Introduction to Water Quality Trading National Forum On Water Quality Trading July 22-23, 2003 Chicago, Illinois

The Cost of Cleaner Water Thirty years of progress!  In 1997, $14 billion private and $34 billion public point source control costs, annually  $80 billion paid 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 Different challenges call for different approaches: end-o-pipe controls to watershed management, prescriptions to partnerships and command – and – control to market-based 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?  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? Trading 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 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 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 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)  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)  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?  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 Success political support  Establish political support for a trading framework. stakeholder consensus  Build stakeholder consensus and recommendations for implementation. partnerships  Leverage programs and resources through partnerships at the federal, state and local level.