EFFLUENT TRADING IN WATERSHEDS
POLICY STATEMENT
Purpose
In response to President Clinton's Reinventing Environmental Regulation (March 1995),
EPA strongly promotes the use of effluent trading to achieve water quality objectives and
standards. This staimuaui -communicates EPA's policy mi Bf(iueul uadkig to wateislitsUs
discusses the benefits of trading, presents an explanation of several types of effluent trading, and
outlines how EPA will be encouraging trading. This policy is Agency guidance only and does
not establish or affect legal rights or obligations. It does not establish a binding norm and is not
finally determinative of the issues addressed. Agency decisions in any particular case will be
made by applying the law and regulations on the basis of specific facts when permits are issued.
Policy
EPA will actively support and promote effluent trading within watersheds to achieve
water quality objectives, including water quality standards, to the extent authorized by the Clean
Water Act and implementing regulations. EPA will work cooperatively with key stakeholders
to find sensible, innovative ways to meet water quality standards qukker and at less overall cost
than with traditional approaches alone. EPA will assure that effluetf trades are implemented
responsibly so that environmental progress is enhanced, not hindered.
Benefits
EPA's support of watershed-based trading is anchored to a strong commitmert to achieve
and maintain water quality standards. EPA believes that trading is an innovative way for
community stakeholders (e.g., regulated sources, non-regulated sources, regulalorjr tfencfcs and
the public) to develop more "common sense" solutions to water quality problems in their
watersheds. Effluent trading potentially offers a number of economic, environmeaial and social
benefits:
Economic Benefits:
Reduces costs for individual sources contributing to water quality problems.
Allows dischargers to take advantage of economies of scale and treatment
efficiencies that vary from source to soujrce.
•
Reduces overall cost of addressing water quality problems in the watershed.
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Environmental Benefits.
Achieves equal or greater reduction of pollution for the same or less cost.
Creates an economic incentive for dischargers to go beyond minimum pollution
reduction and also encourages pollution prevention and the use of innovative
technologies.
Can reduce cumulative pollutant loading, improve water quality, accommodate
growth and pievent futuie-euviuumiemal UegiaUaiiuu. ~" —•=—^
Can address the broader environmental goals within a trading area, e.g.,
ecosystem protection, ecological restoration, improved wildlife habitat,
endangered species protection, etc.
Social Benefits:
Encourages dialogue among stakeholders and fosters concerted and holistic
solutions for watersheds with multiple sources of water quality impairment.
Explanation of Different Types of Effluent Trading
Trading supplements the current regulatory approach. It is a method to attain and/or
maintain water quality standards, by allowing sources of pollution to achieve poOutont reductions
through substituting a cost-effective and enforceable mix of controls on other iources of
discharge. As the Agency improves its understanding of the opportunities afforded by
watershed-based decision making, EPA will provide infonnition for additional forms of trading.
To take advantage of trading, a point source must be in compliance, and remain in
compliance, with applicable technology-based limits. Intra-plant trades must alao have a
technology-based floor, while the technology floor for pretrettment trading is determined by Oie
categorical standards. EPA expects that most trades will be covered by Total Maximum Daily
Loads (TMDL) or similar watershed-based analysis.1
The items to be traded are the pollutant reductions or water quality improvement sought.
1 A TMDL provides the water quality analysis and planning process for determining
the specific pollution reductions that are necessary to attain or maintain water quality standards.
Under section 303 (d) of the CWA, States establish TMDLs for impaired waters. The TMDL
process includes legal requirements for public participation and implementation through NPDES
permits.
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Under trading, a source that can more cost-effectively achieve greater pollutant reduction than
is otherwise required would be able to sell or barter the credits for its excess reduction to
another source unable to reduce its own pollutants as cheaply. To ensure that water quality
standards are met throughout a watershed, an equivalent or better water pollutant reduction
would need to result from a trade. Below are proposed definitions for several different types
of effluent trading approaches. These definitions are preliminary and do not reflect the full
range of feasible trades:
Intra-Plant Trading:
Pretreatment Trading:
Point/Point Source Trading:
Potal/Nonpoint Source Trading:
A point source is allocated pollutant discharges
among its -outfalls -in -a -cust-effetaivti -maimeFT"
provided that the combined permitted discharge with
trading is no greater than the combined permitted
discharge without trading in the watershed.
An indirect industrial point source(s) that discharges
to a publicly owned treatment works arranges,
through the local control authority, for additional
control by other indirect point sources beyond the
minimum requirements in lieu of upgrading its own
treatment for an equivalent level of reduction.
A point source(s) arranges for other point source(s)
in a watershed to undertake greater than required
control in lieu of upgrading its own treatment
beyond the minimum technology-based treatment
requirements in order to more cost-effectively
achieve water quality standards.
A point source(s) arranges for control of nonpoint
source discharge(s) in a watershed in lieu of
upgrading its own treatment beyond the minimum
technology-based treatment requirements in order to
more cost-effectively achieve .water quality
standards.
Nonpoint/Nonpoint Source Trading:
A nonpoint source(s) arranges for more cost-
effective control of other nonpoint sources in a
watershed in lieu of installing or upgrading its own
control.
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How EPA Will Be Encouraging Trading
EPA is developing a framework for watershed-based effluent trading, as well as
information exchange workshops, and limited technical assistance for trading projects in specific
areas. Watershed-based trading will be implemented on a voluntary basis under existing Clean
Water Act (CWA) authorities. There will be substantial public outreach effort to obtain
stakeholders' recommendations and insights on draft portions of the framework prior to
implementation.
- Finally.-white EPA .believes that the potential ot trading is largely untapped, the
usefulness of trading will depend on the. site-specific water quality conditions in any given
situation. The framework will describe situations which EPA believes are most appropriate for
watershed-based trading, and those that are generally inappropriate.
EPA plans to distribute a draft trading framework in February, '1996 and hold a series
of stakeholder meetings. For'more information call Mahesh-Podar at. (202)260-7818, fax
(202)401-3372 or send an Email message to herzi.hawa@epamail.epa.gov or
tuano.theresa@epamail.epa.gov.
Attachment
tss
Steven A. Herman
Assistant Administrator for Enforcement and Compliance Assurance
Z. Cannon
Counsel*
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EXPERIENCE TO DATE
Trading is being explored, developed or implemented in a number of watersheds
throughout the country. Some examples are below:
ProjevUZacatton ;- ,'^ ^; "- . "*'-
Fox River, WI
Dillon Rgffrvoir, CO
Boulder Creek, CO
Tar-PamSco, NC
Arkansas Nature Conservancy
Maryland Nontidal Wetlands
Iron and Steel
Rhode Island eleetroplaters
ChtkaBi Piver Boon, WA
Boom* Ktunolr, TN
VRctmlfo River, MD
Homy Creek Watershed, OH
South San Francisco Bay, CA
Unt Island Somnd, NY
Ottrry Creek. CO
Tampa Bay, FL
Chatfleld Basin, CO
_ >'• * ,' * » *s
Focut '.;.. ,. .-.'
BOD, nutrients
phosphorus
ammonia,
nutrients
nitrogen,
phosphorus
wetlands
wetlands •
BOD, TSS, zinc, and
lead
metals
BOD
nutrients
phosphorus
phosphorus
copper
dissolved oxygen
phosphorus
nitrogen, TSS
phosphorus
Type of Trading, •'.*'•••
point/point
pointfnonpoint; nonpoint/nonpoint
point/nonpoint
pointfnonpoint
nonpoint/nonpoint
nonpoint/nonpoint
infra-plant
pretreatment
point/nonpoint
point/nonpoint
point/nonpoint
point/nonpoint
point/point
Point/nonpoint
point/nonpoint; point/point
point/point; point/nonpoint;
nonpoint/nonpoint
point/nonpoint
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