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Water Quality Trading
EPA Region 10's Water Quality Trading Initiative
What is Water Quality Trading?
Water quality trading (also called effluent trading) is an innovative way for water quality agencies and community stakeholders to develop cost-effective solutions to address water quality problems in their watersheds. EPA's regulatory requirement under Section 303(d) of the Clean Water Act to establish Total Maximum Daily Loadings (TMDLs) for each impaired water body provides a tremendous opportunity to apply market-based conservation strategies. Water quality trading may achieve these environmental goals at a lower cost than other regulatory approaches.
A TMDL provides a method for allocating pollutant discharges among sources, by establishing waste load allocations for each point source, and a load allocation for non-point (non-permitted) sources as a whole. These allocations quantify the relationship between pollutant sources and water quality. More specifically, a TMDL is the sum of the waste load allocations to point sources, the load allocations to non-point sources, and natural background, which are set at a level needed to ensure achievement of water quality standards in the impaired water body. A margin of safety is also included in the TMDL to account for any lack of knowledge concerning the relationship between the pollutant loads and the quality of the receiving water body. One result of the TMDL allocation is that discharge sources with the ability to reduce at the lowest cost are not necessarily encouraged to make substantial reductions, since they need only reduce to the level of their load allocation. Other sources may need to make considerable reductions, but their costs may be very high. [To learn more about EPA Region 10's TMDL Program, click here]
Water quality trading allows sources to use the marketplace to determine who will reduce and by how much, by allowing the buying and selling of the assigned allotments. For example, a source that reduces more than what was required can quantify that amount and create a marketable "credit." That credit, in turn, can be purchased by another source, which allows them to increase their discharge by the amount of the credit. The total discharge by both sources remains the same, thereby maintaining overall water quality standards. With trading, the market price determines the most cost-effective distribution. Sources can use the trading of allotments to accommodate anticipated growth or other increases of their discharge, and avoid expensive last-minute technology investments. They may also profit from the adoption of pollution prevention techniques that reduce their discharge by selling their excess allotment in the market.
What is the Water Quality Trading Policy?
EPA issued a Water Quality Trading Policy ("policy") on January 13, 2003 to provide guidance to states and tribes on how trading can occur under the Clean Water Act and its implementing regulations. The policy discusses Clean Water Act (CWA) requirements that are relevant to water quality trading including: requirements to obtain permits, anti-backsliding provisions, development of water quality standards including antidegradation policy, National Pollutant Discharge Elimination System permit regulations, total maximum daily loads (TMDLs) and water quality management plans. Click here for more information and for a copy of the policy: http://www.epa.gov/owow/watershed/trading/tradingpolicy.html
What is EPA Region 10's Water Quality Trading Initiative?
EPA-Region 10 enthusiastically supports the concept of water quality trading and is working with counterparts in Idaho, Oregon and Washington to launch demonstration projects in each state from which they can develop state water quality trading programs. EPA Region 10 has also assigned a water quality trading coordinator, with considerable experience designing and implementing sulfur dioxide emissions trading for EPA's Acid Rain Program, to oversee the water quality trading initiative in the region and to provide technical assistance as needed.
Two projects were selected in July 1997 to receive the initial funding provided by EPA - the Lower Boise River in Idaho and the Puyallup/White River System in Washington. While the Lower Boise River Demonstration Project continues to be developed, the Puyallup project was later determined not to be feasible, primarily due to changing economic circumstances for its point sources. Once more EPA funding became available, a demonstration project on the Tualatin River in Oregon was launched in early 2002. Washington is currently looking for another candidate project and funding to launch its water quality trading program.
Using a workgroup composed of stakeholders, and state and EPA staff, each demonstration project will tailor the water quality trading approach to best meet the needs of the particular river basin or stream segment. While satisfying all existing state and federal environmental protection requirements, the projects are striving to achieve cost savings for the affected sources and create additional environmental benefits for the watershed.
What is EPA Region 10's Water Quality Trading Assessment Handbook?
Although the concept of water quality trading may seem simple, its application to a particular watershed is less straightforward. A watershed’s unique environmental and economic conditions ultimately determine whether water quality trading can help stakeholders to achieve important water quality goals at less cost. EPA Region 10 developed the Water Quality Trading Assessment Handbook to assist a stakeholder such as yourself in determining whether it may work successfully in your watershed.
Once you understand the basic concept of water quality trading and the water quality conditions in your watershed, the Water Quality Trading Assessment Handbook will help you investigate whether this tool is right for your watershed. The handbook guides you through a structured, informal assessment of trading opportunities. It looks at the environmental, economic, and technical factors in a watershed that influence your ability to create a water quality trading market. Click here to read more about the Handbook and to download your own copy or where to call for a paper copy.
To learn what is happening in water quality trading in EPA Region 10, click on the following links to state programs or contact states for more information:
Idaho - Lower Boise River Demonstration Project
For more information contact: Joe (Gerald) King, Idaho DEQ (Boise Regional Office), tel: (208) 373-0564, e-mail: gking@deq.state.id.us
Draft State Water Pollutant Trading Guidance (in development). For more information contact: Susan Burke, Idaho DEQ (Water Division), tel:(208) 373-0574, e-mail: sburke@deq.state.id.us
Oregon - (their water quality trading website is currently under construction)
The Oregon Department of Environmental Quality received a grant from EPA to launch one or more water quality demonstration projects for the purpose of developing a state water quality trading program. The first demonstration project is in the Tualatin River Basin and it is currently exploring two types of trading activity: point source - nonpoint source trading involving temperature, and inter- and intra-plant trading involving Biological Oxygen Demand (BOD) and ammonia. For more information, contact: Sonja Biorn-Hansen, Oregon DEQ, Water Quality Division, tel: (503)229-5257 e-mail: biorn-hansen.sonja@deq.or.state.us
Washington
The Washington Department of Ecology is currently looking for a candidate site for a water quality trading demonstration project. For more information, contact: Stephen Bernath, Washington Department of Ecology, Water Quality, tel: (360) 407-6459, e-mail: sber461@ecy.wa.gov
Alaska
No water quality trading projects are being explored at this time.
For more information about water quality trading in Region 10, please contact Claire Schary at (206) 553-8514, or 800-424-4372, or by e-mail at schary.claire@epa.gov
Unit: Office for Environmental Management and Information
Point of contact: Claire Schary
Email: schary.claire@epa.gov
Phone Number: (206) 553-8514
Last Updated: 08/07/2003 11:35:37 AM
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