EPA’s Water Quality Trading Policy

EPA’s Water Quality EPA’s Water Quality Trading PolicyTrading Policy

ByBy

Stephen BernathStephen Bernath

Policy AnalystPolicy Analyst

Water Quality ProgramWater Quality Program

Department of EcologyDepartment of Ecology

Contents of Presentation onContents of Presentation onEPA’s Water Quality Trading PolicyEPA’s Water Quality Trading Policy

What is water quality tradingWhat is water quality trading

Purpose of water quality trading Purpose of water quality trading policypolicy

Where might trading take placeWhere might trading take place

Why interest in tradingWhy interest in trading

Pollutants and parameters tradedPollutants and parameters traded

Baselines for tradingBaselines for trading

Contents of Presentation (con’t)Contents of Presentation (con’t)

When trading may occur & what kindWhen trading may occur & what kind

Alignment of trading w/Clean Water Alignment of trading w/Clean Water ActAct

Elements of credible trading Elements of credible trading programsprograms

EPA role and oversightEPA role and oversight

Next steps for WA exploring tradingNext steps for WA exploring trading

What is Water Quality What is Water Quality Trading?Trading?

Market-based approach that may offer a Market-based approach that may offer a quicker or less costly route to reaching quicker or less costly route to reaching clean water goals.clean water goals.– Allows a source to meet its regulatory Allows a source to meet its regulatory

obligations by using pollutant reductions obligations by using pollutant reductions created by another source with lower pollution created by another source with lower pollution control costscontrol costs

Purpose of EPA’s Trading Purpose of EPA’s Trading PolicyPolicy

Greater efficiency - achieve water quality Greater efficiency - achieve water quality goals at lower costgoals at lower cost– e.g., NPS BMPs may cost less than plant e.g., NPS BMPs may cost less than plant

upgrade or may provide City with time to upgrade or may provide City with time to obtain financing for upgradeobtain financing for upgrade

Incentives for voluntary reductions from all Incentives for voluntary reductions from all sources especially NPSsources especially NPS

NPS trading actions can result in secondary NPS trading actions can result in secondary environmental benefits such as:environmental benefits such as:– Wetland restoration & habitat Wetland restoration & habitat

enhancementsenhancements

Purpose of EPA’s Trading Policy cont’dPurpose of EPA’s Trading Policy cont’dProvides guidance to states, tribes and others Provides guidance to states, tribes and others that wish to develop trading programsthat wish to develop trading programs

Strengthens EPA’s support for trading by:Strengthens EPA’s support for trading by:– Affirming Clean Water Act authority for Affirming Clean Water Act authority for

tradingtrading– Addressing how to align trading with CWAAddressing how to align trading with CWA– Identifying features of credible trading Identifying features of credible trading

programsprograms

Highlights flexibility while emphasizing Highlights flexibility while emphasizing environmental safeguardsenvironmental safeguards

Where Might Trading Take Where Might Trading Take Place?Place?

When a watershed is facing:When a watershed is facing:– Fixed pollutant load limitsFixed pollutant load limits– Need to reduce pollutant loadings to Need to reduce pollutant loadings to

watershedswatersheds– Shared assimilative capacity, andShared assimilative capacity, and– Increasing costs to meet load limitsIncreasing costs to meet load limits

Why Might Point Sources be Why Might Point Sources be Interested in Trading?Interested in Trading?

Costs often incurred in large incrementsCosts often incurred in large increments

Need for reductions evolves in smaller Need for reductions evolves in smaller incrementsincrements

Allows for delays in technology Allows for delays in technology investments until “optimal” timeinvestments until “optimal” time

Obtains reductions at lower costObtains reductions at lower cost

Purchases the exact reduction neededPurchases the exact reduction needed

Provides incentive to create additional Provides incentive to create additional pollutant reductions for salepollutant reductions for sale

Why Might Nonpoint Sources be Why Might Nonpoint Sources be Interested in Trading?Interested in Trading?

Trading can:Trading can:– Bring cost effective reductions to Bring cost effective reductions to

market;market;– Potentially help meet estimated demand Potentially help meet estimated demand

for pollution reductions; and,for pollution reductions; and,– Provide financial resources for NPS Provide financial resources for NPS

management practices.management practices.

What Pollutants May Be Traded – EPA What Pollutants May Be Traded – EPA Support Varies by Type of PollutantSupport Varies by Type of Pollutant

Trading of nutrients and sediment loadings Trading of nutrients and sediment loadings encouragedencouraged

Cross-pollutant trades Cross-pollutant trades supportedsupported for oxygen- for oxygen-related pollutants related pollutants where data existwhere data exist to to determine and correlate impactsdetermine and correlate impacts

For other pollutants, EPA For other pollutants, EPA recognizes potential recognizes potential benefitsbenefits but recommends but recommends more oversightmore oversight for for these tradesthese trades

For For anyany pollutant: no trading can cause a toxic pollutant: no trading can cause a toxic effect or cause/contribute to an impairmenteffect or cause/contribute to an impairment

No out-of-kind tradingNo out-of-kind trading

Trading May OccurTrading May Occur

To implement a TMDLTo implement a TMDL

To maintain water quality in To maintain water quality in unimpaired watersunimpaired watersIn impaired waters before a TMDL is In impaired waters before a TMDL is developed developed if if trading achieves progress trading achieves progress towards water quality standardstowards water quality standards

What Kinds of Trading May OccurWhat Kinds of Trading May Occur

Intra-plantIntra-plant

Pre-treatmentPre-treatment

Point-source to point-sourcePoint-source to point-source

Point-source to nonpoint-sourcePoint-source to nonpoint-source

Nonpoint to nonpointNonpoint to nonpoint

Baselines for Trading & Creating Baselines for Trading & Creating Pollution Reduction CreditsPollution Reduction Credits

Trading protects all uses of the water Trading protects all uses of the water resource including drinking water supplyresource including drinking water supplyNo violation of water quality standards No violation of water quality standards through tradingthrough tradingNo trading to meet technology-based No trading to meet technology-based requirementsrequirements

Baselines for Trading & Creating Baselines for Trading & Creating Pollution Reduction Credits (con’t)Pollution Reduction Credits (con’t)

Only pollution reductionsOnly pollution reductions beyondbeyond those those required create ‘credits’ that can be required create ‘credits’ that can be purchased by otherspurchased by others– for point sources, reductions beyond for point sources, reductions beyond

water quality based effluent limitswater quality based effluent limits– for non-point sources, dependent on for non-point sources, dependent on

current BMP expectationscurrent BMP expectationsCredits should be created before or during Credits should be created before or during the time they’re used to comply with a the time they’re used to comply with a permit limitpermit limit

Aligning Trading withAligning Trading withthe Clean Water Actthe Clean Water Act

Trading is generally reflected in NPDES Trading is generally reflected in NPDES permitspermitsFlexible permitting approaches encouragedFlexible permitting approaches encouraged– General conditions authorizing trading and General conditions authorizing trading and

applicable restrictions, conditionsapplicable restrictions, conditions– Variable permit limits that adjust up or down Variable permit limits that adjust up or down

depending on credits generated, useddepending on credits generated, used– Alternate permit limits that specify amount Alternate permit limits that specify amount

of discharge limit that may be met through of discharge limit that may be met through tradingtrading

– Watershed permits for groups of sourcesWatershed permits for groups of sources


NPDES permits and fact sheets should NPDES permits and fact sheets should describe baselines, limitations on tradingdescribe baselines, limitations on trading

Permit modification not needed for each Permit modification not needed for each trade if trading provisions included in trade if trading provisions included in permit and public had opportunity to permit and public had opportunity to commentcomment

Methods referenced or included in NPDES Methods referenced or included in NPDES permits continue to be used with tradingpermits continue to be used with trading


Protecting Designated Uses. EPA does not Protecting Designated Uses. EPA does not support trading that causes impairment of support trading that causes impairment of uses, adversely affects drinking water intake, uses, adversely affects drinking water intake, or exceeds TMDL capor exceeds TMDL cap

CWA Antibacksliding ProvisionsCWA Antibacksliding Provisions– Generally satisfied if an increased Generally satisfied if an increased

discharge is offset by purchased creditsdischarge is offset by purchased credits– Generally satisfied if point source Generally satisfied if point source

generates credits then discontinues, if total generates credits then discontinues, if total pollutant load not increased (extra pollutant load not increased (extra capacity)capacity)


AntidegradationAntidegradation– Trading should be consistent with Trading should be consistent with

water quality standards including water quality standards including antidegradation policiesantidegradation policies

EPA recommends states clarify how EPA recommends states clarify how trading can occur consistent with their trading can occur consistent with their policies (ie. new standards)policies (ie. new standards)

Nonpoint Source Issues: Nonpoint Source Issues: UncertaintyUncertainty

Uncertainty is greater for NPS pollution loads Uncertainty is greater for NPS pollution loads and reductionsand reductionsPolicy recommends adopting approaches to Policy recommends adopting approaches to estimate, compensate for uncertaintyestimate, compensate for uncertainty– Greater than 1:1 trading ratios between Greater than 1:1 trading ratios between

NPS:PSNPS:PS– Demonstrated performance values for NPS Demonstrated performance values for NPS

management practices where availablemanagement practices where available– Conservative performance estimates for Conservative performance estimates for

NPS management practicesNPS management practices– Retire a percentage of the credits createdRetire a percentage of the credits created

Nonpoint Source Issues: Nonpoint Source Issues: AccountabilityAccountability

Policy recommends states and tribes Policy recommends states and tribes establish NPS accountability establish NPS accountability mechanismsmechanisms

Flexibility to choose from several Flexibility to choose from several mechanismsmechanisms– Statutory or regulatory requirements, Statutory or regulatory requirements,

permits, private and third-party permits, private and third-party contractscontracts

Elements of CredibleElements of Credible Trading Programs Trading Programs

Legal mechanisms to facilitate tradingLegal mechanisms to facilitate trading

Clearly defined units of tradeClearly defined units of trade

Methods to quantify credits and Methods to quantify credits and address uncertaintyaddress uncertainty

Compliance and enforcement Compliance and enforcement provisionsprovisions– Accountability for all tradesAccountability for all trades– NPDES permittees always responsible for NPDES permittees always responsible for

permit limits permit limits

Elements of CredibleElements of Credible Trading Programs, cont’d Trading Programs, cont’d

Timely public access to information on Timely public access to information on tradestrades

Public participation strongly encouraged Public participation strongly encouraged in program development, in program development, implementationimplementation

Monitor progress, evaluate program, Monitor progress, evaluate program, and revise as necessaryand revise as necessary

EPA Role and OversightEPA Role and Oversight

Early consultation with EPA Early consultation with EPA encouragedencouraged

EPA oversight of trading is through EPA oversight of trading is through existing mechanisms, e.g., NPDES existing mechanisms, e.g., NPDES permit review, TMDL approval, permit review, TMDL approval, review of revisions to water quality review of revisions to water quality standardsstandards

Trading doesn’t necessarily warrant Trading doesn’t necessarily warrant more EPA oversightmore EPA oversight

Trading – What’s Next?Trading – What’s Next?

Looking for local opportunities for Looking for local opportunities for trading pilot projectstrading pilot projects

Learn from trading pilot to enable Learn from trading pilot to enable other projects around stateother projects around state

Develop state-wide trading policyDevelop state-wide trading policy

Status of Trading in WAStatus of Trading in WA

EPA paid to evaluate the liklihood of EPA paid to evaluate the liklihood of trading on the Spokane Rtrading on the Spokane REcology paid for a prelim assessment of Ecology paid for a prelim assessment of the potential to trade in Lake Whatcom the potential to trade in Lake Whatcom (EPA grant)(EPA grant)City of Centralia has explored trading of City of Centralia has explored trading of temperature in the Chehalis basintemperature in the Chehalis basinA couple of basins have explored trading A couple of basins have explored trading on nutrientson nutrients

For more informationFor more information

EPA sites:EPA sites:– www.epa.gov/owow/watershed/trading.htmwww.epa.gov/owow/watershed/trading.htm

Water Quality Trading PolicyWater Quality Trading Policy Jan. 2003 Jan. 2003Water Quality Trading Assessment Handbook Water Quality Trading Assessment Handbook Fact SheetFact SheetPress ReleasePress Release

– www.epa.gov/r10 earth/ -- look in Indexwww.epa.gov/r10 earth/ -- look in IndexLinks to state trading websitesLinks to state trading websites

WA – water quality offsets rule -WA – water quality offsets rule - http://apps.leg.wa.gov/WAC/default.aspx?cite=173-201A-450http://apps.leg.wa.gov/WAC/default.aspx?cite=173-201A-450

Documents

EPA’s Water Quality Trading Policy