Fortune magazine has called water the oil of the 21st century. As watersheds around the world become increasingly strained, thirsty communities and businesses will be in the market for anything that can ensure sustainable access to this life-or-death resource. To understand this rapidly growing ecosystem, I sat down with Mike Van Patten, CEO of Mission Markets Earth. Mike specializes in trading environmental credits for things like wetland mitigation and water quality, and asked him where to find the hottest market opportunity on his radar. He answered before I could blink.
“No question,” he said, “it’s the nitrogen and phosphorous emissions markets in the Chesapeake Bay.”
Like many watersheds around the world, the Chesapeake is in a state of crisis. Mounting pollution is killing off the bay’s oysters, which provide reef-like structures that are a cornerstone of the region’s ecology. It became clear that business as usual could send the Chesapeake’s ecosystem into a tailspin, risking widespread environmental, economic, and political fallout.
To address the issue, President Obama and the EPA created a cap and trade system for emissions into the bay and its tributaries. These sorts of regulatory-driven credit markets are becoming standard practice around the US and Australia, we should expect more of them wherever strains on water quality and quantity create enough political will. This is an exciting trend for Mike, who’s recently launched is the first centralized multienvironmental exchange for these credits, and should be equally exciting for any entrepreneurs with good methods for preserving watershed health.
In the Chesapeake, one of the most pressing issues is the emission of nutrients, mostly phosphorous and nitrogen. These nutrients primarily come from wastewater treatment plants, where they are expensive to abate, and from agricultural runoff, which can be significantly reduced with a relatively small investment. The economics are simple: according to the World Resources Institute Virginia farmers can expect to take home an extra $50 million a year by cutting their runoff and selling the resulting credits. The result is green jobs in hard-hit rural areas, and businesses which specialize in reducing the largest source of water pollution in the country.
A $50 million market won’t raise many eyebrows among venture capitalists, but we should watch it as a microcosm of things to come. If water is the constrained resource of the 21st century, then markets like the Chesapeake are our best indicator of how that constrained resource will lead to opportunity.