Aurecon engaged with Seqwater to run a pilot nutrient trading scheme and improve the health of South East Queensland waterways.

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South East Queensland Nutrient Trading Scheme, Australia

Research and development of a pilot nutrient trading scheme to improve health of South East Queensland waterways

Across the world, research shows that water security, soil management, salinity, biodiversity, and carbon and renewable energy trading markets are not achieving sustainable environmental outcomes. Traditional grey infrastructure comes at a high cost with diminishing returns, and provides a static solution for dynamic environmental issues.

As a result of two years of market viability research, Aurecon is leading the pilot nutrient trading scheme in South East Queensland to enhance the ecological integrity of the region’s waterways and Moreton Bay.

The health of water in the area has been declining due to increasing loads of nutrient-laden sediments from population growth and growing industrial activity. As sediments enter the waterways or Bay, they pose a risk to the health of the system and overload the city’s water and sewerage services.

Aurecon and GHD, supported by Queensland Urban Utilities, Seqwater, Suncorp and Redeye, researched the science, conceptualised the market, and developed the trading mechanism needed to run a pilot trading scheme that allows industry to restore water catchments as a way of offsetting their nutrient waste.

Natural capital has traditionally not been highly valued. But this is changing with the adoption of the System of Environmental Economic Accounting guidelines and the growth of green investment.

A stable and predictable system for nutrient trading is beneficial for promoting investment, innovation and technological change – all of which are vital for sustainable development and a green economy.

The project is supported by the Queensland Government, which, as the environmental regulator, had to create and regulate the market.

Restoring water catchments with a trading scheme

There is need for incentivisation and a “carrot versus stick” opportunity with substantial investment required given the scale of the problem of nutrient laden sediments entering waterways in South East Queensland. A trading scheme allows industry to assume some of that cost by undertaking catchment restoration actions that reduce soil erosion or surface water runoff from developments and farms, and decrease the overall nutrient load entering waterways.

In the global water sector, traditional water management has broadly failed to meet water security needs, contain infrastructure costs and avoid degradation of natural assets. Blending natural capital with engineering-based approaches (green/grey) will be required to achieve the projected 2050 $2.3 trillion water security infrastructure expenditure, representing a tripling of current levels.

Investment in natural capital for threat mitigation can achieve $3 trillion in avoided replacement costs, and additionally create co-benefits and new markets in traditionally capital constrained sectors.

Proving the science behind the scheme

The project determined that a nutrient cap and trade scheme would help to reduce the physical risks to waterways. This scheme enables and expedites investment and accelerates innovation by capturing nutrients and creating tradeable credits.

The scheme connects willing buyers, sellers and investors through a trading platform that creates a competitive market for cost-effective investments and incentivises the creation and trading of credits.

The research and development team proved the science to underpin the project, ensuring that potential buyers of offset nutrient credits had confidence in the trading scheme.

By adopting a pilot trading scheme, the research and development team can monitor the science to learn and adapt the market rules and operations, to minimise unintended consequences and make appropriate adjustments to the cap.

The government-regulated scheme lets producers and industry buy and sell discharge allowances. It allows sources with higher pollution control costs to purchase pollution reductions from sources with lower costs. Those with higher costs can save money, while those with lower costs can earn new revenue.

The science developed over many years of research, and the recent experience with environmental offsets, can now be applied to expedite transformation of catchments.

Boosting the green economy

The nutrient trading scheme is a green economic instrument that integrates the jigsaw puzzle pieces of ecological sustainability, economic viability and social equity. Prudent investment in ‘green’ assets delivers what customers and communities expect – safe sustainable water services at affordable prices.

The pilot scheme boosts the green economy in Queensland with industry investing in infrastructure that reduces sediments from entering waterways and Moreton Bay. This may include ecological monitoring and restoration works, revegetation, land protection works, effluent recycling, seaweed and algae cultivation, nutrient harvesting and reuse, and operational and maintenance job opportunities.

Investments contribute to lowering the volumes of sediments entering South East Queensland’s waterways and Moreton Bay. It also provides industry with incentives to find innovative ways of tackling environmental challenges.

“We need to make the connection between natural assets and human benefits. There is the ‘missing piece of the puzzle’ between the growing appetite for green investment and the quantification of what constitutes viable capital programs. Connecting this supply and demand is the tipping point to a new paradigm.”

– Colm Molloy, Principal, Environment and Planning, Aurecon.

Collaboration was the key to change

The research and development project had several co-benefits bringing together water utilities, government regulators, scientists, private sector, community groups, landholders and managers: to develop concepts and principles; and to co-create the pilot trading scheme. It attracted seed funding for research activities, and in-kind research and advisory expertise, to define the science behind the development of a trading mechanism.

It creates a competitive market for cost-effective investments and incentivises the creation and trading of credits. Without a market, there is little incentive to convert aspiration into value creation. It offers a real pathway towards cost-effectively reducing nutrient discharge into waterways and Moreton Bay for South East Queensland, which has a positive impact on ecological sustainability.

Globally, institutions and political leadership are under significant pressure to improve liveability and preserve natural resources. While decarbonisation and mitigation of climate change are the focus of political debate, there is a deeper more fundamental issue – society is degrading natural resources much faster than they can be replenished.

This natural capital is not valued in traditional economics but if we can realise the benefits, and shared benefits, of natural capital we create transformative change and stimulate economies.

The Opportunity

Natural resources are genuine assets and can be capitalised. The investment market is keen to understand the complexity of natural systems and the co-benefits that can be derived. The Nutrient Trading Scheme is an example of the value creation that can be achieved by developing incentivised schemes.

Similar opportunities exist in all major cities and towns to address water security, and harness the benefits of land fertility, food security, carbon farming, sustainable forestry, fisheries and biodiversity. A paradigm shift is beginning, with the birth of a natural capital market.

Our Natural Resources team creates new value from natural capital and from environmental markets. This Nutrient Trading Scheme is a mechanism to create a market for nutrients that drives better water management practice and helps create co-benefits. This is how incentivisation can outperform compliance, and how natural capital can augment traditional produced capital.

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