach
and education.

Consider carefully whether or not to take a collaborative or advocacy role. This is a
strategic decision that affects the pace of marketplace development and the level of buy-in from
regulatory agencies, the business community, and others. The Willamette Partnership took a
collaborative, relationship-oriented approach in working with potential marketplace participants.
This may have slowed down the process of developing the marketplace, but the Partnership now has
strong relationships with regulatory staff and other active stakeholders that will be of benefit to the
market for years. In some cases an advocacy approach might be a better choice, especially if speedier
results are required and there is little to no confusion or uncertainty about the approach or needed
outcomes.

Harness the regulated community to push for regulatory changes. Current regulatory
structures are not designed to support multi-credit trading systems, and regulatory agency staff tend
to be overworked and risk averse. Thus, agencies need encouragement to develop policies, rules, and


SECTION 10 - LESSONS LEARNED.DOC                                                                10-1
LESSONS LEARNED




regulations that allow ecosystem markets to work. This push must come from those who are most
affected by agency regulations: regulated businesses and municipalities and watchdog groups who
protect the public interest.

Be sensible about your infrastructure needs. A new ecosystem marketplace could require
anything from just a few key infrastructure components to an elaborate infrastructure along the lines
of the New York Stock Exchange. To save money, time, and effort, be realistic about what you need
and try to make use of already-existing marketplace components as much as possible. Otherwise, the
prospect of creating a totally new, comprehensive marketplace infrastructure could be daunting (at
best) or completely overwhelming (at worst).

Get to scale. A small, single-parameter marketplace with few transactions is unlikely to drive
ecosystem-scale restoration and may not be efficient enough to compete with traditional compliance
approaches in terms of costs to marketplace participants. To be economically efficient and as
ecologically effective as possible, an ecosystem marketplace must get to scale by expanding the
number of participants, transactions, and types of credits generated and sold. An integrated, multi-
credit marketplace allows a landowner to profit from a full-scale restoration project (because he or
she can sell more types of credits or at least has a menu of choices), increases the volume of
transactions, and widens the circle of people who have a stake in the marketplace’s long-term
success. Even though you may be starting with just one type of credit in a small marketplace, plan to
expand. This means working with regulatory agencies to align regulations more closely with the
desired ecological outcomes, educating stakeholders about the many types of credits that could be
part of the marketplace, and looking for opportunities to expand technical analyses to include many
parameters and types of credits.

Plan for extensive, consistent, and persistent education and outreach. Ecosystem
markets cannot succeed if people do not understand what they are, how they work, and the
ecological and financial advantages they offer. This is particularly true for the regulated community,
which is who will ultimately decide to purchase ecosystem services credits—or not. The concept of
ecosystem markets is new to most people, and they may need help understanding what it means to
them. It is likely that education and outreach will need to be extensive, and continue throughout the
marketplace development process; therefore, thorough education and outreach should be built into
the project work plan. Fortunately, there are many venues for spreading the word. For example,
existing professional organizations can help inform their constituents about the opportunities that
markets represent for them.

Stay engaged with stakeholders. It is important to maintain a conversation with stakeholders
throughout the project, even when there is no significant news to share, and to follow up on
stakeholder issues. There was great interest in a Willamette Ecosystem Marketplace early in the
project, and many constituents were highly engaged; however, for various reasons, communication
lapsed somewhat part way through. Without regular communication from the Willamette
Partnership, the door was open for stakeholders to come up with their own explanations for what
was happening on the project, and this took time and effort to correct. Open lines of
communication builds the trust that all parties rely on when working through issues that inevitably
arise.

Balance technical work, communication, and process management. It takes time to
work out the details needed to support a trade in an ecosystem marketplace, to communicate with


10-2                                                                    SECTION 10 - LESSONS LEARNED.DOC
                                                                                           LESSONS LEARNED




stakeholders and the public, and to manage the marketplace development process, particularly
decision making. Yet these activities are essential, and time for them should be built into the project
work plan. The work plan then needs to be followed so all parties know when and how to
participate in the process; key outreach and education tasks that support the marketplace get
accomplished; stakeholders stay informed; and there is still enough time to create a solid foundation
for the marketplace and complete the first transaction. The Willamette Partnership focused on the
technical aspects of marketplace creation and used informal project management and decision-
making processes. A more balanced and methodical approach might have slowed the overall
process, but it may also have enhanced stakeholders’ understanding, made decision making more
open or transparent, or allowed time for other products to be developed.

Keep your eye on your ultimate goal. Businesses, municipalities, individual landowners, and
regulatory agencies have immediate needs and may not have the luxury of being able to think about
how their participation in the marketplace will contribute to the long-term, large-scale goal of
ecosystem restoration. It is important to help stakeholders meet their short-term needs using an
ecosystem marketplace but also to keep framing the project as a long-term effort that eventually will
pay dividends, both financially and ecologically. Maintaining this view broadens the discussion and
the political space to make an ecosystem marketplace possible.

Be willing to accept some imperfections. Developing an ecosystem marketplace that
quantifies and translates ecosystem services into tradable units is a recent and innovative concept—
one that still has embedded uncertainties and surprises. Ideally, market-based solutions would not be
implemented until they were better understood and more fully developed. But at this point in the
natural history of the Willamette Basin, time is of the essence. Large-scale restoration is desperately
needed and cannot be postponed to the point that we know exactly how ecosystem markets will
function.

The Willamette Basin is an example of how important an ecosystem marketplace can be. Even if
imperfect, ecosystem markets offer an opportunity to go beyond complying with regulation to
achieve holistic, integrated restoration that reestablishes the ecological integrity of the ecosystem. It
is not necessary to have every minute detail sorted out before you start capitalizing on these
marketplace opportunities. There is time later for adjustments and refinements, once the
marketplace starts providing its ecological and financial gains. One of the most frequently quoted
statements throughout this whole project came from Stan Gregory on June 22, 2006, at a conference
at Oregon State University. He said, “we could spend 10 years and $10 million to develop models
that will predict the temperature benefits of floodplain restoration and at the end we would still just
have a model. Or we could spend $10 million dollars to complete the restoration action now, and in
10 years we would have empirical data to confirm the results.” The wisdom of this statement
resonates with stakeholders.

Plan for the post-grant period. An ecosystem marketplace is a long-term endeavor that
requires a financially sound business model and a designated party to manage the marketplace
activities for years into the future. If marketplace development is funded through grants, you must
plan ahead, organizationally and financially, for when grant funding ends. This could require careful
thought about your organization’s long-term role in the marketplace and whether you need to build
organizational capacity to manage or support marketplace activities in some way. Deciding early on
who will administer the marketplace infrastructure in the future provides certainty to stakeholders



SECTION 10 - LESSONS LEARNED.DOC                                                                  10-3
LESSONS LEARNED




and reassures them that, although an ecosystem marketplace has its risks, it is a viable alternative to
traditional compliance options.

                                                  ***

Creating an ecosystem marketplace is a large and complex process, and the Willamette Partnership
made several missteps and wrong assumptions along the way that were challenging to recover from.
The Willamette Partnership and the many stakeholders involved in the process were learning as the
project progressed, and the continually increasing knowledge necessitated frequent adjustments in
expectations. The organization struggled to bring the project to completion by facilitating a market
transaction before the end of the 2 ½-year grant period. Nevertheless, even just the effort to
develop the Willamette Ecosystem Marketplace has attracted a high level of interest from people
outside the state. From the beginning of the project, it was believed that Oregon could become the
national center for an ecosystem services “industry” that provides significant new business
opportunities in the state in the form of consulting, verification, and other ancillary marketplace
services. This is already happening. Businesses, utilities, governments, and non-profit organizations
from around the country are already looking to the Willamette as a model of an integrated, multi-
credit marketplace. For example, a group in the Chesapeake Bay working to create a “Bay Bank” is
contracting with Oregon firms to build information technology to support the ecosystem
marketplace they are forming, and British Columbia Hydro Power is contracting with other Oregon
firms to help the utility implement a policy of no net loss of ecosystem services. These intellectual
exports are the result of experience gained working on marketplace efforts in Oregon. Such business
deals are likely to continue growing as Oregon works to quantify ecosystem services and translate
them into tradable units.

Perhaps the more important legacy of this project is that the Willamette Partnership’s efforts in the
last 2 ½ years have changed the dialogue in Oregon about ecosystem markets and created a type of
political and policy space where an integrated, multi-credit marketplace can become a reality. Oregon
business and civic leaders, regulatory agency staff, and environmental organizations now know what
an ecosystem marketplace is, how it should work, and what steps are needed to make it work. They
also understand much better their own roles in a marketplace, and how their participation can not
just improve their bottom line, but reverse the ecological degradation in the Willamette Basin. The
Willamette Partnership looks forward to continuing to work with its partners and stakeholders to do
just that.




10-4                                                                     SECTION 10 - LESSONS LEARNED.DOC
Section 11 References
SECTION 11

References

California Climate Action Registry Certification Protocol and General Reporting Protocol,
      International Standards (ISO 14064-3, 14066, and 19011 – 2002(E)).

Fox, J., and A. Nino-Murcia. 2005. “Status of Species Conservation Banking in the United
      States.” Conservation Biology, 19, 996–1007.

Guiling, J., M. Selman, and E. Branosky. 2007. An Overview of Water Quality Trading.
      Washington, D.C: World Resources Institute.

Hamilton, K., M. Sjardin, T. Marcello, and G. Xu. 2008. Forging a Frontier: State of the
    Voluntary Carbon Markets 2008. A report by Ecosystem Marketplace & New Carbon
    Finance.

Hulse, David W. and Stanley Gregory. 2007. Linking Cold-Water Refuges into a Biologically
     Effective Network in the Southern Willamette River Floodplain: Outlining Key Locations and
     Knowledge Gaps. Prepared for: Daniel D. Heagerty, David Evans and Associates, Inc.
     May 31.

Johnson, David H. and Thomas A. O’Neil, eds. 2001. Wildlife-Habitat Relationships in Oregon
     and Washington. Corvallis, Oregon: Oregon State University Press.

Long Tom Watershed Council. 2008. Ecosystem Restoration in the Long Tom River Basin for Water
     Quality Improvement in the Willamette River: Preliminary Findings. Prepared for the City of
     Eugene.

National Oceanic and Atmospheric Administration (NOAA), National Marine Fisheries
     Service. 2005. Critical Habitat Areas – Pacific Salmon and Steelhead Critical Habitat.
     Available online at: http://www.nmfs.noaa.gov/gis/data/critical.htm

Oregon Department of Environmental Quality (DEQ) Permit language (section 1).

Oregon Department of Environmental Quality (DEQ) Internal Management Directives
     (IMDs).

Oregon Department of Fish and Wildlife (ODFW). 2006. Oregon Conservation Strategy.
     Available online at: www.dfw.state.or.us/conservationstrategy/index.asp

Oregon Natural Heritage Information Center (ORNHIC). 2004. Rare, Threatened and
     Endangered Species of Oregon. Available online at:
     http://oregonstate.edu/ornhic/documents/2004_t&e_book.pdf




SECTION 11 - REFERENCES.DOC                                                                       11-1
REFERENCES




Pacific Northwest Ecosystem Research Consortium. 2002. Willamette River Basin Atlas:
      Trajectories of Environmental and Ecological Change. Edited by David Hulse, Stan Gregory,
      and Joan Baker. Corvallis, Oregon: Oregon State University Press.

Smesrud, Jason, Matt Boyd, Brian Kasper, and Stephanie Eisner. 2007. An Energy Balance
     Model for Effluent Heat Reduction through Wetlands. Presented at a conference of
     the Pacific Northwest Clean Water Association.

U.S. Environmental Protection Agency (EPA) Regulations on the Confidentiality of
      Business Information (see 40 CFR part 2).

Wilkinson, J., and J. Thompson. 2006. 2005 Status Report on Compensatory Mitigation in the
     United States. Washington, DC: Environmental Law Institute.




11-2                                                                      SECTION 11 - REFERENCES.DOC
Supporting Documents for
   Section 3 – Market
   Appraisal (Task 1)
                                                                                                        WA S H I N G TO N




                                          Hillsboro                      Portland
             Forest Grove                                                                  Hazelwood
                                                      Aloha
                                                          Beaverton                           Gresham
                                                                                Milwaukie
                                                                Tigard          Oak Grove

                                                                         West        Gladstone
                                                        Tualatin
                                                                         Linn
                                                                                    Oregon City
                                                Newberg



     McMinnville



                                                             Woodburn




                               Keizer
                                                Hayesville
                                        Salem
                                            Four Corners




                                        Weyerhaeuser Albany
                                    ¨ ¨
                                   ¨¨




                      Albany
                                        Wah Chang
                           ¨
                               ¨




                                   Albany
Corvallis         Corvallis
        ¨
            ¨¨




                 Evanite                           Lebanon




                       Fort James Halsey
                 ¨¨
                  ¨¨




                       Pope and Talbot
                                                                                                        Thermal Load Obligations
                                                                                                        Summer TMDL* Spawning TMDL
                                                                                                        Load to offset** Load to offset

                                                                                                                 3                     5
                                                                                                             ¨




                                                                                                                                ¨




                                                                                                                 4-8                   6 - 10
                                                                                                             ¨




                                                                                                                                ¨




             Santa
              Clara
                               MWMC                                                                              9 - 27                11 - 101
                                                                                                             ¨




                                                                                                                                ¨
                       ¨
                         ¨




                  Eugene            Springfield
                                                                                                                 28 - 36               102 - 141
                           ¨
                               ¨




                                                                                                             ¨




                                                                                                                                ¨




                  U of O Heat Plant
                                                                                                                  37 - 70          142 - 266
                                                                                                             ¨




                                                                                                                                ¨




                                                                                                          * Source names in bold
                                                                                                          **Units are in M/kcals/day

                                                                                                         Reference Layers
                                                                                                                 Draft Willamette
                                                                                                                 Synthesis Portfolio
                                                                                                                  Willamette Valley

                                                                                                                  Willamette Basin

                                                                                                                  Cities (names in italics)

                                                                                                                  Rivers

                                                                                                                  Highways



                                                                                                                                                   $
                                                                                                         0       10        20 Kilometers


                                                                                                         0            10             20 Miles
                                     Increasing the pace, expanding the scope, and
                                      improving the effectiveness of conservation




  A PRIMER ON EXISTING AND EMERGING MARKETS FOR ENVIRONMENTAL
           OFF-SET CREDITS IN THE WILLAMETTE RIVER BASIN

Wetlands mitigation banking
Market driver      Section 404 fill permits from the Clean Water Act, and Section 10 of the
                   Rivers and Harbors Act
Federal regulating US Army Corps of Engineers, US EPA
agencies
Oregon regulating Department of State Lands
agencies
Other involved     US Fish and Wildlife Service, NOAA Fisheries, ODFW, and other
agencies           members of the mitigation banking review team
Summary            When a land developer fills or otherwise impacts a wetland they may buy
                   offsets from a mitigation banker. The mitigation banker restores or creates
                   an area of wetland (or multiple sites under an umbrella agreement) to
                   generate credits.

                     The number of credits generated by a restoration project is related to the
                     area of wetland as well as the functional value of the wetland. In many
                     instances the number of credits available for sale is less than the number of
                     acres of restored. Further, a ratio is applied to the mitigation transaction
                     typically in the range of one acre of impacted wetland to between one and
                     three acres of restored wetland. Ratios increase to one to ten acres for
                     wetland preservation projects that do not create or improve wetlands.

                     A mitigation banker is responsible for establishing a wetland bank
                     following financial and environmental guidelines before credits are
                     released to the bank for subsequent sale. The Mitigation Banking
                     Instrument which constitutes approval to build/preserve or enhance the
                     wetland can take between 6 and 18 months to complete in some states, but
                     can take considerably longer in some Army Corps districts.

                     Mitigation is expected to take place before the impact on the wetland
                     occurs, nonetheless credits are released to the bank sponsor over a period
                     of a few years after the wetland is planned and authorized, and before 5
                     years of project monitoring concludes. In many instances up to 15 percent
                     of the expected credits from a bank can be released before construction is
                     complete.

                     To secure the long-term success of the mitigation bank, a performance


         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



                     bond and contingency security are required to cover construction and 5
                     year post construction monitoring of wetland quality and function. Long
                     term management of the site must be guaranteed and endowed by the bank
                     sponsor. Wetland mitigation credits must ensure that the wetland functions
                     will be guaranteed to endure to perpetuity. The regulatory authority can
                     exercise random audits and inspections of the compensation wetlands
                     project (www.ecosystemmarketplace.net).

                     US EPA his issued a new draft rule on compensatory mitigation that favors
                     offsite mitigation and contains many elements favoring mitigation banking.
                     The new rule will replace the existing EPA guidance issued in 1995. IN
                     2005, there were 31 states with active mitigation banks. From 1992 to
                     2005, the number of active banks grew from 46 to 330 banks (ELI 2005).
                     More than 31% of all compensatory mitigation in the country is done by
                     mitigation banks, representing one of the fastest growing ecosystem
                     markets. The price of mitigation credits vary widely, ranging on the low
                     end from $3,000-$15,000 per acre and on the high end from $60,000-
                     $150,000 per acre (ELI 2005).
OR buyers            Dept. of Transportation, Public Works Projects- including shovel-ready
                     industrial lands, major corporations, commercial and residential real-estate
                     developers. State Lands has identified the following areas as needing bank
                     sites: Clackamas County-northwestern segment; Multnomah County-
                     western segment; Jackson County - Medford area; Roseburg area; The
                     entire Oregon coast.
OR sellers           Farmers, private bankers, land trusts. There are currently more than 8
                     operational private banks in the Willamette Valley.
OR potential         High: already active with growing demand along I-5 corridor and
                     Washington County. First streambank mitigation bank in approval in 2006.
                     State Lands is exploring the option of building a state clearinghouse
                     (similar to the NC Ecosystem Enhancement Program) for wetland
                     mitigation credits tied to industrial site development.

Endangered species conservation banking
Market driver      Section 7 (consultations) and Section 10 (incidental take) of the
                   Endangered Species Act

Federal regulating   US Fish and Wildlife Service, National Marine Fisheries Service
agencies
Oregon regulating    Not determined
agencies
Other involved       Future members of the conservation banking review team.
agencies
Summary              The US conservation banking market is a biodiversity offset system that
                     allows for the sales and purchase of endangered species credits to offset


         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



                     negative impacts to endangered species and their habitat. Banks are created
                     by permanently protecting endangered species habitat on private land.
                     Conservation banking was pioneered in the state of California and is
                     becoming increasingly popular in other states since the passage of federal
                     guideline of their establishment, use, and operation in 2003
                     (www.ecosystemmarketplace.net).

                     A bank can be created in a number of different ways: (1) acquisition of
                     existing habitat; (2) protection of existing habitat through conservation
                     easements; (3) restoration or enhancements of disturbed habitat; (4)
                     creation of new habitat in some situations; and (5) prescriptive
                     management of habitats for specified biological characteristics.

                     USFWS and NMFS are each responsible for conservation banking for their
                     species. NMFS has approved a salmon bank in California, and USFWS has
                     just approved the first two bank sites in Oregon for Oregon chub. USFWS
                     is currently developing conservation banking policy for Oregon and initial
                     public review drafts should be available for review in late 2006, early
                     2007.

                     As of 2005, there were 76 properties in 10 states identified as conservation
                     banks, 35 of which were under conservation banking agreements with the
                     USFWS (Fox and Nino-Murcia 2005). Credit prices range from $3,000 to
                     $125,000 per acre and 91% are breaking even or making money. On
                     average, banking agreements took 2.18 years to establish, and there is still
                     a lot of uncertainty surrounding the rules and practices for conservation
                     banking.
OR buyers            Dept. of Transportation, Public Works Projects, major corporations,
                     commercial and residential real-estate developers
OR sellers           Farmers, private bankers, land trusts
OR potential         Medium: USFWS has approved the first to conservation banks for OR
                     chub for the Dept. of Transportation. There is still no formal process for
                     conservation bank approval. There are no standards for anadromous fish
                     banking. The recovery plans for the Willamette Basin species will enhance
                     banking. There is also a need to authorize low impact incidental take
                     permits as an additional driver of banking in OR.

Water quality trading
Market driver       NPDES permits, TMDLs, and MS4 permits

Federal regulating   US EPA
agencies
Oregon regulating    Dept. of Environmental Quality
agencies


         105 High street se, Salem, Oregon 97301, 503.434.8033
                        Willamette Partnership
                            Pace, Scope, Effectiveness



Other involved
agencies
Summary          Most water quality markets are established to assist industrial and
                 municipal waste water dischargers that must reduce the amount of
                 pollutants they release to natural. Trading allows polluters with high costs
                 of pollutant reduction to contract with other entities with lower cost of
                 reduction to meet their pollutant reduction requirements.

                 Credits can be purchased from other industrial dischargers that have lower
                 cost for pollutant reduction or unregulated land-based pollutant sources
                 such as farmers. In most cases the liability for reducing pollutant loading
                 resides with the permitted discharger even after the trade has been
                 approved. Bilateral contracting mechanisms may mitigate some of the risk
                 in these transactions.

                 Pollutant trading programs are most commonly established for water
                 bodies that do not meet water quality standards. US EPA requires most
                 states to develop pollutant control strategies, known as Total Maximum
                 Daily Loads or TMDLs, for these impaired waters. A TMDL determines
                 the daily, seasonal or annual maximum amount of a particular pollutant
                 that a water body may receive and still meet the required pollutant limits
                 for that water body. Once a TMDL is established regulators must tighten
                 pollutant discharge restrictions to reduce pollutant loads. Pollutant trading
                 programs are looked to as the way to minimize the cost of achieving water
                 quality goals in these impaired waters (www.ecosystemmarketplace.net).

                 In 2005, there 39 water quality trading programs around the country. Many
                 of these are not actively trading due to lack of demand for credits. State
                 water quality agencies and publicly operated treatement works play an
                 important role in launched trading programs, but local coalitions have
                 launched some of the most successful programs. Most programs trade in
                 nutrients, but there are trading programs for temperature, heavy metals,
                 total dissolved solids, selenium, sediment, and flow. Markets are set up as
                 bilateral agreements, brokered trades, and clearinghouses. Trading ratios
                 range from 3:1 to 1:1, with most point/point trades getting a 1:1 ration and
                 most point/nonpoint trades a 2:1 ratio.

                 The three biggest obstacles to trading are thin markets with little demand,
                 no regulatory driver, and early problems with negotiation and conflict.
OR buyers        NPDES permit holders
OR sellers       POTWs, farmers
OR potential     High: already active in the Tualatin Basin with grant monies in place to
                 expand temperature trading in the Willamette. There is a need to authorize
                 trading for other constituents like phosphorous, dissolved oxygen, and


        105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                  Pace, Scope, Effectiveness



                      bacteria.

Air quality trading
Market driver         Kyoto protocol, state emissions standards, federal acid rain programs
Federal regulating    US EPA, Dept. of Energy maintains a registry
agencies
Oregon regulating     OR Dept. of Environmental Quality, OR Dept. of Energy
agencies
Other involved
agencies
Summary               In 1997 Oregon became the first state in the nation to adopt legislation
                      regulating greenhouse gases. The law requires new Oregon power plants
                      (and other large energy facilities) to offset a significant portion of their
                      carbon dioxide emissions. While emitters may choose to offset the
                      emissions through their own investments, all of the regulated power plants
                      to date have utilized the Oregon Climate Trust to achieve compliance. As
                      of 2006, the Climate trust had invested $4 million in energy efficiency,
                      renewable energy, sequestration, transportation efficiency, cogeneration,
                      and material substitution projects. The three funding sequestration projects
                      include forest on tribal lands in Washington, along the Deschutes River,
                      and in Equador.

                      Voluntary carbon trading schemes have also emerged in the United States.
                      The Chicago Climate Exchange (CCX) is a pilot greenhouse gas (GHG)
                      cap-and-trade program running from 2003 to 2006. The 24 Members of the
                      CCX have made a voluntary, legally-binding commitment to reduce their
                      emissions of greenhouse gases (CO2, CH4, N2O, PFCs, HFCs, SF6) by
                      four percent below the average of their 1998-2001 emissions baseline by
                      2006 (www.ecosystemmarketplace.net). Many of the current offset projects
                      come from Midwest agricultural soil carbon offsets. Other projects include
                      forestry, agricultural methane, landfill methane, and renewable energy.
                      Offsets have been purchased in Washington and California, but none in
                      Oregon.

                      Other air quality markets exist under EPA’s Acid Rain Program (1990),
                      Clean Air Interstate Rule (2005), and Clean Air Mercury Rule (2005). State
                      and regional programs such as the Regional Greenhouse Gas Initiative in
                      the Northeast, Emissions Reduction Market System in Illinois, and a
                      program in Houston have also grown. Currently, OR does not allow
                      emissions trading for other emissions beyond those of new power plants.
                      California is working on a climate change registry, and has recently
                      developed an agreement to trade carbon credits with the British
                      government. New standards shared by California, Oregon, and Washington
                      could create new opportunities for greenhouse gas markets.


        105 High street se, Salem, Oregon 97301, 503.434.8033
                           Willamette Partnership
                                Pace, Scope, Effectiveness



OR buyers            Power utilities, businesses, private individual offsetters
OR sellers           Forest landowners, riparian forest restoration projects
OR potential         High: already active through the Oregon climate trust. The Chicago
                     Climate Exchange has not bought any carbon from Oregon yet. There is a
                     need to connect carbon markets with other ecosystem goals.

Water supply trading
Market driver      Water quality goals under the Clean Water Act, Endangered Species Act,
                   other water supply needs
Federal regulating
agencies
Oregon regulating Dept. of Water Resources
agencies
Other involved
agencies
Summary            Most water quantity trades have involved urban water users leasing water
                   from agricultural water rights holders in the Western United States.
                   California, the Columbia Basin, and the Great Lakes have increased trading
                   for environmental purposes in recent years. Flows are also getting attention
                   related to meeting water quality goals and stormwater discharge
                   requirements.

                     In many places, the property rights for water are established, but there is
                     less experience in the legalities of transfers and environmental uses. The
                     Deschutes Basin has seen some of the most active trading in water supply
                     in an effort to restore natural flows. The Deschutes Water Alliance has
                     created a Water Bank, which allows for temporary lease of unused water
                     for instream flow, development of a groundwater mitigation bank, and
                     water reserves.

                     The Oregon Water Trust acquires, purchases, and develops agreement to
                     provide water in-stream. Large portions of their funds come from
                     Bonneville Power Administration.
OR buyers            POTWs, state agencies, municipal water suppliers, new farmers,
                     environmental groups
OR sellers           Farmers, irrigation districts
OR potential         High: already active throughout the country. Trading for environmental
                     purposes has been facilitated by the OR Water Trust. Property rights are
                     already well established. There is a need to expand the drivers for
                     environmental trading and to link water quantity more closely with water
                     quality goals.

Transferable development rights
Market driver      Local zoning

         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



Federal regulating
agencies
Oregon regulating    Local governments, Metro
agencies
Other involved
agencies
Summary              Transferable development rights are a tool to make zoning rules more
                     equitable and predictable. They separate the development rights from the
                     land and other bundles of property rights. In a local comprehensive plan,
                     areas are designated as “sending areas”, or those places where low density
                     or conservation are desired. These areas are given tradable credits that they
                     can sell to “receiving areas” where higher density development is
                     demanded by the market or required by local government.

                     Transferable development rights has its roots in New York City’s 1916
                     zoning law capping the height of buildings, but allowing skyscrapers to
                     purchase air rights from adjacent open space. Some of the successful TDR
                     programs include King County, WA, The Pinelands, New Jersey, Boulder
                     County, Colorado, and Montgomery County, Maryland. As of 2005, the
                     King County program had protected 143 square miles of land.

                     In King County, a sending site might expect to receive between $10,000
                     and $24,500 for their development right. A sending site must be placed in a
                     conservation easement before transfers can occur. The land must be
                     unincorporated. Credits can be sold directly to buyers or a “TDR Bank”
                     operated by the County to purchase high priority credits. The Bank was
                     capitalized with $1.5 million from the County in 1999. Receiving sites can
                     be: Unincorporated King County urban areas zoned R-4 through R-48, NB,
                     CB, RB, or O; Incorporated cities where allowed by the local jurisdiction;
                     Some rural areas zoned RA-2.5.

                     A version of transferable development rights might be used in association
                     with new lands coming into the urban growth boundary and with Goal 5
                     implementation.
OR buyers            Developers in high density areas
OR sellers           Landowners in low density areas
OR potential         Medium: already active in Washington, but is likely to run into obstacles in
                     OR’s current land use planning environment. There is an opportunity to
                     incorporate trading into the Big Look or at a smaller scale for the Bethany
                     or Damascus UGB expansions.

Renewable energy trading
Market driver      Large capital management firms wanting to “green” portfolios
Federal regulating


         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



agencies
Oregon regulating
agencies
Other involved
agencies
Summary               Large capital investment firms and energy companies purchase renewable
                      energy credits from those providers to offset other investments.


OR buyers
OR sellers
OR potential          ?

POTENTIAL MARKETS

Green certification habitat markets
Market driver        Green certification requirements
Federal regulating
agencies
Oregon regulating
agencies
Other involved
agencies
Summary              Many of the green certification programs for food and timber products,
                     such as Food Alliance and others, include provisions for fish and wildlife
                     habitat as a condition for certifying products. There is interest and potential
                     here for allowing farmers and foresters to purchase habitat offsets from
                     banks or other farmers to meet certification requirements.


OR buyers             Farm and forest owners
OR sellers            Farmers, foresters, private bankers, land trusts
OR potential          Medium: Certification rules already ask for habitat, but there is no system
                      in place for authorizing trading. Certification programs are supportive of
                      the offset idea. Farmers are getting certified now based on current
                      activities, so there may not be enough of an incentive to trade.

Stormwater Trading
Market driver      Local regulations, MS4 permit, Clean Water Act
Federal regulating US EPA
agencies
Oregon regulating Dept. of Environmental Quality
agencies
Other involved     Municipal governments, special districts

         105 High street se, Salem, Oregon 97301, 503.434.8033
                           Willamette Partnership
                               Pace, Scope, Effectiveness



agencies
Summary             The City of Portland is conducting a stormwater trading feasibility study.
                    They cannot trade directly within the bounds of their MS4 permit. They are
                    using a local ordinance focusing on flows as a driver for trade. The
                    Portland program is also tied to its Combined Sewer Outflow issues.

                    Trading might occur around impervious pavement, where a green street
                    installation might create credits that could be traded to developers in the
                    same watershed.
OR buyers           Cities, developers, and other stormwater dischargers
OR sellers          Private residences, farms, developers, cities
OR potential        Low: Even though Portland may be creating the first stormwater trading
                    program, it may be unique to Portland. The regulatory drivers are not very
                    clear and a lot of work with DEQ and EPA would need to be done to make
                    room for trading.


Tradable recreation permits
Market driver      Capped supply of recreation permits for fishing, hunting, and other
                   activities
Federal regulating
agencies
Oregon regulating
agencies
Other involved
agencies
Summary            Could cap the number of permits and trade them. This runs counter to
                   many current systems of a lottery, which keeps prices affordable. Could
                   also involve a payment scheme that would pay private or public
                   landowners to provide recreational opportunities.


OR buyers           Recreationists
OR sellers          Private landowners, public agencies
OR potential        Low: Given the political support for current lottery systems and the desire
                    to keep fees for using public lands low, recreation permits are not highly
                    feasible on public lands. However, there is more potential for private
                    landowners looking to provide recreational opportunities, which would
                    require coordination with state agencies who manage public land and
                    wildlife resources.

Natural resource damage assessments
Market driver      CERCLA, Oil Pollution Act, Clean Water Act
Federal regulating US EPA, USDA, NOAA Fisheries, Dept of Defense, Dept. of Energy,

        105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                               Pace, Scope, Effectiveness



agencies            Dept of Interior
Oregon regulating   Dept. of Fish and Wildlife, Dept. of Environmental Quality
agencies
Other involved      Tribes
agencies
Summary             Injuries to natural resources from oil spills or other pollutant releases are
                    assessed, and appropriate restoration projects are identified in
                    contemplation of negotiated settlements or legal actions (in rare cases) with
                    potentially responsible parties. Recoveries, in cash or in-kind services,
                    from the potentially responsible parties are then used to finance or
                    implement the restoration of the injured resources, pursuant to a publicly
                    reviewed restoration plan.

                    The federal trustees listed above are responsible for managing damage
                    assessment programs for the resources they manage. State and tribal
                    trustees can also be designated.

                    It is feasible that NRDA damages could be offset by the purchase of
                    restoration credits, but there is limited ability to create credits in advance of
                    spills. Federal trustees have talked about creating regional restoration
                    plans, which could be designated from existing plans.

                    DEQ maintains a database of contaminated sites, but it seems like the only
                    feasible opportunities in the short term relate to the cleanup of the GASCO
                    and T4 Slips at the Port of Portland. NOAA is the lead trustee on these
                    projects.
OR buyers           Polluting corporations, government agencies
OR sellers          Farmers, foresters, private bankers, land trusts
OR potential        High: There is already a system in place to generate funding from potential
                    buyers. Trustee agencies would just need to adopt the practice of buying
                    credits rather than using in-lieu fees. This market could generate funding
                    from Portland’s port facilities for upstream restoration projects.

Flood hazard mitigation
Market driver      Flood insurance, others?
Federal regulating US Army Corps of Engineers, FEMA
agencies
Oregon regulating
agencies
Other involved     Local governments and flood management agencies
agencies
Summary            FEMA requires flood insurance for those landowners located within the
                   100-yr floodplain. Several states have also limited growth in these



        105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



                     floodplains.

                     New Jersey has a rule that says any new development in several flood-prone
                     basins must have no net increase in peak flow runoff. Under the program
                     they are allowed to buy fill credits. The fill credits were generated by using
                     former gravel pits as flood hazard mitigation.

                     The Community Rating System under FEMA’s National Flood Insurance
                     Program can reduce premium payments for communities where flood
                     hazard mitigation has been completed.


OR buyers            Developers
OR sellers           Park developers, private landowners
OR potential         ?

Pollinator habitat
Market driver        Need for food crop pollination
Federal regulating
agencies
Oregon regulating
agencies
Other involved
agencies
Summary              Farmers spend millions of dollars annually to lease bees and other
                     pollinators to support fruit, nut, and other crops reliant on pollination. The
                     services provided by native pollinators have moved on as suitable habitat
                     has also disappeared.

                     It is feasible that farmers associations, conservation districts, fruit packing
                     companies, or others could sponsor a voluntary market for purchasing
                     pollinator habitat enhancement. Farmers with significant habitat and/or
                     central locations could sell credits to their neighbors for the pollination
                     services provided by insects on that habitat.
OR buyers            Farmers
OR sellers           Farmers, foresters, land trusts, other owners of habitat
OR potential         Unknown: There is clearly a link between pollinators and economic
                     production for crops like fruit and nuts. There is not a mechanism in place
                     to pay people for pollinator habitat, but it may not be hard to design. Many
                     farmers know how much they spend to rent bees, which could indicate the
                     potential market size for pollinator habitat.




        105 High street se, Salem, Oregon 97301, 503.434.8033
                                     Increasing the pace, expanding the scope, and
                                      improving the effectiveness of conservation




   UNDERSTANDING SUPPLY AND DEMAND FOR ENVIRONMENTAL OFF-SET
              CREDITS IN THE WILLAMETTE RIVER BASIN

INTRODUCTION
Assessing supply and demand for the potential Willamette Ecosystem Marketplace is
challenging. Supply and demand work differently in ecosystem markets than in markets for
other kinds of goods and services. Supply is driven by the existing natural resource base and
the willingness of landowners to manage their lands to produce ecosystem services or leave a
portion of the landscape to function naturally without interference. Demand is largely linked
to rules and regulations requiring people who impact the environment to buy credits to offset
those damages, but in some cases can emerge from voluntary action such as carbon offset
demand or a chance for avoided costs such as the New York City water supply headwaters
restoration example.

There are many factors in ecosystem markets shaping supply and demand beyond the
exchange value of ecosystem credits. These include transaction costs, uncertainty, ecosystem
dynamics, and politics. With these factors in mind, the market appraisal explored supply and
demand, investigating the initial buyers in the market for the Willamette Ecosystem
Marketplace, what their drivers are, and where there is the most likely availability of credits
for these stakeholders.

Surveying supply
We thoroughly assessed several options for to the best way to identify the priority restoration
areas in the Willamette River Basin to assess supply of potential ecosystem credits. There have
been a number of efforts to set priorities by different groups in the basin (The Nature
Conservancy, Oregon Department of Fish and Wildlife, Oregon State Parks, and Oregon
State University to name just a few). After meeting with The Nature Conservancy, Oregon
State University, and the Institute for Natural Resources, it seemed there was consensus that
the layers compiled by Oregon State University for the Willamette River Basin Planning
Atlas (2004) and subsequent work provide the most comprehensive dataset for priority
restoration areas.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



                                We focused on providing a quick inventory based on this
                                dataset of the potential supply of restoration areas in the
                                Willamette River Basin. We initially focused on whether there
                                is available supply to serve the very immediate need of
                                municipalities responding to the temperature TMDL. We used
                                the Atlas dataset to survey potential supply in the WRB. The
                                Atlas includes those areas within the floodplain of the
                                mainstem of the Willamette River, but does not include
                                information about uplands, which have been taken into
                                account by other prioritization efforts. It is our understanding
                                that The Nature Conservancy is proceeding with work to
                                compile priority restoration areas including those outside of
                                the floodplain into a single synthesis map available for future
                                phases of this project.

                                The Atlas identifies all of the high, medium and low priority
                                restoration areas in one kilometer increments (identified as
                                slices) along the entire length of the Willamette River
                                spanning the floodplain.

                                The methodology for defining priority restoration areas is
                                explained in detail in the Atlas and demonstrates these areas
                                were selected based on the potential for maximizing
                                biological, social, and economic interests. For quick
                                identification, the high and medium priority slices were
                                compiled in a spreadsheet. There are 65 kilometers of high
                                priority restoration areas and 108 kilometers of medium
                                priority restoration areas identified. The majority of high
                                priority areas are upstream of the Salem/Keizer area and the
                                majority of medium priority areas are downstream of
                                Salem/Keizer

                                 Quantifying supply requires identifying restoration activities
                                 that would be applied to priority areas and what benefits these
                                 activities would generate relative to desired credits such as
water temperature reduction (kilocalories), wetland creation (acres), habitat creation (acres),
and carbon sequestration (tons of CO2) (See the simple diagram of this assessment of supply
below). A matrix was created listing the five restoration actions identified by the Willamette
Partnership and describing the general benefits that could be quantified when these actions are
applied to priority restoration areas.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness




Green Island has been flagged for consideration as the potential location of Transaction #1 and
falls within the high priority areas identified in the Atlas. Working with the McKenzie River
Trust, information was gathered on current and future conditions. The ecosystem benefits
potentially generated by the restoration activities identified for Green Island are being assessed
relative to desired credits (e.g. water temperature reduction (kcal), wetland creation (acres),
habitat creation (acres), flood control, carbon sequestration (tons of CO2), and air pollution
reduction.) By testing this assessment of ecosystem benefits for a specific restoration site, we
will be able to calibrate assessment tools and conduct a more comprehensive assessment of the
potential supply of ecosystem credits in the basin. This will require a base set of assumptions
about the future restored condition and applying the method quantifying benefits used for
Green Island.


Digging into demand
In Oregon, and specifically the Willamette Basin, there are certain regulatory drivers
generating demand for ecosystem credits and this demand is being met to varying degrees by
market mechanisms already established:
   • Wetland and stream mitigation banking (very active)
   • Carbon emissions trading (active)
   • Renewable energy credits and green tags (active)
   • Water quality trading (one example)
   • Endangered species mitigation banking (one example)
   • Water supply trading (one example)

The Partnership has developed a primer on each of these markets, which will be included in
analysis of trading frameworks under Task 4. Overall, it seems that most potential ecosystem
buyers need small increments of credits at irregular intervals. This fluctuation in demand can
lead to mismatches with supply in new markets. Most buyers are looking to transfer
regulatory liability and their demand is tied closely to their estimates of complying with
regulations on their own. Demand in the Willamette River Basin is characterized below in
terms of the regulatory drivers to which potential buyers are currently responding.


         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



Significant Regulatory Drivers
Demand for water quality credits to meet Clean Water Act standards is driven by newly
established Total Maximum Daily Loads in Oregon for water quality parameters such as
temperature, dissolved oxygen, bacteria, and more. To evaluate demand for water temperature
reduction, the Partnership with its consultants evaluated the Final TMDL (Oregon DEQ,
September 2006) in relation to the temperature wasteload allocations (WLAs) for point
sources and load allocations (LAs) for nonpoint sources. These allocations are expected to
serve as the baselines for thermal credit trading in the Willamette basin. This evaluation of the
TMDL assists in understanding demand for thermal load credits, as well as supply that may be
created for sources named in the TMDL that might achieve loadings below their assigned
caps. Thus, this effort identifies, evaluates, and summarizes temperature related
responsibilities outlined in the final TMDL as defined by assigned WLAs and LAs.
Point Sources (WLAs)
The key information associated with this TMDL evaluation is a spreadsheet summary of
point source WLAs, their existing “excess” thermal loads (ETLs), and their thermal loads to
offset (see Tables 1 through 4 below). The thermal load to offset for each point source is the
calculated by subtracting the WLA from the ETL. A negative number indicates that offset
credits might be available for trading. A positive values indicates that offset credits may need
to be acquired via trading.
Table 1 shows actual existing thermal loads for each point source as calculated and listed in the
TMDL itself. Table 2 shows future anticipated ETLs for Albany, Corvallis and MWMC.
Information on future loads was only readily available for these three point sources based on
their petitions to DEQ for allocation of some of the reserve capacity.
The WLAs are substantially different for the “a=0” case and “a>0” cases (“a” is an adjustment
factor in the TMDL that is applied when the 7-day maximum river temperature exceeds the
biological criteria but the 7-day mean river temperature does not). The adjustment factor
reduces the WLAs, making them more stringent.
The WLAs in Tables 3 and 4 (one with “a=0” and one with “a>0”) pertain when river flows
are at or below the 7-day, 10-year flow low flow (7Q10) condition. Thus, this evaluation of
possible offset credits needed or generated is based on critical low flows. Because the WLAs
are river flow tiered (higher, less stringent WLAs at higher flows), the need to trade will
largely be driven by the need to prepare to meet WLAs during lower flow conditions. Also
note that the WLAs do not become substantially greater until very high river flows; thus this
approach to identify likely debtors and creditors is appropriate.
This evaluation indicates which point sources will likely need to reduce loads or acquire
credits, and the magnitude of the reductions or credits needed (in units of million kilocalories
per day [mill. kc/d]), based directly on methods and data in the final TMDL. In general, the
analysis suggests that all the major point sources in the Upper Willamette reach (upstream of
river mile 108) have ETLs that exceed WLAs and thus may have an interest in acquiring


         105 High street se, Salem, Oregon 97301, 503.434.8033
                           Willamette Partnership
                               Pace, Scope, Effectiveness



thermal credits. Another way to think about this is that all the major point sources on the
Upper Willamette will need to reduce or offset their loads, and those that are able to reduce
loads more than required by their WLAs could generate credits for others. On the other hand,
point sources in the middle and Lower Willamette reaches have ETLs at or below their
WLAs. A more detailed evaluation of how point source trading might occur, including
temporal and spatial considerations, is included in the TM for Subtask 2.2.
Nonpoint Sources (LAs)
Nonpoint sources for the Willamette TMDL consist of landowners where existing riparian
shade is less than would be present under Natural Thermal Potential (NTP) shade conditions.
For these nonpoint sources ODEQ simply calculated the LA based on river flow and an
assumed portion of the Human Use Allowance (HUA). The lumped LA is shown in the
TMDL figure below. DEQ’s expectation is that LAs will be met by each landowner by
restoring or protecting riparian shade to meet effective shade targets. The opportunity and
precedent in terms of supply and demand for thermal credit trading for riparian shade
restoration has been established for the Tualatin Basin, and is described in the TM for Sub-
Task 2.2.




Major reservoirs in the basin that alter temperature conditions compared to NTP
temperatures are also considered to be nonpoint sources. Reservoirs were not assigned LAs in
thermal load units (for example, mill. kc/d), but instead in terms of temperature targets to
meet downstream of the reservoir for each month, as shown in the TMDL figure below for
the Corps reservoirs. How this might be translated into supply and demand, and how credits
might be defined, is further discussed in the TM for Subtask 2.2.




        105 High street se, Salem, Oregon 97301, 503.434.8033
            Willamette Partnership
               Pace, Scope, Effectiveness




105 High street se, Salem, Oregon 97301, 503.434.8033
                                 Willamette Partnership
                                    Pace, Scope, Effectiveness




TABLE 1
Summer Actual Current Thermal Loads, million kcal/day
                                  River Flow   River T   Effluent T   Effluent Flow

        Point Source     RM        7Q10, cfs   Trc, C     Tps, C        Qps, cfs      Actual ETL

Small PSs                0-50

Siltronics                6.3        6290        20         24.7          1.55            18

Kellogg Cr               18.7        6290        20         23.3          10.36           84

Oak Lodge                20.1        6290        20         23.5          3.87            33

Tryon Cr                 20.2        6290        20         21.8          9.59            42

Tri-City                 25.5        5440        20         24.8          10.57          124

Blue Heron Paper         27.5        5440        20         32.2          16.24          485

West Linn Paper          27.7        5440        20         28.7           8.2           175

Wilsonville              39.0        5460        20         24.3          2.94            31

Newberg                  49.7        5460        20         24.9          2.94            35

Sp Newsprint             49.8        5460        20         28.5          21.04          438

Small PSs               50-108

Salem                    78.1        5630        18         23            46.72          572

Small PSs               108-186

Wah Chang                116.5       3980        18         29.1           4.8           130

Weyerhaeuser Albany      116.5       3980        18         30            13.3           391

Albany                   119.0       3980        18         23.7          8.51           119

Corvallis                130.8       3670        18         22.9          11.29          135

Evanite                  132.2       3670        18         25.7          0.93            18

Pope and Talbot          148.3       3670        18         28.5          18.1           465

Fort James Halsey        148.4       3670        18         30            6.19           182

MWMC                     178.0       1310        18         22.7          36.82          423

U of O Heat Plant        181.7       1310        18         24.1          15.78          236

                                  Spawning Actual Current ETLs

Small PSs               50-108

Salem                    78.1        6540        13         21            46.72          915

Small PSs               108-186

Wah Chang                116.5       4160        13         27.1           4.8           166



              105 High street se, Salem, Oregon 97301, 503.434.8033
                                 Willamette Partnership
                                   Pace, Scope, Effectiveness



TABLE 1
Summer Actual Current Thermal Loads, million kcal/day
                                  River Flow   River T   Effluent T   Effluent Flow

       Point Source      RM       7Q10, cfs    Trc, C     Tps, C        Qps, cfs      Actual ETL

Weyerhaeuser Albany      116.5       4160        13         28            13.3           488

Albany                   119.0       4160        13         21.7          8.51           181

Corvallis                130.8       3810        13         20.9          11.29          218

Evanite                  132.2       3810        13         23.7          0.93            24

Pope and Talbot          148.3       3810        13         26.5          18.1           598

Fort James Halsey        148.4       3810        13         28            6.19           227

MWMC                     178.0       1340        13         20.7          36.82          694

U of O Heat Plant        181.7       1340        13         22.1          15.78          351




            105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                    Pace, Scope, Effectiveness




TABLE 2
Summer Actual Future ETLs, million kcal/day
                                      River                              Effluent
                                      Flow       River T   Effluent T     Flow

                                                                                     Actual
        Point Source       RM        7Q10, cfs   Trc, C       Tps, C     Qps, cfs     ETL

Small PSs                    0-50

Siltronics                    6.3         6290        20

Kellogg Cr                   18.7         6290        20

Oak Lodge                    20.1         6290        20

Tryon Cr                     20.2         6290        20

Tri-City                     25.5         5440        20

Blue Heron Paper             27.5         5440        20

West Linn Paper              27.7         5440        20

Wilsonville                  39.0         5460        20

Newberg                      49.7         5460        20

Sp Newsprint                 49.8         5460        20

Small PSs                  50-108

Salem                        78.1         5630        18

Small PSs                 108-186

Wah Chang                   116.5         3980        18

Weyerhaeuser Albany         116.5         3980        18

Albany                      119.0         3980        18          23.7       19.07       266

Corvallis                   130.8         3670        18          22.9       26.43       317

Evanite                     132.2         3670        18

Pope and Talbot             148.3         3670        18

Fort James Halsey           148.4         3670        18

MWMC                        178.0         1310        18          22.7       91.45      1052

U of O Heat Plant           181.7         1310        18

                                Spawning Actual Future ETLs

Small PSs                  50-108

Salem                        78.1         6540        13

Small PSs                 108-186


             105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                    Pace, Scope, Effectiveness



TABLE 2
Summer Actual Future ETLs, million kcal/day
                                      River                             Effluent
                                      Flow       River T   Effluent T    Flow

                                                                                    Actual
       Point Source        RM        7Q10, cfs   Trc, C     Tps, C      Qps, cfs     ETL

Wah Chang                   116.5         4160        13

Weyerhaeuser Albany         116.5         4160        13

Albany                      119.0         4160        13         21.7       19.07       406

Corvallis                   130.8         3810        13         20.9       26.43       511

Evanite                     132.2         3810        13

Pope and Talbot             148.3         3810        13

Fort James Halsey           148.4         3810        13

MWMC                        178.0         1340        13         20.7       91.45      1723

U of O Heat Plant           181.7         1340        13




            105 High street se, Salem, Oregon 97301, 503.434.8033
                                   Willamette Partnership
                                     Pace, Scope, Effectiveness




TABLE 3
Current Conditions (a=0)
                                     Summer @7Q10 & a = 0 (mill.
                                              kc/d)                Spawning @7Q10 & a = 0 (mill. kc/d)

                                               Actual    Load to
        Point Source        RM       WLA        ETL      Offset     WLA     Actual ETL Load to Offset

Small PSs                   0-50      193                           NA          NA            NA

Siltronics                   6.3       22        18        -4       NA          NA            NA

Kellogg Cr                  18.7      105        84        -21      NA          NA            NA

Oak Lodge                   20.1       42        33        -9       NA          NA            NA

Tryon Cr                    20.2       52        42        -10      NA          NA            NA

Tri-City                    25.5      156       124        -32      NA          NA            NA

Blue Heron Paper            27.5      485       485         0       NA          NA            NA

West Linn Paper             27.7      197       175        -22      NA          NA            NA

Wilsonville                 39.0       39        31        -8       NA          NA            NA

Newberg                     49.7       44        35        -9       NA          NA            NA

Sp Newsprint                49.8      546       438       -108      NA          NA            NA

Small PSs                  50-108      95                            216

Salem                       78.1      714       572       -142      1372        915           -457

Small PSs                  108-186     93                            56

Wah Chang                   116.5     111       130        19        93         166            73

Weyerhaeuser Albany         116.5     332       391        59        271        488           217

Albany                      119.0     111       119         8        173        181            8

Corvallis                   130.8     127       135         8        213        218            5

Evanite                     132.2      15        18         3        14          24            10

Pope and Talbot             148.3     395       465        70        337        598           261

Fort James Halsey           148.4     155       182        27        126        227           101

MWMC                        178.0     398       423        25        428        694           266

U of O Heat Plant           181.7     200       236        36        210        351           141

Future Conditions

Small PSs                   0-50      193                           NA          NA            NA

Siltronics                   6.3       22                           NA          NA            NA

Kellogg Cr                  18.7      105                           NA          NA            NA


              105 High street se, Salem, Oregon 97301, 503.434.8033
                                   Willamette Partnership
                                     Pace, Scope, Effectiveness



TABLE 3
Current Conditions (a=0)
                                     Summer @7Q10 & a = 0 (mill.
                                              kc/d)                Spawning @7Q10 & a = 0 (mill. kc/d)

                                               Actual    Load to
        Point Source        RM       WLA        ETL      Offset     WLA     Actual ETL Load to Offset

Oak Lodge                   20.1       42                           NA          NA            NA

Tryon Cr                    20.2       52                           NA          NA            NA

Tri-City                    25.5      156                           NA          NA            NA

Blue Heron Paper            27.5      485                           NA          NA            NA

West Linn Paper             27.7      197                           NA          NA            NA

Wilsonville                 39.0       39                           NA          NA            NA

Newberg                     49.7       44                           NA          NA            NA

Sp Newsprint                49.8      546                           NA          NA            NA

Small PSs                  50-108      95                            216

Salem                       78.1      714                           1372

Small PSs                  108-186     93                            56

Wah Chang                   116.5     111                            93

Weyerhaeuser Albany         116.5     332                            271

Albany                      119.0     111       266        155       173        406           233

Corvallis                   130.8     127       317        190       213        511           298

Evanite                     132.2      15                            14

Pope and Talbot             148.3     395                            337

Fort James Halsey           148.4     155                            126

MWMC                        178.0     398       1052       654       428        1723          1295

U of O Heat Plant           181.7     200                            210




              105 High street se, Salem, Oregon 97301, 503.434.8033
                                    Willamette Partnership
                                      Pace, Scope, Effectiveness




TABLE 4
Current Conditions (a>0)
                                     Summer @7Q10 & a > 0 (mill.     Spawning @7Q10 & a > 0 (mill.
                                              kc/d)                             kc/d)

                                                           Load to                        Load to
        Point Source        RM        WLA     Actual ETL   Offset    WLA     Actual ETL   Offset

Small PSs                   0-50      193                             NA        NA          NA

Siltronics                  6.3        20         18         -2       NA        NA          NA

Kellogg Cr                  18.7       98         84         -14      NA        NA          NA

Oak Lodge                   20.1       39         33         -6       NA        NA          NA

Tryon Cr                    20.2       49         42         -7       NA        NA          NA

Tri-City                    25.5      144        124         -20      NA        NA          NA

Blue Heron Paper            27.5      485        485         0        NA        NA          NA

West Linn Paper             27.7      197        175         -22      NA        NA          NA

Wilsonville                 39.0       36         31         -5       NA        NA          NA

Newberg                     49.7       40         35         -5       NA        NA          NA

Sp Newsprint                49.8      503        438         -65      NA        NA          NA

Small PSs                  50-108      95                             216

Salem                       78.1      635        572         -63     1019       915         -104

Small PSs              108-186         97                             56

Wah Chang                  116.5       93        130         37       35        166         131

Weyerhaeuser Albany        116.5      277        391        114       101       488         387

Albany                     119.0       95        119         24       105       181         76

Corvallis                  130.8      108        135         27       129       218         89

Evanite                    132.2       13         18         5         6         24         18

Pope and Talbot            148.3      331        465        134       126       598         472

Fort James Halsey          148.4      129        182         53       47        227         180

MWMC                       178.0      339        423         84       159       694         535

U of O Heat Plant          181.7      167        236         69       78        351         273

Future Conditions

Small PSs                   0-50      193                             NA        NA          NA

Siltronics                  6.3        20                             NA        NA          NA

Kellogg Cr                  18.7       98                             NA        NA          NA


              105 High street se, Salem, Oregon 97301, 503.434.8033
                                    Willamette Partnership
                                      Pace, Scope, Effectiveness



TABLE 4
Current Conditions (a>0)
                                     Summer @7Q10 & a > 0 (mill.     Spawning @7Q10 & a > 0 (mill.
                                              kc/d)                             kc/d)

                                                           Load to                        Load to
        Point Source        RM        WLA     Actual ETL   Offset    WLA     Actual ETL   Offset

Oak Lodge                   20.1       39                             NA        NA          NA

Tryon Cr                    20.2       49                             NA        NA          NA

Tri-City                    25.5      144                             NA        NA          NA

Blue Heron Paper            27.5      485                             NA        NA          NA

West Linn Paper             27.7      197                             NA        NA          NA

Wilsonville                 39.0       36                             NA        NA          NA

Newberg                     49.7       40                             NA        NA          NA

Sp Newsprint                49.8      503                             NA        NA          NA

Small PSs                  50-108      95                             216

Salem                       78.1      635                            1019

Small PSs              108-186         97                             56

Wah Chang                  116.5       93                             35

Weyerhaeuser Albany        116.5      277                             101

Albany                     119.0       95        266        171       105       406         301

Corvallis                  130.8      108        317        209       129       511         382

Evanite                    132.2       13                              6

Pope and Talbot            148.3      331                             126

Fort James Halsey          148.4      129                             47

MWMC                       178.0      339        1052       713       159       1723       1564

U of O Heat Plant          181.7      167                             78


Demand for wetland mitigation credits in Oregon is driven by various forms of
development such as industrial site development, high density residential development, and
public infrastructure projects, which are required by section 404 of Clean Water Act and State
Removal-Fill Law to mitigate permanent impacts to wetlands. One tool being used to project
demand is using the state Industrial Site Certification Program. The program, administered
by Oregon Economic and Community Development Department, certifies sites as being
“project ready” (i.e., able to initiate development within 180 days) once barriers to
development have been substantially addressed. Site assessment for wetlands is a key element
of the program. The current queue of industrial sites seeking state certification indicates that

              105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



the demand for wetland mitigation is generally, and will continue to be, concentrated along
the I-5 corridor between Salem and Eugene, particularly around Corvallis, Albany, and
Lebanon. The current queue of sites additionally suggests the northwestern segment of
Clackamas County and the western segment of Multnomah County as areas with potentially
high demand and limited supply.
If all industrial sites currently in the certification queue within the Willamette Valley
developed all delineated and estimated wetland areas within them, then approximately 1,700
acres of wetland impact would result. Cursory estimates from the regional Economic
Revitalization Team suggest that after considering practicable impact avoidance and
minimization options, the current queue of industrial certification sites may result in a total a
potential mitigation demand of nearly 900 acres, concentrated largely in the Upper
Willamette around Eugene, Lebanon, and Corvallis. A significant portion of this demand is
for mitigation within the next five years, and primarily for palustrine emergent wetland. The
Oregon Department of Transportation is in the process of estimating its potential demand
over the next 5-7 years, and communities in the West Cascades Council of Governments are
working to collect their anticipated need for mitigation credits. In the next few years, these
three sources are likely to represent the largest consolidated demand for mitigation credits.
Current demand for credits tends to come in small increments of less than 1 acre. Credit
transactions need to be embodied within a removal/fill permit, so buyers are restricted from
acquiring and holding additional credits. Credit prices range significantly across the valley
based on land values. State Land’s current Payment to provide price is $60,000/acre of
wetland impact, which reflects the average credit price in the state. This price is a ballpark
figure for credit prices. Unconfirmed
negotiation prices for the Foster Creek
bank hover around $175,000. The prices
in the Willamette valley range from
$50,000 at the West Eugene Wetlands to
$76,000 per acre at Frazier bank. Existing
banks and banks in process are scheduled
to generate 292 acres of wetland credits.
Considering just the demand potentially
generated from candidate industrial
certification sites in the Valley, this
suggests a shortfall of about 600 acre-
credits. At an assumed average value of
$60,000 per acre, this equates a total
unmet demand value of $36 million.
There are some significant policy changes
on the horizon for wetland mitigation.
The Economic Revitalization Team and
cities are anxious to get quality mitigation
in place quickly to facilitate industrial

         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



development where there are unavoidable wetland impacts. One option the Economic
Revitalization Team is exploring is a resale program similar to the North Carolina Ecosystem
Enhancement program, where the state or other third party would buy credits and hold them
in advance of demand from buyers. The desired outcome is to create a more stable (in terms of
both quantity and price) and higher quality supply of wetland bank credits for projects of
regional or statewide economic importance. New federal mitigation rules due out in the next
year are also likely to increase demand for wetland mitigation credits.
Emerging Sources of Demand
Demand for carbon offset credits is emerging in Oregon. Growing out of the carbon dioxide
emissions standards for new energy facilities as regulated by the Energy Facility Siting
Council, the Climate Trust has purchased greenhouse gas emission offsets for new power
plants. Although Oregon is not likely to see new power plants in the near future, demand for
carbon offsets nationally is developing quickly. Regionally, California is leading with new
legislation that includes trading. The Pacific Forest Trust has a program to buy forest carbon
sequestration. The Climate Trust is actively seeking new sources of investment.
The Governor convened The Carbon Allocation Task Force in August 2005 to develop a
proposed cap-and-trade system and legislative proposal in time for the 2007 legislative session.
They have put in a very rough placeholder that mimics some of the earlier markets in sulfur
dioxide trading. Members of the Partnership have had little contact with members of this
Task Force, but have talked preliminarily with the Climate Trust. Another source of funds
for carbon credits may come from a proposal introduced for the 2007 legislative session by the
Dept. of Forestry. The bill authorizes payments for ecosystem services, which may be
targeted at carbon sequestration.
Demand for endangered species habitat conservation credits is being generated by state and
federal species listings under the Endangered Species Act (ESA). It is unclear how strong a
driver this will be and how much investment in conservation banking is likely given limited
reach of ESA regulations and fish and reluctance to accept trading to comply with ESA.
Conservation banking broke into Oregon with the Dept. of Transportation’s banks for
Oregon chub. The Oregon office of the US Fish and Wildlife Service is developing banking
policy for the entire state that is due to be complete in the next year. On the anadromous fish
side, National Marine Fisheries Service is still hesitant about trading, but they are closer to
authorizing a salmon habitat accounting system under the Dept. of Transportation’s bridges
program. Salmon banks have been formed in California.
Demand for stormwater infiltration and treatment credits is looming on the horizon as
growth of impervious area increases, regulation of municipalities and other entities to control
quantity and quality of stormwater becomes more onerous, and costs to manage stormwater
runoff increase. The City of Portland is exploring the feasibility of using a marketplace to
more cost effectively meet stormwater compliance challenges. The OR Dept. of
Transportation has convened a group to explore options for meeting regulatory requirements.
The demand for stormwater offsets is likely to be very high, but there are institutional
challenges to trading stormwater credits.



         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



Implications
The markets with open check books today are wetlands mitigation banking and hopefully,
water quality trading. In terms of the demonstration project, the most marketable projects
will be geared toward generating credits for these markets. “Reserve” areas or actions in the
project could be held for carbon, species, or other credits, but the economic return will not be
immediate. There may be specific opportunities to meet the ecosystem credit needs of a
particular “client.” For example, the Port of Portland has a simultaneous need to mitigate for
wetland impacts, species impacts, and natural resource damages. The Willamette Partnership
could define a role there or not.
The priority, policy-level dialogues that will shape market demand into the future and where
the Partnership might be able to participate are the Governor’s Economic Revitalization
Team, the Governor’s Carbon Allocation Task Force, and US Fish and Wildlife Service’s
upcoming conservation banking policy. Partnership roles in each of these efforts could range
from tracking progress, commenting on draft proposals, to actively shaping program designs.
Each option requires commitment of staff time, but investing time now could reduce costs
created by inconsistent structures and rules later on.

Next Steps
  • Complete quantification of ecosystem benefits generated by restoration actions and
      apply method to other restoration priority areas to assess basin-wide supply
  • Get more detailed information on demand surrounding the area of selected
      demonstration projects
  • Complete work with the Dept. of Transportation, State Lands, and valley cities to get
      information on projected demand for wetland credits
  • Continue engaging US Fish and Wildlife Service on design of conservation banking
      program

Trends to Track
   • Watch for other large “clients” like the Port of Portland
   • Get updates from the Carbon Allocation Task Force
   • Get updates from the City of Portland’s stormwater trading pilot
   • Track national policies on wetlands mitigation and carbon
   • Track developments in Washington state related to wetlands banking, conservation
      banking, and transferable development rights
   • Watch how new Farm Bill might impact trading




         105 High street se, Salem, Oregon 97301, 503.434.8033
Supporting Documents for
   Section 4 – Credit
   Definition (Task 2)
                                      Increasing the pace, expanding the scope, and
                                       improving the effectiveness of conservation




      METHODS FOR DEFINING TEMPERATURE OFF-SETS CREDITS IN THE
                      WILLAMETTE RIVER BASIN

INTRODUCTION
A significant body of work exists that documents methods to calculate kilocalorie reductions
from various activities. This body includes the work conducted to support the CWS trading
program, as well as ongoing efforts by Oregon State University (OSU), Oregon University (OU)
and the United States Geological Survey (USGS). This report identifies and reviews relevant
documents to prepare a “gap analysis” for kilocalorie credit methodologies, focusing on five
potential sources of kilocalorie reduction: wastewater reclamation/reuse, flow augmentation,
riparian shading, floodplain/hyporheic restoration, and wetlands discharge/restoration. This
report assesses whether existing science and mathematical calculations are sufficient to propose
these kilocalorie reduction measures for crediting and wasteload allocation (WLA) compliance
purposes. Where one or more methods are sufficient for one or more actions, recommendations
have been given for how to proceed with formalizing a crediting protocol within the overall
framework. Where gaps exist, this report provides specific guidance (a “road map”) to focus
resources on research needed to support this definition of kilo-calorie reductions.


Methods for Defining Temperature Credits
It is assumed that kilocalories per unit of time will be the basic temperature currency for trading
purposes in the Willamette Basin. Formal temperature trading programs do not exist anywhere
else in the country other than Oregon. The primary example of a temperature trading program in
Oregon is that established for the Tualatin Basin, as formalized in the watershed NPDES permit
issued for CWS. No other restoration projects and temperature Total Maximum Daily Loads
(TMDLs) are completed or under way in Oregon in which temperature offsets or mitigation have
been or are being considered. The CWS program and other examples are described where
relevant in this TM.


The ways in which the currency units can be defined for various actions is described in
conceptual terms below.
Wastewater Reclamation/Reuse
WLAs in the Willamette TMDL for point sources are expressed in million kilocalories per day
(mkcal/d). Reductions in thermal loads below the WLAs that are achieved by reclamation/reuse
would generate credits that could be traded (subject to potential temporal and spatial constraints
that might be included in a fully developed trading program). These temporal and spatial




         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



considerations are applicable to other types of credit generating projects described below and
thus a separate subsection is devoted to this topic later in this TM.
USGS has recently developed a point source trading tool for the Willamette River for the Oregon
Association of Clean Water Agencies (ACWA) and the Willamette Partnership. The tool
provides a means by which potential trading partners can visualize the temperature effects of any
particular trade along the entire length of the river. The tool also shows how much the
temperature changes at the Point of Maximum Impact (POMI) as a result of any trade. Although
not included in the tool at this point, this change of temperature can be translated in kilocalories
per unit time based on the river flow at the POMI. This tool simulates temperature effects of
trades assuming that the point source discharges creating credits are doing so by
reclaiming/reusing some or all of their wastewater discharges.
Flow Augmentation
A precedent for defining flow augmentation temperature credit has been established for the
Tualatin River by CWS. A river temperature model (Heat Source) was used to predict how much
of a temperature change would occur at two critical locations just upstream of each of CWS’s
advanced wastewater treatment facilities (AWTFs) as a result of CWS’s flow augmentation
water released from Hagg Lake. July and August were determined to be the critical period for
reconciling the thermal load to offset (in mkcal/d) with credits from flow augmentation.
Attachment A is the summary sheet of CWS’s 2004 annual trading report which shows that the
augmentation flow of 30 cubic feet per second (cfs) more than offset the excess load from the
Durham AWTF and offset more than half of the excess load from the Rock Creek AWTF. The
credits were calculated by multiplying the reduction in temperature in the river upstream of each
AWTF by the seasonal river flow. A similar process could be used for the Willamette River,
taking into consideration the unique temporal and spatial aspects of the Willamette.
One issue unique to the Willamette TMDL is that reservoirs were not assigned load allocations
(LAs) in thermal load units (for example, mkc/d), but instead in terms of temperature targets to
meet downstream of the reservoir for each month. Thus, in order to generate credits, a reservoir
owner would not only have to achieve cooler temperatures than those in the LA tables, but there
also would have to be a technical translation of these temperatures into the kilocalorie currency.
This assumes that DEQ and others would see temperatures lower than LAs as a desirable
outcome. This may not be the case if the goal is for outflows to mimic Natural Thermal Potential
(NTP) temperatures rather than simply be as cold as possible. The ramifications of this issue are
further discussed in the “Data Gaps” and “Road Map” sections of this TM.
Riparian Shade Restoration
CWS also established a precedent for defining riparian shade restoration temperature credit for
the Tualatin River. Shade credits are defined using DEQ’s shade model to predict the effective
shade provided by a specific grouping of restoration plantings. These effective shade predictions
were used (along with estimates of the stream surface area affected by the shade) to calculate
how much of the summer solar insolation load would be blocked by the shade. Knowing the
number of kilocalories per day per square foot of stream that would be blocked and the number
of square feet of stream affected provides the number of kilocalories per day. Credits for a given
planting year are defined as those that would occur when the vegetation reaches full maturity.

         105 High street se, Salem, Oregon 97301, 503.434.8033
                                    Willamette Partnership
                                          Pace, Scope, Effectiveness



However, a ratio of 2:1 is used for offsetting current thermal loads from the AWTFs because it
will take years before the vegetation reaches full maturity (in other words, 2 miles of vegetation
has to be planted for every mile used for an offset credit). Attachments A and B show that the 5.5
miles of riparian planting credited in 2004 by CWS offset 30 mkcal/d of the excess load from the
AWTFs for that first annual report.
A similar process could be used for the Willamette River, although the unique temporal and
spatial aspects of the Willamette would have to be taken into consideration. These aspects are
further discussed in the “Spatial and Temporal Considerations of Importance for the Willamette
River” section of this TM.
Floodplain/Hyporheic Restoration
The descriptions of the floodplain/hyporheic restoration processes in this paragraph were taken
from Lancaster, et al. (2005).1 Floodplain restoration refers to reconnecting side channels in the
floodplain that have been cut off from the mainstem. This allows periodic inundation of these
side channels during higher river flow events in fall, winter and spring. This in turn leads to
recharge of the hyporheic zone, which then allows cooler water to seep into the mainstem on a
delayed basis during the lower flow, warmer summer months. The injection of warm wastewater
into the hyporheic zone of the river is another form of restoration considered here. The gravels,
sands and silt of the hyporheic zone would act as a heat exchange mechanism for the excess
wastewater thermal loads. In addition, this type of discharge could lead to a delay in the
movement of the wastewater so that the remaining thermal load might be delivered to the river
during a less critical time. Other floodplain restoration measures could include selective removal
of bank hardening structures to allow bank erosion, channel widening, and deposition of new
gravel bars, which could then lead to higher hydraulic conductivity and greater hyporheic flows.
Floodplain/hyporheic restoration also may occur in a fashion that would provide “stepping
stones” of cold water refugia along the mainstem Willamette River. This is the subject of
ongoing research at OSU and OU.
Credits for floodplain/hyporheic restorations would likely be defined in a manner similar to flow
augmentation in that the credits would be generated by knowledge of how a given project would
change flows and temperatures temporally and spatially in the river. This would have to be
established on a project-by-project basis. An agency and publicly accepted analytical framework
such as computer modeling likely would be needed to predict the flow and temperature changes
in the river as a result of a given project. This is because the temperature changes that would
occur involve extensive technical complexity and may be difficult to measure in the field after
the project is implemented. This is much like temperature trading between individual point
sources where the effects of a trade might not be measurable in the field and thus the trade
credits have to be established via river temperature modeling as was done for the TMDL and also
by USGS for the temperature trading tool.
The OSU study cited involved hypothetical situations, but suggests that development of
analytical tools should be possible. These tools need further development and validation prior to

1 “Investigation of the Temperature Impact of Hyporheic Flow: Using Groundwater and Heat Flow Modeling and GIS Analyses to
Evaluate Temperature Mitigation Strategies on the Willamette River, Oregon.” Oregon State University. December 2005.


            105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



their use in a regulatory process such as credit trading for TMDL compliance. This kind of
research is ongoing at OSU and OU. The ramifications of this issue are further discussed in the
“Data Gaps” and “Road Map” sections of this TM.
Wetlands Discharge/Restoration
Wetlands treatment systems can be designed, constructed, and operated to achieve cost-effective
and efficient effluent cooling. Reductions in effluent temperature in such wetland systems occur
through both passive evaporative and radiant cooling. This can be accomplished using a
relatively large land area with shallow depths and dense emergent vegetation for shading. In
some situations, restoration of wetlands can also provide cooling benefits much in the same way
as described for floodplain/hyporheic restoration (increased and/or delayed seepage of water
through cooler shallow groundwater system).
The credit definition process for wetlands discharge/restoration would be similar to
floodplain/hyporheic restoration in that credits would have to be established project-by-project in
relation to how each would affect river flow and temperature on a temporal and spatial basis. For
wetland treatment systems this could be done using a modeling framework that includes the
wetland cooling mechanisms and the effects of the wetland discharge in the river. Heat Source
has been used for temperature modeling for a potential wetland system being considered by the
City of Albany (see Attachment C for illustrative results of thermal load reductions and
associated river temperature benefits). In this example (which currently contemplates inclusion
of Teledyne Wa Chang and Weyerhaueser as partners in the wetland cooling project), thermal
models of 160 acres of constructed wetlands show evaporative and radiant cooling would
significantly reduce temperatures, far exceeding the thermal reduction requirement in the TMDL,
thus providing tradable credits. This cooling in wetlands is also something that could be directly
measured in the field after the wetland system has been constructed or modified, much like
temperature and thermal loads can be measured at the end-of-pipe for a point source discharge.
Temporal and Spatial Considerations of Importance for the Willamette River
The CWS temperature trading program provides a number of relevant and useable precedents for
a Willamette program, as discussed above. There are, however, some temporal and spatial
considerations that need to be resolved specifically for the Willamette. This is due in part to the
larger geographic scope of the Willamette Basin compared to the Tualatin Basin. These temporal
and spatial considerations are discussed below.
Temporal Constraints
One temporal constraint that would likely be imposed would be that the credits would have to be
generated during the same time period in which they are traded. For the Willamette TMDL the
relevant time period can span spawning, rearing, and migration periods for a variety of specific
salmonids depending on location in the basin. One trading mechanism for addressing such
temporal considerations for trades involving point sources is the variable permit limit concept
developed for the Lower Boise River trading program. In that program, trade occurrence,
certification and reporting are done monthly along with submittal of the Discharge Monitoring
Reports.



         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                  Pace, Scope, Effectiveness



Another temporal consideration relates to the fact that the WLAs for point sources in the
Willamette TMDL are river flow tiered (less stringent WLAs as river flow increases). Thus,
during higher river flow periods the WLAs are more achievable and trading may not be needed
for compliance during these times. Again, a variable permit limit approach could potentially be
used for trades involving point sources. This issue will necessitate a trading environment that
accounts for the fact that trades may not be needed in all years; therefore, it may be in the
interests of a point source to ensure access to credits that would be made available only during
low-flow periods.
Spatial Constraints
One spatial consideration is related to the need to avoid localized impacts. Localized impact
evaluations have to be conducted on a site-specific basis. The specific regulatory decision-
making process to date related to localized impacts has not been developed. The Willamette
point source trading tool developed by USGS for ACWA provides a means by which potential
trading partners can visualize the temperature effects of any particular trade along the entire
length of the river. The tool also shows how much the temperature changes at the POMI as a
result of any trade. This change of temperature can be readily translated in kilocalories per unit
time based on the river flow at the POMI
Another spatial consideration relates to the location of the restoration activities. For example,
how are credits defined relative to offsetting mainstem thermal loads if shade restoration occurs
in a tributary rather than along the mainstem? In the Tualatin example, it is anticipated that most
of the riparian shade that will be restored will be along tributaries. An explicit policy decision
was made by DEQ that all such restoration should be directly creditable for thermal load offsets
for the mainstem river without application of any kind of location ratio or penalty. A similar
policy decision has not yet been made for the Willamette TMDL. Given the much larger
geographic scope of the Willamette, another approach would be to model the effects of riparian
restoration projects in the tributaries on the temperature of the tributary at its mouth. The benefits
(credits) associated with this change in temperature at the mouth could then be run through a
mainstem model (either the CE-QUAL-W2 models or with a trading tool similar to the USGS
tool developed for point source trading on the mainstem) to determine the temporal and spatial
benefits to the mainstem.
Another spatial consideration is to assess the length of river being benefited by a trade (say in
units of mkcal [or degrees Celsius] per river mile per day). This essentially would be an estimate
of the area between the before and after trade plots of longitudinal temperature or heat load
versus river mile. These calculations are included in the USGS point source trading tool. This, of
course, would be a somewhat more complex trading currency and has not yet been used formally
in Oregon for temperature trading. A similar concept, however, is currently being considered by
DEQ for the Clackamas River. Even if not selected as the currency, consideration of the
integrated benefit of magnitude and distance could be part of the decision-making framework for
defining credits and/or determining or prioritizing allowable trades.
One final spatial consideration relates to the fact that the TMDL separated the Willamette River
mainstem into three distinct segments or reaches, with a POMI identified within each reach. The
USGS trading tool, however, has revealed that temperature effects (e.g., cooling effects) from


         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



trades in the upper reach can extend into the middle reach and even the lower reach in some
cases. The trading tool also has revealed that the POMI can shift upstream or downstream as a
result of trades. As a result, the Willamette trading program will need to be able to accommodate
trades between the reaches and address the policy and technical aspects of shifting POMIs.
Gap Analysis
For the most part, the analytical tools needed to define temperature credits already exist; several
of which have received agency approval/support. Examples include the CE-QUAL-W2 models
for the Willamette mainstem and the Heat Source model for tributary shade restoration and
wetland treatment projects. Although running the CE-QUAL-W2 models can be cumbersome,
this should not be a major impediment to trading, especially if tools such as the Willamette point
source trading tool developed by USGS can be extended or further developed to include mkcal/d
calculations and to evaluate other types of trades (such as effects of tributary cooling on the
mainstem).
Although models are available for and have been applied to floodplain/hyporheic restoration,
these models and methods have not yet been formally validated with real world projects, or
adopted or deemed acceptable for regulatory decision-making such as trading to comply with
TMDLs. This modeling framework will be needed for proposed restoration projects where it will
be difficult to validate temperature benefits with post-implementation field data. Models will
also be needed for planning purposes for floodplain/hyporheic projects to provide some
assurance that costs will be justified by anticipated benefits.
Important regulatory decisions will be needed for several key aspects of temperature trading.
They are as follows:
•   Temporal considerations. The timing of and mechanisms for credit creation and trading
    need to be developed. It appears that the variable permit limit approach developed by EPA
    Region 10 for the Idaho trading framework might have merit for Willamette temperature
    trading involving one or more point sources and thus should be further explored.

•   Spatial considerations
    −   Localized impacts. What decision criteria regarding localized impacts will define an
        acceptable trade? One simple approach would be to conclude that a trade is approvable
        as long as the temperature increase in the river at the POMI is not greater than under the
        TMDL allocated condition. This however may be an overly simplistic approach in
        several respects (for example, does not consider number of river miles benefited,
        possible error in the analyses, or if the increase would materially affect designated uses,
        etc.). Another approach would be for DEQ to retain discretionary judgment for
        approving trades on a case-by-case basis. This is how the localized impacts issue was
        resolved for the Lower Boise River trading program.

    −   Tributary projects. How will restoration projects on tributary rivers and streams be
        handled with respect to offsetting thermal loads to the mainstem? Will the Tualatin
        approach be used (for example, regarding shading) or will changes to tributaries have to
        be modeled and input to the mainstem model(s) to be assessed in a similar fashion as
        point source discharges?

         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



    −   Integration of magnitude and extent of trade effects. Could a currency that includes
        the length of river affected be developed and used?

    −   Trades affecting other river reaches and shift POMIs. How will the trading program
        accommodate trades that affect other reaches and shift POMIs within a reach?

•   Flow augmentation from reservoirs. Flow augmentation from existing reservoirs in the
    basin could presumably only be generated if releases are cooler than the LAs in the TMDL.
    Assuming such cooler releases could be achieved, would that be a desirable outcome and
    potentially creditable under a trading program?

•   Other environmental benefits of restoration projects. Most of the restoration project types
    discussed in this TM will provide ancillary environmental benefits such as wildlife habitat
    benefits from wetlands and riparian vegetation. How will these benefits be considered
    within a temperature trading decision-making framework?

Road Map
The “road map” that should be followed to address the issues, gaps and unanswered questions
identified above is as follows:
•   A modeling and analytical framework needs to be further developed, validated, and
    accepted for defining credits related to floodplain/hyporheic restoration projects. It is
    assumed this effort would be led by OU/OSU researchers with technical and regulatory
    input from DEQ and others. This effort would be beyond the scope of the consultant team’s
    Task Order 4, and likely will take substantial effort and time to complete.

•   A framework for credit trading involving one or more point source (such as variable permit
    limits should be developed). This would be included in Task Order 4, Subtask 2.4.

•   The USGS tool for Willamette point source trading should be further developed to include
    kcal/d calculations and to include other types of trades (such as effects of tributary cooling).
    The mechanisms for doing this will be included in Task Order 4, although any CE-QUAL-
    W2 model runs to further develop the tool would not be conducted by the consultant team.

•   The process for working through the technical and policy aspects of the numerous
    regulatory decisions regarding the key aspects of temperature trading, such as localized
    impacts, trades that affect other reaches and/or shift POMIs, tributary credits applied to the
    mainstem, how to integrate magnitude and extent of trade benefits, and how to consider
    other environmental benefits need to be initiated. Willamette Partnership recommendations
    to DEQ, and other interested parties such as ACWA, will be developed via Task 2 of TO 4.

•   Determinations regarding the feasibility, desirability, and technical aspects of flow
    augmentation from existing reservoirs need to be made by reservoir owners, DEQ and other
    agencies. These determinations are beyond the scope of TO 4, but relevant information that
    might be developed by others will be incorporated into Task 2 deliverables.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                 Willamette Partnership
                     Pace, Scope, Effectiveness




                            Attachment A
CWS Example of Thermal Credits Associated with River Flow Augmentation




 105 High street se, Salem, Oregon 97301, 503.434.8033
            Willamette Partnership
               Pace, Scope, Effectiveness




105 High street se, Salem, Oregon 97301, 503.434.8033
                   Willamette Partnership
                      Pace, Scope, Effectiveness




                              Attachment B
CWS Example of Thermal Credits Associated with Riparian Shade Restoration




  105 High street se, Salem, Oregon 97301, 503.434.8033
            Willamette Partnership
               Pace, Scope, Effectiveness




105 High street se, Salem, Oregon 97301, 503.434.8033
              Willamette Partnership
                 Pace, Scope, Effectiveness




                         Attachment C
        Potential City of Albany Wetlands Cooling Project




105 High street se, Salem, Oregon 97301, 503.434.8033
                                                                       Willamette Partnership
                                                                          Pace, Scope, Effectiveness



                                                     800
                                                                                               Current Conditions
                                                                                               Allocation
Excess Thermal Load (million kilocalories per day)




                                                     700                                       With Wetlands


                                                     600



                                                     500



                                                     400



                                                     300



                                                     200



                                                     100



                                                       0




                                                           105 High street se, Salem, Oregon 97301, 503.434.8033
                                               Draft RIPARIAN PLANTING
                                               PROTOCOLS

                                               Last updated June 19, 2008. For questions, contact: David
                                               Primozich at Primozich@verizon.net.




Introduction
The Oregon Department of Environmental Quality (DEQ), working with other partners,
established a precedent in Clean Water Services’ NPDES permit for defining temperature credits
based on riparian restoration plantings on the Tualatin River. Shade credits are determined using
Department of Environmental Quality’s (DEQ) Shade-O-Later model to predict the thermal
benefit of increased shade provided by restoration plantings. Credits are defined as modeled
temperature reductions measured in kcal/day that would be generated from restoration plantings
at full maturity.

Approach to Credit Generation for the Willamette River Basin
The process used in the Tualatin River thermal credit program can be modified for application in
the Willamette basin. The Willamette TMDL developed and used various modeling tools for
evaluating riparian shade, including the Heat Source model for some of the tributaries, and the
CE-QUAL-W2 model for several major tributaries downstream of the Corps reservoirs. These
models can be used to evaluate the benefits of increased riparian shade for other tributary and
river reaches.

Both the spreadsheet developed by Clean Water Services for its annual thermal credit
verification and reporting to DEQ and the DEQ-approved program for the Tualatin River have
been adapted for use within the Willamette basin. The Willamette Partnership-developed credit
calculator includes screening and detailed evaluations of thermal credits applicable to wetlands,
riparian shade, wastewater reuse, and flow augmentation types or restoration activities.

This document provides 1) minimum riparian revegetation requirements for projects to be
eligible to generate credits, and 2) voluntary guidance and recommendations for successful
riparian revegetation based on Clean Water Services’ early experience with thermal credits, but
with modifications for to the broader Willamette basin.

Minimum Riparian Revegetation Requirements

To generate credits1:
1. All plant materials must come from Willamette Valley seed sources below 1,500 feet


1 These items are in other places in the Willamette temp protocol, but shouldn’t be forgotten. In order to
qualify, projects must 1) be able to generate credits to offset thermal load within NPDES permits under the
Willamette Temperature TMDL, and 2) maintain the viability of projects credits for the required life of the credit..


                                                                                                             PAGE 1 OF 4
2. Plantings must be based on appropriate plant community determined by local
   reference site
3. The site must support a minimum of 1,600 stems per acre (average) at project year
   five
4. The site must have no more than 20 percent non-native cover (average) at project
   year five
5. The site may have no fewer than five woody species and no single species may
   represent more than 50 percent of the woody plants at project year five
6. Neither trees nor shrubs shall represent less than 20 percent of the total stems per
   acre at project year five
7. The stream connected to the site must have perennial flow

Monitoring reports describing progress toward these eligibility criteria shall be submitted to the
Ecosystem Credit Registry registry on an annual basis. If annual reports indicate that a site is
unlikely to meet year five performance standards, the credit seller shall make efforts to improve
site conditions. If those efforts are made in good faith, but performance standards are still not
met, the seller will have the option of 1) substituting credits from another appropriate site, 2)
purchasing credits from the insurance pool, or 3) negotiating another agreement between the
buyer, seller, DEQ, and any other relevant parties2.




2 This does not imply that the negotiations are an alternative to other options or that they will necessarily be successful.

FORM ABCD                                                                                            INITIALS: BUYER_______ / SELLER_______
VERSION: DRAFT RIPARIAN PLANTING PROTOCOLS.DOC                                                                                   PAGE 2 OF 4
Elements of a successful riparian shade restoration project

Woody Plant Density Recommendations
Although woody plant stem densities vary widely among Willamette Valley plant communities,
the recommended range from Tualatin Basin projects is between 2,000 and 2,600 stems per acre.
Formulae for calculating densities are as follows:

          tree stems = square footage of planting area x 0.01
          shrub stems = square footage of planting area x 0.05

These formulae are intended to be used as a guide and stem density should be modified to reflect
site conditions and target community types.

Considerations for Establishing Native Riparian Plant Communities

Site Conditions
    Hydrology
        a. Consider the frequency and duration of water inundation. Divide the planting area
           into hydrologic zones based on elevation. Most sites include one or more of the
           following planting zones with respect to hydrology during the growing season:
               Wet - standing or flowing water/nearly constant saturation; anaerobic soils
               Moist - periodically saturated; anaerobic and/or aerobic soils
               Dry - infrequent inundation/saturation, if any; aerobic soils
    Soils
        a. Unless soils are heavily compacted, tilling and disking disturb soils and are generally
           unnecessary for successful revegetation
        b. Rocky fill or heavily disturbed soil may be removed and replaced with native soil to
           create appropriate conditions for planting3
    Weeds and Site Context
        a. Consider site preparation and future maintenance needs in light of
           characteristics of current vegetation
        b. Consider the current and potential influences of areas surrounding site and
           select boundaries and all-season access points that facilitate maintenance

Plant Materials and Planting
      a. One to two-year old bare root seedlings yield excellent results at most sites.4
         Containerized plants may be used, but practitioners report higher costs and
         inconsistent results with containerized stock
      b. Cuttings from native Salix, Cornus, Spiraea and Lonicera shrubs can effectively
         supplement bare root plantings, especially on steep streambanks
      c. Native grass and forb seed can help with erosion and weed control. Small-
         stature native grasses are recommended to prevent excessive competition
         with planted trees and shrubs for moisture and sunlight

3 Contact your local SWCD for more information about appropriate soil sources.
4 See www.plantnative.org for a listing of local Oregon nurseries

FORM ABCD                                                                        INITIALS: BUYER_______ / SELLER_______
VERSION: DRAFT RIPARIAN PLANTING PROTOCOLS.DOC                                                               PAGE 3 OF 4
          d. Bare root seedlings should be protected from freezing and drying during
             lifting, transport and planting
          e. Planting in curved rows at regular spacing intervals can facilitate
             maintenance
          f. Planting season with bare root plants typically lasts from late January to mid-
             March. Fall and spring plantings are also possible if using containerized stock
          g. Plan to inter-plant at approximately 25 percent of original planting numbers
             in project year two

Plant protection
       a. Consider potential for herbivory by beaver, nutria, deer, elk and voles
       b. Before using plastic plant protectors and bamboo stakes, consider potential
          for loss due to flooding and to vandalism along trails
       c. In grassy areas, consider spring ring spray for vole protection and moisture
          conservation. Voles will not likely girdle plants unless they are under the
          cover of grass.
       d. In areas with beaver activity, be prepared to replant

Maintenance
      a. Visit site regularly
      b. Minimum maintenance on most sites includes one spring ring spray, one
         summer mow or cut and one fall spot spray.
      c. The need for irrigation can usually be avoided in a typical summer with
         proper plant selection and placement and good grass control (e.g., moisture
         conservation ring spray) around plants. A 25 percent inter-plant of lost plants
         in project year two is often more cost-effective than irrigation.




FORM ABCD                                                            INITIALS: BUYER_______ / SELLER_______
VERSION: DRAFT RIPARIAN PLANTING PROTOCOLS.DOC                                                   PAGE 4 OF 4
Supporting Documents for
Section 5 – Credit Portfolio
          (Task 3)
Ecosystem Restoration in the Long Tom River Basin for 
Water Quality Improvement in the Willamette River  
Preliminary Findings 




Prepared by 
Long Tom Watershed Council 
Dana Erickson, Cindy Thieman 

 
Prepared for 
City of Eugene 
 
Project P07‐02 
 
 
 
March 2008 
Acknowledgements 
The following people provided informal technical assistance during this project. A description of
their assistance is provided. Their names here do not connote their review of the final product.

   •   York Johnson, DEQ – Used Shadelator to calculate thermal reduction potential for the
       Long Tom River.
   •   Ryan Michie, DEQ – Provided clarification of Shadelator results and calculations.
   •   Stuart Rounds, USGS – Assisted in estimating potential temperature influence of Bear
       and Ferguson Creeks on the lower Long Tom River.
   •   Kendra Morgan, Clean Water Services - Met with LTWC staff to review field
       assessment and mapping protocols for determining shade credit values.
   •   Raj Kapur, Clean Water Services – Discussed use of Shadelator for showing credit
       value from planting projects. Provided average values from CWS experience for shade
       credit per unit stream length.
   •   Peter Guillozet, Clean Water Services – Provided monitoring protocols and estimates for
       project implementation.
   •   Landowners in the Long Tom River basin.




Citation: Long Tom Watershed Council. Ecosystem Restoration in the Long Tom River Basin for Water
        Quality Improvement in the Willamette River. 2008.

                                                2
Table of Contents 
Introduction ................................................................................................................................... 4
Background .................................................................................................................................... 4
Priority Area Determination .......................................................................................................... 5
Restoration project types for temperature mitigation and other benefits ............................... 6
   Riparian Planting ........................................................................................................................ 6
   Instream Impoundment Removal................................................................................................ 6
   Connection to cool water sources ............................................................................................... 7
   Floodplain restoration and hydrologic reconnection .................................................................. 7
   Multiple Benefits from Shading.................................................................................................. 7
   Implementation timelines for different project types.................................................................. 8
   Viability of Project Types for TMDL Implementation Options................................................. 9
Riparian Shading of the Lower Long Tom River ........................................................................ 10
   Methods..................................................................................................................................... 10
   Figure 1.  Sample map of Shadelator Results ......................................................................... 12
   Findings..................................................................................................................................... 13
   Table 4. Potential thermal load reductions for selected reaches, lower Long Tom River .. 14
Elements of a performance monitoring plan for riparian shading and bacteria reduction .... 15
Considerations in contracting with landowners for shade production.................................... 15
   Methods..................................................................................................................................... 16
   Questions................................................................................................................................... 16
   Findings..................................................................................................................................... 16
      Credit calculations ................................................................................................................ 17
      Contract payment amounts ................................................................................................... 17
      Minimum Contract Value ..................................................................................................... 17
      Uncertainty or “Hassle” factor.............................................................................................. 17
      Permission to access land...................................................................................................... 17
      Upfront payment ................................................................................................................... 18
      Contract signing bonus or value addition ............................................................................. 18
      Explaining the system ........................................................................................................... 18
      Landowner Involvement in BMP activity ............................................................................ 18
      Contract Development .......................................................................................................... 19
      Floodplain Easements ........................................................................................................... 20
Project Relationship to Marketplace Activities.......................................................................... 20
      Credit Calculations................................................................................................................ 20
      Watershed Council Roles...................................................................................................... 20
Conclusions .................................................................................................................................. 21
References ................................................................................................................................... 23
Appendices................................................................................................................................... 24
   Appendix A: Long Tom Watershed Sub-basins ....................................................................... 25
   Appendix B: Areas for further investigation ............................................................................ 26
   Appendix C: Outreach to Landowners ..................................................................................... 27
List of Attachments ..................................................................................................................... 33


                                                                        3
Introduction 

        The goal of this project was to produce materials that support the City’s TMDL options
        assessment, under compilation through March of 2008. This report gives some
        preliminary answers with regard to project types and priority areas when considering
        ecosystem restoration activities in the Long Tom Watershed as a method to accomplish
        water quality improvement in the Willamette River. Specific detail is provided with
        regard to shading the Long Tom River to achieve temperature reduction. Areas of
        potential further investigation are noted throughout the report and summarized in
        Appendix B.


Background 

        In the Willamette Basin, there is considerable movement toward creating markets for
        ecosystem services. Multiple complementary investigations are occurring and technical
        and system experts are addressing each of the components necessary to create a
        marketplace for the trade of many types of credits. Chief among them are water quality
        credits.
                 Demand for water quality credits to meet Clean Water Act standards is
                 driven by newly established Total Maximum Daily Loads in Oregon for
                 water quality parameters such as temperature, dissolved oxygen, bacteria,
                 and more. In general, the analysis suggests that all the major point sources
                 in the Upper Willamette reach (upstream of river mile 108) have excess
                 thermal loads that exceed waste load allocations and thus may have an
                 interest in acquiring thermal credits. (Willamette Partnership, 2008)

        One example of this is a municipality like the City of Eugene needing to offset the
        thermal loading from treated wastewater discharges to the Willamette River. A typical
        solution to reducing the thermal impact would be to build a large cooling plant. However,
        the simplest version of another option would be to pay landowners in surrounding
        watersheds to plant trees to produce shading over the longer term that cool streams. This
        alternative approach invests in natural systems and, coupled with a high quality
        organizational framework to identify, value and track investment as well as return, and a
        sound technical approach, it has great potential.

        This project explores the potential for ecosystem restoration in the Long Tom River basin
        to improve water quality in the Willamette River. The primary emphasis was assessing
        potential reduction from solar loading by implementing riparian shading, and landowner
        interest in participating in this activity in a marketplace framework. The Long Tom
        River was chosen because it is the most underperforming for shade in the Willamette
        Basin. The difference between current and potential effective shade levels is 32%1
1
  Figure 1.48 in the TMDL appendix reports the McKenzie River in sections at 14.2% and 32.8% respectively for
the lower and upper river. The 32.8% number, which would be slightly higher than the Long Tom River, is an
artifact of calculation (Ryan Michie, DEQ, pers. comm.).

                                                       4
        (ODEQ, 2006, p.C-139). Based on long-term average flows, the Long Tom River
        contributes on average 5.5% of the flow of the average Willamette River at Albany (A.
        Donner, USACE, pers. comm.). Modeling suggests that shading the entire lower section
        of the Long Tom River, from Fern Ridge Reservoir down to the southern confluence at
        Norwood Island, could reduce the temperature of the river as much as 4° C. Therefore,
        there is significant thermal load reduction potential along the lower Long Tom River.


Priority Area Determination  

        To gain the maximum Willamette River temperature reductions from Long Tom
        Watershed restoration projects, it is recommended that restoration activities be focused in
        the lower Long Tom, Bear and Ferguson Creek sub-watersheds. (The map in Appendix
        A delineates the ten sub-watersheds in the Long Tom Basin.) The primary reason for this
        is the influence of Fern Ridge Reservoir. Fern Ridge is very large and shallow, which
        leads to long hydraulic residence time. Any temperature reductions gained from
        restoration projects upstream of Fern Ridge would be negated once the water entered the
        reservoir (Stuart Rounds, USGS, pers. comm.).

        Another advantage of restoration in this priority area, particularly on the Long Tom River
        downstream of Monroe, is improving winter rearing habitat for juvenile Spring Chinook
        and fluvial cutthroat trout that migrate between the Long Tom and Willamette Rivers
        (Gary Galovich, ODFW, pers. comm.). Also, Bear and Ferguson Creek have the highest
        E. coli concentrations in the rural portion of the Long Tom Watershed (Thieman, 2007).
        Thus, projects that increased shade and excluded livestock from streams in these sub-
        watersheds would achieve both stream temperature and bacteria reduction requirements.

        In late summer, Ferguson and Bear Creek contribute approximately 4 and 6 cfs,
        respectively, to the lower Long Tom River. From early June through mid to late
        September, 7-day average maximum daily temperatures in Bear Creek are above the state
        standard of 17.8° C, ranging from 20° – 23° C. Ferguson Creek temperatures are
        somewhat cooler and drop down again earlier, with maximum daily temperatures ranging
        from 18° – 22° C from early July to early September (Long Tom Watershed Council,
        unpublished flow & temperature data). If temperatures in both these streams could be
        reduced to meet the state standard of 17.8° C, this could cool the lower Long Tom by as
        much as 0.5° C.2 Developing a Shadealator model or other method for identifying high

2
  “Back of the envelope” calculation shown below is for the lower Long Tom and Bear Creek at typical late summer
flows and temperature, with the exception that Bear Creek is assumed to be 17.8° C for the purpose of estimating its
temperature impact on the lower Long Tom if Bear Creek were to meet the state temperature standard.
         Formula
(QLTa * TempLTa) + (QBC * TempBC)/ (QLTa + QBC) = Temp LTb
         Where, Q= flow, Temp= water temperature, BC= Bear Cr., LTa= Lower Long Tom above Bear Cr., LTb=
Lower Long Tom below Bear Cr.
         Calculation
(74 cfs * 22° C)+(5.8 cfs * 17.8° C)/(74 cfs +5.8 cfs)= 21.7° C


                                                         5
     priority shading areas for Bear and Ferguson Creek would be an important step in
     developing shade credits within these sub-watersheds.

     Although not a priority sub-watershed for reducing temperatures in the Willamette River,
     Coyote Creek is also underperforming for shade; current effective shade is 22.8% less
     than system potential. With relation to the Ecosystem Marketplace, there is discussion
     that any restoration activity above the “point of maximum impact” on the Willamette
     River would count for credit, regardless of its location. If this is the case, Coyote Creek
     might also be considered a priority area for developing shade credits with multiple
     benefits in the Long Tom Watershed. With respect to achieving multiple benefits this is
     an important addition as Coyote Creek is a high priority sub-watershed for restoration
     due to the extensive amount of natural habitat remaining.


Restoration project types for temperature mitigation and other 
benefits  
     Riparian Planting
     Increasing shade through riparian planting has been shown both in practice (Derek
     Godwin, OSU Extension, unpublished data and Cindy Ricks-Meyers, S. Coast WS
     Council, unpublished data) and theory to significantly reduce stream temperature and
     increase dissolved oxygen. On cropland, enhancement of riparian areas also has the
     potential to reduce nutrient and sediment contributions to local rivers and streams (see:
     www.deq.state.mi.us/documents/deq-swq-nps-gw.pdf,
     www.extension.iastate.edu/Publications/PM1507.pdf)


     Instream Impoundment Removal
     A promising mechanism to improve stream temperature and dissolved oxygen is removal
     of certain instream impoundments. The Long Tom River’s impoundments consist of
     three check dams installed to control grade on the channel. One of the dams is also
     elevated in the summer by the Junction City Water Control District to provide irrigation
     water to adjacent farms. Smaller impoundments are scattered across the Ferguson, Bear
     and Coyote Creek sub-watersheds. These typically have been put in for irrigation or
     aesthetic purposes. Temperature monitoring data at an impoundment on Jordan Creek, a
     tributary of the Coyote Creek sub-watershed, suggest that some impoundments
     significantly raise stream temperature. This impoundment slows stream velocity and
     creates a broad shallow pool behind it. Coupled with no shade, this has led to a
     significant temperature impact. In this instance, maximum daily water temperatures were
     as much as 8° C higher immediately downstream of the impoundment (Thieman, 2007).
     It would be worthwhile to investigate other impoundments located on the valley floor that
     have no shade and create wide shallow pools to see if this temperature influence is seen
     elsewhere.



                                              6
           Connection to cool water sources
           Connecting streams to cool water sources, such as springs, might also create cooling.
           Evaluating this potential would require research into specific project methodology in
           addition to an evaluation of sub-surface flow patterns in the Long Tom Watershed.
           Other possible sources of cold water augmentation are existing impoundments in the
           headwaters of Bear, Ferguson, and Coyote Creek. Many are on private forestland and
           maintained for fire safety. These may contrast to impoundments on the valley floor in
           their width to depth ratio and existing shade. If these impoundments are stratified, it is
           possible that cool water could be pulled from the bottom, much like summertime
           reservoir releases are regulated in the Cascades3. This would require temperature profile
           monitoring and an evaluation of technical feasibility to determine if this is a viable
           option.

           Related to both removing impoundments and connecting to cool water sources, the Long
           Tom Watershed Council (LTWC) is conducting a Fish Barrier Assessment in 2008. This
           project will identify and map instream impoundments in selected sub-watersheds.
           Temperature monitoring of some of these impoundments may be possible.


           Floodplain restoration and hydrologic reconnection
           Improving river-floodplain interaction, via levee removal or setback, bank terracing, and
           historic channel reconnection, provides a number of potential environmental benefits.
           Levee removal or setback would increase off-channel and instream habitat, reduce
           erosion, and increase floodplain storage. Stream terracing increases off-channel habitat
           during high flows and, similar to levee setbacks and historic channel reconnection,
           promotes sediment deposition by creating areas of slower velocity. Historic channel
           reconnection would also improve stream habitat and reduce erosion, and in some
           locations may reduce stream temperatures if increased shading and groundwater
           interaction occurred.

           Hyporheic flow occurs where coarse gravel dominated soils exist along a river. Hulse et
           al. (2007) have identified many such locations along the Willamette River where
           floodplain restoration could have significant temperature benefits. Investigations into the
           temperature impact of hyporheic flow are ongoing (Lancaster et al., 2005; Willamette
           Partnership, 2008). Many of these locations are adjacent to the Long Tom Watershed and
           are within LTWC’s extended service area on the west side of the Willamette River.
           Decreasing stream temperatures by increasing hyporheic flow is not likely along the
           lower portions of the Long Tom, Bear, or Ferguson Creek, because this type of flow does
           not occur in the tight, clay soils found on the valley floor in the Long Tom Watershed.


           Multiple Benefits from Shading
           Where riparian shading is being used to reduce stream temperatures, other water quality
           benefits may also be realized. For example, one could prioritize riparian planting for

3
    In some of these situations it is a higher ecological priority to remove them for fish passage.

                                                              7
sites where erosion is a problem. If the soil contains mercury, arsenic, or other toxics,
this action will also reduce the mobilization of these pollutants into the waterway.
Another way to achieve multiple benefits is to add management actions on the site where
riparian planting is occurring, such as fencing to exclude livestock to reduce E. coli and
bank erosion. Riparian planting projects that are combined with levee removal, historic
channel reconnection, and bank sloping or terracing can add multiple water quality and
habitat benefits. Table 1 summarizes the potential benefits realized by each project type.

Table. 1 Summary of Restoration Actions & Benefits 
 Project Type                        Benefit
 Riparian planting                   Decreased stream temperature; increased dissolved
                                     oxygen; increased bank stability, which leads to
                                     decreased turbidity/suspended solids & delivery of
                                     soil bound pollutants, such as mercury, to stream;
                                     increased habitat for riparian dependent species
                                     such as song birds and amphibians
 Fencing for livestock               Increased bank stability, which leads to decreased
 exclusion/control                   turbidity/suspended solids & delivery of soil bound
                                     pollutants, such as mercury, to stream; decreased
                                     delivery of livestock waste to stream, which leads
                                     to reduction in bacteria and nutrient pollution
 Small dam removal                   Decreased stream temperature; increased dissolved
                                     oxygen; improved fish passage; restoration of
                                     normal sediment transport regime
 Floodplain and hydrologic           Decreased stream temperature; increased dissolved
 reconnection (Levee removal,        oxygen; increased floodplain storage; increased off-
 historic channel reconnection,      channel and instream habitat and complexity;
 bank terracing)                     restoration of hydrologic regime; decreased bed and
                                     stream bank erosion
 Cold water augmentation             Decreased stream temperature; increased dissolved
                                     oxygen



Implementation timelines for different project types
The specific stages to consider when estimating implementation timelines are site
selection, outreach, contract development, funding, permitting, implementation,
maintenance, benefit realization, monitoring and reporting. Pre-implementation stages are
subject to many unknowns such that only the implementation period timelines are
presented in Tables 2 and 3. Implementation timelines could also be affected by the total
number of projects in an area. For example, if a large number of restoration sites become
available at the same time, the availability of plant material and contractors may slow the
process until sufficient capacity is developed to meet the demand. On the other hand,
implementing many similar projects within a close time frame could make those projects
collectively more efficient in competing for and utilizing contractor and staff attention.

                                         8
           Table 2. Project Implementation Timelines and Benefits (excludes pre‐
           implementation requirements) 

         Project Type                                Implementation Period             Benefit
                                                                                       Realized
         Riparian planting                          1 – 2 years to plant trees.        10-15 years
                                                    5 years full - see Table 3
         Fencing for livestock                      6 - 12 months                      Immediate
         exclusion/control
         Small dam removal                          1-2 years                          Immediate

         Floodplain and hydrologic                  1-2 years                          Immediate
         reconnection (Levee removal,
         historic channel reconnection, bank
         terracing)
         Cold water augmentation                     1-2 years                         Immediate




           Table 3. Timeline for Implementing Riparian Shading Projects4 

         Year 1         Site preparation, plant materials, planting, maintenance, program
                        operations, project management and administration
         Year 2         Plant materials, inter-planting, maintenance, program operations, project
                        management and administration
         Year 3         Maintenance, monitoring, project management and administration


         Year 4         Maintenance, monitoring, project management and administration

         Year 5         Maintenance, monitoring, project management and administration



           Viability of Project Types for TMDL Implementation Options
           TMDL implementation includes BMP work on parameters that are more challenging to
           measure, such as bacteria, and specific targets for more measurable parameters such as
           temperature. For those with a quantifiable target, two steps are necessary before project
           types can be considered viable for offsetting TMDL requirements. First, there must be a

4
    See also Clean Water Services Thermal Credit Cost Summary 2007 (updated 1/08), attached.

                                                         9
        formula relating a measurable unit for the project type (e.g. acres of floodplain restored)
        to a unit of the anticipated benefit (e.g. kCal reduction). Second, there must be a
        calculation of how many units of the restored feature are needed to provide the desired
        amount of benefit. Riparian shading is the restoration project type receiving significant
        attention at this time for temperature mitigation. Investigations by DEQ and other
        professionals in the field are providing spatially explicit information on current and
        potential shade, and formulas to convert shade potential into heat load reduction. In
        anticipation of the abovementioned formula becoming available for the Willamette Basin,
        LTWC conducted a survey of potential sites for riparian restoration. The methods and
        findings from this project are described in the following sections.


Riparian Shading of the Lower Long Tom River 

        Within the priority area, the lower Long Tom River from Fern Ridge Dam to the southern
        confluence at Norwood Island carries the most flow and therefore the greatest potential
        for reduced thermal load to the Willamette River. In addition, the lower Long Tom is the
        only sub-watershed within the priority area that has Shadealator model results.5 The
        modeling results allowed LTWC to identify sections of the river that would yield the
        greatest temperature reductions if shaded on both sides to maximum natural or system
        potential (potential effective shade). Maximum natural potential for all riparian areas in
        the Willamette Valley was determined by a group comprised of DEQ, The Nature
        Conservancy, and Oregon Department of Fish & Wildlife. This group used historic
        vegetation information (circa 1850s) to determine appropriate plant community and
        structure for riparian areas in the Valley (Pamela Wright, DEQ, pers. comm.). For
        example, in some areas the historic riparian plant community was prairie, so maximum
        natural potential would not include canopy forming trees. In other locations, floodplain
        forest created a complete or partial canopy over streams and rivers. The latter example is
        the case for the historic riparian vegetation of the lower Long Tom River (Thieman,
        2000).


        Methods
        Products from the lower Long Tom River Shadealator model include current and system
        potential shade, and solar load reduction potential for each 100-foot segment of the river.
        In addition, DEQ developed a GIS shape file with each segment represented as a colored
        dot indicating the relative potential to reduce solar loading through riparian shading.6
        Red indicates the greatest potential for reduction and is associated with segments that
        have little or no existing riparian vegetation. Green indicates the least potential reduction
        and is associated with well developed riparian areas.


5
  Note: In the Long Tom Watershed above Fern Ridge Reservoir, Coyote Cr. and Amazon Cr. also have Shadealator
results.
6
  This was provided by York Johnson, DEQ (see Acknowledgements for details)


                                                     10
        Maps were created combining potential solar load reduction with land ownership and
        2005 aerial photos (see Figure 1 for a sample map). This allowed identification of
        relatively longer reaches having the greatest potential for reduction, as listed in Table 4.
        Fewer landowners per reach would likely mean fewer contracts, management and
        administrative costs. Thus, reaches with one or a few landowners that are relatively long
        (2,000 – 10,000 feet) and have high solar load reduction potential (e.g., mostly red and
        orange dots) would likely yield the greatest reduction per dollar invested. Table 4
        displays these selected reaches and converts the reduction potential into kilocalories
        (kCal) per day, which is the unit currently applicable in permit and trading discussions7.

        In addition to current vegetation, the aspect, bank height, streambed substrate and wetted
        width of the channel segment also influence the potential effect of new shade. For
        example, a channel running east-west would receive the greatest benefit from maximum
        shade on its southern banks. Also, the lower the bank height and narrower the wetted
        width, the more effective shading will be. This explains some of the variation in potential
        reduction of solar loading for segments that appear to have similar existing riparian
        vegetation.




7
 Shadelator results are output in Langleys/day, which are converted to kCal/day with the following equation:
Kcal/day = (Langley/day) x .001 x (surface area cm2)

                                                        11
Figure 1.  Sample map of Shadelator Results.   
Note: Landowner names have been removed for privacy.




                                    12
        Findings
        Potential solar load reduction ranged from approximately 17 million kCal/day for a
        2,000’ segment to 189 million kCal/day for a 9,600’ segment (see Table 4). These
        results must be tempered with several facts. First, DEQ’s Shadealator calculations are
        based on aerial photo interpretation calibrated with field verification at publicly
        accessible points along the river and as such should be considered estimates that guide
        the selection of potential priority areas and where outreach should occur. The calculation
        of actual shade credits will be based on field measurements only. Second, DEQ’s model
        assumes that both sides of the river are shaded to their maximum natural potential. In
        reality, one may not be able to shade both sides if there is differing land ownership. Also,
        other factors, such as aspect or bank height, may indicate that shading one side may
        achieve a majority of the potential overall benefit. Third, maximum theoretical shade
        may not be practically achievable on the lower section of the Long Tom River managed
        by the Army Corps of Engineers because this channel is currently required to be
        maintained for flood control, which at this time means the planting zone extends down
        the stream bank but stops short of the summer water level8.

        For comparison, Clean Water Services (CWS) has found that their solar load reduction,
        based on field measurement calculations, ranges from 100,000 – 500,000 Kcal/day/100’
        segment. For a 2,000’ reach segment, their aggregate amount would range from 2
        million to 10 million Kcal/day compared to the 17 million Kcal/day above. Given the
        planting limitations on the lower Long Tom River, the range of CWS values are probably
        closer to what would realistically be achieved. Additional field visits and calculations are
        necessary steps before any final prioritization among sites occurs. If the sites were being
        considered for shade production in association with a credit value, a standard field form
        recognized by the Marketplace, would be essential.




8
 The Army Corps of Engineers is currently evaluating how to address planting projects within its flowage easement
along the Long Tom River as the presence of trees and shrubs will change the way maintenance is conducted.

                                                       13
Table 4. Potential thermal load reductions for selected reaches on the 
                 lower Long Tom River 
FID      RM S    RM N   Linear West side     East side    Kcal/day    Kcal/day/linear
         end     end    feet    landowner(s) landowner(s)             ft.
48-129    22.784 21.231    8200            1            2 105,990,703         12,926
                                           3            4
                                           5      6(BLM)
                                           7
                                           8
                                           9
131 -     21.193 20.814    2000          10            11 17,322,828            8,661
151
167 -    20.511   19.508    5300           12           11   59,673,408        11,259
219
                                           13
                                           14
                                           15
251 -    18.902   18.239    3500           16           16   41,822,434        11,949
286
                                                        17
287-      18.22   17.917    1600           18           19   16,340,905        10,213
303
                                           20
                                           21
371-      16.61    16.08    2800           22           22   36,174,397        12,919
399

404-     15.985   15.606    2000           23           24   19,082,643         9,541
424
                                           25           25
448-     15.133   14.659    2500           26           27   31,114,422        12,446
473
527 -    13.636   13.277    1900           28           29   31,651,323        16,659
546
                                           29
547 -    13.258   12.746    2700           30           30   49,266,826        18,247
573
577 -     12.67    11.78    4700           28           31   78,212,724        16,641
624
                                                        32
625 -    11.761   10.833    4900           28           33   63,477,730        12,955
673
674 -    10.814   8.6742   11300           34           34 152,651,465         13,509
786
1145-    1.8182     0.00    9600           35           36 188,874,862         19,674
1241
                                           36           37
                                           38           39
                                           36

                                          14
Elements of a performance monitoring plan for riparian shading 
and bacteria reduction  

     CWS monitors shade credit performance by measuring density of live shrubs/trees and
     shade (densitometer readings) in randomly selected plots throughout the riparian planting
     areas. Final survivorship densities of >15,25 stems/acre is considered an indicator of
     successful riparian restoration. CWS staff also establish photo points, estimate invasive
     species cover, and make general observations about the condition of the restoration area
     for each site. Please see the complete CWS protocol attached to this report.

     In addition to the CWS implementation monitoring methods described above, LTWC
     recommends instream temperature monitoring at a sub-set of riparian restoration sites.
     Continuous temperature monitoring should occur from June 1 – October 15 immediately
     upstream and downstream of selected planting sites and at an appropriate number of
     control sites. Sites in the Bear and Ferguson sub-watersheds would be good candidates
     because the smaller stream sizes makes temperature probe placement and retrieval more
     successful, and the ability to detect temperature changes over time is more likely due to
     lower stream flows.

     Evaluation of E. coli concentration reductions from livestock exclusion projects is more
     difficult due to the variable nature of bacteria concentrations in streams. One possible
     approach is to implement monthly long-term monitoring at the mouths of targeted
     streams within the Bear and Ferguson Creek sub-watersheds. For example, Owens and
     Jones Creek, within the Bear Creek sub-watershed, have several years of prior collected
     E. coli data and they have some of the highest concentrations in the Long Tom
     Watershed. Once projects were implemented, post-project bacteria data could be
     collected for 2 to 3 years and then compared to pre-project data using Seasonal Kendall
     and T-test statistics.


Considerations in contracting with landowners for shade 
production 

     When considering restoration of lands in private ownership, the interest and
     understanding of those owners is essential. Producing benefits quantified by credits for
     trade, banking, or sale is familiar to some people from examples of wetland banking in
     the region however very few have participated and know sufficient detail. The task for
     this project was to assess the willingness of landowners to contract and provide
     ecosystem services, shade in this case, and to outline the features of a contract for the sale
     of credits.




                                              15
Methods
Relatively longer reaches with high solar load reduction potential and a single landowner
(on one side) were prioritized for outreach. Ten landowners were identified and seven
were successfully contacted. Six agreed to a conversation and five of these conversations
happened on site. The interviews were conducted during December 2007 and January
2008 by Dana Erickson and Cindy Thieman, both staff of the Long Tom Watershed
Council. Background and potential Q&A information was developed but not used as
script. The questions listed below were posed. Please see Appendix C for further
methods and specific answers.

   Questions
       1. Would you consider putting your riparian area into plantings to shade the
          river? Would being compensated for that "crop", such as an annual payment,
          increase your interest?
       2. If the conditions were satisfactory would you be interested in a contract for
          "growing" shade for 10-20 years? [interested here in entering contract and
          lengths of term]
       3. How might you come up with an amount for the "per acre" payment for the
          riparian area that piques your interest? What is an approximate range for that
          amount?
       4. What is a "good average" net profit for the range of crops you grow?
       5. Is there a base contract amount and/or length that would be important to make
          entering into the business relationship worthwhile?
       6. Are there any potential requirements from your end to make an arrangement /
          business transaction worth your while?
       7. How soon would you be willing to make a sale?
       8. Overall, how do you view a transaction like this?
       9. Do you have any concerns/ideas/questions we can think about as we work on
          this project, or get back to you about?

One landowner participated in contract development with a team working for Willamette
Partnership. This team was comprised of specialists from David Evans and Associates
and CH2MHill, Willamette Partnership, Long Tom Watershed Council staff and board
member, and City of Eugene staff. The latest version of that contract available at the time
of this report is included in the Attachments and some of the primary issues discussed
from a landowner perspective are included with interview responses below.


Findings
All the landowners represent medium to large-scale agricultural operations in the lower
Long Tom River basin, ranging from 1,000 to over 2,500 acres. All are owner-operated
“family farms”. The following is a summary of the responses. For individual responses,
please see the appendix. There was a certain amount of philosophizing during the
discussions. Some of that may be informative in preparing for additional outreach and is
also captured in the appendix.


                                        16
Credit calculations
Although the buyers will be interested in their cost per kcal, it will be useful when
dealing with landowners to use units that are not far removed logically from acres, and to
make calculation methods transparent. It is unclear where the notion of a credit fits into
this equation. There is also a concern in valuing any credits or transactions per kcal as
the heat load calculations may vary. The need is strong for expressing the transaction,
especially the payment and cost calculations, in units that property owners are familiar
with or that are well-connected with the land and product being sold.


Contract payment amounts
Landowners differed in whether they viewed the program as a business venture or as a
reasonable way to fund a beneficial project. If payment is considered, the gross payment
amounts, and subsequent net profit, must compare equivalently or favorably to a crop net
profit in an average year. The more complicated the overall contract or relationship the
more important the balance leaning toward the favorable side will be. This is true even
after acknowledging that the riparian land acreage may not otherwise be put into
production mostly because the property owner would prefer the land sit ready for an
unknown and perhaps larger return than tie it up for small returns. Specific payment
amounts varied widely, $350 – $1,600, and would depend on whether or not the ground
was in production.


Minimum Contract Value
The total contract value must be worth the up-front cost of establishing a new venture,
especially as the venture is not repeatable multiple times (e.g. property owners own a
finite acreage). Cost would include: time, energy, materials, effect on work crews (hours
needed/activities) and compatibility with other land management activities of the seller,
and perhaps other considerations. The annual payment must also reach a worthwhile
minimum; the number discussed for the annual payment values seemed to fall
consistently in the $1,000 – $1,500 per year range.


Uncertainty or “Hassle” factor
There will be a factor in the valuation of the transaction from the landowner’s perspective
that makes it worth their while to engage in any business relationship. In the types of
transactions being considered here overcoming the hassle factor will be more “costly” as
the transaction becomes more complex or increases in uncertainty or includes entities
with unknown or changing representatives and decision-makers (e.g. a contract including
a government entity that also requires monitoring access by that entity). This may be
overcome with a first contract value addition or signing bonus.


Permission to access land
This cannot be open-ended but once per year for monitoring purposes is accepted as
reasonable if the entity is less known or a government entity. There are also quarterly

                                        17
         monitoring needs in the first 5-year period (or until the vegetation is “free-to-grow”).
         Third-party contracts for this, perhaps an entity or person known or otherwise trusted by
         both parties, would likely be seen as the most reasonable from the perspective of the
         contract parties and the conservation community.


         Upfront payment
         It is unclear how important an up-front payment will be. In the crop industry, initial
         payments are unusual –conversely, a significant cost outlay is required. From a project
         quality control perspective some parts of the upfront payment may be best tied to the
         most major aspect(s) of implementation production (e.g. vegetation planted).


         Contract signing bonus or value addition
         If contract signing bonuses were considered for an initial period when program
         implementation begins, there would be more incentive to participate. Conversely, there
         would likely be program “bugs” to work out and it may be more effective to have less
         participants as bugs are being worked out. A signing bonus could also be given to each
         property owner for their first contract. This could occur between buyer and seller, as part
         of or independent from the written contract.


         Explaining the system
         There is a finite set of agricultural landowners with property appropriate for achieving
         riparian establishment for shade production that affects temperature, especially when
         considering those that have influence over large acreages. In the agricultural community
         word travels fast and reputation, whether program or personal, is a critical element to any
         business relationship. A fair amount of outreach and marketing time could be built into
         the initial period of the program to show adaptive management in addressing concerns,
         problems, sense of fairness, and new opportunities. That outreach could be conducted by
         buyers, marketplace representatives, or some other agent.


         Landowner Involvement in BMP activity 9
         Landowner involvement interest ranges from installing the BMP to conducting the
         routine maintenance. In this sample, only one landowner was interested in the installing
         the planting. Most others would consider conducting the maintenance. Where the
         landowners was interested in conducting the maintenance it was because they are
         accustomed to being involved in all aspects of running their land and operation –
         studying the soil and planning for crops, managing rotations, fixing machines, negotiating
         business.


9
  In the interviews, the planting activity was not referred to as a best management practice. Various interview
methodologies suggest that inferring value in a question may affect the integrity of the answer so these types of
references were omitted.


                                                         18
During installation, the quality of the planting directly affects survival. The initial cost
investment for installation is relatively large and early failure creates a significant setback
in production. Costs for maintenance include getting water to trees, costs to spray back
competing vegetation, costs to guard against browse, and possible crews to do some of
the work. Replanting should also be addressed. From a quality-control perspective, the
landowners conducing the maintenance is not as risky as the initial planting.

To be determined within the contract is who installs the BMP (seller, buyer-approved
party, certified party/contractor) and to be determined within the marketplace system
would be who sets the criteria for that decision, or the criteria for who qualifies as an
approved party. It is recommended that if the landowner wants to implement the BMP
themselves, they obtain some certification. Some quality control attention to
maintenance would also be beneficial, whether that be in the form of certification or
maintenance criteria and reporting.


Contract Development
One council staff and one board member, who is also a landowner in the priority area,
participated in the development of the Credit Exchange Agreement by the Willamette
Partnership. Specific comments not incorporated in that process or referred to above are
described below. In addition, Clean Water Services has developed multiple contracts that
may be available as examples.

       Performance Bond
       Because the success in achieving the outcomes intended by the contracted
       arrangement are entirely dependent on the quality of initial planting and the
       survival of those plantings, a performance bond seems important, if not essential.

       Annual Monitoring
       There was willingness to see the annual payment tied to a successful monitoring
       report.

       Protection Clauses/ Limited Liability
       There is a need to have opt-out or relief clauses due to circumstances beyond
       landowner control - e.g. beaver or blow-down. Landowners were willing to re-
       establish the BMP however questioned how that cost would be addressed and how
       many times a seller would have to replant after those occurrences. Pooled
       performance bonds are an option here. Questions also arose concerning
       transferability if land ownership were to change. There was also a potential desire
       to opt-out if the contract payment were to decline over multiple years as
       diminishing returns would not be a continued incentive. This might be balanced
       with the finding that all landowners in this sample except one did not see any
       reason to remove a riparian area once it was established. The sole reason was due
       to putting a crop back on valuable ground.




                                          19
     Floodplain Easements
     An option for further investigation is site reconnaissance and landowner outreach for
     multiple benefit work. For floodplain restoration in particular, the management of water
     emerges as very important to the landowner we spoke with that was familiar with the
     work of Hulse and Gregory referenced in this report. Although he said he would be open
     to a floodplain lease, removing water rapidly was essential to avoid crop damage.
     Specific discussions would enable the evaluation of these opportunities for achieving or
     maximizing the ecological benefit from flooding.


Project Relationship to Marketplace Activities 
     Credit Calculations
     The first “draft” credit calculator under development for the Willamette Partnership was
     not available to us before the preparation of this report. Field-testing this for results is an
     area of further investigation.


     Watershed Council Roles
     It is not clear at this time what role, if any, the Long Tom Watershed Council would play
     in the Ecosystem Marketplace. Options include: outreach to landowners about the
     marketplace as a restoration funding mechanism, brokering for landowners if they request
     that assistance in selling credits, aggregating certain landowner-sellers and offering
     credits for sale on their behalf, field-verifying credits offered for sale, implementing
     restoration work, stewarding implemented projects, monitoring and reporting on
     implemented projects. LTWC may elect one, multiple, none, or varying roles in the
     future. LTWC recognizes that some roles may be mutually exclusive.

     For watershed councils considering involvement in the marketplace, the key is to relate
     the activity to the council’s mission and goals, and to make sure the activities chosen fit
     with the work patterns and skills of the council. For example, assisting a landowner in
     bringing credits to sale could be compared with obtaining a restoration grant for project
     work on a landowner’s property. Aggregating sellers could be compared with multi-
     landowner restoration projects that are grant funded. Much as a grant proposal is
     prepared, where projects components are assigned costs for the grantor and match from
     the landowner, a sale could be prepared that reflects the same costs and willingness of the
     landowner(s) to participate materially in the work. Another role that watershed councils
     may be well suited for is field-verifying credits as the orientation is quality-control and
     this fits well with the public-service and conservation focus of most councils, as well as
     their non-profit structure. The role of implementing restoration work is also well-suited
     however if the nature of the work is straightforward and repetitive it is perhaps better
     delivered by professional crews. The related tasks of stewarding, monitoring and
     reporting are another excellent role for councils for two reasons. First, these activities
     involve ongoing contact with landowners and thus the opportunity to discuss ongoing
     learning and other project potentials. Second, monitoring and reporting could build on


                                               20
     and relate to councils’ monitoring of watershed conditions and whether or not projects
     are achieving stated objectives.


Conclusions 

     Producing cooler temperatures in the Willamette River through restoration actions on its
     major tributaries is not only possible, many sites would likely provide multiple benefits.
     The priority area for restoration in the Long Tom Watershed is the lower Long Tom
     River below Fern Ridge Reservoir as well as Ferguson Creek, Bear Creek and perhaps
     Coyote Creek. Priority project types would include riparian shading, removing instream
     impoundments, connecting to cool water sources, and floodplain restoration and
     hydrologic reconnection. Multiple benefits would be achievable in many cases; this
     would be determined on a site specific basis and result from the inherent properties of the
     site or by adding project types.

     The most feasible actions to implement rapidly from an outreach, technical and credit-
     equation standpoint are riparian shading projects. However, if all project types had the
     same on-the-ground start date, the solar load reduction resulting from shading would take
     longer to produce than the thermal load reduction or cooling from most other project
     types.

     The Long Tom River has the most flow in the priority area and it is estimated that
     shading its entire length below the dam would contribute 4° C cooler water to the
     Willamette. According to the Shadelator and Heat Source modeling, 17 million
     kilocalories of thermal reduction could be gained per 2,000 feet in the reaches with
     higher potential, although based on experience with shade production by Clean Waters
     Services in the Tualatin Basin we estimate numbers at half that amount to be more
     realistic. Performance monitoring should include BMP implementation (e.g.
     survivorship) and shade production (e.g. densitometer) as well as consequences for the
     targeted parameter (e.g. instream temperature). The quality of projects would need to be
     insured somehow; quality control is critical in attaining a high percentage success in
     shade production especially. Follow-through in monitoring is essential in meeting
     temperature reduction objectives, and those of other parameters, as is applying adaptive
     management or reprioritization as needed.

     Landowners in high priority areas were found to be willing to contract for shade
     production. All understood the broader concepts of trading and the marketplace. Some
     saw the contracts as a business relationship only; others as continuing
     conservation/restoration that’s the “right thing to do”. At least one was interested in
     discussing floodplain easements. Answers were given to questions regarding duration and
     value of contracts, involvement and responsibilities around planting and maintenance,
     and their concerns and ideas regarding uncertainty and risk. LTWC roles in facilitating
     trades or participating in the marketplace are not set at this time and many possibilities
     exist for all watershed councils and their partners.


                                             21
If the goal is to produce thermal cooling in part through restoration on private lands, and
if it is agreed that in the future it is likely that many other benefits – bacteria, carbon, etc.
– would be gained from restoration action on private lands, then there is merit to building
participation in this marketplace system from private land owners as soon as possible,
regardless of what project types it leads to. At the same time, caution might be best taken
in terms of initial contracts for these exchanges, allowing for some subtle but important
elements in landowner philosophy toward restoration and land stewardship, the public
dollars being used and the public benefits provided. Care would also need to be taken
with project types that are less straightforward by incorporating adaptive management
principles, to maintain the credibility of matching actions on private lands to offsetting
pollution sources.

Considering that the need for ecosystem restoration – water quality and habitat for fish
and wildlife – currently and historically outstrips the funding available for the projects
that achieve it, the possibility of a marketplace system is promising. The fact that funds
from polluting impacts would be injected back into the very ecosystems under stress from
the impacts appeals to common sense and would satisfy practitioners and the public alike
if the methodologies were shown to be technically sound.

Finally, it should be noted that investing in restoration and conservation in a large
watershed area surrounding a key river, e.g. the tributaries of the Willamette River,
versus large single projects on the key river proper that would produce cooling directly at
the specific measured point, may contribute more significantly to building long-term
ecosystem resilience.




                                           22
References 
Hulse, David W., Allan Branscomb, Chris Enright, Stanley V. Gregory, Randy Wildman. 2007.
       Linking cold-water refuges into a biologically effective network in the southern
       Willamette River floodplain: outlining key locations and knowledge gaps. Unpublished
       report. Note: This report available at willamettepartnership.org/publications/MarketplacePubs/

Lancaster, Stephen, Roy Haggerty, and Stan Gregory. 2005. Investigation of the temperature
       impact of hyporheic flow: Using groundwater and heat flow modeling and GIS analyses
       to evaluate temperature mitigation strategies on the Willamette River, Oregon. Corvallis:
       OSU, 104 pp.

Oregon Department of Environmental Quality (ODEQ). 2006. Willamette Basin Total Maximum
      Daily Load.

Thieman, Cindy. 2000. Long Tom Watershed Assessment. Oregon: Long Tom Watershed
      Council.

Thieman, Cindy. 2007. Stream Health and Water Quality in the Long Tom Watershed. Oregon:
      Long Tom Watershed Council.

Willamette Partnership. 2008. Beyond compliance: transforming the way we manage, regulate,
      restore and sustain ecosystems by building the Willamette Ecosystem Marketplace.
      Unpublished report; updated continuously; hyperlink:
       willamettepartnership.org/publications/MarketplacePubs/Chronology%203.12.pdf




                                                   23
Appendices 
    A. Long Tom Watershed Sub-basins
    B. Areas for further investigation
    C. Outreach to landowners




                                 24
Appendix A: Long Tom Watershed Sub-basins




                          25
       Appendix B: Areas for further investigation


In no particular order, the following additional research or outreach work could be undertaken by
the Long Tom Watershed Council or other entities.

   •   Investigate potential for cooling in Bear and Ferguson Creek by collecting field data to
       run the Shadelator and Heat Source models, and analyzing the results.
   •   Investigate potential for cooling in Coyote Creek by analyzing Shadelator results.
   •   Monitor temperature of instream impoundments to determine the heat load impact of
       ponded water. Also create temperature profile of water column in deeper ponds to
       determine if potential cool water sources exist in lower strata.
   •   Estimate the “real credit value” from a package of projects using newly released credit
       calculator (included as Attachment) and field work with landowners willing to contract
       for shade production.
   •   Determine potential and create priority area maps for other project types:
       floodplain/wetland restoration, channel reconnection, reconnection of cool water sources,
       impoundment removal.
           o For the latter two, use data resulting from 2008 Fish Barrier Assessment to
             display and describe areas where instream impoundments exist in priority sub-
             watersheds (most likely Ferguson and Bear Creek).
           o Additional options are to conduct landowner outreach regarding these project
             types, and/or to conduct research on this topic in terms of implementation, utility
             and effect, and how results could be confidently measured/credited.
           o For connection to cool water sources, research sub-surface flow patterns.
   •   Site reconnaissance for multiple-benefit work in priority watersheds.
   •   Continue outreach and survey work with Long Tom River landowners regarding trading.
       Develop program materials for other entities.
           o Alternative: Develop materials and conduct outreach with Willamette Partnership
             or other partners.
   •   Implementation and Fund-leveraging Mechanisms: Describe programs that could be
       used to leverage or add to credit dollars in achieving restoration for shade. Additionally
       or alternatively, design local version of CWS’ ECREP with local SWCDs as they are
       willing and capable. Work with locally-active land trusts and/or SWCD to address need
       for easements where this is a gap.




                                               26
      Appendix C: Outreach to Landowners


Phone script

      We would like to talk with large landowners on the Long Tom that would be interested in
      receiving a rental payment for growing shad trees along the river. We’re working with a
      team to explore the potential for setting this system up. Would you have time for me to
      come out and show you some maps that estimate potential shade, explain more and see
      what you think?


Background Preparation regarding marketplace and trading

      Background
      In the Willamette Basin, there is some movement around creating markets for "ecosystem
      services". One example of this is a municipality like the City of Eugene needing to offset
      the thermal loading from treated wastewater discharges into the Willamette River. The
      standard solution is to build a large cooling plant. An option being considered is to pay
      landowners in surrounding watersheds to plant trees to cool the streams with shading
      over the longer term. Planting riparian areas could have many other benefits such as
      providing habitat, and buffering bacteria and nutrients from streams. A transaction where
      the City could "buy" this service from surrounding landowners would take place in an
      "ecosystem marketplace". The service would be valued and sold in terms of "credits".
      Credits would be calculated based on area planted and certain aspects of the site.

      For our Council this type of project fits with our mission of improving water quality and
      riparian habitat with voluntary means and local action. LTWC roles in the marketplace
      might include assisting landowners in preparing/offering credits for sale, doing the
      restoration (tree planting), verifying aspects of the sale transaction in the field, or
      monitoring the health of the plantings and production of credits over time.

      Right now we're in the exploratory stage of this project. We are participating in
      discussions with the lead entity (the Willamette Partnership) so that if a marketplace is
      developed it is realistic and works for the people that we work with. We also want to
      make sure that the restoration is well-done, that the objectives of water quality are met
      over time, and that the marketplace doesn't create disincentives for conservation or set it
      back (although that may happen temporarily).

      [Could start below and give background in response to questions]

      We'd [also] like to know how interested people in this watershed would be in
      participating in an ecosystem marketplace. Landowners would be able to restore riparian
      areas and sell the credits for the shade potential they produce. This potential can be
      calculated for every stretch of stream, although there is no approved formula yet.
      [Show photo and how sample calculations work]

                                               27
What's involved is planting an area, watering/replanting until establishment is successful,
maintaining the plantings, and monitoring. That's the standard procedure for riparian
restoration. To sell the shade potential generated, there would be a contract, a verification
procedure, and monitoring visits over time arranged with the seller.


Potential Q&A Topics

Who are the parties involved?
 The parties involved would likely vary. In the basic scenario the landowner would offer
the credits directly to the Buyer by showing the calculation for the amount of credits with
a map and/ or aerial photo, a planting and monitoring plan. A Planting Contractor would
be chosen (Council? Independent? Landowner?*). A Monitoring Entity would be
identified (Council? Independent?). A Verifier would come and ensure the credit offering
was "good," likely with a site visit (Council? Independent?). A contract would be drawn
to address payments, responsibility, and liability. The transaction would be registered
with the Marketplace Registry**. A Certifier (DEQ) would make sure any regulatory
concerns had been properly addressed.
*There may be some kind of certification required for planting contractors.
**The registry may be the pathway to offer the credits for sale initially.

A few variations:
Landowners may not want to work directly with buyers. They could use a broker. The
Council might choose to assist in this role much the same way as we assist in writing
restoration grant applications for landowners' projects and providing the technical
assistance, permitting, reporting, restoration and monitoring work, etc.

Large buyers (e.g. a City, or the combined cities in Metro Wastewater) need large
volumes of credits and may not want to work directly with that many landowners. They
may look for credits that are coming from brokers or aggregators. Landowners could use
brokers, or perhaps choose to aggregate their credits into a larger offering from a group of
landowners. The details of this idea are at least one step removed from the first
transactions and would probably involve creativity on behalf of the sellers once the
marketplace is up and running.

 Timing of process
The development of this Marketplace system was being accelerated due to the need of
some large cities and corporations to meet specific heat load reduction requirements in
the Willamette.

The DEQ just relaxed the timeline to meet those requirements from immediately to a 5-
10 year window. Some entities are still planning to use the marketplace option much
sooner because there would have to be a significant number of credits in place to meet the
requirements in 5 years. So the development of possible riparian projects is still very
much a current effort.

                                         28
Landowner responses

     Questions
     1. Would you consider putting your riparian area into plantings to shade the river?
        Would being compensated for that "crop", such as an annual payment, increase your
        interest?
     2. If the conditions were satisfactory would you be interested in a contract for "growing"
        shade for 10-20 years? [interested here in entering contract and lengths of term]
     3. How might you come up with an amount for the "per acre" payment for the riparian
        area that piques your interest? What is an approximate range for that amount?
     4. What is a "good average" net profit for the range of crops you grow?
     5. Is there a base contract amount and/or length that would be important to make
        entering into the business relationship worthwhile?
     6. Are there any potential requirements from your end to make an arrangement /
        business transaction worth your while?
     7. How soon would you be willing to make a sale?
     8. Overall, how do you view a transaction like this?
     9. Do you have any concerns/ideas/questions we can think about as we work on this
        project, or get back to you about?

Responses
UT
   1. Interested? Yes. Hassle factor bonus and initial signing bonus would help willingness
      to enter relationship.
   2. Contract? Yes.
   3. Payment? Going rate. $350/acre plus costs.
   4. Amount? $350-450/acre
   5. Base amount and length? 10 years with extension option. $1,500 minimum.
   6. Requirements? No public access. Pump sites maintained (access and erosion-
      prevention).
   7. How soon? Anytime is fine.
   8. Overall? Would be interested in doing plantings, performing maintenance.
   9. Other?

TH
     1. Interested? As long as trees don’t compromise bank stability. Evaluation of erosion
        for a planting reach – make sure toe of slope is stable. Species selection matters.
        Reed canarygrass a concern.
     2. Contract? See response for #5.
     3. Payment? Would do it “for free” – agrees with goal of water trempaerature reduction
        and improved bank stability.
     4. Amount? N/A
     5. Base amount and length? 10 years at a time.
     6. Requirements? Access to pump site

                                             29
     7. How soon? Right away would be possible.
     8. Overall? “City” might be getting off easy; perhaps better to deal with problem at
        source.
     9. Other? None. Discussed issues regarding adjacent conservation area owned by state
        park.

SE
     1. Interested? Yes.
     2. Contract? Yes.
     3. Payment? Yes. Not sure how this would be calculated.
     4. Amount? N/A for ranching/grazing
     5. Base amount and length? $1,000 minimum. 10-15 years.
     6. Requirements? Someone else in charge of tree establishment and maintenance. No
        public access. Can’t interfere with adjacent farming activities. Would need to include
        fencing to exclude livestock along portions of the riparian area (no access to river
        necessary for livestock).
     7. How soon? No time restriction.
     8. Overall? Would approach it from a business standpoint, not an altruistic perspective.
     9. Other? None. Attractive that part of the maintenance contract may include weed
        control in the riparian area as this is a nuisance.

CB
     1. Interested? Open to planting but most of his frontage is already forested – the part
        that’s not is heavily rip-rapped.
     2. Contract? See response for #5.
     3. Payment?
     4. Amount?
     5. Base amount and length? $1,000 would be worth it.
     6. Requirements? No public access. Plantings would need to be on river side of access
        “road”.
     7. How soon?
     8. Overall? Likes riparian vegetation (prefers that ACE not remove willow on his
        stretch.)
     9. Other? High erosion on outside bends in this area.

HC
     1. Interested? Yes, would consider it.
     2. Contract? See response for #5.
     3. Payment? Not essential. (This seemed polite deference instead of a real answer)
     4. Amount? Whatever going rate is. Without knowing this he said $50-$100/acre rental
        payment.
     5. Base amount and length? $1,500 minimum would probably be about right. 20 years
        would be a good contract length.
     6. Requirements? Someone else would need to establish trees and control weeds.
        Contractor needs to contact landowners before going out. No public access. Can’t
        interfere with farming operation in anyway, but doesn’t expect it would.

                                            30
        7. How soon?
        8. Overall?
        9. Other?

   FI
        1. Interested? Would consider it. Won’t give up food production.
        2. Contract? Preferred, yes. No problem contracting with government entity. What if
           it’s blown out. Would need assurances or limited liability.
        3. Payment? Depends on crop and varies. Range net profit on grass: $600-700,
           vegetables: $500-$600, wheat: $1600 today but current high-end of market projection
           is $2500
        4. Amount? Would have to compare to potential value of tying the land up.
        5. Base amount and length? $1,500 per year.
        6. Requirements? No public access. Need pump sites. Someone else do the planting.
           Aggregating landowners/sites seems a good idea. Species would need to be selected
           that would not create problems in the field, e.g. no cottonwoods. Ash, maple, pine,
           cedar are fine. Alder is ok.
        7. How soon? Anytime. If taking crop out it would require delay for end of rotation.
        8. Overall? Interested in floodplain leases although expect tight water management. It’s
           a bitter pill to deal with water quality and riparian requirements/issues. The
           marketplace idea/compensation would take some of the bite out of it.
        9. Other? Erosion is a problem in some places. Can that be addressed?

Further Discussion of Landowner Interest and Willingness in Credit/Shade Production

        Property owner Philosophies

        Property owner philosophies regarding this kind of effort will vary tremendously. For
        some, questions will come up that can be addressed by giving perspective for the effort,
        and framing it within a system. For example, the notion of a natural system of cooling
        water and keeping it cool appealed to a sense of reasonableness and common sense.
        Then there are specific philosophies, for example, some property owners will consider
        any connection with a government entity a “deal-killer”. Some will resist being part of
        any “program”.

        Where dilemmas occur between values, the common sense aspects of using a natural
        system to offset pollution seems to carry the most weight. Outreach and marketing, or the
        “sale” of the program to the property owner/seller, needs to include working answers to
        the philosophical questions.

               Fairness
               Productive Land and Public Dollars
               In the Agricultural community there is a strong set of ideas about how productive
               land should be used, and a related set of strong ideas about how each
               operation/farm is making its living. In the case of public dollars being used for



                                                31
program implementation and allocation, there will be judgments made by some on
the people that accept those funds.

There are competing principles held by different people, and sometimes the same
people (e.g. land needs to be used in productive agriculture, land needs to pay its
fair share of taxes - contrasted with – landowners should be able to do what they
want with their land). With this mentality a person using his land for a for-profit
dumping ground would be accepted whereas a person selling his as an easement
or accepting government funds for conservation/restoration activity is not
acceptable. This also conflicts with the values most in the rural community hold
in terms of stewardship of the land for the next generation.

Urban-Rural issues
There is a struggle with the idea that an urban center pollutes excessively and the
rural properties have to make up the difference. When compensated, this is more
palatable from a “fair-share” perspective, and perhaps also because, practically it
helps to conserve rural areas, but there is still a strong set of ideas in the
agricultural communities around “doing the right thing”. One working answer to
this that is useful in outreach (or sales moments), is to outline the continuing work
by each urban center to reduce their pollution and behavior, even as they also pay
to offset the results of it.

Conservation
In keeping with the concern about doing the right thing by the land, and the
reputation of the program’s effect in the community (both local geographical
community and larger agricultural community), there is a strong need to provide
compensation for existing conservation. One idea is an annual payment for
riparian areas conserved, and DEQ credit for that given to also meet permit
conditions (perhaps a certain percentage of credits/kcals have to be and can be
met by this). Another idea is a riparian tax credit, or OWEB funding. The
important component may be the link to actions recognized by DEQ. In this
example, if a polluter is required to address temperature, and the river increases in
temperature, from any cause, the updated TMDL will increase the allocation of
units to each entity. Since preventative action in this case might be a tragedy of
the commons case, perhaps the conservation credits have an added bonus of
reducing a future load allocation, and/or applying additional credits to meet that
load allocation if it comes to pass.

This is not necessarily the responsibility of the marketplace system but it is in its
zone of influence. The marketplace could match its rules (e.g. no contracts
granted on riparian areas that have lost significant vegetation in the preceding 5
years, or since year 2006) to whatever incentives exist (e.g. grant-funded and
private-funded conservation easements) for the desired conservation status to
achieve a sense of fairness. Alternatively, the marketplace
implementers/dependents/proponents could evaluate the limitations to the
marketplace system if those other systems do not function well.

                                  32
List of Attachments 
     The following attachments were provided with the hardcopy and CD of this report.
     • 10 8.5” x 11” Maps of Shadelator Results
     • Clean Water Services Monitoring Protocol
     • Clean Water Services Thermal Credit Cost Summary 2007 (updated 1/08)
     • Draft Contracts for Credit Exchange and Credit Registration (not produced by
        LTWC, consult Willamette Partnership)
     • Draft Map of Willamette streams that Shadelator results are available for, courtesy
        Pamela Wright, DEQ
     • CD only: Draft Credit Calculator (not produced by LTWC, consult Willamette
        Partnership)
     • CD only: Excel spreadsheet - Summary Shadealator Results, Current and Potential
        Solar Load per 100-foot segment (DEQ)
     • 2’ x 3’ contiguous map of Shadelator results (not included in CD)




                                            33
Supporting Documents for
    Section 6 – Market
  Infrastructure (Task 4)
                                              MEMORANDUM
DATE:             October 18, 2006
TO:               David Primozich and Charlie Logue
FROM:             Lisa Bacon
SUBJECT:          Market Framework, TM#1, Task 4, TO 1
PROJECT:          Willamette Partnership
PROJECT NO:       MWVC00000001
COPIES:           Dan Heagerty, James Ollerenshaw, Terry Buchholz, Kim Seymour


        INTRODUCTION
        This technical memorandum covers these aspects of a market framework for trading:

        •   A set of 10 elements that represent key functions, features, or arrangements;

        •   Alternative ways to structure each element providing a menu from which an overall
            trading program might be assembled;
        •   Examples of existing and distinctly different market models; and

        •   Aspects of market administration including tracking, oversight and evaluation.
        For the Willamette Basin a uniquely tailored model will be required in order to address both
        regulated and non-regulated ecosystem services. The Willamette Model will likely begin
        with a market system and institutional infrastructure that addresses short term needs and
        opportunities that intentionally evolves into a different program structure for the long term.
        This TM was developed ahead of the September 27th Board meeting for the purpose of
        orienting the project team to the major market elements and different models. Selected
        information from this TM was modified, added to, and incorporated into the PowerPoint
        presentation given to the Board at the meeting. The section of that PowerPoint presentation
        devoted to market framework (slides # 35 – 72) is provided as Attachment A to this TM. As
        a stand along document, this TM is submitted in partial fulfillment of the deliverables for
        TO #1, Task 4. Alone, and together with documents developed by Bobby Cochran of Clean
        Water Services, it satisfies in part the required deliverables identified in the Willamette
        Partnership’s Work Plan for EPA (need to cross map).
        Comments from the Board members are documented in the meeting notes under separate
        cover. Further refinement and elaboration of market elements and models will be presented
        in a separate TM.
        In reviewing the elements and models presented here, consideration should be given to the
        needs and preferences for each of the elements. This may lead to one of the generalized




                 2100 SW River Parkway Portland Oregon 97201 Phone: 503.223.6663 Facsimile: 503.223.2701
models, or examples presented here. There can be overlap between the models and the
trading program could have elements of more than one. Hybrids are possible and can be
effective—but caution should be taken against creating an unwieldy ineffective
Frankenstein model with too much mixing of ill-matched parts.
MARKET ELEMENTS
The market framework for credit trading can be described using these key elements:
•   Performance Targets

•   Program Rules and Policies

•   Relationships among Trading Parties
•   Information Analysis and Dissemination

•   Cost Basis and Pricing

•   Decision-making

•   Transactions

•   Liability

•   Resources
•   Results
Market Elements General Characterizations
The individual elements can generally be described using three characterizations:

•   Centralized

•   Facilitated
•   Decentralized
Collectively, individual elements will often—but not always—exhibit a predominant
characteristic. The predominant characteristic of the elements will determine the market
model in effect.
The following walks through the 10 elements introduced earlier. First, the element is
generally described. Then, the element is described how it may appear if

•   Centralized,

•   Facilitated, or


06 - Market Framework.doc                                                               Page 2 of 30
                                              .
•   Decentralized
The element can be the same on the selling and buying side of the market—e.g., Facilitated
for both buyers and sellers. The element also can be different for sellers and buyers, e.g.,
centralized for buyers, but decentralized for sellers
Performance Targets
With few if any exceptions, overall performance targets are established by state or local
regulatory agencies.
For Point Sources:

•   Aggregate wasteload allocations for point source category or categories
•   Individual WLAs

•   “Voluntary” caps or reductions
For Nonpoint Sources:
•   Depends on the type of nonpoint source

•   Method for memorializing targets as load allocations varies by source category, state,
    and locality
Centralized

    − Market manager or regulator sets all individual and collective targets
    − Depending on program rules, some reallocations are trades, other changes involve
      redoing WLAs and/or LAs
    − Example: Connecticut set a TMDL and individual WLAs with annual step downs to
      meet a 2014 target.


Facilitated
    −   Regulator sets aggregate targets and may or may not specify individual allocations
    −   Trading parties have some discretion to reallocate targets among themselves
    −   Whether reallocation is a “trade” depends on program rules
    −   Example: The Virginia Program authorizes two types of trading, one of which
        involved selling or buying CREDITS


Decentralized
    − Regulator sets individual targets


06 - Market Framework.doc                                                               Page 3 of 30
                                              .
    − Parties rely on trades, or other agreements (contracts, MOUs) to reallocate
      responsibilities
    − Example: The Virginia Program authorizes two types of trading, one of which
      involves selling or buying ALLOCATIONS


Information Analysis and Dissemination
Trading programs rely on a range of analyses to demonstrate potential, provide the basis for
program development, and support implementation.
Key areas include:

•   Quantification and sourcing of demand for and supply of credits

•   Compliance costs, credit cost-effectiveness, and pricing structures

•   Pre- and post-trade loading and water quality analysis

•   Transactions, including financial aspects and results
A range of options exists for:

•   Who conducts the analysis

•   Who keeps the results and records

•   Who shares the information and how

•   Who can gain restricted or unrestricted access to summary or raw data
Centralized

    −    Market Manager conducts or contracts most analyses—may also consolidate trader-
         or stakeholder-provided information
    −    Key information generally readily available (some things may be in summary or
         aggregated form if necessary)
    −    Market Manager takes lead, but maybe not exclusive role in dissemination
    −    Example: Following a WERF-sponsored study, Nitrogen Credit Trading in the Long
         Island Sound Watershed (2000), Connecticut DEP conducted the analysis necessary to
         establish the point-point trading program for nitrogen. DEP is responsible for
         disseminating ongoing information about the program on its web-site and in annual
         reports.


Facilitated



06 - Market Framework.doc                                                             Page 4 of 30
                                               .
    −    Participants generally conduct some or all of their own analyses and provide to the
         Facilitator for consolidation and integration
    −    Analysis may appear centralized, but it is controlled by participants rather than
         third-party
    −    Dissemination may be coordinated through a single “portal” but not dictated by
         Facilitator
    −    Example: The Virginia Nutrient Credit Exchange Association issued a survey to its
         members to collect up-to-date cost data for a trading optimization model and has
         developed an informational brochure about the program.


Decentralized
    −    Trading and other parties conduct and provide their own information/analyses
    −    Participant or third-party may consolidate
    −    Third-parties may conduct additional analyses and disseminate information
         independently, or as a fee-based service to program participants
    −    Example: In a system like Pennsylvania is contemplating, where it plans to use an
         electronic nutrient reduction registry and web-based systems to publicize trading
         opportunities such as offers to buy and sell, information will be available in a central
         location, but parties will need to conduct their own analysis with respect to the
         whether a credit is a good value for the proposed price.


Cost Basis and Pricing
The cost of a credit and its price are two different things. The cost basis is the total of the
separate cost elements that are eligible for consideration in the pricing scheme, including for
example:

•   Capital

•   Operation and Maintenance
•   Monitoring and Reporting
The price is the amount paid per credit, which may be:

•   Set by rule or formula
•   Negotiated

•   Established through market bidding
Depending on program rules, cost and price may be closely related, or relatively
independent.

06 - Market Framework.doc                                                                  Page 5 of 30
                                                 .
Centralized

    −    Market Manager sets cost basis and rules for calculating prices
    −    Prices may be fixed for a period of time, or may vary if cost basis changes over time
    −    Administrative costs may be included in credit price or added on top as a fee or
         surcharge
    −    Example: Connecticut DEP sets nitrogen credit prices annually, based on an
         established formula that considers eligible costs. Nitrogen credit prices ranged from
         $1.65/lb to $2.50/lb over the 2000 to 2006 period.


Facilitated

    −    Participants have discretion to set their own prices
    −    Potential traders and other stakeholders may collaborate or cooperate on agreeing on
         the cost basis and pricing scheme
    −    In some point-point trading models, money has not yet changed hands despite
         collective actions toward cap compliance
    −    Example: Trading Associations, such as those in place in North Carolina and
         Virginia, can generally establish prices for point source credits according to their
         own internal rules. In these cases, the State may establish prices for selected types of
         nonpoint source generated credits. In Virginia’s point-point nutrient trading
         program, credit prices may vary by Basin.


Decentralized
    −    Rules for cost basis may or may not exist, but would be published if pre-set
    −    Decentralized markets tend to be price-driven as buyers and sellers make decisions
         based on price and don’t necessarily need cost information
    −    Prices may be managed in some way, or may be allowed to fluctuate according to
         market forces
    −    Example: Prices may or may not be public in a decentralized system. Trading
         contracts in the Lower Boise River Program are not submitted to the State or made
         available for public review. State credit registries, such as those contemplated by
         Michigan and Pennsylvania, would make offered prices public.


Transactions
Trading transactions include:
•   Identifying prospective partners

•   Consummating the trade between the partners

06 - Market Framework.doc                                                                  Page 6 of 30
                                                .
•   Recording the trade for regulators and/or public per program requirements
This element in different models is distinguished by the degree of contact trading partners
have with each other.
Centralized

    −    Trading partners have little to no contact
    −    Directions or “offers” to buy or sell credits are collected or consolidated in a central
         clearinghouse
    −    Transactions may involve matching offers to each other, or may involve pooled
         transactions with no explicit matching
    −    Example: In the Connecticut program, the State buys and sells all credits. Available
         credits are pooled and redistributed to buyers through the state’s clearinghouse
         function, under oversight of the Nitrogen Credit Advisory Board. The state’s 79
         POTWs do not trade directly with each other, but through the state-run program.


Facilitated

    −    Trading partners have some degree of contact with each other
    −    This contact may be managed or facilitated by a broker or middleman
    −    The degree of contact will depend on whether the trade goes entirely through the
         broker (little contact), or if the facilitator’s function is only to match partners (more
         contact)
    −    Example: The Virginia Nutrient Credit Exchange expects to conduct some, or
         perhaps all, point-point trades for its members through the Exchange. Various Excel-
         based tools are being developed to facilitate trading among Exchange members.


Decentralized

    −    Trading partners usually have direct contact
    −    It would be possible to have a decentralized system where parties could be
         represented by agents
    −    Decentralized transactions involve discrete bi-lateral (or conceivably multi-lateral)
         deals
    −    Example: The Lower Boise River Trading Pilot is set up such that buyers and sellers
         need to have direct contact to identify prospects and consummate trades. Buyers will
         be point sources and Sellers will be irrigation districts or other landowners with
         creditable BMPs.




06 - Market Framework.doc                                                                    Page 7 of 30
                                                 .
Resources
Financial resources are needed to:

•   Develop the program

•   Implement the trades

•   Oversee the program
Funding for these three general categories can come from different parties. Programs differ
in the degree to which they are self-sufficient or subsidized in some aspect. Some functions
and activities are more practically and efficiently funded from a central or pooled source.
Others are better funded at an individual or trade level .
Centralized
    −    Program developed and implemented predominantly through Market Manager’s
         funding
    −    Market Manager may or may not levy general or transaction-based fees on
         participants, depending on program purpose and available funding sources
    −    Example: A WERF-funded study, Nitrogen Credit Trading in the Long Island Sound
         Watershed (2000), produced the basic analysis showing that a point-point trading
         program would be feasible and cost-effective. The Connecticut DEP funded
         subsequent activities associated with developing and implementing the program.


Facilitated
    −    Program development likely sponsored by state or facilitator
    −    Eligible traders contribute to program set up and shared administrative costs
         through member fees and/or jointly secured third party funding
    −    Transaction-based fees usually not sufficient to fully support ongoing
         implementation
    −    Example: Legislation creating the Virginia Nutrient Credit Exchange Association
         was developed with funding from the Virginia Association of Municipal Wastewater
         Agencies and the Virginia Manufacturers Association. The legislature has provided
         grant funding to the Exchange for its first years of operation.


Decentralized

    −    Program development may be partly supported by state or other third party
    −    Active and potential traders likely contribute significant amount for program set up
         and implementation
    −    Ongoing costs may be paid by market entry fee and/or trade-based fees


06 - Market Framework.doc                                                               Page 8 of 30
    −    Example: The Lower Boise River Trading Pilot was developed with a combination of
         dischargers’, state, and EPA funding. As the program progresses, participants will
         have to fund their own participation, including paying credit certification and
         inspection fees.


Program Rules and Policies
As with performance targets, overarching program rules and policies are most typically set
by state regulatory agencies within the context of the NPDES program, a TMDL program, or
trading policy. The specificity or generality of these characterizes the range of centralization
or decentralization.
Centralized
    −    Market manager or regulator sets all rules and policies
    −    Participants may have input through stakeholder-based, regulatory, or
         administrative processes
    −    Example: Connecticut established its point-point trading program for POTWs
         through state legislation and a general permit.


Facilitated
    −    Regulator sets statewide or watershed-specific framework
    −    Watershed stakeholders and/or traders establish more specific rules and procedures
         governing relationships and trades among themselves
    −    Example: The Virginia Legislature authorized a nutrient trading program through
         legislation and established some basic operating rules and principles. The Virginia
         Nutrient Credit Exchange Association has the authority to establish trading policies
         and protocols for its members.


Decentralized
    −    Regulator may provide only general guidance, or none at all
    −    Watershed-specific trading programs proposed on an individual basis for state
         approval
    −    Parties rely on multi-lateral or bi-lateral agreements to establish trading rules and
         policies
    −    Example: In the Lower Boise River Trading Pilot, private contracts define individual
         trades, subject to state guidelines.


Relationships Among Trading Parties

06 - Market Framework.doc                                                                 Page 9 of 30
                                               .
Buyers and sellers can have different positions vis a vis their potential partners and with
other buyers/sellers:

•   Collaborative—proactively working together to reach most strategic, cost-effective
    program for all

•   Cooperative—working together on selected program elements, but perhaps not all

•   Independent—making decisions without consultation or consideration of other parties,
    but in a neutral way

•   Competitive—occasional or frequent behavior to “beat” other parties to credits, market
    share, or on pricing
Centralized
    −    Collaborative or cooperative for most aspects of the program, from development to
         implementation
    −    Because there is a market manager, trading partners may have limited interaction,
         and may appear to act independently
    −    Example: Connecticut’s POTWs have no direct interaction with respect to trades. All
         trades are executed through the DEP-issued “invoices” showing payments due the
         state from buyers (red) and payments due the sellers from DEP (green). This process
         is overseen by the Nitrogen Credit Advisory Board, which provides the participants
         with a voice in the overall process.


Facilitated
    −    Collaborative or cooperative for most aspects of the program, from development to
         implementation
    −    Collaborative or cooperative with respect to decision-making about who is a seller
         and who is a buyer
    −    Example: Members of the Virginia Nutrient Credit Exchange Association are
         working together to establish the compliance schedule and necessary trades to meet
         Basin-level nutrient loading caps.


Decentralized
    −    May be cooperative with respect to program development and/or oversight
    −    Independent to competitive with respect to information and transactions
    −    Example: Both the Michigan Trading Rules and the Pennsylvania Trading Policy
         contemplate that buyers and sellers will find each other and interact through a state-
         sponsored electronic registry.

06 - Market Framework.doc                                                                Page 10 of 30
                                                .
Decision-making
This element relates to who decides who will sell and who will buy, and to what degree
those decisions are:

•   Mandatory

•   Dictated but with some voluntary or “opt-out” option
•   Made jointly

•   Made cooperatively

•   Made independently


Centralized
    −    Trade decisions generally mandated or dictated
    −    Participants may not be able to opt-out, once in
    −    Example: In Connecticut’s program, POTWs' decisions to upgrade or not (and be a
         seller or a buyer) are “voluntary”, but the state issues SRF funding according to
         relative cost-effectiveness.


Facilitated
    −    Trade decisions collaboratively or cooperatively made—at a minimum with
         consultation
    −    Ability to “opt-out” may be limited to certain times at beginning and end of an
         established period
    −    Example: When the Maryland Association of Municipal Wastewater Agencies was
         considering various options, a closed market was favored, where entry and exit was
         limited to specific windows, and trading decisions made cooperatively under four
         Basin “bubbles”.


Decentralized
    −    Trade decisions made independently
    −    Pre-notification or consultation may or may not exist
    −    At a minimum, decisions will be posted for participants, regulators, and/or public
         after the fact, subject to program requirements


06 - Market Framework.doc                                                              Page 11 of 30
                                               .
    −    Example: In the Lower Boise River Trading Pilot, and in programs contemplated by
         Michigan and Pennsylvania, buying and selling are completely voluntary, and
         traders should generally be acting independently within the buyer and seller groups,
         similar to a stock or commodity market.


Liability
Without specific agreements or mechanisms to implement another scheme, point source
buyers are liable for the validity and performance of credits used for compliance purposes.
Sellers’ liability will be established in:

•   The NPDES permit for point sources
•   Other policies or program documents for nonpoint sources
As more trading programs come on line, other arrangements may gain favor such as:

•   Joint or shared liability for selected actions
•   Third-party accepting some/all liability
Centralized
    −    The Market Manager assumes liability for one or both sides of the transaction
    −    Buyers are protected if credits purchased according to rules
    −    Sellers are subject to oversight and enforcement by Market Manager or a fourth-
         party for invalid or failed credits
    −    Example: The point-nonpoint nitrogen credit trading option for the Tar Pamlico
         Trading Association involved purchasing credits from the State by making payments
         to the agricultural cost share program. The purchaser’s obligation is then satisfied
         and he has no future liability with respect to the performance of the cost-share
         funded BMP.


Facilitated
    −    Buyers are individually or collectively liable, depending on whether trading is
         conducted under individual permits or a watershed permit
    −    Facilitator, or another third party (the state, contractor, insurer) develop and help
         implement mechanisms to protect buyers
    −    Example: Members of the Neuse River Compliance Association are jointly
         responsible for meeting their aggregate nitrogen cap and individually responsible
         for their own WLAs.



06 - Market Framework.doc                                                                 Page 12 of 30
                                                 .
Decentralized

    −    Buyer retains liability in its NPDES permit, so far as state regulators are concerned
    −    Buyers and sellers enter into contracts or other agreements that define seller’s
         liability, assurances, and buyer’s recourse for purposeful or accidental credit
         deficiencies
    −    Example: Point sources purchasing BMP-generated credits in the Lower Boise River
         Trading Pilot are liable for the performance of those BMPs through their NPDES
         permits. Buyers enter into contracts with sellers to establish the seller’s liability and
         remedies for nonperformance.


Results
Results can be measured along several metrics:
•   Water quality improvement or maintenance within the trading area

•   Attainment of aggregate or group targets

•   Compliance with individual WLAs and LAs
•   Administrative performance of the trading program or project
The entity responsible for delivering on the different results categories will be determined
by the market structure.
Centralized

    −    As Market Manager has great control over information and decisions, overall
         environmental and program performance will be measured at its feet
    −    Individual participants will still have responsibilities for delivering credits and
         otherwise following program rules
    −    Example: Connecticut’s nitrogen credit trading program is largely judged by DEP’s
         ability to manage the state’s SRF program to fund upgrades cost-effectively so that
         collectively the 79 POTWs stay under the loading cap and meet the 2014 goal. Credit
         sellers and credit buyers still have individual performance responsibilities. To date,
         DEP and the POTWs are more than meeting their nitrogen reduction goal.


Facilitated
    −    Results will be measured at collective or individual levels as established by the
         program framework
    −    The Facilitator’s performances as a consolidator and/or broker also will be evaluated
         by participants and stakeholders

06 - Market Framework.doc                                                                   Page 13 of 30
                                                  .
    −    Example: Where point sources form Associations to facilitate point-point trading,
         compliance is first measured against the collective loading cap. Individual
         performance is important because the net result depends on the proper balance of
         credit and debits. Usually, it is only when the cap is breached, that compliance is
         measured at individual WLAs.


Decentralized

    −    Performance is measured at the individual level per the contracts and agreements
         put in place
    −    Regulators will look closely at Buyers to evaluate compliance with trading baselines
         inclusive of credits and delivered benefits of those credits
    −    Buyers will evaluate seller’s performance per delivery agreement
    −    Example: In the Lower Boise River Trading Pilot, EPA will measure point source
         compliance with individual WLAs by looking at its loadings and any credits. Buyers
         evaluate BMPs generating their credits by direct measurement or estimation, as
         provided by the trading guidelines, with the help of third party inspectors. (Note
         that Idaho does not have NPDES delegation so EPA is the permitting authority.)


Selecting the Right Features
Important factors in determining which elements and model features are right for a given
application include:

•   Number of dischargers/sources
•   Number of potential sellers versus buyers

•   Geographic layout of the watershed and the sources

•   Relationships between and among potential traders
•   Relationship between potential traders and state regulatory agencies

•   Magnitude of required reductions

•   Potential availability of credits
•   Number and frequency of anticipated trading transactions

•   Transaction costs faced by buyers and sellers

•   Resources needed to set up and maintain the trading system

•   Market oversight requirements

06 - Market Framework.doc                                                               Page 14 of 30
                                                .
MARKET MODELS
Market models are made up of or reflect the following:

•   Market elements from which they are assembled

•   The primary market model manifested

•   The broader trading framework for which they are designed and in which they exist
To date, trading programs involving multiple buyers and sellers mostly fall into one of
three general models:
•   Third-Party Managed or Directed (Centralized)

•   Trader Associations (Facilitated)

•   Free Market-like (Decentralized)
A fourth model describes markets limited to one buyer with one or more sellers:

•   Single Buyer Offset Programs - Centralized on the buying side, variable on the
    selling side
This TM describes these four models as they have appeared to date in water quality
credit trading programs. Additionally, a fifth model was examined specifically for
application in the Willamette Basin that has heretofore not yet been seen in the water
quality credit arena: a model we call the “Trust.” Features of our “trust” model were
described and documented in a separate TM, provided as Attachment B to this TM.
For the Board meeting, as seen in Attachment A, four different model specifications
were presented that are related to, but don’t map identically to the four presented in this
TM. The four models presented at the Board meeting are: Credit Clearinghouse; Market
Facilitator; Market Manager, Market Maker.
Managed Trading
Key Features:

•   First, watershed goals are set and schedules for achieving interim and final goals are
    determined

•   Analysis of source-control measures for largest reductions, cost-effectiveness, and
    ability to implement quickly is carried out

•   The best sequence and timing for upgrades is determined




06 - Market Framework.doc                                                                 Page 15 of 30
                                             .
•   Initial upgrades that will produce reductions greater than needed to meet interim
    goals are chosen

•   If state grant funding is available, award priority is based on optimization results
•   Non-upgraded facilities must purchase credits from upgraded facilities

•   Additional upgrades are added as needed to comply with goals

•   Not all facilities may need to be upgraded
Examples:

•   The foremost (and so far only) example of this type of program is the Connecticut
    Long Island Sound Nitrogen Trading Program
Benefits:
•   Holistic planning approach taken for point sources

•   Upgrades selected based on water-quality benefit

•   Most cost-effective upgrades done first
•   Not all plants have to upgrade

•   Lower overall cost
Trading Association
Key Features:

•   Mass-load limits or goals based on achieving water-quality standards or TMDL
    wasteload allocations are calculated for the existing point source dischargers in a
    watershed

•   The dischargers form a trading association and the state agrees to allow the members
    (or “co-permittees”) to aggregate their individual allocations into a single association
    allocation

•   The association is free to meet the allocation in any manner it sees fit

•   The trading association signs an agreement with the state through which the
    association becomes the entity responsible for compliance with the allocation

•   Membership in the association is voluntary; any WWTP not joining the association
    would be responsible for complying with its individual wasteload allocation



06 - Market Framework.doc                                                                  Page 16 of 30
                                              .
•   Membership in a trading association should not disqualify a WWTP from state cost-
    share grants if a cost-share program exists; nor should it make it ineligible for low-
    interest SRF loans from the state

•   The ability to acquire nonpoint source credits can be made available to the
    association if the state has developed a point-nonpoint source trading program
Examples:

•   Tar Pamlico Trading Association (nitrogen)

•   Neuse River Compliance Association (nitrogen)
•   Virginia Nutrient Credit Exchange Association (nitrogen and phosphorus)

•   Program proposed by Maryland Association of Municipal Wastewater Agencies in
    2004 (nitrogen and phosphorus)

•   Program being considered by Bay Area Clean Water Association (mercury)
Benefits:

•   Association has freedom and flexibility in deciding how to meet its allocation

•   Most cost-effective upgrades done first
•   Not all plants have to upgrade

•   Lower overall cost

•   Possibly faster compliance
Market-Like Trading
Key Features:

•   Dischargers in a watershed are given mass-load limits or goals based on achieving
    water-quality standards or TMDL wasteload and load allocations

•   The dischargers could meet their individual limits or goals either by reducing their
    own discharged loads or by buying credits from other dischargers or sources, either
    point or nonpoint

•   The buyers and sellers of credits would operate in a market-like environment. They
    would seek each other out, negotiate terms of the transaction and prices, and hold
    each other accountable for compliance with the trade agreement or contract

•   The market would operate within general rules established by the state


06 - Market Framework.doc                                                               Page 17 of 30
                                              .
•   Buyers and sellers would be free to execute whatever sales and arrangements they
    desire, as long as they comply with the regulatory requirements established by the
    state for the trading program
Examples:
Programs envisioned by:

•   Michigan Trading Rules

•   Pennsylvania’s proposed nutrient trading program
•   Lower Boise River Trading Pilot
Benefits:

•   Most free-market like form of trading
•   Market forces may:

    − Encourage creativity and greater pollutant reductions
    − Enhance the attractiveness of trading
    − Lower the overall cost
•   As with the other forms of trading:

    −    Not all plants have to upgrade
    −    Possibly faster compliance


Small Scale Offset Programs
Key Features:

•   Offset programs are defined here as programs where a discharger is required to take
    some action in return for increasing its discharged load or for not decreasing it to
    comply with a new wasteload allocation
•   There have been a number of small-scale offset programs to date

•   Because of their variety, they are difficult to categorize
Examples:
•   Rahr Malting Company NPDES permit, MN (CBOD5)

•   Wayland Business Center NPDES permit, MA (phosphorus)

•   Clean Water Services Watershed Permit, OR (temperature and dissolved oxygen)


06 - Market Framework.doc                                                            Page 18 of 30
                                               .
•   Sacramento Regional County Sanitation District’s potential mercury offset program,
    CA
Benefits:
•   Can be tailored to unique needs and opportunity of the single buyer

•   Can be implemented through a single NDPES permit

•   New statewide policies or programs not necessary

•   If first trading project in state or region, can serve as pilot demonstration for others

•   Can be geared around a single credit source, or multiple sites/sellers


Selecting the Right Features
Important factors in determining which elements and model features are right for a
given situation include:

•   Number of dischargers/sources
•   Number of potential sellers versus buyers

•   Geographic layout of the watershed and the sources

•   Relationships between and among potential traders
•   Relationship between potential traders and state regulatory agencies

•   Magnitude of required reductions

•   Potential availability of credits

•   Number and frequency of anticipated trading transactions
•   Transaction costs faced by buyers and sellers

•   Resources needed to set up and maintain the trading system

•   Market oversight requirements
There are multiple approaches to structuring a market. Options range from simple to
complex. Stakeholders must examine market elements and features of models and
evaluate the relative costs and benefits of alternative approaches. From that analysis,
they can select those that work best for a given watershed and choose an overall
approach appropriate for their situation and preferences.


06 - Market Framework.doc                                                                  Page 19 of 30
                                               .
MARKET ADMINISTRATION
The next three sections move beyond the elements and the whole of a market framework
and focus on key activities associated with executing trades and implementing a trading
program. A trade is usually not a trade until it is documented and verified—for
programs with multiple transactions periodic reconciliations also are necessary.
Implementation involves three categories of core administrative and oversight activities:

•   Tracking

•   Oversight

•   Evaluation
Tracking
Tracking activities include identifying, documenting, recording, and publicizing
(as applicable) the following:
•   General trading opportunities

•   Credit generation

•   Credit use
•   Trade transactions

•   Other items and post-trade activities


General Opportunities
Some programs elect to document trading opportunities at a conceptual or general level.
Such identifications may be:

    −    the result of studies that supported development of the trading option
    −    post-implementation attempts to incentivize and support the market


Examples of general opportunities:

    −    Lists of potentially
         interested parties from stakeholder meetings
    −    Feasibility study results
    −    Eligible credit-generating options in polices or rules
    −    GIS maps of land use and BMP priority areas
    −    “ISO” postings on a registry


06 - Market Framework.doc                                                             Page 20 of 30
                                               .
Credit Generation
Subject to rules for generating credits, their existence, availability, and any limitations
must be documented and recorded. Point source-generated credits at a minimum are
usually identified in Discharge Monitoring Reports (DMRs). Nonpoint source-
generated credits can be identified in trading-specific mechanisms, or in documentation
for the program through which a credit is generated.
Examples of important credit generation information:

    −    Name, address of generator
    −    Location of technology, project, or action creating credit
    −    Description of how credits were generated
    −    Trading baseline for credit generator
    −    Duration, life, or other temporal attribute of credits
    −    Any O&M activities
    −    Monitoring data, ongoing requirements
    −    Verification, certification, and/or inspection confirmations

Credit Use
Using credits to meet trading baselines for compliance purposes, or other uses (e.g.,
retirement) must be documented and recorded, per applicable rules. Point sources using
credits toward their WLAs at a minimum must usually identify such use in their DMRs.
Additional tracking of credit use can be done in trading-specific mechanisms that may
or may not specifically identify the seller, or in documentation for the credit source or
seller.
Examples of important credit use information:

    −    Name, address of user
    −    Location of technology, project, or action using created credit
    −    Trading baseline for credit generator
    −    Amount/number of credits used
    −    Net pollutant load, or load reductions (load – credits = net)
    −    Any responsibilities user has for credit validation or certification
    −    Any liabilities user has for credit performance
    −    Performance bond or other insurance mechanism

Trade Transactions
As illustrated in the credit generation and use examples, trade transactions can be
executed:


06 - Market Framework.doc                                                                Page 21 of 30
                                               .
•   By the process involved in using a credit without any subsequent action

•   By the act of using a credit with some additional action
At a minimum, the trade transaction must:

•   Debit the seller’s account

•   Credit the buyer’s account
Examples of trade transaction activities:

    −    Reflecting credit sales and purchases in NPDES permits
    −    Removing sold or retired credits from the available pool
    −    Reconciling net results of credits generated and used under a pooled or bubble
         program
    −    Matching sales to purchases in whole or partial “lots”
    −    Providing reports of net results for the compliance period
    −    “Registering” credit transactions
    −    Validating/certifying credit transactions


For point sources, the method a state uses to handle trading in NPDES permits,
determines the specific form a trading transaction will take, based on EPA policy:
In some cases, specific trades may be identified in NPDES permits, including requirements
related to the control of nonpoint sources where appropriate. EPA also supports several flexible
approaches for incorporating provisions for trading into NPDES permits:
    −    general conditions in a permit that authorize trading and describe appropriate conditions
         and restrictions for trading to occur,
    −    the use of variable permit limits that may be adjusted up or down based on the quantity of
         credits generated or used; and/or,
    −    the use of alternate permit limits or conditions that establish restrictions on the amount
         of a point source's pollution reduction obligation that may be achieved by the use of
         credits if trading occurs.


EPA does not expect that an NPDES permit would need to be modified to incorporate an
individual trade if that permit contains authorization and provisions for trading to occur and the
public was given notice and an opportunity to comment and/or attend a public hearing at the
time the permit was issued.
For point sources, EPA also identifies watershed or general permits as an option in
which to track trade transactions:


06 - Market Framework.doc                                                                      Page 22 of 30
                                                 .
EPA also encourages the use of watershed general permits, where appropriate, to establish
pollutant-specific limitations for a group of sources in the same or similar categories to achieve
net pollutant reductions or water quality goals through trading.
Other Items and Post-Trade Activities
Independent of any oversight or evaluation processes, trade-related items and activities
beyond credit generation, use, and transactions may be documented and recorded.
These may include additional or ancillary documentation that must be submitted or
provided for review. These also may include O&M or monitoring reports that document
ongoing credit performance or use.
Examples of other items and post-trade activities:

    −    Copies of contracts or trade agreements
    −    Information about credit costs and/or prices
    −    Documentation for programs under which BMPs are created
    −    Facility O&M manuals and procedures
    −    Discharge monitoring reports specific to trading
    −    BMP efficiency reports
    −    Stream-side monitoring specific to credit creation
    −    Other monitoring or modeling


Tracking Wrap Up
Important factors in determining which approaches are right for a given situation are
similar to those considered when developing a market framework:

•   Number of dischargers/sources, potential sellers versus buyers

•   Geographic layout of the watershed and the sources
•   Number and frequency of anticipated trading transactions

•   Communication needs between and among potential traders

•   Reporting mechanisms for traders to regulatory agencies
•   Transaction costs for buyers, sellers, and others

•   Resources needed to set up and maintain the trading system

•   Market oversight and evaluation requirements
Oversight



06 - Market Framework.doc                                                                            Page 23 of 30
                                                  .
For individual trades, oversight activities include the following which may be
conducted by traders, state regulatory agencies, and/or third parties as established
under the program:

•   Credit certification and/or verification - including sellers’ compliance with trading
    baselines
•   Trade reconciliation - including buyers’ compliance with trading baselines

•   Protecting designated uses - including anti-degradation policies

•   Conformance with other applicable rules, policies, contractual responsibilities
•   Enforcement for non-compliance and non-conformance
For an overall project or program (if applicable), oversight activities will involve these
same areas at an aggregate level.
Credit Certification/Verification
As described under “Tracking”, rules and procedures are established for generating
credits. The oversight function ensures that those rules are followed through one or
more of several mechanisms:

•   Requirement for general documentation

•   Proof of generation (pictures, monitoring reports)
•   Signature certifications

•   Document audits

•   Site inspections
Examples of credit attributes subject to oversight:

    −    Name/eligibility of generator
    −    Location
    −    Type
    −    Seller’s Baseline
    −    Life/duration/generation period
    −    Credit calculation methods
    −    Application of trading ratios
         (if required)
    −    Longevity
    −    Agreements and contracts (if applicable and if required)


06 - Market Framework.doc                                                                    Page 24 of 30
                                              .
For point source generated credits, most programs require NPDES dischargers to
certify/verify credit through monthly Discharge Monitoring Reports (DMRs). DMRs for
trading programs may:

•   Not need to be modified

•   May be modified

•   May be accompanied by supplementary documentation
DMRs are signed by the dischargers representative.
Trade Reconciliation
Reconciliation involves matching credit demand to supply for a specified compliance
period. Buyers who are not meeting their baselines without credits must have a
sufficient number for the period to attain compliance. Credit sales and purchases may be
reconciled in two ways:

•   Matched 1 to 1, with buyer-seller pairs specifically identifiable

•   Pooled and redistributed, such that buyer-seller pairs are not specifically identifiable
Examples of reconciliation periods:

    −    Annual
    −    Seasonal
    −    Monthly
    −    Daily

Conformance with Other Requirements
Parties’ continuing eligibility to participate in trading can depend on meeting
requirements beyond those specific to trading baselines, credit generation, and use:

•   NPDES permit requirements,
    general or specific to trading

•   BMP cost-share program
    requirements

•   Contractual agreements between
    trading parties

•   Intergovernmental Agreements between traders and regulatory agencies

•   Voluntary commitments to stakeholders


06 - Market Framework.doc                                                                Page 25 of 30
                                              .
Examples of other requirements subject to oversight:

    −    Special Plans
    −    Mapping priority BMP areas
    −    Stakeholder involvement activities
    −    Audits and inspections
    −    Electronic filings
    −    Compliance with regulatory requirements for non-traded parameters
    −    Maintenance of financial obligations

Compliance and Enforcement
Trading programs must establish the following:
•   What constitutes compliance for the Buyer

•   What happens if credits aren’t “good”

    − to the Buyer
    − to the Seller
•   What remedies and “back-ups” are available

    −    Who invokes them
    −    How are they invoked


Examples of compliance and enforcement mechanisms:

    −    NPDES permit language
    −    Agreements between buyers and sellers
    −    Forms, certifications, and implied agreements for nonpoint sources participating
         in state-sponsored programs
    −    Performance bonding and insurance tools
    −    “Last Resort” pool of ready credits


Oversight Wrap Up
Important factors in determining which approaches are right for a given situation are
similar to those considered when developing a market framework :

•   Number of dischargers/sources, potential sellers versus buyers

•   Geographic layout of the watershed and the sources
•   Number and frequency of anticipated trading transactions

06 - Market Framework.doc                                                               Page 26 of 30
                                             .
•   Communication needs between and among potential traders

•   Reporting mechanisms for traders to regulatory agencies

•   Transaction costs for buyers, sellers, and others
•   Resources needed to set up and maintain the trading system

•   Market oversight and evaluation requirements


Evaluation
The section covers these evaluation activities:
•   Individual trades

•   Several trades

•   A program

•   Environmental results

•   Economic benefits

•   Other performance measures
•   Overall success
Evaluation activities involve periodic, retrospective assessments of (and sometimes
future projections of) performance against goals and requirements:

•   For individual trades

•   For the project (may include several trades)

•   For the program (may include many trades)
Evaluations will generally be expected or required to address:
•   Environmental results

•   Economic benefits

•   Overall project or program (as applicable)
Other performance or success measures might address:

•   Compliance with administrative or policy requirements

•   Traders’ satisfaction with program rules and mechanisms

06 - Market Framework.doc                                                             Page 27 of 30
                                             .
•   Meeting stakeholders’ expectations for information dissemination

•   Integration of trading with other watershed programs


Program Objectives and Benefits
It is important to establish clear and wherever possible quantifiable objectives for a
trading program at the outset. There may be some that are more important than others,
so any priority order also should be reflected.
EPA Policy examples of benefit objectives for trading:

    −    Early reductions and progress towards TMDLs
    −    Reduced TMDL
         implementation cost
    −    Economic incentives for voluntary pollution reductions
    −    Reduced compliance costs
    −    Offsetting of new or
         increased discharges
    −    Long-term improvement (retirement of credits)
    −    Multiple environmental benefits

Ancillary Objectives and Benefits
Many programs will set a narrow objective to meet or do better than a performance
metric for a single parameter. For example, achieve specified load reductions or
maintain loadings below a cap. Through the course of trading, it may be possible—
accidentally or on purpose—to achieve other benefits. These benefits, sometimes called
“ancillary” to trading, can be desirable and important to overall watershed health.
Ancillary benefits may or may not have a market value. Where they are sought or occur,
they should be included in any evaluation of trades or a trading program.
Examples of ancillary benefit objectives for trading:

    −    Control for targeted pollutant reduces other pollutants
    −    BMPs for nutrients provide erosion control and habitat
    −    Stream and wetlands restorations provide erosion control and habitat
    −    Tree and shrub plantings for temperature credits provide carbon sequestration

Environmental Results
Three tests can be applied to environmental results for individual trades and for overall
programs. By most policy definitions and regulatory standards, success (and often
compliance) depends on passing these two:

06 - Market Framework.doc                                                              Page 28 of 30
                                             .
•   First, do no harm—this relates to the antidegradation requirements discussed in the
    Oversight section

•   Second, attain results at least equivalent to non-trading case
In some situations, by prescription or good luck, success also means passing this test as
well:

•   Third, attain results superior to non-trading case
Equivalency means that an individual trade, set of trades, or trading program produces
environmental benefits equal to the benchmark, inclusive of:
•   Trading ratios

•   Margins of safety

•   Other risk management techniques


Environmental performance of individual trades or overall program is best measured by
looking at:

•   Load reduction or other benefit provided at credit generation site

•   Lack of adverse impacts at the credit use site

•   Benefits and/or lack of impacts upstream of, downstream of, or in-between the
    credit generation and use sites, as applicable
Results should be measured against absolute metrics and/or ranges of expected values.
Examples of environmental metrics for credit trading:

    −    Mass load reduction compared
         to baselines
    −    Mass loads avoided compared
         to projected
    −    Local water quality improvements
         − parameter concentrations
         − turbidity
         − plant communities
         − living resources
    −    Linear measures for stream-related BMPs
    −    Area measures for land-based BMPs



06 - Market Framework.doc                                                              Page 29 of 30
                                             .
Economic Benefits
As with environmental results, economic benefits of trading should be measured against
the proper benchmark(s), which will be determined by the objectives of the project or
program. Look at cost-effectiveness and/or cost-savings of the trading option versus:

•   Non-trading base case

•   Expected trading case
Economic benefits can be measured at several levels:

•   Unit cost effectiveness

•   Single trade (multiple units)

•   Series or package of trades

•   Annual cumulative results
•   Programmatic comparison over multiple years (e.g., permit cycle, longer period)
Economic metric(s) should be selected that make the most sense for a given situation.
Evaluation Wrap Up
Important factors in determining which approaches are right for a given situation are
similar to those considered when developing a market framework:
•   Number of dischargers/sources, potential sellers versus buyers

•   Geographic layout of the watershed and the sources

•   Number and frequency of anticipated trading transactions

•   Communication needs between and among potential traders

•   Reporting mechanisms for traders to regulatory agencies

•   Transaction costs for buyers, sellers, and others

•   Resources needed to set up and maintain the trading system

•   Market oversight and evaluation requirements



Attachments:
A: Market Excerpt from Willamette Partnership 09/27/06 Board Meeting PowerPoint
B: Outline of “Trust” Model

06 - Market Framework.doc                                                               Page 30 of 30
                                             .
                                        Increasing the pace, expanding the scope, and
                                         improving the effectiveness of conservation




          A CENTRALIZED EXCHANGE PLATFORM FOR TRADING IN THE
                  WILLAMETTE ECOSYSTEM MARKETPLACE

INTRODUCTION
This technical memorandum presents the Draft Market Framework recommended for
consideration by the Willamette Partnership. This draft framework introduces the summary
results of a gap analysis that, together with feedback received on previous presentations of
alternative market elements and market models, informed the development of the
recommended centralized framework.


GAP ANALYSIS OF MARKET FRAMEWORK ELEMENTS
The primary finding of the gap analysis on key market elements is that there are numerous
gaps that must be addressed to develop and support the envisioned Willamette Ecosystem
Marketplace:
•   A few elements exist in a form immediately applicable and available to the Willamette Ecosystem
    Marketplace;

•   Other elements exist by way of example or analogy and must be tailored and adapted for use in the
    Willamette Basin;

•   Some critical gaps can be filled by assembling existing building blocks, which in their current form
    are insufficient without modification or augmentation; and

•   Other critical gaps can only be filled with new advancements in science, policy, or technological
    tools.

A secondary finding—but an important one which bears on how the gaps are best addressed—
is that where elements or building blocks exist they are generally in a decentralized or
situation-specific form. An evaluation of alternative options for various market elements
characterized them on a spectrum from decentralized to centralized in nature (see Market
Framework, TM#1, Task 4, TO 1, October 18, 2006). A subsequent presentation and discussion
with the Willamette Partnership Board presented examples and aspects of market models
reflecting different degrees of decentralization and centralization, including clearinghouse
functions, facilitation services, credit brokering, and market making(see PowerPoint
presentation from September 27, 2006, Slides 35-71).
The result of these evaluations and discussions was a general consensus and direction from the
Board that many of the elements would need to be implemented in a centralized fashion in
order to achieve the informational, transactional, and resource efficiencies assumed necessary


         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                  Pace, Scope, Effectiveness



to successfully launch and operate a multiple credit market serving the entire Basin. Thus, to
the extent market elements already exist in whole or in part, but are decentralized, a gap exists
until they can be centralized or duplicated with some degree of consistency or standardization
across the marketplace.
The market elements, including key regulatory components, discussed below, are based on
previously presented configurations of the elements, but have been defined and organized
specifically for this analysis so as to best represent the existing capabilities and key gaps
identified. A narrative summary of the gap analysis conducted follows this list.
•   Legal, Regulatory, and Policy Authorizations
•   Credit Baselines
•   Trading Areas and Trading Ratios
•   Credit Calculations
•   Credit Generation: Certification, Verification, Registration
•   Credit Market Information: Notification of Offers to Buy and Sell, Cost-Basis and Pricing
•   Reporting and Tracking Transactions
•   Credit Project Monitoring and Re-Certification
•   Market-Level Reporting and Evaluation
•   Public Outreach and Education


Legal, Regulatory, and Policy Authorizations
The Oregon Department of Environmental Quality Water Quality Trading Internal
Management Directive (IMD) (January 2005) describes the legal and policy basis for trading in
Oregon. “DEQ is using its broad authority under state law to incorporate provisions for
trading through various mechanisms. These include provisions for incorporating trading into
permits and establishing provisions for trading in TMDLs or watershed plans. These
provisions may incorporate or be supplemented by private contracts between sources or
third-party contracts where the third party provides an indemnification or enforcement
function.”
The IMD lists a number of policies dealing with: Regulatory Compliance, Enforceability,
Public Participation, Protection of Designated Uses, Antibacksliding, Antidegradation,
Baselines, Credit Creation and Duration, Compliance and Enforcement, Program Evaluation,
EPA Oversight, and Dissolution of Credits.
These authorizations and policy pronouncements establish a solid framework for trading but
will need to be supplemented by a variety of mechanisms to fully implement a trading
program that includes Clean Water Act (CWA) pollutants. Mechanisms already identified for
such development and adaptation include:
•   Develop DEQ Permit Language / Standard Schedule template;

•   Evaluate General vs. Individual permit framework;



         105 High street se, Salem, Oregon 97301, 503.434.8033
                             Willamette Partnership
                                 Pace, Scope, Effectiveness



•   Develop MOA for WP/DEQ framework; and

•   Develop the legal elements needed to implement ecosystem marketplace.

Where other ecosystem credits are involved, the cognizant regulatory entity may need to
make a policy statement regarding the creditability and procedures for trading credits related
to wetlands, floodplain, and habitat benefits. Some discussions have occurred among
Partnership representatives and agencies with jurisdiction over these areas, including the
Department of State Lands, NMFS, and some informal statements have been made, but
something more formal may be needed to guide market participants.
Credit Baselines
Credit baselines are the level of responsibility a discharger or landowner must fulfill, with
respect to pollutant load reductions or other environmental improvements, before additional
benefits are generally creditable. For CWA constituents, the IMD specifies the baselines as
follows:
•   Point sources—permitted effluent limitation or TMDL WLA; and

•   Nonpoint sources—the level of pollutant load associated with existing land uses and management
    practices that comply with applicable state or local regulations.

These general guidelines have been converted into quantitative estimates of potential
kilocalorie supply and demand for selected sources. An assessment of potential demand and
supply in other potential credit markets involving wetlands, habitat, and carbon offsets, and
habitat was prepared with some degree of quantitative estimates (carbon offset projects may
be important in the Willamette Ecosystem Marketplace because they could generate other
types of credits beyond carbon sequestration, including for example pollutant load reduction
and habitat enhancements, depending on the type of project implemented.). Agencies with
jurisdiction over these types of credits have not specified baselines for trading purposes. It is
assumed these credit baselines could be developed from existing policy, but that additional
analysis and or negotiations will be needed to establish baselines for other credits.
Trading Areas and Trading Ratios
The IMD specifies that trading partners be located in the same watershed, as defined by a
TMDL, watershed management plan, or other DEQ-approved designation. The IMD also
states that “the use of greater than 1:1 trading ratios is appropriate between point and
nonpoint sources.” For example, Clean Water Services temperature credit program employs a
ratio of 2:1 (two kilocalories reduced through shade plantings count for one kilocalorie of
credit).
Some additional technical work and discussions involving key regulatory agencies will be
needed to refine application of this policy, including preferences or limitations on directions
of credit trades, treatment of subwatersheds, and whether trading ratios may be needed or
desired to address differences in equivalency between benefits at the credit use versus credit


         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



generation location. The Partnership’s work program will address some of these needs for
demonstration purposes and will provide recommendations for addressing trading areas and
ratios beyond the demonstrations.
Credit Calculations
The IMD provides detailed information on calculating thermal credits generated by riparian
shading. It also provides some information on flow augmentation credits, and nonpoint
source BMP credits for nutrients. The CWS NPDES Watershed permit and supporting
documents provide information on point source to point source ammonia and BOD credit
calculations for the Tualatin River. The Partnership’s technical work program will develop
additional information regarding these and other types of credits using available science. It is
expected that some data gaps will exist that will need to be addressed before guidance for
credit calculations covering the full complement of ecosystem credits would be available.
Credit Generation: Certification, Verification, Registration
There is currently no system in place for certification, verification, or registration of CWA-
related credits. Wetlands, carbon, and endangered species mitigation programs involve
different types of procedures and levels of detail to document mitigation credits within those
programs. Thus, processes and rules are needed to govern CWA-related credits within a
multi-credit market. With respect to other types of credits, it is assumed existing rules in those
programs would serve as a starting point for certification, verification, and registration within
a Willamette Ecosystem Marketplace, but that additional work may be needed to ensure
consistency as appropriate across credit types. The Partnership has proposed a conceptual
approach to filling this gap, but additional further work would be needed to implement the
recommendations.
Credit Market Information: Notification of Offers to Buy and Sell, Cost-Basis and
Pricing
There is currently no centralized location for this type of information for most types of
credits being considered for the Willamette Ecosystem Marketplace. This is true for CWA
constituents, wetlands opportunities, and habitat projects. To date, market information,
including offers to generate, bank, or trade credits and terms of the deal (e.g., price, number of
credits, etc.) has been exchanged ad hoc, bi-laterally between parties, or multi-laterally, with
various types of third parties facilitating the development and exchange of information. With
respect to carbon-related credits, which can generate other types of benefits of interest to the
Willamette Ecosystem Marketplace, The Climate Trust, the Chicago Climate Exchange, and a
number of other national and regional brokerages offer somewhat centralized sources of
information, but collectively they do exhibit gaps and overlaps in coverage. There are some
consolidated sources of information for these types of credits, but it appears that no one
source is complete, gaps exist, as do overlaps in coverage.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



The only CWA trades authorized in Oregon have been the internal BOD and ammonia
trading for the CWS wastewater plants, and the CWS riparian thermal load trading program.
Neither of these programs have required the development of credit cost-basis and pricing.
Reporting and Tracking Transactions
For CWA-related credits a reporting and tracking system has not yet been developed. The
CWS NPDES Watershed permit requires an annual report summarizing the results of its
credit trading activities for the previous year, including:
       (a) Identification of Trading Baselines;
       (b) Summary of Actual Loads Discharged;
       (c) Summary of Credit Trades, including credits used to meet baselines, as well as
       credits generated, purchased, or held but not applied to baseline compliance;
       (d) Environmental Benefits Summary, describing how the credit trades supported
       watershed management objectives; and
       (e) Efficiency Summary, describing how the credit trades supported cost effective and
       timely watershed management.
Existing programs covering other types of credits, such as those related to wetlands, carbon,
and habitat, each have different systems for documenting and recording individual mitigation
or trading transactions. As with other market elements, there is no centralized or
consolidated reporting and tracking system that incorporates some standardized methods and
approaches, as applicable, across the potential credit types.
Credit Project Monitoring and Re-Certification
There is currently no system or standardized set of requirements in place in Oregon
governing monitoring projects that generate water quality credits, or to specify a process to
periodically re-certify credits (re-certification, for example, might involve inspecting a BMP
every year to confirm that it is still in place, being properly operated and maintained, and
generating the type and level of credits its owner has banked, offered, or sold. Existing
programs covering other types of credits each have different sets of requirement, some of
which are more comprehensive than others.
Market-Level Reporting and Evaluation
Market-level reporting and evaluation would focus on the cumulative activity and benefits of a
specific type of credit across all transactions, and also on the cumulative activity and benefits
of all transactions across credit type. There is currently no such market-level system in place
in Oregon for water quality credits. Existing programs covering other types of credits each
have different processes and provide varying levels of detail about market-level results, as
distinct from results for individual transactions, or particular participants.



         105 High street se, Salem, Oregon 97301, 503.434.8033
                               Willamette Partnership
                                     Pace, Scope, Effectiveness



Public Outreach and Education
With respect to water quality credit trading, the IMD makes a strong statement about
outreach and education at various stages in program development and implementation:
         “DEQ supports public participation throughout the development of water quality
        trading programs. Stakeholder involvement is necessary for program effectiveness and
        credibility. To insure adequate opportunity for public participation, permits
        incorporating trades should be considered to fall into Category IV under OAR 340-
        045-0027. As trading becomes more familiar to the public, permits incorporating
        trading may be deemed to fall into [different categories for the purposes of considering
        appropriate outreach and education needs.] Complex trades such as those involving
        multiple sources or trades that are precedent-setting should be developed with an
        advisory process.
        As trading is authorized in permits and trading plans are submitted to DEQ, these
        plans will be made available for public review and comment. In the interest of keeping
        stakeholders informed about trading in Oregon, DEQ intends to maintain a web page
        with a designated contact person, current trading policy and information on trading
        activity in Oregon.”
Programs involving wetlands mitigation, carbon, and habitat, for example, each have varying
degrees of outreach and education, and utilize some traditional and program-specific
mechanisms.
Outside of the Partnership’s overall program, and the Partnership’s demonstration program,
there is currently no one consolidated outreach and education effort for the Willamette
Ecosystem Marketplace.
Gap Analysis Summary
The gap analysis shows that there are many needs and challenges in getting started to create
the marketplace, including:
•   Technical and scientific gaps;

•   No dependable regulatory framework;

•   No credit standards, no transaction rules;

•   Questions about how buyers and sellers find each other;

•   No clear process and procedures completing deals; and

•   No automatic monopoly with respect to who can easily be the first to provide the range of needed
    market services.




          105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



The potential options for marketplace creations would be to either leave the status quo of an
unorganized marketplace, develop a marketplace through decentralized approaches or
develop a centralized market.
Based on discussions with the Willamette Partnership Board of Directors and the project
team’s consideration of the options, including successful examples in water quality credit
trading and other environmental credit markets, a market framework with predominantly
centralized features is recommended for further consideration, as described in the next section
of this TM.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                                     Willamette Partnership
                                           Pace, Scope, Effectiveness



FILLING THE GAPS: A CENTRALIZED MARKET FRAMEWORK—“WILLAMEX”
Rationale
The gap analysis showed that no one entity in the Willamette Basin has an existing or
immediate monopoly on the potential ecosystem marketplace. The prospect of many separate
markets—either by watershed and/or credit type—seems economically inefficient and fraught
with the potential for many different sets of potentially inconsistent rule systems. To have
immediate and long-lasting relevancy and influence over the envisioned market-based
approach to restoration and capture the economies of scale and market consistencies that a
centralized marketplace can offer, something unique must be offered to bring people to the
central marketplace. There are many elements that make a market, and many players that
have role and an opportunity to help develop and implement it. Success requires a significant
coordination and collaboration effort—and without a unifying feature that can serve as the
cornerstone, the effort could be unsustainable and fail. The cornerstone for a central
Marketplace can be laid by offering a state-endorsed, regulator-approved, and trader-accepted
set of recognized credit standards and the mechanisms to facilitate deals efficiently, cost-
effectively, and with certainty in credit quality.
Introduction to the “WILLAMEX”, “WILLBR”, AND “WILLMA” Concept1
“WillamEx” would be the state-endorsed centralized administrative and electronic
marketplace for ecosystem-related credits in the Willamette River Basin. WillamEx would
provide a registry and trading system for pollutant reductions and other environmental
improvements in pre-approved, standardized exchange units, including kilocalories, wetland
functions, and habitat types. WillamEx would be self-regulated according to operating rules
and policies that would be developed in collaboration with its Founding Members and state
agencies with regulatory authority over the environmental performance of participants in
WillamEx. Within the Basin, various entities face regulatory requirements or take voluntary
actions to improve the health of the ecosystem. WillamEx platforms would provide the
means to document benefits created and track net progress toward specified Basin-wide
restoration targets.
The goals of WillamEx would be to:
•   Help credit buyers and sellers find each other and facilitate efficient exchanges through the use of
    pre-approved credit verification and certification procedures;

•   Create financial incentives for voluntary restoration actions by translating environmental benefits
    into a bankable and tradable commodity with monetary value;

1 This section presents essentially the same information and recommendations as were presented in the “Preliminary Draft
Prospectus for the Willamette Ecosystem Bank and Exchange” (a seven page document delivered on December 11, 2006).
Selected language was modified, including specifically the grammatical tenses, to make this presentation more suitable for a
Technical Memorandum. Additionally, graphic representations of the overall market and elements thereof that were developed for
                                                                                     th        th
the PowerPoint presentations to the Board and the Steering Committee (December 13 and 14 , 2006, respectively) are included in
this TM, but were not yet developed when the Preliminary Draft Prospectus was first delivered and circulated. The terms WillamEx,
WillBR, and WillMA were “Googled” with no meaningful results. If these or other terms are ultimately used, a trademark search
would need to be performed to develop and register sufficiently unique names.


            105 High street se, Salem, Oregon 97301, 503.434.8033
                                         Willamette Partnership
                                            Pace, Scope, Effectiveness



•    Establish, support, and regulate credit standards that ensure credibility of the commodities for the
     protection of the participants, especially those using credits as part of a regulatory or contractual
     compliance strategy; and

•    Help educate the public about the restoration needs in the Willamette River Basin and the
     opportunities for beneficial action.

Banking and Trading
WillamEx would have two major platforms—The Registry and The Marketplace, as depicted
in Exhibit 1.
Exhibit 1. Example WillamEx Platforms

    WillBR Bank & Registry                                               WillMa Marketplace
       Credit                        Documents                                    Bids &                  Market
                         Data
      Generation                                                                  Offers                   Data


                           Verification
                                                                               Exchange            Bi- and Multi-
                                                                                Cleared                Lateral
                                 Data
                                 Base
                                                                                       Matched Trades
                           Certification
                                                                                             Settlement
         ? Member               N or Y                     Provisional
         Accounts                                            Credits
                                                            & Debits

                            Member                                                         Verification
       Credit                                           Finalize Net
                           Accounts                                                         Invoicing
      Attributes                                      Account Positions


The Willamette Bank and Registry—WillBR could be a secure web-site2 and database system
that would be the official repository of ecosystem credits created and purchased by WillamEx
Account Holders, also referred to as Members. Members generating credits would deposit
them in their WillamEx registry account by following the credit calculation, documentation,
and verification procedures in the WillamEx Rules (to be developed) specific to the type of
credit(s) being deposited. A “hold” would be placed on the credits until they are certified by
WillamEx through an audit procedure carried out by WillamEx staff or its technical
consultants. Upon certification, the hold would be removed and the credits would be available
for trading. Members purchasing credits through WillamEx would deposit them in their
registry account after they have been processed by The Marketplace. Key information would
be attached to the credits when they are placed in the registry, including as applicable

2 It would be optimal to have a web-based registry, but this will be dependent on funding.


            105 High street se, Salem, Oregon 97301, 503.434.8033
                                        Willamette Partnership
                                             Pace, Scope, Effectiveness



minimum asking price, and “vintage” (i.e., the period over which the benefit represented is
live and during which the credit is tradable).
The Willamette Marketplace—WillMa could be an internet-accessible3 database system that
matches [automatically or allows administrators to] requests for and offers of credits and
would be used to execute trades among WillBR account holders. WillMa would display and
track a range of market data, subject to any confidentiality provisions in the WillamEx Rules,
including credit prices (transactions, average, high, low, closing for reporting period), trade
sizes, total volume, and vintage.
WillMa could support several types of exchanges:
•    Exchange-Cleared trades would be anonymous to the trading partners and within the transaction
     reports, except to WillMa administrators and system auditors. Members would submit bids and
     offers which would be matched based on price, vintage, and time priority. Buyers’ credits and
     sellers’ debits would be recorded in their WillBR accounts, but would not be connected to each
     other.

•    Bi- or Multilateral Exchanges would involve one or more members that have agreed to a specific
     set of negotiated terms and conditions with respect to price, quantity, vintage, etc. and submit the
     request to WillMa for processing.
•    Trades between Members and non-members could be considered, subject to rules that would be
     needed to qualify non-member credit buyers and sellers.
WillMa would process all transactions, including verifying credit attributes in WillBR prior to trade
settlement, making provisional credits and debits to buyers’ and sellers’ WillBR accounts pending
settlement, producing invoices for buyers to secure settlement, and finalizing net account positions in
WillBR post-settlement.

These processes are summarized in Exhibit 2 for WillBR and in Exhibit 3 for WillMa.
Exhibit 2. Summary of WillBR Processes
     Credit                      Documents        ← Members generate credits and prepare proof
                     Data
    Generation


                        Verification              ← Credits are verified per rules

                                                  ← And entered in registry
                             Data
                             Base
                                                  ← WillamEx grants or denies certification per rules
                        Certification
                                                  ← Denied credits return to verification or
      ? Member              N or Y                     documentation
      Accounts

                         Member
     Credit
3 It would be optimal to Accountsinternet accessible database, but this will be dependent on funding.
     Attributes          have an


              105 High street se, Salem, Oregon 97301, 503.434.8033
                                      Willamette Partnership
                                           Pace, Scope, Effectiveness




                                                   ← Certified credits deposited into Member accounts




Exhibit 3. Summary of WillMa Processes

                         Bids &                  Market    ← Certified credits may offered on the
                         Offers                   Data         market
                                                           ← Members submit bids
                        Exchange         Bi- and Multi-
                         Cleared             Lateral
                                                           ← Anonymous or negotiated trades
                                                               supported
         Member
        Accounts             Matched Trades

                                                           ← Bids & offers matched based on key
                                   Settlement
          Provisional                                          attributes
            Credits
           & Debits
                                                           ← Trades processed for settlement
                                  Verification
      Finalize Net
                                   Invoicing
    Account Positions


                                                           ← Accounts reconciled



Reporting
WillamEx could be configured to generate a number of pre-specified reports and support
additional queries by Members and WillamEx administrators, as described below.
•   Individual Members: Selected reports about individual member’s registry accounts and trading
    activities could be automatically generated or requested from the WillBR and WillMa databases.
    These could follow pre-set or custom formats to serve member’s own tracking and evaluation
    needs, or conform to regulatory submittal requirements.

•   Marketplace Collective: As part of its agreements with participating regulatory agencies,
    WillamEx and its members could agree to compile and report certain consolidated summaries of
    banking and trading activities to support their oversight responsibilities with a balance between
    transparency and confidentiality of market participation. These reports could be negotiated with
    the regulatory agencies and would be described in attachments to the Member Agreement.
    Becoming a member of WillamEx would secure the necessary permissions to provide individual
    data in summary format.



           105 High street se, Salem, Oregon 97301, 503.434.8033
                                        Willamette Partnership
                                              Pace, Scope, Effectiveness



•   WillamEx, WillBR, and WillMa Management and Auditing—WillamEx staff and its technical
    consultants could generate and review a variety of reports to ensure the integrity of its operations,
    perform QA/QC and oversight functions, and to understand how it can best serve its members.
    The information contained in these reports would be confidential, subject to the terms and
    conditions of the Member Agreement and WillamEx Rules.

Additionally, WillamEx could publish various materials for the benefit of its Members,
Willamette River Basin stakeholders, and other interested parties and make them publicly
available following pre-release to Members, including for example: an Annual Report, a
Quarterly Newsletter, and Monthly Summaries.
Credit Verification and Certification
Members would be responsible for verifying credits submitted to the Registry subject to the
applicable published rules which would have been negotiated by regulatory agencies and other
authorities. Members must follow these pre-approved methods and approaches for calculating
and documenting credits. By following these verification procedures, Members could self-
verify using an independent verifier accredited by WillamEx. If these procedures are not
followed and an accredited verifier not used, Members would need to submit proof that the
relevant cognizant regulatory agency or other authority accepts the proposed credits as real
and valid and has granted direct regulatory certification. This certification route may not be
encouraged or supported by WillamEx, except on a case-by-case basis, for example when the
credit proposal is not adequately covered by the pre-established guidelines or is otherwise
uniquely complex.
WillamEx Founding Members, in cooperation with selected regulatory agencies, could
establish a Credit Verifier training and accreditation process. This process would be described
in a document such as a WillamEx Credit Verification Handbook. A list of accredited
verifiers could be obtained by contacting WillamEx staff or visiting the WillamEx website.
Upon the deposit of duly verified credits into the Registry, WillamEx staff or its technical
consultants would certify the credits by performing an audit of the verification
documentation. This audit process would be developed in collaboration with regulatory
agencies and would be carried out in accordance with Credit Certification Rules that would
be developed.
Most types of credits would require periodic re-verification and re-certification. The specific
period and requirements would generally be specific to the credit type, and possibly also the
type or location of the project or activity generating the credit. For example, periodic field
inspections, modeling analysis, and/or environmental monitoring may be required or advised.
Members could consult a document such as a Credit Verification Handbook and Credit
Certification Rules for details.
The locations in the WillamEx process graphic that support credit verification and
certification are highlighted in orange in Exhibit 4.
Exhibit 4. Credit Verification and Certification Process Locations
          WillBR Bank & Registry       WillMa Marketplace
              Credit              Documents              Bids &         Market
                       Data
                                             97301, 503.434.8033
          105 High street se, Salem, OregonData
            Generation               Offers


                         Verification
                                                        Exchange   Bi- and Multi-
                                                         Cleared       Lateral
                              Data
                              Base
                            Willamette Partnership
                                Pace, Scope, Effectiveness




Credit Recruitment
WillamEx, or one of its founding members could maintain a GIS-based system of priority
locations and pre-screened project opportunities. Additionally, some members of the
WillamEx who have historically maintained lists and descriptions of potentially creditable
projects may make these available on their websites, or upon request. Members could consult
these sources for credit opportunities and would be encouraged to visit WillMa and periodic
WillamEx publications to identify unmet credit demand.
Members of WillamEx, its Board of Directors, or its staff could from time to time identify
priority credit creation opportunities that the marketplace has not sufficiently incentivized.
Such identifications would follow WillamEx’s Credit Recruitment Policy, for example. To
the extent that WillamEx takes a financial position or other type of interest in a project that
generates credits eligible for banking only or exchange, such position would be disclosed to
Members according to WillamEx Rules.
Public Outreach and Education
WillamEx should be committed to ensuring that Members, potential members, watershed
stakeholders, and the general public understands the challenges facing Willamette Basin
restoration efforts and the opportunities to participate in meeting those challenges offered in
this credit marketplace, as well as through other means. WillamEx could issue a range of
periodic publications designed to support this goal, and host special forums and seminars.
Additionally, WillamEx Members could offer a wide range of ways to learn more about
Willamette restoration needs and initiatives and opportunities to get involved. A list of past
and upcoming outreach and education events could be posted on the WillamEx website, on
selected Members’ websites, and could be available from staff upon request.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



Relationship with Cognizant Regulatory Agencies
To support the creation and implementation of the Willamette Ecosystem Bank & Exchange,
WillamEx Founding Members would negotiated credit standards, verification protocols, and
certification procedures, supported by a range of additional guidance, to facilitate and enable
the efficient and credible exchange of ecosystem-based credits. These negotiated agreements
would be memorialized in a document like a Memoranda of Understanding signed by the
WillamEx Board of Directors and the Directors of the participating regulatory agencies,
natural resource agencies, and other authorities.
This relationship would provide members with a pre-approved credit verification and
certification process that signatory agencies could accept without further documentation. This
relationship would also provide members with pre-approved reporting forms, standardized
data queries, and customizable reports members could get in a variety of formats (e.g., PDF,
Word, Excel) that they could include in submissions to their cognizant regulator, or readily
modify.
Selected regulatory agencies might join WillamEx as Founding Members, or as regular
members, hold Board of Director positions, and might open Registry Accounts in their
agency’s name. This level of participation in WillamEx would exemplify the partnerships
that make this ecosystem marketplace possible and successful.
These relationships would not convey to WillamEx any direct environmental or regulatory
authority over its members or participants except as detailed in its member agreements, rules,
policies, handbooks, and other guidances. Membership and participation in the Registry and
the Exchange would not be substitutes for fulfilling regulatory requirements as specified in
permits, ordinances, and other compliance documents, except as provided for said
mechanisms. Members would need to take individual action to comply with requirements for
performance, documentation, and reporting. In selected pre-established situations, WillamEx
could generate or issue selected reports on a Member’s behalf and may transmit this
information to a Member’s cognizant regulatory authority. In these transactions, WillamEx
would not act as a responsible party, co-permittee, or in any other manner that would invoke
liability for the environmental performance of its Members.
Member Services
WillamEx staff and its technical consultants could offer a limited set of services to its
members, as would be outlined in the Membership Agreement. WillamEx could also
maintain a roster of pre-qualified organizations and individuals that it deems have the
necessary expertise and knowledge of the WillamEx rules and policies to provide assistance in
the areas in which they have been pre-qualified. The set of services that could be provided by
WillamEx staff, its technical consultants, and approved providers is briefly described below.
A document, such as a WillamEx Services Handbook, could provide additional information.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                               Willamette Partnership
                                    Pace, Scope, Effectiveness



•   Technical—including individual credit portfolio analysis and investment strategies, site planning,
    engineering, credit estimations, cost and financial analyses, modeling, sampling, monitoring, and
    performance assessments.

•   Regulatory—including permitting support, language development, negotiations, and compliance
    assessment assistance.

•   Legal—including regulatory-related legal analyses, risk assessments, contract development,
    negotiations, and preparation and submittal of legal filings.

•   Facilitation and Negotiation—including supporting credit project siting and development, credit
    sales or use, stakeholder participation, public involvement, and bi- or multi-lateral deal-making.

•   Outreach and Education—including identification of recommended opportunities and
    mechanisms, preparation of collateral materials, logistical and other support for meetings,
    seminars, and other forums and media events.

•   Credit Package Submittals—bundled services that could include all or some of the above listed
    services, with objective of preparing the required documents to register credits.

•   Credit Verification—separate from the above services, performing the specific verification
    function, according to established procedures, to register verified credits that pass the certification
    audit.

Member Benefits, Ecosystem Benefits
WillamEx members could save time and money when they choose to employ credit banking
or trading as part of their regulatory compliance strategy or as part of their financial
investment and/or environmental stewardship strategy. Members would know that
regulatory agencies would accept WillamEx-cleared credits. Critical access to credit market
information would help buyers and sellers quickly find each other and provide one-stop
shopping when multiple trading partners are needed to secure or place credits. Convenient
tracking and reporting tools would provide members with easy ways to evaluate their own
positions and satisfy any reporting requirement with minimal or no administrative effort.
Members would also have ready access to WillamEx staff, technical consultants, other
members, and pre-qualified service providers for assistance with difficult to find or hard to
place credits, or other needs.
WillamEx would provide its members with an opportunity to meet their regulatory or
voluntary restoration goals more quickly and more cost-effectively and offer the chance to
direct projects and activities to priority needs and locations. Cleaner water and land-based
improvements will provide the watershed’s humans, fauna, and flora with an ecosystem that
can expand and sustain the environmental and economic benefits it delivers.
STEPS TO CREATE THE WILLAMETTE ECOSYSTEM BANK & EXCHANGE
The Willamette Partnership and other parties willing to invest in WillamEx to secure the
watershed’s targeted potential would need to follow a series of minimum steps—11 are


          105 High street se, Salem, Oregon 97301, 503.434.8033
                               Willamette Partnership
                                   Pace, Scope, Effectiveness



suggested below. Some of these could occur in parallel, but there would necessarily be some
sequencing or iteration prior to launching WillamEx.
1. Agreement in Principle with Regulatory Agencies and Other Authorities
Recommendation
The proposal for WillamEx would be shared and discussed with entities whose support is critical to
the formation and implementation of the WillamEx. After an opportunity for review, comment, and
revisions, the proposal would be converted into language for a Memoranda of Understanding, or other
such document on which signatures secure the commitments sought.

Current Status (December 2006)
    −   Discussions with DEQ have been started regarding credit definitions and permitting issues.

    −   Informational meetings have been held with other key agencies, including: Department of
        State Lands, US Fish and Wildlife Service, NFWF, US Geological Survey, and, US
        Environmental Protection Agency.

    −   The Market Proponent would need to initiate a formal process to get agreements with these
        stakeholders.
2. Confirmation of Sufficient Member Participation
Recommendation
Further and specific analysis would be performed beyond the EPA grant-funded market appraisal to
survey prospective members’ interest in this opportunity and willingness to join and participate in the
WillamEx. Surveys, focus groups, and additional Round Tables are a few approaches.

Current Status (December 2006)
    −   The Willamette Partnership’s market appraisal identified categories of demand and priority
        locations, e.g., kcals and wetlands.

    −   Some formal and informal interviews were conducted as part of the appraisal and ongoing
        outreach efforts.

    −   There would need more quantification of market demand and specific discussions regarding
        the WillamEx concept with prospective participants.
3. Chartering a WillamEx
Recommendation
Political and legal discussions would be launched to identify, evaluate, and select the best corporate
structure for the proposed organization, considering incorporation options available under Oregon
statutes, authorities of existing organizations, and the desirability or need for special legislative
chartering and institutional endorsement mechanisms.

Current Status (December 2006)


          105 High street se, Salem, Oregon 97301, 503.434.8033
                               Willamette Partnership
                                   Pace, Scope, Effectiveness



    −   Different operational models have been identified.

    −   Some discussions have been held about whether a new organization is needed to perform some
        market functions, or whether an existing organization can take on these responsibilities.

    −   Political and legal discussions and an options evaluation would need to be launched to develop
        a more detailed recommendation.
4. Credit Standards
Recommendation
Procedures and protocols for estimating, calculating, modeling, documenting, monitoring, and
evaluating credit creation and performance would be developed, negotiated with cognizant regulatory
agencies, and published in an easy to understand and use format.

Current Status (December 2006)
    −   Kilocalorie crediting and debiting method is being documented using Clean Water Services
        methods and guidance.

    −   Other credit definitions under development as part of the EPA grant-funded project.

    −   Some technical and scientific gaps will still exist after the scoped work is complete.

    −   Market proponents would need to develop specific proposals, get approval, and prepare
        guidances.
5. Verification Standards
Recommendation
Procedures and protocols by which proposed credits are independently verified, including training and
accreditation of pre-approved verifiers would be developed, negotiated with cognizant regulatory
agencies, and issued. The verification program supported by the WillamEx, its members, or other
entities would be supported at a level such that a sufficient supply and diversity of approved verifiers
exists to serve this function.

Current Status (December 2006)
    −   Some of these recommendations would be met if the Credit Standards recommendations are
        carried out, as verification is about auditing the standards.

    −   Stakeholders would still need to establish auditing process and line up auditors.
6. Certification Standards
Recommendation
Procedures and protocols by which the WillamEx (its staff or technical consultants) review and audit
submissions to the credit registry would be developed, negotiated with cognizant regulatory agencies,
and issued.



          105 High street se, Salem, Oregon 97301, 503.434.8033
                              Willamette Partnership
                                  Pace, Scope, Effectiveness



Current Status (December 2006)
   −   Much of this guidance could be drawn directly from credit standards and verification
       standards, recommended under other steps: certification audits the verification and makes a
       credit real, bankable, and tradable
   −   Stakeholders would still need to develop standards, get endorsement, and put them in place.
7. Initial Marketplace Architecture
Recommendation
Alternative manual, electronic, and web-based platforms available to create and deliver WillamEx,
WillBR, and WillMA would be identified and evaluated along key criteria, including ease of use, time
to readiness, cost to develop, functionality and access, and resources needed to operate and maintain.
Options for providing immediate basic services that allow future scalings and expansions to match
market demand and evolution would be preferred.

Current Status (December 2006)
   −   The Partnership’s project team has documented some different examples in Market
       Framework deliverables submitted to date.

   −   The Marketplace creation task in the EPA grant-funded project provides for further evaluation
       of options and development of a prototype.

   −   Following these evaluations, market proponents would need to select the preferred
       architecture, draft a blueprint, and build it.
8. Accrediting Verifiers and Pre-Qualifying Other Service Providers
Recommendation
As soon as verification standards are approved, WillamEx and its members could launch an effort to
recruit and accredit qualified verifiers. A separate qualification process could be developed and
implemented to identify and pre-approve a range of firms, non-profit organizations, and individuals to
create a roster members can consult for assistance in participating in WillamEx.

Current Status (December 2006)
   −   Some of the verifier accreditation recommendations overlap with Steps 4 and 5.

   −   Prospective candidates could be involved in standards development.

   −   The Partnership is already familiar with consultant roster process, and other agencies and
       organizations potentially supporting the marketplace also have experience with contractor and
       consultant qualification and selection procedures.

   −   The accreditation process could be coordinated with efforts for outreach, education, and
       member recruitment.
9. Rules and Policies



         105 High street se, Salem, Oregon 97301, 503.434.8033
                               Willamette Partnership
                                   Pace, Scope, Effectiveness



Recommendation
A range of rules and policies would be developed to govern membership, WillamEx operations,
participation in the Registry and Exchange, expected roles and responsibilities, and binding
commitments. The types of rules and policies envisioned were outlined in the above description of the
WillamEx concept.

Current Status (December 2006)
    −   Some ingredients for this step are included in other steps.

    −   Actions needed to complete this step would necessarily follow completion of previous steps.
10. Business Plan—Business Model and Funding Mechanisms
Recommendation
Consistent with the type of corporation selected, a business plan for the new organization or addition
to an existing organization would describe its governance model (roles, responsibilities, and liabilities
of Board, staff, and consultant positions), identify expected expenses, and demonstrate how its
expenses will be covered by fixed or variable revenues. Due diligence of this plan should be performed
to provide confidence that the WillamEx is capable of launching and maintaining its promised
operations and services.

Current Status (December 2006)
    −   Some discussions about alternative business models and funding sources have already occurred
        and more are planned.

    −   The market proponents would still need to develop a formal plan and get endorsement from
        key participants and stakeholders.
11. State/Regulatory Approvals, Enablers, Endorsements, Anointments
Recommendation
As decided and agreed to in the previous steps, the formal legal and other mechanisms to convey upon
WillamEx the necessary authority to incorporate and operate according to the set of governing
agreements, rules, and policies would be drafted, negotiated, and duly executed.

Current Status (December 2006)
    −   Many of the building blocks would come out of the other steps.


NEXT STEPS
As stated in the introduction to this TM, the analyses, concepts, and recommendations
regarding the missing pieces needed to develop a Willamette Ecosystem Marketplace and how
those pieces might be developed have been presented to the Willamette Partnership’s Board of
Directors and the EPA grant-funded project Steering Committee in various forms, including
the previously referenced TM, PowerPoint presentations, and Preliminary Prospectus for

          105 High street se, Salem, Oregon 97301, 503.434.8033
                            Willamette Partnership
                                Pace, Scope, Effectiveness



WillamEx. The Board and the Steering Committee are considering these recommendations
and will provide feedback and further direction to the Partnership’s Project Manager and
project team which will be incorporated into subsequent activities and carried out by
Partnership staff and its consultants under the EPA workplan for the Willamette Ecosystem
Marketplace project.
Upon the Partnership’s acceptance of the marketplace framework, as proposed or as may be
modified, a second gap analysis in the form of a an assessment of the capabilities and
willingness of selected cognizant regulatory agencies, other state institutions, watershed-based
groups, other stakeholders, and potential market participants to fulfill specific roles and
responsibilities as relates to creating and implementing the marketplace. This assessment will
be used to refine and expand the detail of the proposed market framework and suggested
evolutionary path, solidify recommended roles and responsibilities, and prepare an estimate of
the financial and staffing resources needed and available to implement the proposed
framework.




         105 High street se, Salem, Oregon 97301, 503.434.8033
                                       Ecosystem Credit Registry

                                       STANDARD AGREEMENT1 FOR CREDIT REGISTRATION

                                       Last updated June 19, 2008. For questions, contact: David Primozich at
                                       Primozich@verizon.net.




1. THIS AGREEMENT IS MADE ON                , by and between      (“CREDIT OWNER”) and
the Willamette Partnership as operator of the Ecosystem Credit Registry (“REGISTRAR”).2

The CREDIT OWNER is registering the credits described herein for the following uses—check
all that apply (See also Section 6 of this Agreement):
   Banking3                      General Listing for Sale4                Private Placement5
The REGISTRAR is recognized as a/an:
   Independent Credit Broker
   Affiliated Credit Broker, with approvals to broker credit transactions on the following Credit
Registry(ies) and/or Exchange(s):
   Credit Registry
   Other:
2. DESCRIPTION OF CREDITS TO BE REGISTERED
A. Credit Attributes

General and Legal Location of Site: The subject credits are generated from activities, projects,
and/or facilities at the following location(s):

State, County, City             Watershed (USGS 3rd, 4th, 5th, and 6th field HUC)          Legal Location Description
                                and Stream name (if present)

Longitude                       Latitude



Map: A map of the area(s) used to generate the CREDITS
  is attached as Exhibit
  is not attached If map not attached, the reason is   .




FORM ABCD                                                                             INITIALS: CREDIT OWNER _______/ REGISTRAR _______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                                     PAGE 1 OF 9
Type and Quantity: 6
Spatial        Accounting Quantity                Type9   Completion Other Information
Unit7          Tool8      Per Unit                        Date
                          Time




The subject credits         were /      were not calculated using the following APPROVED
METHOD(S):10
    A. Shade-a-Lator Approved by Oregon Department of Environmental Quality                                                  Formatted: Bullets and Numbering
    B. Heat Source Approved by Oregon Department of Environmental Quality
    C.      Approved by
    D.       Approved by

The credit calculation method(s) used is/are generally summarized as follows:


Additional documentation                is attached as Exhibit      /   is not attached.11

Accounting Tool Outputs: A copy of the accounting tool output used to generate CREDITS
   is attached as Exhibit
   is not attached If map not attached, the reason is  .


Areas Targeted for Improvement:12 Some/all of the credits        are     are not generated from
areas that have been identified as areas in need of improvement, or areas which have greater
potential for overall ecological benefit. Credits from these areas are identified below:
Spatial Unit                           Target Area Name                   As deemed important by:13




Site and Credit Source(s) Description:14 The site-specific conditions and activities that will
generate the subject credits are summarized as follows (provide narrative or summary table):15



B. Additional Narrative Description of Credits to be Exchanged16
If desired or necessary, provide a narrative description of the credit attributes identified above
and/or additional explanatory or supplemental information deemed relevant:




3. CREDIT ASSURANCES17


FORM ABCD                                                                INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                        PAGE 2 OF 9
A. Credit Source Property Owner
Regarding ownership of the property(ies) and/or facility(ies) generating the credits to be
exchanged, the CREDIT OWNER:
   Is full and sole owner                                                                                                    Formatted: Bullets and Numbering
   Is co-owner with the following party(ies) in the noted proportions:                                                       Formatted: Bullets and Numbering
   Has no ownership rights except to the credits per the following arrangements and
agreements—describe and provide attachments as deemed necessary:
   Other:

Regarding access to the property(ies) and or facility(ies) generating the credits to be exchanged
the CREDIT OWNER:
    Has full unlimited access                                                                                                Formatted: Bullets and Numbering
    Has limited access as follows:                                                                                           Formatted: Bullets and Numbering
    Has access by permission and/or owner escort as follows:
    Other:


Proofs of ownership and access: A copy of ownership and access rights (e.g. contract,
easement, deeds, etc…)

    is attached as Exhibit
    is not attached If map not attached, the reason is              .


B. Enforceability of this Agreement
The parties understand that this agreement, if accepted in writing by the CREDIT OWNER and
REGISTRAR, constitutes a legally binding contract which will be interpreted in accordance with
the laws of the State of Oregon.
C. Credit Verification18 19 20
The subject credits          have been verified, in whole or in part.
The subject credits          have not been verified, in whole or in part.
If not verified, verification is          Underway        Pending   Not Initiated.
Verification information is provided below consistent with the credit verification status:

•   Verifier Name:
•   Verification Date:
•   Verifier Accreditation Number:
•   Verification Protocol/Methodology:
•   Quantity or Identification/Lot/Serial Number of Credits not verified:
    All credits being exchanged are verified
          of      were not verified for the following reason(s):
•   Verification Documentation is attached as Exhibit            available by upon request



FORM ABCD                                                                INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                        PAGE 3 OF 9
D. Financial Plan for Maintenance of Credits21 22

The CREDIT OWNER and/or OTHER PARTY will be responsible for directly or otherwise
funding and arranging the following items as marked and described: 23
Credit Maintenance                    Credit       Other Party
                                                                  Not Required           Other Information
Responsibilities                      Owner         (Identify)
Monthly general
maintenance
Annual inspection
Quarterly monitoring
Verification
Certification
Liability Insurance
Performance Bond
Escrowed maintenance fees
Registration filing fees
4. CREDIT MAINTENANCE24
The     CREDIT OWNER and/or             OTHER PARTY:25           will maintain the activities,
practices, property, and/or facilities as necessary to maintain the credits to be exchanged as
described in Section 2,
per the terms and conditions of Section 3.
    The    CREDIT OWNER and/or OTHER PARTY:                              will maintain the credits
    themselves/with their own personnel.
    The         CREDIT OWNER and/or OTHER PARTY:                         will contract credit maintenance to
            .
Credit maintenance will generally consist of the following (refer to Maintenance Plan, populate
table as applicable, and/or provide a narrative description): 26
Type of                   When Performed            Frequency         Other Relevant Information
Maintenance




Narrative description as desired/required:


A more detailed Credit Maintenance Plan is:
    Attached to this Agreement as Exhibit                        Available upon Request               Not required             Formatted: Bullets and Numbering


5. CREDIT MONITORING
The      CREDIT OWNER and/or OTHER PARTY:                      will monitor the performance of the
activities, practices, property, and/or facilities in generating the credits to be exchanged as
described in Section 2, per the terms and conditions of Section 3.
    The    CREDIT OWNER and/or OTHER PARTY:                              will monitor the credits
    themselves/with their own personnel.

FORM ABCD                                                                  INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                          PAGE 4 OF 9
    The         CREDIT OWNER and/or OTHER PARTY:                             will contract credit monitoring to
            .
Credit monitoring will generally consist of the following (refer to Monitoring Plan, populate
table as applicable, and/or provide a narrative description):27
Type of                   Performance               Frequency            Method                      Reporting
Monitoring                Objective




Narrative description as desired/required (if the monitoring focuses on specific performance
requirements they may be included here):


A more detailed Credit Monitoring Plan is:
    Attached to this Agreement as Exhibit                          Available upon Request                Not required

6. CREDIT USE
A. Banking
The CREDIT OWNER registers the following credits for the purpose of banking the credits in
the following REGISTRAR account(s):
        Credits to be Banked (describe by credit serial number, or other method, include a table
    as/if needed)
        CREDIT OWNER Account #
       Other Account: Account Owner Name             Account #
This registration
        expires on       at      am/pm, or
        expires upon written notification to the Registrar with ________days notice.

B. General Listing for Sale
    The CREDIT OWNER offers the following credits for sale, in the following increments at the
following prices:28
Credit Amount                 Price Per Credit/Serial Number           Will Accept other
                                                                       Price Offers?
  All Credits, Any Amount                           $ per credit                               Yes      No
  Minimum Lot Size of                               $ per Lot (     $ per credit)              Yes      No
  Maximum Lot Size of                               $ per Lot (     $ per credit)              Yes      No


This offer to sell
       expires on      at       am/pm, or
       expires upon written notification to the Registrar with                       days notice.

    Pricing schedule does not conform to this table—see Exhibit       .
    Offer to sell expiration schedule does not conform to this table—see Exhibit                               .


FORM ABCD                                                                      INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                              PAGE 5 OF 9
C. Private Placement
The CREDIT OWNER registers the following credits in an offer/offers to sell that is/are
  exclusive / not exclusive29 to the following parties, in the following increments, at the
following prices:30
Credit Amount                       Prospective Buyer(s)     Price Per Credit/Lot                      Will Accept
                                                               check if prices Confidential            Competing
                                                                                                       Offers?
   All Credits                                                   $ per credit/        total deal           Yes       No
   Lot A, Size of                                                $ per Lot (       $ per credit)           Yes       No
   Lot B, Size of                                                $ per Lot (       $ per credit)           Yes       No
                                                                 $ per Lot (       $ per credit)
   Lot C, Size of                                                                                          Yes       No
                                                                 $ per Lot (       $ per credit)
   Etc.                                                                                                    Yes       No


7. COMPENSATION
The compensation terms are       Public and detailed below, or Confidential. 31
For registration services, the CREDIT OWNER shall pay the REGISTRAR:
    A flat fee of       for the credits described in this agreement
    A per credit fee of       , for a total of
    A variable fee as follows        ,for a total of     32

    No fee
    A commission collectible only at the time of credit sale, in the amount of                      , and/or
          percent of the sales price
    Other:
In addition, the CREDIT OWNER shall pay the REGISTRAR the other fees for filing,
transactions, etc. as listed in Section 3.D (the Financial Plan for Credit Maintenance).
8. OTHER TERMS: RESERVED
9. SIGNATURES AND ATTACHMENTS
The terms and conditions of this Agreement, including all attachments, must be used as a basis
for registering credits for the purposes described herein, including if applicable for offering the
credits to prospective buyers, and, unless amended in writing, contain the final and entire
agreement between the parties hereto. The parties shall not be bound by any terms, conditions,
oral statements, warranties, or representations not herein contained.
Seen and agreed and receipt of a signed copy of this Agreement is hereby acknowledged:
CREDIT OWNER #1                     date
CREDIT OWNER #2                    date
REGISTRAR
REGISTRAR’S REPRESENTATIVE                            date
List of Attachments and Exhibits33


FORM ABCD                                                                INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                        PAGE 6 OF 9
•   A
•   B
•   C
•   D
•   E
•   F




FORM ABCD                                                 INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                         PAGE 7 OF 9
ENDNOTES

1 This is the official Third Draft—Annotated Version: 06/19/08. This version has been revised to

consistent with the Standard Agreement for Credit Exchange, Third Draft—Annotated Version:
06/19/08. The annotations are a combination of clues to readers/users and notes/placeholders
recommended by the Drafting Group.
2 This section addresses DEQ 9-27-07 permit language, 1.g.i(1).
3 E.g., for conservation or regulatory offset purposes.
4 E.g., willingness to consider all offers.
5 E.g., registered for sale, but only to specified party(ies).
6 This table is provided as an example only. It should be adjusted and modified as necessary for the

circumstance, based on the preferences of the document signatories and the applicable credit calculation
guidance.
7 The spatial unit is a name identifier for the area tied to a credit quantity.
8 This addresses DEQ 9-27-07 permit language, 1.g.i(4), and is intended to be a summary of the

methodology utilized to calculate the quantity of credits and specific units of credits generated. Note that
specific units generated will be in Section A above. Please consult applicable credit calculation methods
and guidance for more information. Note that temporal elements/aspects will be covered as
appropriate/required by the applicable guidance.
9 Examples include: temperature; habitat; wetlands; and carbon/GHG.
10 The approved methods have not yet been specified, so this section is necessarily generic.
11 Attaching additional information may be under the discretion of the signatories, or may be required by

the Registrar. Please consult applicable guidance.
12 Addresses DEQ 9-27-07 permit language, 1.d .i i. It is in the Exchange Agreement; it may not be

necessary here.
13 For temperature credits, consult the TMDL CITATION, and related documents, as well as

____________________. For other types of credits, refer to guidance provided by the cognizant regulatory
agency, local/regional government, and/or non-governmental entity.
14 Addresses DEQ 9-27-07 permit language, 1.g.i(3). It is in the Exchange Agreement; it may not be

necessary here.
15 Per DEQ permit language, section 1.g.i.(3) : for riparian shade restoration plans, plant selection and

planting densities appropriate for site-specific soil conditions must be included; for flow augmentation
plans, source and period of augmentation water must be included.
16 If additional information about the environmental benefits of credits beyond the specific credit is

desired, it could be placed here.
17 This section addresses DEQ 9-27-07 permit language, 1.e.iii(3).
18 It is possible that credits could be registered if verification has not been completed. However, it is noted

that the presumption and policy preference is that a Registry will not accept credits into its system
without their being verified per the Registry’s and/or cognizant regulatory agency protocols.
19 Per the Drafting Group’s decision, the Certification section has been deleted.
20 A/some Registries/Registrars may choose to not accept unverified credits.
21 Addresses DEQ 9-27-07 permit language, 1.g.i(5).
22 The presumption is that the credits have been created, i.e., implemented, so no one should care about

money already spent, but should only be interested in how the credits are maintained and preserved—
unless they were funded with a loan. This is why this section differs from that in the Exchange document
in that pre-credit creation items are omitted from the example table.
23 These are examples of items that may be applicable. The list should be modified as necessary to

support the transaction.
24 Addresses DEQ 9-27-07 permit language, 1.e.iii(4) and 1.g.1.(6).
25 Here and elsewhere, the OTHER PARTY could be the Owner’s agent, the Registrar or Registrar’s agent,

or a third party under contract to either the Owner or Registry.


FORM ABCD                                                                INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                        PAGE 8 OF 9
26 The Drafting Group discussed whether detail here was appropriate or necessary. It was decided to

leave the opportunity to summarize, but allow the signatories to refer to an attached Maintenance Plan, if
one is required. There was also a discussion about the difference between maintenance activities and
results/performance, and which was more appropriate to focus on. Given the apparent requirement in
DEQ permit language for a description of maintenance activities, this section is kept. A general reference
to performance measures has been added to the next section on monitoring, so as to capture that option
and sentiment.
27 Needs to show actions to ensure that the activities generating the credits are functioning as intended

per DEQ 9-27-07 permit language, 1.e.iii(5) and 1.g.1.(7).
28 This table is provided as an example—it may be modified or replaced as needed or specified by

applicable Registry guidance.
29 It would not be exclusive if some of the credits were not privately placed under A or B above.
30 Note that prices for private placement may not be public, and if not would be so excluded.
31 It is presumed that for any public entities, this information will be public; however it was noted that

private parties may have the option and desire to keep cost/price information confidential.
32 May be needed in cases where registering multiple credit serial numbers for different uses.
33 List as required and/or desired.




FORM ABCD                                                             INITIALS: CREDIT OWNER_______ / REGISTRAR_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_REGISTRATION.DOC                                                     PAGE 9 OF 9
                                      Ecosystem Credit Registry

                                      CREDIT REPORT

                                      Last updated June 19, 2008. For questions, contact: David Primozich at
                                      Primozich@verizon.net.




1. THIS AGREEMENT IS MADE ON __________________________________, by and between
____________________________________________________________ (“BUYER”) and
_______________________________________________________________________(“SELLER”).1

    This is a financial transaction and an exchange of credit ownership: The BUYER agrees to
    buy from SELLER and the SELLER agrees to sell to BUYER the CREDITS described in
    Section 2.
    This is NOT a financial transaction, but IS an exchange of ownership: The BUYER agrees to
    receive from SELLER and the SELLER agrees to convey to BUYER the CREDITS described
    in Section 2.2
2. DESCRIPTION OF CREDITS TO BE EXCHANGED
A. Credit Attributes

General and Legal Location of Site:3 The subject credits are generated from activities, projects,
and/or facilities at the following location(s):

State, County, City            Watershed (USGS 3rd, 4th, 5th, and 6th field HUC)          Legal Location Description
                               and Stream name (if present)



Map:4 A map of the area(s) used to generate the CREDITS
 is attached as Exhibit ____
 is not attached If map not attached, the reason is____________________.


Type and Quantity:5 6
Spatial        Accounting Quantity               Type9        Completion Other Information
Unit7          Tool8      Per Unit                            Date
                          Time




The subject credits        were /      were not calculated using the following APPROVED
METHOD(S):10
    A. _____________________________Approved by_____________________________

FORM ABCD                                                                                      INITIALS: BUYER _______/ SELLER _______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                                       PAGE 1 OF 10
    B. _____________________________ Approved by_____________________________
    C. _____________________________ Approved by_____________________________
    D. _____________________________ Approved by_____________________________

The credit calculation method(s) used is/are generally summarized as follows:
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
Additional documentation              is attached as Exhibit_______/   is not attached.11

Areas Targeted for Improvement:12 Some/all of the credits are are not generated from
areas that have been identified as areas in need of improvement, or areas which have greater
potential for overall ecological benefit. Credits from these areas are identified below:
Spatial Unit                          Area                               As deemed important by:13




Site and Credit Source(s) Description:14 The site-specific conditions and activities that will
generate the subject credits are summarized as follows (provide narrative or summary table):15
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

C. Additional Narrative Description of Credits to be Exchanged16
If desired or necessary, provide a narrative description of the credit attributes identified above
and/or additional explanatory or supplemental information deemed relevant:
_____________________________________________________________________________________
_____________________________________________________________________________________
3. CREDIT ASSURANCES17
A. Credit Source Property Owner
Regarding ownership of the property(ies) and/or facility(ies) generating the credits to be
exchanged, the SELLER:
    Is full and sole owner
    Is co-owner with the following party(ies) in the noted proportions:
    _________________________________________________________________________________
    Has no ownership rights except to the credits per the following arrangements and
    agreements—describe and provide attachments as deemed
    necessary:.________________________________________________________________________
    Other____________________________________________________________________________

FORM ABCD                                                                       INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                        PAGE 2 OF 10
Regarding access to the property(ies) and or facility(ies) generating the credits to be exchanged
the SELLER:
    Has full unlimited access
    Has limited access as follows:______________________________________________________
    Has access by permission and/or owner escort as follows: _____________________________
    Other:____________________________________________________________________________
B. Enforceability of this Agreement
The parties understand that this offer, if accepted in writing by SELLER and delivered to
BUYER, constitutes a legally binding contract which will be interpreted in accordance with the
laws of the State of Oregon.




FORM ABCD                                                               INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                PAGE 3 OF 10
C. Credit Verification18 19
The subject credits        have been verified by the BUYER SELLER, in whole or in part.
The subject credits        have not been verified, in whole or in part.
If not verified, verification is the responsibility of the BUYER              SELLER, and
verification is Underway Pending Not Initiated.
Verification information is provided below consistent with the credit verification status:

•   Verifier Name _____________________________________________________
•   Verification Date _________________________________________________
•   Verifier Accreditation Number_____________________________________________
•   Verification Protocol/Methodology____________________________________________
•   Quantity or Identification/Lot/Serial Number of Credits not verified:
    All credits being exchanged are verified
    ___________________________of_________were not verified for the following reason(s)
    ____________________________________________________________________________
•   Verification Documentation is attached as Exhibit_____ available by upon request
D. Registration (check all that apply):20
    The SELLER has registered the subject credits with the following Registry(ies)
    ______________________________________________Date of Registration_________________.
    Registration documentation is attached as Exhibit ____/ available upon request.
    The SELLER has not registered the subject credits.
    This agreement is contingent on the SELLER registering the credits by __________________.
    The BUYER is responsible for registering the credits as necessary and desirable.

E. Financial Plan for Implementation and Post-Exchange Maintenance of Credits21

The BUYER and/or SELLER will be responsible for directly or otherwise funding and arranging
the following items as marked and described: 22
Credit Implementation &
                                      Buyer           Seller   Not Required        Other Information
Maintenance Responsibilities
Land Acquisition
Planning & Design
BMP Installation
Monthly general
maintenance
Annual inspection
Quarterly monitoring
Verification
Certification
Liability Insurance
Performance Bond
Escrowed maintenance fees
Registration filing fees
Exchange fees

FORM ABCD                                                                        INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                         PAGE 4 OF 10
4. CREDIT MAINTENANCE23
The BUYER and/or SELLER will maintain the activities, practices, property, and/or
facilities as necessary to maintain the credits to be exchanged as described in Section 2,
per the terms and conditions of Section 3.
    The BUYER and/or                 SELLER will maintain the credits themselves/with their own
    personnel.
    The      BUYER and/or            SELLER will contract credit maintenance to _________________.
Credit maintenance will generally consist of the following (refer to Maintenance Plan, populate
table as applicable, and/or provide a narrative description): 24
Type of                  When Performed               Frequency         Other Relevant Information
Maintenance




Narrative description as desired/required:
_____________________________________________________________________________________
_____________________________________________________________________________
A more detailed Credit Maintenance Plan is:
    Attached to this Agreement as Exhibit _______                   Available upon Request           Not required
5. CREDIT MONITORING
The BUYER and/or SELLER will monitor the performance of the activities, practices,
property, and/or facilities in generating the credits to be exchanged as described in Section 2,
per the terms and conditions of Section 3.
    The BUYER and/or                 SELLER will monitor the credits themselves/with their own
    personnel.
    The      BUYER and/or            SELLER will contract credit monitoring to ____________________.
Credit monitoring will generally consist of the following (refer to Monitoring Plan, populate
table as applicable, and/or provide a narrative description):25
Type of                  Performance                  Frequency         Method                 Reporting
Monitoring               Objective




Narrative description as desired/required (if the monitoring focuses on specific performance
requirements they may be included here):
_____________________________________________________________________________________
_____________________________________________________________________________
A more detailed Credit Monitoring Plan is:
    Attached to this Agreement as Exhibit_____                    Available upon Request         Not required
FORM ABCD                                                                           INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                            PAGE 5 OF 10
6. CONTINGENCIES
A. This exchange agreement is contingent on the following: 26
Item#      Item Desc                 Buyer            Seller        Delivery   Objection     Resolution
                                     Responsible      Responsible   Deadline   Deadline      Deadline
1          Site inspection
2          Verification
3          Certification
4          Document A______
5          Document B______
6          Financial report
           Credit purchase
7
           deposit
etc
B. Buyer’s Objections
1. The Buyer may make any reasonable objections to any information, data, or condition arising
from the deliverables listed in Paragraph A above by submitting the objections in writing to
SELLER no later than the applicable Objection Deadline. Any objections must be accompanied
by a copy or documentation of the item(s). If SELLER is responsible for ordering or otherwise
arranging for delivery of an item, and if BUYER does not receive that item by the Delivery
Deadline, BUYER and SELLER may agree to extend the Objection Deadline and Resolution
Deadline or BUYER may terminate this Agreement. If BUYER is responsible for ordering or
otherwise arranging for delivery of an item, and fails to do so in a timely manner, BUYER may
not use the failure to receive the deliverable as cause to terminate this Agreement.27 28
2. Upon objection, BUYER can request that SELLER cure the objection(s) or BUYER can
terminate this Agreement. If no written objection is delivered to SELLER by the Objection
Deadline, the contingency shall be deemed removed.
C. Resolution.29 If BUYER makes specific objections and requests SELLER to cure, BUYER and
SELLER may negotiate resolution. If the objections are not resolved by the Resolution Deadline,
this Agreement is terminated.
D. Cost of Cures. SELLER agrees to complete or pay for any cures with respect to any
objections made by BUYER as a result of the deliverable items, at an aggregate cost not to
exceed ______________________. If the cost to cure the objections exceeds this amount, such
excess costs may be negotiated and if not agreement is reached, this Agreement shall terminate.
E. Refund of Credit Deposit. If this Agreement is terminated pursuant to this section, the
Credit Deposit shall be refunded to the BUYER.30
F. Reasonable Access; Damages. SELLER agrees to provide reasonable access to BUYER and
any party participating in delivering the contingency items. The party responsible for the
contingency item is responsible for and shall pay for any damages which occur to the CREDITS
or the credit property as a result of delivering the contingency items.




FORM ABCD                                                                          INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                           PAGE 6 OF 10
7. COMPENSATION
The compensation terms are Public and detailed below, or Confidential31 and specified
under separate cover.
A. Total Compensation $_____________________and/or other ______________________.
B. Compensation due at Settlement: $_____________and/or other___________________.
C. Compensation Schedule if Total not due at Settlement:

Installment #32         For Credit Lot/Serial #       Amount                   Due by


D. Credit Exchange Deposit. BUYER will deliver $___________and/or _______________
Credit Deposit in the form of check cash       note other dated ______________, to be
escrowed with ________________upon mutual acceptance of this Agreement by the BUYER and
SELLER. The Credit Deposit will be applied to the Compensation due the SELLER upon
Settlement Date.

8. OTHER TERMS
A. Expiration of Offer. This offer will expire unless acceptance is delivered in writing to
BUYER on or before _________________at __________________am/pm Pacific Time. If not
accepted, this offer can be withdrawn at any time before the expiration date.
B. Maintenance. SELLER agrees that until SELLER gives possession of the CREDITS to the
BUYER, the CREDITS, will be in the same condition as the Date of Acceptance, unless otherwise
specified in this Agreement.
C. Pre-Settlement Credit Site Inspection. BUYER shall have the right to inspect the credit
generation site(s) within 2 days prior to Settlement for the limited purpose of permitting
BUYER to determine that the credits are in the same condition as on the Date of Acceptance,
reasonable depreciation excepted and that all agreed upon Resolutions have been completed.
D. Risk of Credit Diminution and Loss. Prior to Settlement Date, risk of credit diminution or
loss (“loss”) caused by virtue of acts of God, war, riot, labor unrest, terrorism, natural disaster,
failure of basic infrastructure, or other calamity will be on the SELLER. In the event of loss,
BUYER will have the option (to be exercised by written notice to SELLER within # days of
receipt of notice of loss) of canceling this Agreement and receiving back the Credit Deposit or
settling and receiving assignment of SELLER’s portion of the insurance proceeds, if any, at
Settlement Date. If BUYER fails to timely notify SELLER of BUYER’s election, BUYER will be
deemed to have elected to settle.
E. Agreement Counterparts. This Agreement may be executed in one or more counterparts,
each of which is deemed to be an original and all of which will together constitute one and the
same instrument.
F. Credit Deposit Dispute. RESERVED
G. Default. RESERVED
H. Disclaimer; Limitation of Liability. RESERVED
I-Y RESERVED
Z. Definitions RESERVED

FORM ABCD                                                                  INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                   PAGE 7 OF 10
9. SIGNATURES AND ATTACHMENTS
This Agreement together with any of the following attachments and any exhibits referred to in
this Agreement contains the entire agreement of the parties and supersedes all prior agreements
or representations with respect to the Credits which are not expressly set forth herein. This
Agreement may be modified or canceled only by a written Amendment signed and dated by
both parties. The parties shall not be bound by any terms, conditions, oral statements,
warranties, or representations not herein contained.
List of Attachments and Exhibits33

•   A

•   B

•   C

•   D

•   E

•   F

•   G
OFFER BY BUYER:
BUYER acknowledges that BUYER has read the entire Exchange Agreement and understands
the provisions thereof.
BUYER #1 SIGNATURE___________________________________Offer Date___________
BUYER #2 SIGNATURE___________________________________Offer Date___________
BUYER name printed, address, contact information:


RESPONSE BY SELLER:
SELLER acknowledges that SELLER has read the entire Exchange Agreement and
understands the provisions thereof.
SELLER (select one)
    ACCEPTS this Offer and agrees to exchange the credits for the compensation and on the
    terms and conditions specified in this agreement.
    COUNTEROFFERS this Offer in whole or in part as described under separate submission or
    marked revision to this document
    REJECTS this Offer
SELLER #1 SIGNATURE___________________________________Offer Date___________
SELLER #2 SIGNATURE___________________________________Offer Date___________
SELLER name printed, address, contact information:




FORM ABCD                                                             INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                              PAGE 8 OF 10
ENDNOTES

1 This section addresses DEQ 9-27-07 permit language, 1.g.i(1).
2 This option is provided because in some programs it has come up that some entities cannot conduct
certain types of financial transactions, this could allow the same document to be used for those cases.
3 This section addresses DEQ 9-27-07 permit language, 1.g.i(2). It is in the Exchange Agreement; it may

not be necessary here.
4 This section addresses DEQ 9-27-07 permit language, 1.g.i(2). It is in the Exchange Agreement; it may

not be necessary here.
5 Addresses DEQ permit language section 1.g.i.(4).
6 This table is provided as an example only. It should be adjusted and modified as necessary for the

circumstance, based on the preferences of the document signatories and the applicable credit calculation
guidance.
7 This allows differentiation/specification between/among different groups of credits of the same type,

or different types of credits.
8 This addresses DEQ 9-27-07 permit language, 1.g.i(4), and is intended to be a summary of the

methodology utilized to calculate the quantity of credits and specific units of credits generated. Note that
specific units generated will be in Section A above. Please consult applicable credit calculation methods
and guidance for more information. Note that temporal elements/aspects will be covered as
appropriate/required by the applicable guidance.
9 Examples include: temperature; habitat; wetlands; and carbon/GHG.
10 The approved methods have not yet been specified, so this section is necessarily generic.
11 Attaching additional information may be under the discretion of the signatories, or may be required by

the Registrar. Please consult applicable guidance.
12 Addresses DEQ 9-27-07 permit language, 1.d .i i. It is in the Exchange Agreement; it may not be

necessary here.
13 For temperature credits, consult the TMDL CITATION, and related documents, as well as

____________________. For other types of credits, refer to guidance provided by the cognizant regulatory
agency, local/regional government, and/or non-governmental entity.
14 Addresses DEQ 9-27-07 permit language, 1.g.i(3). It is in the Exchange Agreement; it may not be

necessary here.
15 Per DEQ permit language, section 1.g.i.(3) : for riparian shade restoration plans, plant selection and

planting densities appropriate for site-specific soil conditions must be included; for flow augmentation
plans, source and period of augmentation water must be included.
16 If additional information about the environmental benefits of credits beyond the specific credit is

desired, it could be placed here.
17   This section addresses DEQ 9-27-07 permit language, 1.e.iii(3).
18 It is assumed a transaction can occur if the credits are not verified. However, it is noted that the
presumption and policy preference is that a Registry will not accept credits into its system without their
being verified per the Registry’s and/or cognizant regulatory agency protocols.
19 Per the Drafting Group’s decision, the Certification section has been deleted.
20 Placeholder for comment about Registration and possible reference to Document B.
21 Addresses DEQ 9-27-07 permit language, 1.g.i(5).
22 These are examples of items that may be applicable. The list should be modified as necessary to

support the transaction.
23 Addresses DEQ 9-27-07 permit language, 1.e.iii(4) and 1.g.1.(6).
24 The Drafting Group discussed whether detail here was appropriate or necessary. It was decided to

leave the opportunity to summarize, but allow the signatories to refer to an attached Maintenance Plan, if
one is required. There was also a discussion about the difference between maintenance activities and
results/performance, and which was more appropriate to focus on. Given the apparent requirement in
DEQ permit language for a description of maintenance activities, this section is kept. A general reference


FORM ABCD                                                                      INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                       PAGE 9 OF 10
to performance measures has been added to the next section on monitoring, so as to capture that option
and sentiment.
25 Needs to show actions to ensure that the activities generating the credits are functioning as intended

per DEQ 9-27-07 permit language, 1.e.iii(5) and 1.g.1.(7).
26 These will be negotiated between the buyer and seller. Examples are provided but should be modified

by the signatories as needed and desired.
27 Alternative language has been proposed for a failure to deliver, no decision was made so this notation

is provided for consideration by subsequent legal review: Failure by Seller to deliver on any contingency
as provided herein, within the timeframe denoted, shall negate this Agreement unless both parties agree
in writing to an extension of said deadline(s). Failure by Buyer to deliver on any contingency as provided
herein, within the timeframe denoted, may not be used by Buyer as cause to terminate this Agreement.
However, Seller may elect whether to terminate this Agreement or provide an extension of deadline.
Any extension of deadline granted by Seller shall be provided to Buyer in writing no later than
_______days following the expiration of said deadline.
28 Alternative language has been proposed for Buyer’s Approval of Contingencies, no decision was made

so this notation is provided for consideration by subsequent legal review: Buyer has the number of days
stipulated in Section 6A above to approve any information, data, or condition arising from the
deliverables listed in Section 6A. Any objection by Buyer to said deliverables must be accompanied by
documentation to support the objection(s) and be submitted to Seller in writing no later than the
applicable Objection Deadline, or the contingency shall be deemed removed.
29 An outstanding question remains as to whether this section is necessary or redundant to the purpose of

the contingency section. One proposed rewrite is as follows: Seller agrees to complete or pay for any
cures, with respect to any objections made by Buyer as a result of the deliverable items, at an aggregate
cost not to exceed $_____________. If the cost to cure the objections exceeds this amount, parties may
negotiate responsibility for this excess cost or, if unable to come to a resolution, terminate this Agreement.
This is similar to the language in 6.D.
30 Sections 6.B – E address DEQ 9-27-07 permit language, 1.g.i(8).
31 It is presumed that for any public entities, this information will be public; however it was noted that

private parties may have the option and desire to keep cost/price information confidential.
32 This table is provided as an example of additional detail that might be desired.
33 List as required and/or desired.




FORM ABCD                                                                        INITIALS: BUYER_______ / SELLER_______
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_EXCHANGE.DOC                                                        PAGE 10 OF 10
                                         Ecosystem Credit Registry

                                         VERIFIER SERVICES AGREEMENT

                                         Last updated June 19, 2008. For questions, contact: David Primozich at
                                         Primozich@verizon.net.




1. THIS AGREEMENT IS MADE ON __________________________________, by and between
____________________________________________________________ (“CLIENT”) and
(“CREDIT VERIFIER”).


2. CONFLICT OF INTEREST FORM
The CLIENT and the VERIFIER                        have completed a Conflict of Interest Form.
The Conflict of Interest Form has been submitted to the ____________________1 and is
 Underway Pending Approved.
The CLIENT and the VERIFIER                        have not completed a Conflict of Interest Form.


3. DESCRIPTION OF SERVICES TO BE PROVIDED BY THE VERIFIER TO THE CLIENT
A. Scope of the Verification Process
The VERIFIER will audit the physical credits and associated documentation, procedures,
processes, and plans submitted by the CLIENT to the VERIFIER for compliance with applicable
standards, including as applicable but not limited to: credit generation practices, credit
calculation methodologies, credit assurance protocols, maintenance requirements, and
monitoring obligations. The attached Scope of Verification Services identifies the specific
credits and associated elements that are submitted and required for verification. This Scope of
Services also references the applicable guidances, standards, and other requirements applicable
to the type(s) of credits being verified as promulgated by entities with registry, regulatory, or
other oversight authorities or interest in the subject credits.
The attached Scope of Services specifies the format and content of the Verification Report
required by the CLIENT to support credit registration and/or credit exchange transaction(s).
B. Documentation and Confirmation of Approved Verifier Status
The VERIFIER ____________________ hereby validates that they are qualified and have been
officially accredited to perform the verification procedures as described by
____________________2 Accreditation number ________. (Refer to attached Verifier
Accreditation Agreement for further information)



1 Registry(ies) and/or DEQ
2 Registry(ies), DEQ, and or Verifier Accreditor

FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                                                  PAGE 1 OF 7
C. Verification Standard
The VERIFIER must verify the CLIENT’s credits according to the Verification Protocol
developed by the cognizant authority(ies) with oversight jurisdiction over the subject credits , as
specified in the Scope of Services.
D. Non-disclosure Terms
The CLIENT has confidential business information that they would like to protect. This
information may be required to complete the verification process, therefore, the VERIFIER will
follow the protocol outlined in the Confidential Business Information Guidelines3 in order to
ensure CLIENT confidentiality.


The CLIENT does not have confidential business information. Therefore the VERIFIER is
not obligated to follow the specific confidentiality methods in the Confidential Business
Information Guidelines4.
E. Performance Schedule
If the VERIFIER is provided all required information from the CLIENT, the verification process
will occur within       days.
The following verification processes will occur

•    Data Interpretation        business days
•    Monitoring         business days
•    Verification Report      business days
•    Additional Monitoring         business days
Verification Report Submittal                       business days
F. Addressing Non-Conformances, Errors, and Omissions
If the VERIFIER identifies non-conformances with applicable credit protocols (including but not
limited to credit generation guidance, calculation methodologies, mapping protocols, and
related credit attributes, descriptors, or documentation), as may include misstatements, errors
or omissions during the audit process, the CLIENT may address these non-conformances and
submit the credits to the VERIFIER for re-auditing.
If the CLIENT elects to resubmit, additional fees will apply, as detailed in Section     , for a
complete re-auditing or an updated verification report, as applicable to the type and scope of
non-conformances identified. To retain independence, the CLIENT understands the VERIFIER
will not be involved in addressing the non-conformances. Under this agreement the CLIENT
   does/ does not have the option to terminate this agreement and engage the VERIFIER under
a separate contract to assist with addressing the non-conformances. If this option is elected, the
CLIENT will engage the services of another VERIFIER to re-audit the credits.



3 Currently this document exists in draft form, and will be finalized as a guideline.
4 Currently this document exists in draft form, and will be finalized as a guideline.

FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                           PAGE 2 OF 7
G. Obligations of VERIFIER
Representations and Warranties
a. VERIFIER’s Representations and Warranties. VERIFIER represents to CLIENT that (1)
VERIFIER has the power and authority to enter into and perform this Service Agreement, (2)
this Agreement, when executed and delivered shall be a valid and binding obligation of
VERIFIER, enforceable in accordance with its terms, (3) the Work under this Agreement will be
performed in accordance with the professional standards of skill and care ordinarily exercised
by members of that profession under similar conditions and circumstances, (4) VERIFIER shall,
at all times during the term of this Agreement be duly licensed to perform the Work, and if
there is no licensing requirement for the profession or work, be duly qualified and
professionally competent.
b. Representations and Warranties cumulative. The representations and warranties set forth in
this section are in addition to, and not in lieu of, any other representations and warranties
provided.


4. DESCRIPTION OF SERVICES TO BE PROVIDED BY THE CLIENT TO THE VERIFIER
A. Site Access
According to the Credit Verification Protocol, a minimum of one site visit is required to
complete the verification process. Subsequent visits may be necessary depending on the type of
credit to be verified and magnitude of the proposed project. Granting access to the site is the
sole responsibility of the CLIENT and is required by Oregon State law. Details regarding the
date and frequency of site visits are further outlined in the attached Scope of Services.
Regarding access to the property(ies) and or facility(ies) generating the credits to be verified the
VERIFIER or approved monitor:
     Has full unlimited access
     Has limited access as follows:______________________________________________________
     Has access by permission and/or owner escort as follows:
     ________________________________________________
     Other:____________________________________________________________________________


B. Documentation and Data Requirements
The CLIENT will provide all documents necessary for the verification process, as stipulated in
the Scope of Services, to the VERIFIER within        days of signing this contract. The VERIFIER
will reasonably rely upon the accuracy, timelines, and completeness of the information
provided by the CLIENT. All documents will be transferred in the following manner:
     Hard copies via mail
     Electronic copies via email, CD, or jump drive
     Electronic copies posted on a list serve, ftp site, or _______________


FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                             PAGE 3 OF 7
The CLIENT certifies that all information and data given to the verifier is accurate to the best of
the CLIENT’s knowledge.
C. Changes to Scope
The CLIENT may make or approve changes within the general Scope of Credit Verification
Services in this Agreement. If such changes affect the VERIFIER’s cost of or time required for
performance of the services, an equitable adjustment will be made through an amendment to
this Agreement.
D. Obligations of CLIENT
Payment
a. While interim payments will be made in accordance with “Exhibit A”5, payments are
contingent upon delivery of the specified work products completed in accordance with the
terms of the Agreement, including the statement of Work in “Exhibit A” 6.
b. The VERIFIER shall be responsible for all federal or state taxes applicable to compensation or
payments paid to VERIFIER under this Agreement and Scope, unless VERIFIER is subject to
backup withholding, CLIENT will not withhold from such compensation or payments any
amount(s) to cover the VERIFIER’s federal or state tax obligations. VERIFIER is not eligible for
any social security, unemployment insurance or workers’ compensation benefits from
compensation or payments paid to VERIFIER under this Agreement and Scope, except as a self
employed individual.
Timely Review
The CLIENT will examine the VERIFIER’s studies, reports, sketches, drawings, specifications,
proposals, and other documents; obtain advice of an attorney, insurance counselor, accountant,
auditor, bond and financial advisors, and other consultants as the CLIENT deems appropriate;
and render in writing decisions required by the CLIENT in a timely manner.
Prompt Notice
The CLIENT will give prompt written notice to the VERIFIER whenever the CLIENT observes
or becomes aware of any development that affects the scope or timing of VERIFIER's Services,
or of any defect in the work of VERIFIER.
Indemnity
a. Claims for Other than Professional Liability. VERIFIER shall defend, save and hold harmless
the CLIENT, its elected officials, officers, agents and employees from all claims, suits or actions
of whatsoever nature, including intentional acts resulting from or arising out of the activities of
VERIFIER or its subcontractors, agents or employees under this agreement.
b. Claims for Professional Liability. VERIFIER shall defend, save and hold harmless the
CLIENT, its elected officials, officers, agents and employees from all claims, suits or actions
arising out of the professional negligent acts, errors or omissions of VERIFIER or its



5 Currently, “Exhibit A” does not exist but would be developed as a supplement to the contract.
6 Currently, “Exhibit A” does not exist but would be developed as a supplement to the contract.

FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                                  PAGE 4 OF 7
subcontractors and subcontractors, agents or employees in performance of professional services
under this agreement.
c. CLIENT’s Actions. This section does not include indemnification by VERIFIER of the
CLIENT for the CLIENT's activities, whether related to the contract or otherwise.
Insurance
Contractor shall provide insurance as indicated on “Exhibit B” 7, attached hereto and by this
reference made a part hereof.
Records Maintenance; Access
VERIFIER shall maintain all fiscal records relating to this Agreement in accordance with
generally accepted accounting principles. In addition, VERIFIER shall maintain any other
records pertinent to this Agreement in such a manner as to clearly document VERIFIER's
performance. VERIFIER acknowledges and agrees that the CLIENT and the federal
government and their duly authorized representatives shall have access to such fiscal records
and other books, documents, papers, plans and writings of VERIFIER that are pertinent to this
Agreement to perform examinations and audits and make excerpts and transcripts. VERIFIER
shall retain and keep accessible all such fiscal records, books, documents, papers, plans, and
writings for a minimum of six (6) years, or such longer period as may be required by applicable
law, following final payment and termination of this Agreement, or until the conclusion of any
audit, controversy or litigation arising out of or related to this Agreement, whichever date is
later.


5. GENERAL LEGAL PROVISIONS
Authorization to Proceed
Execution of this Agreement by CLIENT will be authorization for VERIFIER to proceed with the
work, unless otherwise provided for in this Agreement.
No Third Party Beneficiaries
VERIFIER and CLIENT are the only parties to this Agreement and are the only parties entitled
to enforce its terms. Nothing in this Agreement gives, is intended to give, or shall be construed
to give or provide any benefit or right, whether directly, indirectly or otherwise, to third
persons unless such third persons are individually identified by name herein and expressly
described as intended beneficiaries of the terms of this Agreement.

Ownership of Work Product
a. All work product of VERIFIER that results from this Agreement (the “Work Product”) is the
exclusive property of CLIENT. VERIFIER forever waives any and all rights relating to the Work
Product, including without limitation, any and all rights arising under 17 USC §106A or any
other rights of identification of authorship or rights of approval, restriction or limitation on use
or subsequent modifications.




7 Currently, “Exhibit B” does not exist but would be developed as a supplement to the contract.

FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                                  PAGE 5 OF 7
b. In the event the CLIENT alters the work products in any manner, or uses them for a purpose
or project other than that specifically identified and intended by this Agreement without
written verification or adaptation by the VERIFIER as appropriate, such alteration or use will be
at the CLIENT’s sole risk, and VERIFIER shall be released, indemnified and held harmless by
CLIENT, to the extent permitted by applicable Oregon law, including, but not limited to
constitutional debt limitation provisions and the Oregon Tort Claims Act.
c. The VERIFIER, despite other conditions of this provision, shall have the right to utilize the
work product on its brochures or other literature that it may utilize for its sales and, in addition,
unless specifically otherwise exempted, the VERIFIER may use standard line drawings,
specifications and calculations on other, unrelated projects.
Force Majeure
Neither CLIENT nor VERIFIER shall be held responsible for delay or default caused by fire,
riot, acts of God, or war where such cause was beyond the reasonable control of CLIENT or
VERIFIER, respectively. VERIFIER shall, however, make all reasonable efforts to remove or
eliminate such a cause of delay or default and shall, upon the cessation of the cause, diligently
pursue performance of its obligations under this Agreement.
Suspension, Delay, or Interruption of Work
CLIENT may suspend, delay, or interrupt the Services of VERIFIER for the convenience of
CLIENT. In such event, VERIFIER's contract price and schedule shall be equitably adjusted.
Termination
This Agreement may be terminated for convenience on 30 days' written notice, or for cause if
either party fails substantially to perform through no fault of the other and does not commence
correction of such nonperformance within 5 days of written notice and diligently complete the
correction thereafter.
On termination, VERIFIER will be paid for all authorized services performed up to the
termination date plus termination expenses, such as, but not limited to, reassignment of
personnel, subcontract termination costs, and related closeout costs.
Litigation Assistance
The Scope of the Credit Verification Services does not include costs of the VERIFIER for
required or requested assistance in support, prepare, document, bring, defend, or assist in
litigation undertaken or defended by the CLIENT. All such services required or requested of the
VERIFIER by the CLIENT, except for suits or claims between the parties to this Services
Agreement, will be reimbursed as mutually agreed.
Dispute Resolution
In the case of irreconcilable differences between the CLIENT and the VERIFIER, the CLIENT
and/or the VERIFIER may submit their documented dispute to the ____________________ 8




8 Registry and/or DEQ Dispute Resolution Committee

FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                             PAGE 6 OF 7
6. SIGNATURES AND ATTACHMENTS
This Agreement together with any of the following attachments and any exhibits referred to in
this Agreement contains the entire agreement of the parties and supersedes all prior agreements
or representations with respect to the Credits which are not expressly set forth herein. This
Agreement may be modified or canceled only by a written Amendment signed and dated by
both parties. The parties shall not be bound by any terms, conditions, oral statements,
warranties, or representations not herein contained.
List of Attachments and Exhibits
VERIFIER and CLIENT acknowledge that they have read the entire Verification Services
Agreement and understand the provisions thereof.


_________________________________ date ____/____/___
_________________________________ date ____/____/____




FORM ABCD
VERSION: STANDARD_AGREEMENT_FOR_CREDIT_VERIFICATION_SERVICES.DOC                        PAGE 7 OF 7
             Ecosystem Credit Registry

Willamette Thermal Load Credit Verification Protocol

                       Draft

               Version June 24, 2008
Table of Contents

Key Terms.......................................................................................................................... 3
Part I: Introduction .......................................................................................................... 4
  Overview ........................................................................................................................ 4
  Who has to verify? ........................................................................................................ 4
  Protocol Questions and Adaptive Management ......................................................... 5
  Principles of Verification .............................................Error! Bookmark not defined.
  Verification Process Overview ..................................................................................... 5
Part II. Definition of accredited verifiers and process for becoming accredited ....... 7
  Becoming an Accredited Verifier ................................................................................ 7
  Conflict of Interest ........................................................................................................ 7
Part III: Conducting verification .................................................................................... 9
  Dispute Resolution ...................................................................................................... 10
  Batch Certification .......................................................Error! Bookmark not defined.
Part IV: Completing the verification process............................................................... 11
Annex 1. Overview of Verification Process .................................................................. 13
Annex 2. Verification Checklists ................................................................................... 14
Annex 3: Verification Report ......................................................................................... 15
Key Terms

Baseline                         Data against which to measure temperature
                                 reductions over time, usually the project
                                 conditions in a base year before credit
                                 actions began.
Conflict of Interest             A situation in which, because of other
                                 activities or relationships with other
                                 persons or organizations, a person or firm
                                 is unable or potentially unable to render an
                                 impartial verification opinion of a Credit
                                 Owner’s estimated credits.
Standard Agreement for Credit    A report submitted to the Registry by a
Registration (“Credit Report”)   Credit Owner that provides an estimate of
                                 the quantity of credits generated from a
                                 project. The estimate is submitted with
                                 supporting documentation.
Client                           Either a Credit Owner or a Buyer who
                                 participates in the Registry
Buyer                            A likely buyer of credits.
Credit Owner                     An individual or organization proposing a
                                 credit project for verification and entry into
                                 the registry.
Registry                         The electronic platform used to submit and
                                 track information related to estimated
                                 credits, verification, and credits available
                                 for sale.
Verification activities          Activities undertaken during third-party
                                 verification that include reviewing a Credit
                                 Owner’s estimated credits, verifying the
                                 accuracy of measurement, and submitting a
                                 Verification Report to the Registry.
Ecosystem Credit Registry        The governing body responsible for credit
                                 generation protocols, verification protocols,
                                 registration of credits, and other market
                                 activities.
Part I: Introduction

Overview

The Thermal Load Credit Verification Protocol1 is meant to provide standardized
guidance on the review and assessment of thermal load credit projects (riparian shade,
flow augmentation, and treatment wetlands) to meet the objectives of the Willamette
Temperature Total Maximum Daily Load. The protocol is designed for those who are
doing the verification, but the guidance will also be useful for other market Clients. To
become a Registry-approved third-party verifier, an individual2 must successfully
complete an application and be approved to become an accredited verifier.

Third party verification is defined as an independent expert assessment of the accuracy
and conformity of a Credit Owner’s Credit Report with agreed upon criteria. The purpose
of verification is to provide confidence to Registry Clients that credits represent a
faithful, true, and fair account of thermal load credit benefits- free of material
misstatements and conforming with the Registry’s accounting and credit generation
standards. To do this, information should be complete (project eligibility, baseline
information, proposed actions, credit calculations, and protections of credit quality),
consistent (comparable data over time), accurate (findings should be repeatable), and
transparent.

The protocol is organized into six parts:

         Part I: Introduction
         Part II: Definition of accredited verifiers and process for becoming accredited
         Part III: Conducting verification
         Part IV: Completing the verification process
         Part V: Annexes

Who benefits from verification?

Reporting and verifying thermal load discharges into the Willamette River are the
responsibilities of point sources dischargers holding a National Pollutant Discharge
Elimination System (NPDES) permit and the Oregon Department of Environmental
Quality. Reporting and verifying thermal load credit generating projects used to offset
those discharges ultimately remains the responsibility of those same permit holders. This
protocol provides a standardized verification process by which the Registry, its accredited
verifiers, and Credit Owners assist the permittee in reporting and reviewing water quality
credit performance.



1
  This protocol is modeled onThe Climate Registry’s draft verification protocol, which in turn is consistent
with ISO 14064-3 and forthcoming ISO 14066 standards on greenhouse gas verification
2
  Under special circumstances, an organization might become accredited as a verifier subject to review by
the Registry
The quantity of thermal load credits generated by a given project is calculated using the
Registry’s set of Credit Generation Protocols. Verification is required for listing thermal
load credits on the Registry, but is not a requirement to produce credits traded outside of
the Registry. This protocol provides direction on how a verifier should review and verify
a project’s calculations of thermal load credits. All verifiers should be familiar with
Credit Generation Protocols.

These protocols are available at the Registry’s website: www.willamettepartnership.org.
If you have difficulty accessing any of the documents, please call 503-434-8033.

Protocol Questions and Adaptive Management

The Registry’s credit generation and verification protocols are designed to work together.
If there is a conflict between any of the documents, or if you have questions, please
contact the Registry at: 503-434-8033.

Protocols and the science and information behind them can always be improved. The
Registry welcomes feedback and ideas on improving protocols. Comments can be
submitted online at: www.willamettepartnership.org.

Verification Process Overview

Monitoring and reporting on thermal load project/credit performance occurs at least
annually and is primarily the responsibility of the Credit Owner. Verification is
conducted by individuals who have been accredited by the Registry and occurs on
different cycles for different credit types as follows:
    • Riparian shade: Full verification in years 1, 5, 10, and 203, and streamlined
        review of annual monitoring reports in other years.
    • Flow augmentation: Full verification in year 1, and streamlined review of annual
        monitoring reports following release of water for that year.
    • Treatment wetlands: Full verification in years 1, 5, 10, and 20, and streamlined
        review of annual monitoring reports in other years.

The goal of verification is to confirm:
   1. Credit generation protocols were followed completely and accurately
   2. Proposed actions have been completed per the Credit Report
   3. Appropriate monitoring and maintenance plans are in place to ensure longevity of
      credits
   4. Verify the quantity of estimated thermal load credits

For a credit to be verifiable, the Credit Report must be free of material misstatements. A
material misstatement must be declared if the reported credit generation information does
not appropriately describe project conditions and differs greatly from the verifier’s

3
 These years were chosen to match the permit cycle used for issuing NPDES permits every five years. Full
verification in years 5 and 10 are designed to provide potential information to Buyers and to Oregon DEQ
for use in drafting future permits.
assessment of that same information. To be verifiable, a verifier’s estimates of credit
quantity must be within 15% of information proposed by the Credit Owner. The Registry
recognizes that there is inherent uncertainty involved in field data collection. The 15%
standard is meant to capture differences in reporting uncertainty, stemming from
sampling and calculation differences. If the difference in estimates is greater than 15%,
the difference is material, and the verifier must use best professional judgement in
determining the quantity of credits to verify.

Once successful verification is complete, the verifier submits their Verification Report to
the Registry, which is attached to the credit records.
Part II. Definition of accredited verifiers and process for becoming accredited

Becoming an Accredited Verifier

Verifiers must be accredited by the Registry before they are eligible to conduct
verification activities on behalf of Registry Clients. The Registry will accredit verifiers
that are qualified to review one or more types of thermal load credit generation protocols.
A verifier is an individual that has demonstrated their ability to assess thermal load
credits. They must also demonstrate the means to accept financial liability4 for
verification activities undertaken for a Registry Client. This liability will be determined
in the Verification Services Agreement signed between the verifier and the Client. The
Registry will release a Request for Applications (RFA) annually or as needed to allow
interested verifiers to apply for Registry accreditation. Interested verifiers must complete
the following steps:

    1. Submit an application in response to the Registry’s RFA.
    2. Receive notice from the Registry that the application has been approved.
    3. Attend a Registry Verification Training Session (held approximately two months
       following the Registry’s notification of acceptance from its RFA).
    4. Keep the Registry informed of any changes affecting the accreditation (e.g.
       potential conflicts of interest)

Accreditations are effective for 5 years from the time they are issued. After the 5 years
has expired, verifiers must re-apply for renewal by responding to the RFA in the year
their accreditation will expire.

Conflict of Interest

The independence of verification is important. Verifiers acting on behalf of the Registry
must work in a credible, independent, nondiscriminatory, and transparent manner,
complying with applicable state and federal law. This includes disclosing any pre-
existing relationships between the Credit Owner or Buyer and the verifier. Verifiers must
provide a Notice of Verification and Conflict of Interest Form to the Registry at least 10
business days before verification activities can proceed.

As an added protection, a verifier can only provide verification services to a Registry
Client for a period up to five years. If a verifier violates these conditions, the Registry at
its discretion, may disqualify an accredited verifier for a period of up to five years. See
the Registry’s Conflict of Interest Code for full detail.

The Oregon Department of Environmental Quality5 may send representatives to
accompany verifiers in the course of verification activities for primarily for but not
limited to information and educational purposes. In the very rare instance when a Credit

4
  This is meant to cover standard liability coverage of consultants. This does not imply that verifiers bear
additional liability under credit protocols beyond what is in current Federal, Oregon, and local statutes.
5
  Other representatives may accompany verifiers at the discretion of the Credit Owner.
Owner may request that information resulting from these visits be kept confidential, the
state agency and Registry will consider the request to the limited extent authorized by
ORS 468.095(2)governing state confidentiality and EPA's Regulations on the
Confidentiality of Business Information (see 40 CFR Part 2).
Part III: Conducting verification

The primary goals of verification are to ensure a Credit Owner’s Credit Report and
Monitoring Reports meet the required level of accuracy. This does not include re-
collecting data. Verification looks to see that data collection methodologies are consistent
with the Credit Generation Protocols, actions are implemented as planned, and all the
contracts are in place to ensure protection, maintenance, and monitoring of those credits.
The Registry currently recognizes riparian shade, flow augmentation, treatment wetlands,
and water reclamation/reuse as credit projects.

See Annex 1 for detailed explanation of verification process. All steps must be completed
by the verifier to submit their report to the Registry. The schedules below outline the
minimum frequency and requirements for verification. A Credit Owner or a contract
between Credit Owner and credit purchaser can require more frequent verification or
additional steps. To meet the Registry’s conflict of interest policies, one verifier would be
able to complete verifications in years 1-5 for shade, flow, and wetlands. Following that
verification cycle, a new verifier must be chosen in year 6 for the next cycle. Under
normal circumstances, verification activities should occur as follows:

Riparian Shade
Year Activities
1      Review credit generation information
       Confirm planting is complete
       Confirm contracts are in place for protection, maintenance, monitoring
2-4    Streamlined review of annual monitoring reports
5      Visit site to confirm data in annual monitoring reports
6-9    Streamlined review of annual monitoring reports
10     Visit site to confirm data in annual monitoring reports
11-19 Streamlined review of annual monitoring reports
20     Visit site to confirm final performance report and submit credit
       retirement report to the Registry

Flow Augmentation
Year       Activities
1          Confirm quantity of flow released over contracted time period
           Confirm protection of that water to contracted point
Proceeding Streamlined review of annual monitoring reports every year flow is
years      augmented

Treatment Wetland
Year       Activities
1          Review credit generation information
           Confirm design and construction is complete
           Confirm planting is complete
           Confirm contracts are in place for protection, maintenance, monitoring
2-4        Review of annual monitoring reports for vegetation and hydrology
5            Visit site to confirm data in annual monitoring reports
6-9          Streamlined review of annual monitoring reports
10           Visit site to confirm data in annual monitoring reports
11-19        Streamlined review of annual monitoring reports
20           Visit site to confirm final performance report and submit credit
             retirement report to the Registry

Credit Owners will have already collected and entered their data into the Registry’s
system. Once a verifier has been selected, the verifier will have access to this information
to use. Verifiers will also need to enter their reports into the Registry’s system. In
reviewing annual Monitoring Reports on years where site visits are not required, verifiers
must complete a cursory check of reported information to ensure the Credit Owner has
not overlooked an event that significantly impacts the status of their temperature credits.
Credit Owners need to report any significant changes that might affect their credits (tree
removals, significant natural disturbances, ownership change, etc.) These reports may
also contain optional information beyond what is required (e.g. biodiversity benefits,
additional protections, etc.). This data is optional and does not require verification.

Dispute Resolution

There may be instances where a verifier and a Client cannot agree on the findings in a
Verification Report. In such instances, both parties can request the Registry Dispute
Resolution Committee (composed of PEOPLE) to come to a unanimous, binding
decision. Both the verifier and the Client will pay an equal filing fee to submit their case
to the committee. As part of every Verification agreement, both the verifier and the Client
will need to sign agreeing to this Dispute Resolution Policy.
Part IV: Completing the verification process

There are a number of core verification activities needed for all credit types. Table 1
contains the verification elements:

Table 1: Verification Process

                      Review Credit Owner and project eligibility

1. Can the sponsor demonstrate ownership 2. Review contracts, land ownership,
    of the proposed credits?                     easements, etc.
1. Is the project in the Willamette Basin     2. Review site location map and geographic
and appropriate?                                 boundaries of the project
                                              3. Confirm project has met the minimum
                                                 requirements described in the credit
                                                 generation protocol
1. Does the project provide additional        2. Review proof the project is not fully
    benefits?                                    funded by public dollars dedicated to
                                                 restoration
                                              3. Review proof that trees have not been
                                                 recently cleared, water rights are valid,
                                                 and wetlands do not currently exist
                                     Year 1 activities
1. Verifier validates Credit Report           2. Review supporting documentation
   submitted to the Registry (Verifier must      (current conditions data, sampling
   discuss with the Credit Owner how the         points, data inputs into credit generation
   baseline was selected and measured,           calculations, model outputs, contracts,
   how sampling points were selected, and        etc.)
   the methods used to estimate credits)      3. Confirm completion of appropriate
                                                 implementation steps (planning docs,
                                                 invoices, photos, etc.)
                                              4. Conduct site visit
                                              5. Revise credit estimates as necessary
                                                 based on verifier feedback
                                         Year 2-4
1. Verifier reviews annual monitoring         2. Review supporting documentation (data
    reports in the Registry                      sheets, model outputs, contracts, etc.)
                                              3. Conduct site visit if needed

Once these core verification activities are completed, the verifier can complete a
Verification Report that contains a summary which will be available to the public, an
opinion on the credit estimates, and a log of activities and findings. This report needs to
be submitted to the Registry’s system. Annual reports will need sign-off from verifiers
for projects to remain in the Registry. The Registry will consider the Verification Report
and before certifying credits and accepting the project into the Registry. Table 2 describes
the certification process.
Table 2: Certification Process
                    Task                  Date Completed
Project Credit Report is complete and
submitted to Registry
Credit Report is verified (Verification
Report are submitted to the Registry)
Annual reports are submitted and
   verified
Verified credits are certified by the
Registry and made available for sale
Annex 1. Overview of Verification Process

   1. Credit Owner and/or Buyer selects Verifier: Clients contact one or more of
      Registry-accredited verifiers to discuss verification activities. Clients select a
      verifier and begin to negotiate agreement terms.

   2. Verifier and Client finalize Agreement and send Notice to Registry: When the
      verifier and Client finalize a Verification Agreement, they must submit a
      Verification Notice to the Registry. The Notice must be submitted 10 business
      days prior to beginning verification activities, and must include a Conflict of
      Interest Form from the verifier to establish the likelihood of a conflict of interest
      between the parties is low.

   3. Verifier conducts verification activities: Verifier follows the guidance in the
      verification protocol to evaluate Credit Owner’s Credit Report.

   4. Verifier prepares Verification Report for Client: Verifier prepares a detailed
      summary of the verification activities for the Client. This includes a draft opinion
      for Client’s review.

   5. Verifier and Client discuss Verification Report: Verifier meets with Client to
      discuss Verification Report.

   6. Verifier submits final Verification Report to the Registry: Once authorized by
      a Client, a Verifier completes the Verification Report Form on the Registry.

   7. Registry completes reporting process: Registry reviews the Verification Report
      and evaluates Credit Owner’s Credit Report. Once accepted into the Registry, the
      credit will be available for sale and a project summary available to the public.

   *Steps 2-7 are completed for years 2-4 of a Verification Cycle as well.
   Annex 2. Verification Notice and Conflict of Interest Form
                          Ecosystem Credit Registry
                          VERIFICATION NOTICE & CONFLICT OF INTEREST FORM
                          Last updated June 19, 2008. For questions, contact: David Primozich at
                          Primozich@verizon.net.



Date:

Credit Owner Name:
Company/Agency:                                   Title:
Telephone:
Email:
Mailing address:
Seller account number:

Verifier Name:
Company/Agency:                          Title:
Telephone:
Email:
Mailing address:
Verifier accreditation number:             Valid until:

The parties listed above have entered into a verification services agreement to verify the
following credits at these sites:__________________________________

 Serial #          Quantity             Type                     Service area
 1
 2

To the best of my knowledge, I         (printed name) attest that the information
provided in support of this conflict of interest form is true and complete and that I
have complied with the Registry’s current Conflict of Interest Code.
_______________                        _______________
                                        Date
Verifier signature

Based on the information provided in the following pages, we believe our risk of Conflict
of Interest for verification of the following site(s) is:

High                Medium                        Low
For Registry purposes only:
Date received:
Date application found to be complete:
Annex 3: Verification Report

                          Ecosystem Credit Registry
                          VERIFICATION REPORT
                          Last updated June 19, 2008. For questions, contact: David Primozich at
                          Primozich@verizon.net.




                                    Verification Opinion

Name of Verifier_____________________

This is to verify that CREDIT OWNER has been reviewed for the DATE reporting year,
and has been verified according to the Ecosystem Credit Registry’s Temperature Credit
Verification Protocol against the standards set forth in the Registry’s Credit Generation
Protocol.

Verification Opinion:

 Serial #      Credit      Credits       Credits   Type                       Vesting              Service
               Report      verified      unable                               Date                 area
               Quantity    without       to verify
                           qualification
 1
 2
 3

Base Year:

Attestation:

_______________                                               __________________

Verifier                                                       Date

Authorization:

I CREDIT OWNER NAME authorize the above named verifier to submit an electronic
version of this Verification Report to the Ecosystem Credit Registry.

__________________                                          ___________________

Credit Owner                                                  Date
                            Verification Log

Preparing for Verification                        Date Achieved
Bid on a verification agreement                   *
Negotiate agreement with Client                   *
Submit Notice and Conflict of Interest Form to
Registry
Conduct kick-off meeting with Client              *
Plan verification activities                      *
Determining Eligability                           Task Completed
Project completed a pre-screening                 *
Project is in the Willamette Basin
Project meets minimum requirements
Initiated in year 2006 or later
Project is an eligable type
Project conforms with applicable laws
Project is additional
Disclosure of public matching funds
Determining Credit Quantity                       Task Completed
Description of baseline conditions
Description of activity and dates completed
Sampling methodology
Credit calculation methodology
Determining Adequate Maintenance                  Task Completed
Contracts in place to protect activities for
required times and geographies
Monitoring plans in place
Contracts in place for maintenance for required
times and geographies
Completing Verification                           Task Completed
Prepare detailed Verification Report for Client   *
Conduct meeting with Client to discuss report     *
Submit Report to the Registry
Submit Report to Client for their records

*Optional fields
                              Ecosystem Credit Registry

                              VERIFIER ACCREDITATION AGREEMENT

                              Last updated June 19, 2008. For questions, contact: David Primozich at
                              Primozich@verizon.net.



This documents that the verifier has met minimum requirements, as promulgated by the
Ecosystem Credit Registry (Registry), for relevant professional experience:
   a. The verifier has completed the Registry sponsored verification training workshop,
       Verifier Accreditation Program, and is approved to verify credit types:

             Riparian Shade       Flow augmentation                       Wetlands discharge/restoration
             Floodplain/hyporheic restoration                             Wastewater reclamation/

    b. The verifier’s contracts with participants for verification services will include or
       reference the Verification Protocol approved by the Registry
    c. The verifier has the ability to monitor the proposed project to ensure compliance
       with the Verification Protocol set by the Registry
    d. The verifier has in place a standardized quality assurance/ quality control
       (QA/QC) plan that is consistent with the guidance/requirements for such plans
       issued by the Registry
    e. The verifier has completed an education sufficient to acquire the knowledge and
       skills as described in International Standards1.
    f. The verifier has adequate technical, professional work experience to meet the
       requirements described in the Verifier Protocol.

By accepting this accreditation, I,     agree to verify credits at a minimum to the
Registry’s Verification and Credit Generation Protocols determined by the Registry on
      .

The regulatory agency and the Registry bestow this Verifier Accreditation upon
________________ to verify ecosystem service credits in the State of Oregon. This
Verifier Accreditation Agreement is valid for a period of three years and thus expires on
___/___/___.




1
 ISO 2002. First edition 2002-10-01. International Standard 19011. Guidelines for quality and or
environmental management systems auditing. Reference Number ISO 19011:2002(E).
SIGNATURES
This Agreement together with any of the following attachments and any exhibits
referred to in this Agreement contains the entire accreditation of the verifier.
This Agreement may be modified or canceled only by a written Amendment
signed and dated by both the verifier and Registry. The parties shall not be
bound by any terms, conditions, oral statements, warranties, or representations
not herein contained.
                     VERIFIER                        REGISTRY
Name                 _____________________           ________________________
Company/Agency       _____________________
Address              _____________________           ________________________
                     _____________________           ________________________
Phone Number         _____________________           ________________________
Verifier Number      _____________________

Verifier Signature   ____________________      ___/___/___


Accreditor Signature ___________________       ___/___/___
                            Ecosystem Credit Registry

                              Conflict of Interest Code

                           Draft Version June 24, 2008
Overview

This document describes the conflict of interest code for the Ecosystem Credit Registry
(Registry), with particular focus on conflicts between Registry clients and verifiers. After
becoming an accredited verifier and as an agreement is reached between a verifier and
client, the verifier must submit a Conflict of Interest Form with a Notice of Verification
Services to the Registry. The purpose of this form is to protect the integrity of the
verification process and the quality of a Credit Owner’s offsets by identifying and
avoiding situations in which a verifier may be viewed as having an impaired ability to
objectively review a potential participant’s estimated offsets, usually from a pre-existing
business or personal relationship.

If there is low risk of a conflict of interest, the verifier can initiate verification activities.
If the risk of conflict of interest is substantial, a verifier can either abandon the proposed
agreement or work with the Registry to identify measures to alleviate conflict of interest
risk areas, or appeal the decision. The Registry will periodically audit Conflict of Interest
Forms.

An approved verifier may perform Registry-related verification services for a client for
up to five consecutive reporting years. A complete conflict of interest form is needed the
first year of an agreement. In years 2-5, the verifier does not need to submit forms unless
changes occur in organization, staffing, business practices or relationship with the client
from previous years.

Policy

Complex relationships may exist between a verifier and a client. Thus it may be difficult
to make an obvious judgment regarding potential conflict of interest. For the Registry, a
conflict of interest is a situation in which a verifier has competing professional and/or
personal interests that could impede their ability to objectively review and evaluate a
Credit Owner’s estimated offsets. A conflict of interest could also involve a situation
where the appearance of impropriety could undermine confidence in the verifier’s ability
to assess the estimated offsets.

The Registry will use objective criteria and professional judgment to formulate conflict of
interest opinions and will work with all interested parties to resolve problem areas. If the
Registry determines a conflict might exist, it will request the verifier demonstrate how it
can be avoided, eliminated, or otherwise mitigated. As necessary, the Registry may
request additional information to assist in making this determination. Factors for
evaluating potential conflict of interest include the nature of past and present
relationships, prior and existing service commitments, magnitude of financial
relationships, and the sensitivity of proposed work.

Cause for automatic determination of conflict of interest

   •   A verification body and client share any management

   •   Preparation of a Credit Owner’s Credit Report. A verifier is prohibited from
       consulting on or preparing any part of a Credit Owner’s Credit Report, regardless
       of the point in time that that may have occurred. The verifier must declare all of
       its previous, existing, and planned involvement with a Credit Owner’s credit
       monitoring, accounting, and reporting activities.

   •   A financial stake in credits being sold from the project. A verifier is prohibited
       from having any financial stake in the quantity of credits sold from a project. A
       verifier is also prohibited from providing verification services to any client who
       provided more than 3% of the verifier’s annual revenue in any year over the prior
       3 years.

   •   Duration of verification relationship. Verifiers can only provide services to a
       client for five consecutive reporting years. After this cycle, the client must
       contract with a different verifier. The original verifier cannot provide services to
       that client for a three year off-cycle period.

Potentially conflicting services

The following list of services may cause a conflict of interest. The list is not exhaustive,
nor do these services automatically constitute a conflict of interest.

   •   Designing or developing credit information systems
   •   Developing credit calculation methodologies
   •   Designing projects to explicitly create credit
   •   Brokering, advising, or assisting in any way in ecosystem markets
   •   Preparing or producing credit-related manuals for the participant
   •   Legal and expert services unrelated to Registry verification

Appeal process

If a verifier receives a notice of conflict of interest from the Registry, it can mitigate its
conflict or appeal the notice. A mitigation plan must be submitted to the Registry for
review and at minimum include: Demonstration that any conflicted individuals have been
removed or insulated from the project; Explanation of any changes to organizational
structure or verification team; Other circumstances that specifically address conflicts.
A verifier can also appeal a notice of conflict of interest to the Registry Dispute
Resolution Committee. The committee is made up of PEOPLE. All information will be
kept confidential. It will determine a final answer by majority vote and their decision will
be binding.

Rescission of Accreditation

If the verifier is found to have intentionally violated the conflict of interest code, the
Registry reserves the right to rescind a verifier’s accreditation for any appropriate period
of time.
                          Ecosystem Credit Registry
                          VERIFICATION NOTICE & CONFLICT OF INTEREST FORM
                          Last updated June 19, 2008. For questions, contact: David Primozich at
                          Primozich@verizon.net.



Date:

Credit Owner Name:
Company/Agency:                                   Title:
Telephone:
Email:
Mailing address:
Seller account number:

Verifier Name:
Company/Agency:                          Title:
Telephone:
Email:
Mailing address:
Verifier accreditation number:             Valid until:

The parties listed above have entered into a verification services agreement to verify the
following credits at these sites:__________________________________

 Serial #          Quantity             Type                     Service area
 1
 2

To the best of my knowledge, I         (printed name) attest that the information
provided in support of this conflict of interest form is true and complete and that I
have complied with the Registry’s current Conflict of Interest Code.
_______________                        _______________
                                        Date
Verifier signature

Based on the information provided in the following pages, we believe our risk of Conflict
of Interest for verification of the following site(s) is:

High                Medium                        Low
For Registry purposes only:
Date received:
Date application found to be complete:
                          Ecosystem Credit Registry

             Confidential Business Information Guideline

                         Draft Version June 24, 2008
Overview

In the course of a participant providing information to the Ecosystem Credit Registry
(Registry) or in verification of projects, there may be information that needs to be kept
confidential. An essential goal of the Registry is to promote transparency, but the
Registry also respects the need for privacy. This guideline documents which information
might be considered confidential and the process for marking it as confidential. The
guidance draws heavily from EPA's Regulations on the Confidentiality of Business
Information (see 40 CFR Part 2).

Automatically confidential information

Each Credit Owner must submit contact information to the Registry as part of a request to
verify credits. Much of that contact information (e.g. phone, email, etc…) will be kept
confidential by the Registry. The Credit Owner’s organizational and lead contact identity
is not automatically kept confidential. Any information submitted in a conflict of interest
form between a verifier and a Credit Owner is automatically kept confidential. All other
information must be claimed confidential.

Policy for claiming confidential information

Restrictions on public disclosure are acceptable only where compelling reasons to protect
confidential business information are provided and where these reasons clearly outweigh
the public interest. These reasons must be submitted as a claim of confidentiality.

1. Asserting a Claim

Information claimed as confidential must be clearly marked by boxing, circling or
underlining in all submitted forms and reports. All pages containing such information
should also be marked "CONFIDENTIAL." Care should be taken to ensure that these
markings do not obscure the submission's text.

2. Sanitized Copy

Two versions must be filed of any hard copy documents submitted to the Registry
containing information claimed as confidential. One copy should be complete, with the
information being claimed as confidential marked in the manner described above. The
other copy should have all of the information claimed as confidential excised. This
version will be placed in the Registry’s Public Files. See 43 Federal Register, page 1113,
titled, "X. Confidentiality Claims," March 16, 1978 for EPA views.

3. Substantiating claims of Confidentiality

Detailed written responses to the following questions must be provided to substantiate
your confidentiality claim(s). Your responses should be as specific as possible, with
examples as appropriate, and should provide substantiation arguments for all types of
information (e.g., landowner contact information, sales, prices, etc…) you claim as
confidential. The Registry must receive a response to these questions within twenty (20)
business days of your receipt of this mailing. Substantiation questions:

   1. Is your company asserting this confidential business information (CBI) claim on
      its own behalf? If the answer is no, please provide company name, address and
      telephone number of entity asserting claim.
   2. For what period do you assert your claim(s) of confidentiality? If the claim is to
      extend until a certain event or point in time, please indicate that event or time
      period. Explain why such information should remain confidential until such point.
   3. Has the information that you are claiming as confidential been disclosed to any
      other governmental agency, or to this Registry at any other time? Identify the
      Agency to which the information was disclosed and provide the date and
      circumstances of the same. Was the disclosure accompanied by a claim of
      confidentiality? If yes, attach a copy of said document reflecting the
      confidentiality agreement.
   4. Briefly describe any physical or procedural restrictions within your company
      relating to the use and storage of the information you are claiming CBI.
   5. If anyone outside your company has access to any of the information claimed
      CBI, are they restricted by confidentiality agreement(s). If so, explain the content
      of the agreement(s).
   6. Does the information claimed as confidential appear or is it referred to in any of
      the following:
      a. Advertising or promotional material;
      b. Professional or trade publications; or
      c. Any other media or publications available to the public or to your competitors.
      If you answered yes to any of the above, indicate where the information appears,
      include copies, and explain why it should nonetheless be treated as confidential.
   7. Has another organization or court made any confidentiality determination
      regarding information associated with this claim? If so, provide copies of such
      determinations.
   8. Describe the substantial harmful effects that would result if the CBI information is
      made available to the public? In your answer, explain the causal relationship
      between disclosure and any resulting substantial harmful effects. Consider in your
      answer such constraints as privacy, capital and marketing cost, specialized
      technical expertise, or unusual circumstances. Address each piece of information
      claimed CBI separately.
Supporting Documents for
 Section 7 – Transaction
        (Task 5)
                                                   Current Research on the Willamette Basin
Project/Activity Focus                 Project Partners/Participants/Funding               Relevancy to Project Primary Person in Charge
                                                                                                hi/med/lo                                                    comments                                                                   information sources
Federal Species Protection
Oregon chub recovery plan              ODOT, USFS, ODFW, OSU, USACE, ODPR,                        med          Anne Badgley? USFWS                           The recovery plan is designed to bring OR chub off of the ES list with     http://ecos.fws.gov/docs/recovery_plan
                                       USFWS                                                                                                                 the intention of managing existing sites, eliminating non-native           s/1998/980903b.pdf
                                                                                                                                                             competitors, reintroduction, and public education and outreach. In the
                                                                                                                                                             WRB they have worked on: Gray Creek Drainage (William L. Finley
                                                                                                                                                             National Wildlife Refuge), South/Dunlin/Wood Duck Pond area of
                                                                                                                                                             Ankeny National Wildlife Refuge) and preliminary discussions have
                                                                                                                                                             been initiated with private landowners in the N. Santiam River
                                                                                                                                                             drainage to protect OR chub habitat in Gray Slough. Total estimated
                                                                                                                                                             cost: $1,732,000
Draft bull trout recovery plan                                                                    med                                                        The recovery plan has the same objectives as above. There is strong        http://www.fws.gov/pacific/bulltrout/colk
                                                                                                                                                             data behind the study (10 yrs monitoring data). They plan to               la/recovery/chapters/Chapter_2/C2_Str
                                                                                                                                                             implement: watershed assessments, monitor sediment, modify                 ategy_for_Recovery.pdf
                                                                                                                                                             roads/trails, agricultural monitoring, water quality regulations -
                                                                                                                                                             encourage rapid implementation of the TMDL, Klamath Bull Trout
                                                                                                                                                             Working Group developed a water quality monitoring plan to improve
                                                                                                                                                             stream flow, eliminate barriers, increase fish passage, restore riparian
                                                                                                                                                             areas, dam operation, and control of non-native fish. Pg. 51-56
                                                                                                                                                             (Implementation Schedule Chapter
                                                                                                                                                             (http://www.fws.gov/pacific/bulltrout/colkla/recovery/chapters/Chapter_
                                                                                                                                                             7/C7_Implementation_Schedule.pdf)) has more specific restoration
                                                                                                                                                             actions with responsible parties, but no geographical link.

Willamette-Lower Columbia Salmon       ESA Executive Committee, NMFS, and ODFW                     hi                                                Recovery plan: (1) inventorying all ongoing state, tribal, local, and
                                                                                                               Patty Dornbusch - NMFS, ODFW, NOAA & ESA                                                                                 http://www.nwr.noaa.gov/Salmon-
Recovery Process                                                                                                                                     Federal conservation plans and planning efforts, as well as all existing           Recovery-Planning/Recovery-
                                                                                                                                                     Habitat Conservation Plans and 4(d) rule components in each                        Domains/Willamette-Lower-
                                                                                                                                                     planning area; (2) evaluating these existing conservation plans and                Columbia/upload/W-LC-Strategy.pdf ----
                                                                                                                                                     efforts to assess how well they address identified factors for decline             http://www.nwfsc.noaa.gov/trt/overview.
                                                                                                                                                     and limiting factors, and the extent to which they collectively achieve            cfm#recgoals
                                                                                                                                                     the identified recovery goals; (3) identifying and evaluating any
                                                                                                                                                     additional or alternative measures necessary for achieving the
                                                                                                                                                     identified recovery goals; (4) prioritizing the required recovery
                                                                                                                                                     measures and identifying the entity or entities responsible for
                                                                                                                                                     implementing them; and (5) estimating the costs and time needed to
                                                                                                                                                     carry out the identified recovery measures.

Defenders of Wildlife Ecosystem        Searching for opps to leverage ESA Species Banks,            ?          Sara Vickerman, Defenders of Wildlife
Marketplace                            etc.                                                                    (need to check with Sara on whether this is
                                                                                                               moving forward)
Federal Columbia River Power System    USACE, BPA, BIA, BLM, BOR, EPA, USFWS,                      hi          Federal Columbia River Power Systems &
Biological Opinion & RPAs              USFS                                                                    Basin wide Salmon Strategy
State Species Protection
ODFW Native Fish Conservation Policy   ODFW                                                       med          Holly Michaels (?)                            Main goals of protecting ecological communities, conserving genetic     http://www.dfw.state.or.us/ODFWhtml/I
                                                                                                                                                             resources, taking advantage of productive capacity of natural habitats, nfoCntrFish/NFCP_091203.pdf ----
                                                                                                                                                             and planning responsible hatcheries
ODFW Wildlife Diversity Plan and       ODFW                                                       med          Holly Michaels                                                                                                        GIS map information:
Program                                                                                                                                                                                                                              http://nrimp.dfw.state.or.us/nrimp/defau
                                                                                                                                                                                                                                     lt.aspx?pn=data resources --- inventory
                                                                                                                                                                                                                                     of state and federal fish and wildlife
                                                                                                                                                                                                                                     plans and programs:
                                                                                                                                                                                                                                     http://www.nwcouncil.org/fw/subbasinpl
                                                                                                                                                                                                                                     anning/willamette/plan/App%20L_State
                                                                                                                                                                                                                                     %20Fed%20Inv.pdf
                                                      Current Research on the Willamette Basin
Project/Activity Focus                   Project Partners/Participants/Funding                     Relevancy to Project Primary Person in Charge
                                                                                                        hi/med/lo                                                 comments                                                                    information sources
ODFW Subbasin-specific Salmon and        NW Power Planning Council                                          hi          ODFW                                      Most of the data they used to create their plan is based on the NW          map info:
Steelhead Production Plans                                                                                                                                        Research Consortium (Hulse and Gregory Data U of O/OSU).                    http://www.nwcouncil.org/fw/subbasinpl
                                                                                                                                                                  Recommended conservation themes: deal with the dams—change                  anning/willamette/plan/App%20R_PCA-
                                                                                                                                                                  flow regimes and establish fish passage, fix culverts and diversions to     CROA%20maps.pdf ---- general plan:
                                                                                                                                                                  allow fish passage, focus on valley and foothills wildlife, restore         http://www.nwcouncil.org/fw/subbasinpl
                                                                                                                                                                  lowland riparian areas, restore low-cost, high-return areas of the          anning/willamette/plan/
                                                                                                                                                                  Willamette River floodplain, let the river cool itself by seeping through
                                                                                                                                                                  streamside gravels, alcoves, and islands, ensure that all priority
                                                                                                                                                                  themes above are taken up and supported in an organized
                                                                                                                                                                  way at the local level.


ODFW Subbasin-specific Fish              ODFW                                                             med          ODFW
Management Plans
ODFW Fisheries Management                ODFW                                                             med          ODFW
Evaluation Plans
ODFW Hatchery and Genetic                6 HGMPs: Clackamas River Winter Steelhead                        med          ODFW
Management Plans                         Program, McKenzie River Spring Chinook, North
                                         and South Santiam River Spring Chinook program,
                                         North and South Santiam River Summer Steelhead
                                         program, Willamette Basin Rainbow Trout program,

Fish Passage                             local, state, and federal agencies coordinated by                 hi          ODFW
                                         ODFW
ODFW Willamette Mitigation Program                                                                         hi          ODFW
Corps of Engineers Willamette Basin                                                                        hi          USACE
Reservoir Project Management
Water Quality
NPDES program                            industries with large pollutant loads, toxic discharge,           hi          NPDES
                                         large domestic waste treatment facilities

Stormwater Management                    Keizer, Turner, Springfield, Coburg, Corvallis,                  med          NPDES - CWA
                                         Philomath, and Adair Village communities
Combined Sewer Overflow correction       Portland and Corvallis                                           med          DEQ
Total Maximum Daily Loads                Tualatin Subbasin                                                 hi          DEQ
Agricultural Water Quality Management                                                                     med          DEQ - ODA - Mike Powers (?)                They have several different plans they have developed based on              http://oregon.gov/ODA/NRD/docs/pdf/pl
Plans                                                                                                                                                             location. The major objectives for the plan are: education, resource        ans/wlmtmid_04_pln.pdf
                                                                                                                                                                  management, funding, and evaluation. The prevention and control
                                                                                                                                                                  measures are temperature and bacteria.
Historical Channel Maps                  OSU, EPA, PNW, ERC                                                hi          Stan Gregory
Temperature Data being collected in      OSU                                                               hi          Stan Gregory - Stan to prepare river
2006                                                                                                                   temperature maps?
Temperature Data collected in 2005       OSU, CSTNS, ODEQ, NSF?                                            hi          Stan Gregory - Stan to prepare river
                                                                                                                       temperature maps?
Portland Harbor Superfund Clean Up                                                                         lo          DEQ - EPA
Floodplain Restoration Priorities        EPA Star                                                          hi          Stan Gregory and David Hulse, University
                                                                                                                       of Oregon
Quantify temperature reduction through   NSF                                                               hi          Steven Lancaster and Roy Haggardy,                                                                                     http://www.deq.state.or.us/WQ/wqtradi
hyporheic zone                                                                                                         University of Oregon                                                                                                   ng/docs/hyporheicreport.pdf
Using Market Forces to Implement         EPA                                                               hi          Dan Vizzini and Jim Middaugh, City of
Sustainable Stormwater Management                                                                                      Portland
Interagency Flow Management Work         USACE                                                             hi          USACE and TNC
Group (Sustainable Rivers)
ACWA Review of NPDES Users               ACWA                                                              hi          Stuart Rounds, USGS
                                                          Current Research on the Willamette Basin
Project/Activity Focus                       Project Partners/Participants/Funding                   Relevancy to Project Primary Person in Charge
                                                                                                          hi/med/lo                                                 comments                                                              information sources
State and Federal Refuge Complex/Greenway
Tualatin River and the Wapato Refuges

Green Island Restoration/Refuge Studies USFWS, MRT                                                              med      Joe Moll, MRT & Jim Hout USFWS

Riparian Vegetation Cover            OSU                                                                         hi      Stan Gregory
Wood Abundance                       OSU                                                                         hi      Stan Gregory
State Wildlife Management Areas                                                                                 med      USACE
Willamette Greenway                  Willamette Greenway Advisory Committee                                      hi      Oregon Parks and Recreation Dept.
Multi-Purpose Programs Affecting System
Northwest Forest Plan/Aquatic        Forest Service                                                             hi                                                                                                                        subscription needed:
Conservation Strategy                                                                                                                                                                                                                     http://www.blackwell-
                                                                                                                                                                                                                                          synergy.com/doi/abs/10.1111/j.1523-
                                                                                                                                                                                                                                          1739.2006.00380.x?cookieSet=1&jour
                                                                                                                                                                                                                                          nalCode=cbi --- final EIS:
                                                                                                                                                                                                                                          http://www.reo.gov/library/acs/final-
                                                                                                                                                                                                                                          seis/1final_eis.pdf
Oregon Forest Practices Act             Department of Forestry                                                   hi
Farm Bill landowner incentives programs NRCS                                                                    med      NRCS                                       the 2002 act authorizes $50 million for the Klamath Basin in Oregon   http://www.biodiversitypartners.org/ince
                                                                                                                                                                    and California.                                                       ntives/programfed.shtml
Oregon Plan for Salmon and Watersheds-                                                                          hi       WRI
WRI
Oregon Watershed Enhancement            OWEB - and watershed councils/SWCD's                                med/hi       WC, SWCD or other grant lead
Board's Grant Program
Shovel-ready "Industrial Lands" -       OECDD/DSL                                                               hi       Lynn Beaton/DSL; Gabrielle___/OECDD
Wetland Mitigation Demand
River Channel Data and Restoration      OSU, STAR                                                               hi       Stan Gregory
FEMA Floodplains                        OSU, EPA, PNW, ERC                                                      hi       Stan Gregory
Flood History Maps                      OSU, EPA, PNW, ERC                                                      hi       Stan Gregory
Willamette Flow Management Project                                                                                       TNC
Willamette Basin Collaborative Modeling IWR Appropriation                                                                Matt Rea, Corps of Engineers

Ecosystem Economics Model for                NWPCC Grant                                                                 Dan Heagerty, DEA
Willamette Basin Restoration and
Conservation
Willamette Marketplace Collaborative         NFWF Grant                                                                  David Primozich, Willamette Partnership
Stakeholder Involvement
Willamette River Basin Planning Atlas        EPA et al                                                          hi       Stan Gregory and David Hulse, University
(Alternative Futures Study)                                                                                              of Oregon
Local Conservation Efforts
Local Governments                                                                                                hi
Watershed Councils and Soil and Water        ORS                                                                med      SWCDs
Conservation Districts
Other on-going efforts
Governor's Willamette Initiative             Need to find out who is in charge and what they are doing now               Governor's staff
Watershed Councils                           OWEB - Need to identify projects or activities that are relevant            Council Coordinators
Institutional Modeling of Willamette Basin   PSU                                                                hi       Stephan Brown, PSU
Ecosystem Marketplace
Contribution to Market Appraisal Task 1                                                                         hi       Bobby Cochran, CWS

Willamette Basin Land Cover and                                                                                          Steve Palasky
Economic Use (almost done?)            University of Minnesota                                                hi
Clackamas River Floodplain Restoration                                                                      med/hi       John_____/PGE
                                       PGE
                       WATER QUALITY TRADING PERMIT LANGUAGE
                                    FINAL DRAFT
                                       (9-27-07)


1. Water Quality Credit Trading in the Willamette Basin
   a. Authorization of Thermal Load Credit Trading
      The permittee is authorized to utilize water quality credit trading to assist in compliance with
      thermal load permit requirements as follows:
      i. The permittee’s credit trading activities may not cause a net increase of thermal load or
          impair instream beneficial uses. In addition, the credit trading activities must be designed to
          reduce or offset thermal loads, improve instream temperatures, and/or improve or restore
          conditions for salmonids in the Willamette Basin (see condition 1.f below).
      ii. The permittee must develop and implement a credit trading program that meets the
          requirements in conditions 1.c to 1.h below.

    b.   Authorization of Additional Parameters
         The permittee may request authorization from the Department to utilize water quality credit
         trading for parameters other than thermal load. This request must be consistent with the
         requirements in conditions 1.c to 1.e, 1.g, and 1.h below.

    c. Public Review and Department Approval of Permittee’s Credit Trading Program
       i. The permittee must submit its proposal for a credit trading program to the Department for
            review and approval.
       ii. The Department will provide an opportunity for a 30-day public review and comment period
            on the proposed credit trading program prior to approving or denying the proposal.
       iii. The permittee must submit any program amendment that changes the scope or direction of
            the program to the Department for public review and Department approval as described in (ii)
            above. Department approval and public review is not required for individual trading
            agreements provided the agreements are consistent with the overall scope of the credit trading
            program.

    d. Credit Trading Program Components
       At a minimum, the permittee’s program proposal must:
       i. Describe the planned credit trading activities, including the quantity of credits to be generated
            by these activities, methodology utilized to calculate the quantity of credits, and specific units
            of credits generated.
       ii. Target areas that are in need of improvement. The permittee should focus on areas that have
            greater potential for overall ecological benefit.
       iii. Include interim goals by which the success of the program will be measured. For example,
            tree planting goals for each year. These goals are not subject to enforcement action by the
            Department.

    e. General Provisions for Credit Trading
       i. Obtaining credits.
           (1) The permittee may obtain credits through contractual trading agreements with land or
                water conservation organizations, government agencies, private parties, or marketplace
                exchanges, or through activities performed by the permittee itself.
           (2) Trading agreements must be developed according to condition 1.g below and made
                available to the Department within 30 days of request.
       ii. Selling credits. The permittee may sell credits to a third party if the credits are not needed to
          comply with waste discharge limitations in Schedule A.
     iii. Validity of credits. Credits are valid if the following requirements are met:
          (1) Credits must be generated from activities that are not already required by statute or rule.
          (2) Credits must be generated prior to or during the period they are applied to the
               permittee’s waste discharge limitations in Schedule A except as provided in
               condition 1.f.iv below.
          (3) Assurances exist to ensure that credits are generated and will be maintained.
          (4) Maintenance plans are developed for the life of the credits.
          (5) Monitoring plans are developed and implemented for the activities generating credits to
               ensure that these activities are functioning as intended.
          (6) See condition 1.f below for additional requirements for thermal load credits.
     iv. Use of credit. The permittee may use credits to comply with its waste discharge limitations in
          Schedule A for as long as the pollution control, best management practice, or other
          environmental improvement project is functioning as expected.

f.   Provisions for Generating Thermal Load Credits
     i. Thermal load credits may be generated from the following activities including but not limited
          to:
          (1) Riparian area shading
          (2) Receiving stream flow augmentation
          (3) Recycling of wastewater effluent through reuse
          (4) Application of cooling technology
          (5) Other activities related to improving or restoring instream temperatures or conditions for
                salmonids (e.g., fish habitat improvements, floodplain restoration, wetland restoration).
     ii. Credits must be from activities implemented after the September 26, 2006, adoption date of
          the Willamette TMDL.
     iii. Credits for reducing thermal load must be generated in the area of the Willamette Basin
          upstream of the “Point of Maximum Impact” defined in the Willamette Basin Temperature
          TMDL (September 2006).
     iv. Credits for reducing thermal load with riparian shading via tree planting may be generated at
          the time trees are planted and may be used for a maximum of 20 years provided a long-term
          maintenance plan exists and is implemented.

g. Trading Agreements
   i. The permittee must ensure that trading agreements are written agreements that are signed and
      dated by authorized representatives of the buyer and seller. At a minimum the agreements
      must include the following:
      (1) Name of party(s) involved with the generation and use of credits and their
           responsibilities (e.g., seller, buyer).
      (2) Location map of the project area used to generate the water quality credits.
      (3) Description of activities that will generate the credits. For riparian shade restoration
           plans, plant selection and planting densities appropriate for site-specific soil conditions
           must be included. For flow augmentation plans, source and period of augmentation
           water must be included.
      (4) Quantity of credits to be generated including a summary of the methodology utilized to
           calculate the quantity of credits and specific units of credits generated (e.g., the Shad-a-
           lator model developed by DEQ was used to calculate credits from shade restoration
           activities).
      (5) Long-term financial plan for implementation and maintenance of credits.
      (6) Maintenance plan that includes a schedule and specific activities for the life of the credit.
      (7) Monitoring plan to ensure that the activities generating the credits are functioning as
             intended.
        (8) Consequences for failure to fulfill negotiated terms.
    ii. A breach of a trading agreement by either party is not a violation of this permit. If the credits
        expected from the breached agreement are necessary to maintain compliance with its waste
        discharge limitation in Schedule A, the permittee must update and submit its credit trading
        program to the Department within 60 days of the breach. The permittee must explain in its
        updated credit trading program how it will compensate for the loss of credits.

h. Annual Credit Trading Program Report
   i. The permittee must submit to the Department by [insert month, day] an annual report
        summarizing the results of its credit trading activities for the previous calendar year. At a
        minimum, the report must include:
   ii. Summary descriptions of trades, including whether credits were:
        (1) Generated by activities conducted by the permittee or purchased by the permittee; and
        (2) How the credits were used (e.g., applied towards compliance with waste discharge
            limitations, sold to another permittee).
   iii. A progress update relative to the interim goals defined for the trading program.

								
To top