EPA Unveils Water Quality Trading Policy
 
June 13, 2002
 
Lawrence R. "Larry" Liebesman- Washington

On May 15, 2002, the U.S. Environmental Protection Agency (EPA) released a proposed Water Quality Trading Policy.  This new initiative can potentially benefit a wide range of municipal and commercial parties with the opportunity to apply common-sense, lower-cost and innovative solutions to water quality problems in their regions.  While the focus is on nutrients and sediment, the policy also discusses the potential for trading other pollutant reductions under certain circumstances.

The new policy would strengthen and expand EPA’s support for watershed-based trading set forth in EPA’s May 1996 Draft Framework for Watershed-Based Trading.  EPA officials believe that most trading will occur as states, tribes and sources implement programs to restore polluted waters.  The policy supports trading among and between regulated and unregulated sources through watershed partnerships and programs developed by states and tribes.

Under the proposed policy, stakeholders would first be required to meet technology-control requirements.  Subsequently, participants could then use pollution-reduction credits to make further progress toward water-quality goals. The policy states that sources should reduce pollution loads beyond the level required by the most stringent technology requirements in order to create a pollution-reduction credit that can be traded.  One example provided by EPA is of a landowner or a farmer who could create credits by changing cropping practices and planting shrubs and trees next to a stream.  A municipal wastewater treatment plant then could use these credits to meet water quality limits in its permit. 

EPA has requested comments on the policy from interested parties. Submissions must be received or post-marked by midnight on July 1, 2002.

Success Stories

Studies have estimated that flexible approaches to improving water quality could save $900 million annually compared to the least flexible approach.   For example, nitrogen trading among publicly owned treatment works that discharge into Long Island Sound is expected to save over $200 million dollars in upgrading treatment facilities to meet water quality goals.  In addition, a number of successful pilot trading projects have recently been completed and a number of states are developing water-quality trading programs.  Market-based approaches also create economic incentives for innovation, emerging technology, voluntary reductions and greater efficiency in improving the quality of the nation’s waters.

Goals and Potential Applications

EPA has identified numerous potential state and tribal applications for water-quality trading programs, including the following:

• reducing the cost of compliance with water quality-based requirements

• offsetting growth and maintaining water quality

• achieving early reductions and progress toward water-quality standards pending development of TMDLs for impaired waters

• reducing the cost of implementing TMDLs through greater efficiency and flexible approaches

• establishing economic incentives for voluntary reductions from all sources, especially agriculture and urban storm water runoff

• achieving greater environmental benefits than those under existing regulatory programs

• developing other market-based programs that bundle ecological services to achieve multiple environmental and economic benefits

Program Requirements

EPA has provided a list of requirements for trading programs to be consistent with the Clean Water Act (CWA).   In addition, in order to attain EPA approval, water-quality trading programs must include all of the following general elements:

• clear legal authority for trading to occur

• a fungible, clearly defined unit of trade

• standardized protocols to quantify pollutant loads and load reductions, pollutant reduction credits, allowances or other tradable units

• mechanisms for determining compliance and ensuring enforcement

• public participation and access to information

• periodic assessments of environmental and economic effectiveness and program revisions as needed

Conclusion

This new initiative can potentially benefit a wide range of municipal, industrial, and other parties.  Holland & Knight LLP would be pleased to provide you with a more detailed analysis of the policy or assist you in preparing and submitting comments to EPA prior to the July 1, 2002, deadline.