v>EPA
October 2008
EPA
Water Quality Trading
Evaluation
Final Report
Promoting Environmental Results
•4
Through Evaluation
-------
Page Left Blank Intentionally
-------
TABLE OF CONTENTS
EXECUTIVE SUMMARY
CHAPTER 1 | INTRODUCTION
Background on EPA's Involvement in Water Quality Trading 1-2
USDA Programs Related to WQT 1-5
CHAPTER 2 | METHODS
Evaluation Questions 2-1
Stuch Design 2-2
Program Selection 2-5
Quality Assurance Procedures 2-10
Final Report A\ailabilit\ 2-10
CHAPTER 3 | FINDINGS
Stakeholder Perspeetncs on Trading 3-1
Achievements to Dale (Evaluation Questions 3 and 4) 3-10
Barriers to WQT (Evaluation Question 5} 3-16
Promoting Trading in the I''utlire 3-2?
CHAPTER 4 | RECOMMENDATIONS
Recommendation i: Recast Water Qualih Trading as One Option Within a Suite of
Innovative Permitting Options Supported by EPA 4-2
Recommendation 2: Promote Institutional Changes at EPA that Would
Support Trading 4-3
are l:.\ iclent 4-5
Recommendation 4: Improve Coordination \\itli iJSOA. to Support Irnohement of Non-
Point Sources 4-6
Recommendation 5: Adjust EPA's Allocation of'Trading Resources 4-7
Priori! i/ing Recommendations 4-8
APPENDICIES
Appendix A: List oflnten ie\\ccs
Appendix B: Water Quality Trading Literature Review
Appendix C: Interview Guides and Crosswalk \\ith Evaluation Questions
Appendix !): Bibhograph\
-------
ACKNOWLEDGEMENTS
This evaluation was performed by Industrial Economics, Incorporated (lEc) for EPA's
Office of Policy, Economics and Innovation (OPEI) under Contract EP-W-04-023
between EPA and lEc. lEc would like to thank several individuals for their assistance in
conducting the Water Quality Trading Evaluation. As the technical advisor, John
Heffelfinger of OPEI was instrumental in guiding the overall evaluation, and Bob Rose,
Chris Lewicki, Ginny Kibler, Kavya Kasturi, and Todd Doley of EPA's Office of Water
provided critical coordination assistance and background information. We would also like
to thank the individuals who agreed to be interviewed for this evaluation; Appendix A
provides a complete list of their professional affiliations.
This report was developed under the Program Evaluation Competition, sponsored by
OPEI. To access copies of this or other EPA program evaluations, please go to the EPA
Evaluation Support Division Website at http:/www.epa.gov/evaluate.
-------
EXECUTIVE SUMMARY
Water quality trading (WQT) offers a promising approach to controlling pollutants from
multiple sources that collectively impact water quality conditions. In its most simple
form, water quality trading allows one point source to over control for a pollutant at a low
cost, selling the over control as "credits" to another source that is not able to reduce
pollutants as cost-effectively.
Traditionally under the Clean Water Act, controls were focused on reducing pollutant
impacts on local water quality from point sources such as wastewater treatment plants.
The impacts of nitrogen, phosphorus and sediment have continued to be pervasive in the
nation's waters. These particular pollutants impact water quality on much larger scales
than toxic pollutants, whose acute impacts are near the point of discharge. Consequently,
nitrogen, phosphorous and sediment can be more effectively addressed by controlling
multiple point and non-point sources of these pollutants within a watershed.
The primary potential benefit of WQT that attracts consideration by policy makers is the
potential ability to control pollutants at an overall lower cost to society. In addition,
trading that involves non-point sources can have ancillary benefits such as controlling
multiple pollutants and improving the health of aquatic habitats, and trading has the
potential to spur innovation that can further reduce the cost of pollutant controls. Finally,
pollution sources not traditionally regulated, most notably non-point pollutants from
agriculture, are the primary source of water quality impairment in many watersheds.
WQT provides a framework wherein pollutants can be voluntarily reduced by non-point
sources more cost-effectively than imposing additional treatment controls on point
sources.
EPA's Office of Water (OW) fosters WQT through policy development, guidance, and
financial and technical support to watershed-based trading efforts. EPA has been
undertaking these activities at the headquarters and regional level for over a decade.
Despite the theoretical promise of water quality trading and EPA's efforts, however,
WQT to date has met with limited practical success. Only 100 facilities have participated
in trading, and 80 percent of trades have occurred within a single trading program.
The purpose of this evaluation is to assess the effectiveness of EPA activities to support
WQT, and to better understand why more water quality trading activity has not
occurred. In consultation with OW, lEc developed 14 detailed evaluation questions to
guide the evaluation, which include questions about local/state water quality trading
ES-1
-------
programs, the broader context for water quality trading, and the direction of future EPA
activities:
Local/state water quality trading program evaluation questions:
1. What are stakeholder attitudes towards water quality trading, and why?
2. What are the location-specific conditions conducive to water quality trading?
3. Have trading programs realized cost savings in meeting permit limits, and if so,
how much?
4. What outcomes have water quality trading programs achieved?
5. What are the educational, institutional, legal, technical, and economic barriers to
water quality trading?
Broader contextual questions:
6. What effects do other federal and state programs, particularly those administered
by the U.S. Department of Agriculture (USDA), have on water quality trading
programs?
7. Do any environmental justice issues arise in the context of water quality trading?
If so, how can they be addressed?
8. Do any equity issues arise in the context of water quality trading? If so, how can
they be addressed?
9. How should EPA measure its own progress on water quality trading?
Questions on future EPA activities:
10. Would more specific guidance or specific tools from EPA help state and local
governments foster trading? If so, what kinds of guidance or tools are needed?
11. Are there legal, regulatory, or policy questions that impede trading, and if so,
what can EPA do to address them?
12. What can EPA do to create flexibility and incentives for states to support legal
and enforceable water quality trading programs?
13. What can EPA do to support water quality trading among point and non-point
sources?
14. Have federal or state resources made a difference in establishing trading
programs, or could they help make a difference?
As discussed in Chapter 2 of this report, lEc employed an interview-based approach to
collecting information for this evaluation, using a literature review as a foundation. lEc
completed a total of 55 interviews. Most of the interviews were conducted with
individuals associated with 11 different WQT programs or initiatives. For each water
ES-2
-------
quality trading initiative studied, lEc interviewed between three and five individuals
representing a variety of perspectives. lEc and EPA selected programs and initiatives to
study based on a set of criteria including the program's transferability,
legality/enforceability, level of success, illustration of barriers, and program maturity. In
addition to interviewing individuals affiliated with specific water quality trading
initiatives, lEc also interviewed 14 individuals from agencies and organizations that have
a national perspective on water quality trading, including staff from EPA regional offices,
USDA, environmental advocacy groups, and other experts.
lEc synthesized evaluation findings based on a detailed analysis of the interviewee
feedback as well as on our literature review. We organize findings by evaluation
question in Chapter 3:
• We first discuss general stakeholder perspectives on WQT as specified in
Evaluation Question 1. Also included are stakeholder views on the conditions
conducive to WQT (Evaluation Question 2) and opinions expressed on the equity
and environmental justice implications of WQT (Evaluation Question 7 and 8).
. The next section describes the achievements of the WQT programs examined in
this evaluation, focusing on environmental achievements; cost savings and other
economic benefits; participation and trading activity; and other outcomes
(Evaluation Questions 3 and 4).
. The third section describes interviewee perspectives on the barriers to WQT
(Evaluation Question 5).
. The final section reviews interviewee suggestions for how EPA could support
WQT in the future. The discussion covers regulatory, legal, and administrative
issues that EPA can help address (Evaluation Questions 11 and 12); suggestions
for future tools and financial support (Evaluations Questions 10 and 14);
approaches to promoting the participation of non-point sources (Evaluation
Question 6 and 13); and options for EPA to better measure progress of WQT
programs (Evaluation Question 9).
As presented in Chapter 4, lEc has developed five main recommendations for EPA to
consider when planning future Agency efforts to support WQT. We base these
recommendations on our synthesis of interviewee feedback and our understanding of the
history and implementation experience of WQT to date. These recommendations do not
focus on the numerous barriers to WQT that EPA cannot address, such as statutory
ambiguity, narrow circumstances conducive to trading, and the lack of a generic trading
model applicable to most locations. Instead, the recommendations focus on the smaller
set of barriers that are within EPA's purview to address. The main recommendations are
as follows:
ES-3
-------
1. Recast water quality trading as one option within a suite of innovative permitting
options supported by EPA.
2. Promote institutional changes at EPA that would support trading, including
clarifying legal issues, changing EPA guidance, and developing and
implementing strategies to move EPA and state environmental agency culture
towards greater knowledge and acceptance of WQT.
3. Support trading only where conducive regulatory, economic, hydrologic, and
geographic conditions are evident, and by requiring screening assessments as a
condition of EPA funding for WQT programs.
4. Improve coordination with USD A to support involvement of non-point sources,
including coordination on technical tools and approaches.
5. Adjust EPA's allocation of trading resources, including establishing a technical
support team to provide on-site, hands-on assistance to nascent or struggling
trading initiatives; restoring small and nimble grant funding for WQT programs;
and investing in replicating the success of the Long Island Sound program.
ES-4
-------
CHAPTER 1 | INTRODUCTION
Water quality trading (WQT) offers a promising approach to controlling pollutants from
multiple sources that collectively impact water quality conditions. Traditionally under
the Clean Water Act, controls were mostly focused on pollutants with local impact from
particular point sources, such as wastewater plants. As the focus of efforts to protect
water quality has shifted to include pollutants whose collective impact is felt downstream,
it is not always necessary or cost-effective to control pollutants at specific locations.
Alternatively, some pollutants can be controlled across multiple sources within a
watershed; nitrogen, phosphorus, and sediment are the three pollutants EPA most
commonly recognizes as having such potential.
The primary potential benefit of WQT that attracts consideration by policy makers is the
potential ability to control pollutants at an overall lower cost to society. In its most
simple form of point-to-point trading, water quality trading allows one point source to
over control for a pollutant at a low cost, selling the over control as "credits" to another
point source that is not able to reduce pollutants as cost-effectively. Through the trade,
the second point source can achieve its share of responsibility at a lower cost, the first
point source can recoup part of its costs, local water quality is not negatively impacted,
and downstream water quality is improved. Other potential benefits of greater flexibility
include the ability to better plan capital intensive upgrades, and better time such upgrades
within existing financial options (such as retirement of previous debt obligations prior to
incurring new debt obligations).
A less tangible but no less real benefit of water quality trading is the increased incentive
for innovation. Even if a point source purchases "credits," the water quality trading
program creates incentives for the point source to find low-cost ways to reduce pollutants,
to reduce the need to purchase credits. At the same time, a point source selling such
credits has added incentive to maintain the performance of their pollutant controls since
doing so translates into more credits for sale. Both incentives work in balance to achieve
the needed reduction of a pollutant at the overall lowest cost to society, and for all parties
involved.
Finally, pollutant sources not traditionally regulated, most notably non-point pollutants
from agriculture, are the primary source of water quality impairment in many watersheds.
WQT provides a framework wherein pollutants can be voluntarily reduced by farmers for
the purpose of selling credits. As such, WQT is one of few current tools that EPA has to
address unregulated discharges.
1-1
-------
BACKGROUND ON ERA'S INVOLVEMENT IN WATER QUALITY TRADING
EPA's Office of Water (OW) fosters water quality trading through policy development,
tools and guidance, and financial and technical support to watershed-based trading
efforts. Key activities include:
• Policy development: EPA developed a water quality trading policy to
communicate the Agency's official position supporting trading a number of
years ago, and most recently updated the policy in 2003. EPA also reviews
and provides advice on state and local trading frameworks.
• Tools and Guidance: EPA has developed several tools and guidance
documents to assist states and local governments in developing robust trading
programs. Most recently, EPA developed the Water Quality Trading Toolkit
for Permit Writers, a comprehensive "how to" manual on designing and
implementing WQT programs. The Toolkit also contains fact sheets that
provide detailed information on current trading programs. Other tools
supported by EPA including the Wafer Quality Trading Assessment
Handbook and Getting Paid for Stewardship guide, as well as several
communication materials (e.g., fact sheets, newsletters, website content).
• Training: EPA developed a training course on WQT and holds the course for
individuals involved in trading efforts on a regular basis. The course
provides an introduction to trading as well as specific modules on the Clean
Water Act and trading, types of trading, assessing the financial feasibility of
trading, and designing a credible trading program. EPA also provides
separate training sessions for permit writers.
• Financial Support: EPA provides grant assistance to trading programs at the
state and local level. One of the key EPA funding sources for WQT is the
Targeted Watershed Grants Program, a portion of which has supported
trading efforts.
EPA has been undertaking activities to support WQT at the Headquarters and regional
level for over a decade. As a result of EPA, state, and local efforts, over 25 WQT
programs have been launched.
Despite the theoretical promise of water quality trading and EPA's efforts, however,
water quality trading to date has met with limited practical success. Only 100 facilities
have participated in trading, and 80 percent of trades have occurred within a single
trading program (Long Island Sound). Moreover, relatively few trading programs have
been scaled up from pilot projects to permanent programs, and even fewer can claim to
have had a significant impact in improving water quality or reducing pollutant control
costs.
The purpose of this evaluation is to assess the effectiveness of the WQT Program and to
better understand why more water quality trading activity has not occurred. The findings
and recommendations of this evaluation will help identify opportunities for improving
1-2
-------
EPA efforts to foster water quality trading and related permitting innovations. The
evaluation will also inform the development of effective state trading policies and will
help build OW's capacity to assist state partners in evaluating local water quality trading
programs.
The remainder of this introductory chapter presents EPA's involvement in water quality
trading with a logic model, and also discusses USDA programs related to WQT.
Subsequent chapters of the report are organized as follows:
• Chapter 2 presents the methodology used in this evaluation. Specifically, lEc
presents the Evaluation Questions, study design, and program selection process.
• Chapter 3 presents the evaluation findings based on information collected through
interviews and literature review.
• Chapter 4 presents lEc's recommendations for moving forward based on our
synthesis of findings.
Appendices A, B, C, and D include, respectively, a list of the individuals interviewed for
this evaluation (position and affiliation only), a summary of a comprehensive review of
both published and unpublished water quality trading literature, the interview guides used
for various stakeholder groups with a crosswalk of evaluation and interview questions,
and a bibliography of resources consulted for this evaluation.
Water Quality Trading Program Logic Model
To illustrate the various components of EPA WQT activities and to inform development
of specific evaluation questions, EPA has developed a logic model (i.e., a graphical
representation of the relationships between program inputs, outputs, and intended
outcomes). As shown in Exhibit 1, the key components of the model include:
1-3
-------
EXHIBIT 1: EPA WATER QUALITY TRADING LOGIC MODEL
EPA Water Quality Trading Program Logic Model
Customers
SlJIe I'l.lKV
Writers
SlanJartfc
Developers
TMD1
Developers
Locul Trutling
Prog nim
Champions
-Designers of
-Impleincnlcrs
Slat&T-PA
Permit
Wrileri
OUTCOMES
int Sources
WaitfT Quality Trading Mission State
To support Waier Quality Trading programs that
provide regulatory flexibility for Point Sources to
adopt innomtnv ways to meet water quality goals
in a more cost-effective and efficient manner and
to achieve additional environmental benefits.
Nim-punit
Sources.
t SDA. .\g
Short-term
outcomes
(attitudes,
knowledge)
i Intermediate
j outcomes
(behavior)
L" rulers! ami
iuiw 1,0
implement
programs
Long-term
outcomes
(condition)
I
Understand
how In
d^iyii \V(Jl
programs
-Stales develop trading
frameworks
-Stales adopt nutrient
criteria
-TMDL developers
develop TMDL's thai
embrace WQT
-Permit writers incorporate
trading into permits
-WQT champions create
Underslmd:
-What WQT
is
-Value of
WQT
-PS'sbuy and sell credits
-Nonpoinl source
credits
5 sell
TWO Trading tirnnLs
1-4
-------
. Resources are the basic inputs of funds, staffing, and knowledge dedicated to the
program.
• Partners are the other agencies and organizations that contribute toward shared
program goals. WQT Program partners include USDA/Natural Resources
Conservation Service (NRCS) and non-governmental organizations (NGOs) that
support water quality trading.
• Activities are the specific procedures or processes used to achieve program goals.
For example, WQT Program activities include policy development, education and
outreach.
• Outputs are the immediate products that result from activities and are often used
to measure short-term progress. For example, EPA outputs include the 2003
Water Quality Trading Policy, trading brochures, newsletters and national
conferences.
• Customers are the groups and individuals targeted by WQT Program activities
and outputs. For example, EPA provides outreach to local trading program
champions, Total Maximum Daily Load (TMDL) developers, and permit writers
to educate them about the design and implementation of water quality trading
programs.
• Short-Term Outcomes are the changes in awareness, attitudes, understanding,
knowledge, and skills resulting from program outputs that are causally linked to
the WQT Program. For example, technical guides, EPA's published water quality
trading policy, and the Water Quality Trading Handbook provided to state policy
writers and TMDL developers increase understanding of the design of water
quality trading programs.
. Intermediate Outcomes are the changes in behavior that are broader in scope
than short-term outcomes. Intermediate outcomes often build upon the progress
achieved in the short-term. For example, increased understanding of the design of
water quality trading programs results in States developing trading frameworks,
and TMDL developers adopting TMDLs that embrace water quality trading.
. Long-Term Outcomes are the overarching goals of the program, which in this
case include attainment of water quality standards in a more cost-effective and
efficient manner.
USDA PROGRAMS RELATED TO WQT
USDA's NRCS administers several programs that fund best management practice (BMP)
installation and conservation practices at farms, and provide associated technical
assistance to farmers. Many of the conservation practices supported by USDA can also
generate non-point source credits under water quality trading programs.
1-5
-------
USDA conservation programs have a long history. The initial focus of the programs was
to reduce soil erosion and improve soil health. The 1985 Farm Bill established the first of
these programs, the Conservation Reserve Program, which pays farmers for conserving
sensitive cropland. The 1990 Farm Bill created the Wetlands Reserve Program, and the
Water Quality Incentives Program, which was the first time that the Farm Bill linked
conservation programs to water quality. The 1996 bill created the Environmental Quality
Incentives Program (EQIP), which provides cost sharing for BMPs. The 2002 Farm Bill
greatly expanded funding for all of the above programs and created some additional sub-
programs. Most relevant to water quality, the 2002 bill established the Conservation
Security Program (CSP) and the Conservation Innovation Grants (CIG) program under
EQIP. CSP provides incremental financial incentives to farmers for long-term land
stewardship. CIG provides grant funding to state and local governments and NGOs for
demonstrating and testing innovative approaches to conservation and stewardship. To
date, CIG has funded approximately 10 projects, one of them being a project included in
the Great Miami WQT program studied in this evaluation.
Most USDA conservation programs are now designed to yield multiple environmental
benefits (e.g., water quality, soil management, and habitat preservation), but a USDA
analysis of individual project funding indicates that some programs are geared more to
addressing water quality issues than others. In particular, the EQIP, Conservation
Security Program, and Conservation Reserve Program have significantly more funding
dedicated to water quality concerns than other programs, (between 32-50% of funding
and technical assistance is focused on water quality, compared with less than 15% for
other programs).1
Funding for USDA conservation programs has increased significantly, from
approximately $3 billion in 1990 to $5.6 billion in 2005. Funding for the EQIP program
alone ranges from $200 million in 1996, its initial year, to an estimated $1.3 billion in
2007.2 In 2004, fifteen percent of all U.S. farms received a conservation payment from
USDA.3
A new farm bill is currently under consideration in Congress. The Administration's
proposal includes a $500 million increase to the Conservation Security Program over 10
years, and a $4.25 billion increase to the EQIP program. The Administration's proposal
would also add a new EQIP subprogram called the regional Water Enhancement Program
to fund water quality and conservation projects.4 The current version of the farm bill
moving through Congress contains this new subprogram.
1 USDA, 2007 Farm Bill Theme Papers, Conservation and the Environment, June 2006, p. 18:
http://www.usda.gov/documents/FarmBill07consenv.pdf
2 CRS Report for Congress, Previewing a 2006 Farm Bill, January 30, 2006, p. 18.
3 USDA, 2007 Farm Bill Theme Papers, Conservation and Environment, June 2006, p. ES-2:
http://www.usda.gov/documents/FarmBill07consenv.pdf
4 Letter from Mike Johans, former USDA Secretary, to Tom Harkin, Senate Chair of the Senate Agriculture, Nutrition, and
Forestry Committee, April 25, 2007: http://usda.gov/documents/HonorableTHarkinLtr.pdf
1-6
-------
The current version of the farm bill also contains a provision to establish a standards
board relevant to water quality trading and other markets for ecosystem services. The
purpose of this board is to "develop uniform standards for quantifying environmental
benefits, establish reporting and credit registries, and promote actions that facilitate the
development and functioning of environmental services markets involving agriculture
and forestry."5 USDA, EPA, and five other agencies would be represented on the board;
the President is charged with designating a chair to oversee it.
In addition to the above programs, NRCS works directly to support water quality trading
among non-point sources through tool development and outreach efforts. NRCS worked
with EPA to develop a nitrogen modeling tool to estimate reductions from BMPs; the
Nitrogen Trading Tool (NTT) prototype is currently being tested in Ohio, Maryland, and
Colorado. USDA made significant contributions to Getting Paid for Stewardship, a guide
to water quality trading for non-point sources. Currently, USDA is developing a
handbook for NRCS field staff and partners to explain and support various types of
trading, including water quality trading, wetlands trading, and carbon offsets. USDA also
cosponsors water quality trading conferences and workshops in conjunction with EPA.
5 2007 Farm Bill Proposals, Title II: Conservation, Subtitle J: Market-Based Approaches to Conservation:
http://www.usda.gov/documents/fbconse rvation_071.pdf
1-7
-------
CHAPTER 2 | METHODS
This chapter discusses the methodology employed to evaluate EPA's water quality
trading efforts. First, we present the questions that the evaluation sought to answer,
followed by a discussion of the study's design. We then describe the processes of
selecting specific trading programs to evaluate. Finally, we describe our quality
assurance procedures and provide information on the availability of the final report.
EVALUATION QUESTIONS
lEc developed 14 detailed Evaluation Questions to guide the evaluation, which include
questions about local/state water quality trading programs, the broader context for water
quality trading, and the direction of future EPA activities.
Local/state trading program questions:
1. What are stakeholder attitudes towards water quality trading, and why?
2. What are the location-specific conditions conducive to water quality trading?
3. Have trading programs realized cost savings in meeting permit limits, and if so,
how much?
4. What outcomes have water quality trading programs achieved?
5. What are the educational, institutional, legal, technical, and economic barriers to
water quality trading?
Broader contextual questions:
6. What effects do other federal and state programs, particularly those administered
by USD A, have on water quality trading programs?
7. Do any environmental justice issues arise in the context of water quality trading?
If so, how can they be addressed?
8. Do any equity issues arise in the context of water quality trading? If so, how can
they be addressed?
9. How should EPA measure its own progress on water quality trading?
2-1
-------
Questions on future EPA activities:
10. Would more specific guidance or specific tools from EPA help state and local
governments foster trading? If so, what kinds of guidance or tools are needed?
11. Are there legal, regulatory, or policy questions that impede trading, and if so,
what can EPA do to address them?
12. What can EPA do to create flexibility and incentives for states to support legal
and enforceable water quality trading programs?
13. What can EPA do to support water quality trading among point and non-point
sources?
14. Have federal or state resources made a difference in establishing trading
programs, or could they help make a difference?
STUDY DESIGN
lEc employed an interview-based approach to collecting information for this evaluation,
using a literature review as a foundation.
Literature Review
lEc conducted a comprehensive review of both published and unpublished information
related to water quality trading in the U.S. The literature review consisted of three distinct
steps.
lEc first, conducted a preliminary review of key resources on water quality trading to
develop a baseline understanding of trading activity to date, key issues and barriers in
trading, and trading program models. Appendix B presents the sources identified in this
review and the key findings associated with each source.
Second, lEc reviewed key EPA WQT documents including the National Water Quality
Trading Handbook, the Water Quality Trading Toolkit for Permit Writers, and Getting
Paid for Stewardship: An Agricultural Community Water Quality Trading Guide.
Finally, lEc reviewed literature and available information associated with specific trading
initiatives. This review identified approximately 25 active and inactive water quality
trading programs in the U.S., most of which involve trading between point and non-point
sources and focus on control of nutrients and sediments. lEc collected information on
each program's target pollutants, activity level, and structure.
2-2
-------
Collect And Analyze Data From Interviews
Existing data and literature were insufficient to address the Evaluation Questions.
Consequently, it was necessary to conduct primary data collection. lEc and EPA agreed
on an interview-based approach to data collection for this evaluation. Specific
considerations favoring an interview-based approach to data collection include the
following:
• The issues of interest cannot easily be addressed by multiple-choice or short
answer questions typically used in surveys.
• The evaluation involves a relatively large set of questions that will take most
participants a half hour or more to answer.
• The topics to be addressed are highly intertwined, and responses are likely to
bridge multiple questions.
• Some Evaluation Questions address sensitive topics (e.g., unsuccessful trading
initiatives and competition for resources).
• Customizing questions for different groups would be beneficial.
lEc and EPA decided to conduct individual interviews instead of group interviews or
focus groups. Focus groups work well when respondents can be categorized into a very
small number of homogeneous groups. In contrast, for the water quality trading
evaluation, we were interested in talking to several different groups of stakeholders.
Moreover, stakeholders that share experiences (e.g., NGOs that promote water quality
trading) are unlikely to be located close enough to one another that participation in an in-
person focuses group would prove practical. Focus groups work where the subject matter
is more "mile wide/inch deep" than focused and complex. In contrast, the individual
interview focuses on questions in relatively narrow areas dealing with complex topics,
requiring detailed feedback. Finally, focus groups are not ideal for addressing sensitive
topics; participants are far more likely to be candid about sensitive topics when
interviewed individually.
lEc completed a total of 55 interviews. For each water quality trading initiative studied,
lEc interviewed between three and five individuals representing a variety of perspectives.
lEc sought participation from several different types of stakeholders, including:
• A program coordinator who played a significant role in developing or
implementing the program;
. A permit writer with the relevant state regulatory agency or EPA region;
• A representative from a major point source that participates in the program;
. A representative of a non-point source participating in the program (if applicable).
In addition to interviewing individuals affiliated with specific water quality trading
initiatives, lEc also interviewed 14 individuals from agencies and organizations that have
2-3
-------
a national perspective on water quality trading, including staff from EPA regional offices,
USDA, environmental advocacy groups, and other experts.
Conducting Interviews
lEc structured the interviews using a series of interview guides.6 In general, the interview
questions expanded upon the Evaluation Questions presented earlier. lEc tailored each
interview guide to a particular stakeholder group. For example, we asked permit writers
about the permitting aspects of trading, and we asked professional economists for their
views on the broader economic viability of water quality trading.
Mapping Interview Responses to Evaluation Questions
For each interview conducted, lEc prepared a written summary document that organized
participant responses according to specific Evaluation Questions. For example,
Evaluation Question 3 (have trading programs realized cost savings in meeting permit
limits, and if so, how much?) is addressed by responses to the following interview
questions:
. Program Coordinators: Have you (or other program partners) evaluated the cost
savings realized through the trading program (relative to conventional effluent
permitting approaches, (e.g., technology, pollution prevention, recycle/reuse)? If
so, what have you found?
• Point and Non-point Sources: Has the program been economically beneficial for
you? (If the interviewee is a "buyer" of credits, have they estimated cost savings?
If the interviewee is a "supplier" or credits, have they estimated net income?)
• USDA: Does participation in a water quality trading program affect benefits that
farmers receive under USDA programs? If so, which programs?
Appendix C includes a complete crosswalk of evaluation and interview questions.
Analysis of Findings
The interviews yielded a large volume of narrative information about water quality
trading. Analysis of the interview results required lEc to conduct a critical review of the
interview summaries and qualitatively synthesize conclusions. For each interview
question, lEc reviewed all interview summaries and identified information relevant to that
question. By comparing comments and observations, both within and across stakeholder
groups, lEc identified key themes that form the basis of our findings and
recommendations, as presented in Chapters 3 and 4 of this evaluation report.
Strengths and Weaknesses of Study Design
The interview-based approach to this evaluation has inherent strengths and weaknesses.
The primary advantage of conducting a number of interviews across a wide spectrum of
' Appendix C presents the interview guides used for the evaluation.
2-4
-------
trading initiatives is that it allows for exploration of "how" and "why" questions that are
difficult to address using other methods. In addition, our program sample captures a
diversity of program structures, implementation stages, and local conditions, allowing for
a fairly representative picture of water quality trading in the U.S.
The primary limitation of the interview-based study design is that it does not yield
quantitative data that are readily convertible into various performance metrics and
indicators. However, quantitative data on the results of water quality trading initiatives
are scarce; where programs have collected and provided such data to researchers it has
been captured by our literature review.
PROGRAM SELECTION
lEc, in collaboration with OW staff, initially selected 11 WQT initiatives to study in this
evaluation. lEc applied the following criteria to ensure selection of programs most
relevant to the goals of the evaluation:
• Transferability: The evaluation should focus on WQT programs that have
transferable designs and objectives. In general, the programs should address
conventional pollutants (e.g., nutrients and sediment), and some should involve
trades between point and non-point sources.
• Legality/Enforceability: The selected programs should have designs and
objectives that meet minimum standards established under the Clean Water Act
(and associated regulations). Furthermore, the programs should structure trades
based on analytically sound, legally defensible methodologies.
• Level of Success: The selected programs should represent a cross section of
implementation experience and initial success, including the extent of trading
activity.
• Illustration of Barriers: The program should either illustrate how barriers to
implementation were overcome or how key barriers proved insurmountable.
. Information Base/Program Maturity: Adequate information should exist for
assessing the program's performance. Most notably, the program should have at
least a few years of operation, allowing for participants and potential trading
activity to have been established.
Based on these criteria, lEc and EPA initially identified 11 water quality trading
programs for inclusion in the evaluation. A brief description of the programs is provided
over the next pages, and summary information is presented in Exhibit 3. Exhibit 3 also
indicates the program type and market structure applicable to each program:
2-5
-------
Program Types:
• Cap-and-trade: Also known as closed trading programs, cap and trade programs
impose a ceiling on the combined quantity of a pollutant that participating facilities
may release. The cap may remain fixed or decline over time. Participants are
assigned initial pollutant allocations that they may trade among themselves.
• Case-by-case: This term refers to trading programs that require negotiation, review,
and pre-approval for individual trades. This approach is commonly used for one-
time, site-specific trades but can also apply to programs that may include multiple
trades.
• Open Market: This program type is defined by systems of rules to allow trades
between facilities without pre-approval by regulators. There is no mandatory system-
wide cap in which all participants have a defined and limited initial allocation;
participation is usually voluntary. Facilities can trade, and often bank, credits, or use
them internally to achieve compliance.
Market Structures:
* Bilateral Negotiations: Under this structure, each transaction requires substantial
interaction between the buyer and the seller to exchange information and negotiate
the terms of trade. Buyers and sellers make agreements on their own, with a public
authority participating to approve the trade and set an appropriate trading ratio.
• Clearinghouse: In this market structure, the link between the buyer and the seller is
replaced by an intermediary. The clearinghouse is authorized by the oversight agency
to pay for pollutant reductions and sell credits to sources that need them.
• Exchange: This market structure is characterized by its open information structure
and fluid transactions between buyers and sellers. In an exchange, the price for
credits is fully visible. Exchanges can develop only when a unit of pollutant control
from one seller is viewed as equivalent to a unit from any other source.
• Sole Source Offsets: A sole source offset takes place when an individual facility is
allowed to meet a water quality standard at one point if pollutants are reduced
elsewhere, either on-site or by carrying out pollution reduction activities off-site.
• Third Party: In this market structure, buyers and sellers use a broker to conduct
trading; the broker may be a regulatory agency, a NGO, or an independent body
established for the purpose of trading. The broker facilitates bilateral trades; unlike a
clearinghouse, using a third party does not eliminate contractual or regulatory links
between sellers and buyers.
2-6
-------
Selected Programs
• Chatfield Reservoir Trading Program: A phosphorous trading program was
implemented for the Chatfield Reservoir as part of the State of Colorado's
Chatfield Reservoir Control Regulation. Trading is designed to occur within the
framework of a Total Maximum Annual Load (TMAL), allocated between point
and non-point sources. Point sources can increase their waste load allocation if
non-point sources reduce their phosphorus release by a ratio of 2:1 (this ratio is
evaluated on a case-by-case basis). The Chatfield Watershed Authority accepts
credits from non-point sources and pools them as credits to be purchased by point
sources. In addition, point sources can bilaterally transfer pollutant allocations to
one another if approved by the Chatfield Watershed Authority, but a 2:1 trading
ratio is applied.
. Long Island Sound Trading Program: In 1990, Connecticut, the State of New
York, and EPA adopted a Comprehensive Conservation and Management Plan
(CCMP) for the Long Island Sound. The CCMP calls for the reduction of nitrogen
to increase dissolved oxygen in Long Island Sound and mitigate hypoxia
damaging the Sound's ecosystem. A TMDL, approved in April 2001, includes
wasteload allocations for point sources and load allocations for non-point sources
in the watershed. Connecticut chose to develop a trading program for contributing
point sources within its borders to lower the cost of implementing the CCMP and
the TMDL. The trading program is stipulated in state law. Connecticut's program
uses both its general state authority and its NPDES permitting authority to issue a
single general permit for the total nitrogen loads of all 79 wastewater treatment
plants (WWTPs)that discharge to the Sound. Sources discharging less than their
annual limit receive credits for over-control; the State is obligated by law to
purchase all nitrogen credits from these sources. Facilities that exceed their limit
must purchase credits from the State at a price set by the Nitrogen Credit
Exchange.
• Middle-Snake River Demonstration Project: After a five-year development
process, the Upper Snake Rock TMDL was finalized in 2005 and called for
significant reductions in phosphorous discharges to meet water quality goals. The
Middle-Snake River stakeholders, including aquaculture and fish-processing
facilities, municipalities, the State of Idaho, and EPA, have developed a trading
program for buying and selling total phosphorus credits among dischargers.
Under the trading arrangement, the City of Twin Falls' WWTP, fish-processing
facilities, and aquaculture may generate phosphorus reduction credits that can be
purchased by other aquaculture facilities in that same section of the Middle Snake
River. The permit allowing for trading under the TMDL was recently finalized,
and stakeholders predict that trading may commence shortly depending on final
wasteload allocations.
2-7
-------
Neuse River Basin Total Nitrogen Trading: North Carolina established a
Nutrient Management Strategy for the Neuse River Basin to reduce the total
nitrogen load to the Neuse estuary from all sources. The Strategy sets annual
nitrogen allocations for existing point source dischargers under a TMDL and
allows dischargers a group compliance option to collectively meet their permit
limit for mass loading of nitrogen. Currently, 22 point sources are members of the
Neuse River Compliance Association, which is issued a single, collective NPDES
permit for nitrogen based on the sum of the members' individual nitrogen
allocations. If new or expanding dischargers cannot secure nitrogen allocations
from other point sources, they can purchase non-point source nitrogen offsets by
paying into the North Carolina Wetlands Restoration Fund. The Compliance
Association must pay into the fund at a fixed, per-pound price if it exceeds its
annual nitrogen allocation, making the Association more like an exceedance tax
than a traditional trading program.
Rahr Malting Phosphorous Offset: The Rahr Malting company negotiated an
agreement with the Minnesota Pollution Control Agency (MPCA) to offset five-
day carbonaceous biochemical oxygen demand (CBOD5) discharge from its new
WWTP by funding upstream non-point source phosphorus reductions. A TMDL
on the Minnesota River was barring Rahr from obtaining a load allocation for
CBOD5 and, therefore, from building its own WWTP, but Rahr worked
cooperatively with the MPCA and EPA to craft a NPDES permit incorporating
pollutants trading. In five years, Rahr achieved the necessary non-point source
reduction credits through four trades, thereby achieving its goal of building its
own WWTP to lower production costs and increase operational flexibility.
Red Cedar River Nutrient Trading Pilot Program: The Red Cedar River was
chosen in 1997 as one of three water quality trading pilots for the State of
Wisconsin. The trading program began when the City of Cumberland, faced with
a state-wide 1 mg/L phosphorus discharge limit for WWTPs, looked to water
quality trading as a means of reducing compliance costs. Cumberland believed
that a non-point phosphorus reduction effort would be more beneficial for
protecting water quality than chemical phosphorus removal at the plant, since non-
point sources accounted for 93% of the phosphorus loading to the watershed. The
City of Cumberland pays landowners to employ conservation tillage techniques on
lands with high concentrations of phosphorus in the soil.
Southern Minnesota Beet Sugar Cooperative Permit: The Minnesota Pollution
Control Agency (MPCA) incorporated water quality trading provisions into the
wastewater treatment permit for the Southern Minnesota Beet Sugar Cooperative.
A phosphorous TMDL on the lower Minnesota River prohibited the addition of a
new discharger, but the MPCA allowed the Cooperative to build a WWTP and
obtain a NPDES permit, provided it offset all discharges with non-point source
2-8
-------
phosphorus reductions. The Cooperative has achieved most of its offsets by
contracting with its beet growers to grow spring cover crops to reduce runoff.
. Truckee Meadows: The Cities of Reno and Sparks, Washoe County, and the
Nevada Division of Environmental Protection (DEP) are developing creative
solutions to solve water quality and flow issues in the Truckee River, which flows
from Lake Tahoe to Pyramid Lake through the Cities of Reno and Sparks. The
Truckee Meadows Water Reclamation Facility (TMWRF) needs to expand
capacity, but the Cities are seeking creative solutions because TMWRF already
faces the most stringent nitrogen discharge limits in the nation as a result of the
TMDL. Three avenues of water quality trading are being explored to authorize
increased discharge at the TMWRF: water rights purchases and flow
augmentation as part of the 1996 Truckee River Water Quality Settlement
Agreement (point/non-point trading for agricultural best management practices
and septic conversions, and point/point trading with two other WWTPs.
• Wayland Center: When the Wayland Business Center, LLC (WBC) redeveloped
an abandoned commercial property in Wayland, MA, it sought to reactivate the
previous owner's NPDES permit for the small, on-site wastewater treatment plant.
EPA and the Massachusetts Department of Environmental Protection denied
WBC the permit renewal, interpreting the discharge as a new source to the
Sudbury River. In developing a new NPDES permit for WBC, the USEPA
initially set a 0.2 mg/L phosphorus limit, but the final permit allowed a 0.5 mg/L
phosphorus limit in exchange for non-point source offsets. The non-point source
phosphorus reductions came from sewering over two dozen properties in
downtown Wayland that have failing septic systems.
lEc originally selected two additional initiatives for inclusion in the evaluation- Charlotte
Mecklenberg and Las Vegas Wash—but the interviews for these initiatives did not
generate sufficient data. lEc selected two replacement initiatives that also meet program
selection criteria:
• Great Miami River Watershed Trading Pilot: The Great Miami River
Watershed Water Quality Credit Trading Pilot Program is a ten-year project to
reduce phosphorus and nitrogen loadings into the Great Miami River. Despite
pollutant reductions by point sources, over 40 percent of the rivers and streams in
the Great Miami River watershed do not meet Ohio's water quality standards.
Non-point sources, especially agriculture, are the major remaining causes of
impairment. The pilot was established to increase funding for agricultural BMPs
in the Great Miami River watershed, provide regulated dischargers with a cost-
effective regulatory compliance option, and improve water quality in the Great
Miami River watershed. Under the trading program, farmers will implement
BMPs to generate credits that WWTPs can use to meet regulatory requirements.
Funding for the projects will come from the WWTPs, combined with a grant from
the USDA that provides more than $1 million for agricultural projects during the
2-9
-------
program's first three years. The pilot commenced in 2006; evaluation of project
success is premature.
• Lower Boise River Effluent Trading Demonstration Project: EPA and the
Idaho Department of Environmental Quality designed a phosphorus trading
demonstration project for the Lower Boise River. The trading framework
developed for Lower Boise is considered to be among the best, and it informed
development of Idaho's state trading policy. Trading will occur within a
watershed-wide, market-based trading system that will include both point and
non-point sources. Ultimately, trading will be implemented to help achieve the
nutrient reduction goals set by a forthcoming TMDL. However, trading activity
has been stalled by a delayed TMDL process for the Lower Boise, where
stakeholders are currently at an impasse about how to proceed.
QUALITY ASSURANCE PROCEDURES
In conducting the evaluation, lEc, EPA's Office of Policy, Economics, and Innovation
(OPEI) and the EPA Office of Water (OW) agreed on three key quality assurances:
• lEc and EPA agreed on the key data sources, which include data from (1)
interviews with stakeholders, including program coordinators, permitters, point
source managers, non-point source managers, economists, and environmental
advocates; (2) literature on the economic basis for trading and the performance of
existing water quality trading programs; (3) OW's inventory of current water
quality trading programs; and (4) OW's water quality trading training program.
• lEc designed its analyses in the context of the project's program logic model and
overarching Evaluation Questions. lEc developed interview guides based on these
Evaluation Questions. lEc also developed a crosswalk table that matches each
interview question to one or more Evaluation Questions, clearly illustrating how
they are linked.
. lEc ensured consistent data collection by using a core interview guide across
stakeholder groups; lEc tailored the guide to include only those topics appropriate
for each stakeholder group. lEc recorded data from all interviews in written
summaries using a standardized format to allow easy comparison across
interviews.
FINAL REPORT AVAILABILITY
EPA intends to make the final version of this report available on the Evaluation Support
Division's (ESD's) website at http://www.epa.gov/evaluate.
2-10
-------
EXHIBIT 3: PROGRAMS SELECTED FOR WATER QUALITY TRADING EVALUATION
WATER BODY
Chatfield Reservoir
Great Miami River,
Mad River, Stillwater
River
Long Island Sound
Lower Boise River
Middle-Snake River
Minnesota River
Minnesota River
Neuse River
Red Cedar River
Sudbury River
Truckee River
PROGRAM NAME
Chatfield
Ohio River Basin
Trading/Great Miami River
Watershed Trading Pilot
Long Island Sound Trading
Program
Lower Boise
Middle-Snake River
Demonstration Project
Southern Minnesota Beet
Sugar Cooperative Permit
Rahr Malting Phosphorous
Offset
Total Nitrogen Trading in the
Neuse River Basin
Red Cedar River Nutrient
Trading Pilot Program
Wayland Center
Truckee Meadows
STATE
CO
OH
CT
ID
ID
MN
MN
NC
Wl
MA
NV
POLLUTANT(S)
Phosphorous
Phosphorous & Nitrogen
Nitrogen
Phosphorous
Phosphorous
Phosphorous
Phosphorous, Nitrogen,
Sediment, CBOD
Nitrogen
Phosphorous
Phosphorous
Nitrogen, Phosphorus,
Dissolved solids
YEAR LAUNCHED
1999
2006
2002
1997
2001
1999
1997
1998
1997
1998
(Unclear)
PROGRAM TYPE
Case- by-Case
Open Market
Cap and Trade
Open Market
Cap and Trade
Case- by-Case
Case -by- Case
Cap and trade
Case by Case
Case- by Case
Point/point: bilateral
negotiations; point/non-
point: not yet determined
MARKET STRUCTURE
Clearinghouse or Bilateral
Negotiations
Third Party Broker
Exchange
Bilateral Negotiations
Bilateral Negotiations
Sole Source Offsets
Sole Source Offsets
Clearinghouse for non-point
source offsets; bilateral
negotiations for point/point
trades
Bilateral Negotiations
Does not fit any market models
Does not fit any market models
2-11
-------
CHAPTER 3 | FINDINGS
This chapter examines the detailed findings of lEc's literature review and interviews with
stakeholders involved in water quality trading. Each section addresses one or more of the
Evaluation Questions reviewed earlier:
• We first discuss general stakeholder perspectives on WQT as specified in
Evaluation Question 1. Also included are stakeholder views on the conditions
conducive to WQT (Evaluation Question 2) and opinions expressed on the equity
and environmental justice implications of WQT (Evaluation Question 7 and 8).
. The next section describes the achievements of the WQT programs examined in
this evaluation, focusing on environmental achievements; cost savings and other
economic benefits; participation and trading activity; and other outcomes
(Evaluation Questions 3 and 4).
. The third section describes interviewee perspectives on the barriers to WQT
(Evaluation Question 5).
. The final section reviews interviewee suggestions for how EPA could support
WQT in the future. The discussion covers regulatory, legal, and administrative
issues that EPA can help address (Evaluation Questions 11 and 12); suggestions
for future tools and financial support (Evaluations Questions 10 and 14);
approaches to promoting the participation of non-point sources (Evaluation
Question 6 and 13); and options for EPA to better measure progress of WQT
programs (Evaluation Question 9).
The findings are based primarily on a detailed analysis of the interview summaries
completed following each interview as well as on our literature review. Throughout the
discussion, we attempt to identify the prevalence of key views and perspectives, either
through explicit counts or through qualitative synthesis of the interview summaries. The
text clearly indicates instances where lEc supplements the interview findings with its own
views or opinions.
STAKEHOLDER PERSPECTIVES ON TRADING
The subsections below examine general perspectives on water quality trading, including:
(1) how interviewees classify water quality trading; (2) the conditions under which
trading is most effective; and (3) the equity and environmental justice implications of
trading.
3-1
-------
EXHIBIT 4.
General Perspectives on WQT (Evaluation Question 1)
Interviewees were invited to speak broadly on their perceptions of trading as a technique
for managing water quality. The first interview question posed to many interviewees
asked if they consider WQT as a tool within the regulatory toolbox, a means of promoting
voluntary stewardship, or something else entirely. Exhibit 4 summaries a very rough
tally of the responses.7 As shown, the most prevalent view was to classify WQT as a
regulatory tool. Only one interviewee classified WQT as primarily a means of promoting
voluntary stewardship. Several others felt that trading is both a regulatory tool and a
form of voluntary stewardship, with some seeing the distinction as being artificial or
unnecessary. The remaining respondents characterized WQT in terms other than those
initially presented. The "Other - Positive" category includes interviewees who see
trading primarily as a tool of economic development (i.e., a way to get cost-effective
pollutant control and enhance the economic prospects of a region) as well as individuals
who spoke positively of trading but were unable or unwilling to classify it more
specifically.
INTERVIEWEE PERSPECTIVES ON HOW WQT IS BEST CLASSIFIED
CLASSIFICATION
Tool in the Regulatory Toolbox
Form of Voluntary Stewardship
Both a Tool and Voluntary Stewardship
Other - Positive
Other - Negative
NUMBER OF INTERVIEWEES
CLASSIFYING TRADING THIS WAY
24
1
4
3
5
Most of the interviewees who viewed WQT as a tool in the regulatory toolbox were very
quick to caveat this designation. The most common qualification was that trading is a
tool that requires specialized conditions in order to be effective. These conditions include
an adequate mix of point and non-point dischargers; regulatory hammers such as
discharge targets such as those that accompany a TMDL; and/or clear water quality
objectives such as ambient nutrient standards. Several respondents felt that the need to
satisfy these conditions significantly limits the applicability of trading. These concepts
are discussed more thoroughly below when we consider interviewee perspectives on the
conditions conducive and not conducive to trading.
Other reservations expressed by those who view WQT as a viable tool include the
following:
7 Note that: (1) we did not ask this question of all respondents; and (2) of those respondents addressing the question, not all
treated it as a discrete choice between a few alternatives (i.e., a tool in the regulatory toolbox, a way to promote
stewardship, etc.). For this reason, the response tallies should be viewed as an approximate, relative indicator of how
interviewees view trading.
3-2
-------
. One project coordinator expressed concern over the administrative demands of
trading programs and questioned whether state and federal regulators are up to the
task of managing the programs.
. Another permitter feels that trading is too often used as a tool of political or
economic accommodation. Specifically, where poor water quality and
development pressure coincide, regulators and other decisionmakers try to find
ways to accommodate development. Consequently, water quality may take a back
seat to economic and political goals.
Five individuals felt that trading is good only in concept; i.e., it has significant flaws that
make its application impractical (the "Other - Negative" category). For instance, one
point source representative highlighted that surface waters are complex biological
systems with too many factors that point sources cannot influence, undermining the
reliability of trading. Another respondent highlighted how nitrogen comes in various
forms, some more bioavailable than others; this individual asserted that the discharge
allocations inherent in TMDL and trading programs ignore these complexities. Similarly,
one permitter noted that trading effectiveness is limited by the unpredictable nature of
watersheds and runoff; for instance, weather will greatly influence discharges, making it
hard to meet discharge/trading allocations with confidence. In addition, one permitter
saw trading as still too "experimental" to qualify as an established regulatory tool. Many
of these concerns and limitations are discussed further in our review of barriers to trading
(see below).
Finally, it is worth noting that some interviewees expressed a lack of comfort with the
term "trading." Some program interviewees noted that their program lacks the defining
features of trading (e.g., buyers and sellers, credits) and felt that EPA and others may
apply the term too freely. One program coordinator felt that EPA may act as too much of
a "cheerleader" for trading, ignoring regulatory innovations that are effective but which
lack key trading features. Acknowledging these innovations as being distinct from
trading may help eliminate misperceptions and encourage more creativity in permitting
and other aspects of water quality regulation.
Perspectives On Conditions Conducive To WQT (Evaluation Question 2)
Evaluation Question 2 concerns interviewee perspectives on the location-specific
conditions conducive to WQT. Specifically, most interviewees were asked to identify the
factors that influenced the success of particular initiatives. Interviewees highlighted three
major categories of trading preconditions:
. The regulatory environment in which trading takes place;
. The nature and involvement of key participants; and
• Regional factors, ranging from the hydrological and geographic features of the
watershed to demographic and economic patterns in the region.
3-3
-------
We discuss these considerations below. It is important to note that many publications
have provided a more comprehensive discussion of conditions recommended for a
successful trading program.8 This discussion focuses exclusively on those factors that
interviewees highlighted for this evaluation.
Regulatory Setting
One theme that emerged in the interviews is that trading is an outgrowth of more
fundamental water quality-based permitting activities. First, stakeholders of all types -
permitters, point sources, program coordinators - emphasized the importance of TMDLs
in establishing a framework for trading. A TMDL is often the driving force that
motivates the participation of key players. In particular, the finite loading limits
produced under TMDL allocations serve as a red flag for point sources that may have
previously been governed only by effluent concentration limits. Waste load allocations
dictated by a TMDL underscore the effluent controls that must be instituted in order to
accommodate growth, motivating point sources to find options for reducing loadings.
One permit writer noted that without the Truckee River TMDL, "trading wouldn't have
happened." Likewise, the existence of a TMDL and the associated waste load allocations
create the data foundation necessary to develop trading ratios and other parameters used
to structure WQT programs. Programs for which interviewees emphasized the important
role of TMDLs included Truckee Meadows, Long Island Sound, Great Miami, Middle
Snake River, Lower Boise River, Las Vegas Wash, and Chatfield Reservoir.9
In some locales, however, TMDLs have not surfaced as broad a key driver for trading as
EPA expected. According to one trading expert, during TMDL development in Idaho
and Colorado, point sources negotiated individual waste load allocations that were not
very stringent. As a result, end-of-pipe treatment is still financially viable for most point
sources in these areas, negating the need in many cases to buy credits to achieve greater
reductions.
Explicit ambient water quality criteria for nutrients can also serve as a driver for
encouraging trading. First, ambient water quality criteria can guide NPDES permit
development, providing a foundation for more stringent effluent standards; in turn, these
standards can motivate point sources to seek new compliance avenues. Second, criteria
can facilitate development of TMDLs, indirectly enhancing incentives for trading (see
above). Finally, criteria can provide measurable, objective water quality baselines for
gauging environmental progress. The Agency's National Nutrient Policy recognizes
these influences and explicitly notes how nutrient criteria can help support trading.10
8 See, for example, EPA's Water Quality Trading Assessment Handbook, November 2004.
9 The view that TMDLs are a pre-requisite to WQT was not shared universally among interviewees. For example, the
coordinator of the Neuse River program noted that the group compliance permit preceded development of the TMDL.
However, the Neuse program is not a traditional trading arrangement.
10 See "Water Quality Criteria for Nitrogen and Phosphorus Pollution - Basic Information," accessed online at
http://www.epa.gov/waterscience/criteria/nutrient/policy.html, February 11, 2008.
3-4
-------
Very few states have completed the process of developing nutrient criteria for surface
waters, although most states are in the process of developing them.11 As a result, few
interviewees cited the influence of water quality criteria on trading programs. However,
according to interviewees involved with the Great Miami project, Ohio has been
developing criteria for several years and is close to issuing these standards. According to
both the coordinator and permitter for the program, these forthcoming standards have
signaled likely tightening of NPDES effluent limits and have encouraged point sources to
participate in the pilot program. Another interviewee in an EPA regional office and an
important trading expert highlighted the importance of water quality criteria as well. The
regional contact's view is that without explicit water quality goals, trading is simply an
exercise in saving dischargers money, with no assurance that water quality will benefit in
the long run.
A final aspect of the regulatory system that may influence trading is enforcement. As
with any environmental permitting system, compliance will likely improve when
permittees face penalties or other legal action. Several interviewees acknowledged the
importance of solid enforcement for trading. For instance, a permitter involved with the
Long Island Sound program felt that Connecticut DEP's reputation for strict enforcement
dispelled the perception that a facility could opt out of the general permit governing the
trading program and avoid compliance by seeking a conventional individual permit.
Participants
Almost all interviewees offered perspectives on the appropriate set of stakeholders
integral to a successful WQT program. Focusing on different categories of participants,
observations offered in interviews included the following:
• Senior-Level "Champions": Several interviewees stressed the need for a senior-
level individual whose influence can initiate development of a WQT program.
One trading expert with experience in multiple programs saw Agency-level
support as most critical. This type of individual can influence the behavior of
state agencies and permit writers, whose cooperation will be essential. Other
interviewees also stressed the importance of champions at the regional EPA level
and at the senior policy level in state agencies; we discuss this finding in more
detail later in this chapter when we review future activities for promoting trading.
. Permitters: Permitters represent a critical link between regulatory agencies and
point source facilities. As we will review in the barriers section below, the
resistance of permitters to innovative approaches can be problematic for trading.
Conversely, interviewees stressed that an openness to novel approaches is a vital
feature for permitters involved in a WQT program. One interviewee with
extensive experience across multiple programs suggested that newer permitters
may be less wedded to standard operating procedures and, therefore, more open
and creative when incorporating trading into permits.
1 See http://www.epa.gov/waterscience/criteria/nutrient/strategv/status.html for status as of May 2007.
3-5
-------
Program Administrators: The administrative structures of the WQT initiatives
studied vary greatly. Some are operated primarily by state permitting agencies
while others take advantage of a "middle-man" organization to perform
administrative functions. In general, interviewees praised the role of third-party
administrators, primarily for their willingness to do the "heavy lifting" necessary
to keep programs running. For instance, on Great Miami, all the interviewees
stressed the role of the Miami Conservancy District in initiating the program and
handling the daily administrative demands. Other examples include the Neuse
River Compliance Association and the Idaho Clean Water Cooperative on behalf
of the Lower Boise. The Idaho Clean Water Cooperative in this case does not
administer the program, but instead plays a valued role on behalf of participants
such as ensuring trades are accurately recorded and trade reports are prepared that
permitted sources submit to officials at the end of every month of the compliance
period (along with their Discharge Monitoring Reports).
Non-Point Source "Link" Organizations: For programs involving non-point
sources, interviewees emphasized the critical role of field-level organizations with
established connections to the agricultural community. These organizations not
only garner the trust of farmers, but can supply vital technical expertise in
planning and implementing best management practices (BMPs). Most notably,
conservation districts can fill an essential niche. Permit staff involved with the
Red Cedar River project lauded the performance of local conservation districts in
administering trades, and noted how communities without LCD involvement were
unable to establish trading activity. Likewise, on Great Miami, conservation
districts prepare BMP proposals for farmers, calculate the associated pollutant
reductions, and monitor the implementation and maintenance of the BMPs.
Similarly, the trading expert at the World Resources Institute (WRI) noted how
conservation districts can play an important planning role, helping locate and
aggregate credits among the agricultural community. The Ohio Farm Bureau
Federation contact further emphasized the role of conservation districts, stressing
that farmers will be more comfortable with inspections and monitoring performed
by a known, trusted organization.
Point Sources: The recommended features of the point source participants are a
direct function of the type of program in question; therefore, interviewees did not
identify any single recommendation or profile for point source participants. For
larger, point-point trading programs, interviewees stressed the importance of a
large and varied set of participants. For instance, the coordinator for the Long
Island Sound program emphasized how a diversity of buyers and sellers - in terms
of size and pollutant control economics - has propelled the program. Not
surprisingly, many interviewees also highlighted the importance of regulatory and
economic pressures in garnering point source participation. For example, the
point source representative interviewed for the Truckee Meadows project
emphasized the cost of the treatment option faced by the facility and cited it as a
key driver behind their participation in trading. Finally, several interviewees
noted that the point source sector most conducive to trading is typically publicly
3-6
-------
owned treatment works. The coordinator for the Neuse River program noted that
some private corporations may have internal rules barring the kind of
collaboration necessary to participate in a trading or group permitting
arrangement. Industrial facilities may also feature a much more diverse set of
pollutants in their permits, relative to municipal treatment plants. As a result,
program managers emphasized the value of collaboration with municipal
treatment authorities. A point source representative for the Long Island Sound
project stressed how towns were involved in the planning of the program from the
outset, making them full and committed participants in the effort and helping
avoid "surprises" when the program was implemented.
. Non-Point Sources: A large and diverse community of non-point sources appears
to present economic conditions conducive to trading. The permitter on the Red
Cedar project noted that watersheds with large non-point source loads relative to
point sources generally present good opportunities for trading. One expert noted
that a robust trading market will include many buyers and sellers; bilateral trading
solely between two entities is ultimately not sustainable. While a USDA official
noted that more "progressive" farmers may actively opt into a trading program,
extensive outreach may be necessary. For instance, the coordinator of the Great
Miami program emphasized the extensive (but worthwhile) investment associated
with involving farmers; the Miami Conservancy District completed between 60
and 80 meetings with farmers and conservation districts during development of
the pilot.
Regional Factors
A variety of other regional factors contribute to creating a positive environment for water
quality trading. First, some interviewees emphasized the physical and hydrological
features of the watershed and their influence on trading. In particular, some noted that a
watershed with a nutrient "sink" that collects regional streamflow represents the best
setting for trading. The permitter on the Great Miami project indicates that this type of
setting simplifies the process of gauging water quality improvements associated with the
program. In contrast, the Great Miami program must contend with free-flowing rivers
with myriad influences that include seasonal changes in streamflow.
Not surprisingly, water quality itself can influence the motivation for trading and other
innovative initiatives. The coordinator on the Neuse River project noted that fish kills
and other problems created a public outcry for action, leading to legislation that mandated
a unique strategy for the river. The overall lesson is that acute problems can spur creative
approaches.
Economic conditions in a region also can affect prospects for trading. Several
interviewees noted how growth pressures in a particular region played a major role in the
search for innovative water quality management initiatives. The WRI trading expert
pointed out how population growth in the Chesapeake basin has increased flows to
treatment plants, necessitating trading with non-point sources simply as a stop-gap means
of offsetting discharges and satisfying ambient nutrient criteria. Likewise, according to
3-7
-------
several interviewees, development pressure in the town of Wayland was the primary
impetus for the Wayland Center project. Some of the interviewees even felt that water
quality took a secondary role to politically accommodating the commercial landowner
interested in developing the site.
As noted above, the individual economic incentives of participants (i.e., point and non-
point sources) can create conditions conducive to trading. In the broadest sense, a
collection of credit buyers with high control costs and sellers with low control costs forms
the foundation of a trading system. State or regional funding can greatly influence these
incentives, however. Most notably, the availability of grants under state revolving loan
funds is potentially a way of "priming the pump" when a subset of treatment plants are
considering upgrades. A permitter on the Long Island Sound project highlighted how
supplements that Connecticut made to its revolving loan fund were influential in
producing sellers of credits.
Equity And Environmental Justice Issues (Evaluation Questions 7 And 8)
We asked interviewees to identify any environmental justice (EJ) or equity-related issues
that arise in the context of trading programs.12 Few interviewees identified explicit EJ or
equity issues associated with trading and based on their remarks, none of these issues
posed a major barrier or stumbling block for the programs in question. However, several
themes did emerge from the discussion:
• Two interviewees indicated that issues concerning equitable regulation of point
and non-point sources have arisen in the context of their programs. A state
regulator associated with the Chatfield Reservoir program said that point source
participants have complained that they shoulder compliance burdens while non-
point sources are allowed to participate voluntarily. Similarly, a point source
manager associated with the Middle-Snake River project emphasized how non-
point sources do not have to face "regulatory hammers" the way that point sources
do. The Water Environment Federation (WEF) contact clarified that point
sources do not consider trading to be inequitable, but rather the baseline
permitting system that doesn't regulate non-point sources.
. A common argument facing trading programs concerns whether they constitute
the "right to pollute." Only one interviewee indicated that they encountered this
argument during the development of a WQT program. Others acknowledged that
the concept may influence how a program is structured. For example, the
coordinator for the Long Island Sound project noted that inclusion of private
industrial dischargers in a program can increase public sensitivities about placing
profit before water quality considerations, sentiments that may be less prevalent
when dealing exclusively with publicly owned treatment facilities. A
representative of the American Farmland Trust indicated that farmers have
12 EPA defines environmental justice as "the fair treatment and meaningful involvement of all people regardless of race,
color, national origin, or income with respect to the development, implementation, and enforcement of environmental
laws, regulations, and policies." See http://www.epa.gov/oecaerth/environmentaliustice/index.html.
3-8
-------
expressed concern that, by participating in trading arrangements, they "enable"
point sources to buy the right to pollute.
Another concern with trading programs is the potential for creating "hot spots,"
i.e., areas where discharges from a credit buyer inadvertently cause a localized
pollution problem. On the Neuse River program, one of the group permit
members initially received a large allocation because it is far upstream and had a
low transport factor relative to the estuary. However, discharges from this facility
had the potential to affect a local lake, and this point was highlighted by
environmental advocates and ultimately addressed by state regulators. On the
Southern Minnesota Beet Sugar Cooperative project, planners also addressed hot
spot potential by reducing allowed discharges from the facility during low-flow
summer months.
Another variation on equity considerations arises with respect to equivalency
factors applied in trading programs. Estimated through water quality modeling or
other means, equivalency factors establish the relative "value" of pollutant
reductions in one region versus another. The permitter for the Long Island Sound
project noted that some minor disagreement emerged among towns over the
equivalency factors developed in initial modeling efforts. Similarly, the
coordinator for the Middle-Snake River project acknowledged that equivalency
considerations entered into their planning. Ultimately, it was agreed that one
pound of phosphorus upstream would be equivalent to one pound of phosphorus
downstream, avoiding controversy along the lines of "my phosphorus upstream is
worth more than your phosphorus downstream." Analogously, a USDA
representative noted that inequities can develop in trading because farmers in
different locations can receive different compensation for producing the same
pollutant reductions.
Because economic benefits are at stake, disagreements can sometimes develop
over who is allowed to participate in a trading program and who is not. Generally,
these issues are geographic in nature. An interviewee on the Southern Minnesota
Beet Sugar Cooperative project said that many farmers want to take part in the
program because it is seen as a competitive advantage; initially, however, only
farmers in the Minnesota River watershed were allowed to participate, raising
equity concerns. A related concern arose in the planning of the Red Cedar River
project when town residents expressed a reluctance to pay for BMPs implemented
on farms outside of the political jurisdiction of the WWTP. An analogous issue
emerged on the Wayland Center project under which owners of failing septic
systems were allowed to tie into the privately owned treatment plant. The project
coordinator indicated that some interested septic system owners had to be turned
away once the treatment plant excess capacity was filled.
The Long Island Sound project faced minor equity issues surrounding the varying
fiscal positions of participating towns. A point source interviewee suggested that
smaller and/or less wealthy towns initially felt that it was unfair for them to
shoulder the burden associated with the project (i.e., purchasing credits).
3-9
-------
However, these towns eventually saw that trading gave them more diverse
compliance options than under a strict command/control arrangement.
ACHIEVEMENTS TO DATE (EVALUATION QUESTIONS 3 AND 4)
Two of the Evaluation Questions (3 and 4) directed lEc to examine the environmental and
economic achievements of trading programs. In characterizing these accomplishments,
we focus primarily on the eleven WQT programs selected for detailed examination,
drawing on both interviews and existing literature. The discussion addresses four major
categories of achievements:
• Water quality improvements and associated reductions in pollutant loadings;
• Cost savings and other economic benefits;
• The degree of participation and level of trading activity; and
• Other indicators of success.
The sections below provide detail on each of these topics.
Water Quality Improvements
The Long Island Sound program represents a region-wide trading system that has been in
operation for several years. Of the programs examined in this evaluation, it is the only
one that has recorded improvements in ambient water quality. Specifically, the areal
extent of hypoxia in Long Island Sound has shown a marked decrease. The text box on
the Long Island Sound program in this chapter provides more detail on this outcome and
other program achievements.
Other programs addressed in this evaluation have realized loading reductions, but a
number of factors limit the ability to link those achievements to explicit water quality
improvements:
. Many programs are small in scale relative to their affected surface waters.
Therefore, program managers do not expect to realize distinct water quality
improvements that can be definitively traced to the WQT initiative. For instance,
the Minnesota River Basin is extensive, and the nutrient reductions achieved
under the Southern Minnesota Beet Sugar Cooperative project are a small
component of overall loadings in the basin. The same is true of the septic systems
remediated under the Wayland Center project relative to the Sudbury River
receiving waters.
• Similarly, many program managers point to the myriad influences on water
quality in their watersheds, influences that introduce "noise" into the process of
gauging program impacts. For instance, the permitter interviewed for the Red
Cedar project acknowledged that water quality has probably degraded since the
trading effort began. However, this is due to exogenous influences such as
3-10
-------
EXHIBIT 5.
development and changes in agricultural practices (e.g., more land being farmed
for corn and soybeans). Likewise, the coordinator for the Chatfield Reservoir
program pointed to recent droughts and severe storms that have made it difficult
to assess water quality trends.
• Some programs are large in scale, but are in the early stages of implementation.
As a result, water quality improvements may emerge, but are not yet discernible.
For instance, the Great Miami project began operating in 2006, so impacts are still
limited. However, the extensive monitoring network installed as part of the pilot
is yielding baseline data, and program coordinators believe that ambient water
quality improvements will be realized.
As a proxy indicator of water quality benefits, WQT programs often compile estimates of
loadings reductions attributable to the program efforts. Exhibit 5 summarizes loadings
reductions associated with several of the programs examined, drawing on both interviews
and available literature. Note that in most cases, the loadings reductions are estimated by
modeling the effectiveness of best management practices, as opposed to monitoring end-
of-pipe discharges.
POLLUTANT LOADING REDUCTIONS ASSOCIATED WITH SELECT WQT PROGRAMS
PROGRAM
Great Miami
Long Island Sound
Neuse River
Rahr Malting
S. Minn. Beet Sugar
Coop.
Red Cedar
Wayland Center
LOADINGS REDUCTION
434,000 Ibs. combined annual nitrogen and
phosphorus reductions across all BMP projects
in first three auction rounds.
15,500 Ibs. per day nitrogen reduction
(halfway to stated goal under the LIS TMDL)
from participating treatment plants.
69 percent reduction in N loadings to the
estuary since 1995. Association is well
below collective nitrogen discharge cap.
BMPs offset 212 Ibs. of CBOD per day.
BMPs achieve 15,768 Ibs. of phosphorus
control annually.
31,500 Ibs. of phosphorus removal through
BMPs funded by the Cumberland facility as of
2004.
Estimated 0.375 Ibs. per day of phosphorus
discharge from failing septic systems.
INFORMATION SOURCE
Interview
Johnson, et al. (2007),
p. 1
EPA (2007), p. A-78
EPA (2007), p. A-42
EPA (2007), p. A-47
EPA (2007), p. A-117
Interview
Cost Savings and Other Economic Benefits
The basic economic theory underlying trading suggests that when entities with high
pollutant control costs are able to secure reductions through entities with lower pollutant
control costs, net economic savings are realized. Therefore, cost savings and other
economic benefits represent another key category of achievements for WQT programs.
While simple in theory, the cost savings associated with trading programs can be
challenging to estimate. For instance, estimating the economic benefits of a point/non-
3-11
-------
point trading arrangement requires data on the unit cost (capital and operating) of
controlling the pollutant of interest at the point source; data on the unit costs of loading
reductions achieved through specific non-point BMPs; data on the pollutant control
effectiveness and spatial application of those BMPs; and other information.
Because of these analytic challenges, few of the programs examined have produced
detailed studies of cost savings. During the pilot planning stage, the Miami Conservancy
District funded a prospective study of the Great Miami pilot.13 This study estimated that
anticipated treatment plant upgrades at all facilities in the watershed would cost about
$423 million, with unit costs of about $23 per pound of phosphorus. The average unit
cost of phosphorus reduction through no-till practices on farms was estimated to be about
$1.08 per pound. The study estimated aggregate potential cost savings for the watershed
of about $385 million. Somewhat lower cost savings of $314 million are estimated if the
mix of BMPs includes nutrient management.
It is important to note that these figures reflect potential savings if trading opportunities
throughout the Great Miami watershed are pursued. While the current pilot-level trading
program demonstrates the viability of the system, these large-scale savings are not
currently being realized. Furthermore, the program coordinator for Great Miami
suggested that average BMP unit costs are running at about $1.29 per pound of
phosphorus removal, slightly higher than the unit costs assumed in the study. Therefore,
the aggregate potential savings estimates may need to be revised downward.
Nonetheless, interviewees state that the BMP unit costs recorded for the program
compare favorably with average unit costs recorded in other settings.
The only other program for which cost savings have been analyzed is the Long Island
Sound Nitrogen Credit Exchange. Although no recent studies exist, the Water
Environment Research Foundation published a prospective analysis of the Long Island
Sound program in 2000, which estimated capital cost savings of $200 million.14
Although aggregate benefit studies for our selected programs do not exist, other trading
programs have generated concrete estimates of cost savings. For instance, Oregon DEQ
managed a model trade involving temperature and BOD impacts from a regional sewage
and water management agency (Clean Water Services) on the Tualatin River. The
temperature trade involves paying landowners (primarily farmers) to plant shade trees
along river banks to cool the water. This non-point approach has proven to be
significantly less costly than the technological control option of installing refrigeration
units at the treatment plant. These units would have cost between $60 and $150 million
in capital investment and between $2.5 and $6 million in annual operating costs.15
13 See Kieser 6t Associates, Preliminary Economic Analysis of Water Quality Trading Opportunities in the Great Miami River
Watershed, Ohio, July 23, 2004.
14 See Water Environment Research Foundation, Nitrogen Credit Trading in the Long Island Sound Watershed (Executive
Summary), WERF Project #97-IRM-5B, obtained online at
http://www.werf.org/AM/CustomSource/Downloads/uGetExecutiveSummary.cfm?File=ES-97-IRM-
5B.pdf&ContentFilelD=3418.
15 See Oregon DEQ, "Water Quality Credit Trading in Oregon: A Case Study Report," July 2007, p. 13.
3-12
-------
ACHIEVEMENTS UNDER THE LONG ISLAND SOUND
NITROGEN CREDIT EXHANGE PROGRAM
Of the WQT programs examined in this evaluation, the Long Island Sound Nitrogen Credit Exchange
is the largest and longest-running. As a result, the program has produced a more extensive body of
information on its impacts and achievements.
As of 2006, 79 municipal treatment facilities were governed by the general permit allowing trading.
The table below presents the number of municipalities buying and selling nitrogen discharge credits,
and the price at which credits sold.
YEAR
2002
2003
2004
2005
2006
MUNICIPALITIES
SELLING CREDITS
38
37
35
28
33
NUMBER
CREDITS SOLD
1,671,105
1,134,976
1,399,896
623,408
704,000
MUNICIPALITIES
BUYING CREDITS
38
40
44
50
46
CREDITS
PURCHASED
798,317
989,194
940,387
1,169,553
1,126,000
CREDIT
PRICE
$1.65
$2.14
$1.90
$2.11
N.A.
Sources: EPA, Water Quality Trading Toolkit for Permit Writers, Appendix A; 2006 figures from
interview with Paul Stacey, CT DEP, September 17, 2007.
Since the introduction of the 2001 TMDL and the initiation of trading, treatment facilities have
implemented a total of 31 nitrogen removal projects. These efforts have reduced the total nitrogen
load from the 79 facilities by 15,500 pounds per day. This equates to approximately 50 percent of the
reduction needed to achieve the daily nitrogen discharge target established in the TMDL (Johnson, et
al., 2007).
While many factors influence the quality of Long Island Sound, the reductions achieved under the
nitrogen credit exchange program appear to be having an impact on water quality. Hypoxia surveys
completed in 2002 and 2006 show a marked reduction in the areal extent of severe hypoxia (Johnson,
et al., 2007).
Although no recent cost savings studies exist, the Water Environment Research Foundation published
a prospective analysis of the Long Island Sound program in 2000 (WERF, 2000). This study
estimated capital cost savings of $200 million associated with the trading program.
3-13
-------
The Boulder Creek offset agreement represents another example where explicit cost
savings have been recorded. The City of Boulder used a combination of treatment plant
upgrades and stream restoration projects to meet water quality standards for nutrients.
Although the stream restoration projects cost an estimated $1.3 to $1.4 million, the city
still realized savings of $3 to $7 million relative to approaches relying purely on point
source control of nitrogen.
16
EXHIBIT 6.
While other programs highlighted in this evaluation have not developed comprehensive
cost savings estimates, we identified economic benefits associated with several of the
initiatives, either through interviews or literature searches. Exhibit 6 summarizes this
information. Some of the findings demonstrate a strong potential for cost savings. For
instance, a study of the Rahr Malting project estimated BMP unit costs that are
significantly lower than point source control costs. Other cost savings indicators
represent secondary, spinoff benefits. For instance, Neuse River interviewees highlighted
how the group permit approach has facilitated economic growth in a region that would
otherwise have been constrained by TMDL loading limits.
ECONOMIC BENEFITS ASSOCIATED WITH SELECT WQT PROGRAMS
PROGRAM
BENEFITS DESCRIBED
INFORMATION
SOURCE
Chatfield
Reservoir
Great Miami
River
Long Island
Sound
Neuse River
Rahr Malting
Trade allowed point sources to avoid fines that would
have resulted from exceeding allocations.
Potential cost savings of $314 to $385 million across
entire watershed (see text).
Estimated cost savings for Dayton Water Department of
$44 million if program is implemented over the long
term.
Prospective analysis estimated capital savings of $200
million.
Credit sellers view value of credits sold as a direct
economic benefit to them. Stamford annual revenue
from credit sales is about $400,000.
Credit buyers see economic benefit in being able to
delay large investments.
Point sources realize savings when group permit
association handles water quality monitoring; relieved of
inefficient cost of performing own monitoring.
Trading can accommodate economic/residential growth
in a region that would otherwise be constrained under a
TMDL allocation.
Non-point phosphorus control costs average $3.07 per
pound, compared with point source facility costs of
$4.44 to $6.14 per pound.
WQT program kept the point source economically viable;
would otherwise have had to relocate.
Interview
Kieser & Associates
(2004), p. 4-3
I nterview
WERF (2000), p. 2
Interview
I nterview
Interview
I nterview
Fang and Easter
(2003), p. 14
I nterview
16 See Morgan, Cynthia, and Ann Wolverton, "Water Quality Trading in the United States," NCEE Working Paper #05-07, June
2005, p. 32.
3-14
-------
Participation and Trading Activity
EXHIBIT 7.
Interviewees frequently cited trading activity and participation of key stakeholders as
evidence of their programs' achievements. Exhibit 7 summarizes the various ways in
which activity can be framed, drawing on both the interviews and available literature. It
is noteworthy that some observers see these types of measures as poor indicators of
program performance given that programs define "trades" differently.
TRADING ACTIVITY AND PARTICIPATION MEASURES FOR SELECT WQT PROGRAMS
PROGRAM
Chatfield Reservoir
Great Miami River
Long Island Sound
Neuse River
Rahr Malting
Red Cedar River
S. Minn. Beet Sugar
Coop.
BENEFITS DESCRIBED
Nine trades and more are likely.
Across three reverse auction rounds, 149
proposals received and 36 BMP projects
implemented. Good geographical coverage with
several counties involved.
In 2006, 33 municipalities sold credits and 46
municipalities purchased credits. Roughly 1.8
million credits exchanged.
Of 32 large dischargers in the watershed, 23
participate in group compliance permit.
Four large, longer-term non-point offset
projects implemented.
More than 60 BMP projects implemented; 891
acres enrolled in 2004.
Approximately 200 trades/year are completed
under the Beet Sugar permit.
Contracts on 579 non-point sites totaling over
58,000 acres
INFORMATION SOURCE
Interview
Interview
Interview
Interview
Interview
EPA (2007), p. A-117
Interview
EPA (2007), p. A-47
Other Achievements
A number of program achievements do not fall into the categories discussed above (water
quality improvements, cost savings, trading activity). Some interviewees point to smooth
program administration and the satisfaction of participants as signs of success:
• On the Long Island Sound project, all 79 participating towns recently signed onto
the renewed permit, an indicator of confidence in the program. Furthermore,
interviewees suggested that no enforcement actions have been necessary under the
permit.
• The point source interviewee on Great Miami stressed how the Miami
Conservancy District has created a streamlined process for the reverse auctions,
summarizing bids, and presenting them to the point source participants in a clear,
user-friendly format.
• The program coordinator pointed out that the Neuse River Compliance
Association is self-sustaining, requiring minimal management from North
Carolina DENR.
3-15
-------
Similarly, some interviewees emphasized how a smaller-scale pilot effort has established
"proof of concept," (i.e., the program has set the stage for broader-scale activity in the
future). For example, the point source interviewee on Great Miami expressed concern
over the fact that the trading agreements being established are not yet formally approved
in his NPDES permit; however, he is encouraged that once the trading system goes
beyond the pilot stage, the process of purchasing BMP offsets will be up and running and
procedural details will be settled. Likewise, interviewees associated with the Middle
Snake project noted that the initiative is in an early stage and expressed satisfaction that
Idaho has a scientifically credible, transparent, and verifiable process for conducting
trading (through the state's Pollutant Trading Guidance). They emphasized that their
established trading process and associated guidance will likely produce future results.
Finally, many of the trading programs have produced ancillary benefits, (i.e., outcomes
that are secondary to water quality improvement, but still valuable). Some of these
ancillary benefits are environmental. For instance, the non-point source projects
implemented for the Rahr Malting project have reduced sedimentation and improved soil
conservation. In general, trading experts recommended that EPA and other regulators do
more to highlight the value of ancillary environmental benefits such as soil conservation,
wetlands creation, and carbon sequestration.
Some programs have spawned procedures that will refine water quality management and
other types of environmental management in the future. For instance, Neuse River
interviewees noted that group compliance programs can produce a technology transfer
effect, (i.e., Association members collaborate on the group permit and learn cost-effective
pollutant control approaches from each other). The Southern Minnesota Beet Sugar
project features audits by a third-party to verify that BMPs are in place and functioning
properly. These third-party auditors collect photos and select field audit sites to verify
BMPs.
BARRIERS TO WQT (EVALUATION QUESTION 5)
Interview participants were asked to identify barriers to water quality trading, including
institutional, legal, technical, and economic barriers. Responses to this interview
question were extensive, and highlight a number of obstacles to the practical
implementation of the WQT concept. The following discussion of barriers is organized
by primary barriers (i.e., the most significant and most commonly identified) and
secondary barriers (i.e., important but less universal) considerations.
Primary Barriers
The most common barriers identified by interviewees were institutional and
economic/regulatory factors, discussed below.
3-16
-------
Institutional Barriers
The barriers to WQT most frequently cited by interviewees are institutional in nature.
Institutional barriers refer to obstacles that arise in the operation of state and federal
environmental agencies involved in WQT, and in the interaction of other trading
participants with these institutional actors. Interviewees cited institutional barriers to
trading approximately 50 times; some interviewees cited multiple institutional barriers
while a minority of interviewees omitted mention of this category of barriers.
Institutional Barriers at EPA:
Many interviewees discussed that EPA support for WQT varies by office, and that EPA is
not coherent or consistent in its support of trading. While interviewees recognized that
the WQT contacts at HQ are consistent in their support for trading, they indicated that
resources to support trading vary at the regional level, and that support for the concept is
particularly spotty among EPA legal counsel and permit writers who are uncomfortable
with the legal grey area that trading occupies. Legal counsel and permit writers also tend
to be more rigid in their interpretation of law and regulation, and are often uncomfortable
with the idea of collaborating with polluters to reduce the cost of compliance, even if
reduced costs may lead to accelerated and better environmental improvements. An EPA
regional WQT contact noted that in some instances, hiring new permit writers with fresh
perspectives might help to promote trading in the regions.
The specific institutional barrier at EPA identified by interviewees most often is a lack of
flexibility. For example, one point-source participant in the Long Island Sound program
commented that EPA has a predetermined idea of how trading programs should be
structured that is not sensitive to variability in local conditions. This participant
commented that EPA adheres to certain program design elements that do not stray from
their "handbook" conception of trading. In the case of the Long Island Sound program,
however, EPA's preferred design concepts were not conducive to a program with all
municipal facilities. An attorney affiliated with the Neuse River program echoed this
sentiment by noting that more than other organizations, EPA finds it hard to be flexible
when an approach diverges from the standard permit that they are accustomed to
administering. Other interviewees affiliated with the Great Miami River program also
cited EPA's lack of flexibility in meeting compliance schedules as a primary barrier to
trading.
Several interviewees noted that EPA officials' concerns about enforceability slow the
diffusion of trading. For example, the permitter for the Neuse River program specified
that EPA legal counsel was initially very skeptical of the group compliance arrangement
underpinning the program. EPA originally rejected the North Carolina DENR's initial
memorandum of understanding with dischargers as a blueprint for the group compliance
arrangement. The Neuse permitter indicated that because EPA was unfamiliar with the
practice, they were more inclined to point out its potential legal vulnerabilities, rather
than think creatively with the DENR about how to facilitate a workable permitting
approach.
3-17
-------
EPA's variable support for trading was said to be especially problematic for states such as
Idaho and Massachusetts, two of four states where the NPDES program is not delegated.
Two affiliates of the Middle Snake River program noted EPA Region 10 was reluctant to
issue permits incorporating trading until Idaho's state trading policy was finalized, a
contingency that EPA ultimately dropped. However, the permits written by EPA Region
10 for the program were not what IDEQ and participants anticipated. EPA was of the
understanding that there was no initial interest and/or economic potential for point/non-
point trading, yet for this report IDEQ expressed a desire for the permit to allow it. In
response to similar comments received during the public comment period on the proposed
permit, EPA authorized it in the final permit with the requirement that it be done
according to the Idaho's Water Pollutant Trading Guidance. In addition, apparent
miscommunication and misunderstanding between EPA Region 10 and IDEQ led to a
permit that covered trading in only four aquaculture facilities for the Middle-Snake
program; IDEQ and other aquaculture facilities anticipated that the permits would cover
additional facilities.
Institutional Barriers at State Environmental Agencies:
Other institutional barriers commonly cited pertain to state environmental agency
resources, as well as State agency culture. Several interviewees noted the lack of state
funding for trading initiatives as a significant impediment. One independent trading
expert tied these two issues together by saying that overcoming cultural inertia in state
permitting agencies to explore new options like trading is an uphill battle exacerbated by
resources shortages. Several interviewees also noted that it can be difficult to get
capable, motivated staff working on WQT at state agencies. Similarly, an attorney
involved with several trading programs as well as a point source in the Neuse River
program concurred that state permitting authorities can be inflexible in the types of trades
that they allow under WQT programs.
A number of the institutional barriers identified by interviewees pertain to the difficulties
of permitting as it relates to trading. As discussed at length later in this section under
Legal, Regulatory, and Policy Changes, several interviewees bemoaned the time needed
to incorporate new sources into existing permits that include trading. In addition, many
respondents cited the time-intensive nature of the permitting process for new permits as
well. Developing permits, putting them out for public comment, and finalizing them are
all very time consuming activities that slow the progress of trading.
A former permitter for the Connecticut DEP discussed an institutional barrier specific to
the Long Island Sound program that could crop up in future programs. Through the Clean
Water Fund, the state exercises significant control over which nitrogen removal projects
are implemented at treatment plants; projects that receive supplementary funding
typically are pursued promptly. DEP recently funded a number of removal projects with
high costs per pound of nitrogen removed, basing the decisions on a relatively old
formula for Clean Water Fund eligibility. This encourages less cost-effective removal
projects and reduces the cost savings that could be realized under the trading program.
3-18
-------
Economic/Regulatory Barriers
Interviewees cited economic and regulatory barriers a total of 26 times. These barriers
pertain to inadequate supply of, or demand for, credits as a result of economic and
regulatory conditions.
The most common economic barrier identified in this category was lack of regulatory
drivers for trading such as nutrient criteria, but especially lack of a TMDL in the targeted
waterbody. Interviewees from the majority of programs indicated that TMDLs are a
prerequisite for trading, as discussed earlier in this chapter. As the permitter for the Long
Island Sound program explained, a TMDL motivates participation in a trading program
because point sources see that they face tough standards and are more likely to participate
in an initiative where some cost savings may be possible. A few interviewees noted,
however, that a TMDL can also have a negative effect on demand for trading, and
sometimes act as a barrier. In some waterbodies, TMDL load allocations may be so high
for some facilities that it negates the need to participate in trading. Regarding non-point
sources, several interviewees also pointed to the lack of regulatory lever as a barrier to
involving farmers in trading.
Sometimes the lack of economic drivers for trading exists independently from regulatory
conditions. For example, the permitter for the Wayland Center program discussed that
trading is motivated by high costs of on-site control. Some dischargers are not yet in the
high part of the marginal cost curve for on-site control, so pollutant reductions still come
fairly easily and cheaply, reducing the economic rationale for trading. In addition, the
program coordinator for Great Miami noted that improved wastewater treatment practices
may reduce nutrients to such a degree that it obviates the economic need for trading for
some facilities.
Several interviewees pointed to limited trading opportunities among both point and non-
point sources as a barrier to trading in some areas. Trading opportunities among point
sources may also be exhausted in some areas where limited point sources are
participating. In watersheds that bridge multiple states, the economic potential of trading
may be stymied by the legal constraints to expanding trading to participants across state
lines.
Similarly, there may be insufficient opportunities for non-point source credits to offset
the volume of point source releases; this barrier was mentioned by Great Miami contacts,
Rahr Malting contacts, and independent experts. Several issues confound trading with
non-point sources, but chief among them is making the economic equation work for
farmers. As discussed by USDA interviewees and non-point sources interviewed, many
farmers are already receiving payments or cost-sharing from NRCS programs for BMPs,
and the ability to receive trading credits on top of these payments is still an open question
(See Evaluation Question 13). Farmers have not demonstrated a willingness to forego
participation in the familiar, administratively simple, and reliable NRCS funds to
participate in trading. Consequently, the potential universe of farmers willing to
participate in trading may be small if there is no way to participate in both trading and
NRCS conservation programs. Moreover, as described by the permitter for the Wayland
3-19
-------
Center program, there is a lack of obvious non-point sources to participate in trading in
urban/residential areas.
Finally, several interviewees, including USDA staff, also linked the difficulty in
establishing trading ratios for non-point source reductions (discussed at length later in this
section) as an economic as well as a technical barrier to trading.
Secondary Barriers
In addition to primary institutional and regulatory/economic barriers, interviewees
identified a number of secondary barriers to trading. Secondary barriers include technical,
information/ uncertainty and administrative/start-up issues. Each of these categories of
barriers is discussed in greater detail below.
Technical Barriers
Interviewees cited technical barriers to water quality trading a total of 15 times. Most of
the technical barriers cited involve difficulty measuring pollutant releases and reductions
and converting this information into appropriate equivalency factors or trading ratios.
This barrier was mentioned by contacts from Great Miami, S. Minnesota Beet, Red Cedar
River, Long Island Sound, Neuse River, as well as the interviewee from WRI and other
independent experts. Several factors contribute to difficulty in development of
equivalency factors, including lack of scientific or technical information (e.g., for
waterways that lack water quality modeling), and complex local geography and
hydrology.
The permitter for the Red Cedar River program, as well as other contacts, focused on the
complex process of developing equivalency factors for point/non-point source trades in
particular. On the Red Cedar River, for example, point and non-point sources release
different forms of phosphorous, which have different eutrophication potentials. The
translation of different forms of a pollutant significantly complicates the calculation of
equivalency factors. Feedback on the issue of establishing more user-friendly methods
for calculating pollutant reductions from non-point sources is explored in depth under
Evaluation Question 10, Improved Tools and Guidance.
Informational and Uncertainty Issues
Interviewees cited informational and uncertainty issues a total of 12 times. Several
interviewees cited lack of understanding about the rules of trading, the authority to
conduct trades, and the mechanics of permitting as barriers to finalizing trading guidance
and encouraging participation by both point and non-point sources.
Related to informational and educational barriers are issues of uncertainty. For example,
an attorney involved in setting up several trading programs points to lack of confidence in
trading among potential participants as a major barrier. Several interviewees noted
reluctance on the part of point sources to rely on an outside party to accomplish necessary
pollutant reductions, because the point source is ultimately liable for the reduction. As
3-20
-------
contacts from EPA Region 5 and Ross & Associates commented, even if in-house
controls are more expensive, they are at least guaranteed.
A number of point and non-point sources cited concerns that participating in trading
might lead to increased regulatory burden. This concern is particularly salient among
non-point sources; many interviewees, including USDA representatives, the Ohio Farm
Bureau representatives, and NGOs cited the agricultural sectors' distrust of EPA and state
environmental agencies as a key barrier to trading.
Exogenous factors are another source of uncertainty about the ability of trading to
achieve net improvements in water quality. For example, a point source in the Great
Miami River program cited the corn boom that prompted some farmers to plant new
fields at the same time that other farmers were implementing BMPs.
Administrative/Start Up Barriers
Interviewees cited administrative and program start-up barriers a total of 10 times, with
high start-up cost being the most frequently cited barrier. Launching trading programs
can be expensive and time consuming, especially, as the permitter for the Wayland
Center program noted, when there is already a backlog of permits to be processed. EPA
Region 4 staff, and contacts from Truckee Meadows and Wayland Center, commented
that given the lack of demonstrated success with water quality trading, large investments
of time and money in new program development may not be justified. In addition, EPA
Region 5 staff note that the high start-up costs may not be justifiable given that the
trading markets that ultimately develop are generally quite small.
In addition to the time and expense associated with getting a trading program off the
ground, several interviewees cited ongoing administrative burdens (e.g., such as tracking
trades, monitoring and verifying discharge reductions, and reporting) for the entity
overseeing/implementing the program as a barrier. Ongoing program costs were cited by
Long Island Sound, Middle-Snake, and independent experts as a barrier to scaling up
trading activity.
Sometimes, decisions about jurisdiction can plague trading programs, which often do not
fit neatly into preexisting regulatory silos. For example, the Long Island Sound program
was involved in a protracted disagreement over which entity would oversee the Nitrogen
Credit Advisory Board, which was time consuming for program staff.
PROMOTING TRADING IN THE FUTURE
Program staff and other trading experts were asked to identify changes that would help
support water quality trading in the future. The questions focused on five major topics:
• Legal, regulatory, or policy changes that EPA could institute to support trading
(Evaluation Questions 11 and 12);
. Improved funding mechanisms for promoting trading (Evaluation Question 14);
. Improved tools and guidance for promoting trading (Evaluation Question 10);
3-21
-------
. Tactics for promoting non-point source involvement (Evaluation Question 6 and
13); and
. Improved indicators that EPA can use to measure its progress on promoting water
quality trading (Evaluation Question 9).
Legal, Regulatory, And Policy Changes (Evaluation Questions 11 And 12)
Interviewees were asked to identify legal, regulatory, and policy changes that EPA could
pursue to increase flexibility and create incentives for WQT. In general, the suggestions
reflect back on a subset of the barriers highlighted under Evaluation Question 5 (see
above), particularly institutional barriers. The recommendations were broad and, in some
cases, far-reaching; hence, there is a general recognition that EPA may have only limited,
indirect means to pursue some of these suggestions. The proposals can be organized into
the following categories:
• Changes under the NPDES program;
• Changes under the TMDL program; and
• Trading policies and related regulations.
The discussion below explores each of these topics.
Changes Under the NPDES Program
Point source discharge permits represent a critical link in the institutional machinery of
trading. As such, several interviewees suggested how procedural and legal changes under
the NPDES program could support trading. First, some interviewees highlighted how
strict NPDES permit schedules can squelch interest in trading. A permitter associated
with the Great Miami program said that flexibility in NPDES schedules could give point
sources the "breathing room" they need to think more creatively about trading options.
Specifically, it takes time to secure trading partners, navigate legal questions, and
otherwise develop a trading program. Without adequate time to explore these tasks, point
sources tend to fall back on well-known abatement technologies and permitters tend to
fall back on standard operating procedures.
Other interviewees stressed the need for flexibility in how trading is introduced into
existing permits. One legal expert wondered if there might be options for allowing
trading to be added to a permit without reopening the entire permit for discussion. In
particular, several interviewees highlighted the system of public notification and
comment under the NPDES program as being onerous; hence, allowing insertion of
trading into a permit without reopening the permit for public comment could be
especially beneficial.
Several interviewees with legal expertise called attention to the ways in which trading
interacts with anti-degradation and antibacksliding policies. In general, interviewees did
not present specific suggestions for how these policies could be changed or clarified.
Instead, they called attention to the confusion surrounding the issues, particularly in the
context of NPDES permitting:
3-22
-------
. Antibacksliding regulations prohibit EPA from reissuing NPDES permits with
effluent limitations that are less stringent than the final limits established in the
previous permit. Exceptions are recognized, however, including situations where
the circumstances on which the previous permit was based have materially and
substantially changed.17 Therefore, the primary question raised by interviewees is
whether participation in a trading program or offset arrangement is a valid basis
for allowing relaxation of a water quality-based effluent limitation for a particular
pollutant.
• States are required to develop rules protecting existing surface water uses and
preventing clean waters from being degraded. In states with anti-degradation
policies, a discharger who wishes to increase loadings typically must justify the
change (on social or economic grounds) or demonstrate that the discharge is
exempt. Interviewees noted that confusion remains over whether trading is a valid
justification for an increased load where an anti-degradation policy is in place.
In both these cases, interviewees believe that clarification from EPA would help support
trading or at least define whether trading is a valid option for certain NPDES permittees.
Additional legal questions are posed by the recent court decision by the U.S. Ninth
Circuit Court. The court ruled that EPA could not issue a permit to a mine on an
impaired Arizona creek, despite the fact that the company intended to offset its discharges
through remediation at an inactive mine upstream, because nothing in the regulations or
the CWA allows for offsets in impaired waters. Citing this decision, some interviewees,
including an independent expert and the permitter on Rahr Malting, stressed that EPA
needs to address the uncertainty regarding whether trading can occur on an impaired
waterbody.
Changes Under the TMDL Program
Some interviews underscored the importance of expediting TMDL development to enable
trading. TMDLs often provide the biological and hydrological basis for a trading
arrangement. For this reason, several interviewees stressed the need for the TMDL
program to move forward as quickly as possible. Specifically, one of these individuals
suggested that TMDL program managers need to revise the current emphasis on
extensive modeling and data refinement, which often delays TMDL implementation.
Instead, the program needs to show the "political will" to proceed with imperfect
information. Somewhat in contrast with this sentiment, an interviewee on the Long
Island Sound project suggested that EPA work to refine the models and data on which
TMDLs are based. To the extent that TMDLs are more scientifically sound, EPA will
gain the confidence of participants in trading programs.
17 Thorme, Melissa A., "Antibacksliding: Understanding One of the Most Misunderstood Provisions of the Clean Water Act,"
Environmental Law Reporter, 3-2001, p. 10323.
3-23
-------
Trading Policies and Related Regulations
Interviewees called attention to several other policies and regulations that EPA may wish
to consider in promoting trading:
. EPA helps states develop affordability criteria for sewage and drinking water
systems. These guidelines help determine whether treatment and water supply
costs are excessive, placing these costs in the context of median household income
in a given town. One state regulator noted that, based on current guidelines, many
Massachusetts towns do not appear to incur a heavy cost burden. However, the
guidelines have not been updated since the mid-1990s. If EPA helped revise these
guidelines, water quality managers may see increased interest in trading because
sewage service costs would be deemed "excessive/burdensome" (in the more
official sense), and there would be greater pressure for reducing treatment plant
costs.
. Another interviewee pointed to the important role that revolving loan funds play
in trading programs (see below) and suggested that the guidance for distributing
money from these loan funds is outdated. If EPA helped update this guidance, it
might promote a funding distribution that is more in line with the cost-
effectiveness objectives of trading programs.
• A representative of a national agricultural organization suggested that EPA devise
a system of regulatory dispensation for farmers who voluntarily participate in
trading programs. Farmers may see trading as the leading edge of mandated
pollutant controls. By providing legal assurance to farmers that participating now
will absolve them of future regulation, EPA could promote interest in trading.
• Some interviewees perceive a lack of consistency between trading policy
expressed by EPA Headquarters versus EPA Regions. This can create uncertainty
for state regulators and trading participants. One interviewee said that "it would
be extremely beneficial... if EPA would resolve its internal cultural
communication... so that one mouth speaks for all. As it currently stands, many
mouths speak for all, and this gets too confusing to [state regulators] and to the
industries involved in this program (and other similar programs)."
. Finally, one interviewee pointed out that the Clean Water Act contains no explicit
trading provisions. Adding trading language could provide the needed authority
to pursue trading more vigorously, although this would entail opening the statute
for revision.
Improved Funding Mechanisms (Evaluation Question 14)
In discussing improved ways to fund WQT efforts, some interviewees first highlighted
existing funding sources that were instrumental to their programs. The funding sources
were diverse and facilitate different aspects of the initiatives. For instance, interviewees
for Long Island Sound, a regional project with numerous point source participants,
stressed the importance of the Connecticut Clean Water Fund (i.e., the state's revolving
loan fund devoted to municipal treatment plant upgrades). They emphasized how this
3-24
-------
type of cost sharing can "prime the pump" by ensuring prompt implementation of key
nitrogen control projects at treatment plants. One of the interviewees also pointed out
that recent cuts in the Clean Water Fund have contributed to a slow-down in treatment
plant projects. Furthermore, this individual is concerned that the formula for distributing
these funds may be outdated, with the result being that less efficient nitrogen control
projects are being funded at the expense of more efficient options. This outcome could
undermine the fundamental economic logic of the trading system.
On the Middle-Snake River project, Idaho DEQ received federal (EPA) funding that they
used to secure a contractor overseeing program development and coordination between
DEQ and industry. Likewise, the Minnesota Pollution Control Agency received EPA
funding to explore trading opportunities in the state and to develop a state-wide rule for
water quality trading. USDA funding is a central element of the Great Miami project.
The program received a Conservation Innovation Grant totaling roughly $900,000. The
funding has been used for several critical program functions, including prospective
research on economic benefits and extensive outreach to farmers and conservation
districts.
Much of the funding discussion focused on how EPA can target resources to support
WQT in the future. The suggestions were divided between direct funding options (i.e.,
funding for implementing trading programs) and indirect funding options (i.e., funding on
programs that drive an interest in trading). We discuss these two categories below.
Suggestions for Direct Funding
The broad theme running throughout interviewees' direct funding suggestions is to fund
more pilot level studies. While few explicitly used the term "pilot study," interviewees
tended to highlight those aspects of program administration that proved most challenging
or costly on their respective initiatives, recommending that future programs receive
funding targeted to these areas. One interviewee may have put it most succinctly when
she highlighted the need for smaller, more "nimble" grants for trading. In contrast to
large grant programs that have significant application hurdles (e.g., Targeted Watershed
Grants), smaller grants could fund the practical aspects of program administration that
many interviewees emphasized, including the following:
• Several interviewees stressed the resource demands associated with outreach to
program participants. For instance, the coordinator of the Chatfield Reservoir
project noted how collaboration with program participants is a major demand; as a
private consultant, he must charge participants for his time beyond a certain limit.
Likewise, the Great Miami coordinator highlighted the cost of the many program
development meetings he conducts with farmers, county officials, and soil and
water conservation districts.
. Many interviewees pointed to the importance of directing funding to the right
level of program bureaucracy. However, their suggestions varied greatly as to
what level is most appropriate. Long Island Sound interviewees recommended
that state permitting agencies receive more funding for program administration.
The coordinator on the Middle-Snake River project advised that funding be
3-25
-------
targeted to the regional offices of Idaho DEQ, not to the state office, since the
regional offices are best positioned to tailor trading programs to the unique aspects
of regional industries. An interviewee on the Las Vegas Wash project believes
that funding is best targeted on local governments and other local organizations.
. For programs involving agricultural non-point sources, we have noted that local
soil and water conservation districts can provide a link to the farming community
and perform key technical functions. One interviewee suggested that funding be
channeled directly to the districts to fortify this administrative link.
These disparate suggestions for targeting funding highlight how EPA regional staff may
best function as a "gatekeeper" for directing resources. This role would be consistent
with several interviewees' view that EPA needs to establish a regional point of contact
devoted exclusively to promoting WQT. For example, one EPA regional staffer who
already plays this role advocated having a regional leader who would perform more
outreach with state regulators and with the regulated community. The coordinator for
Rahr Malting echoed this suggestion, saying that more leadership from EPA regional
offices is necessary to make trading work.
Suggestions for Indirect Funding
When asked how future funding could be directed, a somewhat surprising number of
interviewees focused their suggestions on supporting activities that influence trading,
rather than funding trading programs proper. First, interviewees advocated funding
existing programs that drive regional interest in trading. For instance, consistent with
suggestions to step up the pace of TMDL development, several interviewees said that
putting more resources into TMDLs would propel interest in trading. Likewise, one
interviewee recommended increased funding for enforcement to create stronger
incentives for NPDES permittees to explore trading.
To support point/non-point trading, several interviewees suggested that funding should
flow directly to non-point partners. A state official involved with the Red Cedar project
said that a cost-sharing program for non-point sources would defray the cost of BMP
implementation and enhance farmers' interest in trading. Likewise, a representative of
the Ohio Farm Bureau Federation suggested that funding more conservation planning
would help identify BMPs and nutrient reduction potential in different areas, thereby
allowing project planners to identify good watersheds for trading initiatives.
Some interviewees stressed the importance of funding improved water quality modeling
to inform program development and build the case for trading. For instance, a USDA
official suggested that EPA could fund field-level monitoring of in-place BMPs to better
characterize their pollutant control effectiveness. Similarly, the coordinator of the Great
Miami program described the extensive water quality monitoring network that has been
implemented as part of the program. While this network is generating potentially
valuable information, funding is needed to ensure technically sound and thorough
analysis of the data.
3-26
-------
Some respondents went so far as to suggest that new funding not focus on trading
programs at all. Instead, the most efficient tactic may be to simply direct funds to non-
point source control, either through grants to farmers (as currently exist) or through
development of a regulatory program that explicitly controls agricultural runoff.
Improved Tools And Guidance (Evaluation Question 10)
In the interviews, we asked respondents to comment on the usefulness and quality of
existing tools and guidance for assisting WQT efforts. In most cases, interviewees
seemed familiar with at least a subset of the products that EPA had produced, including
the Water Quality Assessment Handbook and the Water Quality Trading Toolkit for
Permitters. Six interviewees explicitly complimented these tools, indicating that they
were "very useful" and "well-written and organized."
In several instances, interviewees were critical of a specific product with which they were
especially familiar. Two interviewees expressed the view that EPA guidance squelches
flexibility and promotes rigidity, and that by being over-prescriptive, EPA can deter states
and other organizations from exploring WQT.
One interviewee stated that the Water Quality Trading Assessment Handbook is a
"disaster" because it places too much emphasis on conducting complex fate and transport
modeling. This individual felt strongly that the technical and resource demands of fate
and transport modeling are too great and that trading will not scale up if this kind of
analysis is a prerequisite. The criticism that the WQT Handbook demands too much fate
and transport modeling appears to have some validity. The Handbook proceeds from the
assumption that the program designer has a good watershed profile (i.e., discharger
inventory, loadings, etc.), which is a relatively demanding assumption. However, it does
not explicitly recommend fate and transport modeling so much as it assumes that such
fate and transport modeling will already be done in support of a TMDL.18
One interviewee with agricultural expertise was unhappy with the Getting Paid for
Stewardship document that EPA helped fund. This individual felt that the document
places the onus on farmers to identify trading partners and otherwise initiate trading
programs. lEc reviewed the language in Getting Paid for Stewardship and agrees that it
does seem to place some onus on farmers, telling them to take the initiative to organize a
trading program (e.g., "find a partner"). However, given that farmers are the primary
audience for the document, it is difficult to envision a different approach for framing the
document.
Most of the discussion in this area was devoted to identifying future tools and guidance to
support WQT. Several interviewees said that additional general technical guidance (e.g.,
trading theory, pointers for structuring programs, etc.) has been covered well by existing
EPA products, and that additional general guidance is not needed. Others provided
18 For several of the criticisms and suggestions raised in relation to tools, lEc reviewed the existing EPA tools and guidance to
assess the validity of the remark. Specifically, we reviewed the content of the Water Quality Trading Toolkit (EPA, 2007);
the Water Quality Trading Assessment Handbook (EPA, 2004); EPA's Water Quality Trading: One-Day Training Course; and
Getting Paid for Stewardship (CTIC, 2006).
3-27
-------
EXHIBIT 8.
constructive suggestions for new tools and guidance. These suggestions were wide-
ranging and reflect a desire to overcome specific barriers that programs have
encountered. Exhibit 8 summarizes the ideas expressed and provides a rough indicator of
how frequently interviewees made a particular suggestion. The remainder of this section
considers these suggestions in greater detail.
OVERVIEW OF SUGGESTED TOOLS AND GUIDANCE
SUGGESTION
Methodologies for estimating pollutant reduction
benefits of agricultural BMPs
Case studies of successful trading programs
Conceptual models for expanding trading to non-point
sources other than agriculture
Specialized or targeted WQT training/guidance
Analysis of secondary benefits of trading
Improved information on BMP potential in different
geographic regions
Methods for trading different pollutants across
participants in a given program
Systems to assist farmers in BMP selection
Recognition program for innovative actors
Mentoring program to provide technical assistance
Guidance on interface between trading and the
backsliding issue
APPROXIMATE NUMBER OF
INTERVIEWEES OFFERING THE
SUGGESTION
5
4
4
3
2
Seven interviewees offered some variation on the suggestion that EPA support
development of a tool for characterizing pollutant reductions associated with agricultural
BMPs. As noted in the barriers discussion earlier, estimating the pollutant reduction
effectiveness of BMPs is essential to developing trading ratios in point/non-point
programs. Interviewees stressed two key characteristics. First, the method or model
should be simple. A USDA representative highlighted the need for a "rule of thumb"
approach and others used terms such as "formula" or "general framework." Clearly, the
desire is to avoid complex modeling that would require extensive data, technical
knowledge, or program resources to implement.
Second, interviewees pointed to the need for a method or model that is fully "blessed" by
EPA as well as state regulators. Program managers want the confidence of knowing that
the modeling estimates and associated trading ratios would stand up to legal scrutiny and
not be called into question in the permitting stage or in enforcement actions. Our review
of the existing tools indicates that this is a valid suggestion. None of the current guidance
documents provides a detailed discussion of accepted models for assessing BMP
effectiveness or simplified methods (e.g., USLE) for rough estimation of nutrient
reductions. Even Getting Paid for Stewardship circumvents the issue with simplistic
3-28
-------
advice like "you might have this information through existing conservation programs or
tools..."
Five interviewees suggested that case studies of successful trading initiatives would be
helpful. The Permitter's Toolkit contains comprehensive case studies that may address
this need; it is possible that these interviewees had not read or recalled the case studies in
this resource. In some instances, interviewees specified the case study content,
acknowledging how it would complement existing case study material. For example, the
coordinator for the Long Island Sound project recommended detailed economic studies
highlighting the program's societal economic benefits as well as the savings for
individual participants (e.g., municipalities). There may be a legitimate need for case
studies targeted on economic benefits; the WQT Toolkit fact sheets provide little
information of this type.
Four interviewees highlighted the need for guidance on how to structure a trading
program that incorporates dischargers other than traditional point sources and farms. For
instance, an interviewee on the Chatfield Reservoir program is interested in a simple
method for estimating phosphorus reductions associated with the retirement of aging
septic systems. Similarly, an EPA regional contact suggested considering how programs
could incorporate urban stormwater control. These seem like valid suggestions to lEc, as
existing materials focus almost exclusively on farm runoff when considering non-point
sources. Incorporating different sources presents unique planning and analytic demands.
For example, the best management practices for urban stormwater control are distinct
from those for agricultural runoff. Likewise, incorporating septic systems and urban
stormwater sources requires knowledge of different regulatory settings (e.g., urban
stormwater permitting).
Four interviewees expressed an interest in re-orienting or targeting existing WQT training
and/or guidance materials to serve a specific stakeholder group. One Neuse River
interviewee felt that EPA should develop WQT training for environmental groups that
oppose the concept. The WRI contact suggested developing guidance specifically geared
to watershed managers and other non-technical program coordinators. She believes that
these groups need a more complete primer on program design and outreach to
stakeholders (in addition to standard technical guidance).
Several additional tools were mentioned by three or fewer interviewees. Briefly noted,
these ideas include the following:
. Three interviewees highlighted how programs involving non-point sources can
produce ancillary environmental benefits such as carbon sequestration and
wetlands creation. In addition, a representative of American Farmland Trust
emphasized how the revenue from participating in trading can benefit the farming
sector, improving the economic viability of small farms and enhancing food
security. The interviewees suggested that more systematic information on these
benefits may help support trading.
• Two interviewees suggested promoting trading by providing information on
agricultural BMP potential in different geographic areas. A point source
3-29
-------
representative associated with the Lower Boise project noted that EPA or USDA
could centralize and publicize information on where BMP funding goes; such
information could be helpful to point sources seeking trading partners. A
representative of the Farm Bureau Federation suggested more emphasis on GIS
analysis and watershed assessments to identify areas with the greatest point/non-
point trading potential.
. One interviewee requested more information on what he referred to as "offset
trades," (i.e., trading between different pollutants).
. One interviewee recommended that EPA and USDA collaborate on an Internet-
based system for helping farmers select BMPs. The system would be interactive
and allow farmers to see tradeoffs between BMP costs and pollutant control
effectiveness.
. One interviewee suggested a recognition program for rewarding especially
innovative actors (e.g., companies, municipalities, farmers) who take part in
trading.
. One interviewee suggested that EPA institute a mentoring program whereby the
Agency identifies effective program coordinators or consultants, puts them on
retainer, and has them assist individuals who are establishing new trading
initiatives.
. One interviewee recommended that EPA publish guidance on the anti-backsliding
provisions of the Clean Water Act and their implications for water quality trading.
19
Promoting Non-Point Source Involvement (Evaluation Questions 6 And 13)
Several interviewees discussed challenges and opportunities regarding non-point source
involvement in WQT. A general comment shared among many interviewees is that
USDA and EPA need to take steps to better coordinate their policies and activities to send
clear messages to the non-point source community regarding WQT. The Great Miami
River program coordinator pointed to the MOU signed between USDA and EPA in 2006
as a positive step in demonstrating to staff carrying out programs and activities related to
trading that the agencies are committed to work together. This section presents feedback
from interviewees on concrete steps that USDA and EPA can take to better coordinate
trading activities.
19 Evaluation Question 6 inquired about the effects of other federal and state programs on WQT, in particular the role of
USDA programs. USDA programming related to trading was described in the Introduction of this report, and is further
explored in this section. The role of state policy and programs is a very broad topic discussed throughout this Findings
chapter.
3-30
-------
Coordination on BMP Pollutant Reduction Tool
As discussed in the Improved Tools and Guidance section, seven interviewees suggested
that EPA support development of a tool for characterizing pollutant reductions associated
with agricultural BMPs; these include interviewees from Chatfield, Great Miami, and
Red Cedar programs among others. Based on lEc's review of available tools, we think
this feedback is valid. NRCS worked with EPA to develop a nitrogen modeling tool to
estimate reductions from BMPs; the Nitrogen Trading Tool (NTT) prototype is currently
being tested in Ohio, Maryland, and Colorado. However, officially endorsed tools for
phosphorous and sediment are still needed.
In addition, as discussed by the interviewee from the Ohio Soil and Water Commission,
as well as an independent expert consulting to that program, the Great Miami program
developed a spreadsheet model for nitrogen and phosphorous control by BMPs. Great
Miami interviewees credited this model with program success; the model has been
endorsed by Ohio EPA. A couple of interviewees stressed that (the federal) EPA should
"bless" this kind of streamlined model as away of promoting trading.
Coordination on Trading Ratio Approach
As discussed earlier, some interviewees expressed that EPA should rethink its approach
to developing trading ratios, because reliance on fate and transport modeling is a
significant barrier to participation of non-point sources as well as point sources. USDA
officials are among interviewees that promote a streamlined approach; one USDA
interviewee noted that EPA should research the track record of "rule of thumb"
approaches to identify circumstances where they may be applied with confidence. One
USDA official went further, saying that EPA should consider revising their guidance to
address equity issues caused by trading ratios within the non-point source community,
which the official cited as another barrier to non-point source participation. For example,
the interviewee stated, if two non-point sources are participating in a trading program,
and one is receiving $X per credit and the other $2X, then perhaps they should both
receive $1.5X to reduce equity concerns.
Clearly, EPA and USDA differ in their preferred approaches to developing ratios; as a
result, it is likely some non-point sources are receiving a mixed message about trading
ratios and how best to establish them. USDA contacts, an independent expert, and
interviewees from Great Miami and Rahr Malting alluded to the need for EPA and USDA
to work to harmonize their policy and message on this issue to support non-point source
trading.
Resolution of NRCS Program Participants and Trading
USDA interviewees, independent experts, and the program coordinator for the Great
Miami program expressed that EPA and USDA need to clarify the policy for non-point
sources participating in trading while receiving NRCS financial incentives or cost-sharing
funds. This need for clarification is underscored by the fact that lEc received conflicting
information from interviewees on the current rules for participating in both. USDA
3-31
-------
indicated that farmers participating in WQT have not been required to subtract the value
of cost-share from trading revenue to-date, but we were told by Great Miami interviewees
that the local conservancy district did not allow farmers to participate in both programs.
While EPA is officially silent on the issue, persons from both EPA and USDA indicated
to lEc a personal preference that farmers subtract the value of NRCS incentives or cost-
sharing funds from trading credits. The arguments provided to lEc for instituting this
requirement are as follows:
. Farmers can use NRCS incentives and cost-sharing funds to bring them up to
baseline and allow them to trade.
. If farmers are already receiving funds for BMPs, adding the potential of
generating WQT trading will not incentivize additional conservation, but rather
just provide additional subsidy for the same level of benefit.
• NRCS credits are price distorting, at least in theory, and have the potential to
reduce the value of trading credits if used in conjunction with WQT credits.
In contrast, USDA's official position, as expressed to lEc by USDA officials, is that
farmers participating in cost share should be able to participate in trading without
subtracting the value of NRCS incentives. USDA rationale is as follows:
• NRCS cost share programs pay for only a portion of BMP installation, and they
do not pay for BMP operations and management costs.
• The rationale for NRCS programs are broader than the rationale for generating a
WQT credit to achieve a water quality goal. NRCS incentives encompass other
benefits of conservation, such as combating soil erosion. However, it would be
difficult, if not impossible, to calculate how much of the NRCS program incentive
or cost sharing to subtract from WQT credits.
• The potential for realizing additional value from generating credits will only make
farmers want to increase participation in trading more, and they need additional
incentives to participate.
• NRCS financial incentive and cost-share program participants are not going to
give up participation in NRCS programs for the opportunity to participate in
trading. NRCS conservation programs have been in affect for many years, 15
percent of all farmers take advantage of them. Farmers view NRCS program as a
simple and certain revenue stream, in contrast to the new and uncertain world of
WQT.
• It puts USDA in an "awkward position" vis-a-vis their agency's promotion of
trading if farmers participating in their programs are precluded from participating
in trading.
In addition, two independent trading experts stated that NRCS programs are not adequate
to address the entirety of the non-point pollution problem.
3-32
-------
Additional Feedback on EPA and USDA Coordination
Interviewees provided some additional feedback on how EPA and USDA could better
coordinate to support non-point source involvement in trading. First, as discussed
previously in this chapter under Suggestions for Indirect Funding, several interviewees
suggested that EPA reconsider its WQT funding approach in light of non-point source
challenges, and fund non-point source projects directly.
Secondly, several interviewees stressed that USDA, state conservation agencies, and soil
conservation districts should be the conduit of information on trading to farmers. Two
independent experts, the program coordinator for Great Miami (a program which has
received NRCS funding and has non-point participants), and USDA contacts underscored
that these agencies have credibility among the agricultural community that EPA and state
environmental agencies lack because of their respective historical roles, and that farmers
are more likely to be receptive to trading if USDA is the conduit of information on
available opportunities. With that said, information provided by these agencies needs to
be consistent with EPA policy and messages, otherwise confusion and ultimately
disinterest in trading among non-point sources would be the likely result.
Improved Indicators For Measuring EPA's Progress (Evaluation Question 9)
Few interviewees expressed substantive opinions on how EPA should measure its
progress on WQT. Of those who did, nearly all began by stressing that the number of
trades is a poor measure. First, programs have very different definitions of what
constitutes a "trade." A point/point program might consider each credit exchanged to be
a trade, while a point/non-point program might count the number of BMP contracts
established. Further undermining the standardization of the definition, the number of
trades is not meaningful when trading ratios vary from program to program. Two EPA
regional representatives suggested that the Agency explore developing a method for
estimating net loading reductions by combining raw estimates of reductions with
information on the program-specific trading ratios.
Other suggestions for meaningful indicators of progress included the following:
. The EPA Region 10 contact suggested tracking the number of permits that
authorize trading and the number of facilities covered by the permits.
. One independent expert recommended tracking the river miles or lake acreage
associated with a trading program.
• Because TMDLs can provide a strong incentive to pursue trading, a state regulator
suggested that EPA track and publish information on TMDL waste load
allocations and the progress that dischargers are making against those allocations.
3-33
-------
CHAPTER 4 | RECOMMENDATIONS
In this chapter, lEc draws on both its review of the literature and the comments of those
we interviewed to provide recommendations to EPA on the direction of future efforts to
support water quality trading. As context for these recommendations, it is important to
acknowledge that EPA has limited ability to address some substantial barriers to trading.
In particular:
• The Clean Water Act does not mention water quality trading, and has several
requirements that pose potential impediments to trading (e.g., anti-backsliding and
anti-degradation requirements; permitting and public comment requirements). A
significant amount of creativity and staff time is necessary to work around the
complexities caused by statutory ambiguity. Over-burdened permit writers and
cautious legal counsel may be unwilling or unable to make such an investment.
• Water quality trading appears to be viable and sustainable only in locations where
a narrow set of regulatory, economic, hydrologic, and geographic circumstances
exist. Likewise, it may be limited to areas where program coordinators have both
a high level of interest in trading and the talent needed to shepherd stakeholders
through a challenging program development and implementation process.
• No generic approach works in developing a water quality trading program. The
myriad local conditions noted above (regulatory, economic, hydrologic, and
geographic) necessitate a customized program design.
. The regulatory conditions necessary for trading ~ e.g., TMDLs and/or nutrient
criteria ~ are still not in place in many areas. States have been slow to develop
TMDLs and nutrient criteria, and EPA has limited leverage in accelerating the
process.
These are some of the most significant barriers to implementing water quality trading.
Given the Agency's limited leverage in addressing these barriers, it may be unrealistic to
expect widespread diffusion of trading programs. In particular, EPA should avoid
comparisons to air quality trading, which does not face the same barriers.
lEc has developed five main recommendations for EPA to consider when planning future
Agency efforts to support water quality trading. These recommendations do not focus on
addressing the above barriers, but rather on addressing other barriers that are within
EPA's purview:
1. Recast water quality trading as one option within a suite of innovative permitting
options supported by EPA.
4-1
-------
2. Promote institutional changes at EPA that would support trading.
3. Support trading only where conducive conditions are evident.
4. Improve coordination with USDA to promote involvement of non-point sources.
5. Adjust EPA's allocation of trading resources.
RECOMMENDATION 1: RECAST WATER QUALITY TRADING AS ONE OPTION WITHIN
A SUITE OF INNOVATIVE PERMITTING OPTIONS SUPPORTED BY EPA.
As EPA pushes forward with numerical nutrient criteria, nutrient standards, and water
quality-based permit nutrient limits, the nature of nutrient pollution inherently affords
greater flexibility than has traditionally been the case with toxics, heavy metals, and
primary and secondary treatment. The very fact that nutrients often exhibit downstream
collective impacts without upstream impairments opens the door to far more flexible
permitting approaches
Trading, however, is one of several flexible permitting options. Some of the programs
studied for this evaluation, including Neuse River, Wayland, and Long Island Sound, do
not fit a "classical" definition of trading; Neuse revolves around a group compliance
approach, Wayland is essentially an offset program in which a single regulated entity
purchases offset credits from non-point sources in the absence of additional regulated
entities from which to "trade," and the Long Island Sound program is based on a
centralized approach to establishing the most efficient waste load allocation. In addition,
a few of the individuals we spoke with do not characterize their initiatives as trading
initiatives. In fact, the program coordinator for Las Vegas Wash, a program that we
sought to study originally, would not participate in the evaluation because he did not
consider the program to be a trading program. In addition, at least one interviewee
pointed to others' initiatives as being something other than "real" trading; for example, an
EPA regional contact commented that the Long Island Sound program is simply "trading
construction schedules."
All of the programs studied, however, are examples of innovative permitting of one type
or another, and the lines between different types of innovative permitting are fuzzy. For
example, EPA's watershed-based permitting program features some trading programs -
Clean Water Services, Chesapeake Bay, Neuse River, Rahr Malting - as case studies of
watershed-based permitting.20 Given the limited examples of "classic" forms of trading,
and the current ambiguity of the term's meaning, lEc's recommendation would be to
recast classical trading as one option within a suite of innovative water quality permitting
options supported by EPA.
lEc does not see an inherent value in promoting trading as a concept separate from other
innovative permitting options. All of these approaches represent potentially flexible and
cost-effective ways of meeting water quality goals, and should be selected based on local
conditions. In addition, focusing on trading in particular invites continued comparison to
20 See EPA's home page for watershed-based permitting at:
http://cfpub.epa.gov/npdes/wqbasedpermitting/wspermitting.cfm.
4-2
-------
the highly successful use of trading in the air program, which is neither fair nor relevant.
By casting a wider net and addressing innovative water quality permitting more
comprehensively, EPA will be under less pressure to scale up the specific concept of
trading, and be better positioned to support a larger universe of promising water
permitting initiatives at the state and local levels.
To recast trading as one option within the broader suite of innovative permitting, lEc
would suggest reorganizing OW webpages and communications to link water quality
trading and watershed-based permitting, as well as WQT and broader opportunities for
offsets.
Finally, some interviewees provided interesting ideas about expanding the scope of WQT
and linking it to other initiatives. lEc agrees with the recommendation that EPA explore
these linkages and the potential opportunities that lie therein:
• Some interviewees mentioned that EPA should explore the potential to involve
non-point sources other than farms in trading, because agricultural sources of
credits are limited in many areas, especially urban areas. Potential sources of
urban non-point source credit generation may include stormwater BMPs, which
are increasingly utilized to mitigate impacts of development projects. EPA is
emphasizing these BMPs through its new Green Infrastructure Partnership, which
potentially dovetails with water quality trading efforts.21
. Two independent experts interviewed stressed that EPA should link WQT to
related opportunities such as carbon offsets. WRI recently published a guide to
ecosystem services including carbon offsets, and USDA is currently developing
guidance on ecosystem services for its field staff22
RECOMMENDATION 2: PROMOTE INSTITUTIONAL CHANGES AT EPA THAT WOULD
SUPPORT TRADING.
In identifying obstacles to water quality trading, interviewees cited institutional barriers
more often than any other issue. While EPA cannot directly address the institutional
barriers to water quality trading imbedded in the Clean Water Act, interviewees
suggested that the Agency could help to support trading by providing clarification on
several legal points. In addition, interviewees noted changes to EPA guidance that would
support trading. Finally, interviewees indicated that increased Agency consistency in
attitudes towards trading would be very helpful in promotion of the concept. lEc largely
agrees with interviewee feedback on institutional changes; we summarize our
recommendations below.
21 For information on stormwater BMPs, see: http://cfpub.epa.gov/npdes/stormwater/menuofbmps/index.cfm. EPA's green
infrastructure strategy and activities can be found at:
http://cfpub.epa.gov/npdes/greeninfrastructure/information.cfmSgreenpolicy.
22 WRI, Ecosystem Services: A Guide for Decision-Makers, March 5, 2008: http://www.wri.org/publication/ecosystem-
sen/ices-a-guide-for-decision-makers.
4-3
-------
Legal Clarifications
. Interviewees discussed the stifling effects of tight NPDES permit review and
development schedules and the difficulty of developing a trading program within
these time constraints. It is unclear to lEc if EPA has latitude in adjusting the
schedule for renewal of NPDES permits. If it does, we recommend that the
Agency develop more flexible policies and schedules for permits that include
trading. If it does not, EPA should clarify these limitations for its trading partners.
. EPA should communicate more broadly about the interplay of WQT and anti-
degradation and anti-backsliding provisions, for example by taking content from
the Toolkit and developing frequently asked questions for posting on EPA's
website.
. EPA should clarify whether trading is allowable on an impaired water body given
the recent U.S. Ninth Circuit Court decision related to this issue, as discussed in
the Findings chapter.
EPA Guidance Changes
• Based on feedback that TMDL development needs to be accelerated to support
trading, and persisting confusion regarding the use of imperfect data in setting
TMDLs and the level of analytic rigor needed for TMDL waste load allocations,
we suggest that EPA increase communication to states regarding phased TMDLs.
The 2006 phased TMDL memo states that TMDLs can be developed with
imperfect data and imperfect analytic techniques, as long as the state expects that
the loading capacity and allocation scheme will be revised in the future as
additional information is collected.23
. EPA should update affordability guidelines for sewage and drinking water
systems. New guidelines may increase pressure for reducing treatment costs, and
thus help create economic conditions conducive to trading.
• Based on feedback received on the Long Island Sound program, EPA should
conduct more outreach to encourage states to make WQT projects eligible for
State Revolving Loan funds, by adding WQT projects to the eligible projects list.
Culture Change
Some interviewees stressed a lack of consistency between EPA Headquarters' promotion
of trading and attitudes encountered among EPA regional staff (most notably permitting
staff) and legal counsel. WQT shares this problem with many other innovative programs
at EPA; innovations cheerleaders are often found at Headquarters with a small set of
likeminded staff at the regions, but roadblocks to implementation are often encountered
in permitting, enforcement, and legal offices. Often, roadblocks result from uncertainty
23 Memo from Benita Best-Wong, Director, EPA OW Assessment and Watershed Protection Division, to EPA Regional Water
Division Directors, "Clarification Regarding "Phased" Total Maximum Daily Loads," August 2, 2006:
http://www.epa.gov/owow/tmdl/tmdLclari fication_letter.html
4-4
-------
over interpretation of EPA policy, and a real or perceived lack of resources to implement
innovations.
Managers of innovative programs at EPA have employed several strategies to address
these types of intangible but important barriers to innovation within the Agency. lEc
recommends that OW staff learn from the experience of other programs by meeting with
managers of other innovative EPA programs to gather input and advice.24 Examples of
potential strategies include:
• Restate EPA top management support for trading and other innovative water
permitting options for controlling nutrients on the scientific basis that impacts are
typically realized downstream, and not locally. Ask the Administrator's office to
send a communication on the subject to regional administrators, regional directors
of the water program, as well as OECA and regional enforcement office directors.
• Hold small meetings and one-on-one conversations with regional and state permit
writers, legal staff, and other appropriate individuals to discuss the realized and
potential environmental benefits of trading and other innovative water permitting
options.
• Change the "beans" counted in work-sharing agreements between EPA
Headquarters and States (i.e., commitments recorded in the Annual Commitment
System) as well as in work-sharing agreements between regions and states (i.e.,
PPAs/PPGs and block grants) to support trading. Currently, lEc understands that
all permits issued are counted equally within these arrangements, providing a
disincentive for permit writers to incorporate trading because permits that do so
are more complex and take longer to develop. If EPA gave additional credit for
writing a trading permit, commensurate with the level of effort needed to develop
one, it would remove a key resources barrier.
RECOMMENDATION 3: SUPPORT TRADING ONLY WHERE CONDUCIVE CONDITIONS
ARE EVIDENT.
In Chapter 3, we reported that interviewees communicated a consensus on local
conditions necessary to support trading. When combined, these observations suggest a
narrow set of regulatory, economic, hydrologic, and geographic circumstances. In the
past, EPA issued WQT implementation grants where assessments of trading conditions
were not conducted, and some of those programs failed. In addition, trading may be
limited to areas where program coordinators have both a high level of interest in trading
and the talent needed to shepherd stakeholders through a challenging program
development and implementation process.
Assuming that EPA continues to fund nascent or struggling trading programs, lEc
recommends focusing resources on programs that, at the very least, meet conducive
regulatory, economic, hydrologic, and geographic conditions. Specifically, we suggest
24 Should OW want to pursue this recommendation, lEc has several suggestions of contacts in OPEI and other offices who may
be of assistance.
4-5
-------
EPA require grant applicants to demonstrate that conducive conditions exist to be eligible
for implementation grants or other EPA funding. Moreover, we suggest that EPA
consider the interest and capacities of local champions and stakeholders in making
funding decisions.
Screening for the above conditions could be accomplished through a relatively simple
assessment, which was recommended by two independent trading experts interviewed.
We suggest that EPA develop criteria associated with each of the conditions, identify the
information required to assess a location against the criteria, and perhaps include
potential data sources. The local government or organization interested in developing a
WQT program would conduct the screening assessment and submit it to EPA as part of
an application for grant or other funding.
In cases where a screening assessment indicates that a particular location is not well-
suited for trading, EPA should consider if it would be a good candidate for one of the
other innovative permitting options discussed under the first recommendation. Consistent
with the recommendation to broaden the Agency's focus, EPA may want to consider
providing resources to local or state governments to help them pursue locally applicable
innovative permitting options other than trading.
RECOMMENDATION 4: IMPROVE COORDINATION WITH USDA TO SUPPORT
INVOLVEMENT OF NON-POINT SOURCES.
EPA and USDA approach the involvement of the agricultural community in water quality
trading from very different perspectives, consistent with the different functions of the
respective agencies. EPA sees trading as a cost-effective way of delivering clean water,
while USDA views trading as a means of offsetting farmers' BMP costs. As discussed in
the report, USDA's resources related to BMP promotion are extensive and have expanded
considerably overtime; currently, 15 percent of all American farms receive some form of
conservation funding from USDA. USDA funding for projects specific to trading is also
growing. Given both its resources and its credibility with the agricultural community,
USDA's influence in encouraging farmers to participate in WQT cannot be
underestimated. Thus, to the extent possible, EPA should rationalize views and
messages regarding trading with USDA, and forge a solid collaboration with USDA to
jointly address barriers to non-point source participation.
Collaboration On Technical Tools And Approaches
The Findings chapter discusses two potential areas of technical collaboration between
EPA and USDA: developing new measurement tools to gauge BMP effectiveness and
coordinating on a delivery ratio approach. In terms of new tools to gauge BMP
effectiveness, the process used to jointly develop the current nitrogen tool may serve as a
model for developing and testing a similar tool for phosphorous and sediment.
lEc understands that fate and transport modeling is required to support trading, to provide
a scientific basis for the activity and to comply with the CWA. However, EPA could
communicate existing flexibilities to state and local government, for example the fact that
EPA allows 2-D as opposed to 3-D modeling. Moreover, in light of the realities of
4-6
-------
imperfect science that go into trading ratio development, as well as anti-backsliding and
anti-degradation considerations, EPA should consider the effectiveness of "rule of thumb"
or simple spreadsheet approaches to developing delivery ratios where non-point sources
are involved, and determine if there are circumstances under which streamlined
approaches could be applied with confidence. This research is another potential area of
collaboration between EPA and USDA.
When EPA and USDA jointly develop a tool or approach to assist non-point sources in
participating in trading, lEc recommends co-branding any products. Co-branding sends a
clear message that both agencies support the tools, and more generally demonstrates that
the agencies are working together to address technical needs associated with WQT.
However, because NRCS, analogous state agencies (e.g., state soil conservation
agencies), and local soil conservation districts have high credibility with the agricultural
community, these agencies and not EPA should be the public face of communication and
outreach efforts for tools directed towards the non-point source community.
Joint NRCS/ WQT Participation
lEc recommends that EPA and NRCS coordinate more closely on the overlap between
NRCS programs and WQT. As discussed previously, NRCS conservation program
participants are unlikely to forgo participation in NRCS programs to take advantage of an
opportunity to sell WQT credits. Although EPA is officially silent on the issue because
NPDES permitting authority is delegated to most states, the Agency has legitimate
concerns about the potential for double-counting environmental benefits for joint NRCS
and WQT participants.
Although NRCS and EPA are unlikely to resolve their fundamental differences on this
issue, there are some areas along the margins that the two agencies could collaborate on.
First, EPA could better communicate to the agricultural community that NCRS cost-share
and incentives can be used to bring farmers up to the baseline nutrient control required
for trading. Secondly, EPA and NRCS could improve coordination and information
sharing on the distribution of EQIP funding.
RECOMMENDATION 5: ADJUST ERA'S ALLOCATION OF TRADING RESOURCES.
Many of the recommendations provided above have implications for resources in the
form of staff time, including instituting institutional changes, developing additional tools
and resources, and improving coordination with USDA. While lEc acknowledges the
increase in staff time needed in the short-term to implement these recommendations, we
think that these investments would lead to more effective promotion of trading.
In addition to recommendations discussed above, lEc has developed further
recommendations for strategic resource allocation:
• Establish a technical outreach group for trading at Headquarters that could provide
on-site, hands-on assistance to nascent or struggling trading initiatives.
Alternatively or in addition to a Headquarters-based group, establish centers of
WQT knowledge at the EPA regional level, consisting of one or more FTEs
4-7
-------
dedicated to providing technical outreach on trading (we realize that this currently
exists in some regions).
• Restore the Agency's focus on providing small levels of seed funding for
promising trading efforts. To facilitate this, we suggest that EPA develop a more
nimble grant funding program. We agree with interviewee feedback that the
current grant program used for WQT is oversized for this particular purpose, as it
provides very large grants and requires an extensive proposal effort.
• Identify opportunities to build on the current success realized by the Long Island
Sound program, for example, by exploring possible replication in the Connecticut
River Valley and other locations with similar conditions: a single political entity,
large number of point dischargers, a well-defined sink, and a state legislature
friendly to a statute like the one underpinning the Long Island Sound program.
PRIORITIZING RECOMMENDATIONS
In this chapter, lEc has provided five main recommendations for moving forward with
water quality trading, and several specific recommendations within each. We realize that
integrating these recommendations as a package would require significant change and
long-term planning. Thus, we suggest getting started with the following changes that
would provide a foundation for implementing the other recommendations:
• Recast WQT as one option within a broader suite of innovative permitting options
and change communications accordingly.
• Clarify legal issues associated with WQT.
. Make changes across EPA guidance noted to support WQT.
• Develop and implement strategies to move EPA and state environmental agency
culture towards greater knowledge and acceptance of WQT.
• Use screening assessments to guide EPA investments in local WQT initiatives.
• Establish a technical outreach group for trading and EPA Headquarters and/or the
regional level, to provide on-site, hands-on assistance to nascent and struggling
programs.
4-8
-------
APPENDIX A
LIST OF INTERVIEWEES
-------
WATER QUALITY TRADING EVALUATION INTERVIEWEES
STAKE HOLDER GROUP
AFFILIATION
POSITION
CHATFIELD
Permitting Authority
General
Program Coordinator
GREAT MIAMI RIVER
Program Coordinator
Non-point source
(representative of)
Point Source
Permitting Authority
LONG ISLAND SOUND
Point Source
Permitting Authority
Point Source
Program Coordinator
LOWER BOISE
Program Coordinator
Point Source
General
General
MIDDLE-SNAKE RIVER
Program Coordinator
Program Coordinator
Colorado Department of Public
Health and Environment, Water
Quality Division
Colorado Dept. of Public Health
& Environment, Watershed
Section
RNC Consulting (formerly with
Denver Regional Council of
Government)
Miami Conservancy District
Ohio Division of Soil and Water
Conservation
City of Dayton, Water
Department
Ohio EPA, Division of Surface
Water
Stamford Water Pollution
Control Authority
Camp, Dresser, McKee
(formerly with Connecticut
DEP, Planning & Standards
Division)
Metropolitan District
Commission
CTDEP, Water Management
Bureau
Idaho DNR
City of Boise Public Utilities
EPA Region 10
Ross & Associates
Idaho DNR
Idaho Department of
Environmental Quality, Twin
Falls Region
Clean Water Facilities
Program Manager
Chief of the Watershed
Section
President
Manager, Watershed
Initiatives
Assistant Chief
Wastewater Treatment
Manager
(not provided)
Executive Director
Senior Environmental
Engineer
Chief Administrative Officer
Long Island Sound Study
Coordinator
TMDL Program Manager
Water Quality Manager
Market Incentives Specialist
VP and Principal
TMDL Program Manager
Regional Manager, Water
Quality Protection
A-1
-------
STAKE HOLDER GROUP
AFFILIATION
POSITION
Point Source
Non-point Source
Point Source
NEUSE RIVER
Program Coordinator and
Permitting Authority
Point Source
Point Source
Point Source
RAHR MALTING
Permitting Authority
Program Coordinator
Non-point Source (representing)
Point Source
RED CEDAR RIVER
Permitting Authority
Program Coordinator
General
SOUTHERN MINNESOTA BEET SUGAR
Point Source
Program Coordinator
TRUCKEE MEADOWS
Permitting Authority
Point Source
Point Source
Clear Springs Foods
Twin Falls Canal Co.
City of Twin Falls
North Carolina Department of
Natural Resources
Neuse River Compliance
Association
Town of Clayton
Neuse River Compliance
Association
Minnesota Pollution Control
Agency
Keiser & Associates (formerly
with MN Pollution Control)
Coalition for a Clean Minnesota
River
Rahr Malting Company
Wisconsin Department of
Natural Resources
Wisconsin Department of
Natural Resources
Wisconsin Department of
Natural Resources
Southern Minnesota Sugar
Keiser & Associates (formerly
with MN Pollution Control)
Nevada Department of
Environmental Protection,
Bureau of Water Quality
Planning
Truckee Meadows Water
Reclamation Facility
City of Reno
VP, Research and
Environmental Affairs
Manager
City Attorney
Permit Writer
Executive Director
Wastewater Operations
Superintendent
Legal Counsel
Principal Engineer
Senior Project Engineer
Executive Director
Vice President of
Operations
Basin Engineer
Chief of Watershed Section
Watershed Supervisor
Master Mechanic
Senior Project Engineer
TMDL Program Engineer
Water Quality Coordinator
Senior Civil Engineer
A-2
-------
STAKE HOLDER GROUP
AFFILIATION
POSITION
WAYLAND CENTER
Permitting Authority
Permitting Authority
Program Coordinator
NON-PROGRAM
General
General
General
USDA
USDA
USDA
General
General
General
General
NGO/Environmental Advocacy
NGO/Environmental Advocacy
Massachusetts Department of
Environmental Protection,
Southeast Regional Office
EPA Region 1
Wayland Wastewater
Management District
Commission
EPA Region 5
EPA Region 5
EPA Region 4
USDA, Natural Resources
Conservation Service
USDA, Natural Resources
Conservation Service
USDA, Natural Resources
Conservation Service
Ohio Farm Bureau Federation
Kieser and Associates/
Environmental Trading Network
American Farmland Trust
Jackson and Kelly LLC
World Resources Institute
Water Environment Federation
Surface Water Permitter
Water Quality Specialist
Chair
Chief, NPDES Programs
Branch
Water Quality Trading
Coordinator/ NPDES
Nutrients Coordinator
Water Quality Trading
Coordinator
National Leader for Clean
Water
Senior Economist, Animal
Husbandry and Clean Water
Division
Director, Animal Husbandry
and Clean Water Division
Director of Environmental
Policy
ETN Acting Chair and Senior
Scientist
VP for Research
Attorney
Senior Associate, People
and Ecosystems
Staff Liaison
A-3
-------
APPENDIX B
WATER QUALITY TRADING LITERATURE REVIEW
-------
CITATION
DESCRIPTION
WATER QUALITY TRADING BARRIERS
IDENTIFIED
KEY CONCLUSIONS/RECOMMENDATIONS
Conservation Technology Information Center, Getting Paid
for Stewardship: An Agricultural Community Water Quality
Trading Guide, 2006, accessed at:
http://www.conservationinformation.org/?action=learning
center publications waterqualitvtrading.
Blacklocke, Sean and Ben Dziegielewski, "The U.S.
Environmental Protection Agency's Water Quality Trading
Policy: New Opportunities for Environmental Advocacy
Groups?" Watershed Update, 2005, 3(1).
King, Dennis, "Crunch Time for Water Quality Trading,"
Choices, 2005, 1st Quarter, pp 71-75.
This Guide presents an overview of water
quality trading as it pertains to agriculture
and was developed for individuals and
organizations that serve as agricultural
advisors to producers. The Guide outlines
the eight key elements of a water quality
trading program, explains how agricultural
producers can benefit from trading, and
discusses the potential challenges
producers might face.
This article describes the debate among
environmental advocacy groups over use
of water quality trading as a tool to
address pollution in public waters.
This article examines current economic
and regulatory disincentives that have
frozen many water quality trading
initiatives (especially those involving non-
point sources) in a pre-trading stage of
development.
Potential challenges of involving agricultural
producers in trading include: (1) concerns about
increased liability, (2) potentially high transaction
costs, (3) concern that complicated trading
procedures might result in delays of payment from
trading partners, (4) resistance to bringing
government employees onto private farms, and (5)
fear that the rules of trading are subject to
change.
Some environmental advocacy groups do not
endorse EPA's water quality trading policy because
of concerns about the development of "hot spots,"
the potential for environmental justice conflicts
and a belief that trading is inconsistent with the
polluter pays principle. The article indicates that
political resistance can be a significant barrier to
more widespread acceptance and implementation
of EPA's water quality trading policy.
The article argues that demand for credits among
point sources is limited by a lack of strong
enforcement of discharge limits, which makes the
cost of not complying lower than the cost of
complying by purchasing credits. Supply of non-
point source credits is limited by farmers' concerns
that demonstrating low-cost reductions of non-
point source pollutants may bolster the case for
stricter regulation of runoff from agricultural land.
(1) Producers can address liability in trading
by working with their trading partners to
enter into a trade agreement that is
transparent and has clearly delineated roles
and responsibilities. (2) Use of a third party
broker can reduce bilateral transaction
costs. (3) Careful consideration of
verification and reporting requirements is
necessary during the trading program design
process. (4) It is important to identify
options for verifying conservation practices
that do not involve government employees
(e.g. third party verification). (5)
Stakeholders should participate in the
development of trading rules and state up-
front what aspect of the rules cannot be
compromised without affecting
participation.
There is no clear consensus among
environmental advocacy groups concerning
EPA's water quality trading policy; some
groups support it while others oppose it. It is
reasonable to believe that environmental
groups would eventually purchase and retire
surplus water pollutant reduction credits if
trading were scaled up.
Bolstering the supply and demand for water
quality markets will require stronger
enforcement of individual pollutant
allowances and meaningful penalties for
exceeding them, for both point and non-
point sources.
B-1
-------
CITATION
DESCRIPTION
WATER QUALITY TRADING BARRIERS
IDENTIFIED
KEY CONCLUSIONS/RECOMMENDATIONS
Fisher-Vanden, Karen, et al. (Dartmouth College), Water
Quality Trading and Offset Initiatives in the U.S.: A
Comprehensive Study, 2004.
This report summarizes 46 individual
water quality trading initiatives in the
U.S., including state-wide policies and
recent proposals at the time of the
report's release. For each trading
initiative or state-wide policy reviewed,
the report describes program background,
structure of trades, and program
outcomes.
The report identifies barriers specific to each
individual trading initiative or policy; it does not
include a discussion of the barriers to water quality
trading in general. The most commonly identified
barriers include (1) insufficient credit supply and
demand by point sources in the absence of strong
regulatory drivers, (2) lack of credit supply by non-
point, agricultural sources concerned they would
be making a case for future regulation and (3)
availability of low-cost control technologies for
meeting discharge limits.
This report does not provide
recommendations or draw conclusions from
the individual program reports.
U.S. EPA, Water Quality Trading Assessment Handbook,
November 2004, accessed at:
http://www.epa.gov/owow/watershed/trading/handbook/
King, Dennis M. and Peter J. Kuch, "Will Nutrient Credit
Trading Ever Work? An Assessment of Supply and Demand
Problems and Institutional Obstacles," Environmental Law
Reporter, May 2003, pp 10352-10368, accessed at:
http://www.envtn.org/docs/ELR trading article.PDF.
This handbook outlines an assessment
process that watershed stakeholders can
use to evaluate the viability of watershed-
scale trading conducted in the context of
a TMDL or equivalent framework. The
factors considered in the assessment
process include pollutant suitability,
financial attractiveness, market
infrastructure, and stakeholder readiness.
This article assesses whether the
obstacles preventing nutrient credit
trading involving non-point sources are
supply-related, demand-related, or the
result of institutional problems that
inhibit buyers and sellers from
consummating trades.
The Handbook identifies several factors that can
determine the success of watershed-scale trading,
such as: (1) the existence of a single pollutant in
common form, (2) alignment of potential excess
pollutant reductions with the reduction needs of
credit purchasers, (3) watershed conditions (such
as proximity of dischargers, presence of tributaries,
or complexity of hydrology) that allow for reliable
relationships between load reductions and water
quality in receiving waters, (4) alignment of the
timing of dischargers' compliance deadlines and
seasonal variability in discharge quantities, (5) the
incremental costs of trading relative to the
incremental costs of other control options, (6)
selection of an appropriate market structure for
transacting trades, (7) non-point source concern
that the monitoring requirements will be a
precursor to additional regulation, and (8)
stakeholder concern that trading reduces the
degree of certainty in meeting water pollutant
reduction targets and may create "hotspots."
The authors argue that the primary obstacle facing
nutrient trading programs is inadequate supply of
and demand for nutrient credits. In cases where
farmers are already receiving payments to
implement low-cost BAAPs, credits for trading must
be generated from incremental higher-cost
measures. In addition, supplying credits for trading
draws regulatory attention to farmers' nutrient
discharges and the costs of controlling them.
Credit demand is limited by reluctance on the part
of point sources to participate in a program that is
perceived as unfair.
In order to establish successful, large-scale
water quality trading, it is important to
carefully evaluate key conditions such as
pollutant suitability, economic viability and
financial attractiveness, feasible market
structures, and stakeholder readiness. If
evaluation of these factors indicates a
particular watershed has limited or no
potential for large-scale trading, smaller
scale trading such as site-specific offsets and
intra-plant trades may be viable options.
Promote market-style nutrient credit trading
only in areas where favorable supply and
demand conditions can be demonstrated. In
order to stimulate demand, an increase in
regulatory pressure on point sources is
needed. To stimulate supply, a shift away
from federal and state subsidies for
implementing BAAPs is needed.
B-2
-------
CITATION
DESCRIPTION
WATER QUALITY TRADING BARRIERS
IDENTIFIED
KEY CONCLUSIONS/RECOMMENDATIONS
National Association of Conservation Districts, Water
Quality Trading Non-point Credit Bank Model, 2003,
accessed at:
www.nacdnet.org/resources/CITF/TradingBankModelPaper
.doc.
Woodward, Richard T., "Structure and Practice of Water
Quality Trading Markets," Journal of the American Water
Resources Association, 2002.
Kerr, Robert L, Steven J. Anderson, and John Jaksch,
Crosscutting Analysis of Trading Programs, Report
prepared for the National Academy of Public
Administration, 2000.
Environomics, Inc., A Summary of U.S. Effluent Trading
and Offset Projects, Report prepared for U.S. EPA, 1999.
This article outlines several factors that
could present acceptance problems to
buyers, sellers and the general public
when water quality trading involves non-
point sources implementing cost-shared
BMPS. The article proposes a non-point
source credit bank model as a component
of a state cost-share program for
addressing these concerns.
This paper describes and compares four
different market structures that have
arisen in water quality trading: exchange
markets, bilateral negotiations,
clearinghouses, and sole source offsets.
The California Grasslands Tradable Loads
program is used as a case study to
illustrate how a particular market
structure arises (in this case, bilateral
negotiations).
This study presents case studies of nine
trading programs in air, water and
wetlands that utilize three different
market structures: cap-and-trade, open
market and case-by-case approval. The
study evaluates these programs to identify
factors that make trading effective and
account for differences in the use of
trading in water, air and wetlands
programs.
This report summarizes 37 effluent trading
and offset activities in the U.S. that
occurred or were occurring between 1980
and 1999. A one-page overview of the key
features of each trading or offset activity
is presented.
Barriers to the acceptance of non-point trading
programs discussed in this article include: (1) lack
of demonstrated success at improving water quality
through trading, (2) a perception that selling
credits for a cost-shared BMP for non-point sources
is unfairly enriching those sources, and (3) concerns
about high transaction costs associated with trades.
The paper argues that water quality trading,
especially when it involves non-point sources, is
often limited to bilateral negotiations because the
credits being traded are generally non-uniform
goods. Bilateral negotiations carry high transaction
costs relative to other potential market structures
that present a barrier to non-point source trading.
High transaction costs are compounded by a need
for extensive monitoring in non-point source
trading since credits are often generated from
implementation of BMPs, the effects of which must
be verified.
The authors conclude that progress in water quality
trading has been limited by the Clean Water Act in
that it (1) does not specifically authorize water
quality trading, (2) requires pre-approval of
changes to TMDL allocations, which confines
trading to a "case-by-case system," and (3) requires
pre-approval of permit modifications, which
creates transaction barriers.
The report identifies barriers specific to each
individual trading initiative or policy; it does not
include a discussion of the barriers to water quality
trading in general. The most commonly identified
barriers include (1) the ability to achieve low-cost
pollutant reductions through traditional means, (2)
agricultural non-point source concern that
generating pollutant reductions may encourage
regulations requiring load reductions, (3)
operational issues such as determining the baseline
for credit reductions or agreeing on trading ratios,
and (4) the costs of studies to generate data for
trading programs.
Establishing a water quality trading program
that operates as a bank for non-point source
credits within a state agricultural cost-share
program would change these perceptions and
present the best structure for channeling
trading revenue to conservation measures.
Each market structure is appropriate in
different settings. In developing WQT
markets, regulators should keep in mind that
the rules that are written will have
important impacts on the structure of the
market that results. This in turn will affect
transaction costs, market efficiency and, in
the end, the success of the program. Market
structure should, therefore, be considered as
part of the initial program planning.
Congress should amend the CWA to (1)
specifically authorize states to establish
trading programs (2) specify that changes to
TMDL allocations require no preapproval if
the overall cap is met and (3) establish a
basis for more flexible alternatives than
case-by-case permit reviews and
modifications.
This report does not provide
recommendations or draw conclusions from
the individual program reports.
B-3
-------
CITATION
DESCRIPTION
WATER QUALITY TRADING BARRIERS
IDENTIFIED
KEY CONCLUSIONS/RECOMMENDATIONS
U.S. EPA, Draft Framework for Watershed-Based Trading,
1996.
U.S. EPA, The Benefits and Feasibility of Effluent Trading
Between Point Sources: An Analysis in Support of Clean
Water Act Reauthorization, Report prepared by Industrial
Economics, 1993.
This Framework is a companion to EPA's
effluent trading policy and was developed
to assist in evaluating and designing
trading programs. It discusses how best to
implement the Clean Water Act and EPA's
regulations to facilitate trading in
watersheds and how EPA intends to
exercise its discretion in implementing its
regulations.
The Framework addresses many factors that can
create conditions that are unfavorable to trading,
such as (1) a lack of cost differentials for pollutant
reduction amongst dischargers, (2) transaction
costs that are higher than cost savings from
trading, (3) insufficient supply and demand (4)
insufficient data to understand pollutant quantities
and flows and to allow estimation of pollutant
reduction and/or transaction costs, and (5)
inadequate administrative arrangements to support
trading.
Economic, regulatory, informational and
administrative factors must all be carefully
assessed to determine whether trading can
be successful.
This study reviews the theoretical benefits
of water quality trading and assesses the
extent to which trading between point
sources might be employed to meet water
quality standards. Based on interviews,
public comments and a state
questionnaire, the study also identifies
potential barriers to implementing point
source trading programs.
Potential barriers to implementation of point
source trading programs discussed in this report
include: (1) state agency concerns about
insufficient resources for TMDL development,
basin-wide permitting and increased permitting
workloads, (2) lack of clear water quality standards
for certain pollutants, (3) concern that the liability
for trading participants for violations of trading
agreements is unclear, (4) agency concern about
increased legal challenges under a trading program,
and (5) discharger concern about increased
administrative burdens associated with permitting.
The lack of trading programs stems largely
from implementation concerns. The
potential benefits of trading (predicted
annualized savings of $27,000 to $23 million
per water body) are large enough to warrant
efforts to encourage implementation of
these programs. Efforts to encourage
trading should focus on practical, "nuts and
bolts" issues related to program design,
implementation and operation, not on
demonstrating the theoretical benefits of
trading.
B-4
-------
APPENDIX C
INTERVIEW GUIDELINES AND CROSSWALK WITH
EVALUATION QUESTIONS
-------
EXHIBIT C-1 INTERVIEW QUESTIONS ASSOCIATED WITH EVALUATION QUESTIONS2
EVALUATION QUESTIONS
1 ) What are stakeholder attitudes towards water quality
trading, and why?
2) What are the location-specific conditions conducive to
water quality trading?
3) Have trading programs realized cost savings in meeting
permit limits, and if so, how much?
4) What outcomes have water quality trading programs
achieved?
5) What are the educational, institutional, legal, technical,
and economic barriers to water quality trading?
6) What effects do other federal and state programs,
particularly those administered by USDA, have on water
quality trading programs?
7) Do any environmental justice issues arise in the context of
water quality trading? If so, how can they be addressed?
8) Do any equity issues arise in the context of water quality
trading? If so, how can they be addressed?
9) How should EPA measure its own progress on water quality
trading?
10) Would more specific guidance or specific tools from EPA
help state and local governments foster trading? If so, what
kinds of guidance or tools are needed?
11 ) What can EPA do to address legal, regulatory, or policy
questions that impede trading?
12) What can EPA do to create flexibility and incentives for
states to support legal and enforceable water quality trading
programs?
PROGRAA
PROGRAM
COORDINATORS
1
2,12
8
3, 4, 5, 6, 7
9
10, 11
13
14
7
15, 16
17
18
A-LEVEL INTER
PERMIT
WRITERS
1
2,3
5,6
8
9, 10
12
13
14
.VIEW QUESTIC
POINT
SOURCES
1,2,3
2
4
6, 7, 8, 9
10
)NS
NON-POINT
SOURCES
1,2
1
3
5, 6, 7, 9
8
OTHER INTEF
ACADEMICS/
ECONOMISTS
1
2
3,4
5
9
6
7
(VIEW QUE
NCOS
1
2
3,4
5
6
10
7
8
STIONS
USDA
2
5
6
5
1,5,7
6
' The numbers in the boxes correspond to questions in the interview guides for each individual stakeholder group.
C-1
-------
EVALUATION QUESTIONS
13) What can EPA do to support water quality trading among
point and non-point sources?
14) Have federal or state resources made a difference in
establishing trading programs, or could they help make a
difference?
PROGRAM-LEVEL INTERVIEW QUESTIONS
PROGRAM
COORDINATORS
16
19,20
PERMIT
WRITERS
12
14
POINT
SOURCES
NON-POINT
SOURCES
OTHER INTERVIEW QUESTIONS
ACADEMICS/
ECONOMISTS
6
8
NCOS
7
9
USDA
6,8
C-2
-------
PROPOSED INTERVIEW QUESTIONS
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
PROGRAM INTERVIEWEES
Program
Coordinator
General
Background and
Context
Success and
Measurement of
Outcomes
1.
2.
3.
4.
5.
6.
7.
8.
Before considering your specific program, what are your general views on water
quality trading? Do you view it as a tool within a regulatory framework? As a way
of promoting voluntary stewardship? Or as something else? [1 ]26
Please verify/update our understanding of the program: [2]27
• When was program initiated?
• Who were/are the major participants? Did you initiate their involvement in
the program or did they approach you?
• Other than the direct participants, who else was/is involved with planning and
implementing the program?
• What are the focal pollutants? Why were they chosen?
• What is the system by which trades are implemented or negotiated (e.g.,
exchange, clearinghouse, bilateral, third party broker, offsets)? Are these
procedures described in the permit or other document?
• What location-specific factors led you to consider water quality trading? For
example, was establishment of a TMDL for the watershed/waterbody
instrumental in motivating a trading approach?
Do you consider the program to be a success? Why or why not? [4]
Has the number of participants met with your expectations? What factors have
affected the number of participants? [4]
How many trades have taken place to date (if relevant)? Does this meet with your
expectations? What factors have affected the level of trading activity? [4]
How do you determine that overall effluent limits are being satisfied? For example,
do you have specific data/models/assumptions you apply to characterize effluent
reductions achieved by non-point source BMPs? [4]
Do you try to determine the extent to which the program has realized positive
environmental effects (e.g., reduced concentrations of target pollutants in surface
waters)? Do you track specific data to make this assessment (beyond normal water
quality monitoring)? [4, 9]
Have you (or other program partners) evaluated the cost savings realized through
the trading program (relative to conventional effluent permitting approaches,
(e.g., technology, pollution prevention, recycle/reuse)? [3] If so, what have you
found?
26 Numbers in brackets refer to evaluation questions.
27 lEc tailored these background and context questions to the specific program and to our understanding of it; for example, we asked: "We understand the Red Cedar
River program was initiated in 1997; correct?"
C-3
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
Barriers and
Institutional
Factors
EPA Role
9. In planning and implementing the program, did you encounter any significant
institutional, legal, technical, or economic barriers? If so, how did you attempt to
address these barriers? Have any proven to be an ongoing impediment to the
program? [5]
10. Does the program require collaboration with other agencies (e.g., agencies
implementing environmental, land use planning, or agricultural programs)? If so,
how would you characterize these collaborations (e.g., straightforward or
problematic)? [6]
11. Are there specific federal or state programs that either complement or constrain
the implementation of the program? [6]
12. Was recruitment required to engage some program participant? If so, what
arguments or incentives did you emphasize to secure their involvement? [2]*
13. Did any environmental justice issues arise in the context of your water quality
trading program? For example, during the planning stage, were there any concerns
for "selling the right to pollute" or creating pollutant "hot spots"? [7]
14. Did any equity issues arise in the context of the program (e.g., concerns over how
to define eligible participants or concerns over paying non-point sources for
improved pollutant control)? [8]
15. Did you receive any federal (particularly EPA) technical support for this program? If
yes, describe. Did you utilize any existing EPA guidance on water quality trading
(e.g., the Water Quality Trading Assessment Handbook or the earlier Draft
Framework for Watershed-Based Trading)! [10]
16. Are there additional tools or guidance materials that EPA could supply to foster
water quality trading? [10] If so, what specific issues should these materials
address? For example, are there ways that EPA could help facilitate trading among
point and non-point sources? [13]
17. Are there actions EPA could take to help address legal, regulatory, or policy
questions that impede water quality trading? In particular, are there measures EPA
can take to help you demonstrate permit compliance? [11]
18. Are there reporting or procedural requirements that EPA could modify to create
incentives for states to pursue water quality trading? [12]
19. Did you receive any federal (e.g., EPA) funding for this program? What about
specifically earmarked state resources? Was this funding important to initiating
and/or implementing the program? [14]
20. If additional federal funding were available, are there ways it would help expand or
improve the program? If yes, how so? [14]
C-4
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
Permit Writer
General
What are your thoughts on trading as an approach for achieving water quality
objectives? Do you see widespread opportunities for trading? [1]
What location-specific factors led you to consider water quality trading? Under
what circumstances can water quality trading be part of the permitting process?
For example, was establishment of a TMDL for the watershed/waterbody
instrumental in motivating and allowing a trading approach? Similarly, were there
aspects of the point source permit(s) that lent themselves to trading (e.g., a
particular/common pollutant of interest)? [2]
In your view, what factors have influenced the success or lack of success of the
program? [2]
Procedures and
Barriers
EPA Role
4. Does the permit specify the procedures and "ground rules" of the trading program?
5. How do you know if the program is improving water quality? In your assessment,
has the program realized positive environmental benefits? [4]
6. How do you determine that overall effluent limits are being satisfied? For example,
do you have specific data/models/assumptions you apply to characterize effluent
reductions achieved by non-point source BMPs? [4]
7. Were specific trading ratios established for balancing reductions at one source with
effluent from another? What analysis or assumptions did you use to establish
trading ratios?
8. Were there aspects of the permit writing/negotiation that were problematic or
time consuming? [5]
9. Are there specific federal or state programs that either complement or constrain
the implementation of the water quality trading program? [6]
10. Does the program require collaboration with other agencies (e.g., agencies
implementing environmental, land use, or agricultural programs)? If so, describe
these collaborations. [6]
11. Has the program introduced new auditing requirements? For example, are there
procedures for verifying that effluent controls (e.g., non-point BMPs) are
implemented and properly maintained? Do you consider these auditing
responsibilities manageable and reasonable?
12. Are there tools or guidance that EPA could supply to encourage more widespread
use of water quality trading? [10] If so, what specific issues should these materials
address? For example, are there ways that EPA could help facilitate trading among
point and non-point sources? [13]
13. Are there actions EPA could take to help address legal, regulatory, or policy
questions that impede water quality trading? In particular, are there measures EPA
can take to help programs demonstrate permit compliance? [11]
14. Are there work sharing arrangements, reporting or procedural requirements, that
EPA could modify to create incentives for states to pursue water quality trading?
[12,14]
C-5
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
Point Source
Background
1. How do you view water quality trading? As a tool within a regulatory framework?
As a way of promoting voluntary stewardship? Or as something else? [1 ]
2. What was your primary incentive for getting involved in the water quality trading
program? For example, was your participation motivated by a new wasteload
allocation under a TMDL? Economic considerations? [1, 2]
3. Did you initiate the process of pursuing trading? Alternatively, were you
approached by federal/state regulators about participating? [1]
4. Has the program been economically beneficial for you? (If the interviewee is a
"buyer" of credits, have they estimated cost savings? If the interviewee is a
"supplier" of credits, have they estimated net income?) [3]
5. Do you plan to continue participating in the trading program?
Procedures and
Barriers
6. What responsibilities do you have under the trading agreement? For instance, are
you responsible for identifying partners? If you trade with non-point sources, are
you responsible for certifying non-point source BMPs? How do these procedures
work? Are you satisfied with these procedures or could they be improved? [5]
7. Has the program introduced new/additional reporting requirements for your
facility? If so, are these requirements acceptable to you? Please explain. [5]
8. Were there aspects of the permit writing/negotiation that were problematic or
time consuming for you? [5]
9. Do you have any insight as to why other point sources in the watershed choose not
to participate in the program (if relevant)? [5]*
10. Do you see any equity issues in the context of water quality trading (e.g., concerns
over payments for non-point source control)? [8]
C-6
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
Non-Point
Source
Background
Procedures and
Barriers
1. What was your primary incentive for getting involved in the program (e.g.,
potential for generating revenue, stewardship incentive, etc.)? [1, 2]
2. How was the program initially presented to you? For example, did you learn of it
through a USDA extension agent or were you approached by water quality
regulators? [1]
3. Has the program been economically beneficial for you? Have you estimated net
revenue associated with your participation? [3]
Do you plan to continue participating in the trading program?
Are you responsible for identifying and recommending BMPs, or is this handled by
representatives of the point source or water quality agency? [5]
6. Do you consider the requirements for BMP design clear and reasonable? If not, how
could they be improved? [5]
7. Do you have any responsibilities for certifying or monitoring BMPs? Do you find
these requirements reasonable? [5]
8. Does your participation in the water quality trading program affect the benefits
you receive under USDA programs? [6]
9. Do you have any insight as to why other non-point source managers choose not to
participate in this program? [5]*
C-7
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
OTHER INTERVIEWEES
Academic/
Economist
General
Barriers
EPA Role
1. What are your general views on water quality trading? Do you view it as a tool
within a regulatory framework? As a way of promoting voluntary stewardship?
Or as something else? Do you see widespread opportunities for this approach?
[1]
2. What is your overall impression of the achievements of existing water quality
trading programs? [4]
3. To the extent that you see shortcomings in the water quality trading
experience thus far, what do you believe are the contributing factors? [5]
4. Do you have any insight as to why potential participants (point and non-point
sources) choose not to participate in water quality trading? [5]
5. Do you see any equity issues in the context of water quality trading (e.g.,
concerns over payments for improved non-point source control)? [8]
6. Do you think that EPA should supply additional technical guidance to promote
water quality trading, especially point/non-point trading? If so, why, and how
would these materials help? [10, 13]
7. Do you have thoughts on what EPA could do to clarify legal, regulatory, or
policy questions that impede water quality trading? [11]
8. If additional federal funding were available to promote trading, how would you
recommend spending it? [14]
9. Can you suggest ways in which EPA could measure its progress on water quality
trading? [9]
C-8
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
NGO/
Environmental
Advocacy
General
Barriers
EPA Role
What are your general views on water quality trading? Do you view it as a tool
within a regulatory framework? As a way of promoting voluntary stewardship?
Or as something else? [1]
What is your overall impression of the achievements of existing water quality
trading programs? [4]
3.
To the extent that you see shortcomings in the water quality trading
experience thus far, what do you believe are the contributing factors? [5]
Do you have any insight as to why potential participants (point and non-point
sources) choose not to participate in water quality trading?* [5]
Do you see any environmental justice issues associated with water quality
trading, (e.g., "selling the right to pollute" or creating pollutant "hot spots")?
[7]
Do you see any equity issues in the context of water quality trading (e.g.,
concerns over payments for improved non-point source control)? [8]
Do you think that EPA should supply additional technical guidance to promote
water quality trading, especially point/non-point trading? If so, why, and how
would these materials help? [10, 13]
Do you have suggestions on steps that EPA could take to clarify legal,
regulatory, or policy questions that impede water quality trading? [11]
If additional federal funding were available to promote trading, how would you
recommend spending it? [14]
10. Can you suggest ways in which EPA could measure its progress on water quality
trading? [9]
4.
5.
6.
7.
8.
9.
C-9
-------
STAKEHOLDER
GROUP
TOPIC AREA
INTERVIEW QUESTIONS
USDA
General
EPA Role
1. How would you describe USDA's general involvement and approach to water quality
trading? [6]
2. What are your general views on water quality trading? Do you view it as a tool
within a regulatory framework? As a way of promoting voluntary stewardship? Or
as something else? [1]
3. Do you have any insight as to why some farmers choose to participate while others
choose not to participate in water quality trading when offered the opportunity
[5]?
4. Regarding USDA programs that fund BMPs: what funding is available? Does this
funding reduce incentives to participate in water quality trading? [6]*
5. Does participation in a water quality trading program affect the benefits that
farmers receive under USDA programs? If so, which programs? [5, 6]
6. Do you think that EPA should supply additional technical guidance to promote
water quality trading, especially point/non-point trading? If so, why, and how
would these materials help? [10, 13]
7. Do you see differences in the way that USDA and EPA approach water quality
trading? If so, please explain. [6]
8. Do you see potential for closer collaboration between EPA and USDA on water
quality trading? What form might this collaboration take? [13]
An asterisk (*) indicates lower-priority questions that could be eliminated if time constraints are a concern.
C-10
-------
APPENDIX D
BIBLIOGRAPHY
-------
BIBLIOGRAPHY
Blacklocke, Sean and Ben Dziegielewski, "The U.S. Environmental Protection Agency's
Water Quality Trading Policy: New Opportunities for Environmental Advocacy
Groups?" Watershed Update, 2005, 3(1).
Congressional Research Service, Report to Congress: Previewing a 2006 Farm Bill,
January 30, 2006, pp ES-2, 18.
Conservation Technology Information Center, Getting Paid for Stewardship: An
Agricultural Community Water Quality Trading Guide, 2006, accessed at:
http://www.conservationinformation.org/?action=learningcenter_publications_wa
terqualitytrading.
Environomics, Inc., A Summary of U.S. Effluent Trading and Offset Projects, Report
prepared for U.S. EPA, 1999.
Fisher-Vanden, Karen, et al. (Dartmouth College), Water Quality Trading and Offset
Initiatives in the U.S.: A Comprehensive Study, 2004.
Johans, Mike, former USDA Secretary, letter to Tom Harkin, Senate Chair of the Senate
Agriculture, Nutrition, and Forestry Committee, April 25, 2007, accessed at:
http://usda.gov/documents/HonorableTHarkinLtr.pdf
Kerr, Robert L., Steven J. Anderson, and John Jaksch, Crosscutting Analysis of Trading
Programs, Report prepared for the National Academy of Public Administration,
2000.
Kieser & Associates, Preliminary Economic Analysis of Water Quality Trading
Opportunities in the Great Miami River Watershed, Ohio, July 23, 2004.
King, Dennis M. and Peter J. Kuch, "Will Nutrient Credit Trading Ever Work? An
Assessment of Supply and Demand Problems and Institutional Obstacles,"
Environmental Law Reporter, May 2003, pp 10352-10368, accessed at:
http://www.envtn.org/docs/ELR trading article.PDF.
King, Dennis, "Crunch Time for Water Quality Trading," Choices, 2005, 1st Quarter, pp
71-75.
Morgan, Cynthia, and Ann Wolverton, Water Quality Trading in the United States,
NCEE Working Paper #05-07, June 2005, p 32.
National Association of Conservation Districts, Water Quality Trading Non-point Credit
Bank Model, 2003, accessed at:
www.nacdnet.org/resources/CITF/TradingBankModelPaper.doc.
D-1
-------
Oregon Department of Environmental Quality, Water Quality Credit Trading in Oregon:
A Case Study Report, July 2007, p 13.
Thorme, Melissa A., "Antibacksliding: Understanding One of the Most Misunderstood
Provisions of the Clean Water Act," Environmental Law Reporter, March 2001, p
10323.
USDA, 2007 Farm Bill Theme Papers, Conservation and the Environment, June 2006, p
18, accessed at: http://www.usda.gov/documents/FarmBill07consenv.pdf.
USDA, 2007 Farm Bill Proposals, Title II: Conservation, Subtitle J: Market-Based
Approaches to Conservation," accessed at:
http://www.usda.gov/documents/fbconservation 071 .pdf
U.S. EPA, Current Status: National Nutrient Strategy, accessed at:
http://www.epa.gov/waterscience/criteria/nutrient/strategy/status.html.
U.S. EPA, Draft Framework for Watershed-Based Trading, 1996.
U.S. EPA, Environmental Justice, accessed at:
http://www.epa.gov/oecaerth/environmentaljustice/index.html.
U.S. EPA, The Benefits and Feasibility of Effluent Trading Between Point Sources: An
Analysis in Support of Clean Water Act Reauthorization, Report prepared by
Industrial Economics, 1993.
U.S. EPA, Water Quality Criteria for Nitrogen and Phosphorus Pollution - Basic
Information, accessed at
http://www.epa.gov/waterscience/criteria/nutrient/policy.html.
U.S. EPA, Water Quality Trading Assessment Handbook, November 2004, accessed at:
http: //www .epa. gov/o wow/watershed/trading/handbook/.
U.S. EPA, Water Quality Trading Toolkit for Permit Writers, August 2007, accessed at:
http://www.epa.gov/owow/watershed/trading/WQTToolkit.html
Water Environment Research Foundation, Nitrogen Credit Trading in the Long Island
Sound Watershed (Executive Summary), WERF Project #97-IRM-5B, obtained
online at
http://www.werf.org/AM/CustomSource/Downloads/uGetExecutiveSummary.cf
m?File=ES-97-IRM-5B.pdf&ContentFileID=3418
Woodward, Richard T., "Structure and Practice of Water Quality Trading Markets,"
Journal of the American Water Resources Association, 2002.
D-2
------- |