Introduction to Water Quality Introduction to Water Quality TradingTrading

National Forum

On

Water Quality TradingJuly 22-23, 2003

Chicago, Illinois

The Cost of Cleaner WaterThe Cost of Cleaner WaterThirty years of progress!Thirty years of progress!

In 1997, $14 billion private and $34 billion public point source control costs, annually

$80 billion paid - 190 million served (165 million with secondary or better waste water treatment).

In 1998 the estimated annual cost to develop TMDLs is about $69 million for the next 15 years

Annual TMDL implementation costs range from $900 million to $4.3 billion

The Challenges Ahead The Challenges Ahead Different challenges call for different approaches: end-o-pipe controls to watershed Different challenges call for different approaches: end-o-pipe controls to watershed

management, prescriptions to partnerships and command – and – control to market-based management, prescriptions to partnerships and command – and – control to market-based approaches.approaches.

~45 % of assessed waters don’t support designated uses; 40,000 TMDLs need to be developed.

Storm water runoff from unregulated “nonpoint” sources, legacy pollutants and atmospheric deposition are major sources of pollution.

Growth and development will place greater demands on water quality and supply.

Aging infrastructure. The widening gap, “doing more with less”.

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

Trading is the voluntary exchange of pollutant reduction credits between sources to meet regulatory obligations or voluntary water quality goals.

Pollution reduction credits are created when a source reduces pollution beyond the level required.

Trading achieves greater efficiency by capitalizing on: Economies of scale within sectors. Control cost differentials across sectors.

“Water quality trading” is based on water quality standards and aligned with the Clean Water Act.

Why Trade?Why Trade?Trading offers cleaner water, quicker and cheaperTrading offers cleaner water, quicker and cheaper

EPA estimated potential cost savings of $650 million to $7 billion annually from all types of trading

A World Resources Institute study found the cost of controlling phosphorus from point sources in Wisconsin, Michigan and Minnesota could be reduced 40% to 80% through trading with nonpoint sources.

Connecticut’s Nitrogen Credit Exchange is projected to result in 56 fewer capital projects and save over $200 M over 14 years.

Types of TradingTypes of Trading Point Source (PS) Trading

Connecticut Nitrogen Exchange Point/Nonpoint Source (P/NPS) Trading

Cherry Creek, Colorado Lower Boise River, Idaho

Nonpoint Source (NPS) Trading Grasslands Tradable Loads Program, California

Intraplant (Cross-outfall) Trading Iron and Steel Effluent Guidelines

Pretreatment Trading New Jersey

Factors To ConsiderFactors To Consider Water quality requirements or goals (Drivers):

Maintaining high quality waters. Restoring impaired waters. Ancillary environmental benefits.

Watershed characteristics (Trading Area and Sources): Size of the trading area. Unique features (impoundments, floodplains and wetlands). Type, number, mix and relative loads of sources.

Economic conditions (Trading Potential): Control cost differentials among and between sources. Development and land use changes.

Partnerships (Support and Implementation).

Common ElementsCommon Elements Objectives:

Implementing TMDLs. Voluntary Pre-TMDL watershed programs. Offsetting new and increased discharges to maintain high

water quality. Trading to achieve ancillary environmental benefits:

• Wetland restoration to improve water quality and provide habitat.

• Agricultural changes to improve water quality and mitigate green house gas emissions.

Trading for smart growth or to mitigate legacy pollutants.

Type of program (PS, PS/NPS, NPS). Pollutant (reductions) or other parameters traded.

Common Elements (continued)Common Elements (continued) Eligibility:

Surplus reductions required to create credits. Required PS or NPS controls and management practices. Credit creation and duration.

Baselines: Reductions greater than water quality based requirements. Existing environmental quality. Base year land uses and management practices.

Trading Ratios: Pollutant, spatial and temporal equivalence. NPS load variability and control efficiencies. NPS quantification uncertainty.

Common Elements (continued)Common Elements (continued)

Quantification protocols. Mechanisms to establish NPS accountability. Program evaluations, including monitoring. Public participation and access to information. Trading registry to track trades and evaluate

compliance.

How Can Trading Be Implemented?How Can Trading Be Implemented? National Pollutant Discharge Elimination System

(NPDES) permits. General or watershed permits. Alternate or variable permit limits. Performance requirements in lieu of limits.

TMDLs and watershed plans with trading provisions.

Trading under state regulations. Private contracts. State revolving fund programs. Conservation Innovation Grants.

The Formula for SuccessThe Formula for Success

Establish political supportpolitical support for a trading framework.

Build stakeholder consensusstakeholder consensus and recommendations for implementation.

Leverage programs and resources through partnershipspartnerships at the federal, state and local level.