United States
Environmental Protection
Agency
Office of Wastewater Management
Water Permits Division
EPA 833-R-07-004

y*A Di^f
Water Quality Trading
Toolkit
for Permit Writers
Published August 2007
Updated June 2009

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Foreword
EPA is pleased to issue the Water Quality Trading Toolkit, the first-ever how-to-trade manual with real-
world examples. In January 2003, EPA released the National Water Quality Trading Policy which laid out
a framework for trading under the Clean Water Act. In 2004 we published the Water Quality Trading
Assessment Handbook to help users determine whether trading is environmentally viable and financially
attractive in a watershed. This Toolkit builds upon the two earlier documents and provides more detail
regarding actual design and implementation of trading programs. This document will not only help
permit writers incorporate trading into National Pollutant Discharge Elimination System (NPDES) permits
but is a guide for anyone interested in establishing a water quality trading program in their watershed.
We look forward to hearing about the innovative trading programs generated by this useful resource.
Benjamin H. Grumbles
Assistant Administrator for Water
Disclaimer
This guidance expresses the U.S. Environmental Protection Agency's (EPA) support for implementation
of water quality trading through National Pollutant Discharge Elimination System (NPDES) permit-
ting. Implementation of water quality trading will be governed by existing requirements of the Clean
Water Act (CWA) and EPA's NPDES implementing regulations. Those CWA provisions and regulations
contain legally binding requirements. This document does not substitute for those provisions or regula-
tions. The recommendations in this guidance are not binding; the permitting authority may consider
other approaches consistent with the CWA and EPA regulations. The use of non-mandatory words like
"should," "could," "would," "may," "might," "recommend," "encourage," "expect," and "can" in this
guidance mean solely that something is suggested or recommended, and not that it is legally required,
or that the suggestion or recommendation imposes legally binding requirements, or that following the
suggestion or recommendation necessarily creates an expectation of EPA approval. When EPA makes a
permitting decision, it will make each decision on a case-by-case basis and will be guided by the applica-
ble requirements of the CWA and implementing regulations, taking into account comments and infor-
mation presented at that time by interested persons regarding the appropriateness of applying these
recommendations to the particular situation. EPA may change this guidance in the future.

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Water Quality Trading
Toolkit
for Permit Writers
August 2007

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Water Quality Trading Toolkit for Permit Writers
Contents
o
Acknowledgements	
Abbreviations and Acronyms	
Executive Summary	
Fundamentals of Water Quality Trading
Introduction	
Toolkit Organization and Instructions	2
Overview of Water Quality Trading	4
NPDES Permitting Authority Role in Water Quality Trading	5
Legal and Policy Framework for Water Quality Trading	5
Essential Trading Information for Permit Writers	10
What Pollutant Trading Does EPA Support?	10
What Is the Appropriate Geographic Scope for Water Quality Trading?	12
Types of Trading Scenarios	14
Under What Circumstances Does EPA Support Trading?	20
What Are Some Factors Involved in Determining a Reduction Credit?	28
What Types of Effluent Limitations Could Be Met Through Trading?	36
What Are the Roles of Stakeholders?	38
How to Know if the Trading Program is Working	40
Developing NPDES Permits for Specific Trading Scenarios	41
Where Can I Get More Information?	42
Water Quality Trading Scenario:
Single Point Source-Single Point Source Trading	1
Trade Agreements	1
Components of a NPDES Permit	4
Permit Cover Page	5
Effluent Limitations	5
Monitoring	12
Reporting Requirements	14
Special Conditions	17
Water Quality Trading Scenario:
Multiple Facility Point Source Trading	1
Trade Agreements	1
Components of a NPDES Permit	5
Permit Cover Page	5
Effluent Limitations	6
Monitoring	13
Reporting Requirements	15
Special Conditions	19
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Water Quality Trading Toolkit for Permit Writers
Water Quality Trading Scenario:
Point Source Credit Exchange	1
Credit Exchange Administration	1
Trade Agreements	2
Components of a NPDES Permit	4
Permit Cover Page	4
Effluent Limitations	5
Monitoring	13
Reporting Requirements	16
Special Conditions	19
Water Quality Trading Scenario:
Point Source-Nonpoint Source Trading	1
Quantifying Nonpoint Source Loads and Credits	2
Potential Issues	2
Establishing Baselines for Nonpoint Source Sellers	6
Nonpoint Source Baseline Derived from TMDL Load Allocations	7
Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation	8
Determining Maximum Feasible Nonpoint Source Load Reductions	9
Accountability	11
Mechanisms Under the NPDES Program	11
Mechanisms Outside of the NPDES Program	11
Trade Agreements	12
Components of a NPDES Permit	15
Permit Cover Page	15
Effluent Limitations	16
Monitoring	22
Reporting Requirements	24
Special Conditions	27
Water Quality Trading Scenario:
Nonpoint Source Credit Exchange	1
The Function of a Nonpoint Source Credit Exchange	2
Accounting for Delivery and Location Ratios in a Nonpoint Source Credit Exchange . . . .3
Quantifying Nonpoint Source Loads and Credits	4
Potential Issues	4
Establishing Baselines for Nonpoint Source Sellers	8
Nonpoint Source Baseline Derived from TMDL Load Allocations	9
Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation	10
Determining Maximum Feasible Nonpoint Source Load Reductions	11
Accountability	13
Mechanisms Under the NPDES Program	13
Mechanisms Outside of the NPDES Program	13
ii

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Water Quality Trading Toolkit for Permit Writers
Trade Agreements	14
Trade Agreements with Nonpoint Source Credit Exchanges	14
Components of a NPDES Permit	18
Permit Cover Page	18
Effluent Limitations	19
Monitoring	25
Reporting Requirements	27
Special Conditions	30
Glossary
References
Appendix A Water Quality Trading Program Fact Sheets
Appendix B US EPA Office of Water, Water Quality Trading Policy
Appendix C Trading Forms and Templates
Appendix D Use of Cost Share (Updated June 2009)
Appendix E Permit Writer Checklists
Appendix F Trading With Subsurface Septic Systems (Added June 2009)
Appendix G Sediment and Nutrient Trades with Forestry and Drinking Water
Treatment Facility (Added June 2009)
iii

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iv

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Water Quality Trading Toolkit for Permit Writers
Acknowledgements
>
n
Virginia (Ginny) Kibler, Water Permits Division, Office of Wastewater Management,
Office of Water, U.S. Environmental Protection Agency, Washington, DC, was the primary
2
author of this Toolkit.
r1
in
Many individuals assisted in this effort, including the following:
George Azevedo, Water Division, U.S. EPA, Region 5, Chicago, IL
Patrick Bradley, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Jim Curtin, Office of General Counsel, U.S. EPA, Washington, DC
on
tfl
Todd Doley, Engineering and Analysis Division, U.S. EPA, Washington, DC
Jordan Dorfman, Municipal Support Division, U.S. EPA, Washington, DC
Katharine Dowell, Water Policy Office, Office of Water, U.S. EPA, Washington, DC
Pete Ford, Office of General Counsel, U.S. EPA, Washington, DC
Mindy Gampel, Office of Policy, Economics and Innovation, U.S. EPA, Washington, DC
Lynda Hall, Wetlands Division, Office of Water, U.S. EPA, Washington, DC
Sylvia Horwitz, Office of General Counsel, U.S. EPA, Washington, DC
Kavya Kasturi, ORISE intern. Water Permits Division, U.S. EPA, Washington, DC
Michele Knorr, Office of General Counsel, U.S. EPA, Washington, DC
Robert Koroncai, Water Protection Division, U.S. EPA, Region 3, Philadelphia, PA
Maureen Krudner, Division of Environmental Planning and Protection, U.S. EPA,
Region 2, New York City, NY.
Chris Lewicki, Assessment and Watershed Protection Division, U.S. EPA, Washington, DC
Mike Muse, Drinking Water Protection Division, U.S. EPA, Washington,
Brian Nickel, Office of Water and Watersheds, U.S. EPA, Region 10, Seattle, WA
Pooja Parikh, Office of General Counsel, U.S. EPA. Washington, DC
Amy Parker, Health and Ecological Criteria Division, U.S. EPA, Washington, DC
Eric Perkins, Office of Ecosystem Protection, U.S. EPA, Region 1, Boston, MA
Jan Pickrel, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Gerald Potamis, Office of Ecosystem Protection, U.S. EPA, Region 1, Boston, MA (retired)
Morgan Robertson, ORISE intern. Wetlands Division, U.S. EPA, Washington, DC
Steve Rubin, Office of Enforcement and Compliance Assurance, U.S. EPA, Washington, DC
Claire Schary, Office of Water and Watersheds, U.S. EPA, Region 10, Seattle, WA
Lisa Thorstenberg, Water Division, U.S. EPA, Region 5, Chicago, IL (retired)
Stephanie VonFeck, Municipal Support Division, U.S. EPA, Washington, DC
Allison Wiedeman, Water Permits Division, U.S. EPA, Washington, DC
Richard Witt, Office of General Counsel, U.S. EPA, Washington, DC
v

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Water Quality Trading Toolkit for Permit Writers
Water Permits Wet Weather Team
Kevin Bell, Office of Enforcement and Compliance Assurance, U.S. EPA, Washington, DC
Donald Brady, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Roosevelt Childress, Water Management Division, U.S. EPA, Region 4, Atlanta, GA
Susmita Dubay, Office of General Counsel, U.S. EPA, Washington, DC
Jack Faulk, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Barry Korb, Office of Policy, Economics, and Innovation, U.S. EPA, Washington, DC
Michael Lee, Office of General Counsel, U.S. EPA, Washington, DC
Jenny Molloy, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Hale Thurston, National Center for Environmental Assessment, Office of Research and
Development, Cincinnati, OH
Kevin Weiss, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
Marcus Zobrist, Water Permits Division, Office of Water, U.S. EPA, Washington, DC
States
Dan Dell, Department of Environmental Quality, Lansing, Ml
Steve Sommer, Pollution Control Agency, St. Paul, MN
Ann Smith, Department of Environmental Protection, Harrisburg, PA
Paul Stacey, Department of Environmental Protection, Hartford, CT
Andrew Zemba, Department of Environmental Protection, Harrisburg, PA
Municipality
Jim Middaugh, Bureau of Environmental Services, Portland, OR
In addition, Kellie DuBay, Greg Currey, Jennifer Ferrando, Christy Williams, Krista Carlson,
Jae Kim, Kristin Schatmeyer, Regina Scheibner, and Jeff Strong from Tetra Tech, Inc.,
contributed to the development, design, and final production of this Toolkit.

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Water Quality Trading Toolkit for Permit Writers
Abbreviations and Acronyms
AFO
animal feeding operation
AML
average monthly limit
AWL
average weekly limit
BMP
best management practices
BPJ
best professional judgment
CBOD
carbonaceous biochemical oxygen demand
CSO
combined sewer overflow
CWA
Clean Water Act
DMR
discharge monitoring report
EPA
U.S. Environmental Protection Agency
gpd
gallons per day
ICIS
Integrated Compliance Information System
LA
load allocation
MEP
maximum extent practicable
mgd
million gallons per day
MS4
municipal separate storm sewer system
NPDES
National Pollutant Discharge Elimination Syste:
NRCS
Natural Resources Conservation Service
PBTs
persistent bioaccumulative toxics
PCS
Permit Compliance System
POTW
publicly owned treatment works
RNC
reportable noncompliance
SISL
Surface Irrigation Soil Loss
SNC
significant noncompliance
SWCD
Soil and Water Conservation District
TBEL
technology-based effluent limitations
TKN
total Kjeldahl nitrogen
TMDL
total maximum daily load
TN
total nitrogen
TP
total phosphorus
TRE
toxicity reduction evaluations
USDA
U.S. Department of Agriculture
USLE
Universal Soil Loss Equation
WLA
wasteload allocation
WQBEL
water quality-based effluent limitations
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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Toolkit for Permit Writers
Water Quality Trading
Keys to Success
Every trading program should strive to be:
T
R
A
D
E
ransparent
Keep the public informed at every step of the process by:
~	Involving stakeholders in the design of the trading program
~	Communicating to the public information deemed necessary to
maintain stakeholder confidence
eal
Show pollutant reductions and water quality improvement by:
~	Measuring reductions
~	Verifying BMP installation and maintenance, e.g., through a
third party
ccountable
Manage the program effectively by:
~	Including trade tracking mechanisms in the program design
~	Periodically reviewing the program's process and results
efensible
Base the program on sound science and protocol by:
~	Using dynamic water quality models
~	Requiring credit generators to certify credits
~	Developing scientifically based trading ratios
nforceable
Establish responsibility for meeting or exceeding water quality
standards by:
~	Incorporating clearly articulated trading provisions in NPDES
permits

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Water Quality Trading Toolkit for Permit Writers
Introduction
For more than a decade, the U.S. Environmental Protection Agency (EPA) has promoted
and supported the concept of water quality trading as an innovative approach for achiev-
ing water quality standards with flexibility and economic efficiency. A variety of pilot pro-
grams and projects have generated useful information on how to conduct water quality
trading, yet the number of actual trades that have occurred is relatively small. EPA believes
that as awareness of the potential benefits of water quality trading grows. National Pollution
Discharge Elimination System (NPDES) permittees will be more interested in water quality
trading and request permitting authorities to incorporate trading provisions into their per-
mits. As a result, the process for crafting water quality trading programs and requirements
should involve the permitting authority staff as early as possible. This will help ensure that
trading programs are effective and workable and fully consistent with the implementation
and compliance framework of the permitting authority's NPDES program.
This Water Quality Trading Toolkit for Permit Writers (Toolkit) is intended to facilitate trad-
ing by providing NPDES permitting authorities with the tools they need to facilitate trading
and to authorize and incorporate trading in NPDES permits. Although the Toolkit primarily
targets state, tribal and EPA NPDES permitting authorities, it might also be useful to other
stakeholders interested in water quality trading and the NPDES permitting process. Users of
the Toolkit should have an existing, fundamental understanding of both water quality trad-
ing concepts and the NPDES permitting process. To ensure consistency and minimize redun-
dancy, the Toolkit refers users to existing EPA guidance on water quality trading and NPDES
permit development and issuance whenever possible.
This guidance is based on EPA's Water Quality Trading Policy (Trading Policy) published in
January 2003. The Trading Policy was written on the assumption that, if a total maximum
daily load (TMDL) were in place, all trading partners would be covered by the TMDL. In this
case, wasteload allocations (WLAs) and load allocations (LAs) under the TMDL form the
baseline for trading. In all cases, permits must be designed to meet water quality standards as
required under Clean Water Act (CWA) section 301(b)(1)(C). Inclusion of trading provisions in
NPDES permits should facilitate meeting this requirement.
Water quality trading programs are necessarily tailored to meet the needs of the discharg-
ers and stakeholders in the watersheds for which they are developed. Because each water-
shed is unique, water quality trading programs may exist in many different forms. It would
be impracticable and cumbersome to attempt to cover in this document every possible type
of program that might be developed to meet an individual watershed's needs. This Toolkit
attempts to equip program developers and permit writers with an understanding of the
issues involved in water quality trading and the types of program characteristics that are best
suited to address them. The fact that a particular trading program design or element is not
represented in the examples presented in the Toolkit does not necessarily mean that it is not
appropriate or would not be supported by EPA.
Fundamentals of Water Quality Trading
Introduction Overview of Essential Trading
Water Quality Information fo
Factors for
Trading	Permit Writers	Possible	Determining	Is the Trading NPDES Permits
Tradeable Geographic Trading Circumstances Pollutant	Effluent Limit Stakeholder Program for Trading
Pollutants Scope Scenarios for Trading Reduction Credits Types	Roles	Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
Toolkit Organization and Instructions
With the permitting authority as the primary target user, the Toolkit first addresses broad
water quality trading policy issues and then focuses on specific trading scenarios. Water qual-
ity trading scenarios fall into two major categories: (1) point source-point source trading and
(2) point source-nonpoint source trading. Point source-point source trading includes single
point source-single point source trading, multiple facility point source trading, and point
source credit exchanges. Point source-nonpoint source trading includes single point source-
nonpoint source trading and nonpoint source credit exchanges.
The first section of the Toolkit, Fundamentals of Water Quality Trading, addresses broad
water quality trading policy issues; this section applies to all Toolkit users. Within the Funda-
mentals section, the Overview of Water Quality Trading section addresses the role of NPDES
permitting authorities in water quality trading and the legal and policy framework for water
quality trading. The Essential Trading Information for Permit Writers section discusses specific
water quality trading issues relevant to NPDES permitting authorities. Issues addressed in this
section include the type of pollutants to be traded, definition of a pollutant reduction credit,
circumstances conducive to trading, baselines for water quality trading, trading ratios, timing
and duration of credits, and the geographic scope of trades. All Toolkit users should have a
thorough understanding of the policy and technical issues addressed in these sections before
proceeding to the specific trading scenario sections. Understanding of the important policy
and technical issues contained in the initial sections of the Toolkit is essential to prevent inef-
fective or inappropriate water quality trading conditions in NPDES permits. After reviewing
the initial sections of the Toolkit, the user is prepared to proceed to the appropriate section
of the Toolkit that focuses on a specific trading scenario. The intent is to allow the Toolkit
user to review only the information that applies to the specific trading scenario of interest.
The following diagram (Figure 1) is intended to help navigate the trading scenario sections of
the Toolkit:
Toolkit Navigation
Start
here
Will a
Credit Exchange
be used?
X°
Goto
Nonpoint Source
Credit Exchange
Section
More than two
point sources?
\no
Point Source
Credit Exchange
used?

Goto
Multiple Facility
Point Source
Trading
Section
M
Goto
Point Source
Credit Exchange
Section
Figure 1. Toolkit navigation.
Fundamentals of Water Quality Trading
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Possible
Geographic Trading
Scope Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Is the Trading NPDES Permits
Effluent Limit Stakeholder Program for Trading
Types	Roles	Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
For example, a permitting authority developing conditions in a NPDES permit to authorize
and facilitate trading between two single point sources would first review the Overview
of Water Quality Trading and Essential Trading Information for Permit Writers sections
for important policy and technical information and then carefully review the Single Point
Source-Single Point Source Trading scenario for specifics pertaining to trading between two
single point sources.
tfl
The Toolkit is intended to assist with developing and implementing NPDES permits that allow
for water quality trading. Each trading scenario section walks NPDES permitting authorities
through the normal process of developing the components of a NPDES permit and provides
the tools they need to incorporate water quality trading into that process. Each section of the
Toolkit contains two important components that supplement the narrative: (1) a hypothetical
trading example and (2) real-world examples that apply the trading concepts discussed in the
section. Each of these components of the Toolkit is presented in a unique format, as illustrat-
ed below, to ensure easy identification.
Hypothetical Examples
Hypothetical examples appear throughout each section highlighted in a blue-shaded text box.
Real-World Examples
Where applicable, each section includes either summaries of real-world examples or Web pages
that provide more detailed information. These examples appear in a green-shaded text box. When
actual permit provisions from these examples are available, see Appendix A for the exact permit
language.
Fundamentals of Water Quality Trading
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Possible
Geographic Trading
Scope Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Is the Trading NPDES Permits
Effluent Limit Stakeholder Program for Trading
Types	Roles	Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
Overview of Water Quality Trading
Water quality trading is an innovative, market-based approach that if used in certain
watersheds can achieve water quality standards more efficiently and at lower cost
than traditional approaches. Costs to control discharges compared with runoff for a given
pollutant often vary significantly in a watershed, creating the impetus for water quality trad-
ing. Through water quality trading, facilities that face higher pollutant control costs to meet
their regulatory obligations can purchase pollutant reduction credits from other sources that
can generate these reductions at lower cost, thus achieving the same or better overall water
quality improvement. In most cases, trading takes place on a watershed level under a pollut-
ant cap (the total pollutant load that can be assimilated by a waterbody without exceeding
water quality standards) developed through the TMDL process or a similar type of water
quality analysis that produces information on pollutant loadings and resulting water quality
conditions (USEPA 2004).
For example, where a TMDL has been established, the baselines relative to which point
sources and nonpoint sources can generate credits are their WLAs and LAs (for definitions,
see glossary), respectively. To generate tradable credits, a source would need to reduce load-
ings below the allocation set by the TMDL. A source buying credits would be able to increase
its discharge over what would otherwise be allowed, but only by the amount of the credits
purchased from another source (or sources) and subject to other conditions specified in the
permit and trading program. The result would be that, at a minimum, the post-trade loadings
from the trading sources would be equal to or less than the loadings that would have been
discharged by the sources in the absence of trading. Trading programs may also be designed
to require a net reduction in loadings when trading occurs.
EPA's 2004 Water Quality Trading Assessment Handbook notes that, in water quality trad-
ing markets, the marketable product is the over control of pollutant loadings. A pollutant
reduction credit is the amount (mass) of pollutant reduced over a specified time period
(day, month, year) that is in excess of the required reduction for a certain source. The excess
pounds of pollutant reduced can be made available for a NPDES permittee to purchase as
credits. It is important to note that, due to trade ratios, one pound of pollutant reduced at
the seller's discharge location is not necessarily equal to one pound of pollutant reduced at
the buyer's location. Therefore, for the purposes of this Toolkit, one credit will be equal to
one unit of load reduction per time (lb/day) at the location of the buyer.1 One credit may be
greater or less than one unit of load reduction per time at the location of the seller.
1 The definition of a credit may vary from program to program.
Fundamentals of Water Quality Trading
Introduction
Overview of
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
NPDES Permitting Authority Role in Water Quality
Trading
EPA or an authorized state, territory, or tribe is the permitting authority for NPDES permits.
When states are referenced in this document, it is meant to also include state, territorial, and
tribal permitting authorities. Regardless of the entity issuing NPDES permits, the process for
crafting water quality trading requirements should involve the permitting authority staff.
This will help ensure that trading provisions are fully consistent with the implementation and
compliance framework of the particular jurisdiction's NPDES program. The role of NPDES per-
mitting authorities in water quality trading should include the following:
•	Advising state or local entities, as they develop trading frameworks, on what is
needed for NPDES programs to authorize trading
•	Developing enforceable trading provisions, NPDES permit limitations and conditions
that meet the requirements of the CWA and its implementing regulations, consistent
with the following:
-	EPA's Trading Policy
-	State laws, regulations, and policy
-	Any applicable trading program
•	Helping to develop and implement mechanisms to ensure accountability and
compliance with trading requirements. Examples include the following:
-	Credit certification forms
-	Trade tracking mechanisms
-	Enforcement if permit requirements are not met
-	Review of monitoring data from credit buyers and sellers
In addition to the expertise used to develop permits and especially water quality-based
effluent limits (WQBELs), the NPDES permitting authority will need an understanding of the
following:
•	The legal and policy framework for water quality trading
•	The specific issues involved in incorporating water quality trading into NPDES permits
•	The various trading scenarios and the types of sources, watersheds and pollutants for
which they are appropriate
The remainder of this section briefly describes the federal legal and policy framework for
water quality trading and provides examples of state regulations, policy, and guidance that
establish a framework for trading or address specific aspects of trading.
Legal and Policy Framework for Water Quality Trading
Where trading is feasible, the terms of a trade will depend, in part, on the structure of a
trading program or other trading requirements developed by the state or other permitting
authority. These in turn must comply with federal and state rules that define the legal frame-
work within which trading programs and requirements are developed.
Fundamentals of Water Quality Trading
Introduction
Overview of
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Federal Law, Regulations, and Policy
The CWA, 33 United States Code (U.S.C.) section 1251, et seq. and its implementing regula-
tions establish the legal framework within which a trading program involving regulated point
sources would be developed. The NPDES regulations at Title 40 of the Code of Federal Regu-
lations (CFR) 122.44(d) describe the requirements for WQBELs that are set at levels necessary
to achieve water quality standards. EPA's Trading Policy provides states with guidance on how
to facilitate trading consistent with the CWA and its implementing regulations. The Trad-
ing Policy is included in this document as Appendix B. Many of the concepts in the Trading
Policy are explored in greater detail in the section on Essential Trading Information for Permit
Writers. In addition, relevant portions of the Trading Policy are referenced throughout the
Toolkit.
Under CWA section 301 (b), NPDES permits must contain technology-based effluent limita-
tions (TBELs) and more stringent effluent limitations when necessary to meet applicable
water quality standards. Trading cannot be used to meet TBELs, except where specifically
authorized by effluent guidelines (e.g., the water bubble provisions in the effluent guide-
lines for the Iron and Steel point source category). EPA has promulgated regulations at 40
CFR Part 122 specifying when WQBELs under CWA section 301 (b)(1)(C) are necessary and
how such limitations are to be derived. Among other things, EPA's regulations at 40 CFR
122.44(d)(1)(vii) require the permitting authority to ensure that: (a) the level of water quality
to be achieved by limits on point sources is derived from, and complies with, all applicable
water quality standards; and (b) effluent limitations developed to protect a narrative water
quality criterion, a numeric water quality criterion, or both, are consistent with the assump-
tions and requirements of any applicable WLA for the discharge prepared by the state and
approved by EPA pursuant to 40 CFR 130.7. To be lawful, a WQBEL must be consistent with
the requirements of CWA section 301 (b)(1)(C) and EPA's regulations at 40 CFR 122.44(d)(1).
WQBELs must also be calculated at levels that do not result in a shift in loadings that causes
a localized impairment of designated uses. A localized impairment may occur wherever the
applicable water quality criteria are exceeded. Where state or tribal water quality standards
allow for mixing zones, the WQBELs must be consistent with the restrictions associated with
those mixing zones.
The requirements of CWA section 301 (b)(1)(C) and EPA's regulations at 40 CFR Part 122 apply
to all WQBELs, including those based on a water quality trade.
State Regulations, Policy, and Guidance
EPA issued its Trading Policy to encourage state regulatory agencies to include trading as
an option for a point source to meet water quality standards. Some states have chosen to
develop regulations, policy, or guidance to do any of the following:
•	Establish a statewide or watershed trading framework
•	Support local trading frameworks
•	Address specific aspects of a trading program
Fundamentals of Water Quality Trading
Introduction
Overview of
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
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Water Quality Trading Toolkit for Permit Writers
State trading rules should be consistent with the CWA, NPDES permit requirements, and state
water quality standards. The following sections describe various state approaches for facili-
tating water quality trading.
Establishing a Statewide or Watershed Trading Framework
States may choose to develop state rules or regulations to facilitate the consistent and
efficient implementation of a statewide or watershed-wide trading program and provide a
regulatory framework for local rulemaking. Where a statewide or watershed trading pro-
gram is in place, permittees or other stakeholders interested in pursuing trading know what
is expected, what rules apply, and with whom they need to coordinate. NPDES authorities
should participate in the development of state rules to ensure trading programs are consis-
tent with NPDES permitting requirements and will address the needs of permit writers.
Connecticut has adopted trading legislation. Public Act No. 01-180 establishes the trading
framework for a Long Island Sound Nitrogen Credit Exchange Program to be directed by a
Nitrogen Credit Advisory Board appointed by the General Assembly and the governor. The
Nitrogen Credit Exchange Program establishes a well-defined trading structure supported
and regulated by limits mandated in state law. The state legislation specifies trading ratios
(e.g., delivery and location ratios) and accounting methodologies to formalize all calculations
used in trading.
States do not necessarily have to develop trading rules and regulations to provide a trading
framework. Some states have developed guidance documents and other tools to assist dis-
chargers interested in trading. Pollutant trading is recognized in Idaho's Water Quality Stan-
dards regulations, and the Idaho Department of Environmental Quality (DEQ) has produced
the Pollutant Trading Guidance that establishes the procedures to be followed for pollutant
trading. The draft document specifies the conditions under which pollutant trading may take
place, establishes record-keeping and reporting procedures, and prescribes how best man-
agement practices (BMPs) are to be developed for each watershed in which pollutant trad-
ing occurs. Idaho DEQ and EPA Region 10 will rely on this document to convey information
to stakeholders about the state's ground rules for authorizing and verifying trades and to
ensure a level of regulatory consistency between the Lower Boise project and other emerg-
ing projects across the state. The nonprofit organization established to record trades for the
Lower Boise and other watersheds with trading programs will also refer to the guidance for
the transaction information it needs to record and make available to trading participants,
EPA and DEQ, and the general public.
Trade Facilitation
The Virginia General Assembly passed legislation authorizing the creation of a Chesapeake
Bay Nutrient Credit Exchange Program in 2005. This program includes the issuance of a
watershed-based nutrient general permit that incorporates trading, as well as the forma-
tion of the Virginia Nutrient Credit Exchange Association, which coordinates and facilitates
trading among its members. The Virginia Department of Environmental Quality (VA DEQ) is
charged with developing the watershed-based permit and overseeing the credit exchange.
The VA DEQ must certify the credits purchased by facilities and publish a record of all credits
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available as well as the trades that have taken place. In addition, the legislation established
that the VA DEQ may conduct audits of the Virginia Nutrient Credit Exchange Association to
ensure completeness and accuracy of reports.
Supporting Local Trading Frameworks
Some states allow trading without having state trading rules, policy, or guidance specifi-
cally addressing pollutant trading. For example, the North Carolina Department of Environ-
ment and Natural Resources (DENR) works with any watershed group interested in trading
to develop a trading framework for that watershed and cover dischargers under an overlay
permit. This trading framework originated in the Neuse River watershed. The state classified
the river as a Nutrient Sensitive Water (NSW). Major fish kills in 1995 prompted legislation
requiring nutrient controls and led the North Carolina Environmental Management Commis-
sion (EMC) to revise its 1988 Nutrient Management Strategy for the Neuse River Basin. The
1997 strategy established a goal that sources would reduce total nitrogen (TN) loads to the
estuary by 30 percent by the year 2003. Subsequently, the North Carolina EMC adopted a
rules package in 1998 to support the strategy. The rules were aimed at reducing TN impacts
in the watershed by promoting nutrient management activities for agriculture, stormwater,
point sources, and riparian areas. One of the rules under the strategy, the Wastewater Dis-
charge Requirements rule, allowed dischargers to form an association to meet their allocated
TN load collectively. Though not expressly stated in the rule, trading is allowed under this
option among the members of the association. Members are allowed to purchase, sell, trade,
or lease their individual portions of the estuary TN allocation (which are included in their
permits as mass-based effluent limits) among co-permittees covered under an overlay permit
so as long as they do not exceed the association's overall estuary TN allocation (2.8 million
pounds per year). Individual trades conducted under the overlay permits are typically not
reviewed by the state.
Market Drivers
In most states, meeting water quality standards, WLAs under TMDLs, or other kinds of pollut-
ant caps are the leading drivers for water quality trading markets; however, some states have
developed state regulations to allow trading in other circumstances, such as on Wisconsin's
Red Cedar River. The primary regulatory driver for point sources involved in trading on the
Red Cedar River is Chapter NR 217 of the Wisconsin Administrative Code. This chapter of
the code mandates 1 mg/L total phosphorus (TP) discharge limits for municipal treatment
plants with a monthly discharge exceeding 150 pounds of TP and for industrial sources with a
monthly discharge exceeding 60 pounds of TP. This cap is used to control phosphorous load-
ings and provides an incentive for water quality trading in the Red Cedar River watershed, as
well as a baseline against which trading can be conducted.
There may be other specific aspects of a trading program that a state chooses to address
through regulation, policy or guidance, such as selection of approved BMPs for generating
tradable credits from nonpoint sources or general eligibility requirements (e.g., compliance
history) for point sources wishing to engage in a trading program. Permitting authorities
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should be familiar with all applicable federal and state policies, regulations, and guidance
before beginning to develop a permit that incorporates trading.
As is apparent from this discussion of the legal and policy framework for water quality trad-
ing, the decision to incorporate trading into a NPDES permit requires careful consideration.
The permitting authority should, first, be aware of the broader state/local/watershed context
for trading and consider how this context will affect the incorporation of trading provisions
into NPDES permits. Specific permit conditions should be guided by state regulations and
policies, including any established trading framework. The following section. Essential Trad-
ing Information for Permit Writers, provides an overview of issues that permitting authorities
should consider, within the context of established regulation and policy, before developing
permits that incorporate water quality trading.
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Essential Trading Information for Permit
Writers
Permitting authorities are key players in any water quality trading program. Trades involv-
ing point sources, whether they are buyers or sellers, should be reflected in their NPDES
permits. Listed below are some fundamental issues regulatory authorities should address
when establishing a trading program or evaluating potential trading opportunities.2 It is
essential that the permitting authority have a clear understanding of these fundamental
issues and how they will affect development of the NPDES permit that implements water
quality trading.
•	Pollutants most suitable for trading
•	Geographic scope of trading
•	Types of trading scenarios
•	Appropriate circumstances for trading
•	Definition of a pollutant reduction credit
•	Definition of a baseline for generating credits
•	Trading ratios
•	Types of effluent limitations that may be met through trading
•	Credit reconciliation based on timing and duration of credits
•	Role of stakeholders
•	Potential for and avoidance of localized exceedances of water quality standards
Appendix E provides the permit writer with a list of fundamental questions that should be
answered when implementing water quality trading in a NPDES permit.
What Pollutant Trading Does EPA Support?
Not all pollutants are necessarily suitable for trading. Regulatory authorities should deter-
mine which pollutants may be traded within a specific watershed or as part of a particular
trading program and may determine that certain pollutants may not be traded at all. EPA's
Trading Policy supports trading for TN, TP, and sediment and indicates that other pollut-
ants may be considered for trading on a case-by-case basis. EPA does not support trading of
persistent bioaccumulative toxics (PBTs). For a list of pollutants that EPA considers PBTs see
www.epa.gov/pbt/index.htm. In general, pollutants that cause adverse water quality effects
2 This guidance is based on EPA's Trading Policy. The Trading Policy was written on the assumption that all trading
partners would be covered by the same TMDL analysis. Thus, there are some suggestions within this document that
may not apply to trades in which the trading partners are not under the same TMDL. In all cases where trading
provisions are included in a permit, it remains the responsibility of the permitting authority to issue permits
designed to meet water quality standards as required under CWA section 301 (b)(1)(C).
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primarily as a result of cumulative loadings that are high relative to the contributions of any
individual source are more suitable for trading than those that exert acute effects over small
areas and in relatively low concentrations. Chapter 2 of EPA's Water Quality Trading Assess-
ment Handbook provides more information regarding trading suitability analyses for specific
pollutants.
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Nonconventional Pollutants
EPA's Trading Policy explicitly supports trading to reduce
nutrients. A number of established trading programs and
pilot projects have shown that nitrogen and phosphorus
can be successfully traded within a watershed to make
progress toward meeting a TMDL and water quality
standards. Appendices A and B of EPA's Water Quality Trading
Assessment Handbook provide detailed information on
evaluating trading suitability for phosphorus and nitrogen.
Nutrient trading programs:
Long Island Sound, Connecticut
Lower Boise River, Idaho
Truckee River, Nevada
Neuse River Basin, North Carolina
Red Cedar River, Wisconsin
Southern Minnesota Beet Sugar
Cooperative, Minnesota
Trading of other types of nonconventional pollutants may
be supported on a case-by-case basis provided the trading
programs are properly designed and prior approval is provided through a NPDES permit, a
TMDL, or in a state-, tribe-, or EPA-supported watershed plan or pilot trading project.
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Conventional Pollutants
The Trading Policy explicitly supports trading to reduce sediment loads. Another conventional
pollutant that may be suitable for trading is temperature, or thermal load. Appendices C
and D of EPA's Water Quality Trading Assessment Handbook provide detailed information
on evaluating trading suitability for temperature and
sediments. Trading of other types of conventional pollutants
may be supported on a case-by-case basis, as long as the
trading program is properly designed to ensure that trades
are consistent with water quality standards.
Conventional pollutant trading programs:
Truckee River, Nevada: Total Dissolved Solids
Clean Water Services, Oregon: Temperature
Does EPA Support Cross-Pollutant Trading?
EPA's Trading Policy supports cross-pollutant trading programs (i.e., trading between two
different pollutant parameters) when mass loads that are approximately equal with respect
to their impacts on the aquatic environment can be calculated. The Trading Policy explicitly
supports cross-pollutant trading for oxygen-related pollutants where there is adequate
information to establish and correlate impacts on water quality.
Rahr Malting Company, Minnesota
The Rahr Malting facility offsets 5-day carbonaceous biochemical oxygen demand (CBODs) dis-
charges from its facility by funding upstream nonpoint source phosphorus reductions. This trade
was implemented to reduce downstream oxygen demand (Breetz et al. 2004). Phosphorus loads
affect oxygen demand and thus could be traded for CBODs once correlations between the impacts of
the upstream phosphorus discharges and the downstream CBODs discharges were determined.
Fundamentals of Water Quality Trading
11
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Possible
Tradeable Geographic Trading Circumstances
Pollutants Scope Scenarios for Trading
Factors for
Determining
Pollutant
Reduction Credits
Is the Trading NPDES Permits
Effluent Limit Stakeholder Program for Trading
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Water Quality Trading Toolkit for Permit Writers
What Is the Appropriate Geographic Scope for Water
Quality Trading?
EPA's Trading Policy states that all water quality trading should occur either within a water-
shed or within a defined area for which a TMDL has been approved. But what, exactly, does
"trading within a watershed" mean? For example, how large can the watershed be? Is it
appropriate to trade between dischargers to different streams within the same watershed?
Does it matter where the trading partners' discharges are located relative to one another?
The answers to these questions will vary on the basis of a number of factors. In general, the
geographic scope of a trade should be no larger than necessary to encompass the universe
of sources that contribute to a specific water quality problem that is to be addressed through
trading. Beyond this, regulatory authorities should carefully consider the following factors
when determining the appropriate geographic scope of a water quality trade. Many of the
decisions regarding geographic scope are synonymous with decisions that define TMDLs. For
this reason, EPA encourages the inclusion of specific trading provisions in the TMDL itself.
First, trading should occur only within a hydrologic unit that is appropriately defined to
ensure that trades will maintain water quality standards within that unit, as well as within
downstream and contiguous waters. Second, it is important to remember that the purpose
of trading is to improve water quality. This can occur only if the parties to the trade dis-
charge, either directly or indirectly, to the same waterbody where water quality improve-
ment is necessary. This may involve trading across a wide geographic area if the waterbody
to be addressed drains a large area (e.g., the Chesapeake Bay), or across a small area if the
impaired waterbody is itself small (e.g., an individual stream segment). Inappropriate trading
across geographic or hydrologic units (i.e., where the dischargers are not both contributing to
the same water quality problem) will not improve, and could worsen, water quality down-
stream of the credit purchaser. Water quality trading is intended to provide opportunities for
efficiently achieving and maintaining water quality standards within watersheds, as opposed
to cleaning up one watershed at the expense of another.
As noted above, trades can also occur on a very small scale. The Trading Policy supports
several types of trading that, by definition, would occur below the watershed scale. Specifi-
cally, pretreatment trading, intraplant trading, and intramunicipal trading are limited to the
geographic scale that encompasses the collection system, facility, or municipality involved in
trading.
The appropriate size of the area within which trading may occur depends on the specific
characteristics of the site and the trade. Regulatory authorities should consider hydrogeologic
conditions, fate and transport of pollutants, ecological parameters, the location and types of
point sources, the parameters to be traded, and the regulations and management structure
affecting the trading program in evaluating appropriate trading boundaries (USEPA 1996a).
These factors, obviously, will vary from watershed to watershed and even within watersheds
depending on the pollutants and trading partners. Some example considerations are provided
below.
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Regulatory authorities should take into account the following factors in determining appro-
priate boundaries for a trading program and the geographic coverage of a permit that incor-
porates water quality trading:
•	Where are the dischargers located relative to the waterbody for which reductions are
needed?
5?
•	What is the distance between the potential trading partners' discharges, either along
a shared receiving stream, or to the point where the receiving streams converge?3
•	Is the potential credit purchaser upstream or downstream of the potential credit
generator?
•	If the credit generator is a nonpoint source, where is its loading released?
•	Are there diversions, tributaries, impoundments, drinking water intakes, or other
water withdrawals between the potential trading partners' discharges?
•	What political boundaries exist between trading partners or within a watershed
of interest that may impact the requirements or regulations affecting trades? Are
potential partners regulated by the same permitting authority?
•	What are the water quality impacts and fate and transport (e.g., decay) characteristics
of the pollutant(s) to be traded?4
•	Can appropriate trade ratios be established to account for the distance between
trading partners' discharges?
•	Are other water quality trades being conducted in the waterbody, and how might
they affect the water quality impacts of the trade being considered?
Interstate trading may be a viable option in some parts of the country. For instance, in the
Chesapeake Bay, CWA section 117(g) says that the administrator, in coordination with other
members of the Chesapeake Bay Executive Council, "shall ensure that management plans are
developed and implementation is begun by signatories to the Chesapeake Bay Agreement to
achieve and maintain - (A) the nutrient goals of the Chesapeake Bay Program for the quantity
of nitrogen and phosphorus entering the Chesapeake Bay and its watershed...". EPA inter-
prets this language as supporting the Chesapeake Bay states in establishing multijurisdictional
water quality trading programs as part of the management planning and implementation
necessary to achieve the Bay's nutrient goals.
Also, trading could be an option under already established interstate compacts (e.g., Ohio
River Valley Water Sanitation Commission (ORSANCO)). CWA section 103(b) expresses
3	The difference between these two measuring points relates to the location of the trading partners and the
waterbody of concern. If the waterbody of concern is downstream from the trading partners, the permitting
authority should compare the distance between the buyer and the waterbody of concern and the seller and the
waterbody of concern to determine the appropriate location ratio. If the buyer is on the waterbody of concern, the
permitting authority should determine the distance between the buyer and the seller to calculate the appropriate
delivery ratio. More information on trade ratios is available later in this document.
4	Fate and transport modeling will often be needed and should be the same as or consistent with any model used to
develop the TMDL.
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Congress' consent that states "negotiate and enter into agreements or compacts... for
(1) cooperative effort and mutual assistance for the prevention and control of pollution and
the enforcement of their respective laws relating thereto, and (2) the establishment of such
agencies, joint or otherwise, as they may deem desirable for making effective such agree-
ments and compacts." To be binding, the CWA says such agreements or compacts must be
approved by Congress.
For interstate trading outside of congressionally approved compacts, section 103(a) of the
CWA directs EPA to "encourage cooperative activities by the states for the prevention, reduc-
tion, and elimination of pollution, [and] encourage the enactment of improved and, so far
as practicable, uniform state laws relating to the prevention, reduction, and elimination of
pollution." EPA believes that encouraging states to engage in cooperative, interstate activi-
ties like establishing multijurisdictional water quality trading programs designed to prevent,
reduce, and eliminate pollution is consistent with the directives in section 103(a).
In many cases, the trading boundaries will be established under a trading program or agree-
ment, independent of the NPDES permit that implements the trade. As such programs and
agreements are developed, NPDES permitting authorities should provide input on the appro-
priate trading boundaries on the basis of their experience permitting the facilities potentially
involved. In any case, the permitting authority should write permit conditions in such way as
to ensure that trades occur only within appropriate boundaries.
Types of Trading Scenarios
NPDES permitting authorities are likely to encounter a variety of trading scenarios. In general,
however, all trades included in permits will involve either trading between point sources or
trading between point sources and nonpoint sources. Trading between multiple point sources
or between point sources and nonpoint sources can occur with or without an intermediary or
broker to facilitate the trades. A third-party broker—a person, organization, or Web site—can
help trading partners identify one another in a watershed. For example, NutrientNet acts as a
Web-based broker.
NutrientNet®
The World Resources Institute has created a trading Web site (NutrientNet -
www.nutrientnet.org), which acts as a trading broker, facilitating a way for buyers and sellers to
connect, "by making it relatively easy for both point sources and nonpoint sources to estimate
their remediation costs using standard, consistent methods, and by making the record of trade
readily accessible. Specifically, NutrientNet is designed to serve the following functions:
¦	Provide potential market participants and other stakeholders with background information
on nutrient trading;
¦	Provide farmers, municipal treatment works, and industrial plants with tools for estimating
releases of nutrients to surface waters from their operations, exploring reduction options,
estimating the costs of achieving reductions;
Fundamentals of Water Quality Trading
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Point Source-Point Source Trading
Trading between point sources is the most basic form of water quality trading. Point source-
point source trading is relatively straightforward, easily measurable, and directly enforce-
able. Trading between point sources is generally the easiest type of trading to implement,
to measure reductions from, and to ensure compliance and enforcement with because all
sources have a permit, the effectiveness of removal technologies is relatively well known, and
monitoring protocols are in place. For example, in a particular watershed a publicly owned
treatment works (POTW) that installs advanced technology to meet new nutrient limits could
create credits by achieving greater reductions than necessary to meet its WQBELs. Other
POTWs in the same watershed may find that, instead of installing expensive new technology,
it is more economical for them to buy pollutant reduction credits to meet their own WQBELs.
Trading Between Two Point Sources
Single point source-single point source trades generally involve a trade agreement5
between two point sources (see Figure 2). In this type of trade, one point source is
the credit generator and the other is the credit
purchaser. For point source-point source
trades, a single permit can be issued
that incorporates or references
the trade agreement and
includes both point sources as
co-permittees. Alternatively,
each discharger can be issued
an individual permit with
trading provisions placed in each
permit.
Figure 2. Point source-point source trade.
NutrientNet® (continued)
¦	Help market participants identify potential trading partners;
¦	Track the volume and type of trades within a watershed;
¦	Share lessons learned about trading across the watersheds where it is being tried or
considered; and
¦	Provide information on water quality problems and trading as a possible means to address
them." (World Resources Institute 2004)
Buyer
POTW
point source-
point source
trade

5 A trade agreement is a document that specifies the overall trading policies that a buyer and a seller must follow to
participate in trading. The NPDES permitting authority could approve the trade agreement and either reference
the terms of the trade agreement in the NPDES permit or include the trade agreement as part of the permit for
each point source participating in a trade.
Fundamentals of Water Quality Trading
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.okOE AGREE/m^
Multiple Facility Point Source Trading/No Exchange
Multiple facility point source trades involve a group of point sources operating under a
trade agreement (see Figure 3). The agreement can
establish ground rules for trading to allow point
sources to trade among themselves as needed.
The trade agreement can specifically identify
the point sources that may participate in
water quality trading, or it can identify
a geographic boundary (typically a
watershed) or a type of discharger,
or both, and allow qualifying point
sources to participate in trading as
desired or appropriate. An over-
all limit or cap set by the permit
regulates all trades. Point sources
trading under a multiple facility
trade agreement are sometimes
organized under a group that facili-
tates and oversees trading among the
members.
single
point source-
point source
trade
Multiple
Point Source
Trading
point source-
point source
trade
point source-
point source
trade
Figure 3. Multiple point source trading.
Neuse River Basin, North Carolina
Point sources participate in the Neuse River Compliance Association and have coverage under a
group compliance permit that includes individual and group allocations of TN. Members of the
association can trade with each other as long as they remain under the cap. If the cap is exceeded,
members will be subject to their individual limits. The North Carolina Division of Water Quality
may take enforcement action against the compliance association and any individual discharger.
When trades occur that involve nonmembers or new or expanding dischargers within the Neuse
River Basin, the group cap is modified. If credits are not available from existing dischargers, a new
or expanding discharger can also obtain an allocation by paying into the Wetlands Restoration
Fund; however, it must pay at double the rate of a compliance association member, and the pur-
chase must be sufficient to fund 30 years of nitrogen reduction.
Point Source Credit Exchanges
Another type of multiple facility point source trade involves a group of point sources that
may purchase credits from a central exchange as needed to comply with individual effluent
limitations (see Figure 4). The credit exchange is maintained by a separate entity, which may
be a state agency, a conservation district, or other organization established to administer the
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credit exchange. Credits in the exchange are generated
by point sources that over control their discharges.
The trade agreement can specify how credits
may be generated and purchased, how trade
ratios are calculated, and individual and
group responsibilities for meeting effluent
limitations and overall pollutant loading
caps. Credit exchanges do not hold credits
for longer than the reconciliation period,
which typically corresponds to the type
of effluent limitation. For example, the
reconciliation period for trades to meet
monthly average effluent limitations for
phosphorus would be one month. For each
reconciliation period, new credits are gener-
ated for purchase. The credit exchange would
likely have to be either operated by or approved
and overseen by a state regulatory agency.
Buyer
POTW
Point Source
Credit Exchange
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Figure 4. Point source credit exchange.
Long Island Sound, Connecticut
POTWs in the Connecticut portion of the Long Island Sound watershed may participate in the Nitrogen
General Permit and Nitrogen Credit Exchange Program. Participating POTWs must individually meet
the annual average discharge limits in the permit or purchase the necessary credits to achieve their
individual limits through the program, which is administered by an advisory board and Connecticut
Department of Environmental Protection. POTWs performing better than required by their permit lim-
its generate credits to sell through the program. The reconciliation period for this program is one year.
Point Source-Nonpoint Source Trades
Trading between point source buyers and nonpoint source sellers provides another oppor-
tunity to meet water quality standards. In successful point source-nonpoint source trading
programs, point sources benefit by purchasing credits for required reductions at lower cost
than technology upgrades; nonpoint sources benefit by gaining income from better resource
management; and water quality improves. One major advantage of trading is that it may
reduce the cost to achieve water quality goals. For example, as shown in Figure 5, it is often
less expensive to remove nutrients through the use of improved agricultural practices, such
as conservation tillage, grass buffers, and enhanced animal waste management than through
upgraded municipal waste treatment.6 In developing point source-nonpoint source trading
programs and associated NPDES permits, extra care should be taken to ensure that nonpoint
source load reduction uncertainty is addressed. EPA's Trading Policy recommends that states
6 Data for this table was taken from information gathered to support the Chesapeake Bay Commission's 2004 Cost-
Effective Strategies for the Bay. There are other areas in the country where municipal waste treatment costs for TN
have been shown to be lower, depending on the level of TN removal.
Fundamentals of Water Quality Trading
Introduction
Overview of
*	
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Nutrient Reduction Costs
BMP
Phosphorous
(S/lb)
Nitrogen
($/lb)
Municipal waste
treatment
$4.78-5105.67
$5.73-$10.78
Conservation
tillage
$7.39
$1.59
Agricultural
grass bufffers
$20.69
$1.03
Animal waste
management/
runoff control
$30.55
$3.93
Figure 5. Nutrient reduction costs for
Chesapeake Bay.
and tribes establish methods to account for uncer-
tainties inherent in trading with nonpoint sources.
These methods include monitoring to verify load
reductions, the use of greater than 1:1 trading ratios
between nonpoint and point sources (see the discus-
sion of trading ratios later in this document), using
demonstrated performance values or conservative
assumptions in estimating the effectiveness of non-
point source management practices, and retiring
credits. Permitting authorities should be aware of
such methods and incorporate them into permit
requirements for point source-nonpoint source
trades as appropriate. The nonpoint source trading
scenario sections of this document include detailed
discussions on using trading ratios to account for
uncertainties in nonpoint source modeling, BMP
effectiveness, and nonpoint source compliance.
There are a number of ways trading between point and nonpoint sources may occur. These
include single point source-nonpoint source trades, multiple facility point source-nonpoint
source trades, and multiple facility trades where credits are exchanged through a third party.
Single Point Source-Nonpoint Source Trades
Single point source-nonpoint source trades involve a trade agreement between a single
point source and one or more nonpoint sources (see Figure 6). Under this type of trade, the
nonpoint source(s) reduce(s) pollutant loads below the established baseline to generate cred-
its, and these credits are purchased by the point source. Single point source-nonpoint source
trades should be reflected in an individual permit for the point source that either references
or incorporates the terms of the trade agreement.
Farm 21 i~
i
source-
nonpoint
point source-
nonpoint source
trade
'HjCretf*
Buyer
POTW
point source-
nonpoint source Farmsf^
trade

Figure 6. Point source-nonpoint source trade.
Fundamentals of Water Quality Trading
Introduction
Overview of
*	
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Southern Minnesota Beet Sugar Cooperative, Minnesota
The Southern Minnesota Beet Sugar Cooperative (SMBSC) wanted to build its own wastewater
treatment plant; however, because of a WLA on the Lower Minnesota River, SMBSC had to
completely offset its phosphorus discharge. To do so, SMBSC negotiated contracts with 256 of its
member farmers to install BMPs (e.g., cover crops) to reduce their phosphorus loads.
Nonpoint Source Credit Exchange
In this scenario, a credit exchange program is established
to buy credits from multiple nonpoint sources to sell
to point sources (see Figure 7). A credit exchange
could be managed by the state, a conservation
district, a private entity, or another third party. A
broker can be used to identify trading partners
and facilitate trades. There are two general
types of exchanges: (1) a broker-facilitated
exchange where the broker brings parties
together to trade directly with each
other and (2) a central exchange
where the point sources are
not required to deal directly
with nonpoint sources. For this
second type of exchange, the
credit sellers (nonpoint sources)
generate pollutant load reduc-
tions using a variety of approved
BMPs and sell the credits to the credit
Buyer
POTW
Nutrient reduction
Seller
Farm 1
Ripanan
buffers
Seller
Farm 2
NPS Credit
Exchange

Figure 7. Nonpoint source credit exchange.
exchange. Point sources may then purchase
credits from the credit exchange rather than directly from the nonpoint sources. This can save
transaction costs for the point source purchasers and minimizes administrative burden for
credit sellers. In addition, the credit exchange can perform various other functions such as
establishing standards for trading, incorporating monitoring, determining the maximum fea-
sible nonpoint source load reductions available to generate credits in the watershed, setting
credit prices, determining eligibility of credits, ensuring that the buyer has a steady supply of
credits by creating a reserve pool of credits, verifying the operation and maintenance of BMPs,
and tracking important trade information for all participants. The credit exchange would likely
have to be either operated by or approved and overseen by a state regulatory agency.
<-ri
o
>
s
tfl
H
>
r1
on
Red Cedar River, Wisconsin
The city of Cumberland participated in the Red Cedar River Nutrient Trading Pilot
Program, which involves paying farmers in the Red Cedar watershed to install BMPs
that reduce phosphorus loads. The Barren County Land Conservation Department
facilitates the trades by negotiating with farmers and establishing contracts between
the farmers and the city of Cumberland.
Fundamentals of Water Quality Trading
Introduction
Overview of
*	
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Under What Circumstances Does EPA Support Trading?
Trading is driven by regulation, motivated by economics, and governed by project-specific
trading rules. The drivers for trading are typically new, more stringent WQBELs in NPDES
permits derived from new or existing water quality criteria, a TMDL or the establishment of
a pollutant cap. For trading to be economically viable, there must be other sources that can
achieve excess reductions at lower cost than the permitted point source. Other factors, such as
a stakeholder agreement to implement a trading program, may also play an important role.
Trading to Address Impaired Waters Under a Pollutant Loading
Cap or TMDL
Trades and trading programs in impaired waters for which a TMDL has been
approved or established by EPA should be consistent with the assumptions and
requirements upon which the TMDL is established. EPA encourages the inclusion
of specific trading provisions in the TMDL itself, in NPDES permits, in watershed
plans and the continuing planning process (USEPA 2003).
TMDL development or the establishment of a pollutant cap often serves as the driver for
point sources to get involved in trading. Therefore, water quality trading provisions included
in NPDES permits often will address impaired waters where a TMDL or similar pollutant load-
ing cap has been established. In these cases, the baseline water quality requirement for a
particular point source is specified by a WLA in the TMDL and expressed in the point source's
NPDES permit as a WQBEL that is consistent with the WLA. A point source's required pollut-
ant reduction is the difference between the discharger's current pollutant load and the load
required to meet the WQBEL.
The facility could potentially have three options for complying with its WQBEL. One option
is to implement pollution prevention, reuse, or recycling measures adequate to meet the
WQBEL at the point of discharge. The second option is to install treatment technology. The
third option is trading. Trading allows the facility to purchase the needed reductions from
point or nonpoint source credit sellers in the watershed. The facility also could choose to
implement some treatment or pollution reduction measure to partially reduce its discharge of
the pollutant and purchase the remaining reductions through trading.
If a discharger installs a control technology that results in pollutant reductions greater than
those required by the WQBEL, the discharger may potentially generate credits. The number
of credits generated would be the difference between the discharger's WQBEL in its permit
implementing the WLA and the pollutant load actually discharged after installing treatment
processes or other pollutant reduction measures.
Trading to Address Impaired Waters Pre-TMDL
EPA's Trading Policy specifically states that "EPA supports pre-TMDL trading in impaired
waters to achieve progress toward or the attainment of water quality standards. EPA believes
this may be accomplished by individual trades that achieve a net reduction of the pollutant
Fundamentals of Water Quality Trading
Introduction
Overview of
*	
Essential Trading




Factors for





Water Quality
Information for









Trading
Permit Writers


Possible

Determining


Is the Trading
NPDES Permits


Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading



Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
traded or by watershed-scale trading programs that reduce loadings to a specified cap sup-
ported by baseline information on pollutant sources and loadings."
c!
Trading is an option in impaired waters to reduce pollutant loads where a TMDL has not yet
been established. A pre-TMDL trade must not cause or contribute to further impairments of
the waterbody. CWA 301(b)(1)(C); 40 CFR 122.44(d)(1)(vii)(A). The Trading Policy presents
two approaches for pre-TMDL trading depending on the scale of the trade. One approach is
individual trades, which could be individual point source-point source trades or individual
point source-nonpoint source trades. These sources may choose to trade to eliminate the
need for a TMDL or to ameliorate conditions for a pending TMDL. An example of this type of
>
t-1
trading is the Great Miami River Watershed Trading Pilot Program. Trades should result in a
net reduction of the pollutant traded to ensure that further impairment to the waterbody is
avoided. (For details of this program, see Appendix A.)
The other approach is where a pollutant loadings cap has been set for a waterbody at a
watershed-scale through watershed-based permitting (e.g., Neuse River7) or a voluntary cap
has been set on a downstream waterbody and a strategy has been developed to allocate
reductions within the watershed (e.g., Chesapeake 2000 Bay Agreement and Tributary Strate-
gies). A cap on total loadings can be derived from baseline information on pollutant sources
and loadings that is consistent with water quality standards. Trades can occur to make prog-
ress toward or meet that cap.
To establish a target or loading cap below current conditions that represents progress in the
attainment of water quality standards, it is necessary to quantify the current conditions. Cur-
rent conditions would be the pollutant loads represented by current permit and regulatory
requirements for point sources (i.e., the applicable effluent limitations or other quantified per-
formance requirements) and the current level of pollutant loads from all nonpoint sources and
background conditions. Once the total current pollutant load is quantified, EPA would support
trading to achieve a target or cap representing a reduction in the overall pollutant load.
For discharges to impaired waters pre-TMDL, trading need not trigger the anti-backsliding
provision of CWA section 402(o) or the limitations under CWA section 303(d)(4) even where
the effect of the permit authorizing trading is to allow a greater actual discharge from the
facility itself (because of the purchase of credits) than the previous permit issued to the trad-
ing point source. Allowing a facility to meet an established WQBEL through trading does
not necessarily constitute a less stringent effluent limitation as specified in section 402(o) if
the facility is still responsible for the same level of pollutant reduction. In that case, trading
merely offers the discharger an additional means of achieving that limitation and must not
result in a net increase in the pollutant discharged to the waterbody or in a localized impair-
ment. Similarly, allowing a facility to meet a WQBEL through trading does not necessarily
constitute a revised effluent limit under section 303(d)(4)(A) if a facility is still responsible for
the same level of pollution reduction. All WQBELs, including those that are subject to CWA
section 402(o), must meet the requirements of CWA section 301(b)(1)(C). Section 301(b)(1)(C)
7 In 1999 a TMDL was completed for the Neuse River. The Neuse River Compliance Association was formed before
this TMDL, and the cap that was incorporated into the TMDL was set by the state as part of its 1997 nutrient
strategy for the Neuse River.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
21
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
requires that the limitations be set at levels necessary to achieve water quality standards,
which also includes avoiding localized impairments.
In the absence of a watershed-wide trading program to meet a specific target or pollut-
ant loading cap, EPA supports individual pre-TMDL trades that achieve a net reduction in
loadings of the pollutant traded and, thus, progress toward attainment of water quality
standards.
Trading in Unimpaired Waters
Federal regulations (40 CFR 131.12) establish requirements for states and tribes to develop
and adopt statewide antidegradation policies that, at a minimum, maintain and protect the
level of water quality necessary to support existing uses and to protect high-quality waters
including outstanding national resource waters. Where the level of water quality exceeds the
level necessary to support propagation of fish, shellfish, and wildlife and recreation in and
on the water, federal regulations allow a state or tribe to authorize new or increased pollut-
ant discharges to that water under two circumstances: (1) when the jurisdiction determines
that the new or increased discharge would not lower water quality; or (2) when lower water
quality will occur, but the jurisdiction finds that such lower water quality is necessary to
accommodate important economic or social development in the area in which the waters are
located. In allowing lower water quality, a state or tribe must assure water quality adequate
to fully protect existing uses and also assure achievement of the most stringent statutory
and regulatory requirements for all new and existing point sources and all cost-effective and
reasonable BMPs for nonpoint source control (40 CFR 131.12(a)(2)).
When drafting or interpreting their antidegradation policies, jurisdictions have the flexibility
under current law to determine when a new or increased discharge lowers water quality. A
jurisdiction can explicitly provide in its antidegradation policy that no lowering of water qual-
ity occurs within the meaning of 40 CFR131.12(a)(2) in the case of new or increased discharges
when, as a result of a water quality trade, there is no net increase of the pollutant being
discharged into the waterbody and the trade will not result in any localized impairments. EPA
encourages jurisdictions to use trading in high-quality waters for the purpose of mitigating
the effects of new or increased discharges that, without the trade, might lower water quality.
It is important to note that this guidance does not preclude a jurisdiction from requiring an
antidegradation review under 40 CFR 131.12(a)(2) or from finding that a lowering of water
quality would occur as a result of a proposed new or increased discharge. Nor is this guidance
intended to mean that there necessarily would be a lowering of water quality if there is a net
increase of pollutants. Rather, it simply identifies a trade-related situation where a jurisdic-
tion could authorize a new or increased discharge without a review because the increased
load would be compensated for through trading.
Intraplant and Intramunicipal Trading
One straightforward form of trading is intraplant trading, or trading between different
outfalls within a plant. Intraplant trading can be accomplished within the context of a single
NPDES permit and, thus, does not require the establishment of a formal trading program.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
EPA supports intraplant trading that involves the generation and use of credits
between multiple outfalls that discharge to the same receiving water from a
single facility that has been issued an NPDES permit (USEPA 2003).
2
A facility with multiple outfalls may receive a mass WLA of a particular pollutant through
a TMDL, another watershed-level analysis, or calculation of individual effluent limitations.
Typically a permitting authority would assign fixed, mass-based, effluent limitations to each
outfall contributing the pollutant by apportioning the loading on the basis of the outfall's
historical or design flow. By incorporating intraplant trading into the permit, the permitting
authority could assign the overall mass loading limitation to the facility but allow the permit
holder to manage the facility as a system, apportioning the loading among outfalls in a way
that makes the most sense both technically and economically. The NPDES permit should still
ensure that the overall mass loading requirement for the facility is reflected in the effluent
limitations and that there is no potential for creating a localized exceedance of water quality
standards.
Another form of trading that would not require establishing a formal trading program is
intramunicipal trading. Similar to intraplant trading, intramunicipal trading allows a munici-
pality to manage its multiple discharges as a system. The difference is that intramunicipal
trading involves trading among multiple facilities or point sources owned by a single munici-
pality that, traditionally, would be covered under separate individual NPDES permits. A
permitting authority could assign a mass loading of a particular pollutant to the municipal-
ity as a whole (if appropriate) or to its individual discharges on the basis of a TMDL or other
watershed-level analysis. An overall mass loading assigned to the municipality would be
appropriate only where localized impacts would not be expected from each of the municipal-
ity's individual discharges. The municipality could apportion the overall allocation among its
facilities to meet the overall mass limitation. Where its discharges received individual alloca-
tions, it still could trade among sources to allow them to meet those individual allocations.
This type of trading may be more complex than intraplant trading because trade ratios for
the different discharges may have to be established to address differences in their locations.
Also, the intramunicipal trading would have to be incorporated into NPDES permits by either
developing individual permits with coordinated requirements or developing an integrated
municipal permit. Where facilities are assigned individual allocations, a facility would have to
perform better than its WQBEL to generate credits. Any facility accepting credits would have
to first meet any applicable TBELs and ensure that its discharge would not create a localized
exceedance of water quality standards. This requirement could be implemented through a
limit on the number of credits the facility may accept.
New sources and new dischargers, including those involved in intramunicipal trading must
meet the requirements of 40 CFR 122.4(i), which states that
No permit may be issued to a new source or a new discharger, if the discharge
from its construction or operation will cause or contribute to the violation of
water quality standards. The owner or operator of a new source or new discharg-
er proposing to discharge into a water segment which does not meet applicable
water quality standards or is not expected to meet those standards even after
the application of the effluent limitations required by sections 301(b)(1)(A) and
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
23
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
301(b)(1)(B) of CWA, and for which the State or interstate agency has performed
a pollutants load allocation for the pollutant to be discharged must demon-
strate, before the close of the public comment period, that:
(1)	There are sufficient remaining pollutant load allocations to allow for
the discharge; and
(2)	The existing dischargers into that segment are subject to compliance
schedules designed to bring the segment into compliance with applicable
water quality standards. The Director may waive the submission of infor-
mation by the new source or new discharger required by paragraph (i)
of this section if the Director determines that the Director already has
adequate information to evaluate the request.
EPA interprets 40 CFR 122.4(i) to allow for a new source or new discharger to compensate for
its entire increased load through trading. In the case of intramunicipal trading, new sources or
dischargers operated by a municipality may discharge to an impaired water if their discharge
does not cause the municipality to exceed its overall cap for the pollutant(s) of concern.
Clean Water Services, Oregon
Trading of oxygen-demanding parameters is permitted between two wastewater treatment plants
operated by Clean Water Services, a public utility in the Tualatin River Basin responsible for waste-
water and stormwater management. These facilities are covered under a general permit that specifi-
cally authorizes the Durham and Rock Creek Advanced Wastewater Treatment Facilities to trade
CBODs and ammonia.
Trading Involving Wet Weather Point Sources
Several classes of wet weather point sources, including combined sewer overflows (CSOs),
discharges from municipal separate storm sewer systems (MS4), and stormwater discharges
from industrial activities, are regulated under the NPDES program and could provide oppor-
tunities for trading. The general framework for trading involving point sources8 is applicable
to wet weather point sources, with some additional considerations to account for the nature
of the wet weather point sources and their permits. First, wet weather point sources cannot
trade to meet their TBELs. EPA has not established effluent limitations guidelines for CSOs,
MS4s or most types of stormwater discharges associated with industrial activities; however,
the CWA provides technology-based standards for the different classes of wet weather point
sources. For CSOs and stormwater discharges from industrial activities, the technology-based
standard is Best Available Technology Economically Achievable/Best Conventional Pollutant
Control Technology. For MS4s, the technology-based standard is Maximum Extent Practicable
(MEP). Therefore, in the absence of effluent limitations guidelines, a permit writer must use
the CWA's technology-based standard to establish TBELs on a permit-by-permit basis using
the permit writers' best professional judgment (BPJ).
8 For more information about the general framework for trading involving point sources, see the discussion What
Discharge Limits Apply in Water Quality Trading ? in this document.
24
Fundamentals of Water Quality Trading
Overview of
Water Quality
Trading
*	
Essential Trading




Factors for
















Possible

Determining


Is the Trading
NPDES Permits

Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
EPA supports trading involving wet weather point sources where it can be shown to have a
water quality benefit. However, to ensure water quality improvement, the following condi-
tions are generally necessary for trading involving wet weather point sources to occur:
A Wet Weather Point Source as a Seller:
•	The seller meets its most stringent effluent limitation (baseline), which is either its
TBEL or WQBEL. Reductions in excess of the most stringent effluent limitation are
eligible to be sold as credits.
2,
•	The seller's permit or fact sheet includes numeric effluent limitations or allowable
loads. The fact sheet for the seller's permit clearly describes the value of the trade in
terms of a numeric pollutant load and clearly demonstrates that water quality objec-
tives will be achieved after all trades have been made.
•	The permit requires discharge monitoring to verify that all discharges involved in the
trade are performing consistent with expectations of the trade.
•	No credit can be generated without an actual reduction in pollutants. An existing
discharge that is either uncontrolled or has existing controls with concentrations/
loads that do not meet water quality standards would not be able to generate credits
without achieving additional reductions.
A Wet Weather Source as a Buyer:
•	The buyer's permit or fact sheet identifies numeric effluent limitations or allowable
loads to be achieved to meet the technology-based standard (minimum control level).
•	The permit or fact sheet identifies the actual controls that the buyer must implement
to meet its minimum control level.
•	Credits are purchased to meet the buyer's baseline (WQBEL).
•	Discharge monitoring data is available in advance of the trade to verify that the con-
trol measures for the wet weather sources are capable of meeting minimum control
levels. After the trade, discharge monitoring data is able to ensure the goals of the
trade are being met.
Credits are generated only by actual reductions of pollutants in discharges. Credits should not
be for nondirect or indirect water quality-based measures such as educational programs, pub-
lic outreach, and so on, unless these practices are translated into quantified load reductions.
Lake Lewisville, Texas
The city of Denton, Texas, draws its drinking water from and discharges its wastewater to Lake Lewisville.
Lake Lewisville is also used for recreation. It is in the interest of the city of Denton to improve and maintain
the quality of water in Lake Lewisville. Thus, Denton has implemented an aggressive water quality improve-
ment program. More than 70 monitoring sites have been installed in the three watersheds that encompass the
city The city has monitored a variety of parameters monthly This data plus extensive modeling has provided
Denton with excellent data to assess the condition of its water as well as make future projections on the basis
of expected growth. Denton is a stormwater phase II city and has gone well beyond the six minimum measures
required by the stormwater phase II regulations. The city is investigating water quality trading as an option for
developers as the city requires any sediment or nutrient loadings coming from development to be compensated
for through other reductions. Because the city has extensive monitoring and modeling of the water quality in
the three watersheds, it will have the data to set the baseline for trading at pre-development conditions.
Fundamentals of Water Quality Trading
25
Introduction Overview of
Water Quality
Trading
*	
Essential Trading




Factors for
















Possible

Determining


Is the Trading
NPDES Permits

Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Using Flow as the Trading Parameter
State and local regulations that regulate stormwater flow may create a market for wet
weather trading outside of the NPDES program. For example, state or local ordinances could
require offsets for wet weather flow and thus create a market for trading flow across all wet
weather sources to meet these requirements.
Portland, Oregon
The city of Portland, Oregon, is evaluating the viability of a stormwater trading program. An
approach under evaluation would allow redevelopers to buy credits for flow reductions required
for their site from other parties, for example from the city, which would install green streets. This
trade may be viable where the permitting authority determined that the installation of green
streets represented technology over and above what was determined to meet the MEP standard
of the NPDES program. The first phase of the study will determine if the approach is economi-
cally beneficial and if the program can provide acceptable environmental results. If the trading
approach is determined to be feasible, later phases of the study will outline the model approach,
determine the geographic trading area, select appropriate BMPs, and develop economic models
for program valuation. In later phases, the city also plans to demonstrate the operation of the
trading system by implementing a pilot program.
Vermont
The state of Vermont is also developing an approach under which a form of trading could be used to meet flow
restrictions. This approach would identify site-specific stormwater/hydrologic indicators for use as surrogate
TMDL targets. The approach provides a tailored estimation of target stormwater runoff volumes and stream
characteristics using reference watersheds that represent the stream channel conditions and pollutant load-
ings necessary to support aquatic life. In addition to providing a tailored target for TMDLs, this site-specific
approach will also generate information to support the development of stormwater permit limits on a
watershed-basis. These limits could then serve as a baseline for trading.
For the interim period before TMDL adoption, Vermont's 2005 rules for stormwater discharges to impaired
waters (Vermont Environmental Protection Rules, Chapter 22) specify that new development in impaired
waters must cause no net increase in sediment loading or hydrologic impact (VTDEC 2005). To achieve this
standard, the rules allow for one of the following: (1) the development of projects that offset the new dis-
charges within the same watershed; (2) payment of a stormwater impact fee to the state to obtain the neces-
sary offset charge capacity9 (the fee is based on amount of impervious cover created and is used to purchase
the comparable amount of impervious cover removed—or the discharge equivalent) from a stand-alone offset
project within the watershed; or (3) a combination of options 1 and 2. To determine the size of the offset
project or the amount of offset charge capacity needed, the applicant must calculate the increase in impervi-
ous cover and sediment loading or hydrologic impact expected to result from the project following stormwater
BMP implementation. The no-net-increase provision of the Vermont rules is consistent with 40 CFR 122.4(i)
for new discharges to impaired waters.
Offset Charge Capacity is defined in Vermont's 2005 Stormwater Rules as "the amount of reduction in sediment
load or hydrologic impact that an offset project generates" (VTDEC, 2005).
26
Fundamentals of Water Quality Trading
Overview of
Water Quality
Trading
*	
Essential Trading




Factors for
















Possible

Determining


Is the Trading
NPDES Permits

Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Pretreatment Trading
'Tl
EPA supports a municipality or regional sewerage authority developing and
implementing trading programs among industrial users that are consistent with
the pretreatment regulatory requirements at 40 CFR Part 403 and the munici-
pality's or authority's NPDES permit (USEPA 2003).
g
Pretreatment trading gives a municipality the flexibility to allow trading among industrial
users to meet its maximum allowable load as an alternative to allocating the load among
users directly. Under this trading scenario, the effluent limitations for the permitted waste-
water treatment facility would not change. The trading program itself can be established
t""1
and administered by the POTW that has responsibility for administering the pretreatment
program. The permitting authority need not incorporate the details of individual trades into
the wastewater treatment facility's permit; however, the permit should acknowledge that
the permittee has or will establish a pretreatment trading program to facilitate and supervise
trading among industrial users to meet the effluent limitations established in the permit. In
addition, before including pretreatment trading in a NPDES permit, the permitting authority
should confirm that pretreatment trading is permissible under municipal sewer use ordinanc-
es establishing local limits and other local requirements. In addition, indirect industrial users
cannot trade to meet categorical effluent discharge limits based on federal pretreatment
standards because these are technology-based standards or other national pretreatment
standards (e.g., general and specific prohibitions at 40 CFR 403.5). There are no categorical
pretreatment standards that specifically allow for trading. For more on pretreatment trading,
see Sharing the Load: Effluent Trading for Indirect Dischargers.
Passaic Valley Sewerage Commissioners, New Jersey
Indirect dischargers to the POTW may participate in trading to meet uniform local
pretreatment limits.
Some Trading Scenarios Are Not Supported
EPA's Trading Policy does not support trading to meet TBELs. The intent of a TBEL is to require
a minimum performance level for point sources based on currently available treatment tech-
nologies. EPA expects all dischargers within a particular industrial category to achieve the
defined basic level of pollutant control and does not support the use of water quality trading
to meet technology standards. The only time trading is supported by EPA to meet TBELs is
when federal regulations expressly authorize trading. For example, existing technology-based
effluent guidelines for the iron and steel industry allow intraplant trading of conventional,
nonconventional, and toxic pollutants between outfalls under certain circumstances. The
Trading Policy does state that the Agency will consider including provisions for trading in the
development of new and revised TBEL guidelines and other similar regulations. Unless such
effluent guidelines have been promulgated, permitting authorities should not include trad-
ing provisions into a permit designed to achieve compliance with TBELs.
EPA does not support any use of credits or trading activity that would cause an
impairment of existing or designated uses, adversely affect water quality at an
intake for drinking water supply or that would exceed a cap established under a
TMDL (USEPA 2003).
Fundamentals of Water Quality Trading
Introduction Overview of
Water Quality
Trading
*	
Essential Trading




Factors for








Possible

Determining

Tradeable
Geographic
Trading
Circumstances
Pollutant

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
27
Is the Trading NPDES Permits
Effluent Limit Stakeholder Program for Trading
Types	Roles	Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
NPDES permits must not incorporate trades that would cause impairment of a designated use
(CWA 301(b)(1)(C); 40 CFR 122.44(d)(1)(vii)(A)). This restriction includes localized exceedances
of water quality standards caused by increased pollutant loads from a credit purchaser.
Also, NPDES permits should not incorporate trades that would adversely affect drinking
water systems by creating the need to increase the level of drinking water treatment over
what was needed before the trade or by causing a water supplier to exceed regulatory stan-
dards established under the Safe Drinking Water Act.
What Are Some Factors Involved in Determining a
Reduction Credit?
As stated earlier, EPA's Water Quality Trading Assessment Handbook notes that, in water qual-
ity trading markets, the marketable product is the over control of pollutant loadings. A pollut-
ant reduction credit is a measured or estimated unit of pollutant reduction per unit of time at
the discharge location of the buyer or user of the credit.10 A seller generates excess load reduc-
tions by controlling its discharge beyond what is needed to meet its baseline. A buyer com-
pensates a seller for creating the excess load reductions, which are then converted into credits
by using trade ratios. Where appropriate, the buyer can use the credits to meet a regulatory
obligation. To determine when a pollutant reduction credit has been generated, a regulatory
authority will need to develop procedures for determining baselines for credit generation,
trading ratios, timing of credit generation, and the duration of credits. These issues are sum-
marized in the checklist in Appendix E and are explained in the following sections.
What Discharge Limits Apply in Water Quality Trading?
Trading participants should have an understanding of three types of discharge limits: base-
lines, minimum control levels, and trading limits (see Figure 8). Baselines apply to both a
buyer and a seller. Minimum control levels are relevant
only to the buyer and trading limits are relevant only to
the seller. Each limit should be contained in the trade
agreement.
Seller:
Trading
Limit
Buyer:
Minimum
Control
Level
Ol
Credits to be Bought
Credits to be Sold
Discharge Limits
Baseline
Figure 8. Point source discharge limits.
Baselines
The baselines for water quality trading are the NPDES
permit limits (for point sources) or BMPs (for nonpoint
sources) that would apply in the absence of trading.
These baselines will vary depending on the sources
involved and the specific circumstances under which
trading will occur.
10 It is important to note that, because of trade ratios, one pound of pollutant reduced at the seller's discharge
location is not necessarily equal to one pound of pollutant reduced at the buyer's location. Therefore, for the
purposes of this Toolkit, one credit will be equal to one unit of load reduction per time (lb/day) at the location of
the buyer. One credit may be greater or less than one unit of load reduction per time at the location of the seller.
Different programs may define credit differently.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Point Source Seller
The baseline for a point source seller is its most stringent effluent limitation. A point source
seller generates credits when it reduces its discharge below its baseline.
Point Source Buyer
Because a buyer cannot buy credits to meet its TBEL, a point source would buy credits only
if its WQBEL is more stringent than its TBEL. Therefore, the baseline for a point source buyer
would be its WQBEL. WQBELs are developed to meet state water quality standards.
Nonpoint Source Seller
For a nonpoint source seller in a watershed under a TMDL, the source's baseline would be
derived from the nonpoint source's LA. In the absence of a TMDL, EPA's Trading Policy states
that state and local requirements and/or existing practices should determine a nonpoint
source's baseline (see Figure 9). The trading program provisions could also specify some
additional minimum level of control that nonpoint sources would
have to achieve before they could generate credits. The baseline
level of control should never be less than existing practice.
Nonpoint Source Seller
Baseline for Trading
A more in-depth discussion of establishing a baseline for non-
point sources is provided in the nonpoint source trading scenario
sections of the Toolkit.
Minimum Control Levels
A discharger that chooses trading to meet its baseline can buy
credits; however, the discharger would still be expected to meet
a minimum control level at the point of discharge (see Figure 8).
The minimum control levels are either the TBELs specified in a
permit or the current discharge levels, depending on which are
more stringent. TBELs are derived from secondary treatment
standards for POTWs and effluent guidelines or BPJ for industries
(see Figure 10). After a discharger meets its minimum control
level through treatment, it can buy credits to meet its baseline.
A permitting authority can choose to impose a more stringent
minimum control level than the TBEL or current discharge to pre-
vent localized exceedances of water quality standards near the
point of discharge but not one that is less stringent the TBEL. For
a more detailed discussion of how these minimum control levels
are incorporated into a permit, see the discussion in the trading
scenario sections.
Figure 9. Nonpoint source seller
baseline for trading.
Point Source Buyer
Minimum Control Level
* Must be stringent enough to
avoid localized exceedences of
water quality standards
Figure 10. Point source buyer
minimum control level.
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NPS Seller
With TMDL
NPS Seller
Without TMDL
Load allocation
State and local
requirements
and/or existing
practice
POTW
Buyer
Industrial
Buyer
Secondary
Treatment *
TBEL*
Fundamentals of Water Quality Trading
	'~
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic Trading Circumstances
Scope Scenarios for Trading
29
Factors for
Determining
Pollutant	Effluent Limit Stakeholder
Reduction Credits Types	Roles
Is the Trading NPDES Permits
Program for Trading
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Trading Limits
To become a seller, a discharger would control its pollutant discharge beyond its baseline. The
seller can choose to what level it will control its pollutant discharge (based on the technology
or BMPs it will implement) and this level becomes its trading limit (see Figure 8). If the seller
does not meet its trading limit, it could violate its trade agreement, and the buyer could be
out of compliance with its permit. The number of credits generated could be calculated by
taking the difference between the seller's baseline and its trading limit and multiplying that
difference by the applicable trading ratio.
Developing Trade Ratios
In many cases, pollutant credits are not generated on a "one pollutant pound-to-one pollut-
ant credit" basis. Rather, some type of a trading ratio is used to either discount or normalize
the value of pollutant credits. For example, a trading program with a trading ratio of 4:1
would require a buyer to purchase 4 pounds of nitrogen reduction to achieve a credit worth
one pound of nitrogen reduction from its facility. There is no set limit for how high a trading
ratio can be.
Trading ratios depend on the specific circumstances in the watershed. Factors that drive the
use of trading ratios might relate to environmental conditions, pollutants, or programmatic
goals. Although existing trading programs use various types of trading ratios and different
terms to describe them, the basic categories of trading ratios are delivery, location, equiva-
lency, retirement, and uncertainty."
Delivery or location ratios are calculated as part of the overall trading ratio for a particular pair
of sources to account for pollutant attenuation because of the fate and transport character-
istics of a pollutant, the unique characteristics of the watershed (e.g., hydrology, vegetation),
distance, and time. This type of ratio accounts for the fact that a pound of a pollutant dis-
charged upstream will not arrive as a pound of a pollutant at a given point downstream.
11 It is important to note that trading programs are likely to use a variety of names for trading ratios and the
categories described are generalized for simplicity.
Figure 11. Delivery ratio.
Delivery Ratio
• Delivery ratios are used when sources are directly discharg-
ing to the waterbody of concern. These ratios account for
the distance and unique watershed features (e.g., hydrolog-
ic conditions) that will affect pollutant fate and transport
between trading partners (see Figure 11). For example, an
upstream point source is interested in trading with another
point source that is several miles downstream. Because
of the distance between the two dischargers, modeling
shows that a 5:1 delivery ratio should be applied to trades
between the two sources. This means that the downstream
point source would need to purchase 5 pounds of pollutant
credits to achieve the equivalent of one pound of pollutant
reduction at its own discharge point. Sources that are closer
in proximity with less intervening hydrological features are
likely to have a lower delivery ratio.
30
Fundamentals of Water Quality Trading
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Possible
Tradeable Geographic Trading
Pollutants Scope Scenarios
Factors for
Determining
Circumstances Pollutant	Effluent Limit
for Trading Reduction Credits Types
Stakeholder
Roles
Is the Trading NPDES Permits
Program for Trading
Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
Location ratios are used when sources are upstream of the waterbody of concern.
These ratios account for the distance and unique watershed features between a
pollutant source and the downstream waterbody (e.g., bay, estuary, lake, reservoir)
that the trading program is trying to address (e.g., a hypoxic zone in a waterbody).
The location ratio allows credits to be traded between unique sources by convert-
ing their loadings or reductions into credits needed or available at the waterbody
of concern. Each source has a unique location ratio that reflects a source's rela-
tive impact of pollutant loading or reduction on the waterbody of concern. There
will likely be differences in the water quality impacts of a discharge of a pound
of a pollutant near the area or waterbody of concern versus a pound of pollutant
discharged farther upstream. Using Figure 12 to illustrate, sources in closer proxim-
ity to the downstream waterbody of concern will have lower location ratios than
sources farther upstream. The lower location ratio indicates that the mass of a
pollutant load (e.g., one pound of nitrogen) from a source nearer the waterbody
of concern has a greater impact on the waterbody. If the two sources in Figure 12
wanted to trade, the location ratios of
both sources would have to be figured into
the trading ratio between the sources. For
example, suppose the location ratio of the
point source were 2:1 and the location ratio
of the nonpoint source were 3:1. Then the
trading ratio for the two sources would
include a location component of 3:2. Note
that while in this example consideration of
location ratios leads to a > 1:1 trading ratio,
this is not necessarily always the case. If
the seller were closer to the waterbody of
concern than the buyer, this could lead to a
trading ratio of < 1:1.
Nonpoint
Source
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Location
Ratio
Waterbody
of concern
Figure 12. Location ratio.
Equivalency ratios adjust for trading different forms of the same pollutant. One pollutant
can exist in different forms. While two sources may discharge the same pollutant, the
composition of their discharges may differ with respect to the forms of the pollutant.
Pollutants from different sources can be traded if they have the same effect on the
waterbody of concern or if their effects can be related by some factor. This factor is known
as an equivalency ratio. To calculate this ratio, the water quality impacts from each pollutant
source need to be estimated. For nutrients, the effect on water quality is related to the
percent of the nutrient that is biologically available in the source's discharge. Biologically
available nutrients are readily available for uptake by the biota. Nutrients can be present in
forms that are immediately biologically available and in forms that are less accessible to the
biota. Excess biologically available nutrients contribute to eutrophication and degradation
of water quality. Those forms of nutrients that are not immediately biologically available
can become accessible to the biota (biologically available) through different biological and
chemical cycling mechanisms. Hence, nutrients can be present as readily biologically available
or bound to sediment, and depending on environmental factors, such as climate, apparent
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants Scope
Possible
Geographic Trading
Scenarios for Trading
Factors for
Determining
Pollutant
Reduction Credits Types
Effluent Limit Stakeholder
31
Is the Trading NPDES Permits
Program for Trading
Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
geology, residence time, and so on, have different effects on the waterbody of concern.
The relative biological availability of nutrients in the trading sources' discharges should be
incorporated into the equivalency ratio. For example, consider a point and nonpoint source
trading phosphorous. Generally, a point source's discharge will have a higher proportion of
biologically available phosphorous than a nonpoint source's discharge. While some of the
nonpoint source's bound phosphorous will convert into biologically available phosphorous,
it will generally still have a lower percentage of biologically available phosphorous than the
point source during the time frame the point source must account for the reductions. It is
important that the buyer offset its load with reductions that will have similar impacts on the
waterbody at the time the offset is needed. The number of pounds of the nonpoint source's
reduction that the point source will have to buy to have a similar impact on the biota in the
waterbody is the equivalency ratio.
An equivalency ratio can also be used in cross-pollutant trading. While the general idea that
the water quality effects of the two pollutants should be equivalent or related by a factor
still holds, determination of the ratio may involve a more detailed study for cross-pollutant
trading than for single-pollutant trading. As with consideration of location ratios, consider-
ation of equivalency ratios may lead to either a greater or less than 1:1 trading ratio.
Uncertainty ratios account for multiple types of uncertainty that normally occur in point
source-nonpoint source trades. Most point source-point source trades should not require
an uncertainty ratio because measurement is relatively straightforward and both sources
are required to perform discharge monitoring in accordance with the terms of their permits.
However, challenges exist in accurately measuring nonpoint source credit generation because
of complexities and cost associated with assessing and monitoring of pollutant load reductions
from BMPs (see Figure 13). Measurement uncertainty addresses the level of confidence in the
field testing of a nonpoint source BMP. Implementation uncertainty is also accounted for in
this type of ratio, addressing the level of confidence that a nonpoint source BMP is properly
designed, installed, maintained, and operated (Moffett 2005). Together, these factors contrib-
ute to performance uncertainty (the risk of a BMP failing to produce the expected results). All
trading programs involving nonpoint sources should
address nonpoint source BMP performance uncer-
tainty through ratios, use of conservative assump-
tions in calculating credits, or some other approach.
Where uncertainty ratios are used, they will gener-
ally be greater than 1:1, because there is greater
uncertainty associated with nonpoint sources (sell-
ers) than with point sources (buyers). The method of
reducing the uncertainty ratio is typically to improve
the certainty of nonpoint source load reductions
though monitoring, modeling, and estimating
effectiveness.
effective
is this?
Uncertainty
Ratio
Figure 13. Uncertainty ratio.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
Retirement ratios can be applied if a goal of the trading program is to accelerate achieve-
ment of water quality standards. These ratios retire a percentage of all credits generated,
and these credits cannot be sold. Therefore, the overall loading to the waterbody is reduced
with each trade that yields net water quality improvement. This form of ratio can be particu-
larly useful in impaired waterbodies for which a TMDL has not yet been developed because
the exact reductions required of individual sources to achieve water quality standards might
not yet be known. For waterbodies where a TMDL has already been established, if each
source meets its LA or WLA, either through adopting control technologies or through credit
purchases, this should be sufficient to attain water quality standards. Where retirement ratios
are used, they should always be greater than 1:1 because their purpose is to accelerate water
quality improvements.
The trading ratio established for a particular trade might include one or more of these ratios
depending on the scenario. Some of these ratios might be uniform for an entire trading pro-
gram, while others might be specific to particular pairs of trading sources. EPA recommends
that trading programs be as specific as possible about which underlying ratios are to be used
and exactly how they are to be calculated when developing a trading ratio for a group of
sources. The trading program design may also allow for adjustments to the trading ratios
should uncertainties be greater or less than expected, means of control more or less effec-
tive, or if changes in watershed conditions occur. Being clear about how trading ratios are
calculated will also foster transparency and public acceptance of the program.
Long Island Sound, Connecticut
The Connecticut Department of Environmental Protection (CTDEP) gained information on
nitrogen attenuation factors in Long Island Sound and during riverine transport by using the LIS
3.0 Model and U.S. Geological Survey monitoring data for major tributaries. Attenuation factors
were developed into location ratios, which are important for quantifying relationships between
discharge points and actual delivery of nitrogen to Long Island Sound. These ratios combine to
account for relative nitrogen impact on dissolved oxygen depletion in Long Island Sound from
geographically distributed sources. They are used as trading ratios to put the 79 POTWs involved
in trading on an equal basis, which is a critical component of the Nitrogen Credit Exchange. To
calculate the overall trade ratios, CTDEP multiplied the river location ratios for a tier within a
particular management zone by the Long Island Sound transport efficiency from Connecticut's
six management zones once the nitrogen reached the edge of the sound. Figure 14 illustrates the
combined trading ratios for the management zones. CTDEP expresses the ratios as the decimal
fraction of the nitrogen load delivered. CTDEP made the assumption that the tiers closest to the
Long Island Sound have no nitrogen attenuation (i.e., they deliver 100 percent of the nitrogen
load) and assigned the value of 1 as the ratio.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
0.16
I 11-1.ahp
I 1-2.8*1 p
I 1-3q.shp
1-3s.shp
¦ 2-1. slip
2-2.shp
W 2-3.9*1 p
I 2-4,shp
ZD 3-1.«hp
I I 3-Zatip
ZD 4-1.shp
4-2n.shp
I 4-2fi.ahp
4-3n.shp
H 4-3ti.shp
I S.ahp
Nitrogen Trading Zones
I I 6.5 hp
Figure 14. Long Island Sound, Connecticut, nitrogen planning zones.
Timing of Credit Generation and the Duration of Credits
The timing of credit generation and the duration of credits is tied to the credit reconciliation
period. A credit reconciliation period is the period of time during which a seller generates
water quality credits and a buyer may use those credits to offset a pollutant load that it dis-
charges during that same period of time. Permitting authorities should be aware of how the
trading program defines a reconciliation period through both the timing of credit generation
and the duration of credits.
Timing of Credit Generation
The timing of trades is critical. A basic premise of water quality trading is that credits should
not be used before the time frame in which they are generated. In general, a permitting
authority should not allow for a pollutant reduction credit in a NPDES permit on the basis
of the proposed treatment by another point source or an unverified commitment to install a
BMP by a nonpoint source and their anticipated pollutant reduction.
Even after a practice is in place to achieve a reduction, the regulatory authority would need
to decide at what point a credit is actually available to be used in a trade. For example, if
point source requirements are based on a total annual load, the permitting authority might
determine that credits from a point source that is over controlling its discharge would not be
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
available until the discharger has installed controls and has one year of monitoring data to
demonstrate total annual loadings and reductions. This could be appropriate if there were
uncertainty regarding the total amount of credits that would be generated, although this
could also be addressed through an uncertainty ratio, which might be relaxed after the first
year's worth of monitoring data were available. Credits that are based on shorter time peri-
ods may also require a period of time to demonstrate reductions or provide an understand-
ing of how loadings and reductions may vary over time. Also, credits generated by nonpoint
sources through installation of BMPs may not be available immediately because of a time
lag between installation of the BMP and its effectiveness in reducing loadings or otherwise
improving water quality. In some cases, the credit generation could be prorated on the basis
of the pollutant reduction the BMP is achieving during the current reconciliation period,
even where the BMP has not reached its maximum expected pollutant reduction efficiency.
This could be reflected in the trading ratio. The decisions as to when credits are available for
use may have already been made in the program design. The permitting authority should be
aware of these decisions.
Also, as noted previously, EPA's Water Quality Trading Assessment Handbook indicates that
trades should be consistent with the time periods that are used to determine compliance with
effluent limitations. For example, a point source that has effluent limitations with monthly
averaging periods should trade with sources that can generate credits on a monthly basis,
and credits should be created in the same month they are expected to be used (e.g., a credit
created in August 2006 should be used to compensate only for a discharge in August 2006).
The permitting authority may have discretion to determine the appropriate averaging period
for WQBELs, depending on the pollutants of concern and other watershed specific factors
(see below).
Expiration of Credits
The permitting authority should decide whether and when a credit expires. Point sources
generating credits should be able to continue to do so as long as they properly operate and
maintain the appropriate controls and are able to demonstrate reductions below WQBELs.
Credits generated by nonpoint sources, on the other hand, may decrease or expire if the BMP
installed to generate the credit gradually becomes less effective over time and is not main-
tained or replaced.
Also, because of temperature differentials, there may be seasonal fluctuation in the amount
of credits generated by either a point source or a nonpoint source and the amount of cred-
its needed by a point source, particularly for pollutants such as nutrients. In many parts of
the country, for point sources, nitrogen removal is much more effective in the summer than
in the winter because of increased biological activity. Therefore, a point source might need
more credits (or only need credits) to compensate for discharges in the wintertime. For non-
point sources, the effectiveness of some land management BMPs fluctuates seasonally as well.
Because it might be difficult to coordinate the timing of nutrient discharges, some permitting
authorities have considered using annual mass-based discharge limits for nutrients, which facili-
tates trading these pollutants. Annual limits are appropriate only in certain circumstances (see
discussion below. Effluent Limits with Longer-Term (e.g., Annual) Compliance Periods).
C
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s
tfl
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35
Fundamentals of Water Quality Trading
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Possible
Tradeable Geographic Trading
Pollutants Scope Scenarios
Factors for
Determining
Circumstances Pollutant	Effluent Limit
for Trading Reduction Credits Types
Stakeholder
Roles
Is the Trading NPDES Permits
Program for Trading
Working? Scenarios

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Water Quality Trading Toolkit for Permit Writers
Often, point sources interested in purchasing credits express a desire to enter into contracts
that include long-term commitments from sources generating credits to ensure the future
availability of credits needed to compensate for their pollutant loads. Where possible, trad-
ing programs should attempt to identify credit generators that are willing and able to reli-
ably generate credits over an extended period of time (e.g., 5 to 10 years) to reduce the risk
and uncertainty of trading for permitted point sources.
In all cases, permitting authorities should ensure that NPDES permits incorporating water
quality trading provide for periodic evaluation of pollutant reduction credits to ensure that
the credits are still available and consistent with established trading program rules.
Determining Maximum Feasible Nonpoint Source Load
Reductions
It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a water-
body. Therefore, it is important that some analysis be done to estimate the maximum amount
of pollutant runoff that can be controlled from the nonpoint sources in a watershed. The dif-
ference between this estimate and the nonpoint source's baseline equals the maximum non-
point source load reductions available for trading.12 This is a way to ensure that credits being
purchased result in actual reductions. This increases the surety that the trading program can
meet its goal of achieving water quality standards.
The trading program might want to include a mechanism for ensuring that this maximum
tradable nonpoint source load reductions is not exceeded. This could be done, for example,
by specifying the maximum tradable nonpoint source load reductions in the program docu-
mentation and then tracking credit sales, and therefore load reductions, by nonpoint sources
to ensure that this maximum is not exceeded.
A more in-depth discussion of determining the maximum feasible nonpoint source load
reductions is provided in the nonpoint source scenario sections of the Toolkit.
What Types of Effluent Limitations Could Be Met
Through Trading?
In general, WQBELs for nutrients, sediments and other parameters that do not have local-
ized toxic effects are amenable to control via a trading system. WQBELs are most commonly
expressed as maximum daily limits and average monthly limits (AMLs). EPA's Water Quality
Trading Assessment Handbook notes that trades should be consistent with the time periods
that are used to determine compliance with effluent limitations. Trading to meet monthly
average limits is more manageable for phosphorous and sediments than for nitrogen. Facili-
ties trading phosphorous or sediments would potentially conduct only 12 trades during the
12 The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available
for trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on
many factors (as described in the Developing Trade Ratios section), determining the maximum number of credits
is not as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring
that every trade results in a reduction of total load to the waterbody.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Possible
Geographic Trading
Scope Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
course of the year. At the end of each month, each buyer and each seller would account for
credits bought and sold through credit tracking and certification. For facilities trading nitro-
gen, the permitting authority might want to consider setting annual limits due to the sea-
sonal fluctuation in treatment effectiveness.
O
>
tfl
Effluent Limits With Longer-Term (e.g., Annual) Compliance
Periods
The NPDES regulations at 40 CFR 122.45(d) require that all effluent limits be expressed, unless
impracticable, as both AMLs and maximum daily limits (MDLs) for all dischargers other than
POTWs, and as average weekly limits (AWLs) and AMLs for POTWs. EPA has identified some
circumstances where limits expressed with these averaging periods are impracticable.
For nutrients, the concern generally is whether it is appropriate to establish effluent limita-
tions with longer, rather than shorter, averaging periods. This issue is particularly important
when considering trading, because nutrients are a frequent subject of trading programs.
Permitting authorities have some discretion on the use of nutrient effluent limitations with
longer averaging periods. EPA indicated its support for using annual limits, rather than MDLs,
AWLs, and AMLs, to meet criteria for nutrients in the Chesapeake Bay and its tidal tributaries
in a memorandum from James Hanlon, Director of the EPA Office of Wastewater Manage-
ment to EPA Region 3 and the Chesapeake Bay Program Office, dated March 3, 2004 (Annual
Permit Limits for Nitrogen and Phosphorus for Permits Designed to Protect Chesapeake Bay
and its tidal tributaries from Excess Nutrient Loading under the National Pollutant Discharge
Elimination System). In this memorandum, EPA affirmed that it is impracticable to express
permit effluent limits for nitrogen and phosphorus discharges in the Bay watershed on the
basis of nutrient criteria for the Chesapeake Bay and its tidal tributaries in terms of monthly
average, weekly average, or maximum daily limitations because of a number of factors, such
as (1) the long residence time for nutrient loadings to the Chesapeake Bay and its tidal tribu-
taries, (2) the focus on the far-field effects of such nutrients (rather than in the immediate
vicinity of the discharge), and (3) the need to reduce average pollutant loads globally rather
than maximum loads from any one source.13
The circumstances in the Chesapeake Bay that make annual limits appropriate are not nec-
essarily unique. For other areas of the country, the memorandum states that "The estab-
lishment of an annual limit with a similar finding of 'impracticability' pursuant to 40 CFR
122.45(d) may be appropriate for the implementation of nutrient criteria in other watersheds
when: attainment of the criteria is dependent on long-term average loadings rather than
short-term maximum loadings; the circumstances match those [in the Chesapeake Bay and its
tidal tributaries]; annual limits are technically supportable with robust data and modeling...
and appropriate safeguards to protect applicable water quality standards are employed."
Annual effluent limitations should be used only in these limited circumstances. Other than
13 The applicable water quality criteria for the Chesapeake Bay are expressed as an annual average, so the underlying
analysis of the memo is also applicable to implementation of other nutrient criteria where attainment of the
criteria is dependent on long-term average loadings rather than short-term maximum loadings. Examples of such
criteria include EPA's recommended CWA section 304(a) ecoregional nutrient criteria, which are expressed as an
annual average.
Fundamentals of Water Quality Trading
37
Introduction Overview of
Water Quality
Trading
*	
Essential Trading




Factors for
















Possible

Determining


Is the Trading
NPDES Permits

Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
nutrients, most pollutants would not have annual limits. In addition, when considering
annual limits or other longer-term limits, the permitting authority should be certain that its
state regulations do not prohibit setting such limits.
Even for nutrients, the behavior of the pollutant and the type of criteria will affect whether
longer-term limits are appropriate or necessary. For example, in free-flowing streams where
there are no impoundments, annual limits for phosphorus might not be needed. Phosphorus
removal is not temperature dependent and AMLs may be most appropriate to protect water
quality. Furthermore, in cases where nutrient water quality criteria and WLAs to protect
those criteria are expressed on a shorter-term basis (generally to protect against local nutri-
ent impacts in rivers or streams), effluent limitations derived from those criteria or allocations
also should be expressed on a shorter-term basis, such as AMLs.14
What Are the Roles of Stakeholders?
Permitting authorities should consider the roles of permittees, other trading partners, and
key stakeholders when incorporating water quality trading in NPDES permits.
Permittees
The permittee can be either a buyer or a seller of pollutant credits. The permittee's pri-
mary responsibility is compliance with the provisions of the NPDES permit. Beyond basic
compliance, however, permitting authorities should consider the additional roles of the
permittee(s). For example, the permittee is likely to play a primary role in developing the
specific trade agreement to be included or referenced in the NPDES permit. The permittee
may be a good resource for information useful to developing trade agreement provisions
and appropriate permit conditions. The permitting authority should consider the permittee's
responsibilities under any trading provisions and should establish conditional requirements in
the permit that apply if the permittee does not meet these trading responsibilities.
In some circumstances, the permittee may be the manager of a trading program (i.e., pre-
treatment trading), or the sole trading participant (i.e., intraplant trading).
Unregulated Trading Partners
Often a permit will not place requirements on all of the partners involved in a trade, such as
nonpoint sources or pollutant credit brokers. In those circumstances, the permitting author-
ity should consider how default by the unregulated partners could affect the permittee(s)'
compliance with the effluent limitations and conditions in the permit. To the extent possible,
the permitting authority should incorporate appropriate, enforceable actions into the NPDES
permit to address nonperformance by an unpermitted trading partner. For example, the
trade agreement could provide that unregulated credit generators notify regulated credit
14 EPA Memorandum dated November 15, 2006, Establishing TMDL 'Daily' Loads in Light of the Decision bythe U.S.
Court of Appeals for the D.C. Circuit in Friends of The Earth, Inc. v. EPA, et al., No 05-5015, (April 25, 2006) and
Implications for NPDES Permits states, "EPA does not believe that the Friends of the Earth decision requires any
changes to EPA's existing policy and guidance describing how a TMDL's wasteload allocations are implemented in
NPDES permits."
Fundamentals of Water Quality Trading
Introduction Overview of
Water Quality
Trading
*	
Essential Trading




Factors for
















Possible

Determining


Is the Trading
NPDES Permits

Tradeable
Geographic
Trading
Circumstances
Pollutant
Effluent Limit
Stakeholder
Program
for Trading

Pollutants
Scope
Scenarios
for Trading
Reduction Credits
Types
Roles
Working?
Scenarios

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Water Quality Trading Toolkit for Permit Writers
purchasers of any anticipated circumstance when the credits would not be available. In this
instance, the permit could require the regulated credit purchaser to provide notice to the
permitting authority, seek other credit sources, and implement alternate controls to reduce
pollutant loads in the permitted discharge.
>
Federal and State Agencies
tn
Permitting authorities should not overlook the role of federal agencies such as the Natu-
ral Resources Conservation Service; Forest Service; Agricultural Research Service; and the
Cooperative State, Research, Education, and Extension Service, as well as similar state agen-
cies, when developing permits incorporating trades with forestry and agriculture nonpoint
sources. While NPDES permits cannot require nonpoint sources to implement pollutant reduc-
tion BMPs or management practices, research conducted by these agencies can help develop
and evaluate trading ratios and monitoring requirements. These agencies may also have
independent statutory and regulatory authorities that could be used to facilitate adoption
or implementation of trading provisions. The role of state agencies that serve as the NPDES
permitting authority is discussed in the Overview of the Toolkit.
r1
on
Local Governments
Local governments can also play a major role in the administration of trading programs. In
addition to being a stakeholder that may provide comments on TMDLs or permits or being
a point source discharger within a watershed, local governments can manage and facilitate
trading.
Red Cedar River, Wisconsin
The Barron County Land Conservation Department served as a third-party facilitator for the Red
Cedar River Nutrient Trading Pilot Program, negotiating with farmers and establishing contracts
between participating nonpoint sources and the city of Cumberland.
Citizens
Permitting authorities should take advantage of the potential contributions of interested citi-
zens to water quality trading efforts under the NPDES program. Permitting authorities should
develop permits and fact sheets that clearly describe the calculations and assumptions used
to determine baselines and trade ratios. Particularly where nonpoint sources are involved in
the trade, the permit should clearly articulate the uncertainties associated with BMPs, their
implementation, maintenance and operation, and how these uncertainties will be addressed,
to allow interested citizens the opportunity to provide information relative to the trade that
otherwise might not be accessible to the permitting authority (e.g., citizen monitoring).
Additionally, the permitting authority should require reporting of sufficient information to
evaluate compliance with trade agreements and permit conditions and should make that
information easily accessible to the public. Finally, EPA's Trading Policy encourages states and
tribes to make electronically available to the public information on the trading partners, the
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
39
Is the Trading
Program
Working?
NPDES Permits
for Trading
Scenarios

-------
Water Quality Trading Toolkit for Permit Writers
quantity of credits generated and used, market prices where available, and delineations of
watershed or trading boundaries. Permitting authorities can consider including reporting
requirements associated with this information to allow interested citizens the opportunity
to identify potential trades and to help establish public credibility for NPDES permits that
include water quality trades. Interested citizens also have opportunities to participate in the
development of a trading program. The public can comment on any applicable TMDL as well
as the proposed permit before the permit takes effect. If the state establishes a statewide
trading program, the state should issue a draft for public comment before finalizing the
program.
How to Know if the Trading Program is Working
In this document, so far, we have covered five of the seven common elements of credible
trading programs outlined in the Trading Policy. We have discussed (1) legal authority,
(2) units of trade, (3) creation and duration of credits, (4) quantifying credits and addressing
uncertainty, and (5) public participation and access to information. Compliance and enforce-
ment mechanisms are covered in each of the scenarios under monitoring and reporting
requirements and not covered here. This section focuses on the seventh element—program
evaluation.
"However beautiful the strategy, you should occasionally look at the results."
—Winston Churchill, 1874-1965
EPA's Trading Policy suggests that trading programs conduct periodic assessments of environ-
mental and economic effectiveness and make revisions as needed. "Environmental evalua-
tions should include ambient monitoring to ensure impairments of designated uses (including
existing uses) do not occur and to document water quality conditions. Studies should be
performed to quantify nonpoint source load reductions, validate nonpoint source pollutant
removal efficiencies and determine whether the anticipated water quality objectives have
been achieved."
To ensure that the trading program is meeting its goals, it is important that program evalua-
tions be included in both the design and implementation of the trading program. This allows
for adaptive management. Data and information collected can be used to assess whether the
water quality goals of the program are being met and can be used to make program modi-
fications where necessary. The results of these program evaluations and any changes that
result should be made available for public comment.
40
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Geographic
Scope
Possible
Trading
Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?

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Water Quality Trading Toolkit for Permit Writers
Developing NPDES Permits for Specific Trading
Scenarios
Once a NPDES permit writer has a clear understanding of the fundamentals of water qual-
ity trading in general and how the specific characteristics of the trading program involving
regulated point sources will affect development of the NPDES permit, he or she should then
begin to develop a NPDES permit that incorporates trading. To do this, the permit writer
should determine the appropriate type of permit for the trading scenario and decide how the
trading scenario can be incorporated into a NPDES permit.
r1
What Type of Permit Best Suits the Trading Scenario?
The rest of this toolkit is arranged by type of trading scenario. There are some trading sce-
narios that are more conducive to watershed or general permits and some scenarios where
individual permits are the best mechanism. For more on permitting, see EPA's series of guides
on watershed-based permitting including the Watershed-based National Pollutant Discharge
Elimination System (NPDES) Permitting Implementation Guidance (USEPA 2003b). Before
a permitting authority can begin including water quality trading requirements in a NPDES
permit, it should first determine the type of permit that is most appropriate for the parties
involved in the trade or trades and the manner in which trading is conducted. There are two
basic types of permits—a permit that covers a single point source and a permit that covers
a group of point sources. A single point source permit is a permit specifically tailored to an
individual facility and is commonly referred to as an individual NPDES permit. The permittee
applies for a permit, and the permitting authority develops a permit for that particular facil-
ity on the basis of information contained in the permit application and other data submitted
by the permittee or assembled from other sources. A permit also may be issued to a group of
point sources. Some permitting authorities have issued permits that cover multiple sources
but address only the particular pollutant or pollutants for which credits may be traded. This
type of permit is issued in addition to the existing permits for the facilities involved and,
hence, often is referred to as an overlay permit.
How Can the Trading Scenario Be Incorporated Into a NPDES
Permit?
Trading may be incorporated into NPDES permits in a number of ways depending on the
specifics of the trade. In some situations, the trade provisions may be reflected in the per-
mit limits or other permit conditions imposed on the trading partners through the permit.
Regardless of how water quality trades are included in NPDES permits, it is imperative that
NPDES permitting authorities ensure the trades meet specific criteria such as enforceability,
accountability, transparency, and consistency with water quality standards.
The permit should clarify what constitutes compliance with permit conditions, explain the
measurement and timing of compliance, address compliance issues related to meeting per-
mit limits using water quality trading, and address compliance schedules. Most state water
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Possible
Geographic Trading
Scope Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?
41
NPDES Permits
for Trading
Scenarios

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Water Quality Trading Toolkit for Permit Writers
quality standards or implementing regulations authorize using compliance schedules. If that
authority is available, the permit writer may place a compliance schedule in the permit special
conditions.
Where Can I Get More Information?
This concludes the key sections of the Toolkit that apply to all users. The remaining sections
of the Toolkit focus on specific trading scenarios. To determine which trading scenario is
appropriate to read next, use the Toolkit Navigation decision tree below (see Figure 15.) Note
that EPA developed the Toolkit with the expectation that users would read only the sections
applicable to their unique circumstances and interests; therefore, the trading scenario sec-
tions do repeat essential information to ensure that users get comprehensive information in
the trading scenario that best applies.
Toolkit Navigation
Start
here
Will a
Credit Exchange
be used?

Goto
Point Source
Nonpoint Source
leading
Section
More than two
point sources?

No
Point Source
Credit Exchange
used?
Goto
W Point Source- ^
r Point Source
/ V
Trading A
Section
Goto

' Point Source
Credit Exchange
Section
r
Figure 15. Toolkit navigation.
Fundamentals of Water Quality Trading
	1>
Introduction Overview of Essential Trading
Water Quality Information for
Trading	Permit Writers
Tradeable
Pollutants
Possible
Geographic Trading
Scope Scenarios
Circumstances
for Trading
Factors for
Determining
Pollutant
Reduction Credits
Effluent Limit
Types
Stakeholder
Roles
Is the Trading
Program
Working?

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Water Quality Trading Scenario:
Single Point Source-Single Point Source Trading
Contents
Water Quality Trading Scenario:
Single Point Source-Single Point Source Trading	1
Trade Agreements	1
Components of a NPDES Permit	4
Permit Cover Page	5
Effluent Limitations	5
Monitoring	12
Reporting Requirements	14
Special Conditions	17

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Water Quality Trading Scenario:
Single Point Source-Single Point Source
Trading
This water quality trading scenario focuses on technical and programmatic issues related to
single point source-single point source trading, illustrated in Figure 1. Issues addressed under
this scenario include the following:
•	Trade agreements
•	Components of a National Pollutant
Discharge Elimination System (NPDES)
permit
-	Permit cover page
-	Effluent limitations
-	Monitoring
-	Reporting requirements
-	Special conditions
A hypothetical example (shown in highlighted boxes) is presented throughout this scenario
to illustrate how NPDES permit writers might work with credit buyers and sellers to assist
in trading and ensure each facility's NPDES permit contains the appropriate limits, require-
ments, and other conditions. Keep in mind that there are a range of options for incorporat-
ing trading provisions into a NPDES permit. The hypothetical example discussed throughout
this scenario illustrates just one of the many options a NPDES permit writer might use.
Trade Agreements
Typically, the terms that govern a trading program will be developed outside the NPDES per-
mit process and can be incorporated or reflected in the permit (see Appendix C). The U.S. Envi-
ronmental Protection Agency's (EPA) Water Quality Trading Policy (Trading Policy) describes
several mechanisms for implementing trading through NPDES permits (see Appendix B).
NPDES permits authorizing water quality trading should reference any existing trade agree-
ment in the permit or fact sheet. The permit writer may also incorporate specific provisions of
the agreement as appropriate (e.g., shared responsibilities for conducting ambient monitor-
ing) into the permit. All trade agreements referenced in NPDES fact sheets and permits should
meet certain minimum standards to help ensure the trades authorized by the permit are con-
sistent with water quality standards. At a minimum, the trade agreement should be a written
agreement and signed and dated by authorized representatives of all trading partners. Verbal
trade agreements should not be referenced in NPDES permits. The written trade agreement
should contain sufficient detail to allow the permitting authority to determine with some
degree of certainty that the terms of the agreement will result in loading reductions and
generate sufficient credits to satisfy water quality requirements. If there is no formal, out-
side trade agreement, trading can still occur; however, the permit writer will need to more
Buyer
POTW
point source-
point source
trade

Figure 1. Point source-point source trade.
Water Quality Trading Scenarios
Point Source-Point Source



Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Trade Agreements
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDLa for Total Phosphorus for the Mystic River
Credit Seller: Meadeville Fertilizer Producers
Current Load: 80 lbs/day (average monthly)
New WQBELb (based on WLAC) : 57 lbs/day (average monthly)
Existing TBEL: 35 mg/L (average monthly) at an average flow of
	300,000 gpde = 82 lbs/day	
Existing Treatment: None
Proposed New Treatment Capabilities: Treatment to 40 lbs/day
(average monthly)
Credit Buyer: Auburn Carpet Manufacturers
Current Load: 40 lbs/day (average monthly)
New WQBEL (based on WLA): 29 lbs/day (average monthly)
Existing TBEL: 1 mg/L (average monthly) at an average flow of 5 mgdf = 42 lbs/day
Existing Treatment Capabilities: Treatment to 40 lbs/day
Proposed New Treatment Capabilities: None
Notes: a TMDL = Total maximum daily load; b WQBEL = water quality-based effluent limitation;
c WLA = wasteload allocation; d TBEL = technology-based effluent limitations;
e gpd = gallons per day; f mgd = million gallons per day
Location: Meadeville Fertilizer Producers (credit seller) is approximately one mile upstream from
Auburn Carpet Manufacturers (credit buyer) along the Mystic River.
Applicable Trade Ratios: None. In this case, it is not necessary to apply a delivery ratio because of
the close proximity of the sources to each other, nor an equivalency ratio because the same pollutant
form is being traded, nor an uncertainty ratio because both parties can accurately monitor end-of-
pipe loads.
The minimum control level for Auburn Carpet Manufacturers is 40 lbs/day (existing discharge),
because this level is more stringent than the TBEL (42 lbs/day) at the current level of discharge.
Therefore, Auburn Carpet Manufacturers (buyer) needs to purchase credits equivalent to 11 lbs/day
of total phosphorus (TP) to meet its WLA (baseline) under the TMDL. Auburn Carpet Manufacturers
has arranged to purchase equivalent credits from Meadeville Fertilizer Producers. Meadeville Fertil-
izer Producers (seller) has a baseline of 57 lbs/day (WLA) and new treatment will treat to 40 lbs/day
of TP loading. With this surplus of 17 lbs/day, Meadeville Fertilizer Producers can sell 11 TP credits
to Auburn Carpet Manufacturers (with no applicable ratios) and will still have 6 lbs/day of surplus TP
credits potentially available for sale to other permittees.
Water Quality Trading Scenarios
Point Source-Point Source



Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Mystic River Example: Trade Agreements (continued)
The NPDES permit writer worked with the facilities and other key stakeholders to craft the provi-
sions of the trade agreement and provided the necessary information (e.g., baseline, minimum control
levels) to facilitate the trade. As required, the permitting authority receives a written copy of the trade
agreement that is signed and dated by authorized representatives of each facility. The permit writer
reviews the written trade agreement to verify that the information is accurate and consistent with
water quality standards. The permit writer develops permit requirements that are consistent with the
provisions in the trade agreement, and incorporates those requirements in specific sections of the
permit on effluent limitations (i.e., baseline, the minimum control level for the buyer and the trading
limit for the seller), reporting and monitoring provisions.
The permit writer incorporates the Phosphorus Analysis Report provision of the trade agreement into
the permit to require the facilities to submit trade information to the permitting authority. This will
allow the permitting authority to determine whether the buyer and seller maintain compliance with
WQBELs and applicable TBELs.
In addition to developing permit requirements coordinated with the provisions of the trade agree-
ment, the permit writer will reference the written trade agreement in the fact sheets of each facility's
NPDES permit and include copies of the signed trade agreement as an attachment. Each NPDES
permit fact sheet will state that the facility's effluent limitation requirements are based on the WLA
for the facility under the approved TMDL developed to achieve water quality standards; the permit
authorizes the use of trading as a tool to comply with the required WQBELs, and the permit contains
provisions that reflect the relevant terms of the written trade agreement signed by both parties.
The basic terms of the trade agreement are as follows:
¦	Trading partners more than one mile apart must apply a delivery ratio to all trades. Trading
partners that discharge different forms of phosphorus must apply an equivalency ratio to all
trades. (In the case of the trade between Meadeville Fertilizer Producers and Auburn Carpet
Manufacturers, a delivery ratio is not necessary because they are only one mile from each other
on the Mystic River. An equivalency ratio is not necessary because the facilities discharge the
same form of phosphorus, and an uncertainty ratio is not necessary because each party is able to
accurately monitor end-of-pipe loads.)
¦	A credit seller must first meet its baseline before generating credits eligible for trading. (Meadev-
ille Fertilizer Producers will install control technologies that will treat to a phosphorus loading
of 40 lbs/day and must meet its WLA (baseline) of 57 lbs/day, which will result in 17 lbs/day of
surplus (monthly average) load reduction eligible for trading.)
¦	A credit seller is subject to trading limits. A trading limit is calculated by subtracting the
quantity of credits sold from the baseline.
(Meadeville Fertilizer Producers has a trading limit = 57 lbs/day - Quantity of Credits Sold.)
¦	A credit buyer can purchase credits to meet its facility's baseline. However, the credit buyer
must first meet the facility's minimum control level before purchasing credits to meet the
required baseline. (Auburn Carpet Manufacturers must meet its WLA (baseline) of 29 lbs/day.
The facility's minimum control level equals the facility's current discharge of 40 lbs/day. This
Water Quality Trading Scenarios
Point Source-Point Source



Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Trade Agreements (continued)
current discharge meets the existing TBEL of 1 mg/L (average monthly) of TP at the current
level of discharge (5 mgd), which is equivalent to 42 lbs/day at the current level of discharge. The
facility must continue to meet the minimum control level of 40 lbs/day before purchasing credits
to meet its baseline. When Meadeville Fertilizer Producers' new control technologies are fully
implemented, Auburn Carpet Manufacturers will purchase credits equivalent to 11 lbs/day of TP.)
¦	Credit buyers and sellers must conduct TP monitoring that complies with regulatory agency
requirements. In addition, credit buyers and sellers must complete and exchange monthly Phos-
phorus Analysis Reports to track the amount of TP discharged and the total amount of TP load
bought and sold between the facilities. (Each facility will continue to monitor TP as required
under each facility's respective individual NPDES permit. Each facility will continue to complete
and submit Discharge Monitoring Report (DMR) forms to the NPDES permitting authority, as
required under each facility's respective NPDES permit. In addition, each facility will complete
and exchange the monthly Phosphorus Analysis Reports.)
¦	Trades occur monthly, and credits may not be applied in any month other than the one in which
the credits are generated.
In a separate contract, Meadeville Fertilizer Producers and Auburn Carpet Manufacturers articulate
the financial and liability conditions that the two facilities have agreed upon.
explicitly describe the trading program in the fact sheet and authorize specific aspects of the
trading program as permit conditions. Trading partners can specify the details pertaining
to the negotiated terms of the trade (e.g., credit price, payment schedule, consequences for
failure to fulfill negotiated terms) in a separate, written and signed contract.
Components of a NPDES Permit
NPDES permits that authorize water quality trading are no different than typical NPDES per-
mits in many respects—they require the same structure, analyses, and justification. All permits
have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and report-
ing requirements; (4) special conditions; and (5) standard conditions. Standard conditions are
the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent
with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject
to public notice and comment. This process provides all interested parties an opportunity to
comment on the trading provisions in the permit.
Each NPDES permit is accompanied by a permit fact sheet. The information in these fact
sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the
permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions
in the permit. There is a wide variety of options for including trading information in the fact
sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller)
to including the entire trading program.
Water Quality Trading Scenarios
Point Source-Point Source
Trade Agreements
Components of a NPDES Permit
Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
There are a variety of issues, however, that may require special consideration when developing
a permit incorporating water quality trading. Appendix E provides the permit writer with a list
of fundamental questions that should be addressed during the permit development process.
Permit Cover Page
The cover page of a NPDES permit typically contains the name and location of the permittee,
a statement authorizing the discharge, the specific locations for which a discharge is autho-
rized (including the name of the receiving water), and the effective period of the permit (not
to exceed 5 years). A permit incorporating or referencing provisions of a trade agreement
can refer to water quality trading on the cover page, but this is not necessary. If the state has
issued regulations or policy documents authorizing water quality trading, the permit writer
should consider referencing the regulations in the Authority section of the cover page. For
example, if trading is considered a water-quality management tool in a state's Water Quality
Management Plan, this establishes clear authority for integrating trading into NPDES permits
and can be referenced on the cover page (Jones 2005).
Clean Water Services, Oregon
The Oregon Department of Environmental Quality addresses water quality trading on
the cover page of the permit issued to Clean Water Services. For more information about
this trading program, see Appendix A.
Effluent Limitations
Effluent limitations are the primary mechanism for controlling the discharge of pollutants
from point sources into receiving waters. When developing a permit, the permitting author-
ity focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES
permits, permits that include trading must include any applicable TBELs, or the equivalent
and, where necessary, WQBELs, that are derived from and comply with all applicable technol-
ogy and water quality standards. Furthermore, limits must be enforceable, and the process
for deriving the limits should be scientifically valid and transparent.
EPA's Trading Policy does not support trading to meet TBELs unless trading is specifically
authorized in the categorical effluent limitation guidelines on which the TBELs are based.
Applicable TBELs thus serve as the minimum control level below which the buyer's treatment
levels cannot fall. This section discusses the overarching principles of how to express all appli-
cable effluent limitations in permits for dischargers participating in water quality trades.
Credit Buyers
Permits for credit buyers should include both the baseline, which is the WQBEL that defines
the level of discharge the buyer would have to meet through treatment when not trading and
a minimum control level that must be achieved through treatment when trading. The permit
should also include the amount of pollutant load to be offset (minimum control level - base-
line) through credit purchases when trading. Most often, the applicable TBEL will serve as the
minimum control level. A permitting authority can choose to impose a more stringent mini-
mum control level than the TBEL to prevent localized exceedances of water quality standards
Water Quality Trading Scenarios
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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Effluent Limitations
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDL for Total Phosphorus for the Mystic River
Credit Seller: Meadeville Fertilizer Producers
Current Load: 80 lbs/day (average monthly)
New WQBEL (based on WLA): 57 lbs/day (average monthly)
Existing TBEL: 35 mg/L (average monthly) at an average flow of
300,000 gpd = 82 lbs/day
Existing Treatment: None
Proposed New Treatment Capabilities: Treatment to 40 lbs/day
(average monthly)
Credit Buyer: Auburn Carpet Manufacturers
Current Load: 40 lbs/day (average monthly)
New WQBEL (based on WLA): 29 lbs/day (average monthly)
Existing TBEL: 1 mg/L (average monthly) at an average flow of 5 mgd = 42 lbs/day
Existing Treatment Capabilities: Treatment to 40 lbs/day
Proposed New Treatment Capabilities: None
Location: Meadeville Fertilizer Producers (credit seller) is approximately one mile upstream from
Auburn Carpet Manufacturers (credit buyer) along the Mystic River.
Applicable Trade Ratios: None.
Auburn Carpet Manufacturers' existing permit includes a TBEL based on state treatment standards
for TP, which the facility currently meets. Meadeville Fertilizer Producers is also subject to a TBEL
based on existing federal effluent limitation guidelines. Existing effluent limitations for each facility
are less stringent than the limitations needed to meet the new WLAs established in the Mystic River
TMDL.
Meadeville Fertilizer Producers has recently been upgraded and has the potential to treat its discharge
to a phosphorus loading of 40 lbs/day. The facility's baseline requirement for trading is 57 lbs/day
(i.e., most stringent effluent limitation). Treating to the maximum capacity of the publicly owned
treatment works (POTW) would result in an excess phosphorus reduction of 17 lbs/day (baseline
- treatment capacity).
Auburn Carpet Manufacturers has no funds to upgrade to meet the facility's new WLA. The permit-
ting authority is allowing the facility to trade to meet its new WQBEL (baseline based on WLA). The
facility's current discharge of 40 lbs/day meets the existing TBEL of 42 lbs/day at the current level of
discharge. To participate in trading, the facility must continue to treat to the current level of loading
Water Quality Trading Scenarioss
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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Mystic River Example: Effluent Limitations (continued)
(minimum control level) before purchasing credits to meet its baseline. Auburn Carpet Manufacturers
would then be allowed to purchase credits equivalent to the difference between the minimum control
level and the baseline (40 lbs/day - 29 lbs/day = 11 lbs/day).
On the basis of the provisions of the trade agreement, the permitting authority has verified that no
trade ratios are necessary: fate and transport is not a significant issue because of the proximity of the
facilities; they are discharging the same form of phosphorus; and there is no uncertainty because of
direct measurement of TP loads.
If Meadeville Fertilizer Producers chooses to sell 11 lbs/day of the credits generated by the over treat-
ment of its discharge, a trading limit will apply as follows:
Baseline - Credits Traded = Trading Limitation
57 lbs/day - 11 lbs/day = 46 lbs/day
Meadeville Fertilizer Producers will be required to demonstrate that its discharge has an actual load-
ing of no more than 46 lbs/day during any period it is selling 11 lbs/day of credits to Auburn Carpet
Manufacturers.
New permits are being developed to implement the new WLAs and authorize trading between the two
facilities. The permits contain both interim and final effluent limitations. Interim effluent limitations
are equal to current discharge, which is less than the existing TBEL for each facility. The new WQBELs
and, therefore, trading provisions apply 2 years after the effective date of the permit. The permits will
include effluent limitations equal to baselines, minimum control levels, and trading limits.
Permit Language:
Meadeville Fertilizer Producers
A.	Meadeville Fertilizer Producers (permittee) is subject to interim and final effluent limitations
for the discharge of total phosphorus from Outfall 001. As of ,
the permittee must meet an interim mass-based effluent limitation for total phosphorus of
80 lbs/day as a monthly average at Outfall 001. Through treatment or other pollutant reduc-
tions at the facility, the permittee must meet a final mass-based effluent limitation for total
phosphorus of 57 lbs/day as a monthly average at Outfall 001. Compliance with the final
effluent limitations is required on .
B.	The permittee is authorized to generate and sell credits to an authorized credit Buyer or
Buyers by further treating or otherwise reducing the discharge of phosphorus at Outfall 001.
If the permittee sells such credits, the average monthly effluent limitation of 57 lbs/day no
longer applies and the trading limit for total phosphorus at Outfall 001 shall apply instead as
follows:
Monthly Average Trading Limitation = 57 lbs/day - Quantity of Credits Sold.
C.	Credits sold and purchased may be applied only to the calendar month(s) in which they were
generated.
Water Quality Trading Scenarioss
Point Source-Point Source
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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Effluent Limitations (continued)
Permit Language (continued):
Auburn Carpet Manufacturers
A.	Auburn Carpet Manufacturers (permittee) is subject to interim and final effluent limitations
for the discharge of total phosphorus from Outfall 001. As of ,
the permittee must meet an interim mass-based effluent limitation for total phosphorus of
40 lbs/day as a monthly average at Outfall 001. Through treatment or other pollutant reduc-
tions at the facility, the permittee must meet a final mass-based effluent limitation for total
phosphorus of 29 lbs/day as a monthly average at Outfall 001. Compliance with the final
effluent limitations is required on .
B.	If the final effluent limitation is met through trading, the permittee must purchase credits
from authorized Sellers in an amount sufficient to compensate for the discharge of total
phosphorus from Outfall 001 that is in excess of 29 lbs/day as a monthly average, but at no
time shall the maximum mass discharge of total phosphorus from Outfall 001 exceed 40 lbs/
day. Thus, the maximum mass discharge to be offset through credit purchases is 11 lbs/day as
a monthly average.
C.	Credits sold and purchased may be applied only to the calendar month(s) in which they were
generated.
near the point of discharge but not one that is less stringent the TBEL. In a NPDES permit fact
sheet, the effluent limitations for a credit buyer could be described as follows:
• The Discharger must meet, through treatment or trading, a mass-based effluent limi-
tation for Pollutant A of . If this effluent limitation is met through
trading, the Discharger must purchase credits from authorized Sellers in an amount
sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess
of , but at no time shall the maximum mass discharge of Pollutant A
during  exceed the minimum control level of . Thus, the maximum mass discharge of Pollutant A to be offset
through credit purchases is .
Credit Sellers
When a potential credit seller is able to reduce its discharge below its most stringent appli-
cable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of
credits that any given seller actually will be able to sell depends on the market for credits,
agreements made with buyers, and any treatment requirements placed on potential buyers
(i.e., the buyers' minimum control levels). Because of these factors, it is possible that a dis-
charger will not be able to sell all the credits it generates.
A credit seller's permit will include both the most stringent effluent limitation that would
apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level
it will control its pollutant discharge (using technology or best management practices (BMPs)
Water Quality Trading Scenarioss
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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
it will implement), and this level becomes its trading limit. The baseline and trading limit
could be described in the permit fact sheet as follows:
• Through treatment, the Discharger must meet a mass-based effluent limitation for
Pollutant A of . The Discharger is authorized to further treat its
discharge, remove additional loading of Pollutant A, and generate and sell credits to
an authorized credit Buyer or Buyers. If the Discharger sells such credits, the  effluent limitation  no
longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead
as follows: Trading Limitation =  - Quantity of Pounds Sold.
The permit must include monitoring and reporting requirements for Pollutant A sufficient to
demonstrate that the Seller actually has generated the credits it sells and, therefore, is meet-
ing its trading limit.
Pollutant Form, Units of Measure> and Timing Considerations
The permit should explicitly identify the pollutant or pollutants being traded. The permitting
authority should ensure that the trading program or agreement and the calculated WQBELs
are consistent in terms of the form of the pollutant, units of measure, and timing.
For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated
under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen
(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers
and sellers should trade TN credits. In this case, a discharger may be required to measure TN.
If there are concerns about localized impacts, and WQBELs are also specified for a particu-
lar form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and
nitrate (all expressed as N) and then calculate its TN discharge.
Also an equivalency ratio may be needed when two sources are trading pollutants such as
TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one
discharger's phosphorus discharge is made up primarily of biologically available phosphorus,
while its trading partner's discharge is primarily composed of bound phosphorus). An equiva-
lency ratio may also be needed in cross-pollutant trading of oxygen-demanding pollutants
(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio
would equal the ratio between the two pollutants' impacts on oxygen demand. The trading
program should account for any necessary equivalency ratios with regard to pollutant form
or type; the permit writer needs to be aware of the pollutant form or type addressed in the
trade agreement to ensure that the permit is consistent.
In addition, consistent reconciliation periods are essential in trading between point sources.
The credit purchaser's permit limits for the traded pollutant and the credit seller's permit lim-
its should have the same units and averaging period. Because both sets of limits are designed
to address the same water quality problem, both should use the averaging period and units
that make the most sense to address that problem. Consistent units and averaging periods
will also simplify reconciliation of credit sales and purchases.
Water Quality Trading Scenarioss
Point Source-Point Source
Trade Agreements Components of a NPDES Permit


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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Pollutant Form, Units of Measure,
and Timing
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDL for Total Phosphorus for the Mystic River
Credit Seller: Meadeville Fertilizer Producers
Credit Buyer: Auburn Carpet Manufacturers
Pollutant Form
Both trading partners discharge phosphorus year round. The TMDL indicates a need to control TP
discharges. Each facility discharges the same form of phosphorus at the same percentage of solubility;
therefore, no provisions are necessary in the permit to address the issue of pollutant form.
Units of Measure
The TP WQBELs based on the TMDL WLA are expressed in lbs/day as a monthly average to correspond
with the units and averaging period in the TMDL. The TP limits in Meadeville Fertilizer Producers'
existing permit are also expressed in lbs/day as a monthly average. Monthly trades will be based on
average monthly reductions demonstrated through monitoring.
Timing of Credits
Consistent with the state water quality standards, the permits include a 2-year compliance schedule
for the new WQBELs derived from the TMDL requirements. These compliance schedules are included
in the Special Conditions section of the permits for Meadeville Fertilizer Producers and Auburn Car-
pet Manufacturers. According to these compliance schedules, Auburn Carpet Manufacturers would
not have a need to purchase credits until 24 months after permit issuance. This allows 12 months
for Meadeville Fertilizer Producers to get its control technology fully operational and 12 months for
the facility to gather monitoring data to verify that the technology is achieving the expected treat-
ment efficiency and will generate credits as expected. These data are necessary to better understand
how loading and reduction may vary over time and to develop monthly credit generation data to
correspond with monthly average effluent limitations. Trades will occur monthly to correspond with
monthly average effluent limitations. Meadeville Fertilizer Producers will be able to continue to
generate credits as long as the controls are properly operated and maintained, the facility is able to
demonstrate reductions, and the facility does not become subject to more stringent requirements (i.e.,
newly promulgated effluent guidelines or other more stringent technology-based controls, additional
WQBELs to avoid localized exceedances of water quality standards) that would reduce or eliminate the
credits. The ability of Meadeville Fertilizer Producers to continue to generate credits will be assessed
during the renewal of the permit every 5 years.
Anti-backsliding, Antidegradation, and New Discharges Special
Considerations
The Trading Policy discusses anti-backsliding and antidegradation and how these provisions
can be met through trading.
Water Quality Trading Scenarioss
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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Anti-backsliding
The term anti-backsliding refers to a statutory provision (Clean Water Act (CWA) section
402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing
NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent
than those established in the previous permit (USEPA 1996b). The CWA establishes excep-
tions to this general anti-backsliding prohibition. EPA has consistently interpreted section
402(o)(1) to allow for less stringent effluent limitations if either an exception under section
402(o)(2) or, for WQBELs, the requirements of section 303(d)(4) are met (USEPA 1996b).
Section 402(o)(2) and 40 CFR 122.44(1) provide exceptions for circumstances such as material
and substantial alterations to the facility, new information, events beyond the permittee's
control, and permit modifications under other sections of the CWA. Section 303(d)(4), which
applies only to WQBELs, allows a less-stringent WQBEL in a reissued permit when the facil-
ity is discharging to a waterbody attaining water quality standards as long as the waterbody
continues to attain water quality standards even after the WQBEL is relaxed. In addition,
revising the limitation must be consistent with the state's antidegradation policy. If the
discharge is to a waterbody that is not attaining water quality standards, a less stringent
WQBEL is allowed only when the cumulative effect of all revised effluent limitations results in
progress toward attainment of water quality standards. (For a detailed discussion of the anti-
backsliding exceptions, see EPA's NPDES Permit Writers' Manual (EPA-833-B-96-003)). EPA's
Trading Policy states:
EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the
CWA will generally be satisfied where a point source increases its discharge
through the use of credits in accordance with alternate or variable water quality
based effluent limitations contained in an NPDES permit, in a manner consistent
with provisions for trading under a TMDL, or consistent with the provisions for
pre-TMDL trading included in a watershed plan.
A permit writer should simply explain in the fact sheet of the permit how the limitations in the
permit, after accounting for any trading provisions, are at least as stringent as the limits in the
previous permit or, alternatively, how anti-backsliding provisions of the CWA are satisfied.
Antidegradation
As repeated throughout this document, NPDES permits may not facilitate trades that would
result in nonattainment of an applicable water quality standard, including the applicable
antidegradation provisions of water quality standards. Permitting authorities should ensure
that WQBELs developed to facilitate trade agreements accord with antidegradation provi-
sions and that antidegradation reviews are performed when required. Nothing in the Trad-
ing Policy per se changes how states apply their antidegradation policies, though states may
modify their antidegradation policies to recognize trading.
The Trading Policy states:
EPA does not believe that trades and trading programs will result in "lower
water quality"...or that antidegradation review would be required under EPA's
regulations when the trades or trading programs achieve a no net increase of
the pollutant traded and do not result in any impairment of designated uses.
Water Quality Trading Scenarioss
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Water Quality Trading Toolkit for Permit Writers
Special considerations for antidegradation relative to water quality trading depend on the
tier of protection applied to the waterbody as described below.
Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters,
the antidegradation policy mandates protection of existing instream uses. Because EPA nei-
ther supports trading activities nor allows issuance of permits that violate applicable water
quality standards, which should protect existing uses at a minimum, any supported trading
activities incorporated into a NPDES permit should not violate antidegradation policies appli-
cable to Tier 1 waters.
Tier 2 protects waters where the existing water quality is higher than required to support
aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the
level that would continue to support existing and designated uses), but only if an antidegra-
dation review finds that (1) it is necessary to lower water quality to accommodate important
social or economic development, (2) all intergovernmental and public participation provisions
have been satisfied, and (3) the highest statutory and regulatory requirements for point sourc-
es and BMPs for nonpoint sources have been achieved. The Trading Policy supports trading
to maintain high water quality when trading is used to compensate for new or increased dis-
charges. Thus, the Trading Policy supports reductions of existing pollutant loadings to com-
pensate for the new or increased load so that the result is no lowering of water quality. A state,
in applying its antidegradation policy, may decide to authorize a new or increased discharge
to high-quality water and may decide to use trading to completely or partially compensate
for that increased load. If the increased load to Tier 2 waters is only partially compensated for
by trading, an antidegradation review would be required to address the increased load.
Tier 3 protects the quality of outstanding national resource waters and waters of exceptional
recreational or ecological significance. In general, antidegradation policies do not allow any
increase in loading to Tier 3 waters that would result in lower water quality. EPA supports
trading in Tier 3 waters to maintain water quality.
Monitoring
Permitting authorities may want to consider developing monitoring and reporting require-
ments to characterize waste streams and receiving waters, evaluate wastewater treatment
efficiency, and determine compliance with permit conditions in the trade agreement. Moni-
toring and reporting conditions of a NPDES permit may contain specific requirements for
sampling location, sample collection method, monitoring frequencies, analytical methods,
recordkeeping, and reporting. If the permit conditions include compliance with provisions in
a trade agreement, the permitting authority should include monitoring, recordkeeping and
reporting requirements that facilitate compliance evaluations and, where necessary, enforce-
ment actions related to the trading requirements. Discharge monitoring requirements should
be consistent with the provisions of the trade agreement in terms of pollutants and forms of
pollutants monitored, reporting units, and timing. The permit provisions should ensure that
the results of discharge monitoring will be useful to the permittees, the permitting author-
ity, and the general public in determining whether the provisions of the trade agreement are
being met.
Water Quality Trading Scenarios
Point Source-Point Source
Trade Agreements Components of a NPDES Permit


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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Sample Collection and Analysis
If appropriate, the sampling locations should be consistent with the sampling location in each
facility's existing individual NPDES permit. For example, the same location used to sample for
compliance with effluent limitations in the existing permit should be used for determining
compliance with new effluent limitations developed for traded parameters. Samples collected
as part of a self-monitoring program required by a NPDES permit must be performed in accor-
dance with EPA-approved analytical methods specified in 40 CFR Part 136 (Guidelines for Estab-
lishing Test Procedures for the Analysis of Pollutants Under the Clean Water Act) where Part
136 contains methods for the pollutant of concern. Where no Part 136 methods are available,
the permit writer should specify which method should be used for compliance monitoring.
Ambient Monitoring
Ambient monitoring is one way to show whether a trade agreement meets or improves water
quality. In addition to traditional discharge monitoring requirements, ambient water quality
monitoring may be appropriate at strategic locations to ensure that the trade is not creating
localized exceedances of water quality standards and to document the performance of the
overall trading program. Permits with mixing zones may include monitoring requirements as
appropriate to ensure that water quality criteria are not exceeded at the edge of the appli-
cable mixing zone.
Mystic River Example: Monitoring
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus on the Mystic River
Credit Seller: Meadeville Fertilizer Producers
Credit Buyer: Auburn Carpet Manufacturers
Each facility is covered under an existing permit that includes a TBEL; therefore, each facility is cur-
rently required to monitor its effluent monthly for TP to determine compliance. New permits have
been developed for both facilities that incorporate new effluent limits based on the approved TMDL,
as well as the necessary provisions and effluent limits to authorize trading.
In the new permits, each discharger will be required to monitor for TP weekly. Ambient receiving
water monitoring requirements are included in the existing NPDES permits and are adequate to
ensure that localized exceedances of water quality standards do not develop as a result of trades.
Permit Language:
Both facilities
The permittee shall monitor effluent total phosphorus a minimum of one time per week. The per-
mittee shall determine the average monthly mass loading based on actual monthly average flow.
Flow monitoring shall be continuous.
Water Quality Trading Scenarios
Point Source-Point Source
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Water Quality Trading Toolkit for Permit Writers
Reporting Requirements
Reporting requirements should be established to support the permitting authority's evalu-
ation of water quality trading programs. For example, in addition to reporting discharge
monitoring results, permitting authorities might require a permittee to report the number
of credits purchased. Permitting authorities might also require an annual monitoring report
specific to the pollutants involved in the trade to provide information on annual loading in
accordance with the requirements of the trading program. Permits incorporating water
quality trades should require reporting at a frequency appropriate to determine compliance
with the trading provisions. Permitting authorities should consider any requirements of the
trading programs related to monitoring and reporting and ensure the permits are consistent
with these requirements. Permits may require reporting of monitoring results at a frequency
established through the permit on a case-by-case basis, but in no case may that frequency be
less than once per year.
Trading programs may establish other reporting and tracking requirements as well. For
example, it is essential to have a mechanism for tracking trades. An additional form may be
used such as a credit certificate form (see Appendix C). The permitting authority can hold
point sources liable if they violate any trading provision included in the permit or any trade
agreement incorporated by reference into the permit, and point sources are also liable if they
do not meet their permit limits.
Data Reporting to EPA
EPA administers two systems to store NPDES permit data and track compliance, the Permit
Compliance System (PCS) and the new Integrated Compliance Information System (ICIS).
PCS is the old computerized management information system that contains data on NPDES
permit-holding facilities to track the permit, compliance, and enforcement status of these
facilities.
The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains
integrated enforcement and compliance information across most of EPA's programs including
all federal administrative and judicial enforcement actions. In addition, ICIS has the capability
to track other activities occurring in an EPA Region that support enforcement and compliance
programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitor-
ing. In the future, ICIS will be deployed to all states, and PCS will no longer be used.
Neither PCS nor ICIS is structured to actually track trades.
PCS is designed to compare actual discharge monitoring data against required effluent limita-
tions to determine a facility's compliance with its NPDES permit. To determine compliance
under a trading scenario, it is necessary for the NPDES permitting authority to compare actual
discharge monitoring data and the quantity of credits purchased or pounds sold against
required effluent limitations. For credit sellers, compliance is tracked against the WQBEL,
which serves as the facility's baseline. For credit buyers, compliance is actually tracked against
two effluent limitations—the minimum control level and the baseline. The challenge in using
PCS to determine compliance under a trading scenario is that the system does not automati-
cally make adjustments to the reported actual discharge—it will not add or subtract the load
Water Quality Trading Scenarios
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¦ Trade Agreements Components of a NPDES Permit


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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
traded. Therefore, this type of adjustment must be done before entering information into PCS
so that the system has only one reported number to compare against an effluent limitation.
To determine compliance for a credit seller, the NPDES permitting authority will need to know
that the sum of a credit seller's actual discharge and the number of pounds sold is less than
or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point source
credit sellers could report the sum of the facility's actual discharge and the number of pounds
sold and that amount would be entered into PCS. PCS would then compare the sum of the
actual discharge and the number of pounds sold against the facility's baseline; the sum should
be less than or equal to the facility's baseline to indicate that the facility is in compliance.
Point source credit buyers not only have a baseline, but also a minimum control level (the
facility's TBEL or current discharge, whichever is more stringent). To determine compliance for
a credit buyer, the NPDES permitting authority will need to know that (1) the facility's actual
discharge is less than or equal to its minimum control level, and (2) that the number of credits
purchased result in the facility achieving its baseline. Therefore, point source credit buyers
could report two types of information: (1) the facility's actual discharge, and (2) the differ-
ence between the actual discharge and the quantity of credits purchased. Both numbers
would be entered into PCS to determine compliance. PCS would compare the actual discharge
against the minimum control level to determine permit compliance and eligibility as a credit
buyer. PCS would also compare the difference between the actual discharge and the quantity
of credits purchased against the facility's baseline; the difference should be less than or equal
to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline
and remain in compliance with its WQBEL. PCS can accommodate two different effluent
limits for the same parameter; therefore, it has the capability to determine compliance with
both the minimum control level and the baseline for a credit buyer.
ICIS also allows the NPDES permitting authority to report two limits; therefore, this system
can also accommodate both the baseline and the minimum control level for credit buyers.
New DMR forms will also have two lines to report both the baseline and the minimum control
level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the
current design, ICIS will allow a facility with an existing NPDES permit to also have a trad-
ing partner entered into the system. Once a trading partner is entered for a facility, ICIS will
allow the entry of an adjusted value—this is the reported actual discharge adjusted by the
number of credits bought or sold. If an adjusted value is entered, this value is used to deter-
mine permit violations and percent exceedances (USEPA 2006).
In addition to challenges related to limits and the type of information to report, NPDES per-
mits with trading provisions might also raise issues related to reporting periods and auto-
mated compliance tracking. PCS will not support a reporting extension beyond 30 days. This
type of reporting extension might be necessary in some instances to allow adequate time for
the administrative activities necessary for trading partners to coordinate and reconcile trades.
ICIS, however, will support a 45-day reporting period. In rare instances when a permitting
authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one
to be annual. However, the permitting authority will have to manually flag annual limit efflu-
ent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to
track compliance.
Water Quality Trading Scenarios
Point Source-Point Source
¦ Trade Agreements Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring
Reporting Requirements
Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Reporting
What You Need to Know...
Pollutant:	Total Phosphorus
Driver:	Approved TMDL for Total Phosphorus on the Mystic River
Credit Seller:	Meadeville Fertilizer Producers
Credit Buyer:	Auburn Carpet Manufacturers
Trades must be completed by a credit transfer deadline specified in the permit, and credits must be
used in the same month they are generated; however, the permit allows the facilities 30 days to report
the trades to account for administrative time and processing of notification forms. For the permit-
ting authority to gauge compliance, the permit writer develops permit language that requires each
discharger to submit monthly DMRs to the permitting authority by the 15th of the month following
monitoring. In conjunction with DMR reporting, the permit writer requires each facility to complete
monthly Phosphorus Analysis Reports to track the amount of TP discharged and the total amount of
TP load bought and sold between the facilities. Each discharger must submit the monthly Phosphorus
Analysis Reports to the permitting authority and to the other facility.
Permit Language:
Meadeville Fertilizer Producers
The Permittee must submit monthly discharge monitoring reports (DMRs) by the 15th day of the
month following monitoring to the [Permitting Authority] for determining compliance with the
effluent limitations provided in Section X of this permit. If the Permittee sells credits, as autho-
rized under Section X of this permit, the Permittee must also complete and submit a monthly
Phosphorus Analysis Report to both the permitting authority and all authorized credit buyers. The
Phosphorus Analysis Report must contain the information provided on the monthly DMR and the
amount of credits sold to all authorized credit buyers.
Auburn Carpet Manufacturers
The Permittee must submit monthly discharge monitoring reports (DMRs) by the 15th day of the
month following monitoring to the [Permitting Authority] for determining compliance with the
effluent limitation provided in Section X of this permit. If this effluent limitation is met through
trading, the Permittee must complete and submit a monthly Phosphorus Analysis Report to both
the permitting authority and all authorized credit sellers. The Phosphorus Analysis Report must
contain the information provided on the monthly DMR and the amount of credits purchased from
all authorized credit sellers to compensate for the discharge of total phosphorus from Outfall 001.
Water Quality Trading Scenarios
Point Source-Point Source
	~	
Trade Agreements Components of a NPDES Permit



Permit Cover Page Effluent Limitations Monitoring
Reporting Requirements
Special Conditions

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Special Conditions
Special conditions are developed to supplement effluent limitations and may include require-
ments such as BMPs, additional monitoring activities, ambient stream surveys, and toxicity
reduction evaluations (TREs). Special conditions also include permit modification and reopen-
er conditions, and can be used to address water quality trading or incorporate compliance
schedules (if authorized by the permitting authority). Special conditions of a NPDES permit
will be very important in incorporating the terms of a trade agreement. Even where the spe-
cific terms of the agreement are not directly incorporated into the permit, the special condi-
tions can be used to refer to, and require compliance with, the trade agreement housed in a
separate document.
The special conditions included in a NPDES permit that incorporates trading will depend on
provisions of the trade agreement and the effluent limitations and monitoring and reporting
requirements established in the permit. However, the permitting authority should consider
incorporating special conditions that support the trading conditions.
Special conditions may also be used to establish provisional requirements that apply if the
credits on which the trading limits are based are unavailable. Special conditions addressing
group and individual liability, provisional requirements that apply when credits are unavail-
able or when an individual or collective limit is exceeded, and outlining the specific require-
ments for establishing trade agreements among permittees can be important in issuing
acceptable permits that will not require modification each time circumstances change for one
of the dischargers covered under the permit.
In addition, the special conditions section of the permit could include a compliance sched-
ule. Compliance schedules for WQBELs are allowed only when state water quality standards
or state regulations implementing such standards provide authority for using compliance
schedules as well as when those limits are derived from water quality standards that were
newly adopted or substantially revised after July 1, 1977. Most state water quality standards
or implementing regulations authorize using compliance schedules. If compliance schedule
authority is available, the permit writer could place a compliance schedule in the permit
special conditions that would give the discharger time to comply with provisions related to
WQBELs and trading when those provisions are intended to be phased in over time.
Water Quality Trading Scenarios
Point Source-Point Source
Trade Agreements Components of a NPDES Permit
Permit Cover Page Effluent Limitations Monitoring Reporting Requirements
Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Mystic River Example: Special Conditions
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus on the Mystic River
Credit Seller: Meadeville Fertilizer Producers
Credit Buyer: Auburn Carpet Manufacturers
The permit writer has developed the appropriate effluent limitations, monitoring, and reporting
requirements for each facility. The special conditions for each facility's permit focus on general author-
ity, credit definition, permit reopeners and modification provisions, compliance schedule, and enforce-
ment liability.
Permit Language:
General Authority
The permittee is authorized to participate in trading for the purposes of complying with the total
phosphorus effluent limitations in Section X of this permit. The authority to use trading for com-
pliance with these limits is derived from:  and section 402 of the
federal Clean Water Act 33 United States Code (U.S.C.) section 1342. EPA's policies on Water Qual-
ity Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit
trading. Additionally the Mystic River TMDL authorizes water quality trading as a means of achiev-
ing the allocations established by the TMDL.
Credit Definition
One credit will be equal to one in pound of total phosphorous per day on a monthly average basis.
No trade ratios apply to the permittee's trades; therefore, each credit purchased by an authorized
buyer shall correspond to a one pound per day reduction by an authorized seller.
Permit Reopeners, Modification Provisions
The permitting authority may, for any reason provided by law, by summary proceedings or oth-
erwise, revoke or suspend this permit or reopen and modify it to establish any appropriate con-
ditions, schedules of compliance, or other provisions which may be necessary to protect human
health or the environment or to implement the Mystic River TMDL. The permitting authority may
also reopen and modify the permit to suspend the ability to trade credits to comply with the total
phosphorus effluent limitations in Section X of this permit.
Compliance Schedule
This permit includes both interim and final effluent limitations for the discharge of total phospho-
rus from Outfall 001. Compliance with the final effluent limitations is required on .
Water Quality Trading Scenarios
Point Source-Point Source
	~	


Trade Agreements Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements
Special Conditions

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Water Quality Trading Scenario: Single Point Source-Single Point Source Trading
Mystic River Example: Special Conditions (continued)
Permit Language (continued):
By March 1 of each year, the permittee shall submit a Compliance Plan Annual Report to describe
the progress of actions undertaken to reduce total phosphorus discharges in the effluent dis-
charged from Outfall 001 or to purchase equivalent credits and achieve compliance with the final
effluent limitations for the discharge of total phosphorus from Outfall 001 by .
Enforcement Liability
The permittee is liable for meeting its most stringent effluent limitation. No liability clauses
contained in other legal documents (e.g., trade agreements, contracts) established between the
permittee and other authorized buyers and sellers are enforceable under this permit.
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Water Quality Trading Scenarios
Point Source-Point Source
Trade Agreements Components of a NPDES Permit
Permit Cover Page Effluent Limitations Monitoring Reporting Requirements
Special Conditions

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Water Quality Trading Toolkit for Permit Writers
20

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Water Quality Trading Scenario: Multiple Facility Point Source Trading
Water Quality Trading Scenario:
Multiple Facility Point Source Trading
Contents
Water Quality Trading Scenario: Multiple Facility Point Source Trading .... 1
Trade Agreements	1
Components of a NPDES Permit	5
Permit Cover Page	5
Effluent Limitations	6
Monitoring	13
Reporting Requirements	15
Special Conditions	19

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Multiple Facility Point Source Trading
Water Quality Trading Scenario:
Multiple Facility Point Source Trading
This water quality trading scenario focuses on technical and
programmatic issues related to multiple facility point source
trading, illustrated in Figure 1. Multiple facility point
source trading is distinguished from single point
source-single point source trading by the fact that a
group of point sources operate under a single trade
agreement. All trades will be limited by the overall
limit or cap set by the permit. Issues addressed
under this scenario include the following:
•	Trade agreements
•	Components of a National Pollutant
Discharge Elimination System (NPDES)
permit
-	Permit cover page
-	Effluent limitations
-	Monitoring
-	Reporting requirements
-	Special conditions
AGREE/Mp^
point source-
point source
trade
Buyer!
POTW 2
I.A
Multiple
Point Source
Trading

Figure 1. Multiple point source trading.
A hypothetical example (shown in highlighted boxes) is presented throughout this scenario
to illustrate how NPDES permit writers might work with credit buyers and sellers to assist in
trading and ensure each facility's NPDES permit contains the appropriate limits, requirements,
and other conditions. Keep in mind that there are a range of options for incorporating
trading provisions into a NPDES permit. The hypothetical example discussed throughout this
scenario illustrates just one of the many options a NPDES permit writer might use.
Trade Agreements
Under multiple facility point source trading, trade agreements can specify the individual trades
between specific point sources or can establish ground rules for trading to allow point sources
to trade among themselves as needed. Typically, the terms that govern a trading program will
be developed outside of the NPDES permit process and can be incorporated or reflected in
the permit (see Appendix C). The U.S. Environmental Protection Agency's (EPA) Water Quality
Trading Policy (Trading Policy) describes several mechanisms for implementing trading through
NPDES permits (see Appendix B). NPDES permits authorizing water quality trading should refer-
ence any existing trade agreement in the permit and fact sheet. The permit writer may also
incorporate specific provisions of the agreement as appropriate (e.g., shared responsibilities for
conducting ambient monitoring) into the permit. All trade agreements referenced in NPDES
fact sheets and permits should meet certain minimum standards to help ensure the trades
authorized by the permit are consistent with water quality standards. At a minimum, the trade
Water Quality Trading Scenarios
Multiple Point Source
Trade Agreements I Components of a NPDES Permit
Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
agreement should be a written agreement, signed and dated by authorized representatives of
all trading partners. Verbal trade agreements should not be referenced in NPDES permits. The
written trade agreement should contain sufficient detail to allow the permitting authority to
determine with some degree of certainty that the terms of the agreement will result in loading
reductions and generation of sufficient credits to satisfy water quality requirements. If there
is no formal, outside trade agreement, trading can still occur; however, the permit writer will
need to more explicitly describe the trading program in the fact sheet and authorize specific
aspects of the trading program as permit conditions. Trading partners can specify the details
pertaining to the negotiated terms of the trade (e.g., credit price, payment schedule, conse-
quences for failure to fulfill negotiated terms) in a separate written and signed contract.
St. Martin River Example: Trade Agreements
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDLa for Total Phosphorus for the St. Martin River Watershed
Credit Seller: Shepherd County POTWh
Existing TBELC: 120 lbs/day (average monthly)
Current Loading: 120 lbs/day (average monthly)
New WQBELd (based on WLAe) : 110 lbs/day (average monthly)
POTW Treatment Capabilities: Treatment to 20 lbs/day (average monthly)
Credit Buyer #1: City ofOakdale WWTP1
Existing TBEL: 50 lbs/day (average monthly)
Current Loading: 50 lbs/day (average monthly)
New WQBEL (based on WLA): 35 lbs/day (average monthly)
WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)
Credit Buyer #2: Town ofBarkley WWTP
Existing TBEL: 50 lbs/day (average monthly)
Current Loading: 50 lbs/day (average monthly)
New WQBEL (based on WLA): 35 lbs/day (average monthly)
WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)
Notes: a TMDL = Total maximum daily load; b POTW = publicly owned treatment works;
c TBEL = technology-based effluent limitations; d WQBEL = water quality-based effluent
limitations;e WLA = wasteload allocation; f WWTP = wastewater treatment plant
Watershed: Shepherd County POTW (credit seller) is approximately 9 miles upstream from the city
of Oakdale WWTP (credit buyer 1) and 10 miles upstream from the town of Barkley WWTP (credit
Water Quality Trading Scenarios
Multiple Point Source


Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Multiple Facility Point Source Trading
St. Martin River Example: Trade Agreements (continued)
buyer 2) along the St. Martin River. All three facilities discharge into a segment of the river that has
been listed as impaired for nutrients, and a phosphorus TMDL has just been approved.
Applicable Trading Ratios:
¦	Delivery: On the basis of best available science, a delivery ratio of 3:1 ratio is needed for trades
between Shepherd County POTW and either of the two credit buyers to account for the fate and
transport of total phosphorus (TP) over the distance between the facilities. It is not necessary to
apply an equivalency ratio because the same pollutant form is being traded, nor an uncertainty
ratio because all parties can accurately monitor end-of-pipe loads.
The facilities' existing individual permits include TBELs based on state treatment standards for TP.
The permittees currently meet these TBELs. These existing effluent limitations are less stringent than
the limitations needed to meet the new WLAs established in the St. Martin River TMDL. To facili-
tate meeting the TMDL, the permitting authority has issued a watershed-based overlay permit that
addresses phosphorus discharges from each of the three facilities. This permit also authorizes trading
between Shepherd County and each of the two WWTPs downstream.
Shepherd County POTW is a large, new facility and has the potential to treat its discharge to a phos-
phorus loading of 20 lbs/day. The facility's baseline requirement for trading is 110 lbs/day (i.e., most
stringent effluent limitation). Treating to the maximum capacity of the POTW would result in an
excess phosphorus reduction of 90 lbs/day (baseline - treatment capacity = excess reduction).
The city of Oakdale and the town of Barkley WWTPs have not been upgraded and have no funds to
upgrade to meet the new WLA. Both are small, rural localities and are not projecting substantial
growth. The permitting authority is allowing both facilities to trade to meet their new WLAs (i.e.,
baselines). However, to trade, both WWTPs would need continue to treat their discharges to meet the
existing TBELs (i.e., the minimum control level). Both facilities would then be allowed to purchase
credits equivalent to the difference between the minimum control level and the baseline (50 lbs/day
- 35 lbs/day = 15 lbs/day).
According to best available science, the permitting authority has determined that the application of
a 3:1 delivery ratio is necessary to account for the fate and transport of phosphorus over the distance
between the seller (Shepherd County POTW) and the buyers. Therefore, for the buyers to account for
the 15 lbs/day of phosphorus loading necessary to compensate for each WWTP's discharge and meet
their baselines, each must purchase 45 lbs/day (monthly average) from the Shepherd County POTW
(15 lbs/day offset needed x 3:1 delivery ratio = 45 lbs/day needed). The POTW seller can generate 90
lbs/day and, therefore, has an adequate supply of phosphorus credits to sell.
The facilities have decided to enter into a trade agreement with each other. The basic terms of the
trade agreement are as follows:
¦	A trade ratio of 3:1 applies to trades between the buyer and sellers because of the distance
between them.
¦	Shepherd County POTW (seller) will install control technologies that will result in a 90 lbs/day
of surplus load reduction eligible for trading.
Water Quality Trading Scenarios
Multiple Point Source


Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
St. Martin River Example: Trade Agreements (continued)
¦	Shepherd County POTW has a trading limit = 110 lbs/day - Quantity of Pounds Sold.
¦	City of Oakdale WWTP (credit buyer 1) has a WQBEL (baseline) of 35 lbs/day that must be met
through trading, treatment, or pollution prevention. The facility's minimum control level is the
existing TBEL of 50 lbs/day (average monthly) based on the TBEL for TP. The facility's current
discharge of 50 lbs/day meets the existing TBEL.
¦	City of Oakdale WWTP (credit buyer 1) needs to purchase credits equivalent to 15 lbs/day of TP
(baseline-minimum control level).
¦	Town of Barkley (credit buyer 2) has a WQBEL (baseline) of 35 lbs/day that must be met through
trading, treatment or pollution prevention. The facility's minimum control level is its existing
TBEL, which is a loading limit of 50 lbs/day of TP. The facility's current discharge of 50 lbs/day
meets the existing TBEL.
¦	Town of Barkley WWTP (credit buyer 2) needs to purchase credits equivalent to 15 lbs/day of TP
(baseline-minimum control level).
¦	Each facility will continue to monitor TP as required under each facility's respective individual
NPDES permits.
¦	Trades occur monthly and credits may not be applied in any month other than the one in which
the credits are generated.
¦	Each facility will continue to complete and submit Discharge Monitoring Report (DMR) forms to
the NPDES permitting authority, as required under each facility's NPDES permit. In addition to
DMR reporting, each facility will complete and exchange monthly Phosphorus Analysis Reports
to track the amount of TP discharged and the total amount of TP load bought and sold between
the facilities.
¦	Separate contracts between the seller and two buyers articulate the financial and liability condi-
tions that each pair of facilities has agreed upon.
The NPDES permit writer for the facilities receives a written copy of the trade agreement that is signed
and dated by authorized representatives of each facility. The permit writer reviews the written trade
agreement to identify information that is pertinent to each facility's NPDES permit. The permit writer
incorporates provisions that outline trade-specific effluent limitations (i.e., baselines, the minimum con-
trol levels for the buyers, and the trading limit for the seller) and reporting and monitoring provisions.
The permit writer incorporates the Phosphorus Analysis Report provision of the trade agreement into
the permit to require the facilities to submit trade information to the permitting authority. This will
allow the permitting authority to determine whether the buyers and seller maintain compliance with
WQBELs and applicable TBELs. Other components of the trade agreement, such as issues of liability
and penalty payment, are not enforceable through the NPDES permit and, therefore, would not be
incorporated into the compliance provisions of each NPDES permit.
The permit writer, with input from the permittees, will develop an overlay NPDES permit that
addresses only TP requirements for the three facilities. The permit writer will reference the written
trade agreement in the fact sheet of the group's overlay NPDES permit.
Water Quality Trading Scenarios
Multiple Point Source


Trade Agreements
Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Multiple Facility Point Source Trading
Components of a NPDES Permit
NPDES permits that authorize water quality trading are no different than typical NPDES per-
mits in many respects—they require the same structure, analyses, and justification. All permits
have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and report-
ing requirements; (4) special conditions; and (5) standard conditions. Standard conditions are
the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent
with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject
to public notice and comment. This process provides all interested parties an opportunity to
comment on the trading provisions in the permit.
Each NPDES permit is accompanied by a permit fact sheet. The information in these fact
sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the
permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions
in the permit. There is a wide variety of options for including trading information in the fact
sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller)
to including the entire trading program.
There are a variety of issues, however, that may require special consideration when developing
a permit incorporating water quality trading. Appendix E provides the permit writer with a list
of fundamental questions that should be addressed during the permit development process.
Permit Cover Page
The cover page of a NPDES permit typically contains the name and location of the
permittee(s), a statement authorizing the discharge, the specific locations for which a dis-
charge is authorized (including the name of the receiving water), and the effective period of
the permit (not to exceed 5 years). A permit incorporating or referencing a trade agreement
can refer to water quality trading on the cover page, but this is not necessary. If the state has
issued regulations or policy documents authorizing water quality trading, the permit writer
should consider referencing the regulations in the Authority section of the cover page. For
example, if trading is considered a water-quality management tool in a state's Water Quality
Management Plan, this establishes clear authority for integrating trading into NPDES permits
and can be referenced on the cover page (Jones 2005).
The cover page may also address the specific pollutants regulated by the permit. For instance,
the cover page of an overlay permit for TP may state that the overlay permit addresses only TP
and that other parameters are addressed in each facility's individual permit.
Clean Water Services, Oregon
The Oregon Department of Environmental Quality addresses water quality trading on
the cover page of the permit issued to Clean Water Services. For more information about
this trading program, see Appendix A.
Effluent Limitations
Effluent limitations are the primary mechanism for controlling the discharge of pollutants
from point sources into receiving waters. When developing a permit, the permitting author-
ity focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES
Water Quality Trading Scenarios
Multiple Point Source


Trade Agreements
Components of a NPDES Permit



Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
permits, permits that include trading must include any applicable TBELs, or the equivalent,
and where necessary, WQBELs that are derived from and comply with all applicable technol-
ogy and water quality standards. Furthermore, limits must be enforceable, and the process
for deriving the limits should be scientifically valid and transparent.
EPA's Trading Policy does not support trading to meet TBELs unless trading is specifically
authorized in the categorical effluent limitation guidelines on which the TBELs are based.
Applicable TBELs thus serve as the minimum control level below which the buyer's treatment
levels cannot fall. This section discusses the overarching principles of how to express all appli-
cable effluent limitations in permits for dischargers participating in water quality trades.
Credit Buyers
Permits for credit buyers should include both the baseline, which is the WQBEL that defines
the level of discharge the buyer would have to meet through treatment when not trading,
and a minimum control level that must be achieved through treatment when trading. The
permit should also include the amount of pollutant load to be offset (minimum control level
- baseline) through credit purchases when trading. Most often, the applicable TBEL will serve
as the minimum control level. A permitting authority can choose to impose a more stringent
minimum control level than the TBEL to prevent localized exceedances of water quality stan-
dards near the point of discharge but not one that is less stringent than the TBEL. In a NPDES
permit fact sheet, the effluent limitations for a credit buyer could be described as follows:
•	The Discharger must meet, through treatment or trading, a mass-based effluent limi-
tation for Pollutant A of . If this effluent limitation is met through
trading, the Discharger must purchase credits from authorized Sellers in an amount
sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess
of , but at no time shall the maximum mass discharge of Pollutant A
during  exceed the minimum control level of . Thus, the maximum mass discharge of Pollutant A to be offset
through credit purchases is .
Credit Sellers
When a potential credit seller is able to reduce its discharge below its most stringent appli-
cable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of
credits that any given seller actually will be able to sell depends on the market for credits,
agreements made with buyers, and any treatment requirements placed on potential buyers
(i.e., the buyers' minimum control levels). Because of these factors, it is possible that a dis-
charger will not be able to sell all the credits it generates.
A credit seller's permit will include both the most stringent effluent limitation that would
apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level
it will control its pollutant discharge (using technology or best management practices (BMPs)
it will implement), and this level becomes its trading limit. The baseline and trading limit
could be described in the permit fact sheet as follows:
•	Through treatment, the Discharger must meet a mass-based effluent limitation for
Pollutant A of . The Discharger is authorized to further treat its
Water Quality Trading Scenarioss


Multiple Point Source
~


Trade Agreements
Components of a NPDES Permit



Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Multiple Facility Point Source Trading
discharge, remove additional loading of Pollutant A, and generate and sell credits to
an authorized credit Buyer or Buyers. If the Discharger sells such credits, the  effluent limitation  no
longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead
as follows: Trading Limitation =  - Quantity of Pounds Sold.
The permit must include monitoring and reporting requirements for Pollutant A sufficient to
demonstrate that the seller actually has generated the credits it sells and, therefore, is meet-
ing its trading limit.
Aggregate or Individual Limitations
It may be appropriate for permit writers to include aggregate WQBELs that apply to the
group of point sources covered under a general or watershed permit. An aggregate effluent
limitation typically represents the sum of the pollutant WLAs for all permittees covered by
the permit. This allows maximum flexibility for trades among dischargers within the water-
shed but should be considered only if localized exceedances of water quality standards are
not a concern. An aggregate limitation allows individual dischargers to discharge or trade
among themselves to any degree as long as the aggregate limitation is met and each dis-
charger complies with any applicable TBELs. An aggregate effluent limit may be most appro-
priate in a trading scenario involving many individual dischargers within a watershed having
a large-scale load reduction driver such as a TMDL for the entire waterbody or a percent load
reduction requirements for the watershed as a whole. This is functionally equivalent to hav-
ing a series of individual WQBELs and no trading limits.
Truckee Meadows Water Reclamation Facility, Nevada
The Nevada Division of Environmental Protection authorized individual and aggregate
effluent limitations in a permit issued to Truckee Meadows Water Reclamation Facility.
For more information about this trading program, see Appendix A.
EPA does not endorse setting a multisource aggregate limit without also including in the
permit individual limits for each source covered. If the group of facilities does not meet
its aggregate limit and an individual source does not meet its limit on its own and does
not trade to meet it, enforcement action may be taken against this individual source. This
approach keeps co-permittees under the general or watershed permit that have met their
requirements free from liability when other co-permittees are responsible for the group
discharging above the aggregate limit.
Neuse River Basin, North Carolina
The Neuse River Compliance Association (NRCA) general permit has an aggregate TN allocation
and each member of the association has an individual allocation. If the NRCA meets the aggre-
gate limit for the year, the NRCA and each permittee are in compliance. If the aggregate limit is
exceeded, then the NRCA is out of compliance and any member that exceeds its individual TN
limit is also out of compliance and subject to enforcement action. For more information about
this trading program, see Appendix A.
Water Quality Trading Scenarioss


Multiple Point Source
~


Trade Agreements
Components of a NPDES Permit



Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
St. Martin River Example: Effluent Limitations
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDL for Total Phosphorus for the St. Martin River Watershed
Credit Seller: Shepherd County POTW
Existing TBEL: 120 lbs/day (average monthly)
Current Loading: 120 lbs/day (average monthly)
New WQBEL (based on WLA): 110 lbs/day (average monthly)
POTW Treatment Capabilities: Treatment to 20 lbs/day (average monthly)
Credit Buyer #1: City ofOakdale WWTP
Existing TBEL: 50 lbs/day (average monthly)
Current Loading: 50 lbs/day (average monthly)
New WQBEL (based on WLA): 35 lbs/day (average monthly)
WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)
Credit Buyer #2: Town ofBarkley WWTP
Existing TBEL: 50 lbs/day (average monthly)
Current Loading: 50 lbs/day (average monthly)
New WQBEL (based on WLA): 35 lbs/day (average monthly)
WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)
Watershed: Shepherd County POTW (credit seller) is approximately 9 miles upstream from the city
of Oakdale WWTP (credit buyer 1) and 10 miles upstream from the town of Barkley WWTP (credit
buyer 2) along the St. Martin River. The segment of river to which all three facilities discharge has
been listed as impaired for nutrients, and a phosphorus TMDL has just been approved.
Applicable Ratios:
¦ Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County
POTW and either of the two credit buyers to account for the distance between the facilities.
The facilities' existing individual permits include TBELs based on state treatment standards for TP.
The permittees currently meet these TBELs. These existing effluent limitations are less stringent than
the limitations needed to meet the new WLAs established in the St. Martin River TMDL. To facili-
tate meeting the TMDL, the permitting authority has issued a watershed-based overlay permit that
addresses phosphorus discharges from each of the three facilities. This permit also authorizes trading
between Shepherd County POTW and each of the two WWTPs downstream.
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Water Quality Trading Scenario: Multiple Facility Point Source Trading
St. Martin River Example: Effluent Limitations (continued)
If the Shepherd County POTW chooses to sell 90 lbs/day of the credits generated by the over control of
its discharge, a trading limit will apply as follows:
Baseline - Pounds Sold = Trading Limitation
110 lbs/day - 90 lbs/day = 20 lbs/day
The POTW will be required to demonstrate that its discharge has an actual loading of no more than
20 lbs/day during any period it is trading with the buyer WWTPs.
A new overlay permit is being developed, which implements the new phosphorus WQBELs and autho-
rizes trading between the facilities. Upon issuance of the permits, the new WQBELs and trading pro-
visions will apply. The permits will include effluent limitations equal to baselines, minimum control
levels, and trading limits.
Table 1. Monthly average mass-based effluent limitations for TP
Facility
Units
Effluent limitation
without trading
Effluent limitation
with trading
Shepherd County POTW
lbs/day
110 (Baseline/WQBEL)
20a
City of Oakdale WWTP
lbs/day
35 (Baseline/WQBEL)
50 (Minimum Control
Level/TBEL)
Town of Barkley WWTP
lbs/day
35 (Baseline/WQBEL)
50 (Minimum Control
Level/TBEL)
Trading limit = (WQBEL - pollutant loading necessary to generate quantity of credits sold)
Permit Language:
Shepherd County POTW
A.	The permittee shall be in compliance with the monthly average effluent limitations for total
phosphorus in this permit if:
a.	The permittee has not sold any credits and the permittee's average monthly mass loading
of total phosphorus is less than or equal to the Baseline (Effluent Limitation Without Trad-
ing) set forth in Table 1; or,
b.	The permittee has sold total phosphorus credits such that the effluent loading does not
exceed the Trading Limit (Effluent Limitation with Trading) established in Table 1.
B.	Credits sold and purchased may be applied only to the calendar month(s) in which they were
generated.
City ofOakdale WWTP and Town ofBarkley WWTP
A. The permittee shall be in compliance with the monthly average effluent limitations for total
phosphorus in this permit if:
a. The permittee has not purchased any credits and the permittee's average monthly mass
loading of total phosphorus is less than or equal to the Baseline (Effluent Limitation With-
out Trading) set forth in Table 1; or.
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St. Martin River Example: Effluent Limitations (continued)
Permit Language (continued):
b. The permittee's effluent loading does not exceed the Minimum Control Level (Effluent
Limitation With Trading) established in Table 1 and the permittee has purchased credits
equivalent or greater than the difference between the baseline and the minimum control
level.
B. Credits sold and purchased may be applied only to the calendar month(s) in which they were
generated.
Pollutant Form, Units of Measure, and Timing Considerations
The permit should explicitly identify the pollutant or pollutants being traded. The permitting
authority should ensure that the trading program or agreement and the calculated WQBELs
are consistent in terms of the form of the pollutant, units of measure, and timing.
For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated
under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen
(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers
and sellers should trade TN credits. In this case, a discharger may be required to measure TN.
If there are concerns about localized impacts, and WQBELs are also specified for a particu-
lar form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and
nitrate (all expressed as N) and then calculate its TN discharge.
Also, an equivalency ratio may be needed when two sources are trading pollutants such as
TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one
discharger's phosphorus discharge is made up primarily of biologically available phosphorus,
while its trading partner's discharge is primarily composed of bound phosphorus). An equiva-
lency ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants
(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio
would equal the ratio between the two pollutants' impacts on oxygen demand. The trading
program should account for any necessary equivalency ratios with regard to pollutant form
or type; the permit writer needs to be aware of the pollutant form or type addressed in the
trade agreement to ensure that the permit is consistent.
In addition, consistent reconciliation periods are essential in trading between point sources.
The credit purchaser's permit limits for the traded pollutant and the credit seller's permit lim-
its should have the same units and averaging period. Because both sets of limits are designed
to address the same water quality problem, both should use the averaging period and units
that make the most sense to address that problem. Consistent units and averaging periods
will also simplify reconciliation of credit sales and purchases.
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Water Quality Trading Scenario: Multiple Facility Point Source Trading
St. Martin River Example: Pollutant Form, Units of Measure,
and Timing
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus on the St. Martin River
Credit Seller: Shepherd County POTW
Credit Buyers: City ofOakdale and Town ofBarkley WWTPs
Pollutant Form
All trading partners discharge phosphorus year round. The TMDL indicates a need to control TP
discharges. Each facility discharges the same form of phosphorus at the same percentage of solubility;
therefore, no provisions are necessary in the permit to address the issue of pollutant form.
Units of Measure
The TP WQBELs based on the TMDL WLAs are expressed in lbs/day as a monthly average to corre-
spond with the units and averaging period in the TMDL. The limits in the trading partners' permits
are also expressed in lbs/day as a monthly average. Monthly trades will be based on average monthly
reductions demonstrated through monitoring.
Timing of Credits
Credits will be available immediately upon permit issuance. Trades will occur monthly to correspond
with monthly average effluent limitations. The purchased credits must be applied by the buyers during
the same month that the seller generates them. The POTW will be able to continue to generate credits
as long as the controls are properly operated and maintained, the facility is able to demonstrate reduc-
tions, and the facility does not become subject to more stringent requirements (i.e., newly promul-
gated effluent guidelines or other more stringent technology-based controls or additional WQBELs
to avoid localized exceedances of water quality standards) that would reduce or eliminate the credits
generated. The ability of the seller to continue to generate credits will be assessed during the renewal
of the individual permits every 5 years.
Anti-backsliding, Antidegradation, and New Discharges Special
Considerations
The Trading Policy discusses anti-backsliding and antidegradation and how these provisions
can be met through trading.
Anti-backsliding
The term anti-backsliding refers to a statutory provision (Clean Water Act (CWA) section
402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing
NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent
than those established in the previous permit (USEPA 1996b). The CWA establishes exceptions
to this general anti-backsliding prohibition. EPA has consistently interpreted section 402(o)(1)
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to allow for less-stringent effluent limitations if either an exception under section 402(o)(2) or,
for WQBELs, the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2)
and 40 CFR 122.44(1) provide exceptions for circumstances such as material and substantial
alterations to the facility, new information, events beyond the permittee's control, and per-
mit modifications under other sections of the CWA. Section 303(d)(4), which applies only to
WQBELs, allows a less-stringent WQBEL in a reissued permit when the facility is discharging to
a waterbody attaining water quality standards as long as the waterbody continues to attain
water quality standards even after the WQBEL is relaxed. In addition, revising the limitation
must be consistent with the state's antidegradation policy. If the discharge is to a waterbody
that is not attaining water quality standards, a less-stringent WQBEL is allowed only when
the cumulative effect of all revised effluent limitations results in progress towards attainment
of water quality standards. For a detailed discussion of the anti-backsliding exceptions, see
EPA's NPDES Permit Writers' Manual (EPA-833-B-96-003). EPA's Trading Policy states:
EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the
CWA will generally be satisfied where a point source increases its discharge
through the use of credits in accordance with alternate or variable water quality
based effluent limitations contained in an NPDES permit, in a manner consistent
with provisions for trading under a TMDL, or consistent with the provisions for
pre-TMDL trading included in a watershed plan.
A permit writer should simply explain in the fact sheet of the permit how the limitations in
the permit, after accounting for any trading provisions, are at least as stringent as the limits
in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are
satisfied.
Antidegradation
As repeated throughout this document, NPDES permits may not facilitate trades that would
result in nonattainment of an applicable water quality standard, including the applicable
antidegradation provisions of water quality standards. Permitting authorities should ensure
that WQBELs developed to facilitate trade agreements accord with antidegradation provi-
sions and that antidegradation reviews are performed when required. Nothing in the Trad-
ing Policy per se changes how states apply their antidegradation policies, though states may
modify their antidegradation policies to recognize trading.
The Trading Policy states:
EPA does not believe that trades and trading programs will result in "lower
water quality"
. . . or that antidegradation review would be required under EPA's regulations
when the trades or trading programs achieve a no net increase of the pollut-
ant traded and do not result in any impairment of designated uses.
Special considerations for antidegradation relative to water quality trading depend on the
tier of protection applied to the waterbody as described below.
Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters,
the antidegradation policy mandates protection of existing instream uses. Because EPA
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neither supports trading activities nor allows issuance of permits that violate applicable water
quality standards, which should protect existing uses at a minimum, any supported trading
activities incorporated into a NPDES permit should not violate antidegradation policies
applicable to Tier 1 waters.
Tier 2 protects waters where the existing water quality is higher than required to support
aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the
level that would continue to support existing and designated uses) but only if an antidegrada-
tion review finds that (1) it is necessary to lower water quality to accommodate important social
or economic development, (2) all intergovernmental and public participation provisions have
been satisfied, and (3) the highest statutory and regulatory requirements for point sources and
BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to main-
tain high water quality when trading is used to compensate for new or increased discharges.
Thus, the Trading Policy supports reductions of existing pollutant loadings to compensate for
the new or increased load so that the result is no lowering of water quality. A state, in apply-
ing its antidegradation policy, may decide to authorize a new or increased discharge to high
quality water, and may decide to use trading to completely or partially compensate for that
increased load. If the increased load to Tier 2 waters is only partially compensated for by trad-
ing, an antidegradation review would be required to address the increased load.
Tier 3 protects the quality of outstanding national resource waters and waters of exceptional
recreational or ecological significance. In general, antidegradation policies do not allow any
increase in loading to Tier 3 waters that would result in lower water quality. EPA supports
trading in Tier 3 waters to maintain water quality.
Monitoring
Permitting authorities may want to consider developing monitoring and reporting require-
ments to characterize waste streams and receiving waters, evaluate wastewater treatment
efficiency, and determine compliance with permit conditions in trade agreements. Moni-
toring and reporting conditions of a NPDES permit may contain specific requirements for
sampling location, sample collection method, monitoring frequencies, analytical methods,
recordkeeping, and reporting. If the permit conditions include compliance with provisions in
a trade agreement, the permitting authority should include monitoring, record-keeping, and
reporting requirements that facilitate compliance evaluations and, where necessary, enforce-
ment actions related to the trading requirements. Discharge monitoring requirements should
be consistent with the provisions of the trade agreement in terms of pollutants and forms of
pollutants monitored, reporting units, and timing. The permit provisions should ensure that
the results of discharge monitoring will be useful to the permittees, the permitting author-
ity, and the general public in determining whether the provisions of the trade agreement are
being met.
Sample Collection and Analysis
The same discharge sampling location used for compliance in any existing NPDES permits
should be used for determining compliance with effluent limitations developed for traded
parameters. Samples collected as part of a self-monitoring program required by a NPDES
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permit must be performed in accordance with EPA-approved analytical methods specified
in 40 CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants
Under the Clean Water Act) where Part 136 contains methods for the pollutant of concern.
Where no Part 136 methods are available, the permit writer should specify which method
should be used for compliance monitoring.
Parties Responsible for Monitoring
The trade agreement specifies the types and frequency of monitoring needed as well as
the parties responsible for monitoring. The individual facilities are ultimately responsible to
ensure that effluent monitoring is completed and reported to the permitting authority. Any
enforcement actions for failure to monitor and report will be against the individual facili-
ties. The permitting authority should ensure that sufficient monitoring is required to allow
permittees, agency compliance personnel, and the public to gauge whether dischargers are
meeting their individual effluent limitations and requirements under the trade agreement.
Neuse River Basin, North Carolina
The state of North Carolina Department of Environment and Natural Resources included
monitoring provisions in a permit issued to the NRCA and its co-permittee members to
control nitrogen discharges. These provisions require members of the NRCA to monitor
their discharge as specified in their individual permits. In addition, the NRCA compiles
and submits members' nitrogen monitoring results. Each member also has individual
ambient monitoring requirements, but the NRCA is not required to conduct ambient
monitoring. For more information about this trading program, see Appendix A.
The permitting authority might use a different approach for specifying monitoring require-
ments, depending on the type of permit. For example, discharge monitoring under a multiple
facility permit would be required of all individual dischargers and should be listed in the per-
mit. If the permit is an overlay permit used to incorporate water quality trading for specific
pollutants, the permitting authority may establish certain monitoring requirements, such as
monitoring location, by reference to the facility's individual NPDES permit for consistency.
Alternatively, the overlay permit could specifically list the monitoring location and require-
ments for each permittee or co-permittee.
The permitting authority may consider establishing more frequent monitoring for facili-
ties with higher design flows than those with lower design flows. Monitoring and reporting
requirements in a multiple facility permit, such as a watershed-based permit, may be a combi-
nation of individual and watershed-wide requirements as described below.
Ambient Monitoring
Ambient monitoring is one way to show whether a trade agreement meets or improves water
quality. In addition to traditional discharge monitoring requirements, ambient water quality
monitoring may be appropriate at strategic locations to ensure that the trade is not creating
localized exceedances of water quality standards and to document the performance of the
overall trading program. Permits with mixing zones may include monitoring requirements as
appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable
mixing zone.
Water Quality Trading Scenarios
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Water Quality Trading Scenario: Multiple Facility Point Source Trading
St. Martin River Example: Monitoring
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus on the St. Martin River
Credit Seller: Shepherd County POTW
Credit Buyers: City ofOakdale and Town ofBarkley WWTPs
Location: The dischargers are in the St. Martin River watershed.
The facilities have existing TP monitoring requirements. The overlay permit will require monitoring
at the same locations as established in the existing permits. In addition, the existing permit requires
monthly monitoring for TP. Each discharger will be required to monitor for phosphorus weekly. For
the permitting authority to gauge compliance, the permit writer will develop permit language that
requires each discharger to submit monthly DMRs to the permitting authority by the 15th of the
month following monitoring. Ambient receiving water monitoring requirements are included in the
existing NPDES permits and are adequate to ensure that localized exceedances of water quality stan-
dards do not develop as a result of trades.
Permit Language:
Each permittee shall monitor effluent total phosphorus a minimum of one time per week at exist-
ing discharge monitoring locations established in each facility's existing NPDES permit. Each per-
mittee shall determine the average monthly mass loading based on actual monthly average flow.
Flow monitoring shall be continuous.
General or watershed-based permits may establish a comprehensive watershed monitor-
ing program. For example, to fulfill monitoring requirements that are applied to multiple
dischargers, permittees could establish a monitoring consortium to collect ambient water
quality data that supplements end-of-pipe monitoring data required by the permit. Through
this group-wide monitoring consortium, permittees could generate data to use in watershed
assessments.
Reporting Requirements
Reporting requirements should be established to support the permitting authority's evalu-
ation of water quality trading programs. For example, in addition to reporting discharge
monitoring results, permitting authorities might require a permittee to report the number
of credits purchased. Permitting authorities might also require an annual monitoring report
specific to the pollutants involved in the trade, to provide information on annual loading
in accordance with the requirements of the trading program. Permits incorporating water
quality trades should require reporting at a frequency appropriate to determine compliance
with the trading provisions. Permitting authorities should consider any requirements of the
trading programs related to monitoring and reporting and ensure the permits are consistent
with these requirements. Permits may require reporting of monitoring results at a frequency
Water Quality Trading Scenarios
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Water Quality Trading Toolkit for Permit Writers
established through the permit on a case-by-case basis but in no case may that frequency be
less than once per year.
Trading programs may establish other reporting and tracking requirements as well. For
example, it is essential to have a mechanism for tracking trades. An additional form could be
required such as a credit certificate form (see Appendix C). The permitting authority can hold
point sources liable if they violate any trading provision included in the permit or any trade
agreement incorporated by reference into the permit, and point sources are also liable if they
do not meet their permit limits.
St. Martin River Example: Reporting
What You Need to Know...
Pollutant: Total Phosphorus
Credit Seller: Shepherd County POTW
Credit Buyers: City ofOakdale and Town ofBarkley WWTPs
Location: The dischargers are located in the St. Martin River watershed.
Applicable Ratios:
¦ Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County
POTW and either of the two credit buyers to account for the distance between the facilities.
An overlay permit is being developed for permittees in the St. Martin River watershed to facilitate
trading. In addition to their existing, individual NPDES permits, each of the trading partners has
applied for coverage under the overlay permit. The permit requires, in addition to monitoring reports,
regular reporting of any changes to the trade agreement and reports for tracking trades. Because
the facilities' individual permits contain monthly average effluent limitations for TP, monthly trade
transactions will be necessary to maintain compliance. The trade agreement between the discharg-
ers indicates that trades will be tracked by individual dischargers. Also, trading notification forms
for trades between trading partners and monthly trading summaries for the entire program will be
submitted by each discharger. Credits must be used in the same month they are generated and trading
notification forms must be submitted to the regulatory agency by the 15th of the month following the
trade. The permit gives the facilities 15 days to report the trades to account for administrative time
and processing notification forms.
In addition, the permit requires biannual reporting to summarize year-to-date transactions and
actual reductions and loading reflected by monitoring.
Permit Language:
No trade is valid unless it is recorded by both the credit buyer and the credit seller and trading
notification forms and a monthly summary of all trades for each calendar month are submitted to
the permitting authority. The record-keeping system employed by the permittee must be capable
of ensuring that a particular credit is not sold to more than one trading participant. Trading notifi-
cation forms for each monthly trade must be submitted to  by the 15th
day of the month following the trade.
Water Quality Trading Scenarios
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Water Quality Trading Scenario: Multiple Facility Point Source Trading
Data Reporting to EPA
EPA administers two systems to store NPDES permit data and track compliance, the Permit
Compliance System (PCS) and the new Integrated Compliance Information System (ICIS).
PCS is the old computerized management information system that contains data on NPDES
permit-holding facilities to track the permit, compliance, and enforcement status of these
facilities.
The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains
integrated enforcement and compliance information across most of EPA's programs including
all federal administrative and judicial enforcement actions. In addition, ICIS has the capability
to track other activities occurring in an EPA Region that support enforcement and compliance
programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitor-
ing. In the future, ICIS will be deployed to all states, and PCS will no longer be used.
Neither PCS nor ICIS is structured to actually track trades.
PCS is designed to compare actual discharge monitoring data against required effluent limi-
tations to determine a facility's compliance with its NPDES permit. To determine compliance
under a trading scenario, it is necessary for the NPDES permitting authority to compare actual
discharge monitoring data and the quantity of credits purchased or pounds sold against
required effluent limitations. For credit sellers, compliance is tracked against the WQBEL that
serves as the facility's baseline. For credit buyers, compliance is actually tracked against two
effluent limitations—the minimum control level and the baseline. The challenge in using PCS
to determine compliance under a trading scenario is that the system does not automatically
make adjustments to the reported actual discharge—it will not add or subtract the load trad-
ed. Therefore, this type of adjustment must be done before entering information into PCS so
that the system has only one reported number to compare against an effluent limitation.
To determine compliance for a credit seller, the NPDES permitting authority will need to
know that the sum of a credit seller's actual discharge and the number of pounds sold is less
than or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point
source credit sellers could report the sum of the facility's actual discharge and the number
of pounds sold, and that amount would be entered into PCS. PCS would then compare the
sum of the actual discharge and the number of pounds sold against the facility's baseline;
the sum should be less than or equal to the facility's baseline to indicate that the facility is in
compliance.
Point source credit buyers not only have a baseline, but also a minimum control level (the
facility's TBEL or current discharge, whichever is more stringent). To determine compliance for
a credit buyer, the NPDES permitting authority will need to know that (1) the facility's actual
discharge is less than or equal to its minimum control level, and (2) that the number of credits
purchased result in the facility achieving its baseline. Therefore, point source credit buyers
could report two types of information: (1) the facility's actual discharge, and (2) the differ-
ence between the actual discharge, and the quantity of credits purchased. Both numbers
would be entered into PCS to determine compliance. PCS would compare the actual discharge
against the minimum control level to determine permit compliance and eligibility as a credit
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buyer. PCS would also compare the difference between the actual discharge and the quantity
of credits purchased against the facility's baseline; the difference should be less than or equal
to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline
and remain in compliance with its WQBEL. PCS can accommodate two different effluent
limits for the same parameter; therefore, it has the capability to determine compliance with
both the minimum control level and the baseline for a credit buyer.
ICIS also allows the NPDES permitting authority to report two limits; therefore, this system
can also accommodate both the baseline and the minimum control level for credit buyers.
New DMR forms will also have two lines to report both the baseline and the minimum control
level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the
current design, ICIS will allow a facility with an existing NPDES permit to also have a trad-
ing partner entered into the system. Once a trading partner is entered for a facility, ICIS will
allow the entry of an adjusted value—this is the reported actual discharge adjusted by the
number of credits bought or sold. If an adjusted value is entered, this value is used to deter-
mine permit violations and percent exceedances (USEPA 2006).
In addition to challenges related to limits and the type of information to report, NPDES per-
mits with trading provisions might also raise issues related to reporting periods and auto-
mated compliance tracking. PCS will not support a reporting extension beyond 30 days. This
type of reporting extension might be necessary in some instances to allow adequate time for
the administrative activities necessary for trading partners to coordinate and reconcile trades.
ICIS, however, will support a 45-day reporting period. In rare instances when a permitting
authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one
to be annual. However, the permitting authority will have to manually flag annual limit efflu-
ent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to
track compliance.
Water Quality Trading Scenarios
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Water Quality Trading Scenario: Multiple Facility Point Source Trading
Special Conditions
Special conditions are developed to supplement effluent limitations and may include require-
ments such as BMPs, additional monitoring activities, ambient stream surveys, and toxicity
reduction evaluations (TREs). Special conditions also include permit modification and reopen-
er conditions and can be used to address water quality trading or incorporate compliance
schedules (if authorized by the permitting authority). Special conditions of a NPDES permit
will be very important in incorporating the terms of a trade agreement. Even where the spe-
cific terms of the agreement are not directly incorporated into the permit, the special condi-
tions will be used to refer to, and require compliance with, the trade agreement housed in a
separate document.
The special conditions included in a NPDES permit that implements trading will depend on
provisions of the trade agreement and the effluent limitations and monitoring and reporting
requirements established in the permit. However, the permitting authority should consider
incorporating special conditions that support the trading conditions. For example, the special
conditions of the permit may specify how and when trades may be conducted among permit-
tees or how an exceedance of an aggregate loading cap will be enforced among the permit-
tees responsible for exceeding their individual loading limits.
Special conditions may also be used to establish provisional requirements that apply if the
credits on which the trading limits are based are unavailable. Special conditions addressing
group and individual liability, provisional requirements that apply when credits are unavail-
able or when an individual or collective limit is exceeded, and outlining the specific require-
ments for establishing trade agreements among permittees can be important in issuing
acceptable permits that will not require modification each time circumstances change for one
of the dischargers covered under the permit.
In addition, the special conditions section of the permit could include a compliance sched-
ule. Compliance schedules for WQBELs are allowed only when state water quality standards
or state regulations implementing such standards provide authority for using compliance
schedules as well as when those limits are derived from water quality standards that were
newly adopted or substantively revised after July 1, 1977. Most state water quality standards
or implementing regulations authorize using compliance schedules. If compliance schedule
authority is available, the permit writer could place a compliance schedule in the permit
special conditions that would give the discharger time to comply with provisions related to
WQBELs and trading when those provisions are intended to be phased in over time.
Water Quality Trading Scenarios
Multiple Point Source
Trade Agreements Components of a NPDES Permit
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Water Quality Trading Toolkit for Permit Writers
St. Martin River Example: Special Conditions
What You Need to Know...
Pollutant: Total Phosphorus
Credit Seller: Shepherd County POTW
Credit Buyers: City ofOakdale and Town ofBarkley WWTPs
Location: The dischargers are in the St. Martin River watershed.
Applicable Ratios:
¦ Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County
POTW and either of the two credit buyers to account for the distance between the facilities.
The permit writer has developed the appropriate effluent limitations, monitoring, and reporting
requirements for each facility. The special conditions for each facility's permit focus on general author-
ity, credit definition, permit reopeners and modification provisions, and enforcement liability.
Permit Language:
General Authority
The permittee is authorized to participate in trading for the purposes of complying with the total
phosphorus effluent limitations in Section X of this permit. The authority to use trading for compli-
ance with these limits is derived from: ; section 402 of the federal
Clean Water Act 33 United States Code (U.S.C.) section 1342; and EPA's policies on Water Quality
Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit trad-
ing. Additionally the St. Martin River TMDL authorizes water quality trading as a means of achieving
the allocations established by the TMDL.
Credit Definition
One credit purchased by the buyers will be equal to three pounds of total phosphorous per day on
a monthly average basis generated by the seller.
Permit Reopeners, Modification Provisions
The permitting authority may, for any reason provided by law, summary proceedings or otherwise,
revoke or suspend this permit or reopen and modify it to establish any appropriate conditions,
schedules of compliance, or other provisions which may be necessary to protect human health or
the environment or to implement the St. Martin River TMDL. The permitting authority may also
reopen and modify the permit to suspend the ability to trade credits to comply with the total
phosphorus effluent limitations in Section X of this permit.
Enforcement Liability
The permittee is liable for meeting its most stringent effluent limitation. No liability clauses con-
tained in other legal documents (e.g., contracts) established between the permittee and other
authorized buyers and sellers are enforceable under this permit.
Water Quality Trading Scenarios
Multiple Point Source
	~	

Trade Agreements Components of a NPDES Permit


Permit Cover Page Effluent Limitations Monitoring Reporting Requirements
Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Water Quality Trading Scenario:
Point Source Credit Exchange
Contents
Water Quality Trading Scenario:
Point Source Credit Exchange	1
Credit Exchange Administration	1
Trade Agreements	2
Components of a NPDES Permit	4
Permit Cover Page	4
Effluent Limitations	5
Monitoring	13
Reporting Requirements	16
Special Conditions	19

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Point Source Credit Exchange
Water Quality Trading Scenario:
Point Source Credit Exchange
This water quality trading scenario focuses on technical and pro-
grammatic issues related to water quality trading through a point
source credit exchange, illustrated in Figure 1. Point sources
that over control their discharges generate the credits in
the exchange, and a separate entity maintains the credit
exchange. The credit exchange would likely have to be
either operated by or approved and overseen
by a state regulatory agency. Issues addressed
under this scenario include the following:
•	Credit exchange administration
•	Trade agreements
•	Components of a National Pollutant
Discharge Elimination System (NPDES) permit
-	Permit cover page
-	Effluent limits
-	Monitoring
-	Reporting requirements
-	Special conditions	Figure 1. Point source credit exchange.
Buyer
POTW
Point Source
Credit Exchange
A hypothetical example (shown in highlighted boxes) is presented throughout this scenario
to illustrate how NPDES permit writers might work with credit buyers and sellers to assist
in trading and ensure each facility's NPDES permit contains the appropriate limits, require-
ments, and other conditions. Keep in mind that there are a range of options for incorporat-
ing trading provisions into a NPDES permit. The hypothetical example discussed throughout
this scenario illustrates just one of the many options a NPDES permit writer might use.
Credit Exchange Administration
A variety of entities can establish and administer credit exchanges, including state agencies,
local governments, nonprofit nongovernmental entities, soil and water conservation districts,
private entities or other third parties. Management responsibilities for a credit exchange will
vary according to the watershed and needs of the trading partners. To address the potential
inadequacy of generated credits (i.e., treatment control failure), credit exchanges should
consider reserving credits that would be available to credit purchasers if the primary credit
source is insufficient. Entities administering credit exchanges can reserve credits in a number
of ways. One option is for the credit exchange to overbuy available credits from point sources
approved to generate credits. Another option is to require point source dischargers that want
the ability to purchase credits from the credit exchange—now or in the future—to pay a user
fee to the credit exchange that will in turn finance additional point source treatment controls
approved to generate credits.
Water Quality Trading Scenarios

-•

Point Source


Credit Exchange
Credit
Trade

Exchange
Agreements

Administration

Components of a NPDES Permit
Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Trade Agreements
Typically, the terms that govern a trading program will be developed outside the NPDES per-
mit process and can be incorporated or reflected in the permit (see Appendix C). The U.S. Envi-
ronmental Protection Agency's (EPA) Water Quality Trading Policy (Trading Policy) describes
several mechanisms for implementing trading through NPDES permits (see Appendix B).
NPDES permits authorizing water quality trading should reference any existing trade agree-
ment in the permit and fact sheet. The permit writer may also incorporate specific provisions
of the agreement as appropriate (e.g., shared responsibilities for conducting ambient moni-
toring) into the permit. All trade agreements referenced in NPDES fact sheets and permits
should meet certain minimum standards to help ensure the trades authorized by the permit
are consistent with water quality standards. At a minimum, the trade agreement should be a
written agreement and signed and dated by authorized representatives of all trading part-
ners. Verbal trade agreements should not be referenced in NPDES permits. The written trade
agreement should contain sufficient detail to allow the permitting authority to determine
with some degree of certainty that the terms of the agreement will result in loading reduc-
tions and generation of sufficient credits to satisfy water quality requirements. If there is no
formal, outside trade agreement, trading can still occur; however, the permit writer will need
to more explicitly describe the trading program in the fact sheet and authorize specific aspects
of the trading program as permit conditions. Trading partners can specify the details pertain-
ing to the negotiated terms of the trade (e.g., credit price, payment schedule, consequences
for failure to fulfill negotiated terms) in a separate, written and signed contract.
For a credit exchange to succeed, adequate credits should be available to meet the demand
of the purchasers; therefore, a trade agreement could contractually obligate the credit gener-
ators to create a certain number of credits to participate in the program. Likewise, the admin-
istrator of the credit exchange might want to ensure that point sources purchase a certain
number of credits and include this obligation in an agreement, as well. The obligations could
be for a defined period, such as one permit term. Penalties for not meeting the terms of the
trade agreement should be clearly specified in the agreement and incorporated by reference
into a NPDES permit.
Flowing River Example: Trade Agreements
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDLa for Total Phosphorus for the Flowing River Watershed
Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered
by the state)
Participating Facilities: Chuck's Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville
POTWb, Alpha Limited
Notes: a TMDL = Total maximum daily load; b POTW = publicly owned treatment works
Location: All facilities are less than a mile apart from each other along the Flowing River.
Water Quality Trading Scenarios
Point Source


Credit Exchange Credit Exchange
Trade
Components of a NPDES Permit
Administration
Agreements



Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Trade Agreements (continued)
Applicable Trade Ratios: None. In this case, it is not necessary to apply a delivery ratio because of the
close proximity of the sources to each other, nor an equivalency ratio because the same pollutant form
is being traded, nor an uncertainty ratio because both parties can accurately monitor end-of-pipe loads.
The state and stakeholders in the Flowing River watershed have cooperatively participated in the
development of the Flowing River Watershed Phosphorus Credit Exchange to meet the point source
facilities' wasteload allocation (WLA) under the approved phosphorus TMDL. To facilitate trading, the
Flowing River Watershed Phosphorus Credit Exchange drafted a trade agreement that buyers and sell-
ers must sign to participate. The basic terms of the trade agreement are as follows:
¦	The trade agreement establishes a contractual obligation between the credit buyers and sellers to
participate for a period of 5 years.
¦	Participants that sign the trade agreement acknowledge that the facility's phosphorus discharg-
es will be covered under a separate phosphorus overlay permit for all participants in the Flow-
ing River Watershed Phosphorus Credit Exchange, as opposed to the facility's existing NPDES
permit. The overlay permit is scheduled to be completed and become effective in one year.
¦	Trades occur annually at the end of the TMDL season (June 1-September 30) on the basis of the
seasonal mass loading of total phosphorus (TP) compared to seasonal phosphorus discharge
limits for each facility.
¦	Monitoring and flow data is to be submitted to the Exchange quarterly by the end of the month
following the quarter (April, July, October, and January).
¦	Before reconciling trade requirements, the Flowing River Watershed Phosphorus Credit
Exchange will determine the value of a phosphorus credit on the basis of capital costs of TP
removal, as well as operation and maintenance costs of pollutant controls.
¦	Each year, the Flowing River Watershed Phosphorus Credit Exchange will reconcile credit sales
and purchases by March of the following calendar year.
¦	Each participant in the Flowing River Watershed Phosphorus Credit Exchange will have a
baseline. Buyers will also have minimum control levels, and sellers will also have trading limits
(baseline - credits sold) included in an appendix to the trade agreement. Facilities performing
better than their baselines will receive payment from the Flowing River Watershed Phosphorus
Credit Exchange for phosphorus credits generated, on the basis of annual price. Facilities that
do not achieve their baseline, while meeting their minimum control levels, will owe payment to
the Flowing River Watershed Phosphorus Credit Exchange for phosphorus credits equal to the
amount discharged above their baseline.
¦	Each facility will be responsible for conducting weekly monitoring and monthly reporting to the
permitting authority as required under the overlay permit.
The Flowing River Watershed Phosphorus Credit Exchange will purchase excess phosphorus credits
to ensure that sellers receive compensation for their phosphorus credits. However, the Flowing River
Watershed Phosphorus Credit Exchange will not hold excess credits or make these credits available for
future purchase.
Water Quality Trading Scenarios
Point Source



Credit Exchange
Credit Exchange
Trade
Components of a NPDES Permit

Administration
Agreements




Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Flowing River Example: Trade Agreements (continued)
The NPDES permit writer for the facilities participating in the Flowing River Watershed Phosphorus
Credit Exchange receives a written copy of the trade agreement that is signed and dated by authorized
representatives of each participating facility. Although the NPDES permit writer is already familiar
with the terms of the trade agreement because of participating in the development of the Flowing
River Watershed Phosphorus Credit Exchange, the written and signed trade agreement indicates
which facilities are planning to participate and should have coverage under the overlay permit.
The permit writer will incorporate monitoring and reporting requirements necessary to determine
compliance with the annual phosphorus discharge limits for each facility and facilitate trading
through the Flowing River Watershed Phosphorus Credit Exchange. The NPDES permit writer will
also specify compliance conditions, including the need to purchase phosphorus credits in a specified
amount at a specified time to achieve the baseline, that are consistent with the terms of the trade
agreement. However, the permit would not specify the cost for phosphorus credits or have the ability
to name buyers and sellers.
Components of a NPDES Permit
NPDES permits that authorize water quality trading are no different than typical NPDES per-
mits in many respects—they require the same structure, analyses, and justification. All permits
have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and report-
ing requirements; (4) special conditions; and (5) standard conditions. Standard conditions are
the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent
with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject to
public notice and comment. This provides all interested parties an opportunity to comment
on the trading provisions in the permit.
Each NPDES permit is accompanied by a permit fact sheet. The information in these fact
sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the
permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions
in the permit. There is a wide variety of options for including trading information in the fact
sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller)
to including the entire trading program.
There are a variety of issues, however, that may require special consideration when developing
a permit incorporating water quality trading. Appendix E provides the permit writer with a list
of fundamental questions that should be addressed during the permit development process.
Permit Cover Page
The cover page of a NPDES permit typically contains the name and location of the
permittee(s), a statement authorizing the discharge, the specific locations for which a dis-
charge is authorized (including the name of the receiving water), and the effective period of
the permit (not to exceed 5 years). If numerous permittees are covered, they can be listed in
an appendix or attachment that is referenced on the cover page. A permit incorporating or
Water Quality Trading Scenarios
Point Source



Credit Exchange
Credit Exchange
Trade
Components of a NPDES Permit

Administration
Agreements




I Permit Cover Page Effluent Limitations Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
referencing a trade agreement can refer to water quality trading on the cover page, but this
is not necessary. If the state has issued regulations or policy documents authorizing water
quality trading, the permit writer should consider referencing the regulations in the Authority
section of the cover page. For example, if trading is considered a water-quality management
tool in a state's Water Quality Management Plan, this may establish authority for integrating
trading into NPDES permits and can be referenced on the cover page (Jones 2005).
The cover page may also address the specific pollutants regulated by the permit. For instance,
the cover page of an overlay permit for TP may state that the overlay permit addresses only TP
and that other parameters are addressed in each facility's individual permit.
Long Island Sound, Connecticut
Connecticut's General Permit for Nitrogen Discharges establishes the authority to
discharge nitrogen as follows:
(a) Eligible Activities or Discharges
This general permit authorizes the discharge of total nitrogen (TN) from the POTWs
listed in Appendix 1 (of the original permit), provided the activities are conducted in
accordance with this general permit.
This general permit does not authorize any discharge of water, substance or material into
the waters of the state other than the one specified in this section. Any person or munic-
ipality that initiates, creates, originates or maintains such a discharge must first apply
for and obtain authorization under Section 22a-430 of the General Statutes.
For more information about this trading program, see Appendix A.
Effluent Limitations
Effluent limitations are the primary mechanism for controlling the discharge of pollutants
from point sources into receiving waters. When developing a permit, the permitting author-
ity focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES
permits, permits that include trading must include any applicable technology-based effluent
limitations (TBELs), or the equivalent and, where necessary, water quality-based effluent limi-
tations (WQBELs), that are derived from and comply with all applicable technology and water
quality standards. Furthermore, limits must be enforceable, and the process for deriving the
limits should be scientifically valid and transparent.
EPA's Trading Policy does not support trading to meet TBELs unless trading is specifically
authorized in the categorical effluent limitation guidelines on which the TBELs are based.
Applicable TBELs thus serve as the minimum control level below which the buyer's treatment
levels cannot fall. This section discusses the overarching principles of how to express all appli-
cable effluent limitations in permits for dischargers participating in water quality trades.
Credit Buyers
Permits for credit buyers should include both the baseline, which is the WQBEL that defines
the level of discharge the buyer would have to meet through treatment when not trading,
and a minimum control level that must be achieved through treatment when trading. The
Water Quality Trading Scenarios
Point Source


=>	


Credit Exchange
Credit Exchange
Administration
Trade
Agreements
Components of a NPDES Permit
Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
permit should also include the amount of pollutant load to be offset (minimum control level
- baseline) through credit purchases when trading. Most often, the applicable TBEL will serve
as the minimum control level. A permitting authority can choose to impose a more stringent
minimum control level than the TBEL to prevent localized exceedances of water quality stan-
dards near the point of discharge but not one that is less stringent than the TBEL. In a NPDES
permit fact sheet, the effluent limitations for a credit buyer could be described as follows:
•	The Discharger must meet, through treatment or trading, a mass-based effluent limi-
tation for Pollutant A of . If this effluent limitation is met through
trading, the Discharger must purchase credits from authorized Sellers in an amount
sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess
of , but at no time shall the maximum mass discharge of Pollutant A
during  exceed the minimum control level of . Thus, the maximum mass discharge of Pollutant A to be offset
through credit purchases is .
Credit Sellers
When a potential credit seller is able to reduce its discharge below its most stringent appli-
cable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of
credits that any given seller actually will be able to sell depends on the market for credits,
agreements made with buyers, and any treatment requirements placed on potential buyers
(i.e., the buyers' minimum control levels). Because of these factors, it is possible that a dis-
charger will not be able to sell all the credits it generates.
A credit seller's permit will include both the most stringent effluent limitation that would
apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level
it will control its pollutant discharge (using technology or best management practices (BMPs)
it will implement) and this level becomes its trading limit. The baseline and trading limit
could be described in the permit fact sheet as follows:
•	Through treatment, the Discharger must meet a mass-based effluent limitation for
Pollutant A of . The Discharger is authorized to further treat its
discharge, remove additional loading of Pollutant A, and generate and sell credits to
an authorized credit Buyer or Buyers. If the Discharger sells such credits, the  effluent limitation  no
longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead
as follows: Trading Limitation =  - Quantity of Pounds Sold.
The permit must include monitoring and reporting requirements for Pollutant A sufficient to
demonstrate that the seller actually has generated the credits it sells and, therefore, is meet-
ing its trading limit.
Aggregate or Individual Limitations
It may be appropriate for permit writers to include aggregate WQBELs that apply to the
group of point sources covered under a general or watershed permit. An aggregate efflu-
ent limitation typically represents the sum of the pollutant WLAs for all permittees covered
by the permit. This allows maximum flexibility for trades among dischargers within the
Water Quality Trading Scenarios
Point Source


=>	


Credit Exchange
Credit Exchange
Administration
Trade
Agreements
Components of a NPDES Permit
Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Effluent Limitations
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly approved TMDL for Total Phosphorus for Flowing River
Exchange Participants:
Chuck's Potash Company
Current Load: 2,000 lbs (total per season)
New WQBEL (based on WLA): 8 ,000 lbs (total per season)
New Treatment Capabilities: Treatment to 4,000 lbs (total per season)
Excess Pounds Reduced: 4,000 lbs (total per season)
Green and Go Fertilizers
Existing Discharge: 2,500 lbs (total per season)
New WQBEL (based on WLA): 2 ,000 lbs (total per season)
Treatment Capabilities: Treatment to 2,500 lbs (total per season)
Pounds Needed: 500 lbs (total per season)
Shag Rug, Inc.
TBEL: 1,800 lbs (total per season)
New WQBEL (based on WLA): 1 ,000 lbs (total per season)
Treatment Capabilities: Treatment to 1,800 lbs (total per season)
Pounds Needed: 800 lbs (total per season)
Troyville POTW
TBEL: 10,000 lbs (total per season)
New WQBEL (based on WLA): 8 ,000 lbs (total per season)
New Treatment Capabilities: Treatment to 4,000 lbs (total per season)
Excess Pounds Reduced: 4,000 lbs (total per season)
Alpha Limited
Existing Discharge: 1,200 lbs (total per season)
New WQBEL (based on WLA): 500 lbs (total per season)
Treatment Capabilities: Treatment to 1,200 lbs (total per season)
Pounds Needed: 700 lbs (total per season)
Water Quality Trading Scenarios



Point Source
Credit Exchange
Credit Exchange
Administration
Trade
Agreements
Components of a NPDES Permit
Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Flowing River Example: Effluent Limitations (continued)
Location: All facilities are less than a mile apart from each other along the Flowing River.
Applicable Trade Ratios: None.
To facilitate trading amongst the dischargers, the Flowing River Phosphorus Credit Exchange
(Exchange) is designed to facilitate the exchange of credits between point source credit generators and
purchasers. The Exchange has developed a trade agreement that outlines how point sources can gener-
ate and purchase credits, how to calculate trade ratios, as well as individual responsibilities for meeting
effluent limitations. Trades occur once per year at the end of the TMDL season (June 1-September 30).
Of the potential participants in the Exchange, only the municipal wastewater treatment facility's
(Troyville POTW) and carpet manufacturer's (Shag Rug, Inc.) existing permits include TBELs. Both
are meeting the TBELs. The state has developed a general watershed-based permit for phosphorus
point source dischargers along the Flowing River. The permit authorizes trading and includes the sea-
sonal mass loading WQBELs that are based directly on the WLA requirements of the TMDL.
To comply with its seasonal WQBEL, a permittee may either meet the limitation at the point of dis-
charge through treatment or other pollutant reductions at the facility or, after meeting its minimum
control level (i.e., current discharge before the TMDL or applicable TBEL), pay into the Exchange to
purchase necessary credits. The facility must treat its discharge to meet its minimum control level to
purchase credits from the Exchange.
To be eligible to sell credits to the Exchange, a facility must first treat the discharge to meet its most
stringent effluent limitation, which, in this case, is the WQBEL that implements the WLA. In addition,
the state has established trading limits for all dischargers entering the Exchange as sellers, and these
limitations must be met for the duration of the permit cycle.
Permit Language:
a. Effluent Limitations
1.	Seasonal total mass loading effluent limitations applicable to each permittee covered under
this permit are set forth in Table 1, which is incorporated herein in its entirety, as part of this
general permit.
2.	If the permittee participates in the Flowing River Phosphorus Credit Exchange, the permit-
tee's total annual mass discharge of total phosphorus shall not exceed the Seasonal Mass
Loading Limitation (With Trading) outlined in Table 1.
3.	If the permittee does not participate in the Flowing River Phosphorus Credit Exchange, the
permittee's total annual mass discharge of total phosphorus shall not exceed the Seasonal
Mass Loading WQBEL (Without Trading).
4.	A permittee shall be out of compliance with the seasonal discharge limitations of the general
permit and subject to enforcement provisions if the facility's seasonal mass loading of total
phosphorus exceeds the applicable discharge limitations outlined in (a) (1) and (2) above.
5.	Credits may be generated and used only between June 1-September 30.
Water Quality Trading Scenarios
Point Source

=>	


Credit Exchange
Credit Exchange Trade
Administration Agreements
Components of a NPDES Permit




Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Effluent Limitations (continued)
Table 1. Seasonal mass loading effluent limitations for TP
Discharger
Units
June 1-September 30
Seasonal mass loading
WQBEL
(without trading)
Seasonal mass loading
limitation
(with trading)
Chuck's Potash
Company
lbs
8,000
(Baseline/WQBEL)
i
Green and Go
Fertilizers
lbs
2,000
(Baseline/WQBEL)
2,500 (Minimum Control Level/
Existing Discharge)
Shag Rug, Inc.
lbs
1,000
(Baseline/WQBEL)
1,800 (Minimum Control
Level/TBEL)
Troyville POTW
lbs
8,000
(Baseline/WQBEL)
i
Alpha Limited
lbs
500
(Baseline/WQBEL)
1,200 (Minimum Control Level/
Existing Discharge)
1 Trading limit = (WQBEL - pollutant loading reduction necessary to generate quantity of credits sold)
watershed but should be considered only if localized exceedances of water quality standards
are not a concern. An aggregate limitation allows individual dischargers to discharge or
trade among themselves to any degree as long as the aggregate limitation is met. An aggre-
gate effluent limit may be most appropriate in a trading scenario involving many individual
dischargers within a watershed having a large-scale load reduction driver such as a TMDL for
the entire waterbody or a percent load reduction requirements for the watershed as a whole.
This is functionally equivalent to having a series of individual WQBELs and no trading limits.
EPA does not endorse setting a multisource aggregate limit without also including in the per-
mit individual limits for each source covered. If the group of facilities does not meet its aggre-
gate limit and an individual source does not meet its limit on its own and does not trade to
meet it, enforcement action may be taken against this individual source. This approach keeps
co-permittees under the general or watershed permit that have met their requirements free
from liability when other co-permittees are responsible for the group discharging above the
aggregate limit.
Neuse River Basin, North Carolina
The Neuse River Compliance Association (NRCA) general permit has an aggregate total
nitrogen (TN) allocation, and each member of the association has an individual alloca-
tion. If the NRCA meets the aggregate limit for the year, the NRCA and each permittee
are in compliance. If the aggregate limit is exceeded, the NRCA is out of compliance, and
any member that exceeds its individual TN limit is also out of compliance and subject to
enforcement action. For more information about this trading program, see Appendix A.
Water Quality Trading Scenarios

Point Source
Credit Exchange
	f	
Credit Exchange Trade Components of a NPDES Permit
Administration Agreements
Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Toolkit for Permit Writers
Pollutant Form, Units of Measure, and Timing Considerations
The permit should explicitly identify the pollutant or pollutants being traded. The permitting
authority should ensure that the trading program or agreement and the calculated WQBELs
are consistent in terms of the form of the pollutant, units of measure, and timing.
For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, then credits generat-
ed under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitro-
gen (TKN) or some other form. If, on the other hand, the WQBEL is for TN, buyers and sellers
should trade TN credits. In this case, a discharger may be required to measure TN. If there are
concerns about localized impacts and WQBELs are also specified for a particular form or forms
of nitrogen, the discharger may be required to monitor TKN, nitrite, and nitrate (all expressed
as N) and then calculate its TN discharge.
Also an equivalency ratio may be needed when two sources are trading pollutants such as
TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one
discharger's phosphorus discharge is made up primarily of biologically available phosphorus,
while its trading partner's discharge is primarily composed of bound phosphorus). An equiva-
lency ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants
(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio
would equal the ratio between the two pollutants' impacts on oxygen demand. The trading
program should account for any necessary equivalency ratios with regard to pollutant form
or type; the permit writer needs to be aware of the pollutant form or type addressed in the
trade agreement to ensure that the permit is consistent.
In addition, consistent reconciliation periods are essential in trading between point sources.
The credit purchaser's permit limits for the traded pollutant and the credit seller's permit lim-
its should have the same units and averaging period. Because both sets of limits are designed
to address the same water quality problem, both should use the averaging period and units
that make the most sense to address that problem. Consistent units and averaging periods
will also simplify reconciliation of credit sales and purchases.
Flowing River Example: Pollutant Form, Units of Measure,
and Timing
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed
Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered
by the state)
Participating Facilities: Chuck's Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville
POTW, Alpha Limited
Location: All facilities are less than a mile apart from each other along the Flowing River.
Applicable Trade Ratios: None.
Water Quality Trading Scenarios
Point Source

=>	


Credit Exchange
1 Credit Exchange Trade
Administration Agreements
Components of a NPDES Permit




Permit Cover Page
Effluent Limitations
Monitoring Reporting Requirements Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Pollutant Form, Units of Measure,
and Timing (continued)
Pollutant Form
The TMDL indicates a need for all trading partners to control phosphorus discharges. To meet the new
WQBELs for phosphorus, several members of the Exchange will install new treatment technology to
reduce loads beyond the 30 percent required by the TMDL and wish to sell the excess reductions in
the form of credits to the Exchange. Other members are unable to meet the new WQBELs that will be
in the overlay permit and are choosing to purchase phosphorus credits from the Exchange. However,
the solubility of the phosphorus impacts the amount available biologically in the waterbody. The more
soluble the phosphorus form, the more readily it can impact the waterbody. Therefore, trades between
partners must account for the different solubility of various facilities' discharges.
All members of the Exchange have monitored their effluent to determine the solubility of the phos-
phorus discharged. The monitoring data showed that the solubility of phosphorus discharges were
equitable among the dischargers in the Exchange; therefore, no equivalency ratio is necessary.
Units of Measure
The phosphorus WQBELs based on the TMDL WLA are expressed in lbs as seasonal mass loadings to
correspond with the units and averaging period in the TMDL. The phosphorus limits in most of the
Exchange facilities' existing permits are also expressed in lbs as seasonal mass loadings. The trade
agreement also specifies lbs as a seasonal mass loading. Annual trades will be based on seasonal mass
loading reductions demonstrated through monitoring.
Timing of Credits
Credits are available beginning at the time of permit issuance. This allows 12 months before per-
mit issuance for the Exchange to gather monitoring data to verify that the seller's technologies are
achieving the expected treatment efficiency and will generate credits as expected after accounting
for established ratios. These data are necessary to better understand how loading and reduction may
vary over time. The general permit reflects these conditions. Trades will occur annually to correspond
with seasonal mass-loading effluent limitations. The sellers will be able to continue to generate credits
as long as the controls are properly operated and maintained, the facilities are able to demonstrate
reductions, and the facilities do not become subject to more stringent requirements that would reduce
or eliminate the credits (i.e., newly promulgated effluent guidelines or other more stringent technol-
ogy-based controls, additional WQBELs to avoid localized exceedances of water quality standards).
The ability of the sellers to continue to generate credits will be assessed during the renewal of the
individual permits every 5 years.
Anti-backsliding, Antidegradation, and New Discharges Special
Considerations
The Trading Policy discusses anti-backsliding and antidegradation and how these provisions
can be met through trading.
Anti-backsliding
The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in general,
prohibits the renewal, reissuance, or modification of an existing NPDES permit that contains
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WQBELs, permit conditions, or standards that are less stringent than those established in the
previous permit (USEPA 1996b). The CWA establishes exceptions to this general anti-back-
sliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for less-strin-
gent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs, the
requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR
122.44(1) provide exceptions for circumstances such as material and substantial alterations
to the facility, new information, events beyond the permittee's control, and permit modifi-
cations under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs,
allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a water-
body attaining water quality standards as long as the waterbody continues to attain water
quality standards even after the WQBEL is relaxed. In addition, revising the limitation must
be consistent with the state's antidegradation policy. If the discharge is to a waterbody that
is not attaining water quality standards, a less-stringent WQBEL is allowed only when the
cumulative effect of all revised effluent limitations results in progress towards attainment of
water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA's
NPDES Permit Writers' Manual (EPA-833-B-96-003). EPA's Trading Policy states:
EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the
CWA will generally be satisfied where a point source increases its discharge
through the use of credits in accordance with alternate or variable water quality
based effluent limitations contained in an NPDES permit, in a manner consistent
with provisions for trading under a TMDL, or consistent with the provisions for
pre-TMDL trading included in a watershed plan.
A permit writer should simply explain in the fact sheet of the permit how the limitations in
the permit, after accounting for any trading provisions, are at least as stringent as the limits
in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are
satisfied.
Antidegradation
As repeated throughout this document, NPDES permits may not facilitate trades that would
result in nonattainment of an applicable water quality standard, including the applicable
antidegradation provisions of water quality standards. Permitting authorities should ensure
that WQBELs developed to facilitate trade agreements accord with antidegradation provi-
sions and that antidegradation reviews are performed when required. Nothing in the Trad-
ing Policy per se changes how states apply their antidegradation policies, though states may
modify their antidegradation policies to recognize trading.
The Trading Policy states:
EPA does not believe that trades and trading programs will result in "lower
water quality"
. . . or that antidegradation review would be required under EPA's regulations
when the trades or trading programs achieve a no net increase of the pollutant
traded and do not result in any impairment of designated uses.
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Special considerations for antidegradation relative to water quality trading depend on the
tier of protection applied to the waterbody as described below.
Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters,
the antidegradation policy mandates protection of existing instream uses. Because EPA nei-
ther supports trading activities nor allows issuance of permits that violate applicable water
quality standards, which should protect existing uses at a minimum, any supported trading
activities incorporated into a NPDES permit should not violate antidegradation policies appli-
cable to Tier 1 waters.
Tier 2 protects waters where the existing water quality is higher than required to support
aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the
level that would continue to support existing and designated uses) but only if an antidegra-
dation review finds that (1) it is necessary to lower water quality to accommodate important
social or economic development, (2) all intergovernmental and public participation provi-
sions have been satisfied, and (3) the highest statutory and regulatory requirements for point
sources and BMPs for nonpoint sources have been achieved. The Trading Policy supports trad-
ing to maintain high water quality when trading is used to compensate for new or increased
discharges. Thus, the Trading Policy supports reductions of existing pollutant loadings to
compensate for the new or increased load so that the result is no lowering of water quality.
A state, in applying its antidegradation policy, may decide to authorize a new or increased
discharge to high-quality water and may decide to use trading to completely or partially
compensate for that increased load. If the increased load to Tier 2 waters is only partially
compensated for by trading, an antidegradation review would be required to address the
increased load.
Tier 3 protects the quality of outstanding national resource waters and waters of exceptional
recreational or ecological significance. In general, antidegradation policies do not allow any
increase in loading to Tier 3 waters that would result in lower water quality. EPA supports
trading in Tier 3 waters to maintain water quality.
Monitoring
Permitting authorities may want to consider developing monitoring and reporting require-
ments to characterize waste streams and receiving waters, evaluate wastewater treatment
efficiency, and determine compliance with permit conditions in trade agreements. Moni-
toring and reporting conditions of a NPDES permit may contain specific requirements for
sampling location, sample collection method, monitoring frequencies, analytical methods,
recordkeeping, and reporting. If the permit conditions include compliance with provisions in
a trade agreement, then the permitting authority should include monitoring, record-keep-
ing and reporting requirements that facilitate compliance evaluations and, where necessary,
enforcement actions related to the trading requirements. Discharge monitoring requirements
should be consistent with the provisions of the trade agreement in terms of pollutants and
forms of pollutants monitored, reporting units, and timing. The permit provisions should
ensure that the results of discharge monitoring will be useful to the permittees, the permit-
ting authority, and the general public in determining whether the provisions of the trade
agreement are being met.
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Sample Collection and Analysis
The same discharge sampling location used for compliance in any existing NPDES permits
should be used for determining compliance with effluent limitations developed for traded
parameters. Samples collected as part of a self-monitoring program required by a NPDES
permit must be performed in accordance with EPA-approved analytical methods specified
in 40 CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants
Under the Clean Water Act) where Part 136 contains methods for the pollutant of concern.
Where no Part 136 methods are available, the permit writer should specify which method
should be used for compliance monitoring.
Parties Responsible for Monitoring
The trade agreement specifies the types and frequency of monitoring needed as well as the
parties responsible for monitoring. The individual facilities are ultimately responsible to ensure
that effluent monitoring is completed and reported to the permitting authority. Any enforce-
ment actions for failure to monitor and report will be against the individual facilities. The
permitting authority should ensure that sufficient monitoring is required to allow permittees,
agency compliance personnel, and the public to gauge whether dischargers are meeting their
individual effluent limitations and requirements under the trade agreement.
Discharge monitoring under a multiple facility permit would be required of all individual dis-
chargers and should be listed in the permit. If the permit is an overlay permit used to incor-
porate water quality trading for specific pollutants, the permitting authority may establish
certain monitoring requirements, such as monitoring location, by reference to the facility's
individual NPDES permit for consistency. Alternatively, the permit could specifically list the
monitoring location and requirements for each permittee or co-permittee.
The permitting authority may consider establishing more frequent monitoring for facili-
ties with higher design flows than those with lower design flows. Monitoring and reporting
requirements in a multiple facility permit, such as a watershed-based permit, would be a
combination of individual and watershed-wide requirements as described below.
Ambient Monitoring
Ambient monitoring is one way to show whether a trade agreement meets or improves water
quality. In addition to traditional discharge monitoring requirements, ambient water quality
monitoring may be appropriate at strategic locations to ensure that the trade is not creating
localized exceedances of water quality standards and to document the performance of the
overall trading program. Permits with mixing zones may include monitoring requirements as
appropriate to ensure that water quality criteria are not exceeded at the edge of the appli-
cable mixing zone.
General or watershed-based permits may establish a comprehensive, watershed monitor-
ing program. For example, to fulfill monitoring requirements that are applied to multiple
dischargers, permittees could establish a monitoring consortium to collect ambient water
quality data that supplements end-of-pipe monitoring data required by the permit. Through
this group-wide monitoring consortium, permittees could generate data to use in watershed
assessments.
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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Monitoring
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed
Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered
by the state)
Participating Facilities: Chuck's Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville
POTW, Alpha Limited
Location: All facilities are less than a mile apart from each other along the Flowing River.
The facilities discharging to Flowing River have existing TP monitoring requirements. The existing
permits require monthly monitoring for TP. The overlay permit will require monitoring at the same
locations as established in the existing permits. In addition, each discharger will be required to moni-
tor for phosphorus weekly during June through September. For the permitting authority to gauge
compliance, the permit writer will develop permit language that requires each discharger to submit
monthly discharge monitoring reports (DMRs) to the permitting authority by the 15th of the month
following monitoring. Ambient receiving water monitoring requirements are included in the existing
NPDES permits and are adequate to ensure that localized exceedances of water quality standards do
not develop as a result of trades.
Permit Language:
1.	Each permittee shall monitor effluent total phosphorus a minimum of one time per week at
existing discharge monitoring locations established in each facility's existing NPDES permit
during the months of June through September. Each permittee shall determine the aver-
age monthly mass loading based on actual monthly average flow. Flow monitoring shall be
continuous.
2.	During the remaining, off-season months, each permittee must monitor effluent total
phosphorus at least one time per month in compliance with existing individual NPDES permit
requirements and determine mass loading based on actual effluent flow. Each permittee
shall monitor flow continuously.
Monitoring to Document Trades
The permitting authority should be aware of any monitoring responsibilities established in
the trading program or through the credit exchange and should ensure that the permit con-
ditions do not contradict these requirements. Where the trading program provides that the
point source conduct additional monitoring to document trades, the permit should incorpo-
rate or reference those requirements. Where the trading program provides that a third-party
conduct monitoring, the permit should also reference those requirements and clarify the
permittee's responsibilities, if any, for reporting or conducting these activities itself should
the third-party fail to fulfill its responsibilities.
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Reporting Requirements
Reporting requirements should be established to support the permitting authority's evalu-
ation of water quality trading programs. For example, in addition to reporting discharge
monitoring results, permitting authorities might require a permittee to report the number
of credits purchased. Permitting authorities might also require an annual monitoring report
specific to the pollutants involved in the trade, to provide information on annual loading in
accordance with the requirements of the trading program. Permits incorporating water qual-
ity trades should require reporting at a frequency appropriate to determine compliance with
the trading provisions. Permitting authorities should consider any requirements of the trading
programs related to reporting and ensure the permits are consistent with these requirements.
Permits may require reporting of monitoring results at a frequency established through the
permit on a case-by-case basis, but in no case may that frequency be less than once per year.
Trading programs may establish other reporting and tracking requirements as well. For
example, it is essential to have a mechanism for tracking trades. An additional form could be
required such as a credit certificate form (see Appendix C). The permitting authority can hold
point sources liable if they violate any trading provision included in the permit or any trade
agreement incorporated by reference into the permit, and point sources are also liable if they
do not meet their permit limits.
Permitting authorities should consider establishing discharger trade reporting requirements
to monitor trading activities and any alternative compliance activities implemented if a facil-
ity fails to generate credits as expected (see Special Conditions). In addition, credit exchanges
should consider holding surplus credits in reserve to be used to compensate for point source
pollutant loads if a failed trade and the permitting authority may want the credit exchange
to report the generation of these reserve credits as well.
Data Reporting to EPA
EPA administers two systems to store NPDES permit data and track compliance, the Permit
Compliance System (PCS) and the new Integrated Compliance Information System (ICIS).
PCS is the old, computerized management information system that contains data on NPDES
permit-holding facilities to track the permit, compliance, and enforcement status of these
facilities.
The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains
integrated enforcement and compliance information across most of EPA's programs including
all federal administrative and judicial enforcement actions. In addition, ICIS has the capability
to track other activities occurring in an EPA Region that support enforcement and compliance
programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitor-
ing. In the future, ICIS will be deployed to all states, and PCS will no longer be used.
Neither PCS nor ICIS is structured to actually track trades.
PCS is designed to compare actual discharge monitoring data against required effluent
limitations to determine a facility's compliance with its NPDES permit. To determine compli-
ance under a trading scenario, it is necessary for the NPDES permitting authority to compare
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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Reporting
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed
Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered
by the state)
Participating Facilities: Chuck's Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville
POTW, Alpha Limited
Location: All facilities are less than a mile apart from each other along the Flowing River.
An overlay permit is being developed for permittees in the Flowing River watershed to facilitate
trading for permittees that wish to trade through the Flowing River Phosphorus Credit Exchange
(Exchange). In addition to their existing, individual NPDES permits, each of the trading partners have
applied for coverage under the overlay permit. The overlay permit requires, in addition to monitoring
reports to the permitting authority, regular reporting of any changes to the Exchange's trade agree-
ment and reports for tracking trades. This information can be compiled by each individual permittee
or by the Exchange but must be reported to the permitting authority.
Because the overlay permit will contain seasonal, mass-loading effluent limitations for phosphorus for
one particular season of the year, annual trade transactions will be necessary to maintain compliance.
The trade agreement between the permittees and the Exchange indicates that trades will be tracked in
an electronic trade tracking system. Credits must be used in the same period they are generated, and
trading notification forms must be submitted to the regulatory agency by October 15.
Permit Language:
No trade is valid unless it is recorded in the Flowing River Phosphorus Credit Exchange electronic
trade tracking system or equivalent system that records all trades and generates trading notifica-
tion forms and a summary of all trades valid between June 1 and September 30 of each year, in
substantially the same format as forms approved by the state. The record-keeping system must
be capable of ensuring that a particular credit is not sold to more than one trading participant.
The trading notification forms and trading summary may be compiled by the Exchange, but each
permittee is responsible for the submittal of all documentation and reports. Trading notification
forms for each trade must be submitted to the  by October 15.
actual discharge monitoring data and the quantity of credits purchased or pounds sold against
required effluent limitations. For credit sellers, compliance is tracked against the WQBEL that
serves as the facility's baseline. For credit buyers, compliance is actually tracked against two
effluent limitations—the minimum control level and the baseline. The challenge in using
PCS to determine compliance under a trading scenario is that the system does not automati-
cally make adjustments to the reported actual discharge—it will not add or subtract the load
traded. Therefore, this type of adjustment must be done before entering information into PCS
so that the system has only one reported number to compare against an effluent limitation.
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To determine compliance for a credit seller, the NPDES permitting authority will need to
know that the sum of a credit seller's actual discharge and the number of pounds sold is less
than or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point
source credit sellers could report the sum of the facility's actual discharge and the number
of pounds sold, and that amount would be entered into PCS. PCS would then compare the
sum of the actual discharge and the number of pounds sold against the facility's baseline;
the sum should be less than or equal to the facility's baseline to indicate that the facility is in
compliance.
Point source credit buyers not only have a baseline, but also a minimum control level (the
facility's TBEL or current discharge, whichever is more stringent). To determine compliance for
a credit buyer, the NPDES permitting authority will need to know that (1) the facility's actual
discharge is less than or equal to its minimum control level, and (2) that the number of credits
purchased result in the facility achieving its baseline. Therefore, point source credit buyers
could report two types of information: (1) the facility's actual discharge, and (2) the differ-
ence between the actual discharge and the quantity of credits purchased. Both numbers
would be entered into PCS to determine compliance. PCS would compare the actual discharge
against the minimum control level to determine permit compliance and eligibility as a credit
buyer. PCS would also compare the difference between the actual discharge and the quantity
of credits purchased against the facility's baseline; the difference should be less than or equal
to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline
and remain in compliance with its WQBEL. PCS can accommodate two different effluent
limits for the same parameter; therefore, it has the capability to determine compliance with
both the minimum control level and the baseline for a credit buyer.
ICIS also allows the NPDES permitting authority to report two limits; therefore, this system
can also accommodate both the baseline and the minimum control level for credit buyers.
New DMR forms will also have two lines to report both the baseline and the minimum control
level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the
current design, ICIS will allow a facility with an existing NPDES permit to also have a trad-
ing partner entered into the system. Once a trading partner is entered for a facility, ICIS will
allow the entry of an adjusted value—this is the reported actual discharge adjusted by the
number of credits bought or sold. If an adjusted value is entered, this value is used to deter-
mine permit violations and percent exceedances (USEPA 2006).
In addition to challenges related to limits and the type of information to report, NPDES per-
mits with trading provisions might also raise issues related to reporting periods and auto-
mated compliance tracking. PCS will not support a reporting extension beyond 30 days. This
type of reporting extension might be necessary in some instances to allow adequate time for
the administrative activities necessary for trading partners to coordinate and reconcile trades.
ICIS, however, will support a 45-day reporting period. In rare instances when a permitting
authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one
to be annual. However, the permitting authority will have to manually flag annual limit efflu-
ent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to
track compliance.
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Water Quality Trading Scenario: Point Source Credit Exchange
Special Conditions
Special conditions are developed to supplement effluent limitations guidelines and may
include requirements such as BMPs, additional monitoring activities, ambient stream surveys,
and toxicity reduction evaluations (TREs). Special conditions also include permit modification
and reopener conditions and can be used to address water quality trading or incorporate
compliance schedules (if authorized by the permitting authority). Special conditions of a
NPDES permit will be very important in incorporating the terms of a trade agreement. Even
where the specific terms of the agreement are not directly incorporated into the permit, the
special conditions will be used to refer to, and require compliance with, the trade agreement
housed in a separate document.
The special conditions included in a NPDES permit that incorporates trading will depend on
provisions of the trade agreement and the effluent limitations and monitoring and reporting
requirements established in the permit. However, the permitting authority should consider
incorporating special conditions that support the trading conditions. For example, the special
conditions of the permit may specify how and when trades may be conducted among permit-
tees or how an exceedance of an aggregate loading cap will be enforced among the permit-
tees responsible for exceeding their individual loading limits.
Special conditions may also be used to establish provisional requirements that apply if the
credits on which the trading limits are based are unavailable. Special conditions addressing
group and individual liability, provisional requirements that apply when credits are unavail-
able or when an individual or collective limit is exceeded, and outlining the specific require-
ments for establishing trade agreements among permittees can be important in issuing
acceptable permits that will not require modification each time circumstances change for one
of the dischargers covered under the permit.
In addition, the special conditions section of the permit could include a compliance sched-
ule. Permit compliance schedules for WQBELs are allowed only when state water quality
standards or state regulations implementing such standards provide authority for using
compliance schedules as well as when those limits are derived from water quality standards
that were newly adopted or substantively revised after July 1, 1977. Most state water quality
standards or implementing regulations authorize using compliance schedules. If compliance
schedule authority is available, the permit writer could place a compliance schedule in the
permit special conditions that would give the discharger time to comply with provisions relat-
ed to WQBELs and trading when those provisions are intended to be phased in over time.
Water Quality Trading Scenarios
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Water Quality Trading Toolkit for Permit Writers
Flowing River Example: Special Conditions
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed
Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered
by the state)
Participating Facilities: Chuck's Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville
POTW, Alpha Limited
Location: All facilities are less than a mile apart from each other along the Flowing River.
The NPDES permit writer has reviewed the signed trade agreement for TP trading between the point
sources and the Flowing River Watershed Phosphorus Credit Exchange. The agreement describes how
each discharger will meet its new WQBEL through trading with the Exchange. The NPDES permit
writer has developed the appropriate effluent limitations, monitoring, and reporting requirements
for the each discharger. The special conditions in the NPDES permit focus on general authority, credit
definition, notification of amendment to the trade agreement, notification of unavailability of credits,
permit reopeners and modification provisions, and enforcement liability.
Permit Language:
General Authority
The permittee is authorized to participate in water quality trading with the Flowing River Water-
shed Phosphorus Credit Exchange, as specified in the trade agreement, for the purposes of comply-
ing with the phosphorus effluent limitations and the TMDL-related requirements of this permit
(Table 1). The authority to use trading for compliance with these limits is derived from  and section 402 of the federal Clean Water Act 33 United States
Code (U.S.C.) section 1342. EPA's policies on Water Quality Trading (1/13/03) and Watershed-Based
NPDES Permitting (1/7/03) endorse water quality credit trading. Additionally the Flowing River
Phosphorus TMDL authorizes water quality trading as a means of achieving the allocations estab-
lished by the TMDL.
Credit Definition
All credits used to comply with the effluent limitations of this permit will be measured in pounds
of total phosphorous per day on a monthly average basis. One trading credit will be defined as one
(1) unit of pollutant reduction (pound of total phosphorus) to Flowing River. All valid credits are
tradable. The permittee may purchase credits from or sell credits to the Exchange so long as the
treatment technologies used to generate credits are documented as providing pollutant reductions
beyond the wasteload allocations established for the credit exchange members in the Flowing
River Phosphorus TMDL.
Notification of Amendment to the Trade Agreement
The permittee is required to notify the permitting authority in writing within 7 days of the Flow-
ing River Watershed Phosphorus Credit Exchange Trade Agreement being amended, modified, or
Water Quality Trading Scenarios


Point Source
Credit Exchange
Credit Exchange Trade
Administration Agreements
"~	
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Special Conditions

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Water Quality Trading Scenario: Point Source Credit Exchange
Flowing River Example: Special Conditions (continued)
revoked. This notification must include the details of any amendment or modification in addition
to the justification for the change(s).
Notification of Unavailability of Credits
The permittee is required to notify the permitting authority in writing within 7 days of becom-
ing aware that credits used or intended for use by the permittee to comply with the terms of this
permit are unavailable or determined to be invalid. This notification must include an explanation
of how the permittee will ensure compliance with the WQBELs established in this permit, either
through implementation of on-site controls or by conducting an approved emergency phosphorus
offset project approved by the NPDES permit writer.
Permit Reopeners, Modification Provisions
The permitting authority may, for any reason provided by law, summary proceedings or otherwise,
revoke or suspend this permit or modify it to establish any appropriate conditions, schedules of
compliance, or other provisions which may be necessary to protect human health or the environ-
ment or to implement the Flowing River phosphorus TMDL. The permitting authority may also
reopen and modify the permit to suspend the ability to trade credits to comply with the total
phosphorus effluent limitations in Table 1-1.
Enforcement Liability
The permittee is liable for meeting its most stringent effluent limitation. No liability clauses
contained in other legal documents (e.g., trade agreements, contracts) established between the
permittee and other authorized buyers and sellers are enforceable under this permit.
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Water Quality Trading Toolkit for Permit Writers
22

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Water Quality Trading Scenario:
Point Source-Nonpoint Source Trading
Contents
Water Quality Trading Scenario: Point Source-Nonpoint Source Trading. . . . 1
Quantifying Nonpoint Source Loads and Credits	2
Potential Issues	2
Establishing Baselines for Nonpoint Source Sellers	6
Nonpoint Source Baseline Derived from TMDL Load Allocations	7
Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation	8
Determining Maximum Feasible Nonpoint Source Load Reductions	9
Accountability	11
Mechanisms Under the NPDES Program	11
Mechanisms Outside of the NPDES Program	11
Trade Agreements	12
Components of a NPDES Permit	15
Permit Cover Page	15
Effluent Limitations	16
Monitoring	22
Reporting Requirements	24
Special Conditions	27

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Water Quality Trading Scenario:
Point Source-Nonpoint Source Trading
Significant water quality impacts may come from sources other
than regulated point sources. The permitting author-
ity, along with other stakeholders, may agree that
the best way to meet water quality standards would
be to involve the nonpoint sources in the water-
shed. Because nonpoint sources are not regulated by
the Clean Water Act (CWA), a trading program that
allows nonpoint sources to generate and sell credits
may provide an economic incentive for these sources
to implement new or additional best management
practices (BMPs) that reduce pollutant loadings to
receiving waters.
pointsource-
nonpoint source Farm
Buyer trade
POTW

Figure 1. Point source-nonpoint source trade.
Point source-nonpoint source trades necessitate a trade agreement between one or more
point sources and one or more nonpoint sources (see Figure 1). The nonpoint source(s)
reduce pollutant loads below an established baseline to generate credits, which the point
source may purchase. Point source-nonpoint source trades would be reflected in an indi-
vidual National Pollutant Discharge Elimination System (NPDES) permit for the point source
either by referencing or incorporating the terms of the trade agreement. Through trading,
the point source can meet water quality-based effluent limitations (WQBELs) at a lower cost
and, provided there is adequate accountability and verification, the nonpoint source will be
compensated for contributing to the point source's WQBELs.
A point source may purchase nonpoint source credits in one of two ways: (1) directly from
nonpoint source(s) by coordinating with a nonpoint source or a program administered by an
entity responsible for a group of nonpoint sources dischargers; or (2) from a nonpoint source
credit exchange that contains pollutant reduction credits contributed by numerous nonpoint
sources through implementation of approved BMPs. A permitting authority should be aware
of technical challenges and uncertainty associated with nonpoint source credit generation,
including how the trading program accounts for uncertainty in measuring nonpoint source
pollutant loads and how equitable baselines are set for nonpoint source credit sellers.
This water quality trading scenario presents the challenges related to nonpoint source credit
generation and then addresses issues specific to developing and issuing NPDES permits that
implement point source-nonpoint source trades where the point source, or an entity rep-
resenting a group of point sources, purchases credits directly from one or more nonpoint
sources. Issues covered under this scenario include the following:
•	Quantifying nonpoint source loads and credits
•	Establishing baselines for nonpoint source sellers
•	Accountability
•	Trade agreements
Water Quality Trading Scenarios
Point Source-
Nonpoint Source
Quantifying	Establishing
Nonpoint	Baselines
Source Loads	for Nonpoint
and Credits	Source Sellers
Accountability
Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Page
Effluent
Limitations Monitoring
Reporting	Special
Requirements Conditions

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Water Quality Trading Toolkit for Permit Writers
• Components of a NPDES permit
-	Permit cover page
-	Effluent limitations
-	Monitoring
-	Reporting requirements
-	Special conditions
A hypothetical example (shown in highlighted boxes) is presented throughout this scenario
to illustrate how NPDES permit writers might work with credit buyers and sellers to assist
in trading and ensure each facility's NPDES permit contains the appropriate limits, require-
ments, and other conditions. Keep in mind that there are a range of options for incorporat-
ing trading provisions into a NPDES permit. The hypothetical example discussed throughout
this scenario illustrates just one of the many options a NPDES permit writer might use.
Quantifying Nonpoint Source Loads and Credits
For most continuous point source discharges, measuring pollutant loads and the effectiveness
of controls is simply a matter of measuring pollutant concentrations in effluent and convert-
ing concentration-based limits to mass-based limits using flow. Conversely, as noted in the
U.S. Environmental Protection Agency's (EPA) Water Quality Trading Policy (Trading Policy),
the diffuse nature of nonpoint source pollutants along with variability in precipitation; land
management practices; and the effect of soil type, slope, and cover on pollutant loadings to
receiving waters creates a great degree of uncertainty in determining loading from nonpoint
sources and measuring the effectiveness of BMPs. For example, pollutant loads in runoff from
a crop field are dependent on crop type, soil type, slope, fertilizer use patterns, weather and
the amount of time it takes for runoff to reach the receiving water. These factors could vary
by season and from year to year; therefore, the pollutant load is highly variable and may be
difficult to measure. The same factors contribute to difficulties in measuring the effectiveness
of BMPs used to reduce nonpoint source pollutant loads.
Nonpoint sources typically employ BMPs to reduce pollutant loading to a receiving water.
BMPs are schedules of activities, technologies, structural controls, changes in or prohibitions
of practices, maintenance procedures, and other measures to prevent or mitigate pollut-
ant runoff to waters. Examples of nonpoint source BMPs include riparian buffer plantings,
wetland creation or restoration, sediment basins, filter strips, crop sequencing, and nutri-
ent management. Nonpoint source pollutant load reductions can sometimes be measured
directly, but trading programs typically use the best available performance information to
estimate load reductions for a particular BMP and then discount these estimated values using
uncertainty ratios to account for the technical challenges in determining BMP effectiveness.
Potential Issues
Lag Time
Permitting authorities should be aware of potential time lags between BMP installation and
full pollutant reduction efficiency. BMPs that are not yet fully functional cannot generate
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing
Accountability Trade
Components




Nonpoint
Baselines
Agreements
of a NPDES





Source Loads
for Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
the full number of expected credits. Credits generated by nonpoint sources through instal-
lation of BMPs may not be available immediately because of a time lag between installation
of the BMP and its effectiveness in reducing loadings or otherwise improving water quality.
In some cases, the credit generation could be prorated on the basis of the pollutant reduc-
tion the BMP is achieving during the current reconciliation period, even where the BMP has
not reached its maximum expected pollutant reduction efficiency. The decisions required to
determine when credits have been generated may have already been made in the program
design. The permitting authority should be aware of these decisions made in trading pro-
gram design.
If the trade agreement or other document external to the permit does not dictate how and
when credits become available for purchase, the NPDES permit should address the time lag
between BMP installation and full treatment efficiency (see Reporting Requirements).
Proper operation and maintenance are criti-
cal to ensuring the ongoing performance
and attaining the expected life span of
a BMP. Trading programs should include
mechanisms to ensure that BMPs installed
to generate credits are being operated and
maintained according to procedures and
guidelines established by Natural Resources
Conservation Service (NRCS), EPA, or other
agencies or product manufacturers.
Period of BMP Performance
The permitting authority should also deter-
mine whether and when a BMP's credit-gen-
erating capacity expires. Credit generation
by nonpoint sources might decrease or stop
if the BMP becomes less effective due to
a natural degeneration, a lack of mainte-
nance, or changing conditions on-site. A
BMP's life expectancy depends on proper
design, placement, and maintenance. Some
BMPs have a discrete or short life or must
be renewed. For example, nonpoint sources
must renew crop sequencing each season.
Other BMPs have a longer life span but
require ongoing maintenance and repair to maintain effectiveness. For example, a sediment
catch basin requires periodic inspection to ensure structural integrity and regular cleaning to
remove and properly dispose of collected sediments. In addition, activities or conditions may
change on-site affecting the efficiency of installed BMPs. For example, a vegetated buffer
strip designed to filter sediment from a 5-acre crop field may be overwhelmed and become
ineffective if the operator decided to increase the field size to 8 acres.
The permitting authority should specify in the permit the approved BMPs and associated
expected life spans established by the trading program. Continued credit generation may
require periodic certification that a nonpoint source continues to implement a practice, that
the nonpoint source is taking specified operation and maintenance actions, and that the
BMP design and specification are still appropriate for the site. The trading program should
account for the life span of a credit source and determine when credits are deemed perma-
nently expired and thus unavailable for any future allocation. Permits implementing nonpoint
source trading can contain or reference provisions to require certification of BMP performance
and define when a BMP generating credits expires (see Reporting Requirements and Special
Conditions).
Water Quality Trading Scenarios
Point Source-
Nonpoint Source
Quantifying	Establishing Accountability Trade
Nonpoint	Baselines	Agreements
Source Loads	for Nonpoint
and Credits	Source Sellers
Components
of a NPDES
Permit	Permit
Cover Pa
Effluent
Limitations Monitoring
Reporting
Requirements
Special
Conditions

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Water Quality Trading Toolkit for Permit Writers
Lower Boise River, Idaho
The Lower Boise trading framework addresses the issue of certifying BMP performance by having
the NPDES point sources purchasing credits sign a Reduction Credit Certificate at the end of each
month certifying that the BMP is still in place and that it produced a specific reduction amount
during the month that just occurred. The NPDES buyer certifies that they are aware of the penal-
ties for false certification by signing the Reduction Credit Certificate, which then establishes the
credit that they can then transfer into their own account and use to cover their discharge. EPA and
Idaho Department of Environmental Quality (Idaho DEQ) conduct random audits of some BMPs to
determine if the certification was valid. For more information on trading in Idaho, see Appendix A.
Uncertainty
EPA's Trading Policy recommends that states and tribes establish methods to account for
greater uncertainties in estimates of nonpoint source loads and reductions (see Appendix B).
There are three types of uncertainty related to nonpoint source BMPs:
•	Measurement uncertainty, which addresses the level of confidence in the field testing
of a nonpoint source BMP
•	Implementation uncertainty, which addresses the level of confidence that a nonpoint
source BMP is properly designed, installed, maintained, and operated
•	Performance uncertainty, which addresses the risk of a BMP failing to produce the
expected results
Options for Addressing Uncertainty
Uncertainty Ratios
The application of an uncertainty ratio helps ensure that actual loads resulting from a trade
do not violate the water quality standards despite the inability to accurately measure them
(Jones 2005). An uncertainty ratio should be applied to estimated nonpoint source load
reductions to account for any potential inaccuracies in the methodology or assumptions used
in the estimation. Uncertainty ratios are particularly important to account for potential inac-
curacies in the estimation methodology when credits from nonpoint source BMPs are esti-
mated or calculated.
Uncertainty, and therefore the uncertainty ratio, can be reduced by enhancing the level of
confidence in BMP effectiveness values through employing one or more of the following
three practices.
Monitoring BMP Effectiveness
Monitoring BMPs installed for generating credits is the most effective method for reducing
uncertainty. Two types of monitoring are possible. In some instances, it is possible to conduct
edge-of-field monitoring to determine BMP performance. Another type of monitoring is ambi-
ent monitoring. Placing monitoring gauges in the stream at strategic locations between the
buyer and the seller would allow for gauging water quality impacts of BMPs. EPA's Monitor-
ing Guidance for Determining Effectiveness of Nonpoint Source Controls (EPA/841-B-96-004)
provides guidance on the design of water quality monitoring programs to assess both impacts
from nonpoint sources and effectiveness of control practices and management measures.
Water Quality Trading Scenarios
Point Source-
Nonpoint Source
Quantifying	Establishing	Accountability Trade Components
Nonpoint	Baselines	Agreements of a NPDES
Source Loads	for Nonpoint	Permit	Permit
and Credits	Source Sellers	Cover Pa
Effluent
Limitations Monitoring
Reporting
Requirements
Special
Conditions

-------
Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Modeling BMP Effectiveness
Modeling that uses local data to calculate nonpoint source pollutant loadings and BMP
effectiveness is also an important tool. For instance, estimates of pollutant reductions (e.g.,
total phosphorus (TP) and sediment) might be based on soil erosion reductions using the
standardized or revised Universal Soil Loss Equation (USLE). This method incorporates soil
type, plant cover, rainfall, slope, and agricultural conservation practice factors to calculate
the soil loss from an area. The soil loss information may then be translated to estimate load-
ings of sediment-bound phosphorus. An uncertainty ratio should be applied to modeled
estimates. All modeling should be ground truthed by local monitoring data, which could
lead to a reduction in uncertainty.
Estimating BMP Effectiveness
Where monitoring and modeling are impracticable, BMP effectiveness can be estimated
through other means. For example, it might be possible to identify a set of tested BMPs with
performance data that have been well established through field testing or under controlled
conditions. These data may be used to estimate the reductions achieved at a nonpoint source
that installs one or more of the tested BMPs. The trading program, with input from local
soil and conservation experts, might identify a list of local BMPs that meet minimum design,
construction, maintenance, and monitoring requirements. Preestablished performance data
can be used to estimate loading reductions for local nonpoint sources. Potential uncertainty
ratio reduction is an advantage of implementing local BMPs with high levels of measurement
precision and accuracy.
South Nation River Watershed, Ontario, Canada
The trading program established formulae that are used to calculate the amount of phosphorus
that is controlled annually from various agricultural practices. For example, the formula used to
calculate the amount of phosphorus (P) controlled through proper manure storage is as follows:
Kg ofP per year controlled = # of animals x animal phosphorus factor x days x 0.04
where:
•	# of animals = the number of animals contributing manure to the area,
•	Animal phosphorus factor = U.S. Department of Agriculture s (USDA) estimates of the
amount of phosphorus excreted per animal,
•	Days = the number of days that the animals are contributing manure to the area, and
•	0.04 represents the assumption that approximately 4 percent of the total amount of manure
excreted would have been transported in runoff from improperly stored manure.
In addition to manure storage, formulae have also been established to calculate the amount of
phosphorus controlled through use of clean water diversions, proper storage and handling of
milkhouse washwater, preventing livestock access to watercourses, various cropping practices,
and buffer strips (O'Grady and Wilson, no date).
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing
Accountability Trade
Components




Nonpoint
Baselines
Agreements
of a NPDES





Source Loads
for Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Toolkit for Permit Writers
The Idaho Department of Environmental Quality's Draft Pollutant Trading
Guidance
Idaho DEQ's November 2003 draft Pollutant Trading Guidance provides a list of approved agricul-
tural BMPs that can be used to generate TP reduction credits for trading in the Lower Boise River
watershed. The draft guidance document includes estimates of BMP effectiveness and uncertain-
ty discounts for specific watersheds (the uncertainty discount is subtracted from the effective-
ness estimate). The guidance also lists the procedures for determining the amount of credits and
associated monitoring and maintenance requirements for each BMP. Table 1 lists selected BMPs
approved by Idaho DEQfor use in nutrient trading in the Lower Boise River watershed. A sepa-
rate list of watershed-specific BMPs, along with effectiveness estimates and uncertainty ratios,
will be generated for each watershed that would like to develop a trading program consistent with
the Idaho Pollutant Trading Guidance. See Appendix A for more information on trading in Idaho.
Table 1. Selected BMPs approved for trading in the Lower Boise River watershed
BMP
Life span
Effectiveness
Uncertainty
Sediment basins (farm scale)
20 years
75%
10%
Constructed wetland
15 years
90%
5%
Microirrigation
10 years
100%
2%
Crop sequencing
1 season
90%
10%
Filter strips
1 season
55%
15%
Establishing Baselines for Nonpoint Source Sellers
As stated in the Essential Trading Information for Permit Writers section, a nonpoint source
should meet the specified baseline before entering the trading market as a credit seller.
Baseline is defined as the pollutant control requirements that apply to a buyer and seller in
the absence of trading. After a seller meets its baseline, it can generate credits.1 A baseline for
a nonpoint source can be derived from a load allocation (LA) established under a total maxi-
mum daily load (TMDL). Where an LA does not exist, EPA's Trading Policy states that state and
local requirements and/or existing practices should determine a nonpoint source's baseline
(see Figure 2). The trading program provisions could also specify some additional minimum
level of control that nonpoint sources would have to achieve before they could generate
credits. The baseline level of control should never be less than existing practice. There are dif-
ficulties associated with establishing baselines for nonpoint sources and, although permitting
authorities may not have direct involvement in establishing these baselines, a permit writer
should be aware of these issues and how they might affect the trading provisions in permits.
To be reliable, trading programs establishing baselines for nonpoint source sellers should use
the maximum amount of verifiable information on loadings in a watershed, such as a TMDL or
other watershed loading analysis. Where a TMDL establishes a reliable LA for nonpoint sourc-
es, an individual nonpoint source's portion of the LA can be used to set its trading baseline.
1 Some trading programs may require a seller to implement controls beyond the baseline before generating credits.
Water Quality Trading Scenarios
Point Source-
Nonpoint Source Quantifying	Establishing Accountability Trade	Components
Nonpoint	Baselines	Agreements ofaNPDES
Source Loads	for Nonpoint	Permit	Permit Effluent	Reporting	Special
and Credits	Source Sellers	Cover Page Limitations Monitoring Requirements Conditions

-------
Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Where a TMDL or similar analysis is not available or does not rep-
resent the most accurate information on nonpoint source loading
in the watershed, the trading program or state policy can establish
a set of minimum BMPs that a nonpoint source must install to be
eligible for trading. The pollutant load from the nonpoint source
after installing these BMPs would be considered the baseline for
estimating further reductions that could then be counted as cred-
its. The permit should reference any state trading program or oth-
er document that contains the model used for estimating credits.
It is important to note that nonpoint source baselines established
using less-verifiable information on pollutant loading are likely to
have less public support and, more relevant to permit writers, may
be challenged as inconsistent with water quality standards.
Nonpoint Source Seller
Baseline for Trading
NPS Seller
With TMDL
NPS Seller
Without TMDL
Load allocation
State and local
requirements
and/or existing
practice
Figure 2. Nonpoint source seller
baseline for trading.
Nonpoint Source Baseline Derived from TMDL Load Allocations
An LA established under a TMDL defines the nonpoint source load reductions necessary to
achieve water quality standards. EPA would not support a trading program that allows non-
point sources to sell credits if the discharge is contributing to water quality impairment; there-
fore, nonpoint sources should meet their portion of the LA before generating credits to sell on
the trading market.
TMDLs might specify an LA for an individual nonpoint
source or for a category of nonpoint source dischargers
in a watershed. If established for an individual nonpoint
source (e.g., a single farm), the individual nonpoint source
should use the LA as its baseline for generating credits.
However, if the TMDL establishes an aggregate LA for a
category of nonpoint sources (e.g., all farms in a water-
shed) or all nonpoint sources on a particular tributary,
the watershed stakeholders, including the permitting
authority or trading program, need to decide how to
equitably distribute that aggregate LA among the indi-
vidual nonpoint source dischargers in a scientifically valid
manner. For example, if the LA is expressed as an overall
load reduction percentage (e.g., 25 percent reduction in
TN loading watershed-wide), the trading program might
require each nonpoint source discharger to reduce its
individual loading by that percentage before generating
credits. Alternatively, where the LA is expressed as a total
aggregate loading reduction (i.e., total pounds per day).
EPA's Trading Policy states that where
a TMDL is in place, the LA or other
appropriate baseline serves as the threshold
for nonpoint sources to generate credits.
This does not mean that EPA requires all
nonpoint sources in a watershed to meet
an aggregate LA for a single nonpoint
source to participate in trading. The Trading
Policy's intent is that each nonpoint source
participating in trading under a TMDL
make reductions consistent with the LA
before they can generate credits (additional
reductions) for sale. This approach ensures
that progress is made toward water quality
standards with each trade. States have
flexibility to set other appropriate baselines
and can, in fact, decide to require all
nonpoint sources to meet the baseline
before participating in trading.
the trading program would distribute the LA among the
individual nonpoint sources to define the baseline for each nonpoint source. The trading pro-
gram might use land cover, total production, proximity to the waterbody of concern, or some
other variable to determine the appropriate distribution of the aggregate LA among indi-
vidual nonpoint sources. The best method of distributing an aggregate LA among nonpoint
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing Accountability
Trade
Components




Nonpoint
Baselines
Agreements
of a NPDES





Source Loads
for Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Toolkit for Permit Writers
source dischargers will vary; watershed stakeholders should work together to determine the
most appropriate method for establishing the nonpoint source baseline.
Once the LA is equitably distributed among nonpoint sources in the watershed, an individual
nonpoint source should reduce its load by its portion of the LA before it generates credits.
To verify the required load reduction and quantify the credits generated after the baseline is
met requires quantification of the nonpoint source load, either through direct monitoring or
estimation. For more information, see the section on Quantifying Nonpoint Source Loads and
Credits, above.
Nonpoint Source Baseline Set at a Minimum Level of BMP
Implementation
In watersheds where a TMDL has not been developed, the nonpoint source baseline is
derived from state, tribal, and local requirements. The nonpoint source should meet this
baseline before generating credits. A trading program can choose to require a more strin-
gent level of BMP control before credits can be generated. In any case, the level of control
required to generate credits should never be less than existing practice.
In any particular watershed, it is likely that different nonpoint sources will be at different lev-
els or stages of BMP implementation. For example, in a watershed where animal feeding oper-
ations (AFOs) are the primary nonpoint source pollutant contributors, some AFOs might be
actively working with the NRCS to implement comprehensive nutrient management plans that
minimize nutrient and sediment runoff. Other AFOs might not have installed any BMPs either
because they do not participate in any NRCS programs or because they are in the early stages
of planning and implementation. These nonpoint source facilities might contribute a much
greater pollutant load than those who have proactively reduced nonpoint source pollutants.
A trading program can choose to require nonpoint sources to implement a minimum level of
BMPs before trading to provide some level of equity among nonpoint source credit generators
in the watershed. In addition, implementing a minimum level of BMPs demonstrates a com-
mitment on the part of the credit generators participating in the trading program.
Trading programs should consider baseline equity issues among nonpoint source participants.
EPA encourages states or trading programs to set a minimum level of BMP requirements for
nonpoint sources before they can generate credits.
Lower Boise River, Idaho
In Idaho, DEQ designates the nonpoint source baseline year (currently 1996 for the Lower Boise,
but this may be amended on the basis of technical outcome of a pending TMDL) for each trading
marketplace in the state. Each nonpoint source then calculates the baseline load for the baseline
year and uses it to determine the eligibility of reductions to serve as credits for trading. In other
words, in the Lower Boise River watershed, if a nonpoint source installed a BMP in 1999, the farm
would have already created eligible credits. However, pollutant reductions from a BMP installed in
1994 would not be eligible. Nonpoint sources in Idaho are required to use the BMP List's estimating
equation for particular BMPs (which incorporates the USDA Surface Irrigation Soil Loss (SISL) equa-
tion) to calculate baseline loads. For more information about this trading program, see Appendix A.
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing Accountability
Trade
Components




Nonpoint
Baselines
Agreements
of a NPDES





Source Loads
for Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Where the nonpoint source baseline is set at a minimum level of BMP implementation, credits
can be generated after meeting the minimum level of control. Quantifying the credits gener-
ated will generally require quantification of the nonpoint source load after implementing the
minimum required BMPs, either through direct monitoring or estimation. For more informa-
tion, see the section on Quantifying Nonpoint Source Loads and Credits, above. In certain
instances, it is impossible or impracticable to quantify a baseline by measuring or estimating
the nonpoint source pollutant load. In these cases, a trading program could allow nonpoint
sources to generate credits for estimated reductions from BMPs. For example, if sufficient
data are available to establish that a particular BMP, installed under specified conditions, will
achieve a loading reduction of X lbs/day, the nonpoint source might be allowed to generate
credits equivalent to X lbs/day without actually having quantified the pollutant load before
installing the BMP. Trading programs should use this approach only where sufficient data on
the efficacy of the BMPs are available to develop a reliable estimate of the expected reduc-
tions. The baseline pollutant load should always be quantified where possible.
Red Cedar River, Wisconsin
TP reduction credits associated with a BMP were estimated using TP loading mod-
els to estimate reductions from well-established and well-understood practices. Soil
testing of each field was done to calculate the TP delivery to the stream from the field
where the BMP was used (Breetz et al. 2004). For more information about this trading
program, see Appendix A.
Determining Maximum Feasible Nonpoint Source Load
Reductions
It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a
waterbody. Therefore, it is important that some analysis be done to estimate the maximum
amount of pollutant runoff that can be controlled from the nonpoint sources in a water-
shed. The difference between this estimate and the nonpoint source's baseline equals the
maximum nonpoint source load reductions available for trading.2 This is a way to ensure that
credits being purchased result in actual reductions. This increases the surety that the trading
program can meet its goal of achieving water quality standards.
A trading program can directly calculate the maximum tradable nonpoint source load reduc-
tion for a watershed. A watershed's maximum tradable nonpoint source load reduction can
be calculated by first determining the maximum feasible implementation of BMPs; second,
estimating the reduction from that level of BMP implementation on the basis of watershed
modeling, published BMP efficiency information, or best professional judgment (BPJ); and
finally, taking the difference between the maximum loadings reduction and the aggregate
baseline for all sellers. In addition, this calculation could be done for an individual farm.
! The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available for
trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on many
factors (as described in the Developing Trade Ratios section), determining the maximum number of credits is not
as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring that
every trade results in a reduction of total load to the waterbody.
Water Quality Trading Scenarios
Point Source-
Nonpoint Source Quantifying
Nonpoint
Source Loads
and Credits
Establishing Accountability
for Nonpoint
Source Sellers
Trade
Agreements
Components
of a NPDES
Permit	Permit
Cover Pa
Effluent
Limitations Monitoring
Reporting
Requirements
Special
Conditions

-------
Water Quality Trading Toolkit for Permit Writers
The trading program may want to include a mechanism for ensuring that this maximum trad-
able nonpoint source load reduction is not exceeded. This could be done, for example, by
specifying the maximum tradable nonpoint source load reductions in the program documen-
tation and then tracking credit sales, and therefore load reductions, by nonpoint sources to
ensure that this maximum is not exceeded.
Pennsylvania's Tradable Loads for Addressing the Chesapeake Bay's
Tributary Strategies
In 2003, EPA developed a document titled The Technical Support Document for the Identification
of Chesapeake Bay Designated Uses and Attainability to help states develop and adopt refined
water quality standards to address nutrient- and sediment-based pollution in the Chesapeake
Bay and its tidal tributaries. As part of this analysis, the Chesapeake Bay Program developed
four nutrient reduction scenarios based on different levels of BMP and control technology
implementation by 2010. The levels ranged from current implementation to "everything,
everywhere, by everybody" (E3) which approximates the maximum nutrient and sediment
load reductions available in the watershed. To create the most objective and uniform maxi-
mum implementation level possible, the E3 scenario was developed without considering site-
specific constraints and program participation levels. If these factors were considered, certain
aspects of the E3 scenario may not be feasible. Nutrient and sediment loads resulting from
each nutrient reduction scenario were estimated using the Chesapeake Bay Program's Phase
4.3 Watershed Model. For example, the estimated loadings for the E3 scenario for Pennsylva-
nia agriculture were 21,153,000 lbs TN/yr and 1,896,000 lbs TP/yr. (More information on the
development of the E3 scenario is available in Appendix A of the Technical Support Document
available at: www.chesapeakebay.net/uaasupport.htm)
Recognizing that model estimates based on the E3 scenario likely overestimated the maximum
feasible nutrient and sediment load reductions, Pennsylvania made adjustments to the estimates
to better represent a feasible effort. One adjustment was reducing by 10 percent the level of
nonpoint source reductions estimated in the E3 scenario. The selection of a 10 percent reduction
is subjective, since estimates of the feasible level of implementation for nonpoint source BMP
implementation vary widely. Additionally, Pennsylvania estimated the reductions for those BMPs
in Pennsylvania's Tributary Strategy that were not included in the E3 scenario. These additional
reductions were included in the revised E3 scenario. The estimated loadings for the revised
scenario for agriculture were 21,819,000 lbs TN/yr and 1,726,000 lbs TP/yr. After adjusting the
E3 scenario estimates, Pennsylvania estimated the maximum allowable credits as the difference
between the load estimates from the revised E3 scenario and the Pennsylvania Tributary Strat-
egy loadings goal. The Tributary Strategy loads for agriculture were 27,580,000 lbs TN/yr and
2,123,000 lbs TP/yr yielding final tradable loads of 5,760,000 lbs TN/yr and 397,000 lbs TP/yr.
The scenario values and the tradable load values will change as new BMPs are developed or the
efficiencies of existing BMPs are revised.
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing Accountability
Trade
Components




Nonpoint
Baselines
Agreements
of a NPDES





Source Loads
for Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Accountability
Mechanisms Under the NPDES Program
EPA's Trading Policy notes that "States and tribes should establish clear enforceable mecha-
nisms consistent with NPDES regulations that ensure legal accountability for the generation
of credits that are traded."
Such enforceable mechanisms might include, among other things, requirements for water
quality or effluent monitoring, credit purchase and sale accounting, and assessment of BMP
effectiveness. These mechanisms might be contained in state regulations, the project trade
agreement, or both. By incorporating such accountability provisions of the trade agreement
(or the entire trade agreement) into a NPDES permit, the state or tribe makes the point
source legally responsible for their performance.
EPA's Trading Policy also states that "In the event of default by another source generating
credits, an NPDES permittee using those credits is responsible for complying with the effluent
limitations that would apply if the trade had not occurred."
To account for the possibility of a failed trade (e.g., insufficient generation of necessary cred-
its by the seller), EPA recommends that the permit (and any accompanying trade agreement)
clearly describe the respective responsibilities and legal liability (if any) of the buyer and the
seller (see Special Conditions).
Mechanisms Outside the NPDES Program
To further clarify and protect their interests, the trading parties may choose to enter into a
contract or other agreement separate from any applicable NPDES permit. Such a contract or
agreement could, where appropriate, address a variety of financial or legal considerations
and contingencies among the trading parties, including what happens in the case of default
by any party. For example, the point source buyer might use such a contract to memorialize
an agreement that the credits it needs are available, and the nonpoint source seller might use
such a contract to guarantee payment for its services.
Great Miami River Watershed, Ohio
After a soil and water conservation district s proposal is approved, the Miami Conser-
vancy District (MCD, the broker of the program) enters into a contract with the successful
soil and water conservation district for project implementation. The soil and water conser-
vation district then enters into a project agreement with the nonpoint source responsible
for implementing the BMPs. MCD tracks the credits generated and allocates them to the
buyers. A separate Load Reduction Workgroup will evaluate the accuracy of reduction
estimates every two years. For more information on this program, see Appendix A.
Water Quality Trading Scenarios
Point Source-








Nonpoint Source
Quantifying
Establishing
Accountability Trade
Components




Nonpoint
Baselines for
Agreements
of a NPDES





Source Loads
Nonpoint

Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers


Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Trade Agreements
Typically, the terms that govern a trading program will be developed outside the NPDES per-
mit process and can be incorporated or reflected in the permit (see Appendix C). The Trading
Policy describes several mechanisms for implementing trading through NPDES permits (see
Appendix B). NPDES permits authorizing water quality trading should reference any existing
trade agreement in the permit fact sheet. The permit writer may also incorporate specific
provisions of the agreement as appropriate (e.g., shared responsibilities for conducting ambi-
ent monitoring) into the permit.
All trade agreements referenced in NPDES fact sheets and permits should meet certain
minimum standards to help ensure the trades authorized by the permit are consistent with
water quality standards. At a minimum, the trade agreement should be a written agree-
ment, signed and dated by authorized representatives of all trading partners. Verbal trade
agreements should not be referenced in NPDES permits. The written trade agreement should
contain sufficient detail to allow the permitting authority to determine with some degree of
certainty that the terms of the agreement will result in loading reductions and generation
of sufficient credits to satisfy water quality requirements. If there is no formal, outside trade
agreement, trading can still occur; however, the permit writer will need to more explicitly
describe the trading program in the fact sheet and authorize specific aspects of the trad-
ing program as permit conditions. Trading partners can specify the details pertaining to the
negotiated terms of the trade (e.g., credit price, payment schedule, consequences for failure
to fulfill negotiated terms) in a separate, written and signed contract.
Wells River Example: Trade Agreements
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
¦	Estimated Phosphorus Load from Farm with No BMPs:
6,000 lbs/yr (2 lbs/ac/yr of TP x 3,000 acres)
¦	Estimated Phosphorus Load Reduction from Current BMPs (500 Acres under
Conservation Tillage): 850 lbs/yr (assumes 85 percent removal rate, or 1.7 lbs/ac removed
for every 2 lbs/ac of loading; 1.7 lbs/ac x 500 acres = 850 lbs of TP/yr)
¦	Current TP Load: 5,150 lbs/yr (6,000 lbs/yr - 850 lbs/yr = 5,150 lbs/yr)
Load Allocation (baseline): 15 percent load reduction from current TP load or load reduction of
772.5 lbs/yr (0.15 x 5,150 lbs/yr = 772.5 lbs/yr reduction).
¦	Estimated Total Load Reduction from Planned BMPs: 3703.5 lbs/yr
Nutrient Management Planning (assumed effectiveness of 35 percent reduction from
current load = 1,802.5 lbs/yr)
Water Quality Trading Scenarios
Point Source-









Nonpoint Source
Quantifying
Establishing
Accountability
Trade
Components




Nonpoint
Baselines for

Agreements
of a NPDES





Source Loads
Nonpoint


Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers



Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Wells River Example: Trade Agreements (continued)
90 foot riparian buffer zone along 20 stream miles (assumed 80 percent load reduc-
tion from treated area of 1,188 acres with a loading of 2 lbs/ac; treated area is equal
to riparian buffer length and width, plus 400 ft of land adjacent to buffer = 20 stream
miles of 90 ft riparian buffer, in addition to 400 ft of adjacent land = 1,188 acres;
1,188 acres x 2 lbs/ac of TP = 2,376 lbs/yr of TP loading; 0.80 x 2,376 lbs/yr = 1,901
lbs/yr of TP load reduction from riparian buffer treated area)
¦	Load Eligible for Trading after Meeting Load Allocation as Baseline: 2,931 lbs/yr
(3,703.5 lbs/yr - 772.5 lbs/yr = 2,931 lbs/yr; 2,931 lbs/yr average monthly = 8 lbs/day)
Credit Buyer: Springtown POTW
¦	Existing TBELb: 500 lbs/day (average monthly)
¦	Current Loading: 500 lbs/day (average monthly)
¦	New WQBEL (based on WLAC) : 475 lbs/day (average monthly)
¦	WWTPd Treatment Capabilities: Treatment to 500 lbs/day (average monthly)
¦	Load Reduction necessary to remain in compliance with WQBEL: 25 lbs/day (average
monthly)
Notes: a POTW = publicly owned treatment works; b TBEL = technology-based effluent limitations;
c WLA = wasteload allocation; d WWTP = wastewater treatment plant
Location: Patterson Soybean and Corn Farm (credit seller) is located approximately one mile
upstream from Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Location Ratio: Unnecessary because both sources discharge directly into Wells River
¦	Delivery Ratio: Unnecessary because of close proximity of facilities
¦	Equivalency Ratio: 2:1 because of the different solubility of phosphorus between the point
and nonpoint sources
The Springtown POTW is scheduled to renew its permit in 2 years. Its new permit will contain a new,
more stringent WQBEL for TP that reflects its TMDL WLA. To meet the necessary load reduction,
the Springtown POTW will have to purchase TP credits from a number of local nonpoint sources and
enter into several trade agreements. The trade agreement with the Patterson Soybean and Corn Farm
is one of four trade agreements that the Springtown POTW has with local nonpoint sources (other
farms trading are Maybelle's Farm, U-Pick'Em Vegetable Farm, and Larry's Vegetable Coop.)
The basic terms of the trade agreement as they pertain to Patterson Soybean and Corn Farm are as follows:
¦ Patterson Soybean and Corn Farm will implement BMPs that will result in an estimated TP load
reduction of 3,703.5 lbs/year; approximately 2,931 lbs/yr will be available for trading after meet-
ing the 15 percent load reduction baseline.
Water Quality Trading Scenarios
Point Source-









Nonpoint Source
Quantifying
Establishing
Accountability
Trade
Components




Nonpoint
Baselines for

Agreements
of a NPDES





Source Loads
Nonpoint


Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers



Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Wells River Example: Trade Agreements (continued)
¦	Patterson Soybean and Corn Farm guarantees this TP load reduction for a period of 5 years to
coincide with Springtown POTW's NPDES permit term.
¦	Springtown POTW will require 25 lbs/day of TP reduction to meet its WQBEL (its WLA).
¦	Springtown POTW will purchase all of Patterson Soybean and Corn Farm's load reduction eligible
for trading of 8 lbs/day (average monthly). However, on the basis of the 2:1 uncertainty ratio
applied to all nonpoint source TP credits and the 2:1 equivalency ratio to account for differences
in solubility, Springtown POTW's purchase of 8 lbs/day from Patterson Soybean and Corn Farm is
equal to only 2 TP credits toward its required load reduction of 25 credits/day to meet its WQBEL.
¦	Patterson Soybean and Corn Farm will begin BMP implementation 12 months before the effec-
tive date of Springtown POTW's renewed NPDES permit to ensure that BMPs are achieving
estimated pollutant load reductions and are generating full credits.
¦	Springtown POTW will enter into a memorandum of understanding with the Wells County Soil
and Water Conservation District (SWCD) to perform monthly monitoring and inspections at
Patterson Soybean and Corn Farm to ensure that estimated TP load reductions are achieved
through BMP implementation. If the Wells County SWCD fails to perform this function, Spring-
town POTW will conduct the monthly monitoring and inspections and submit the necessary
monitoring and inspection reports.
¦	Failure to fulfill the terms of this trade agreement will result in Patterson Soybean and Corn
Farm's ineligibility to participate in future trading activities with any permitted point sources in
the state for a period of 5 years from the time of the breach of the trade agreement terms.
The NPDES permit writer for the facilities receives a written copy of the trade agreement that is
signed and dated by authorized representatives of Springtown POTW and Patterson Soybean and
Corn Farm. The permit writer reviews the written trade agreement to verify that the information
related to baselines and estimated pollutant load reductions are accurate and do not conflict with any
of Springtown POTW's existing NPDES permit requirements. During the permit renewal process, the
NPDES permit writer will incorporate provisions authorizing the purchase of TP credits from non-
point sources that enter into trade agreements with approved terms. At that time the permit writer
will also modify Springtown POTW's effluent limitations, monitoring, reporting, and special condi-
tions requirements to authorize the purchase of nonpoint source TP credits to achieve compliance
with the facility's WQBEL. The permit writer will reference each written and signed trade agreement
in the Springtown POTW NPDES permit fact sheet and attach a copy of each trade agreement as part
of the permit's administrative record.
In a separate contract, Springtown POTW and Patterson Soybean and Corn Farm articulate the finan-
cial and liability conditions that they have agreed upon. Springtown will develop contracts with each
farm it trades with. The terms of the separate contracts, which the permit writer does not ask to see
because it has no bearing on the NPDES permit requirements for the Springtown POTW, are as follows:
¦	Springtown POTW will pay Patterson Soybean and Corn Farm $16 per credit of TP reduced on a
monthly basis, after the Wells County SWCD has verified the TP load reductions.
Springtown POTW will follow the same process with the other farms to generate a total of 25 credits.
Water Quality Trading Scenarios
Point Source-









Nonpoint Source
Quantifying
Establishing
Accountability
Trade
Components




Nonpoint
Baselines for

Agreements
of a NPDES





Source Loads
Nonpoint


Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers



Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Components of a NPDES Permit
NPDES permits that authorize water quality trading are no different than typical NPDES per-
mits in many respects—they require the same structure, analyses, and justification. All per-
mits have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and
reporting requirements; (4) special conditions; and 5) standard conditions. Standard condi-
tions are the same for all NPDES permits and will not be addressed in this Toolkit. In addition,
consistent with title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are
subject to public notice and comment. This process provides all interested parties an opportu-
nity to comment on the trading provisions in the permit.
Each NPDES permit is accompanied by a permit fact sheet. The information in these fact
sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the
permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions
in the permit. There is a wide variety of options for including trading information in the fact
sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller)
to including the entire trading program.
There are a variety of issues, however, that might require special consideration when devel-
oping a permit incorporating water quality trading with nonpoint sources. Appendix E pro-
vides the permit writer with a list of fundamental questions that should be addressed during
the permit development process.
Permit Cover Page
The cover page of a NPDES permit typically contains the name and location of the
permittee(s), a statement authorizing the discharge, the specific locations for which a dis-
charge is authorized (including the name of the receiving water), and the effective period of
the permit (not to exceed 5 years). In addition, the cover page may list the pollutants regulat-
ed by the permit. For instance, the cover page of an overlay permit for TP may state that the
overlay permit addresses only TP and that other parameters are addressed in each facility's
individual permit.
The cover page also could specifically authorize trading between the permitted point source
and the nonpoint source(s) generating credits. However, whereas the cover page for a permit
that includes trading between point sources would include the specific authorized discharge
locations for each point source, because a nonpoint source is a diffuse pollutant source (e.g.,
farms, ski areas, golf courses), a permit that implements a trade with a nonpoint source trad-
ing partner might not reference a specific discharge location for the nonpoint source involved
in the trade. The cover page could, however, simply name the nonpoint source either by
category (e.g., farms, golf courses) or by the name of the specific nonpoint source (e.g.. Rock
Creek Dairy, Rolling Hills Country Club) and provide a general description of nonpoint source
location (e.g., Hudson River at West Point).
The cover page also should address the regulation, legal authority, policy statements, plan-
ning documents and the trade agreement that support trading between point and nonpoint
Water Quality Trading Scenarios
Point Source-
Nonpoint Source
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines for
Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit	Permit
Cover Pa
Effluent
Limitations Monitoring
Reporting
Requirements
Special
Conditions

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Water Quality Trading Toolkit for Permit Writers
sources in the Authority section of the cover page. If the state has issued regulations or policy
documents authorizing water quality trading, the permit writer should reference these. For
example, if trading is considered a water-quality management tool in the state's Water Qual-
ity Management Plan, this may establish authority for integrating trading into NPDES permits
and can be referenced on the cover page (Jones 2005).
Effluent Limitations
Effluent limitations are the primary mechanism for controlling the discharge of pollutants
from point sources into receiving waters. When developing a permit, the permitting author-
ity focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES
permits, permits that include trading must include any applicable TBELs, or the equivalent
and, where necessary, WQBELs, that are derived from and comply with all applicable technol-
ogy and water quality standards. Furthermore, limits must be enforceable, and the process
for deriving the limits should be scientifically valid and transparent.
EPA's 2003 Trading Policy does not support trading to meet TBELs unless trading is specifically
authorized in the categorical effluent limitation guidelines on which the TBELs are based.
Applicable TBELs thus serve as the minimum control level below which the buyer's treatment
levels cannot fall. This section discusses the overarching principles of how to express all appli-
cable effluent limitations in permits for dischargers participating in water quality trades.
Credit Buyers
Permits for credit buyers should include both the baseline, which is the WQBEL that defines
the level of discharge the buyer would have to meet through treatment when not trading,
and a minimum control level that must be achieved through treatment when trading. The
permit should also include the amount of pollutant load to be offset (minimum control level
- baseline) through credit purchases when trading. Most often, the applicable TBEL will serve
as the minimum control level. A permitting authority can choose to impose a more stringent
minimum control level than the TBEL to prevent localized exceedances of water quality stan-
dards near the point of discharge, but not one that is less stringent than the TBEL. In a NPDES
permit or fact sheet, the effluent limitations for a credit buyer could be described as follows:
• The Discharger must meet, through treatment or trading, a mass-based effluent limi-
tation for Pollutant A of . If this effluent limitation is met through
trading, the Discharger must purchase credits from authorized Sellers in an amount
sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess
of , but at no time shall the maximum mass discharge of Pollutant A
during  exceed the minimum control level of . Thus, the maximum mass discharge of Pollutant A to be offset
through credit purchases is .
Water Quality Trading Scenarios
Point Source-


	~	





Nonpoint Source
Quantifying
Establishing
Accountability Trade Components





Nonpoint
Baselines for
Agreements of a NPDES






Source Loads
Nonpoint
Permit
Permit
Effluent

Reporting
Special

and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Wells River Example: Effluent Limitations
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
¦	Estimated Phosphorus Load from Farm with No BMPs:
6,000 lbs/yr (2 lbs/ac/yr of TP x 3,000 acres)
¦	Estimated Phosphorus Load Reduction from Current BMPs (500 Acres Under Conser-
vation Tillage): 850 lbs/yr (assumes 85 percent removal rate, or 1.7 lbs/ac removed for every
2 lbs/ac of loading; 1.7 lbs/ac x 500 acres = 850 lbs of TP/yr)
¦	Current TP Load: 5,150 lbs/yr (6,000 lbs/yr - 850 lbs/yr = 5,150 lbs/yr)
¦	Load Allocation (baseline): 15 percent load reduction from current TP load or load reduction
of 772.5 lbs/yr (0.15 x 5,150 lbs/yr = 772.5 lbs/yr reduction)
¦	Estimated Total Load Reduction from Planned BMPs: 3703.5 lbs/yr
¦	Load Eligible for Trading after Meeting Load Allocation as Baseline: 2,931 lbs/yr
(3,703.5 lbs/yr - 772.5 lbs/yr = 2,931 lbs/yr; 2,931 lbs/yr = 8 lbs/day average monthly)
Credit Buyer: Springtown POTW
¦	Existing TBEL: 500 lbs/day (average monthly)
¦	Current Loading: 500 lbs/day (average monthly)
¦	New WQBEL (based on WLA): 475 lbs/day (average monthly)
¦	WWTP Treatment Capabilities: Treatment to 500 lbs/day (average monthly)
¦	Load reduction necessary to remain in compliance with WQBEL: 25 lbs/day (average monthly)
Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from
Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Equivalency: 2 :1
Springtown POTW needs to purchase credits from four different nonpoint sources to account for
a reduction of 25 lbs/day (average monthly) to meet the new WLA. The permit will be renewed in 2
years, which allows time for the nonpoint source BMPs at Patterson's Corn and Soybean Farm (and
others) to be fully operational. Until that time, the existing TBEL continues to apply.
The permit writer for Springtown POTW will include limitations that will apply in the event of trad-
ing and limitations that will apply if no trading occurs—the WQBEL (baseline) and the minimum
control level if trading occurs (existing TBEL).
Water Quality Trading Scenarios
Point Source-


	~	





Nonpoint Source
Quantifying
Establishing
Accountability Trade Components





Nonpoint
Baselines for
Agreements of a NPDES






Source Loads
Nonpoint
Permit
Permit
Effluent

Reporting
Special

and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Wells River Example: Effluent Limitations (continued)
Permit Language:
Table 2. Monthly average mass loading effluent limitations for TP
Facility
Units
Existing TBEL
WQBEL
Effluent limitation
with trading
Springtown POTW
lbs/day
500
475 (Baseline)
500 (Minimum
Control Level/TBEL)
A.	Springtown POTW is authorized to discharge total phosphorus from Outfall 001 to the Wells
River provided the discharge meets the limitations set forth herein. Provision X of this permit
authorizes the permittee to purchase water quality trading credits for total phosphorus from
nonpoint sources within the Wells River watershed that meet baseline requirements before
trading.
B.	The discharge from Outfall 001 shall comply with the monthly mass loading of total phospho-
rus established by either a. or b.:
a.	The WQBEL set forth in Table 2; or,
b.	The Effluent Limitation with Trading set forth in Table 2 provided the permittee has
secured total phosphorus credits from Patterson's Corn and Soybean Farm and other non-
point sources sufficient to offset any discharge in excess of the WQBEL set forth in Table
2. The number of total phosphorus credits required to be purchased shall be calculated as
follows:
Credits required = (Actual Discharge - WQBEL) x Trade ratio
Where:
Actual discharge = the total phosphorus load, expressed in lbs/day as a monthly average.
Trade ratios = 4:1 (uncertainty and equivalency)
C.	Credits purchased by the permittee may be applied only for the calendar month(s) during
which they were generated by Patterson's Corn and Soybean Farm or other nonpoint sources.
Pollutant Form, Units of Measure, and Timing Considerations
The permit should explicitly identify the pollutant or pollutants being traded for which trad-
ing is permitted. The permitting authority should ensure that the trading program or agree-
ment and the calculated WQBELs are consistent in terms of the form of the pollutant, units of
measure, and timing.
For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated
under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen
(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers
and sellers should trade TN credits. In this case, a discharger may be required to measure TN.
Water Quality Trading Scenarios
Point Source-


	~	





Nonpoint Source
Quantifying
Establishing
Accountability Trade Components





Nonpoint
Baselines for
Agreements of a NPDES






Source Loads
Nonpoint
Permit
Permit
Effluent

Reporting
Special

and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
If there are concerns about localized impacts, and WQBELs are also specified for a particu-
lar form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and
nitrate (all expressed as N) and then calculate its TN discharge.
Also an equivalency ratio may be needed when two sources are trading pollutants such as
TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one
discharger's phosphorus discharge is made up primarily of soluble phosphorus while its
trading partner's discharger is primarily non-soluble phosphorus). An equivalency ratio may
also be needed in cross-pollutant trading of oxygen demanding pollutants (e.g., phosphorus
and biochemical oxygen demand (BOD)). In this case, the equivalency ratio would equal the
ratio between the two pollutants' impacts on oxygen demand. The trading program should
account for any necessary equivalency ratios with regard to pollutant form or type; the
permit writer simply needs to be aware of the pollutant form or type addressed in the trade
agreement to ensure that the permit is consistent.
Wells River Example: Pollutant Form, Units of Measure,
and Timing
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
Credit Buyer: Springtown POTW
Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from
Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Equivalency Ratio: 2:1
Pollutant Form
The TMDL indicates a need for Springtown POTW, the credit buyer, to control TP discharges. The
facility will not be able to meet the new limit with current treatment capabilities. Springtown POTW
has entered into a trading agreement with several upstream nonpoint sources (farms) that will be able
to generate the credits it needs to meet its WQBEL based on the TMDL WLA. The TMDL includes LAs
for the farms (credit sellers). Each seller operation will implement BMPs necessary to reduce phos-
phorus loads beyond the baseline requirements. With assistance from the permitting authority, an
equivalency ratio of 2:1 was developed to account for the difference in solubility between the point
source and the farms.
Units of Measure
The WQBELs based on the TMDL WLA are expressed in lbs/day as a monthly average to correspond
with the units and averaging period in the TMDL. The limits in the POTW's existing permit are also
expressed in lbs/day as a monthly average. The TP load reductions assumed in the trading agreements
Water Quality Trading Scenarios
Point Source-


	~	





Nonpoint Source
Quantifying
Establishing
Accountability Trade Components





Nonpoint
Baselines for
Agreements of a NPDES






Source Loads
Nonpoint
Permit
Permit
Effluent

Reporting
Special

and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Wells River Example: Pollutant Form, Units of Measure,
and Timing (continued)
for the agricultural BMPs will be calculated and expressed in lbs/day as a monthly average to deter-
mine the number of credits they can generate to sell to the POTW.
Timing of Credits
Credits are available beginning at the time of permit renewal. This allows 12 months for the farms'
BMPs to be fully implemented and 12 months to gather monitoring data to verify that the BMPs are
achieving the expected phosphorus control efficiency and will generate credits as expected. These
data are necessary to better understand how loading and reduction may vary over time and to develop
monthly credit generation data to correspond with monthly average effluent limitations. Trades will
occur monthly to correspond with monthly average effluent limitations. The farms will be able to
continue to generate credits as long as the nutrient management plans are properly implemented and
updated as necessary, they are able to demonstrate reductions, and the nonpoint source baseline does
not change in a way that would reduce or eliminate the credits. The ability of the farms to continue to
generate credits will be assessed during the renewal of the POTW's permit every 5 years.
Anti-backsliding, Antidegradation, and New Discharges Special
Considerations
EPA's Trading Policy discusses anti-backsliding and antidegradation and how these provisions
can be met through trading.
Anti-backsliding
The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in gen-
eral, prohibits the renewal, reissuance, or modification of an existing NPDES permit that con-
tains WQBELs, permit conditions, or standards that are less stringent than those established
in the previous permit (USEPA 1996b). The CWA establishes exceptions to this general anti-
backsliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for less-
stringent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs,
the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR
122.44(1) provide exceptions for circumstances such as material and substantial alterations
to the facility, new information, events beyond the permittee's control, and permit modifi-
cations under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs,
allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a water-
body attaining water quality standards as long as the waterbody continues to attain water
quality standards even after the WQBEL is relaxed. In addition, revising the limitation must
be consistent with the state's antidegradation policy. If the discharge is to a waterbody that
is not attaining water quality standards, a less-stringent WQBEL is allowed only when the
cumulative effect of all revised effluent limitations results in progress toward attainment of
water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA's
NPDES Permit Writers' Manual (EPA-833-B-96-003). EPA's Trading Policy states:
EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the
CWA will generally be satisfied where a point source increases its discharge
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
through the use of credits in accordance with alternate or variable water quality
based effluent limitations contained in an NPDES permit, in a manner consistent
with provisions for trading under a TMDL, or consistent with the provisions for
pre-TMDL trading included in a watershed plan.
A permit writer should simply explain in the fact sheet of the permit how the limitations in
the permit, after accounting for any trading provisions, are at least as stringent as the limits
in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are
satisfied.
Antidegradation
As repeated throughout this document, NPDES permits may not facilitate trades that would
result in nonattainment of an applicable water quality standard, including the applicable
antidegradation provisions of water quality standards. Permitting authorities should ensure
that WQBELs developed to facilitate trade agreements accord with antidegradation provi-
sions and that antidegradation reviews are performed when required. Nothing in the Trad-
ing Policy per se changes how states apply their antidegradation policies, though states may
modify their antidegradation policies to recognize trading.
The Trading Policy states:
EPA does not believe that trades and trading programs will result in "lower
water quality"
. . . or that antidegradation review would be required under EPA's regulations
when the trades or trading programs achieve a no net increase of the pollut-
ant traded and do not result in any impairment of designated uses.
Special considerations for antidegradation relative to water quality trading depend on the
tier of protection applied to the waterbody as described below.
Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters,
the antidegradation policy mandates protection of existing instream uses. Because EPA nei-
ther supports trading activities nor allows issuance of permits that violate applicable water
quality standards, which should protect existing uses at a minimum, any supported trading
activities incorporated into a NPDES permit should not violate antidegradation policies appli-
cable to Tier 1 waters.
Tier 2 protects waters where the existing water quality is higher than required to support
aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the
level that would continue to support existing and designated uses) but only if an antidegra-
dation review finds that (1) it is necessary to lower water quality to accommodate important
social or economic development, (2) all intergovernmental and public participation provi-
sions have been satisfied, and (3) the highest statutory and regulatory requirements for point
sources and BMPs for nonpoint sources have been achieved. The Trading Policy supports trad-
ing to maintain high water quality when trading is used to compensate for new or increased
discharges. Thus, the Trading Policy supports reductions of existing pollutant loadings to
compensate for the new or increased load so that the result is no lowering of water quality
Water Quality Trading Scenarios
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Water Quality Trading Toolkit for Permit Writers
A state, in applying its antidegradation policy, may decide to authorize a new or increased
discharge to high-quality water, and may decide to use trading to completely or partially
compensate for that increased load. If the increased load to Tier 2 waters is only partially
compensated for by trading, an antidegradation review would be required to address the
increased load.
Tier 3 protects the quality of outstanding national resource waters and waters of exceptional
recreational or ecological significance. In general, antidegradation policies do not allow any
increase in loading to Tier 3 waters that would result in lower water quality. EPA supports
trading in Tier 3 waters to maintain water quality.
Monitoring
Permitting authorities may want to consider developing monitoring and reporting require-
ments to characterize waste streams and receiving waters, evaluate wastewater treatment
efficiency, and determine compliance with permit conditions in the trade agreement. Moni-
toring and reporting conditions of a NPDES permit may contain specific requirements for
sampling location, sample collection method, monitoring frequencies, analytical methods,
recordkeeping, and reporting. If the permit conditions include compliance with provisions in
a trade agreement, then the permitting authority should include monitoring, record-keep-
ing and reporting requirements that facilitate compliance evaluations and, where necessary,
enforcement actions related to the trading requirements. Discharge monitoring requirements
should be consistent with the provisions of the trade agreement in terms of pollutants and
forms of pollutants monitored, reporting units, and timing. The permit provisions should
ensure that the results of discharge monitoring will be useful to the permittee, the permit-
ting authority, and the general public in determining whether the provisions of the trade
agreement are being met. Permits that authorize point source-nonpoint source trades also
should address the unique considerations for monitoring and reporting that will facilitate
evaluating the effectiveness of BMPs used to generate pollutant reduction credits.
Sample Collection and Analysis
The same discharge sampling location used for compliance in any existing NPDES permits
should be used for determining compliance with effluent limitations developed for traded
parameters. Samples collected as part of a self-monitoring program required by a NPDES per-
mit must be performed in accordance with EPA-approved analytical methods specified in 40
CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants Under
the Clean Water Act) where Part 136 contains methods for the pollutant of concern. Where
no Part 136 methods are available, the permit writer should specify which method the point
source should use for compliance monitoring.
Parties Responsible for Monitoring
In a permit that authorizes trading between a point source(s) and one or more nonpoint
sources, the permittee(s) will be responsible for all of the monitoring activities that would
normally be required in any NPDES permit. If the permit is an overlay permit covering mul-
tiple point sources and is used to incorporate water quality trading for specific pollutants,
the permitting authority may establish monitoring requirements by reference to the facility's
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
individual NPDES permit for consistency. Alternatively, the overlay permit could specifically
list the monitoring location and requirements.
Ambient Monitoring
Ambient monitoring is one way to show whether a trade agreement meets or improves water
quality. In addition to traditional discharge monitoring requirements, ambient water quality
monitoring may be appropriate at strategic locations to ensure that the trade is not creating
localized exceedances of water quality standards and to document the performance of the
overall trading program. Permits with mixing zones may include monitoring requirements as
appropriate to ensure that water quality criteria are not exceeded at the edge of the appli-
cable mixing zone.
BMP Monitoring and Trade Tracking
To assure that nonpoint source BMPs are performing properly, the permitting authority
should add permit conditions specifying that a BMP be monitored and inspected on a regu-
lar basis. The trading program itself might establish these responsibilities. In some cases,
monitoring and inspections are conducted by point sources. In other cases, a third party may
assume responsibility for BMP monitoring.
Under any of these scenarios, the permitting authority should be aware of the monitoring
and reporting responsibilities established in the trading program and should ensure that
permit conditions do not contradict these requirements. Where the trading program provides
that the point source conduct nonpoint source BMP inspections and monitoring, the permit
should incorporate or reference those requirements. Where the trading program provides
that a third party conduct inspections and monitoring, the permit should also reference those
requirements and clarify the permittee's responsibilities, if any, for reporting or using the
information and data gathered through the inspections and monitoring activities or conduct-
ing these activities itself should the third party fail to fulfill its responsibilities.
Where the trading program does not establish clear mechanisms and responsibilities for BMP
monitoring, the permitting authority should require them of the permittee. In addition, the
permitting authority might include a special condition in the permit that requires either the
discharger or someone contracted by the dischargers to conduct routine inspections to verify
that BMPs are being maintained and operated as required to retain pollutant reduction
efficiency.
Permitting authorities should consider developing trade tracking forms and establishing dis-
charger trade reporting requirements to monitor trading activities and any alternative com-
pliance activities implemented if a BMP fails to perform as expected (see Special Conditions).
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Water Quality Trading Toolkit for Permit Writers
Wells River Example: Monitoring
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
Credit Buyer: Springtown POTW
Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from
Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Equivalency Ratio: 2:1
The facility's existing permit includes TBELs that are based on state treatment standards for TP and
monitoring requirements for sampling the effluent monthly for TP to determine compliance. A new
permit has been developed for the POTW, which incorporates the new effluent limits (based on the
approved TMDL) as well as the necessary provisions and effluent limits to authorize trading.
In the new permit, the POTW will be required to monitor for TP weekly and must submit monthly dis-
charge monitoring reports (DMRs) year-round by the 15th of the second month following monitoring
to the permitting authority to gauge compliance. Ambient receiving water monitoring requirements
are included in the existing NPDES permits and are adequate to ensure that localized exceedances of
water quality standards do not develop as a result of trades.
Permit Language:
¦	The permittee shall monitor effluent total phosphorus a minimum of one time per week. The
permittee shall determine the average monthly mass loading based on actual monthly aver-
age flow. Flow monitoring shall be continuous.
Reporting Requirements
The permitting authority should establish reporting requirements to support the evaluation
of water quality trading programs. For example, in addition to reporting discharge monitor-
ing results, permitting authorities might require a permittee to report the number of credits
purchased. Permitting authorities might also require an annual monitoring report specific to
the pollutants involved in the trade, to provide information on annual loading in accordance
with the requirements of the trading program. Permits incorporating water quality trades
should require reporting at a frequency appropriate to determine compliance with the trad-
ing provisions. Permitting authorities should consider any requirements of the trading pro-
grams related to monitoring and reporting and ensure the permits are consistent with these
requirements. Permits may require reporting of monitoring results at a frequency established
through the permit on a case-by-case basis but in no case may that frequency be less than
once per year.
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Trading programs may establish other reporting and tracking requirements as well. For
example, it is essential to have a mechanism for tracking trades. An additional form could be
required such as a credit certificate form (see Appendix C). The permitting authority can hold
point sources liable if they violate any trading provision included in the permit or any trade
agreement incorporated by reference into the permit, and point sources are certainly liable if
they do not meet their permit limits.
Permit writers also might want to require verification of project installation and performance
specifications before the credits may be used, as in the example above. The permit could
include provisions requiring the point source purchaser to provide the required verification.
Data Reporting to EPA
EPA administers two systems to store NPDES permit data and track compliance, the Permit
Compliance System (PCS) and the new Integrated Compliance Information System (ICIS).
PCS is the old, computerized management information system that contains data on NPDES
permit-holding facilities to track the permit, compliance, and enforcement status of these
facilities.
The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains
integrated enforcement and compliance information across most of EPA's programs including
all federal administrative and judicial enforcement actions. In addition, ICIS has the capability
to track other activities occurring in an EPA Region that support enforcement and compliance
programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitor-
ing. In the future, ICIS will be deployed to all states and PCS will no longer be used.
Neither PCS nor ICIS is structured to actually track trades.
PCS is designed to compare actual discharge monitoring data against required effluent
limitations to determine a facility's compliance with its NPDES permit. To determine compli-
ance under a trading scenario, it is necessary for the NPDES permitting authority to compare
actual discharge monitoring data and the quantity of credits purchased against required
effluent limitations. For credit buyers, compliance is actually tracked against two effluent
limitations—the minimum control level and the baseline. The challenge in using PCS to deter-
mine compliance under a trading scenario is that the system does not automatically make
adjustments to the reported actual discharge—it will not subtract the quantity of credits
purchased. Therefore, this type of adjustment must be done before entering information
into PCS so that the system has only one reported number to compare against an effluent
limitation.
Point source credit buyers have a baseline and a minimum control level (the facility's TBEL or
current discharge, whichever is most stringent). To determine compliance for a credit buyer,
the NPDES permitting authority will need to know that (1) the facility's actual discharge is
less than or equal to its minimum control level, and (2) that the number of credits purchased
results in the facility achieving its baseline. Therefore, point source credit buyers could report
two types of information: (1) the facility's actual discharge, and (2) the difference between
the actual discharge and the quantity of credits purchased. Both numbers would be entered
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Quantifying
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Water Quality Trading Toolkit for Permit Writers
Wells River Example: Reporting
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
Credit Buyer: Springtown POTW
Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from
Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Equivalency Ratio: 2:1
The renewed permit will require, in addition to monitoring reports, regular reporting of any changes
to the trade agreement, and reports for tracking trades. The facility's individual permit will contain
monthly average effluent limitations for TP; therefore, monthly trade transactions will be necessary
to maintain compliance. The trade agreement between the dischargers indicates that trades will be
tracked by the POTW. The trade tracking system will generate trading notification forms and monthly
trading summaries for the entire program. Credits must be used in the same month they are gener-
ated, and trading notification forms must be submitted to the regulatory agency by the 15th of the
month following the trade.
Permit Language:
¦	No trade is valid unless it is recorded in the permittee's electronic trade tracking system or
equivalent system that records all trades and generates trading notification forms and a
monthly summary of all trades valid for each calendar month, in substantially the same for-
mat as forms approved by the state. Trading notification forms for each monthly trade must
be submitted to  by the 15th day of the month following the trade.
into PCS to determine compliance. PCS would compare the actual discharge against the
minimum control level to determine permit compliance and eligibility as a credit buyer. PCS
would also compare the difference between the actual discharge and the quantity of credits
purchased against the facility's baseline; the difference should be less than or equal to the
WQBEL to indicate that the facility has purchased enough credits to meet its baseline and
remain in compliance with its WQBEL. PCS can accommodate two different effluent limits for
the same parameter; therefore, it has the capability to determine compliance with both the
minimum control level and the baseline for a credit buyer.
ICIS also allows the NPDES permitting authority to report two limits; therefore, this system
can also accommodate both the baseline and the minimum control level for credit buyers.
New DMR forms will also have two lines to report both the baseline and the minimum control
level. Like PCS, ICIS does not actually adjust actual discharges with the number of credits
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
bought. Under the current design, ICIS will allow a facility with an existing NPDES permit to
also have a trading partner entered into the system. Once a trading partner is entered for
a facility, ICIS will allow the entry of an adjusted value for the buyer—this is the reported
actual discharge adjusted by the number of credits bought. If an adjusted value is entered,
this value is used to determine permit violations and percent exceedances (USEPA 2006).
In addition to challenges related to limits and the type of information to report, NPDES per-
mits with trading provisions might also raise issues related to reporting periods and automated
compliance tracking. PCS will not support a reporting extension beyond 30 days. This type
of reporting extension might be necessary in some instances to allow adequate time for the
administrative activities necessary for trading partners to coordinate and reconcile trades. ICIS,
however, will support a 45-day reporting period. In rare instances when a permitting authority
uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one to be annu-
al. However, the permitting authority will have to manually flag annual limit effluent violations
for reportable noncompliance (RNC) and significant noncompliance (SNC) to track compliance.
Special Conditions
Special conditions are developed to supplement effluent limitations and may include addi-
tional monitoring activities, management practices, pollution prevention requirements, ambi-
ent stream surveys, compliance schedules (if authorized by the permitting authority), and
toxicity reduction evaluations (TREs). Special conditions also include permit modification and
reopener conditions, and can be used to address water quality trading. Special conditions of
a NPDES permit will be very important in incorporating the terms of a trade agreement. Even
where the specific terms of the agreement are not directly incorporated into the permit, the
special conditions will be used to refer to, and require compliance with, the trade agreement
housed in a separate document.
The special conditions included in a NPDES permit that incorporates trading will depend on
provisions of the trade agreement and the effluent limitations and monitoring and reporting
requirements established in the permit. However, the permitting authority should consider
incorporating special conditions that support the trading conditions. For example, the special
conditions of the permit may specify conditions for purchasing credits, additional monitoring
and special reporting requirements, and special conditions for failed trades.
Specifying Conditions for Purchasing Credits
As discussed above, because of the uncertainty associated with credits generated on the basis
of BMPs, permits that implement trades between point sources and nonpoint sources should
clearly reference acceptable practices and approaches to credit generation. The permitting
authority or the entity managing the trade might determine the appropriate BMPs outside
of the permit development process; however, the suite of approved BMPs or other approved
pollutant reduction approaches should be identified in the permit. The permitting author-
ity might choose to include these conditions as part of the effluent limitations section of the
permit, or as a special condition. While the permit cannot require a nonpoint source to use a
particular BMP to generate credits, it can prohibit a point source from purchasing credits that
were not generated through use of approved BMPs.
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Water Quality Trading Toolkit for Permit Writers
The special conditions that address point source-nonpoint source trading also should address
the timing of when credits are available and when the credit source expires. As discussed
above, continued credit generation will require periodic certification that a practice is still
in place and that specified operation and maintenance actions are being taken. Permitting
authorities might consider establishing monitoring and reporting requirements to ensure
that BMPs generating credits are properly installed and maintained to continue generating
credits. Such requirements are especially important if available credits are calculated and
monitoring data are not required or available to verify pollutant reductions.
Special conditions also could be used to specify the reconciliation period for credits or when
credits may be used relative to when they are generated. Effluent limitations will dictate the
reconciliation period, as discussed above, but special conditions can clarify the reconciliation
period and ensure that credits are not based on future reductions that cannot be verified,
thus reducing the risk of noncompliance.
Special conditions addressing liability, provisional requirements that apply when credits are
unavailable or when a limit is exceeded, and outlining the specific requirements for establish-
ing trade agreements among dischargers can be important in issuing an acceptable permit
that will not require modification each time circumstances change for one of the dischargers
participating in the trading program covered under the permit.
Lower Boise River, Idaho
The Lower Boise model uses pounds of TP as its unit of measurement and reconciles
trade account balances monthly against the reported discharge amounts. The point
source must sign and submit new Reduction Credit Certificates at the end of each month
to establish the credit for that month that they can transfer to their own account using
the Trade Notification Form. The credits can be used only to compensate for pollutant
discharge for the same month in which they were created. The trades are monitored
through the automated Trade Tracking System. For more information about this trading
program, see Appendix A.
Additional Monitoring and Special Reporting
The permitting authority might articulate special monitoring requirements as special condi-
tions, as described above. Additional monitoring might be required to assess the effective-
ness of BMPs or to verify BMP installation, implementation, and maintenance. Any special
conditions established to determine BMP effectiveness should specify who is responsible
for conducting monitoring and inspections to verify BMP effectiveness and the accuracy of
the trade ratios assumed in the permit. It is important for a permitting authority to track
permit trading activities especially for point source-nonpoint source trades, and permitting
authorities should consider establishing special conditions that facilitate tracking. For point
source-nonpoint source trades, the permitting authority might require the point source to
provide additional information on the nonpoint source(s) generating the credits reported in
Water Quality Trading Scenarios
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
the tracking report. For instance, the permit might require the permittee to provide tracking
information, if not already specified in the permit, such as the following:
•	Identification of nonpoint source (name, address, phone number)
•	Type and location of BMP
•	Monitoring method and frequency
•	Monitoring results (actual measured quantities, or observations regarding installation
and maintenance, at nonpoint source)
•	Subtraction of a portion of the reported reduction amount (in pounds) to meet any
retirement ratio requirement as specified in the trade agreement
•	Conversion of reduction quantity to normalized measure of loading (multiply by
trade ratio, including location or delivery ratio, equivalency ratio, and uncertainty
ratio, where applicable)
•	Time period for which credit is verified, per monitoring requirements for that BMP
•	Certifying statement signed by the point source that the information provided is true,
accurate and complete, and that the installation, maintenance, and monitoring of the
BMP meets the requirements for that BMP as specified in the trade agreement (Idaho
DEQ 2000)
This information could be provided to the permittee by another entity, such as a soil and
water conservation district, through a mechanism such as a memorandum of understanding.
Special Conditions for Failed Trades
The success of a trade depends on credit sellers fulfilling trade obligations. Special condi-
tions might be used to establish provisional requirements that apply if the credits needed
are unavailable and a point source is unable to comply with its calculated WQBELs on it own.
These special conditions would be included in a permit in addition to any enforcement provi-
sions. The trading program should address what degree of risk the permittee bears from pur-
chasing credits that are not delivered or are later proven invalid. The trade agreement may
describe the respective responsibilities of the buyer and the seller in the case of a failed trade.
In any case, the burden of compliance falls on the permittee. The permittee can address the
risk of trade failure in a private contract with the seller. The permit might require the permit-
tee to notify the permitting authority when a trade fails and how and when it will either
secure credits from an alternate source or comply with the calculated WQBELs established in
the permit. Monthly reconciliation minimizes risk by requiring certification from buyers and
sellers on a monthly basis.
Finally, the permitting authority may establish a mechanism for holding surplus credits in
reserve as a means of managing the uncertainty of nonpoint source trading. All such reserved
credits would be generated in the same time period they are used or traded. Special condi-
tions could establish the availability of credits held in reserve to the permittee and any condi-
tions placed on the permittee if it desires to use reserved credits.
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Water Quality Trading Toolkit for Permit Writers
Accountability
Permits that cover one or more point sources buying credits from one or more nonpoint sourc-
es generating and selling credits should explicitly state that the permitted point sources are
responsible for meeting effluent limitations derived from water quality standards regardless
of whether the nonpoint source trading partners comply with the terms of a trade agreement.
Wells River Example: Special Conditions
What You Need to Know...
Pollutant: Total Phosphorus
Driver: Approved TMDL for Total Phosphorus for Wells River
Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)
Credit Buyer: Springtown POTW
Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from
Springtown POTW (credit buyer) along the Wells River.
Applicable Trade Ratios:
¦	Uncertainty Ratio: 2:1
¦	Equivalency Ratio: 2:1
The NPDES permit writer has reviewed the signed trade agreement for TP trading between the POTW
and the farms. The agreement describes how the POTW will meet its new WQBEL through trading
with Patterson Soybean and Corn Farm and three other farms in the watershed. The NPDES permit
writer has developed the appropriate effluent limitations, monitoring, and reporting requirements for
the POTW. The special conditions in the NPDES permit focus on general authority, credit definition,
notification of amendment to the trade agreement, notification of unavailability of credits, permit
reopeners and modification provisions, and enforcement liability.
Permit Language:
General Authority
The permittee is authorized to participate in water quality trading with Patterson Soybean and
Corn Farm, Maybelle's Farm, U-Pick'Em Vegetable Farm, and Larry's Vegetable Coop as specified in
the written signed trade agreements, for the purposes of complying with the phosphorus effluent
limitations and the TMDL-related requirements of this permit (Table 2). The authority to use
trading for compliance with these limits is derived from cinsert state law where applicable>
and section 402 of the federal Clean Water Act 33 United States Code (U.S.C.) section 1342. EPA's
policies on Water Quality Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03)
endorse water quality credit trading. Additionally the Wells River Phosphorus TMDL authorizes
water quality trading as a means of achieving the allocations established by the TMDL.
Credit Definition
Credits will be measured in pounds of total phosphorous per day on a monthly average basis. One
trading credit shall be defined as one (1) unit of pollutant reduction (pound of TP) to Wells River.
Water Quality Trading Scenarios
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Water Quality Trading Scenario: Point Source-Nonpoint Source Trading
Wells River Example: Special Conditions (continued)
All pollutant load reductions purchased by the permittee will be in the form of equivalent TP cred-
its that represent pollutant load reductions with the appropriate uncertainty and equivalency trad-
ing ratios applied as detailed in the trade agreement between the permittee and nonpoint source
trading partners. All valid credits are tradable. The permittee may purchase credits from the farms
so long as the BMPs utilized to generate credits are documented as providing pollutant reductions
beyond the load allocation, established in the Wells River Phosphorus TMDL.
Permit Language (continued):
Notification of Amendment to the Trade Agreement
The permittee is required to notify the permitting authority in writing within 7 days of the trade
agreement being amended, modified, or revoked. This notification must include the details of any
amendment or modification in addition to the justification for the change(s).
Notification of Unavailability of Credits
The permittee is required to notify the permitting authority in writing within 7 days of becom-
ing aware that credits used or intended for use by the permittee to comply with the terms of this
permit are unavailable or determined to be invalid. This notification must include an explanation
of how the permittee will ensure compliance with the WQBELs established in this permit, either
through implementation of on-site controls or by conducting an approved emergency phosphorus
offset project approved by the NPDES permit writer.
Permit Reopeners, Modification Provisions
The permitting authority may, for any reason provided by law, summary proceedings or other-
wise, revoke or suspend this permit or modify it to establish any appropriate conditions, schedules
of compliance, or other provisions which may be necessary to protect human health or the envi-
ronment or to implement the Wells River Phosphorus TMDL. The permitting authority may also
reopen and modify the permit to suspend the ability to trade credits to comply with the TP efflu-
ent limitations in Table 2.
Enforcement Liability
The permittee is liable for meeting its most stringent effluent limitation. No liability clauses
contained in other legal documents (e.g., trade agreements, contracts) established between the
permittee and other authorized buyers and sellers are enforceable under this permit.
Water Quality Trading Scenarios
Point Source-


	~	




Nonpoint Source
Quantifying
Establishing
Accountability Trade Components




Nonpoint
Baselines for
Agreements of a NPDES





Source Loads
Nonpoint
Permit
Permit
Effluent
Reporting
Special

and Credits
Source Sellers

Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
32

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Water Quality Trading Scenario:
Nonpoint Source Credit Exchange
Contents
Water Quality Trading Scenario: Nonpoint Source Credit Exchange	1
The Function of a Nonpoint Source Credit Exchange	2
Accounting for Delivery and Location Ratios in a Nonpoint Source Credit Exchange . . . .3
Quantifying Nonpoint Source Loads and Credits	4
Potential Issues	4
Establishing Baselines for Nonpoint Source Sellers	8
Nonpoint Source Baseline Derived from TMDL Load Allocations	9
Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation	10
Determining Maximum Feasible Nonpoint Source Load Reductions	11
Accountability	13
Mechanisms Under the NPDES Program	13
Mechanisms Outside of the NPDES Program	13
Trade Agreements	14
Trade Agreements with Nonpoint Source Credit Exchanges	14
Components of a NPDES Permit	18
Permit Cover Page	18
Effluent Limitations	19
Monitoring	25
Reporting Requirements	27
Special Conditions	30

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Water Quality Trading Scenario:
Nonpoint Source Credit Exchange
Significant water quality impacts may come from sources other than regulated point sources.
The permitting authority, along with other stakeholders, may agree that the best way to
meet water quality standards would be to involve the nonpoint sources in the watershed.
Because nonpoint sources are not regulated by the Clean Water Act (CWA), a trading pro-
gram that allows nonpoint sources to generate and sell credits may provide an economic
incentive for these sources to implement new or additional best management practices
(BMPs) that reduce pollutant loadings to receiving waters.
Single point source-nonpoint source trades necessitate a trade agreement between a point
source and one or more nonpoint sources. The nonpoint source(s) reduce pollutant loads below
an established baseline to generate credits, which the point source may purchase. Single point
source-nonpoint source trades would be reflected in an individual National Pollutant Discharge
Elimination System (NPDES) permit for the point source either by referencing or incorporating
the terms of the trade agreement. Through trading, the point source can meet water quality-
based requirements at a lower cost and, provided there is adequate accountability and verifi-
cation, the nonpoint source will be compensated for contributing to the point source's water
quality-based requirements. A point source may purchase nonpoint source credits in one of two
ways: (1) directly from nonpoint source(s) by coordinating with a nonpoint source or a program
administered by an entity responsible for a group of nonpoint source dischargers; or (2) from
a nonpoint source credit exchange that contains pollutant reduction credits contributed by
approved nonpoint source BMPs. There are two general types of exchanges: (1) a broker-
facilitated exchange where the broker brings parties together for trades and (2) a central
exchange where the point sources are not required to deal directly with nonpoint sources.
This water quality trading scenario focuses specifically on the second type of exchange and
presents the challenges related to nonpoint source credit generation and then addresses issues
specific to developing and issuing NPDES permits that implement point source-nonpoint
source trades where the point source, or an entity representing a group of point sources,
purchases credits from a nonpoint source credit exchange. Issues covered under this scenario
include the following:
•	The function of a nonpoint source credit exchange
•	Quantifying nonpoint source loads and credits
•	Establishing baselines for nonpoint source sellers
•	Accountability
•	Trade agreements
•	Components of a NPDES permit
-	Permit cover page
-	Effluent limits
-	Monitoring
-	Reporting requirements
-	Special conditions
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange
The Function of a Quantifying	Establishing
Nonpoint Source Nonpoint	Baselines
Credit Exchange Source Loads	for Nonpoint
and Credits	Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent
Limitations
Monitoring
Reporting Special
Requirements Conditions

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Water Quality Trading Toolkit for Permit Writers
A hypothetical example (shown in highlighted boxes) is presented throughout this scenario
to illustrate how NPDES permit writers might work with credit buyers and sellers to assist
in trading and ensure each facility's NPDES permit contains the appropriate limits, require-
ments, and other conditions. Keep in mind that there are a range of options for incorporat-
ing trading provisions into a NPDES permit. The hypothetical example discussed throughout
this scenario illustrates just one of the many options a NPDES permit writer might use.
The Function of a Nonpoint Source Credit Exchange
A nonpoint source credit exchange is a centralized pool of credits established by a third-
party who buys credits from nonpoint sources to sell to point sources (Figure 1). The
purpose of a nonpoint source credit exchange is to allow point sources to purchase nonpoint
source pollutant reduction credits through a credit
exchange managed by a third party, whether
government, private, or nonprofit. This is
different than point source-nonpoint
source trading, however, in that the
point sources are not directly trading
with nonpoint sources. Rather,
nonpoint sources generate
pollutant load reductions and
sell these pollutant load
reductions as credits to the
credit exchange. Point
sources may then
purchase credits
from the credit
exchange rather
than independently
identifying and
purchasing credits
directly from
nonpoint sources.
Buyer
POTW
reduction
Riparian
buffers
NPS Credit
Exchange
•toe**"
Figure 1. Nonpoint source credit exchange.
A variety of entities can establish and administer credit exchanges, including state agencies,
local governments, nonprofit nongovernmental entities, soil and water conservation districts,
private entities or other third parties. Management responsibilities for the credit exchange
will vary according to the watershed and needs of the trading partners. Nonpoint source
credit exchanges perform many of the functions that a point source and nonpoint source
would otherwise have to perform (e.g., trade negotiations) as potential trading partners. In
addition to negotiating the trades, the credit exchange can provide continuity by establish-
ing standards for trading, defining credits eligible for trading, setting credit prices, verify-
ing the operation and maintenance of BMPs, and tracking important trade information
for all participants. A nonpoint source credit exchange might perform some or all of these
functions, thereby influencing the roles of the trading partners accordingly. The more respon-
sibility that rests with the exchange, the more streamlined the process of negotiating a trade
Water Quality Trading Scenarios
Nonpoint Source








Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components



Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint

Permit
Permit Effluent
Reporting
Special


and Credits
Source Sellers


Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
agreement may be for the point source and the permitting authority. The role the exchange
takes on could greatly reduce the transaction costs of trading. Given that the nonpoint source
credit exchange might perform some of these functions, the responsibilities of the permit-
ting authority and the point source trading partner pertaining to trade negotiation might be
streamlined during the permit development process.
Accounting for Delivery and Location Ratios in a Nonpoint
Source Credit Exchange
Because the nonpoint source credit exchange is an intermediary between the credit genera-
tors and the credit users, delivery and location ratios must be accounted for by the nonpoint
source credit exchange. If the credit exchange is tracking individual credits, in other words,
if it knows which nonpoint source generated the credits that are being sold to a particu-
lar point source, a delivery ratio could be established that applies to that trade. Where all
dischargers are discharging directly to the waterbody of concern, this method of equalizing
water quality impacts of pollutant loads from various sources might be necessary.
Where the dischargers are upstream of the waterbody of concern, it might be more efficient
for the credit exchange to apply location ratios to all the credit purchases and sales that it
makes. Because the amount of reduction produced at the source is greater than the amount
of reduction that reaches the downstream waterbody of concern, a location ratio specific
to that source is applied to convert the source's reduction to credits available at the water-
body of concern. After location ratios are applied, the credit exchange will be purchasing
and selling standardized credits for the waterbody of concern. For example, if a nonpoint
source credit generator has a 5:1 location ratio with a downstream waterbody of concern
(i.e., for every 5 units of pollutant discharged from the nonpoint source, one unit of pollutant
reaches the waterbody of concern), the credit exchange would purchase 5 units of pollutant
reduction from that nonpoint source for every credit that becomes available for sale from
the exchange. Likewise, if a point source credit user has a 3:1 ratio with the waterbody of
concern, each credit purchased by that point source would count for 3 units of end of pipe
pollutant reduction.
A permitting authority should be aware of technical challenges associated with nonpoint
source credit generation, including how the trading program accounts for uncertainty in
measuring nonpoint source pollutant loads and how equitable baselines are set for nonpoint
source credit sellers, when developing NPDES permits that implement point source-nonpoint
source trades. One benefit of using a nonpoint source credit exchange is that the entity
administering the credit exchange will have the primary responsibility for resolving these
nonpoint source, credit-generation issues. This section presents the technical challenges
related to nonpoint source credit generation and then addresses issues specific to develop-
ing and issuing NPDES permits that implement point source-nonpoint source trades where
the point source, or an entity representing a group of point sources, purchases credits from a
nonpoint source credit exchange.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Quantifying Nonpoint Source Loads and Credits
For most continuous point source discharges, measuring pollutant loads and the effective-
ness of controls is simply a matter of measuring pollutant concentrations in effluent and
converting concentration-based limits to mass-based limits using flow. Conversely, as noted in
U.S. Environmental Protection Agency's (EPA) Water Quality Trading Policy (Trading Policy),
the diffuse nature of nonpoint source pollutants along with variability in precipitation, land
management practices, and the effect of soil type, slope, and cover on pollutant loadings to
receiving waters, creates a great degree of uncertainty in determining loading from nonpoint
sources and measuring the effectiveness of BMPs. For example, pollutant loads in runoff from
a crop field are dependent on crop type, soil type, slope, fertilizer use patterns, weather and
the amount of time it takes for runoff to reach the receiving water. These factors could vary
by season and from year to year; therefore, the pollutant load is highly variable and may be
difficult to measure. The same factors contribute to difficulties in measuring the effectiveness
of BMPs used to reduce nonpoint source pollutant loads.
Nonpoint sources typically employ BMPs to reduce pollutant loading to a receiving water.
BMPs are schedules of activities, technologies, structural controls, changes in or prohibitions
of practices, maintenance procedures, and other measures to prevent or mitigate pollut-
ant runoff to waters. Examples of nonpoint source BMPs include riparian buffer plantings,
wetland creation or restoration, sediment basins, filter strips, crop sequencing, and nutri-
ent management. Nonpoint source pollutant load reductions can sometimes be measured
directly, but trading programs typically use the best available performance information to
estimate load reductions for a particular BMP and then discount these estimated values using
uncertainty ratios to account for the technical challenges in determining BMP effectiveness.
Potential Issues
Lag Time
Permitting authorities should be aware of potential time lags between BMP installation and
full pollutant reduction efficiency. BMPs that are not yet fully functional cannot generate the
full number of expected credits. Credits generated by nonpoint sources through installation
of BMPs may not be available immediately because of a time lag between installation of the
BMP and its effectiveness in reducing loadings or otherwise improving water quality. In some
cases, the credit generation could be prorated on the basis of pollutant reduction the BMP
is achieving during the current reconciliation period, even where the BMP has not reached
its maximum expected pollutant reduction efficiency. The decisions required to determine
when credits have been generated may have already been made in the program design. The
permitting authority should be aware of these decisions made in trading program design.
Clean Water Services, Oregon
Clean Water Services can compensate for the heat load from publicly owned treatment
works (POTWs) with nonpoint sources generating credits through increased shade provided
by riparian planting. Because trees provide more shading as they grow, a component of
Oregon Department of Environmental Quality's (DEQ) Heat Source model is used to deter-
mine effective shade for each project based on the year of initiation.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Scenario: Nonpoint Source Credit Exchange
If the trade agreement or other document external to the permit does not dictate how and
when credits become available for purchase, the NPDES permit should address the time lag
between BMP installation and full treatment efficiency (see Reporting Requirements).
Proper operation and maintenance are criti-
cal to ensuring the ongoing performance
and attaining the expected life span of
a BMP. Trading programs should include
mechanisms to ensure that BMPs installed
to generate credits are being operated and
maintained according to procedures and
guidelines established by Natural Resources
Conservation Service (NRCS), EPA, or other
agencies or product manufacturers.
Period of BMP Performance
The permitting authority should also determine whether
and when a BMP's credit generating capacity expires.
Credit generation by nonpoint sources might decrease or
stop if the BMP becomes less effective due to a natural
degeneration, a lack of maintenance, or changing condi-
tions on-site. A BMP's life expectancy depends on proper
design, placement, and maintenance. Some BMPs have a
discrete or short life or must be renewed. For example,
nonpoint sources must renew crop sequencing each sea-
son. Other BMPs have a longer life span but require ongo-
ing maintenance and repair to maintain effectiveness.
For example, a sediment catch basin requires periodic
inspection to ensure structural integrity and regular cleaning to remove and properly dispose
of collected sediments. In addition, activities or conditions may change on-site affecting the
efficiency of installed BMPs. For example, a vegetated buffer strip designed to filter sediment
from a 5-acre crop field may be overwhelmed and become ineffective if the operator decided
to increase the field size to 8 acres.
The permitting authority should specify in the permit the approved BMPs and associated
expected life spans established by the trading program. Continued credit generation may
require periodic certification that a nonpoint source continues to implement a practice, that
the nonpoint source is taking specified operation and maintenance actions, and that the BMP
design and specification are still appropriate for the site. The trading program should account
for the life span of a credit source and determine when credits are deemed permanently
expired and thus unavailable for any future allocation. Permits implementing nonpoint
source trading can contain or reference provisions to require certification of BMP perfor-
mance and define when a BMP generating credits expires (see Reporting Requirements and
Special Conditions).
Lower Boise River, Idaho
The Lower Boise trading framework addresses the issue of certifying BMP performance
by having the NPDES point sources purchasing credits sign a Reduction Credit Cer-
tificate at the end of each month, certifying that the BMP is still in place and that it
produced a specific reduction amount during the month that just occurred. The NPDES
buyer certifies that they are aware of the penalties for false certification by signing that
Reduction Credit Certificate, which then establishes the credit that they can then trans-
fer into their own account and use to cover their discharge. EPA and Idaho Department
of Environmental Quality (Idaho DEQ) conduct random audits of some BMPs to deter-
mine if the certification was valid.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
BMP Failure
To address the potential inadequacy of generated credits (i.e., treatment control failure),
credit exchanges should consider reserving credits that would be available to credit purchas-
ers if the primary credit source is insufficient. Entities administering credit exchanges can
reserve credits in a number of ways. One option is for the credit exchange to overbuy avail-
able credits from nonpoint source BMPs approved to generate credits. Another option is to
require point source dischargers that want the ability to purchase credits from the credit
exchange—now or in the future—to pay a user fee to the credit exchange that will in turn
finance additional nonpoint source BMPs approved to generate credits.
Uncertainty
EPA's Trading Policy recommends that states and tribes establish methods to account for
greater uncertainties in estimates of nonpoint source loads and reductions (see Appendix B).
There are three types of uncertainty related to nonpoint source BMPs:
•	Measurement uncertainty, which addresses the level of confidence in the field testing
of a nonpoint source BMP
•	Implementation uncertainty, which addresses the level of confidence that a nonpoint
source BMP is properly designed, installed, maintained, and operated
•	Performance uncertainty, which addresses the risk of a BMP failing to produce the
expected results
Options for Addressing Uncertainty
Uncertainty Ratios
The application of an uncertainty ratio helps ensure that actual loads resulting from a trade
do not violate the water quality standards despite the inability to accurately measure them
(Jones et al. 2005). An uncertainty ratio should be applied to estimated nonpoint source load
reductions to account for any potential inaccuracies in the methodology or assumptions used
in the estimation. Uncertainty ratios are particularly important to account for potential inac-
curacies in the estimation methodology when credits from nonpoint source BMPs are esti-
mated or calculated.
Uncertainty, and therefore the uncertainty ratio, can be reduced by enhancing the level of
confidence in BMP effectiveness values through employing one or more of the following
three practices.
Monitoring BMP Effectiveness
Monitoring BMPs installed for generating credits is the most effective method for reducing
uncertainty. Two types of monitoring are possible. In some instances it is possible to conduct
edge-of-field monitoring to determine BMP performance. Another type of monitoring is
ambient monitoring. Placing monitoring gauges in the stream at strategic locations between
the buyer and the seller would allow for gauging water quality impacts of BMPs. EPA's Moni-
toring Guidance for Determining Effectiveness of Nonpoint Source Controls (EPA/841-B-96-004)
provides guidance on the design of water quality monitoring programs to assess both impacts
from nonpoint sources and effectiveness of control practices and management measures.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange I The Function of a
Nonpoint Source
I Credit Exchange
Quantifying I	Establishing	Accountability Trade Components
Nonpoint I	Baselines	Agreements of a NPDES
Source Loads	for Nonpoint	Permit Permit Effluent	Reporting Special
and Credits I	Source Sellers	Cover Page Limitations Monitoring Requirements Conditions

-------
Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Modeling BMP Effectiveness
Modeling that uses local data to calculate nonpoint source pollutant loadings and BMP effec-
tiveness is also an important tool. For instance, estimates of pollutant reductions (e.g., total
phosphorus (TP) and sediment) might be based on soil erosion reductions using the standard-
ized or revised Universal Soil Loss Equation (USLE). This method incorporates soil type, plant
cover, rainfall, slope, and agricultural conservation practice factors to calculate the soil loss
from an area. The soil loss information may then be translated to estimate loadings of sedi-
ment-bound phosphorus. An uncertainty ratio should be applied to modeled estimates. All
modeling should be ground truthed by local monitoring data, which could lead to a reduc-
tion in uncertainty.
Estimating BMP Effectiveness
Where monitoring and modeling are impracticable, BMP effectiveness can be estimated
through other means. For example, it might be possible to identify a set of tested BMPs with
performance data that have been well established through field testing or under controlled
conditions. These data may be used to estimate the reductions achieved at a nonpoint source
that installs one or more of the tested BMPs. The trading program, with input from local
soil and conservation experts, might identify a list of local BMPs that meet minimum design,
construction, maintenance, and monitoring requirements. Preestablished performance data
can be used to estimate loading reductions for local nonpoint sources. Potential uncertainty
ratio reduction is an advantage of implementing local BMPs with high levels of measurement
precision and accuracy.
South Nation River Watershed, Ontario, Canada
The trading program established formulae that are used to calculate the amount of phosphorus
that is controlled annually from various agricultural practices. For example, the formula used to
calculate the amount of phosphorus controlled through proper manure storage is:
Kg ofP per year controlled = # of animals x animal phosphorus factor x days x 0.04
where:
•	# of animals = the number of animals contributing manure to the area,
•	Animal phosphorus factor = U.S. Department of Agriculture s (USDA) estimates of the
amount of phosphorus excreted per animal,
•	Days = the number of days that the animals are contributing manure to the area, and
•	0.04 represents the assumption that approximately 4 percent of the total amount of manure
excreted would have been transported in runoff from improperly stored manure.
In addition to manure storage, formulae have also been established to calculate the amount of
phosphorus controlled through use of clean water diversions, proper storage and handling of
milkhouse washwater, preventing livestock access to watercourses, various cropping practices,
and buffer strips (O'Grady and Wilson No date).
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Toolkit for Permit Writers
The Idaho Department of Environmental Quality's draft Pollutant
Trading Guidance
Idaho DEQ's November 2003 draft Pollutant Trading Guidance provides a list of approved
agricultural BMPs that can be used to generate TP reduction credits for trading in the
Lower Boise River watershed. The draft guidance document includes estimates of BMP
effectiveness and uncertainty discounts for specific watersheds (the uncertainty discount
is subtracted from the effectiveness estimate). The guidance also lists the procedures for
determining the amount of credits and associated monitoring and maintenance require-
ments for each BMP. Table 1 lists selected BMPs approved by Idaho DEQfor use in
nutrient trading in the Lower Boise River watershed. A separate list of watershed-specific
BMPs, along with effectiveness estimates and uncertainty ratios, will be generated for
each watershed that would like to develop a trading program consistent with the Idaho
Pollutant Trading Guidance. For more information on trading in Idaho, see Appendix A.
Table 1. Selected BMPs approved for trading in the Lower Boise River watershed
BMP
Life span
Effectiveness
Uncertainty
Sediment Basins (farm scale)
20 years
75%
10%
Constructed Wetland
15 years
90%
5%
Microirrigation
10 years
100%
2%
Crop Sequencing
1 season
90%
10%
Filter Strips
1 season
55%
15%
Establishing Baselines for Nonpoint Source Sellers
As stated in the Essential Trading Information for Permit Writers section, a nonpoint source
should meet the specified baseline before entering the trading market as a credit seller.
Baseline is defined as the pollutant control requirements that apply to a buyer and seller in
the absence of trading. After a seller meets its baseline, it can generate credits.1 A baseline
for a nonpoint can be derived from a load allocation (LA) established under a total maximum
daily load (TMDL). Where an LA does not exist, EPA's Trading Policy states that state and
local requirements or existing practices should determine a nonpoint source's baseline (see
Figure 2). The trading program provisions could also specify some additional minimum level
of control that nonpoint sources would have to achieve before they could generate credits.
The baseline level of control should never be less than existing practice. There are difficulties
associated with establishing baselines for nonpoint sources and, although permitting authori-
ties may not have direct involvement in establishing these baselines, a permit writer should
be aware of these issues and how they might affect the trading provisions in permits.
To be reliable, trading programs establishing baselines for nonpoint source sellers should use
the maximum amount of verifiable information on loadings in a watershed, such as a TMDL
1 Some trading programs may require a seller to implement controls beyond the baseline before generating credits.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange I The Function of a
Nonpoint Source
I Credit Exchange
Quantifying	Establishing	Accountability Trade Components
Nonpoint	Baselines	Agreements of a NPDES
Source Loads	for Nonpoint	Permit
and Credits	Source Sellers
Permit Effluent	Reporting Special
Cover Page Limitations Monitoring Requirements Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
or other watershed loading analysis. Where a TMDL establishes a
reliable LA for nonpoint sources, an individual nonpoint source's
portion of the LA can be used to set its trading baseline. Where
a TMDL or similar analysis is not available or does not represent
the most accurate information on nonpoint source loading in the
watershed, the trading program or state policy can establish a
set of minimum BMPs that a nonpoint source must install to be
eligible for trading. The pollutant load from the nonpoint source
after installing these BMPs would be considered the baseline
for estimating further reductions that could then be counted as
credits. The permit should reference any state trading program
or other document that contains the model used for estimating
credits. It is important to note that nonpoint source baselines
established using less-verifiable information on pollutant loading
are likely to have less public support and, more relevant to permit
as inconsistent with water quality standards.
Nonpoint Source Seller
Baseline for Trading
NPS Seller
With TMDL
NPS Seller
Without TMDL
Load allocation
State and local
requirements
and/or existing
practice
Figure 2. Nonpoint source seller
baseline for trading.
writers, may be challenged
Nonpoint Source Baseline Derived from
TMDL Load Allocations
An LA established under a TMDL defines the nonpoint
source load reductions necessary to achieve water quality
standards. EPA would not support a trading program that
allows nonpoint sources to sell credits if the discharge
is contributing to water quality impairment; therefore,
nonpoint sources should meet their portion of the LA
before generating credits to sell on the trading market.
TMDLs might specify an LA for an individual nonpoint
source or for a category of nonpoint source dischargers
in a watershed. If established for an individual nonpoint
source (e.g., a single farm), the individual nonpoint
source should use the LA as its baseline for generating
credits. However, if the TMDL establishes an aggregate
LA for a category of nonpoint sources (e.g., all farms
in a watershed) or all nonpoint sources on a particular
tributary, the watershed stakeholders, including the
permitting authority or trading program, need to decide
how to equitably distribute that aggregate LA among the
individual nonpoint source dischargers in a scientifically
valid manner. For example, if the LA is expressed as an
overall load reduction percentage (e.g., 25 percent reduction in total nitrogen (TN) loading
watershed-wide), the trading program might require each nonpoint source discharger to
reduce its individual loading by that percentage before generating credits. Alternatively,
where the LA is expressed as a total aggregate loading reduction (i.e., total pounds per
day), the trading program would distribute the LA among the individual nonpoint sources
EPA's Trading Policy states that where
a TMDL is in place, the LA or other
appropriate baseline serves as the threshold
for nonpoint sources to generate credits.
This does not mean that EPA requires all
nonpoint sources in a watershed to meet
an aggregate LA for a single nonpoint
source to participate in trading. The Trading
Policy's intent is that each nonpoint source
participating in trading under a TMDL
make reductions consistent with the LA
before they can generate credits (additional
reductions) for sale. This approach ensures
that progress is made toward water quality
standards with each trade. States have
flexibility to set other appropriate baselines
and can, in fact, decide to require all
nonpoint sources to meet the baseline
before participating in trading.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing 1 Accountability
Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

-------
Water Quality Trading Toolkit for Permit Writers
to define the baseline for each nonpoint source. The trading program might use land cover,
total production, proximity to the waterbody of concern, or some other variable to determine
the appropriate distribution of the aggregate LA among individual nonpoint sources. The
best method of distributing an aggregate LA among nonpoint source dischargers will vary;
watershed stakeholders should work together to determine the most appropriate method for
establishing the nonpoint source baseline.
Once the LA is equitably distributed among nonpoint sources in the watershed, an individual
nonpoint source should reduce its load by its portion of the LA before it generates credits.
To verify the required load reduction and quantify the credits generated after the baseline
is met requires quantification of the nonpoint source load, either through direct monitoring
or estimation. For more information, see the Quantifying Nonpoint Source Loads and Credits
section above.
Nonpoint Source Baseline Set at a Minimum Level of BMP
Implementation
In watersheds where a TMDL has not been developed, the nonpoint source baseline is
derived from state, tribal, and local requirements. The nonpoint source should meet this
baseline before generating credits. A trading program can choose to require a more strin-
gent level of BMP control before credits can be generated. In any case, the level of control
required to generate credits should never be less than existing practice.
In any watershed, it is likely that different nonpoint sources will be at different levels or
stages of BMP implementation. For example, in a watershed where animal feeding opera-
tions (AFOs) are the primary nonpoint source pollutant contributors, some AFOs might be
actively working with the Natural Resources Conservation Service (NRCS) to implement
comprehensive nutrient management plans that minimize nutrient and sediment runoff.
Other AFOs might not have installed any BMPs either because they do not participate in any
NRCS programs or because they are in the early stages of planning and implementation.
These nonpoint source facilities might contribute a much greater pollutant load than those
who have proactively reduced nonpoint source pollutants. A trading program can choose to
require nonpoint sources to implement a minimum level of BMPs before trading to provide
some level of equity among nonpoint source credit generators in the watershed. In addi-
tion, implementing a minimum level of BMPs demonstrates a commitment on the part of the
credit generators participating in the trading program.
Trading programs should consider baseline equity issues among nonpoint source participants.
EPA encourages states or trading programs to set a minimum level of BMP requirements for
nonpoint sources before they can generate credits.
Where the nonpoint source baseline is set at a minimum level of BMP implementation,
credits can be generated after meeting the minimum level of control. Quantifying the credits
generated will generally require quantification of the nonpoint source load after implement-
ing the minimum required BMPs, either through direct monitoring or estimation. For more
information, see the Quantifying Nonpoint Source Loads and Credits section above. In certain
instances, it is impossible or impracticable to quantify a baseline by measuring or estimating
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing 1 Accountability
Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Lower Boise River, Idaho
In Idaho, DEQ designates the nonpoint source baseline year (currently 1996 for the Lower Boise, but
this may be amended based on the technical outcome of a pending TMDL) for each trading market-
place in the state. Each nonpoint source then calculates the baseline load for the baseline year and
uses it to determine the eligibility of reductions to serve as credits for trading. In other words, in
the Lower Boise River watershed, if a nonpoint source installed a BMP in 1999, the farm would have
already created eligible credits. However, pollutant reductions from a BMP installed in 1994 would
not be eligible. Nonpoint sources in Idaho are required to use the BMP List's estimating equation
for particular BMPs (which incorporates the USDA Surface Irrigation Soil Loss (SISL) equation) to
calculate baseline loads. For more information about this trading program, see Appendix A.
the nonpoint source pollutant load. In these cases, a trading program could allow nonpoint
sources to generate credits for estimated reductions from BMPs. For example, if sufficient
data are available to establish that a particular BMP, installed under specified conditions, will
achieve a loading reduction of X lbs/day, the nonpoint source might be allowed to generate
credits equivalent to X lbs/day without actually having quantified the pollutant load before
installing the BMP. Trading programs should use this approach only where sufficient data on
the efficacy of the BMPs are available to develop a reliable estimate of the expected reduc-
tions. The baseline pollutant load should always be quantified where possible.
Red Cedar River, Wisconsin
TP reduction credits associated with a BMP were estimated using TP loading models to
estimate reductions from well-established and well-understood practices. Soil testing of
each field was done to calculate the TP delivery to the stream from the field where the
BMP was used (Breetz et al. 2004). For more information about this trading program,
see Appendix A.
Determining Maximum Feasible Nonpoint Source Load
Reductions
It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a
waterbody. Therefore, it is important that some analysis be done to estimate the maximum
amount of pollutant runoff that can be controlled from the nonpoint sources in a watershed.
The difference between this estimate and the nonpoint source's baseline equals the maxi-
mum nonpoint source load reductions available for trading.2 This is a way to ensure that
credits being purchased result in actual reductions. This increases the surety that the trading
program can meet its goal of achieving water quality standards.
2 The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available
for trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on
many factors (as described in the Developing Trade Ratios section), determining the maximum number of credits
is not as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring
that every trade results in a reduction of total load to the waterbody.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a Quantifying
Nonpoint Source Nonpoint
Credit Exchange Source Loads
and Credits
Establishing I Accountability Trade
Baselines	Agreements
for Nonpoint
Source Sellers
Components
of a NPDES
Permit	Permit Effluent
Cover Page Limitations Monitoring
Reporting Special
Requirements Conditions

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Water Quality Trading Toolkit for Permit Writers
A trading program can directly calculate the maximum tradable nonpoint source load reduc-
tion for a watershed. A watershed's maximum tradable nonpoint source load reduction can
be calculated by first determining the maximum feasible implementation of BMPs; second,
estimating the reduction from that level of BMP implementation based on watershed model-
ing, published BMP efficiency information, or best professional judgment; and finally, taking
the difference between the maximum loadings reduction and the aggregate baseline for all
sellers. In addition, this calculation could be done for an individual farm.
The trading program may want to include a mechanism for ensuring that this maximum trad-
able nonpoint source load reductions is not exceeded. This could be done, for example, by
specifying the maximum tradable nonpoint source load reductions in the program documen-
tation and then tracking credit sales, and therefore load reductions, by nonpoint sources to
ensure that this maximum is not exceeded.
Pennsylvania's Tradable Loads for Addressing the Chesapeake Bay's Tributary
Strategies
In 2003 EPA developed a document titled, The Technical Support Document for the Identification of Chesa-
peake Bay Designated Uses and Attainability to help states develop and adopt refined water quality stan-
dards to address nutrient- and sediment-based pollution in the Chesapeake Bay and its tidal tributaries.
As part of this analysis, the Chesapeake Bay Program developed four nutrient reduction scenarios on the
basis of different levels of BMP and control technology implementation by 2010. The levels ranged from
current implementation to "everything, everywhere, by everybody" (E3), which approximates the maxi-
mum nutrient and sediment load reductions available in the watershed. To create the most objective
and uniform maximum implementation level possible, the E3 scenario was developed without consider-
ing site-specific constraints and program participation levels. If these factors were considered, certain
aspects of the E3 scenario may not be feasible. Nutrient and sediment loads resulting from each nutrient
reduction scenario were estimated using the Chesapeake Bay Programs Phase 4.3 Watershed Model. For
example, the estimated loadings for the E3 scenario for Pennsylvania agriculture were 21,153,000 lbs
TN/yr and 1,896,000 lbs TP/yr. (More information on the development of the E3 scenario is available in
Appendix A of the Technical Support Document at www.chesapeakebay.net/uaasupport.htm)
Recognizing that model estimates based on the E3 scenario likely overestimated the maximum feasible
nutrient and sediment load reductions, Pennsylvania made adjustments to the estimates to better repre-
sent a feasible effort. One adjustment was reducing by 10 percent the level of nonpoint source reductions
estimated in the E3 scenario. The selection of a 10 percent reduction is subjective, because estimates of
the feasible level of implementation for nonpoint source BMP implementation vary widely. Additionally,
Pennsylvania estimated the reductions for those BMPs in Pennsylvania's Tributary Strategy that were not
included in the E3 scenario. These additional reductions were included in the revised E3 scenario. The
estimated loadings for the revised scenario for agriculture were 21,819,000 lbs TN/yr and 1,726,000
lbs TP/yr. After adjusting the E3 scenario estimates, Pennsylvania estimated the maximum allowable
credits as the difference between the load estimates from the revised E3 scenario and the Pennsylvania
Tributary Strategy loadings goal. The Tributary Strategy loads for agriculture were 27,580,000 lbs TN/yr
and 2,123,000 lbs TP/yr yielding final tradable loads of 5,760,000 lbs TN/yr and 397,000 lbs TP/yr. The
scenario values and the tradable load values will change as new BMPs are developed or the efficiencies of
existing BMPs are revised.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing 1 Accountability
Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Accountability
Mechanisms Under the NPDES Program
EPA's Trading Policy notes that "States and tribes should establish clear enforceable mecha-
nisms consistent with NPDES regulations that ensure legal accountability for the generation
of credits that are traded."
Such enforceable mechanisms might include, among other things, requirements for water
quality or effluent monitoring, credit purchase and sale accounting, and assessment of BMP
effectiveness. These mechanisms might be contained in state regulations, the project trade
agreement, or both. By incorporating such accountability provisions of the trade agreement
(or the entire trade agreement) into a NPDES permit, the state or tribe makes the point
source legally responsible for their performance.
EPA's Trading Policy also states that "In the event of default by another source generating
credits, an NPDES permittee using those credits is responsible for complying with the effluent
limitations that would apply if the trade had not occurred."
To account for the possibility of a failed trade (e.g., insufficient generation of necessary cred-
its by the seller), EPA recommends that the permit (and any accompanying trade agreement)
clearly describe the respective responsibilities and legal liability (if any) of the buyer and the
seller (see Special Conditions).
Mechanisms Outside of the NPDES Program
To further clarify and protect their interests, the trading parties may choose to enter into a
contract or other agreement separate from any applicable NPDES permit. Such a contract or
agreement could, where appropriate, address a variety of financial or legal considerations
and contingencies among the trading parties, including what happens in the case of default
by any party. For example, the point source buyer might use such a contract to memorialize
an agreement that the credits it needs are available; the nonpoint source seller might use
such a contract to guarantee payment for its services; a credit exchange might use such a
contract for both of these reasons. Where a credit exchange is involved, the exchange might
enter into separate contracts with the buyer and seller, all parties could enter into one con-
tract, or the buyer and seller could enter into a contract without the exchange.
Great Miami River Watershed, Ohio
After a soil and water conservation district s proposal is approved, the Miami Con-
servancy District (MCD, the broker of the program) enters into a contract with the
successful soil and water conservation district for project implementation. The soil and
water conservation district then enters into a project agreement with the nonpoint
source responsible for implementing the BMPs. MCD tracks the credits generated and
allocates them to the buyers. A separate Load Reduction Workgroup will evaluate the
accuracy of reduction estimates every two years. For more information on this program,
see Appendix A.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability! Trade
Components


Nonpoint Source
Nonpoint
Baselines
¦ Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Trade Agreements
Typically, the terms that govern a trading program will be developed outside the NPDES per-
mit process and can be incorporated or reflected in the permit (see Appendix C). The Trading
Policy describes several mechanisms for implementing trading through NPDES permits (see
Appendix B). NPDES permits authorizing water quality trading should reference any existing
trade agreement in the permit and fact sheet.
All trade agreements referenced in NPDES fact sheets and permits should meet certain
minimum standards to help ensure the trades authorized by the permit are consistent with
water quality standards. At a minimum, the trade agreement should be a written agreement
that is signed and dated by authorized representatives of all trading partners. Verbal trade
agreements should not be referenced in NPDES permits. The written trade agreement should
contain sufficient detail to allow the permitting authority to determine with some degree of
certainty that the terms of the agreement will result in loading reductions and generation
of sufficient credits to satisfy water quality requirements. If there is no formal, outside trade
agreement, trading can still occur; however, the permit writer will need to more explicitly
describe the trading program in the fact sheet and authorize specific aspects of the trad-
ing program as permit conditions. Trading partners can specify the details pertaining to the
negotiated terms of the trade (e.g., credit price, payment schedule, consequences for failure
to fulfill negotiated terms) in a separate, written and signed contract.
Trade Agreements with Nonpoint Source Credit Exchanges
A nonpoint source credit exchange is a pool of nonpoint source credits managed by a third
party that facilitates trades. As a result, point sources purchasing credits from a nonpoint
source credit exchange do not trade directly with nonpoint sources. The nonpoint source
generates pollutant load reductions and sells the pollutant load reductions as credits to the
entity administering the nonpoint source credit exchange. Point sources may then purchase
credits from the credit exchange rather than directly from the nonpoint sources. Point source
purchasers, therefore, will enter into trade agreements with the nonpoint source credit
exchange.
As described above, the entity administering the nonpoint source credit exchange can estab-
lish standards for trading, set credit prices, determine eligible credits, verify the operation
and maintenance of BMPs, account for delivery, location, and uncertainty ratios and track
important trade information for all participants. A trade agreement established between
a point source and the nonpoint source credit exchange should outline all these issues, and
the permitting authority should consider the information contained in the trade agreement
when developing permits for participating point sources.
Water Quality Trading Scenarios
Nonpoint Source









Credit Exchange
The Function of a
Quantifying
Establishing
Accountability
Trade
Components



Nonpoint Source
Nonpoint
Baselines

Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint


Permit
Permit Effluent
Reporting
Special


and Credits
Source Sellers



Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Trade Agreements
What You Need to Know...
Pollutant: Biochemical Oxygen Demand
Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for
point and nonpoint sources
Nonpoint Source Credit Exchange: Maize Creek Producers' Nutrient Exchange (MCPN Exchange)—
Nitrogen and Phosphorus
¦	Credit Sellers: Ten farms in the Maize Creek Watershed
¦	Agricultural Nutrient Reduction Goals (baseline): 10 percent reduction in TP and TN load-
ing from current estimated loads to reduce in-stream biochemical oxygen demand (BOD).
¦	Estimated Load Reduction: The Niblet County Soil and Water Conservation District estab-
lished the MCPN Exchange to facilitate trading between local farms and point source discharg-
ers in the Maize Creek Watershed. The MCPN Exchange has developed a list of BMPs eligible for
trading along with estimated loading reductions. The BMP loading reductions estimates, as well
as applicable ratios, have been reviewed and approved by the state NPDES permitting authority.
Ten farms implemented conservation tillage to achieve the baseline of a 10 percent reduction in
TP and TN loads from current estimated loads. These 10 farms are eligible to participate in the
MCPN Exchange and have signed the required trade agreement. The farms have agreed to install
and maintain additional BMPs to reduce in-stream BOD by reducing TP and TN loads. Collec-
tively, participants in the MCPN Exchange will meet the BOD load reduction needs of the point
sources in the watershed. The loading reductions are based on an average loading reduction per
month over a typical 12-month period for the watershed. The MCPN Exchange will monitor
BMP installation and maintenance to verify availability and continued generation of credits, as
well as track and report all trades to all participants.
Credit Buyer: City ofEarington POTW"
¦	Existing TBELb: 1,000 lbs/day (average monthly) of BOD
¦	Current Loading: 1,000 lbs/day (average monthly) of BOD
¦	Approved Watershed Management Plan Total BOD Reduction Goal: 15 percent reduction
from current BOD loading (reduction of 150 lbs/day (average monthly) to 850 lbs/day)
¦	WWTPC Treatment Capabilities: Treatment to 1,000 lbs/day of BOD (average monthly)
Location: All the farms participating in the MCPN Exchange are upstream of potential point source
buyers, including the Earington POTW. All point and nonpoint sources discharge directly to Maize
Creek.
Notes: a POTW = publicly owned treatment works; b TBEL = technology-based effluent limitations;
c WWTP = wastewater treatment plant
Water Quality Trading Scenarios
Nonpoint Source









Credit Exchange
The Function of a
Quantifying
Establishing
Accountability
Trade
Components



Nonpoint Source
Nonpoint
Baselines

Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint


Permit
Permit Effluent
Reporting
Special


and Credits
Source Sellers



Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Maize Creek Example: Trade Agreements (continued)
Applicable Trade Ratios:
¦	Delivery: The MCPN Exchange has developed a set of ratios that account for the location of the
farms in relation to each potential buyer.
¦	Uncertainty: The MCPN Exchange developed a set of uncertainty ratios to account for uncer-
tainties associated with BMP efficiencies, implementation, maintenance and monitoring.
¦	Equivalency: The MCPN Exchange has worked with the NPDES permitting authority to develop
a ratio to relate the in-stream effects of nitrogen and phosphorus loading reductions by the
farms to required BOD reductions by point source buyers.
The NPDES permitting authority has reviewed and approves of all ratios developed by the MCPN
Exchange. These ratios will be applied to the loading reductions achieved by the member farms to
determine the number of credits generated.
Multiple point sources within the Maize Creek Watershed, including the city of Earington POTW,
wish to participate in the MCPN Exchange and have asked the permitting authority to authorize
them to trade to meet the BOD load-reduction goals in the approved Maize Creek Watershed Manage-
ment Plan. The NPDES permitting authority worked with the MCPN Exchange, potential point source
buyers, and other key stakeholders to craft the provisions of the trade agreement and provided the
necessary information (e.g., baseline, minimum control levels) to facilitate the trade between the city
of Earington POTW and the MCPN Exchange. The city of Earington POTW's permit is scheduled for
renewal in 3 years, and at that time, the NPDES permit writer will incorporate provisions to allow
the city of Earington POTW to purchase from the MCPN Exchange the equivalent of 150 lbs/day of
total BOD necessary to achieve the 15 percent load reduction required under the approved watershed
management plan.
As required, the permitting authority receives a copy of the trade agreement that is signed and
dated by authorized representatives of the city of Earington POTW and the MCPN Exchange. The
permit writer reviews the trade agreement to verify that the information is accurate and consis-
tent with water quality standards. The permit writer develops permit requirements for the city of
Earington POTW that are consistent with the provisions in the trade agreement and incorporates
those requirements in the effluent limitations (i.e., baseline and minimum control level), reporting,
and monitoring provisions of the permit.
The basic terms of the trade agreement between the city of Earington POTW and the MCPN Exchange
are as follows:
¦	The city of Earington POTW will purchase the necessary amount of equivalent total BOD credits
to compensate for a discharge of 150 lbs/day of BOD (average monthly) for a period of 5 years to
correspond with the NPDES permit term.
¦	The delivery, uncertainty, and equivalency ratios approved by the NPDES permitting author-
ity will be applied to the nitrogen- and phosphorus-loading reductions achieved by the member
farms to determine the number of BOD credits generated. Nutrient load reductions will be con-
verted to BOD credits by the exchange using the applicable ratios.
Water Quality Trading Scenarios
Nonpoint Source









Credit Exchange
The Function of a
Quantifying
Establishing
Accountability
Trade
Components



Nonpoint Source
Nonpoint
Baselines

Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint


Permit
Permit Effluent
Reporting
Special


and Credits
Source Sellers



Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Trade Agreements (continued)
¦	Member farms must continue to meet their baseline requirement of 10 percent nutrient reduc-
tion (either through continuation of conservation tillage, or through alternate approved BMPs)
to maintain eligibility to participate in the MCPN Exchange.
¦	Credit buyers must meet applicable minimum control levels before purchasing credits to meet
the baseline established in the Maize Creek Watershed Management Plan.
¦	The MCPN Exchange will conduct the necessary BMP monitoring and inspections to verify and
certify credit generation.
¦	The MCPN exchange will provide the city of Earington POTW with the necessary BOD Analysis
Reports to submit to the NPDES permitting authority to verify and certify the generation of
credits by agricultural operations participating in the exchange.
¦	Trades occur monthly and credits may not be applied in any month other than the one in which
the credits are generated.
In a separate contract, the city of Earington POTW and the MCPN Exchange articulate the financial
and liability conditions for the trade. The terms of the separate contract, which the permit writer does
not ask to see because it has no bearing on the NPDES permit requirements for the city of Earington
POTW, are as follows:
¦	The city of Earington POTW will pay the MCPN Exchange $22.50 per credit of BOD on a
monthly basis. All payments for a calendar month are due to the MCPN Exchange by the 15th of
the following calendar month.
¦	The city of Earington POTW will pay the MCPN Exchange an administration fee of $15 per
month during the 5-year permit term. This fee will help defray the cost of BMP inspection,
monitoring, reporting, and other administrative functions of the exchange.
¦	Failure to fulfill the terms of this agreement on behalf of the city of Earington POTW will result
in a breach of the trade agreement and terminate participation in the purchase of TP credits
through the MCPN Exchange.
The city of Earington POTW's renewed NPDES permit will not include any provisions of the city of
Earington POTW's contract with the MCPN Exchange; however, the NPDES permit writer receives a
copy of the trade agreement that is signed and dated by authorized representatives of the city of Ear-
ington POTW and the MCPN Exchange. The permit writer reviews the trade agreement to verify that
the information related to baselines and estimated pollutant load reductions is accurate and does not
conflict with any of the city of Earington POTW's existing NPDES permit requirements. At the time
of permit renewal, the NPDES permit writer will incorporate provisions to authorize the purchase
of BOD credits from the MCPN Exchange and ensure that the permit effluent limitations, monitor-
ing, reporting, and special conditions requirements reflect the purchase of BOD credits to achieve
compliance with the facility's water quality-based effluent limitation (WQBEL). The permit writer
will incorporate provisions as necessary from the signed trade agreement in the permit and reference
the agreement in the fact sheet. A copy of the trade agreement is also attached as part of the permit's
administrative record.
Water Quality Trading Scenarios
Nonpoint Source









Credit Exchange
The Function of a
Quantifying
Establishing
Accountability
Trade
Components



Nonpoint Source
Nonpoint
Baselines

Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint


Permit
Permit Effluent
Reporting
Special


and Credits
Source Sellers



Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Components of a NPDES Permit
NPDES permits that authorize water quality trading are no different than typical NPDES per-
mits in many respects—they require the same structure, analyses, and justification. All per-
mits have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and
reporting requirements; (4) special conditions; and (5) standard conditions. Standard condi-
tions are the same for all NPDES permits and will not be addressed in this Toolkit. In addition,
consistent with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are
subject to public notice and comment. This process provides all interested parties an opportu-
nity to comment on the trading provisions in the permit.
Each NPDES permit is accompanied by a permit fact sheet. The information in these fact
sheets is not enforceable. The purpose of the fact sheet is to explain to the public the require-
ments in the permit. Thus, at a minimum, the fact sheet should explain to the public any
trading provisions in the permit. There is a wide variety of options for including trading
information in the fact sheet that ranges from explaining the minimum control level (buyer)
or trading limit (seller) to including the entire trading program.
There are a variety of issues, however, that may require special consideration when develop-
ing a permit to implement water quality trading with a nonpoint source credit exchange.
Appendix E provides the permit writer with a list of fundamental questions that should be
addressed during the permit development process.
Permit Cover Page
The cover page of a NPDES permit typically contains the name and location of the
permittee(s), a statement authorizing the discharge, the specific locations for which a dis-
charge is authorized (including the name of the receiving water), and the effective period
of the permit (not to exceed 5 years). In addition, the cover page may list the pollutants
regulated by the permit. For instance, the cover page of an overlay permit for TP may state
that the overlay permit addresses only TP and that other parameters are addressed in each
facility's individual permit.
The cover page also could specifically authorize trading between the permitted point source
and the nonpoint source(s) generating credits. However, whereas the cover page for a permit
that includes trading between point sources would include the specific authorized discharge
locations for each point source, because a nonpoint source is a diffuse pollutant source (e.g.,
farms, ski areas, golf courses), a permit that implements a trade with a nonpoint source trad-
ing partner might not reference a specific discharge location for the nonpoint source involved
in the trade. The cover page could, however, simply name the nonpoint source either by
category (e.g., farms, golf courses) or by the name of the specific nonpoint source (e.g.. Rock
Creek Dairy, Rolling Hills Country Club) and provide a general description of nonpoint source
location (e.g., Hudson River at West Point). Further, if the point source purchased credits
from a nonpoint source credit exchange, the cover page should name the nonpoint source
credit exchange or managing party.
Water Quality Trading Scenarios
Nonpoint Source







Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

¦ Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
The cover page also should address the regulation, legal authority, policy statements, plan-
ning documents and the trade agreement that support trading between point and nonpoint
sources in the Authority section of the cover page. If the state has issued regulations or policy
documents authorizing water quality trading, the permit writer should reference these. For
example, if trading is considered a water-quality management tool in the state's Water Qual-
ity Management Plan, this may establish authority for integrating trading into NPDES permits
and can be referenced on the cover page (Jones et al. 2005).
Effluent Limitations
Effluent limitations are the primary mechanism for controlling the discharge of pollutants
from point sources into receiving waters. When developing a permit, the permitting author-
ity focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES
permits, permits that include trading must include any applicable TBELs and, where neces-
sary, WQBELs, that are derived from and comply with all applicable technology and water
quality standards. Furthermore, limits must be enforceable, and the process for deriving the
limits should be scientifically valid and transparent.
EPA's Trading Policy does not support trading to meet TBELs unless trading is specifically
authorized in the categorical effluent limitation guidelines on which the TBELs are based.
Applicable TBELs thus serve as the minimum control level below which the buyer's treatment
levels cannot fall. This section discusses the overarching principles of how to express all appli-
cable effluent limitations in permits for dischargers participating in water quality trades.
Credit Buyers
Permits for credit buyers should include both the baseline, which is the WQBEL that defines
the level of discharge the buyer would have to meet through treatment when not trading,
and a minimum control level that must be achieved through treatment when trading. The
permit should also include the amount of pollutant load to be offset (minimum control level
- baseline) through credit purchases when trading. Most often, the applicable TBEL will serve
as the minimum control level. A permitting authority can choose to impose a more-strin-
gent minimum control level than the TBEL to prevent localized exceedances of water quality
standards near the point of discharge but not one that is less stringent the TBEL. In a NPDES
permit or fact sheet, the effluent limitations for a credit buyer could be described as follows:
• The Discharger must meet, through treatment or trading, a mass-based effluent limi-
tation for Pollutant A of . If this effluent limitation is met through
trading, the Discharger must purchase credits from authorized Sellers in an amount
sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess
of , but at no time shall the maximum mass discharge of Pollutant A
during  exceed the minimum control level of . Thus, the maximum mass discharge of Pollutant A to be offset
through credit purchases is .
Water Quality Trading Scenarios
Nonpoint Source




=>	



Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components



Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Maize Creek Example: Effluent Limitations
Applicable Trade Ratios:
¦	Delivery: The MCPN Exchange has developed a set of ratios that account for the location of the
farms in relation to each potential buyer.
¦	Uncertainty: The MCPN Exchange developed a set of uncertainty ratios to account for uncer-
tainties associated with BMP efficiencies, implementation, maintenance and monitoring.
¦	Equivalency: The MCPN Exchange has worked with the NPDES permitting authority to develop
a ratio to relate the in-stream effects of nitrogen- and phosphorus-loading reductions by the
farms to required BOD reductions by point source buyers.
Multiple point sources within the watershed, including the city of Earington POTW, wish to partici-
pate in the exchange and have asked the permitting authority to authorize them to trade to meet the
BOD loading reduction requirements in the approved watershed management plan. The permitting
authority has chosen to modify individual permits to authorize trading with the exchange.
The POTW's existing permit includes state required TBELs the permittee currently meets.
The permit writer will include the calculated WQBELs and trading provisions in the renewed permit
for the city of Earington POTW. The permit will also include the minimum control level (i.e., TBEL or
existing discharge) that chooses to trade with the exchange.
Permit Language:
Table 2. Monthly average mass loading effluent limitations for BOD
Facility
Units
Existing TBEL
WQBEL
Effluent limitation
with trading
City of Earington POTW
lbs/day
1,000
850 (Baseline)
1,000 (Minimum Control
Level/TBEL)
A.	The permittee is authorized to discharge BOD from permitted outfalls to Maize Creek
provided the discharge meets the limitations set forth herein. Provision X of this permit
authorizes the permittee to purchase BOD credits generated by nonpoint source phosphorus
load reductions from Maize Creek Producers Nutrient Exchange (MCPN Exchange).
B.	The discharge from Outfall 001 shall comply with the monthly mass loading of BOD
established by either a or b:
a.	The WQBEL set forth in Table 2; or,
b.	The Effluent Limitation With Trading set forth in Table 2 provided the permittee has
secured BOD credits generated by nonpoint source phosphorus load reductions from the
Exchange sufficient to compensate for any discharge in excess of the WQBEL set forth in
Water Quality Trading Scenarios
Nonpoint Source




=>	




Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components




Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES





Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Effluent Limitations (continued)
Table 2. The number of pounds of nonpoint source phosphorus load reductions required
to be purchased shall be calculated as follows:
Pounds phosphorus required = (Actual Discharge - WQBEL) x Trade ratio
Where:
Actual discharge = the BOD load, expressed in lbs/day as a monthly average.
Trade ratio = Ratios established in the trade agreement between the permittee and the
MCPN Exchange and incorporated by reference herein
C. Credits purchased by the permittee may be applied only for the calendar month(s) during
which they were generated by the exchange.
Pollutant Form, Units of Measure, and Timing Considerations
The permit should explicitly identify the pollutant or pollutants being traded. The permitting
authority should ensure that the trading program or agreement and the calculated WQBELs
are consistent in terms of the form of the pollutant, units of measure, and timing.
For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated
under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitro-
gen (TKN) or some other form. If, on the other hand, the WQBEL is for TN, buyers and sellers
should trade TN credits. In this case, a discharger may be required to measure TN. If there
are concerns about localized impacts, and WQBELs are also specified for a particular form or
forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and nitrate (all
expressed as N) and then calculate its TN discharge.
Also an equivalency ratio may be needed when two sources are trading pollutants such as
TN or TP, but are actually discharging different forms of nitrogen or phosphorus (e.g., one
discharger's phosphorus discharge is made up primarily of biologically available phospho-
rus while its trading partner's discharger is primarily bound phosphorus). An equivalency
ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants (e.g.,
phosphorus and BOD). In this case, the equivalency ratio would equal the ratio between
the two pollutants impacts on oxygen demand. Where possible, the nonpoint source credit
exchange or trading program should account for any necessary equivalency ratios with
regard to pollutant form or type; the permit writer simply needs to be aware of the pollut-
ant form or type addressed in the trade agreement to ensure that the permit is consistent.
Note, however, that under most circumstances it will be difficult to account for equiva-
lency ratios in a nonpoint source credit exchange model. The equivalency ratio is calcu-
lated on the basis of the ratios of different forms or types of a pollutant in the discharges
of both the credit generator and the credit purchaser. Therefore, unless all the nonpoint
source credit generators are discharging pollutant forms or types with the same ratio, the
credit exchange would have to track individual transactions from generators to sellers to
determine how much each credit would be worth.
Water Quality Trading Scenarios
Nonpoint Source




=>	




Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components




Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES





Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
For example, a point source purchaser needs to purchase credits from the credit exchange
equivalent to 100 lbs/day for the ratio of pollutant forms being discharged at the point
source. The credit exchange has credits deposited by 5 different nonpoint sources (Source A,
Source B, Source C, Source D, and Source E), each discharging the pollutant forms at a dif-
ferent ratio. The credit exchange may have to sell credits to the point source from one, two,
three, four, or all five of the nonpoint sources. The credit exchange would have to make sure
that the correct equivalency ratio is applied to the credits deposited by Source A, based on
which point source is buying the credits that Source A deposited. The exchange has to apply a
different set of ratios for the credits from Sources B, C, D, and E. The situation becomes more
complicated if the credits from one or more of the nonpoint sources are split between mul-
tiple point source buyers. Finally, it is possible that, depending on the ratios, there may not
be enough credits to meet all of the buyers' needs, but that would not be known until the
credit exchange determines how many credits each nonpoint source deposits and how many
credits each point source needs and begins to optimize the distribution of credits based on
all of the possible combinations of buyers, sellers, and ratios. In complicated credit exchange
situations like this, an extended period of monitoring before trading may be necessary to
better determine the expected BMP performance from each potential nonpoint source credit
seller and, thus, whether the exchange will have enough credits to satisfy the needs of all the
potential buyers.
Maize Creek Example: Pollutant Form, Units of Measure,
and Timing
What You Need to Know...
Pollutant: Biochemical Oxygen Demand
Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for
point and nonpoint sources
Nonpoint Source Credit Exchange: Maize Creek Producers' Nutrient Exchange—Nitrogen and
Phosphorus
Credit Sellers: Ten farms in the Maize Creek Watershed
Credit Buyer: City of Earington POTW
Location: All the farms participating in the MCPN Exchange are upstream of all potential point
source buyers. All point and nonpoint sources discharge directly to Maize Creek.
Pollutant Form
The watershed management plan indicates a need for the city of Earington POTW, the credit buyer,
to control BOD discharges. The plan includes loading reduction recommendations for the members
of MCPN Exchange (credit seller) as well. Each member farm will install one or more BMPs from an
approved list established in the trade agreement to reduce phosphorus and nitrogen loads 10 per-
cent as indicated in the watershed management plan. Because controlling nutrients reduces oxygen
demand, the credit exchange was able to work with the permitting authority to establish an equiva-
lency ratio that accounts for the relationship between nutrients and BOD load reductions. This will
enable the MCPN Exchange to sell the nutrient reductions in the form of BOD credits to the POTW.
Water Quality Trading Scenarios
Nonpoint Source




=>	




Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components




Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES





Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Pollutant Form, Units of Measure,
and Timing (continued)
Units of Measure
The BOD WQBELs based on the reduction recommendations in the watershed management plan are
expressed in lbs/day as a monthly average to correspond with the units and averaging period in the
plan. The BOD limits in the POTW's existing permit are also expressed in lbs/day as a monthly aver-
age. The trade agreement also specifies these units for trading. The nutrient load reductions for the
credit exchange will be calculated and expressed in lbs/day as a monthly average over a typical 12-
month period to determine the number of credits they can generate to sell the POTW.
Timing of Credits
Credits are available beginning at the time of permit issuance. This allows 24 months for the MCPN
Exchange member farms' BMPs to be fully implemented and 12 months for the credit exchange to
gather monitoring data to verify that the BMPs are achieving the expected nutrient removal efficiency
and will generate credits as expected. These data are necessary to better understand how loading
and reduction may vary over time and to develop monthly credit generation data to correspond with
monthly average effluent limitations. Trades will occur monthly to correspond with monthly average
effluent limitations. The MCPN Exchange member farms will be able to continue to generate credits
as long as the controls are properly operated and maintained, the credit exchange is able to demon-
strate reductions, and the nonpoint source baseline does not change in a way that would reduce or
eliminate the credits (e.g., based on a new TMDL that includes WLAs for the permittee or LAs for the
MCPN Exchange member farms). The ability of MCPN Exchange to continue to generate credits will be
assessed during the renewal of the city of Earington's POTW NPDES permit every 5 years.
Anti-backsliding, Antidegradation, and New Discharges Special
Considerations
EPA's Trading Policy discusses anti-backsliding and antidegradation and how these provisions
can be met through trading.
Anti-backsliding
The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in gen-
eral, prohibits the renewal, reissuance, or modification of an existing NPDES permit that con-
tains WQBELs, permit conditions, or standards that are less stringent than those established
in the previous permit (USEPA 1996b). The CWA establishes exceptions to this general anti-
backsliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for less
stringent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs,
the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR
122.44(1) provide exceptions for circumstances such as material and substantial alterations
to the facility, new information, events beyond the permittee's control, and permit modifi-
cations under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs,
allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a water-
body attaining water quality standards as long as the waterbody continues to attain water
quality standards even after the WQBEL is relaxed. In addition, revising the limitation must
Water Quality Trading Scenarios
Nonpoint Source




=>	




Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components




Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES





Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
be consistent with the state's antidegradation policy. If the discharge is to a waterbody that
is not attaining water quality standards, a less-stringent WQBEL is allowed only when the
cumulative effect of all revised effluent limitations results in progress towards attainment of
water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA's
NPDES Permit Writers' Manual (EPA-833-B-96-003). EPA's Trading Policy states:
EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the
CWA will generally be satisfied where a point source increases its discharge
through the use of credits in accordance with alternate or variable water quality
based effluent limitations contained in an NPDES permit, in a manner consistent
with provisions for trading under a TMDL, or consistent with the provisions for
pre-TMDL trading included in a watershed plan.
A permit writer should simply explain in the fact sheet of the permit how the limitations in the
permit, after accounting for any trading provisions, are at least as stringent as the limits in
the previous permit or, alternatively, how anti-backsliding provisions of the CWA are satisfied.
Antidegradation
As repeated throughout this document, NPDES permits may not facilitate trades that would
result in nonattainment of an applicable water quality standard, including the applicable
antidegradation provisions of water quality standards. Permitting authorities should ensure
that WQBELs developed to facilitate trade agreements accord with antidegradation provi-
sions and that antidegradation reviews are performed when required. Nothing in the Trad-
ing Policy per se changes how states apply their antidegradation policies, though states may
modify their antidegradation policies to recognize trading.
The Trading Policy states:
EPA does not believe that trades and trading programs will result in "lower
water quality"... or that antidegradation review would be required under EPA's
regulations when the trades or trading programs achieve a no net increase of
the pollutant traded and do not result in any impairment of designated uses.
Special considerations for antidegradation relative to water quality trading depend on the
tier of protection applied to the waterbody as described below.
Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters,
the antidegradation policy mandates protection of existing in-stream uses. Because EPA
neither supports trading activities nor allows issuance of permits that violate applicable water
quality standards, which should protect existing uses at a minimum, any supported trading
activities incorporated into a NPDES permit should not violate antidegradation policies appli-
cable to Tier 1 waters.
Tier 2 protects waters where the existing water quality is higher than required to support
aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the
level that would continue to support existing and designated uses), but only if an antidegrada-
tion review finds that (1) it is necessary to lower water quality to accommodate important social
or economic development, (2) all intergovernmental and public participation provisions have
Water Quality Trading Scenarios
Nonpoint Source




=>	



Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components



Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint

Permit Permit
Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page
Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
been satisfied, and (3) the highest statutory and regulatory requirements for point sources and
BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to main-
tain high water quality when trading is used to compensate for new or increased discharges.
Thus, the Trading Policy supports reductions of existing pollutant loadings to compensate for
the new or increased load so that the result is no lowering of water quality. A state, in applying
its antidegradation policy, may decide to authorize a new or increased discharge to high-
quality water and may decide to use trading to completely or partially compensate for that
increased load. If the increased load to Tier 2 waters is only partially compensated for by trad-
ing, an antidegradation review would be required to address the increased load.
Tier 3 protects the quality of outstanding national resource waters and waters of exceptional
recreational or ecological significance. In general, antidegradation policies do not allow any
increase in loading to Tier 3 waters that would result in lower water quality. EPA supports
trading in Tier 3 waters to maintain water quality.
Monitoring
Permitting authorities may want to consider developing monitoring and reporting require-
ments to characterize waste streams and receiving waters, evaluate wastewater treatment
efficiency, and determine compliance with permit conditions in the trade agreement. Moni-
toring and reporting conditions of a NPDES permit may contain specific requirements for
sampling location, sample collection method, monitoring frequencies, analytical methods,
recordkeeping, and reporting. If the permit conditions include compliance with provisions in
a trade agreement, the permitting authority should include monitoring, record-keeping, and
reporting requirements that facilitate compliance evaluations and, where necessary, enforce-
ment actions related to the trading requirements. Discharge monitoring requirements should
be consistent with the provisions of the trade agreement in terms of pollutants and forms of
pollutants monitored, reporting units, and timing. The permit provisions should ensure that
the results of discharge monitoring will be useful to the permittee, the permitting author-
ity, and the general public in determining whether the provisions of the trade agreement
are being met. Permits that authorize point source-nonpoint sources trades via a nonpoint
source credit exchange should also address the unique considerations for monitoring and
reporting that will facilitate evaluating the effectiveness of BMPs used to generate pollutant
reduction credits.
Sample Collection and Analysis
The same discharge sampling location used for compliance in any existing NPDES permits
should be used for determining compliance with effluent limitations developed for traded
parameters. Samples collected as part of a self-monitoring program required by a NPDES per-
mit must be performed in accordance with EPA-approved analytical methods specified in 40
CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants Under
the Clean Water Act) where Part 136 contains methods for the pollutant of concern. Where
no Part 136 methods are available, the permit writer should specify which method the point
source should use for compliance monitoring.
Water Quality Trading Scenarios
Nonpoint Source




=>	



Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components



Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
Parties Responsible for Monitoring
In a permit that authorizes trading between a point source(s) and a nonpoint source credit
exchange, the permittee(s) will be responsible for all the monitoring activities that would
normally be required in any NPDES permit. If the permit is an overlay permit covering mul-
tiple point sources and is used to incorporate water quality trading for specific pollutants,
the permitting authority may establish monitoring requirements by reference to the facility's
individual NPDES permit for consistency. Alternatively, the overlay permit could specifically
list the monitoring location and requirements.
Ambient Monitoring
Ambient monitoring is one way to show whether a trade agreement meets or improves water
quality. In addition to traditional discharge monitoring requirements, ambient water quality
monitoring may be appropriate at strategic locations to ensure that the trade is not creating
localized exceedances of water quality standards and to document the performance of the
overall trading program. Permits with mixing zones may include monitoring requirements as
appropriate to ensure that water quality criteria are not exceeded at the edge of the appli-
cable mixing zone.
BMP Monitoring and Trade Tracking
To assure that nonpoint source BMPs are performing properly, the permitting authority
should add permit conditions specifying that a BMP be monitored and inspected on a regular
basis. For permits that authorize trading with a nonpoint source credit exchange, however,
such provisions may not be necessary. In general, the credit exchange will likely have the
responsibility for monitoring BMPs and verifying pollutant reductions. In some cases, the
trading program itself might establish these responsibilities. The permit writer should deter-
mine whether and how the nonpoint source credit exchange verifies pollutant reductions.
In some cases, monitoring and inspections might be required of point sources if the credit
exchange does not adequately monitor BMPs. In other cases, a third party assumes responsi-
bility for BMP monitoring.
Under any of these scenarios, the permitting authority should be aware of the monitor-
ing and reporting responsibilities established in the trading program or through the credit
exchange and should ensure that the permit conditions do not contradict these requirements.
Where the trading program provides that the point source conduct inspections and monitor-
ing of nonpoint source BMPs, the permit should incorporate or reference those requirements.
Where the trading program provides that a third party conduct inspections and monitoring,
the permit should also reference those requirements and clarify the permittee's responsibili-
ties, if any, for reporting or using the information and data gathered through the inspections
and monitoring activities or conducting these activities itself should the third party fail to
fulfill its responsibilities.
Permitting authorities should consider developing trade tracking forms and establishing dis-
charger trade reporting requirements to monitor trading activities and any alternative com-
pliance activities implemented if a BMP fails to perform as expected (see Special Conditions).
In addition, credit exchanges should consider holding surplus credits in reserve to be used to
compensate for point source pollutant loads in the event of a failed trade.
Water Quality Trading Scenarios
Nonpoint Source




=>	



Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components



Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES




Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent

Reporting
Special


and Credits
Source Sellers

Cover Page Limitations
Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Monitoring
What You Need to Know...
Pollutant: Biochemical Oxygen Demand
Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for
point and nonpoint sources
Nonpoint Source Credit Exchange: Maize Creek Producers' Nutrient Exchange—Nitrogen and
Phosphorus
Credit Sellers: Ten farms in the Maize Creek Watershed
Credit Buyer: City of Earington POTW
Location: All the farms participating in the MCPN Exchange are upstream of potential point source
buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to
Maize Creek.
The facility's existing permit includes TBELs based on state treatment standards for BOD and moni-
toring requirements to sample the effluent monthly for BOD to determine compliance. The renewed
permit will incorporate new effluent limits (based on the approved watershed management plan) as
well as the necessary provisions and effluent limits to authorize trading.
In the renewed permit, the POTW will be required to monitor for BOD weekly. The discharger will
be required to submit monthly discharge monitoring reports (DMRs) year-round by the 15th of the
month following monitoring to the permitting authority to gauge compliance. Ambient receiving
water monitoring requirements are included in the existing NPDES permits and are adequate to
ensure that localized exceedances of water quality standards do not develop as a result of trades.
Permit Language:
¦ The permittee shall monitor effluent BOD a minimum of one time per week. The permittee
shall determine the average monthly mass loading based on actual monthly average flow.
Flow monitoring shall be continuous.
Reporting Requirements
The permitting authority should establish reporting requirements to support the evaluation
of water quality trading programs. For example, in addition to reporting discharge monitor-
ing results, permitting authorities might require a permittee to report the number of credits
purchased. Permitting authorities might also require an annual monitoring report specific to
the pollutants involved in the trade, to provide information on annual loading in accordance
with the requirements of the trading program. Permits incorporating water quality trades
should require reporting at a frequency appropriate to determine compliance with the trading
provisions. Permitting authorities should consider any requirements of the trading programs
related to monitoring and reporting and ensure that the permits are consistent with these
requirements. Permits may require reporting of monitoring results at a frequency established
through the permit on a case-by-case basis but in no case may that frequency be less than
once per year.
Water Quality Trading Scenarios
Nonpoint Source




=>	


Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
In addition to reporting of discharge monitoring results, trading programs may establish
other reporting and tracking requirements. It is essential that there is a mechanism for track-
ing trades. The nonpoint source credit exchange should conduct trade tracking and reporting
for credit generation. If the credit exchange does not report trades to the permitting author-
ity, the permitting authority might require the permittee to submit an additional form such
as a reduction credit certificate form (see Appendix C). The permitting authority can hold
point sources liable if they violate any trading provision included in the permit or any trade
agreement incorporated by reference into the permit, and point sources are certainly liable if
they do not meet their permit limits.
If not provided by the nonpoint source credit exchange, the permitting authority might also
want to require verification of project installation and performance specifications before
allowing the permittee to use credits. The permit could include provisions requiring the point
source purchaser to provide the required verification.
Data Reporting to EPA
EPA administers two systems to store NPDES permit data and track compliance, the Permit
Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). PCS is
the old, computerized management information system that contains data on NPDES permit-
holding facilities to track the permit, compliance, and enforcement status of these facilities.
The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains
integrated enforcement and compliance information across most of EPA's programs including
all federal administrative and judicial enforcement actions. In addition, ICIS has the capability
to track other activities occurring in an EPA Region that support enforcement and compliance
programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitor-
ing. In the future, ICIS will be deployed to all states, and PCS will no longer be used.
Neither PCS nor ICIS is structured to actually track trades.
PCS is designed to compare actual discharge monitoring data against required effluent limita-
tions to determine a facility's compliance with its NPDES permit. To determine compliance
under a trading scenario, it is necessary for the NPDES permitting authority to compare actual
discharge monitoring data and the quantity of credits purchased against required effluent lim-
itations. For credit buyers, compliance is actually tracked against two effluent limitations—the
minimum control level and the baseline. The challenge in using PCS to determine compliance
under a trading scenario is that the system does not automatically make adjustments to the
reported actual discharge—it will not subtract the quantity of credits purchased. Therefore,
this type of adjustment must be done before entering information into PCS so that the sys-
tem has only one reported number to compare against an effluent limitation.
Point source credit buyers have a baseline and a minimum control level (the facility's TBEL or
current discharge, whichever is most stringent). To determine compliance for a credit buyer,
the NPDES permitting authority will need to know that (1) the facility's actual discharge is
less than or equal to its minimum control level, and (2) that the number of credits purchased
results in the facility achieving its baseline. Therefore, point source credit buyers could report
Water Quality Trading Scenarios
Nonpoint Source




=>	


Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Reporting
What You Need to Know...
Pollutant: Biochemical Oxygen Demand
Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for
point and nonpoint sources
Nonpoint Source Credit Exchange: Maize Creek Producers' Nutrient Exchange—Nitrogen and
Phosphorus
Credit Sellers: Ten farms located in the Maize Creek Watershed
Credit Buyer: City of Earington POTW
Location: All the farms participating in the MCPN Exchange are upstream of potential point source
buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to
Maize Creek.
The city of Earington POTW's renewed permit authorizes trading for BOD with the MCPN Exchange.
The permit requires, in addition to monitoring reports, regular reporting of any changes to the trade
agreement and reports for tracking trades. The facility's permit will contain monthly average effluent
limitations for BOD; therefore, monthly trade transactions will be necessary to maintain compliance.
The trade agreement between the permittee and the MCPN Exchange indicates that trades will be
tracked by the exchange. The trade tracking system generates trading notification forms and monthly
trading summaries for the entire program. Credits must be used in the same month they are gener-
ated and trading notification forms must be submitted to the regulatory agency by the 15th of the
month following the trade.
In addition, the permit requires biannual reporting to summarize year-to-date transactions and
actual reductions and loading reflected by monitoring. According to the trade agreement, this is to be
compiled by the MCPN Exchange but must be reported on a facility-specific basis to the permitting
authority.
Permit Language:
No trade is valid unless it is recorded in the Maize Creek Producers Nutrient Exchange electronic
trade tracking system or equivalent system that records all trades and generates trading notifica-
tion forms and a monthly summary of all trades valid for each calendar month. The recordkeeping
system must be capable of ensuring that a particular credit is not sold to more than one trading
participant. The trading notification forms and trading summary may be compiled by the MCPN
Exchange, but each permittee is responsible for the submittal of all documentation and reports.
Trading notification forms for each monthly trade must be submitted to  by the 15th day of the month following the trade.
two types of information: (1) the facility's actual discharge, and (2) the difference between
the actual discharge and the quantity of credits purchased. Both numbers would be entered
into PCS to determine compliance. PCS would compare the actual discharge against the
minimum control level to determine permit compliance and eligibility as a credit buyer. PCS
would also compare the difference between the actual discharge and the quantity of credits
Water Quality Trading Scenarios
Nonpoint Source




=>	


Credit Exchange
The Function of a
Quantifying
Establishing
Accountability Trade
Components


Nonpoint Source
Nonpoint
Baselines
Agreements
of a NPDES



Credit Exchange
Source Loads
for Nonpoint

Permit Permit Effluent
Reporting
Special


and Credits
Source Sellers

Cover Page Limitations Monitoring
Requirements
Conditions

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Water Quality Trading Toolkit for Permit Writers
purchased against the facility's baseline; the difference should be less than or equal to the
WQBEL to indicate that the facility has purchased enough credits to meet its baseline and
remain in compliance with its WQBEL. PCS can accommodate two different effluent limits for
the same parameter; therefore, it has the capability to determine compliance with both the
minimum control level and the baseline for a credit buyer.
ICIS also allows the NPDES permitting authority to report two limits; therefore, this system
can also accommodate both the baseline and the minimum control level for credit buyers.
New DMR forms will also have two lines to report both the baseline and the minimum control
level. Like PCS, ICIS does not actually adjust actual discharges with the number of credits
bought. Under the current design, ICIS will allow a facility with an existing NPDES permit to
also have a trading partner entered into the system. Once a trading partner is entered for
a facility, ICIS will allow the entry of an adjusted value for the buyer—this is the reported
actual discharge adjusted by the number of credits bought. If an adjusted value is entered,
this value is used to determine permit violations and percent exceedances (USEPA 2006).
In addition to challenges related to limits and the type of information to report, NPDES per-
mits with trading provisions might also raise issues related to reporting periods and auto-
mated compliance tracking. PCS will not support a reporting extension beyond 30 days. This
type of reporting extension might be necessary in some instances to allow adequate time for
the administrative activities necessary for trading partners to coordinate and reconcile trades.
ICIS, however, will support a 45-day reporting period. In rare instances when a permitting
authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one
to be annual. However, the permitting authority will have to manually flag annual limit efflu-
ent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to
track compliance.
Special Conditions
Special conditions are developed to supplement effluent limitations and may include addi-
tional monitoring activities, management practices, pollution prevention requirements, ambi-
ent stream surveys, compliance schedules (if authorized by the permitting authority), and
toxicity reduction evaluations (TREs). Special conditions also include permit modification and
reopener conditions and can be used to address water quality trading. Special conditions of
a NPDES permit will be very important in incorporating the terms of a trade agreement. Even
where the specific terms of the agreement are not directly incorporated into the permit, the
special conditions will be used to refer to, and require compliance with, the trade agreement
housed in a separate document.
The special conditions included in a NPDES permit to implement trading will depend on
provisions of the trade agreement and the effluent limitations and monitoring and reporting
requirements established in the permit. However, the permitting authority should consider
incorporating special conditions that support the trading conditions. For example, the special
conditions of the permit may specify conditions for purchasing credits, additional monitoring
and special reporting requirements, and special conditions for failed trades.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent	Reporting
Limitations Monitoring Requirements
Special
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Specifying Conditions for Purchasing Credits
Permits that implement trades between point sources and a nonpoint source credit exchange
should specify the practices or approaches used to generate credits, if possible. The permitting
authority might choose to include these conditions as part of the effluent limitations section of
the permit, or as a special condition. While the permit cannot require a nonpoint source to use
a particular BMP to generate credits, it can prohibit a point source from purchasing credits that
were not generated through use of approved BMPs. Specificity in the permit will depend on the
nonpoint source credit exchange's mechanisms for tracking the nonpoint source practices and
approaches used to generate credits and distributing credits to point sources. A nonpoint source
credit exchange might obtain credits from a nonpoint source and, in some instances, will have
no mechanism in place to link the exact origin of specific credits purchased by a point source.
Depending on the structure of the nonpoint source credit exchange, the permitting authority
or entity managing the trade might determine the appropriate BMPs external to the permit.
The special conditions specific to point source-nonpoint source trading via a nonpoint source
credit exchange should also address the timing of when credits are available and when the
practice or approach generating credits expires as an eligible source of credits. If not ade-
quately addressed through the nonpoint source credit exchange, the permit might stipulate
that continued credit generation requires periodic certification that a practice is still in place
and that the nonpoint source is taking specified operation and maintenance actions. As
discussed above, permitting authorities may consider establishing monitoring and reporting
requirements to ensure that nonpoint sources generating credits are properly installing and
maintaining BMPs to continue generating credits. This is especially important if a trade relies
on calculated credits and neither the permit nor the nonpoint source credit exchange requires
monitoring data to verify pollutant reductions.
Special conditions also could be used to specify the reconciliation period for credits or when
credits may be used relative to when they are generated. Effluent limitations will dictate the
reconciliation period, as discussed above, but special conditions can clarify the reconciliation
period and ensure that credits are not based on future reductions that cannot be verified,
thus reducing the risk of noncompliance.
Special conditions addressing liability, provisional requirements that apply when credits are
unavailable or when a limit is exceeded, and outlining the specific requirements for estab-
lishing trade agreements among permittees can be important in issuing acceptable permits
that will not require modification each time circumstances change for one of the dischargers
covered under the permit.
Lower Boise River, Idaho
The Lower Boise model uses pounds of TP as its unit of measurement and reconciles trade
account balances monthly against the reported discharge amounts. The point source must sign
and submit new Reduction Credit Certificates at the end of each month to establish the credit for
that month that they can transfer to their own account using the Trade Notification Form. The
credits can be used to offset only pollutant discharge for the same month in which they were cre-
ated. The trades are monitored through the automated Trade Tracking System. For more infor-
mation about this trading program, see Appendix A.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent
Limitations
Reporting
Monitoring Requirements
Special
Conditions

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Water Quality Trading Toolkit for Permit Writers
Additional Monitoring and Special Reporting
The permitting authority might articulate special monitoring requirements as special condi-
tions, as described above. If not adequately addressed through the nonpoint source credit
exchange, the permitting authority might require additional monitoring to assess the effec-
tiveness of BMPs or to verify BMP installation, implementation, and maintenance. Any special
conditions established to determine BMP effectiveness should specify the party responsible
for conducting monitoring and inspections to verify BMP effectiveness and accuracy of the
trade ratios assumed in the permit.
Tracking trading activities is particularly important in point source-nonpoint source trades.
Because the permittee is the only trading partner regulated, the permitting authority gener-
ally will not be able to require tracking information to be reported by the credit exchange.
Where permitting authorities will not receive adequate credit tracking reports from the credit
exchange, they should consider establishing special conditions in the permit that facilitate
tracking. For point source-nonpoint source trades via nonpoint source credit exchanges, the
permitting authority might require the point source to provide additional information on the
nonpoint source(s) generating the credits or the nonpoint source credit exchange selling the
credits reported in the tracking report. For instance, the permit might require the permittee
to provide or obtain tracking information via the nonpoint source credit exchange, such as
•	Identification of nonpoint source (name, address, phone number)
•	Type and location of BMP
•	Monitoring method and frequency
•	Monitoring results (actual measured quantities, or observations regarding installation
and maintenance, at nonpoint source)
•	Subtraction of a portion of the reported reduction amount (in pounds) to meet any
retirement ratio requirement as specified in the trade agreement
•	Conversion of reduction quantity to normalized measure of loading (multiply by
trade ratio, including location or delivery ratio, equivalency ratio, and uncertainty
ratio, where applicable)
•	Time period for which credit is verified, per monitoring requirements for that BMP
•	Certifying statement signed by the point source that the information provided is true,
accurate, and complete, and that the installation, maintenance, and monitoring of
the BMP meets the requirements for that BMP as specified in the trade agreement
(Idaho DEQ 2000)
This information may be provided to the permittee by the nonpoint source credit exchange
or another entity (e.g., a soil and water conservation district) through a mechanism such as a
memorandum of understanding (MOU) or a trade agreement.
Special Conditions for Failed Trades
The success of a trade depends on credit sellers fulfilling trade obligations. Where a point
source-nonpoint source trade involves a nonpoint source credit exchange, the nonpoint
source credit exchange or trading program might include mechanisms to ensure that the
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent	Reporting
Limitations Monitoring Requirements
Special
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
trade obligations are met by participating nonpoint sources. In addition, credit exchanges
should consider holding surplus credits in reserve to be used to compensate for point source
pollutant loads in the event of a failed trade. The permitting authority might use special
conditions to establish provisional requirements that apply if the credits a point source buyer
needs are unavailable from either the credit exchange or surplus credits held in reserve and
a point source is unable to comply with calculated WQBELs. The permitting authority would
include these special conditions in addition to any enforcement provisions. The trading pro-
gram should address what degree of risk the permittee bears from purchasing credits that
nonpoint sources do not deliver or are proven invalid at a later point in time. The trading
program or trade agreement might also describe the respective responsibilities of the buyer
and the seller in the case of a failed trade. In any case, the burden of compliance falls on the
permittee. The permittee can address the risk of trade failure in a private contract with the
seller. The permit might require the permittee notify the permitting authority when a trade
fails or how and when it will either secure credits from an alternate source or comply with the
calculated WQBELs established in the permit. Monthly reconciliation minimizes risk by requir-
ing certification from buyers and sellers on a monthly basis.
Finally, the permitting authority may reference a reserve of surplus credits held by the
nonpoint source credit exchange as a means of managing uncertainty of nonpoint source
trading. All such reserved credits would be generated in the same time period they are used
or traded. Special conditions could establish the availability of credits held in reserve to the
permittee and any conditions placed on the permittee if it desires to use reserved credits.
Accountability
Permits that cover one or more point sources buying credits from a nonpoint source credit
exchange should state that the permitted point sources are responsible for meeting effluent
limitations derived from water quality standards regardless of whether the nonpoint source
trading partners or credit exchange comply with the terms of a trade agreement.
Maize Creek Example: Special Conditions
What You Need to Know...
Pollutant: Biochemical Oxygen Demand
Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for
point and nonpoint sources
Nonpoint Source Credit Exchange: Maize Creek Producers' Nutrient Exchange—Nitrogen and
Phosphorus
Credit Sellers: Ten farms in the Maize Creek Watershed
Credit Buyer: City of Earington POTW
Location: All the farms participating in the MCPN Exchange are upstream of potential point source
buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to
Maize Creek.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent
Limitations
Reporting
Monitoring Requirements
Special
Conditions

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Water Quality Trading Toolkit for Permit Writers
Maize Creek Example: Special Conditions (continued)
The NPDES permit writer has reviewed the signed trade agreement for trading between Earington
POTW and the MCPN Exchange. The agreement describes how the POTW will meet its new WQBEL
through trading with the MCPN Exchange. The NPDES permit writer has developed the appropriate
effluent limitations, monitoring, and reporting requirements for the POTW. The special conditions in
the POTW NPDES permit focus on general authority, credit definition, notification of amendment to
the trade agreement, notification of unavailability of credits, BMP certification, permit reopeners and
modification provisions, and enforcement liability.
Permit Language:
General Authority
The permittee is authorized to participate in water quality trading with the Maize Creek Producers
Nutrient Exchange, as specified in the Maize Creek Producers Nutrient Exchange Trade agreement,
for the purposes of complying with the BOD effluent limitations and the watershed management
plan goals required in this permit (Table 2). The authority to use trading for compliance with these
limits is derived from:  and section 402 of the federal Clean
Water Act 33 United States Code (U.S.C.) section 1342. EPA's policies on Water Quality Trading
(1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit trading.
Additionally the Maize Creek Watershed Management Plan authorizes water quality trading as a
means of achieving the allocations established.
Credit Definition
Credits will be measured in pounds of BOD per day on a monthly average basis. One trading credit
shall be defined as one (1) unit of pollutant reduction (pound of BOD) to Maize Creek. All pol-
lutant load reductions purchased and sold by the Maize Creek Nutrient Exchange as equivalent
BOD credits represent pollutant load reductions with the appropriate delivery, uncertainty, and
equivalency trading ratios applied as detailed in the Maize Creek Producers Nutrient Exchange
Trade agreement. All valid credits are tradable. The permittee may purchase credits from the Maize
Creek Producers Nutrient Exchange so long as the BMPs utilized to generate credits are docu-
mented as providing pollutant reductions beyond the load reduction indicated in the Maize Creek
Watershed Management Plan.
Notification of Amendment to the Trade Agreement
The permittee is required to notify the permitting authority in writing within 7 days of the Maize
Creek Producers Nutrient Exchange Trade Agreement being amended, modified, or revoked. This
notification must include the details of any amendment or modification in addition to the justifica-
tion for the change(s).
Notification of Unavailability of Credits
The permittee is required to notify the permitting authority in writing within 7 days of becom-
ing aware that credits used or intended for use by the permittee to comply with the terms of this
permit are unavailable or determined to be invalid. This notification must include an explanation
of how the permittee will ensure compliance with the WQBELs established in this permit, either
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent	Reporting
Limitations Monitoring Requirements
Special
Conditions

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange
Maize Creek Example: Special Conditions (continued)
Permit Language (continued):
through implementation of on-site controls or by conducting an approved emergency phosphorus
offset project approved by the NPDES permit writer.
BMP Certification
The Maize Creek Producers Nutrient Exchange Trade Agreement specifies that each member will
install BMPs beginning in January 2008. The Trade Agreement also includes a requirement that the
BMPs be maintained in accordance with NRCS Conservation Practice Standard 350 for sediment basins
and NRCS Conservation Practice Standard 656 for constructed wetlands. The permittee is required
to inspect BMPs to verify the BMPs have been installed and are being maintained as required under
the trade agreement. This permit authorizes the Niblet County SWCD to conduct these inspections
on behalf of the permittee, per the terms of the signed MOU with the permittee. The permittee is
required to submit a certification each year with the annual report, required by section X of this
permit, that the permittee or the Niblet County SWCD has performed these inspections.
Permit Reopeners, Modification Provisions
The permitting authority may, for any reason provided by law, summary proceedings or otherwise,
revoke or suspend this permit or modify it to establish any appropriate conditions, schedules of
compliance, or other provisions which may be necessary to protect human health or the environ-
ment or to implement a new Maize Creek BOD TMDL should one be developed. The permitting
authority may also reopen and modify the permit to suspend the ability to trade credits to comply
with the total BOD waste discharge limitations in Table 2.
Enforcement Liability
The permittee is liable for meeting its most stringent effluent limitation. No liability clauses
contained in other legal documents (e.g., trade agreements, contracts) established between the
permittee and other authorized buyers and sellers are enforceable under this permit.
Water Quality Trading Scenarios
Nonpoint Source
Credit Exchange The Function of a
Nonpoint Source
Credit Exchange
Quantifying
Nonpoint
Source Loads
and Credits
Establishing
Baselines
for Nonpoint
Source Sellers
Accountability
Trade
Agreements
Components
of a NPDES
Permit
Permit
Cover Pc
Effluent
Limitations
Reporting
Monitoring Requirements
Special
Conditions

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Water Quality Trading Toolkit for Permit Writers
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Glossary
The sources for these definitions vary. Some are unique to water quality trading and are
defined here by EPA for purposes of this Toolkit. Other definitions are based on federal
regulations, as well as EPA policy and guidance. If the definition has a source, it is noted by
number (1-6). For the list of sources, see the bottom of this section.
Average Monthly Effluent Limitation: The highest allowable average of daily discharges
over a calendar month, calculated as the sum of all daily discharges measured during that
month divided by the number of daily discharges measured during that month. 40 CFR 122.2.
Animal Feeding Operation (AFO): Lot or facility (other than an aquatic animal production
facility) where the following conditions are met:
•	Animals (other than aquatic animals) have been, are, or will be stabled or confined
and fed or maintained for a total of 45 days or more in any 12-month period, and
•	Crops, vegetation, forage growth, or post-harvest residues are not sustained in the
normal growing season over any portion of the lot or facility. 40 CFR 122.23(b)(1).
Anti-backsliding: A provision in the Clean Water Act (CWA) and NPDES regulations (CWA
section 303(d)(4); CWA section 402(c); 40 CFR 122.44(1)) that requires a reissued permit to be
as stringent as the previous permit with some exceptions. (1)
Antidegradation: Policies that ensure protection of existing uses and of water quality for
a particular waterbody where the water quality exceeds levels necessary to protect fish and
wildlife propagation and recreation on and in the water. Antidegradation also includes spe-
cial protection of waters designated as outstanding national resource waters. Antidegrada-
tion plans are adopted by each state to minimize adverse effects on water. 40 CFR 131.12. (1)
Baseline: 1.) The pollutant control requirements that apply to buyers and sellers in the
absence of trading. Sellers must first achieve their applicable baselines before they can enter
the trading market and sell credits. Buyers can purchase credits to achieve their applicable
baselines once they have met their minimum control levels. 2.) Some programs use baseline
to define loads in a specific year, which usually represents the starting point of the program.
Best Available Technology Economically Achievable (BAT): Technology-based standard
established by the Clean Water Act as the most appropriate means available on a national
basis for controlling the direct discharge of toxic and nonconventional pollutants to
navigable waters. BAT effluent limitations guidelines, in general, represent the best existing
Glossary!

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Water Quality Trading Toolkit for Permit Writers
performance of treatment technologies that are economically achievable within an industrial
point source category or subcategory. (6)
Best Conventional Pollutant Control Technology (BCT): Technology-based standard
for the discharge from existing industrial point sources of conventional pollutants including
biochemical oxygen demand, total suspended solids, fecal coliform, pH, oil and grease. The
BCT is established in light of a two-part cost reasonableness test, which compares the cost
for an industry to reduce its pollutant discharge with the cost to a POTW for similar levels
of reduction of a pollutant loading. The second test examines the cost-effectiveness of
additional industrial treatment beyond BPT. EPA must find limits that are reasonable under
both tests before establishing them as BCT. (6)
Best Management Practice (BMP): For point sources, 40 CFR 122.2 defines BMPs as sched-
ules of activities, prohibitions of practices, maintenance procedures, and other treatment
controls and pollutant removal devices (structural and nonstructural) to prevent or reduce
the discharge of pollutants to waters of the United States. BMPs also include treatment
requirements, operating procedures, and activities to control plant site runoff, spillage or
leaks, sludge or waste disposal, or drainage from raw material storage. For nonpoint sources,
BMPs are defined in 40 CFR 130.2 as methods, measures or practices selected by an agency
to meet its nonpoint source control needs. BMPs include, but are not limited to, structural
and nonstructural controls and operation and maintenance procedures. BMPs can be applied
before, during, and after pollution-producing activities to reduce or eliminate the introduc-
tion of pollutants into receiving waters.
Best Practicable Control Technology Currently Available (BPT): The first level of tech-
nology-based standards established by the Clean Water Act to control pollutants discharged
to waters of the United States. BPT effluent limitations guidelines are generally based on the
average of the best existing performance by plants within an industrial category or subcat-
egory. (6)
Compliance Schedule: A schedule of remedial measures included in a permit or an enforce-
ment order, including a sequence of interim requirements (e.g., actions, operations, or mile-
stone events) that lead to compliance with the Clean Water Act and regulations. (1)
Contract: Written agreement between the trading parties, separate from any applicable
NPDES permit, in which the parties may address a variety of financial or legal considerations
and contingencies, including what happens in the case of default by any party.
Credit, or Pollutant Reduction Credit: A measured or estimated unit of pollutant reduc-
tion per unit of time at the discharge location of the buyer or user of the credit. A seller gen-
erates excess load reductions by controlling its discharge beyond what is needed to meet its
baseline. A buyer compensates a seller for creating the excess load reductions that are then
converted into credits by using trade ratios. Where appropriate, the buyer can use the credits
to meet a regulatory obligation.
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Daily Discharge: The discharge of a pollutant measured during a calendar day or any
24-hour period that reasonably represents the calendar day for purposes of sampling. For
pollutants with limitations expressed in units of mass, the daily discharge is calculated as the
total mass of the pollutant discharged over the day. For pollutants with limitations expressed
in other units of measurement, the daily discharge is calculated as the average measurement
of the pollutant over the day.
Delivery Ratio: Factor applied to pollutant reduction credits when sources are directly
discharging to a waterbody of concern that accounts for the distance and unique watershed
features (e.g., hydrologic conditions) that will affect pollutant fate and transport between
trading partners.
Designated Uses: Those uses specified in water quality standards for each waterbody or
segment whether or not they are being attained. 40 CFR 131.3. Examples of designated uses
include cold and warm water fisheries, public water supply, and irrigation. (1, 4)
Effluent Limitation: Any restriction imposed on quantities, discharge rates, and concentra-
tions of pollutants that are discharged from point sources into waters of the United States,
the waters of the contiguous zone, or the ocean. 40 CFR 122.2.
Effluent Limitation Guidelines and Standards (ELGs): A regulation published by EPA
under section 304(b) of the Clean Water Act that establishes national technology-based
effluent requirements for a specific industrial category.
Equivalency Ratio: Factor applied to pollutant reduction credits to adjust for trading differ-
ent pollutants or different forms of the same pollutant.
Load Allocation (LA): The portion of a receiving water's loading capacity that is attributed
either to one of its existing or future nonpoint sources of pollution or to natural background
sources. LAs are best estimates of the loading, which may range from reasonably accurate
estimates to gross allotments, depending on the availability of data and appropriate tech-
niques for predicting the loading. Wherever possible, natural and nonpoint source loads
should be distinguished. 40 CFR 130.2.
Location Ratio: Factor applied to pollutant reduction credits when sources are upstream
of a waterbody of concern that accounts for the distance and unique watershed features
between a pollutant source and the downstream waterbody (e.g., bay, estuary, lake, reser-
voir) or area of interest (e.g., a hypoxic zone in a waterbody).
Credit Exchange: A centralized reserve of pollutant reduction credits administered by a
third party who buys credits from point or nonpoint sources to sell to point sources in need of
credits to comply with calculated WQBELs.
Cross-Pollutant Trading: Trading across two different pollutant parameters when equiva-
lent mass loads of the different parameters can be calculated and the water quality effects of
those equivalent mass loads are similar (e.g., meeting an effluent limitation for biochemical
oxygen demand by purchasing credits generated for reduction of a phosphorus load).
Glossary-3

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Water Quality Trading Toolkit for Permit Writers
Maximum Daily Effluent Limitation: The highest allowable daily discharge of a pollutant.
40 CFR 122.2.
Minimum Control Level: The pollutant load that a point source buyer must first meet
before buying credits to meet the facility's baseline. This pollutant load is either the TBEL
specified in a permit or the current discharge level, depending on which is more stringent.
National Pollutant Discharge Elimination System (NPDES): The national program for
issuing, modifying, revoking and reissuing, terminating, monitoring and enforcing permits,
and imposing and enforcing pretreatment requirements, under sections 307, 402 , 318, and
405 of the Clean Water Act. 40 CFR 122.2. NPDES permits regulate discharges of pollutants
from point sources to waters of the United States. Such discharges are illegal unless autho-
rized by a NPDES permit. (1)
Nonpoint Sources (NPS): Diffuse pollution sources (i.e., without a single point of origin or
not introduced into a receiving stream from a specific outlet). The pollutants are generally
carried off the land by stormwater. Common nonpoint sources include runoff from agricul-
ture, forestry, urban environments, land disposal, and saltwater intrusion. (2, 4)
Offset: 1.) n. Offsite treatment implemented by a regulated point source on upstream land
not owned by the point source for the purposes of meeting its permit limit. 2.) n. Load reduc-
tions that are purchased by a new or expanding point source to offset its increased discharge
to an impaired waterbody. (Note: EPA considers both types of off sets to be trading programs)
3.) v. to compensate for.
Overlay Permit: A NPDES permit issued to a group of point source dischargers that supple-
ments individual permits by establishing permit limits and other requirements for one or
more pollutant of concern that are not addressed in the existing individual permits.
Permitting Authority: EPA (an EPA Regional Administrator) or an authorized state, territo-
ry, or tribe. Under the Clean Water Act, most states are authorized to implement the NPDES
permit program. (1)
Point Source: Any discernible, confined, and discrete conveyance, including but not limited
to, any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock,
concentrated animal feeding operation, landfill leachate collection system, vessel or other
floating craft from which pollutants are or may be discharged. This term does not include
return flows from irrigated agriculture or agricultural stormwater runoff. 40 CFR 122.2.
Publicly Owned Treatment Works (POTW): A treatment works as defined by section 212
of the Clean Water Act (CWA), which is owned by a state or municipality (as defined by sec-
tion 502(4) of the CWA). This definition includes any devices and systems used in the storage,
treatment, recycling and reclamation of municipal sewage or industrial wastes of a liquid
nature. It also includes sewers, pipes and other conveyances only if they convey wastewater
to a POTW. The term also means the municipality as defined in section 502(4) of the CWA,
which has jurisdiction over the Indirect Discharges to and the discharges from such a treat-
ment works. 40 CFR 403.3.
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Single-Pollutant Trading: Trading a single pollutant parameter or different forms of the
same pollutant parameter when equivalent mass loads of the different forms can be calcu-
lated and the water quality effects of those equivalent mass loads are similar (i.e., meeting
an effluent limitation for total nitrogen by purchasing credits generated for reduction of
another source's total nitrogen load or by purchasing credits generated for reduction of
another source's nitrate load).
Technology-Based Effluent Limitation (TBEL): A permit limit for a pollutant that is based
on the capability of a treatment method to reduce the pollutant to a certain concentration.
TBELs for POTWs are derived from the secondary treatment regulations (40 CFR Part 133) or
state treatment standards. TBELs for non-POTWs are derived from national ELGs, state treat-
ment standards, or on a case-by-case basis from the best professional judgment of the permit
writer. (1)
Third party: Any entity that is not a buyer or seller in the trade. A third party can be a state
agency, conservation district, private entity, or other organization or person. Third parties
could assist in facilitating credit exchanges and verifying BMPs.
Total Maximum Daily Load (TMDL): A calculation of the maximum amount of a pollutant
a waterbody can receive and still meet applicable water quality standards (accounting for
seasonal variations and a margin of safety), including an allocation of pollutant loadings to
point sources (wasteload allocations) and nonpoint sources (load allocations).
Trade Agreement: Document that specifies the overall trading policies that trading parties
must follow to participate in trading. The NPDES permitting authority would approve the
trade agreement and could either reference the terms of the trade agreement in the NPDES
permit or include the trade agreement as part of the permit for each point source participat-
ing in a trade.
Trading Limit: Level of control on the pollutant discharge the point source seller chooses to
achieve, through technology or BMPs, beyond that facility's baseline.
Trading: A market-based approach to achieving water quality standards in which a point
source purchases pollutant reduction credits from another point source or a nonpoint source
in the same watershed that are then used to meet the point source's pollutant discharge
obligations. To be creditable to the point source purchaser, the credits must reflect actual,
achieved pollutant reductions in excess of the credit seller's baseline. Under certain circum-
stances, a point source buyer may have to purchase more than one pound of upstream pollut-
ant reduction to equal a pound discharged at its outfall.
Reconciliation Period: The period of time during which a seller generates water quality
credits and a buyer purchases and uses those credits to compensate for a pollutant load that
it discharges during that same time period.
Retirement Ratio: Factor applied to pollutant reduction credits to accelerate water quality
improvement. The ratio indicates the proportion of credits that must be purchased in addi-
tion to the credits needed to meet regulatory obligations. These excess credits are taken out
of circulation (retired) to accelerate water quality improvement.
Glossary-5

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Water Quality Trading Toolkit for Permit Writers
Uncertainty Ratio: Factor applied to pollutant reduction credits generated by nonpoint
sources that accounts for lack of information and risk associated with best management prac-
tice measurement, implementation and performance.
Waste Load Allocation (WLA): The portion of a receiving water's loading capacity (TMDL)
that is allocated to one of its existing or future point sources of pollution. 40 CFR 130.2.
Water Quality Criteria (WQC): Elements of state water quality standards, expressed as
constituent concentrations, levels, or narrative statements, representing a quality of water
that supports a particular use. When criteria are met, water quality will generally protect the
designated use. 40 CFR 131.3.
Water Quality Standard (WQS): Provisions of state or federal law that consist of a desig-
nated use or uses for the waters of the United States, water quality criteria for such waters
based on such uses, and an antidegradation policy. Water quality standards are to protect the
public health or welfare, enhance the quality of water, and serve the purposes of the Clean
Water Act. 40 CFR 131.3.
Water Quality Based-Effluent Limitation (WQBEL): An effluent limitation determined by
selecting the most stringent of the effluent limits calculated using all applicable water quality
criteria (e.g., aquatic life, human health, wildlife, translation of narrative criteria) for a spe-
cific point source to a specific receiving water for a given pollutant or based on the facility's
wasteload allocation from a TMDL. (1)
EPA sources of definitions
1.	EPA. 1996. NPDES Permit Writers' Manual. EPA 833-B-96-003. U.S. Environmental
Protection Agency, Office of Water. December.
2.	EPA. 2004. Water Quality Trading Assessment Handbook: Can Water Quality Trading
Advance Your Watershed's Goals? EPA 841-B-04-001. U.S. Environmental Protection
Agency, Office of Water. November.
3.	EPA Region 10. 2003. Water Quality Trading Assessment Handbook: EPA Region 10's
Guide to Analyzing your Watershed. EPA 910-B-03-003. U.S. Environmental Protection
Agency, Region 10, Seattle, Washington. July.
4.	EPA. Terms of Environment: Glossary, Abbreviations, Acronyms.
.
5.	EPA. National Water Quality Trading Policy, January 13, 2003.
6.	EPA. NPDES Glossary, .
Glossary-6

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References
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH. .
Accessed July 11, 2007.
Chesapeake Bay Commission. 2004. Cost-Effective Strategies for the Bay. Chesapeake Bay
Commission . Accessed
July 11, 2007.
Idaho Division of Environmental Quality (Idaho DEQ). 2000. Lower Boise River Effluent
Trading Demonstration Project: Summary of Participant Recommendations For a Trading
Framework. Available online . Accessed July 11, 2007.
Jones, C., L. Bacon, M.S. Kieser, and D. Sheridan. 2005. Water Quality Trading: A Guide for the
Wastewater Community. Water Environment Federation Press, Alexandria, VA.
Moffett, L. 2005. Water Quality Trading: Approaches to Deal with Scientific and Institutional
Uncertainty. Senior Thesis. Dartmouth College, Hanover, NH.
O'Grady, D., and M.A. Wilson. No date. Phosphorus Trading in the South Nation River
Wastershed, Ontario, Canada. . Accessed
March 31, 2006.
USEPA (U.S. Environmental Protection Agency). 1996a. Draft Framework for Watershed Based
Trading. EPA-800-R-96-001. U.S. Environmental Protection Agency, Office of Water,
Washington, DC. Available online . Accessed July 11, 2007.
USEPA (U.S. Environmental Protection Agency). 1996b. U.S. EPA NPDES Permit Writers'
Manual. EPA-833-B-96-003. U.S. Environmental Protection Agency, Office of Water,
Washington, DC.
USEPA (U.S. Environmental Protection Agency). 1997. Monitoring Guidance for Determining
Effectiveness of Nonpoint Source Controls. EPA 841-B-96-004. U.S. Environmental
Protection Agency, Office of Water, Washington, DC.
References!

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Water Quality Trading Toolkit for Permit Writers
USEPA (U.S. Environmental Protection Agency). 2001. Chesapeake Bay Program Nutrient
Trading Fundamental Principles and Guidelines. EPA-903-B-01-001. U.S. Environmental
Protection Agency, Chesapeake Bay Program, Annapolis, MD.
. Accessed
July 11, 2007.
USEPA (U.S. Environmental Protection Agency). 2003a. Water Quality Trading Policy. U.S.
Environmental Protection Agency, Office of Water. Washington, DC.
. Accessed July 11, 2007.
USEPA (U.S. Environmental Protection Agency). 2003b. Watershed-Based National Pollutant
Discharge Elimination System (NPDES) Permitting Implementation Guidance. EPA-833-B-
03-004. U.S. Environmental Protection Agency, Office of Water, Washington, DC.
. Accessed
July 11, 2007.
USEPA (U.S. Environmental Protection Agency). 2004. Water Quality Trading Assessment
Handbook. EPA-841-B-4-001. U.S. Environmental Protection Agency, Office of Water,
Washington, DC. . Accessed
July 11, 2007.
USEPA (U.S. Environmental Protection Agency). 2006. Integrated Compliance Information
System Users' Guide. U.S. Environmental Protection Agency, Office of Enforcement and
Compliance Assurance, Washington, DC.
Vermont Department of Environmental Conservation (VTDEC). 2005. Chapter 18: Stormwater
Management Rule in Environmental Protection Rules, . Accessed July 11, 2007.
World Resources Institute. 2004. NutrientNet. . Accessed July 11, 2007.
References-2

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Water Quality Trading Toolkit for Permit Writers
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Appendix A	I
Water Quality Trading Program Fact Sheets
Including Applicable NPDES Permit Conditions and Limits
Contents
Introduction	A-1
Grassland Area Farmers Tradable Loads Program, Lower San Joaquin
River, California	A-3
Long Island Sound Nitrogen General Permit and Nitrogen Credit
Exchange Program, Connecticut	A-13
Lower Boise Effluent Trading Demonstration Project, Idaho	A-27
Rahr Malting Company Permit, Minnesota	A-35
Southern Minnesota Beet Sugar Cooperative Permit, Minnesota	A-47
Truckee River, Nevada	A-59
Passaic Valley Sewerage Commissioners Pretreatment Trading,
New Jersey	A-65
Neuse River Basin Nutrient Sensitive Waters Management Strategy,
North Carolina	A-73
Great Miami River Watershed Trading Pilot Program, Ohio	A-85
Clean Water Services, Oregon	A-91
Water Quality Trading in the Chesapeake Bay Watershed: Virginia's
Nutrient Credit Exchange Program	A-103
Red Cedar River Nutrient Trading Pilot Program, Wisconsin	A-115
A-i

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Water Quality Trading Toolkit for Permit Writers
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Introduction
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Appendix A to the U.S. Environmental Protection Agency's (EPA) Water Quality Trading
Toolkit for Permit Writers contains a series of fact sheets on water quality trading pro-
grams nationwide. Water quality trading programs selected for this analysis are geographically
representative and, on the basis of recent research, are likely to have (1) actual or proposed
National Pollutant Discharge Elimination System (NPDES) permit language to facilitate trades
and (2) actual trades. The programs selected for review and analysis are intended to be used
to compare and contrast different approaches in water quality trading programs; the Office of
Wastewater Management does not intend to highlight these programs as model programs.
The fact sheets are intended to document the relevant technical details on which each trad-
ing program is predicated. The fact sheets also contain some background information to help
the reader establish a basic understanding of the context and functionality of each water
quality trading program. As a result, some of the contextual information contained in the
fact sheets might seem similar to the types of information collected and compiled through
existing research on water quality trading. The primary difference between the collection of
fact sheets researched and assembled for this report is the focus on the methodologies and
technical rationale used in developing water quality trading programs and the associated
NPDES permits.
The fact sheets summarize information from the following water quality trading programs:
1.	Grassland Area Farmers Tradable Loads Program (California)
2.	Long Island Sound Nitrogen Credit Exchange Program (Connecticut)
3.	Lower Boise River Effluent Trading Demonstration Project (Idaho)
4.	Rahr Malting Company Permit (Minnesota)
5.	Southern Minnesota Beet Sugar Cooperative Permit (Minnesota)
6.	Truckee River (Nevada)
7.	Passaic Valley Sewerage Commission Pretreatment Trading Program (New Jersey)
8.	Neuse River Basin Nutrient Sensitive Waters Management Strategy (North Carolina)
9.	Great Miami River Watershed Trading Pilot (Ohio)
10.	Clean Water Services (Oregon)
11.	Virginia Nutrient Credit Exchange Program (Virginia)
12.	Red Cedar River Watershed Nutrient Trading Pilot Program (Wisconsin).
Several fact sheets are followed by one or more flow charts that illustrate the connections
among various programs, plans, and strategies integrated through water quality trading
A-l

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Water Quality Trading Toolkit for Permit Writers
programs, as well as the basic process used to administer trades. All fact sheets and
associated flow charts are a work in progress, and they will be updated as new information is
obtained.
The NPDES permits referenced in the fact sheets are part of EPA's inventory of NPDES permits
containing water quality trading provisions. The inventory also contains additional NPDES
permits not discussed in the water quality trading program fact sheets. For more informa-
tion on the inventory of NPDES permit containing water quality trading provisions, contact
Virginia Kibler in EPA's Office of Wastewater Management at kibler.virginia@epa.gov or by
phone at 202-564-0596.

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Water Quality Trading Toolkit for Permit Writers
Grassland Area Farmers Tradable Loads Program
Lower San Joaquin River, California
Overview
Type of Trading	Pollutant (s) Traded
Number of Trades to Date
Thirty-nine formalized trades
Unknown number of informal trades
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Seven irrigation and drainage districts that are members of the San Luis & Delta-Mendota
Water Authority have the discharges with the greatest impact on the San Joaquin River Basin.
Referred to as the Grassland Area Farmers, the seven authority members are subject to a
regional cap on selenium discharges set through the Grassland Bypass Project. If the regional
authority exceeds the regional cap, it must pay an incentive fee that is a flat price based on
five exceedance ranges (i.e., percent exceedance over the regional cap) that increase over
time. Each of the seven members of the regional authority has an allocation of the regional
cap referred to as a selenium load allocation. If a member of the regional authority exceeds
its selenium load allocation, it may either pay its portion of the incentive fee or purchase sele-
nium load allocations from another member.
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Nonpoint Source-Nonpoint Source* Selenium	^
>
* Selenium loading from irrigated agriculture is accurately measured at drainage pumps and is	3
regulated by state permits; therefore, the trading program is similar to a point source-to-point	^
source trading program. Since irrigated agriculture is not regulated under the Clean Water Act,	|
NPDES permits are not applicable.	«
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Who Is Eligible to Participate?
Seven of the irrigation and drainage districts that are members of the San Luis & Delta-Men-
dota Water Authority are in a sensitive grassland area and are therefore known as the Grass-
land Area Farmers. The individual farmers in each of the seven districts do not participate in	^
a
trading; all trades are conducted at the district level among members of the Grassland Area	^
Farmers. Other members of the San Luis & Delta-Mendota Water Authority are not eligible to	J
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participate.	3'
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What Generated the Need for Trading?	£
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Agricultural activity in the Grassland Drainage Area depends on irrigation, which leaches	g
salts and trace metals in soils and affects growing conditions. Installation of the San Luis	s'
drain helped to remove irrigation drainage, but it affected sensitive areas in the San Joaquin
River watershed. The Grassland Bypass Project diverted irrigation drainage around sensitive
grassland areas into the San Luis drain and eventually to the San Joaquin River. Under the
Grassland Bypass Project, an agreement for use of the drain (Use Agreement), signed by the
U.S. Bureau of Reclamation and the San Luis & Delta-Mendota Water Authority in 1995, set a
district-level selenium cap (i.e., aggregate monthly and annual selenium discharge limits).	^ 2

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Water Quality Trading Toolkit for Permit Writers
What Serves as the Basis for Trading?
Actions taken through the Grassland Bypass Project established the regional cap for selenium,
which serves as the basis for the Grassland Area Farmers Tradable Loads Program. The 1995
Use Agreement signed by the Bureau of Reclamation (i.e., the owner of the section of the
San Luis Drain used by the Grassland Area Farmers through the Grassland Bypass Project) and
the San Luis & Delta Mendota Authority established the Grassland Bypass Project. The formal
agreement contained the initial regional cap for selenium, which decreases over time; estab-
lished an incentive fee system that increases over time; and stated that if the Grassland Area
Farmers' discharges exceed the regional cap by more than 20 percent, the authority's use
of the drain would terminate. The initial regional cap contained in the 1995 Use Agreement
was developed using a consensus-based stakeholder approach and presented in the form of
interim monthly and annual load limits for the first 5 years of the Grassland Bypass Project,
(CRWQCB-CVR 2001a). The two parties signed on to the 2001 Use Agreement, which extends
through December 2009.
At the time the 1995 Use Agreement was signed, the California Regional Water Quality Con-
trol Board (Regional Board) was developing an amendment to the existing basin plan for the
San Joaquin River Basin. The 1996 Basin Plan Amendment contained a draft Total Maximum
Daily Load (TMDL). The Regional Board set the load limits in the TMDL on a monthly and
annual basis. In August 2001 the Regional Board published the Total Maximum Daily Load for
Selenium in the Lower San Joaquin River, which establishes monthly load allocations for sele-
nium depending on the type of water year (see Determining Water Year Types on the next
page for more information).
In 1998 the Regional Board issued Waste Discharge Requirements for San Luis and Delta-
Mendota Water Authority and United States Department of the Interior, Bureau of Recla-
mation, Grassland Bypass Project Fresno and Merced Counties, Order Number 98-171, which
reflected the interim monthly and annual selenium load limits developed using a consensus-
based approach under the 1996 Basin Plan Amendment. In September 2001 the Regional
Board issued a new Waste Discharge Requirements Order Number 5-01-234, which uses the
load limits contained in the 2001 Use Agreement. The load limits are designed to meet spe-
cific TMDL limits under the 2001 TMDL (CRWQCB-CVR 2001b).
At this point in time, the 2001 TMDL and the 2001 Waste Discharge Requirements Order
Number 5-01-234 provide the current regional monthly and annual load limits for selenium
and serve as the basis for water quality trading.
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
2001 Total Maximum Daily Load for Selenium
The 2001 TMDL builds on previous load allocations calculated for the San Joaquin River. A
simple spreadsheet model calculates monthly selenium load allocations based on critical flow.
The model uses historical flow records, grouped by season and water year type to calculate
design flow (low-flow) conditions for each flow regime. The 2001 TMDL uses the following
water year type classifications: Critical, Dry/Below Normal, Above Normal, and Wet. Four sea-
sonal groups used in the TMDL model represent the seasonality of flows in the San Joaquin

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Water Quality Trading Toolkit for Permit Writers
River Basin and the Grassland Area. The seasonal groups are September through November,
December and January, February through May, and June through August. This approach
resulted in 16 flow regimes, which allows dischargers to make adjustments to meet a season's
load allocation. The design flows that correspond to a water year type and a season are key
to calculating the TMDL monthly limits and the corresponding load allocations.
Determining Water Year Types
Water year type, as used in the San Joaquin TMDL model, is based on a classification scheme
called the San Joaquin River Index of Unimpaired Flows. The index is a calculation of the
percentage of the unimpaired runoff from the four major rivers in the basin during specific
months of the year, as well as a percentage of the previous year's index.
The TMDL is the assimilative capacity of the waterbody. To calculate the TMDL, the design flow
for a particular water year type and month is multiplied by the water quality objective and a
conversion factor that converts acre-feet x micrograms per liter (jjg/L) to pounds. A monthly
load limit is established, rather than a daily limit, because most agricultural water districts lack
the facilities needed to manage drainage on a daily basis.
Water Quality Objective (/jg/L) x Design flow (acre-feet) x 0.0027197 (conversion
factor) = TMDL (pounds)
Table 1. Example: Calculating the TMDL for Water Year Types in September
Time
Period
Year Type
Water Quality
Objective (|ig/L)
Design
Flow (ac-ft)
Conversion
Factor
TMDL
(lb)
September
Critical
5
5,016
0.0027197
68
September
Dry/Below Normal
5
20,298
0.0027197
276
September
Above Normal
5
22,667
0.0027197
308
September
Wet
5
27,850
0.0027197
378
Source: CRWQCB-CVR, 2001b
The TMDL must be distributed as a wasteload allocation for point sources, a load allocation
for nonpoint sources, a margin of safety, and a background load. Because there are no point
sources of selenium in the lower San Joaquin River Basin, there is no wasteload allocation.
The margin of safety is 10 percent of the TMDL. The Grassland Bypass Project Area is the only
nonpoint source in this TMDL and will receive the only load allocation. The load allocation is
the TMDL minus the background load and the margin of safety. Similar to the TMDL, the load
allocation and the background load vary according to season and water year type.

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Water Quality Trading Toolkit for Permit Writers
TMDL - (Background Load + Margin of Safety) = Load Allocation
Example: Calculating the TMDL and the Associated Load Allocation
The TMDL for the month of September during a wet year is determined by multiplying the water
quality objective by the design flow for a wet year in September and the conversion factor of
0.0027197.
Water Quality Objective = 5 (ig/L
Design Flow (September, Wet year) = 27,850 acre-feet (ac-ft)
Conversion Factor = 0.0027197
5 (ig/L x 27,850 ac-ft x 0.0027197 = TMDL = 378 lb
The load allocation associated with a TMDL of 378 pounds for a wet year in September is the
TMDL minus the background load and the margin of safety.
TMDL = 378 lb
Background Load = Loads produced at two upstream points and from wetlands during a Wet
year in September (flow x concentration) = 8 lb
Margin of Safety = 10% of TMDL = 378 lb (TMDL) x 0.10 = 37.8 lb
378 lb - (8 lb + 37.8 lb) = LA = 332.2 lb
Waste Discharge Requirements Order No. 5-01-234 (2001)
The permit limits in the 2001 Waste Discharge Requirement Order reflect the load alloca-
tions by month and water year type in the 2001 TMDL adjusted by the selenium reduction
goals in the 1996 Basin Plan Amendments, as well as stakeholder negotiations. As a result, no
straightforward calculation is available to demonstrate how the 2001 TMDL load allocations
translate to permit limits.
Are Permits Used to Facilitate Trades?
In California, the Regional Boards issue Waste Discharge Requirement Orders that serve the
same function as permits issued under the National Pollutant Discharge Elimination System
(NPDES) program. The Regional Board issued Waste Discharge Requirements for San Luis
& Delta—Mendota Water Authority and United Sates Department of the Interior Bureau
of Reclamation Grassland Bypass Project, Fresno and Merced Counties, Order No. 98-171,
in 1998. The order contained the enforceable regional cap for selenium for the Grassland
Area Farmers. In 2001 the Regional Board issued a new Waste Discharge Requirement

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Water Quality Trading Toolkit for Permit Writers
Order (No. 5-01-234) and rescinded the previous order. The 2001 Waste Discharge Require-
ment Order does not contain language that addresses trading. Trading is an internal tool
that the Grassland Area Farmers use to comply with the regional cap for selenium.
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Because credits are based on actual monthly selenium loads, the trades that have occurred
have been retroactive in nature (Breetz et al. 2004). Trades can involve direct purchases of
selenium load allocations or an exchange of allocations between districts (Anderson 2000). Dis-
tricts that discharge below their selenium load allocation generate credits eligible for trading.
Districts with discharges that exceed their selenium load allocation must trade with another
district or pay their percentage of the regional incentive fee established through the rules for
a particular water year. The percentage of the incentive fee owed by a district that exceeds its
selenium load allocation is calculated by dividing the pounds of selenium above that district's
selenium load allocation by the total exceedances of all districts (Anderson 2000).

How Are Credits Generated for Trading?
Formalized trading under the Grassland Area Farmers Tradable Loads Program occurred only
during 1998 and 1999. To facilitate trading, a Steering Committee allocated the regional cap
for selenium among the seven districts that compose the Grassland Area Farmers. The district-
level allocations are referred to as selenium load allocations. Selenium load allocations for
each district were calculated based on tilled acreage, total acreage, and historical selenium
loads from each district (Anderson 2000). However, there is no precise formula for calculating
the selenium load allocations because a consensus-based process involving the participating
districts ultimately determined the final selenium load allocations (Linnemann 2004).
The Steering Committee, in conjunction with a project director and the seven drainage
districts, developed draft rules to implement the trading program. Rules were developed for
each water year (i.e., October 1 through September 30 of the following year). They specified	n
the district-level selenium load allocations, the role of a regional drainage coordinator, and	§
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Selenium load above selenium load allocation (pounds) / Total selenium load of all	t-
districts above regional selenium cap (pounds) = Incentive fee percentage
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The monthly limit during October for the regional cap in water year 1999 was 348 pounds of	-a
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selenium, with an annual limit of 6,327 pounds. In this example, the Grassland Area Farmers	^
collectively exceeded the monthly regional selenium cap by 9 percent. The 1995 Use Agreement
Performance Incentive System sets the monthly fee for exceeding the monthly regional selenium	r>
cap at between 0.1 and 10 percent for Year 2 of the program at $1,200. Therefore, the amount
of incentive fee owed by each district to the Incentive Fee Account is as shown in Table 2.
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Water Quality Trading Toolkit for Permit Writers
Table 2. Example: Calculating District-Level Incentive Fees
District
October
1998
Monthly
Selenium
Load
Allocation
(lb) ®
October
1998
Monitored
Selenium
Load
(lb) ©
Selenium
Load
Allocation
Exceedance
(lb)
® © - ® = ®
Incentive Fee
Percentage ©
® / © = ©
Portion of Monthly
Incentive Fee ($1,200)
1
169
180
11
11 lb/33 lb = 33
percent
$1,200 x 0.333 = $399.60
2
69
71
2
2 lb/33 lb = 6 percent
$1,200 x 0.061 = $73.20
3
46
48
2
2 lb/33 lb = 6 percent
$1,200 x 0.061 = $73.20
4
28
30
2
2 lb/33 lb = 6 percent
$1,200 x 0.061 = $73.20
5
18
26
8
8 lb/33 lb = 24 percent
$1,200 x 0.242 = $290.40
6
14
20
6
6 lb/33 lb = 18 percent
$1,200 x 0.182 = $218.40
7
4
6
2
2 lb/33 lb = 6 percent
$1,200 x 0.061 = $73.20
Total
348
381
33 ©
9 percent over
monthly regional cap
$1,201.20
In water year 1999, the cost per pound of selenium was approximately $40.00.
One method used to reduce selenium loads was drainage recycling, where drainage water
was applied to salt-tolerant crops (Breetz et al. 2004).
What Are the Trading Mechanisms?
When the program formally executed trades, participating districts signed bilateral trade
agreements that named the parties involved and specified the month and year of the sele-
nium load allocation being traded (Anderson 2000). Trades no longer occur using formal
mechanisms such as trade agreements; instead, districts make informal agreements when
trades occur that do not require any type of written documentation (Linneman 2004).
What Is the Pollutant Trading Ratio?
No trading ratio is used. Credits are based on actual monthly selenium loads measured by
each irrigation district not on estimates of best management practice effectiveness (Breetz et
al. 2004).
What Type of Monitoring Is Performed?
The drainage districts monitor selenium loads at the 62 sumps where water is pumped into
the drain. A combination of flow measurements and analytical sampling is used to determine
selenium loading, although farmers and districts can estimate weekly updates on loading.
Selenium loading data generated by the districts' monitoring activities were processed
over 1 to 2 months to calculate retroactive credits under the formalized trading procedures
(Anderson 2000).

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Water Quality Trading Toolkit for Permit Writers
What Are the Incentives for Trading?
The districts are subject to incentive fees if they exceed their aggregate cap, and their use of
the irrigation drain is cut off after a 20 percent exceedance. The selenium cap is lowered each
year, and the incentive fee for exceedances is raised each year, providing a strong incentive
for the districts to control their discharges. Rather than paying a portion of the incentive fee,
a district may participate in trading to achieve the monthly and annual regional selenium
caps for each water year.
>
What Water Quality Improvements Have Been Achieved?
Selenium loading has decreased every water year from 1995 to 2001, except the wet year
in 1998, and regional selenium load targets have been met nearly every month through
February 2004 (Breetz et al. 2004).
What Are the Potential Challenges in Using This Trading
Approach?
Potential challenges associated with the approach used in the Grassland Area Farmers	?
Tradable Loads Program include the following (Breetz et al. 2004):
3
•	Time for processing the data necessary to calculate credits using actual loading data	^
as opposed to estimated load reductions §
•	Resources for conducting continuous monitoring (e.g., irrigation monitoring)	|
•	Negotiations to determine reasonable pricing	5
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What Are the Potential Benefits?
r
Benefits associated with the Grassland Area Farmers Tradable Loads Program include the	§
following (Breetz et al. 2004):	£
•	High degree of certainty because trades are based on actual monitoring data	w
SD
•	No need to adjust credits for relative environmental impacts because there is a single	^
discharge point ^
•	No danger of noncompliance with trade agreements because trades are retroactive
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based on actual pollutant loads	§
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Applicable NPDES Permit Language	|
As mentioned above, the Waste Discharge Requirement Orders issued by the Regional Board	»
contain the applicable effluent limits to achieve the water quality objective for selenium.	£>
However, neither of the Waste Discharge Requirement Orders contains language that specifi-	^
cally references water quality trading to achieve the regional selenium cap set for the Grass-	Is-
land Bypass Project participants.
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Contact Information
Rudy Schnagl
Senior Land and Water Use Scientist
Central Valley Regional Water Quality Control Board
(916)464-4701
schnagr@rb5s.swrcb.ca.gov
References
Anderson, S.J. 2000. A Companion to Research Paper Number 6, Nine Case Studies:
Appendices A-l. Appendix B: San Joaquin River Basin, CA: The Grassland Bypass Project
and Tradable Loads Program. In R.L. Kerr, S.J. Anderson, and J. Jaksch. Crosscutting
Analysis of Trading Programs: Case Studies in Air, Water, and Wetland Mitigation Trading
Systems. Prepared for the National Academy of Public Administration, Washington, D.C.
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
Linnemann, Chris. 2004. Personal communication. August.
CRWQCB-CVR (California Regional Water Quality Control Board, Central Valley Region).
2001a. Total Maximum Daily Load for Selenium in the Lower San Joaquin River. California
Environmental Protection Agency. August.
.
CRWQCB-CVR (California Regional Water Quality Control Board, Central Valley Region).
2001b. Waste Discharge Requirements: 5-01-234 for San Luis & Delta-Mendota Water
Authority and United States Department of the Interior, Bureau of Reclamation,
Grassland Bypass Channel Project (Phase II), Fresno and Merced Counties. September 7.
Resources
Grassland Bypass Compliance Monitoring Program. Summary of Selenium Loads at Station
B (Discharge from San Luis Drain). San Francisco Estuary Institute, San Francisco, CA.
.
U.S. Department of the Interior, Bureau of Reclamation, Central Valley Project, California
and San Luis & Delta-Mendota Water Authority. 2001. Agreement for Use of the San Luis
Drain for the Period October 1, 2001 through December 31, 2009. Agreement No. 01-WC-
20-2075. September 28.

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Grassland Bypass Project
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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Toolkit for Permit Writers
Long Island Sound Nitrogen General Permit and
Nitrogen Credit Exchange Program
Connecticut
Overview
The Connecticut portion of the Long Island Sound watershed encompasses approximately 79
publicly owned treatment works (POTWs) that contribute to the problem of seasonal hypox-
ia. The Connecticut Department of Environmental Protection (CTDEP) developed its water-
shed-based NPDES General Permit for Nitrogen Discharges (General Permit) and Nitrogen
Credit Exchange Program to help POTWs achieve nitrogen reductions called for in the Total
Maximum Daily Load (TMDL). POTWs must meet the annual average discharge limits in the
permit or purchase the necessary credits to achieve their individual limits through the Nitro-
gen Credit Exchange Program administered by an advisory board and CTDEP. If the POTWs
generate more credits than purchasing POTWs need, the state is obligated to purchase the
remaining credits to ensure that the POTWs that made nitrogen reductions are appropriately
awarded for their efforts.
Number of Trades to Date
In 2002, 38 municipalities purchased credits and 39 municipalities sold credits (CTDEP 2003).
In 2003, 40 municipalities purchased credits and 37 municipalities sold credits (Stacey 2004c).
In 2004, 44 municipalities purchased credits and 35 municipalities sold credits (CTDEP 2006).
In 2005, 50 municipalities purchased credits and 28 municipalities sold credits (CTDEP 2006).
Who Is Eligible to Participate?
Seventy-nine municipal sewage treatment plants scattered throughout the state of Connecti-
cut participate in the Nitrogen Credit Exchange Program.
What Generated the Need for Trading?
Seasonal hypoxia affects the bottom waters of the western half of the Long Island Sound
during the summer. Monitoring, modeling, and research spanning 15 years indicated the
need for Connecticut and New York to significantly reduce nitrogen loads. Connecticut and
New York developed a bistate TMDL for nitrogen that EPA approved in 2001. The TMDL is
based on the states' dissolved oxygen (DO) criteria.
What Serves as the Basis for Trading?
The TMDL's wasteload allocation developed for the Long Island Sound serves as the driver for
trading among the 79 POTWs in Connecticut.
Type of Trading
Pollutant(s) Traded
Point Source-Point Source
Total nitrogen

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Water Quality Trading Toolkit for Permit Writers
In 2001 EPA approved the CTDEP and New York State Department of Environmental Conser-
vation (NYSDEC) TMDL calling for nitrogen reductions of 58.5 percent from their combined
point and non-point sources from 2001 levels by 2014. The TMDL contains an uneven distri-
bution between the wasteload and load allocations: Connecticut has a 10 percent reduction
requirement from urban and agricultural land cover and a 64 percent reduction from point
sources, which combined equal the 58.5 percent reduction in the TMDL (Stacey 2004c).
The TMDL was developed to attain DO criteria for Long Island Sound of 5 to 6 milligrams
per liter (mg/L). Since TMDL adoption, Connecticut has revised its DO criteria establishing a
minimum concentration of 3.5 mg/L with allowable exposure days within incremental ranges
to 4.8 mg/L, based on EPA DO criteria. New York is in the process of revising its criteria along
similar lines. The revised DO criterion, however, have not yet affected the wasteload or load
allocations in the TMDL.
58.5 percent nitrogen reduction from in-basin sources + reductions in nitrogen and
carbon from out-basin sources + non-treatment alternatives + margin of safety = TMDL
for Long Island Sound
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
Ambient Monitoring
Year-round monitoring of the Long Island Sound began in 1988 and continues to date.
Parameters include water temperature, salinity, all nutrient species for phosphorus and nitro-
gen, silicon, dissolved oxygen, chlorophyll a, and total suspended solids.
LIS 3.0 HydrodynamiclWater Quality Model
Federal funding facilitated the development of a coupled, three-dimensional, time-variable
hydrodynamic/water quality model called LIS 3.0. The LIS 3.0 model defined the unique trans-
port mechanisms that distribute nitrogen throughout the Long Island Sound. The transport
efficiencies identified through LIS 3.0 were key in understanding the relative importance of
nitrogen sources from various locations around the sound in oxygen depletion (Stacey and
Tedesco 2004). Information generated through the LIS 3.0 model also assisted in the develop-
ing of planned and completed DO criteria revisions relevant to Long Island Sound.
The model has been calibrated using ambient monitoring data collected over the 18-month
period from April 1988 through September 1989 described earlier. The 18-month calibration
period covers all seasons of the year; actual hydrological and meteorological conditions for that
time period were input into the model. Tributary loadings and combined sewer overflows were
also determined using time-variable rainfall and river flow data. Other factors that influence
external boundary conditions and internal circulation within the Sound, such as hydrological
and meteorological conditions (seasonal variations, such as wet and dry weather conditions),
have been considered and are included in the model as well (CTDEP and NYSDEC 2000).
Nitrogen Management Zones and Equivalency Factors
In-basin loads of nitrogen (i.e., nitrogen originating within the Connecticut and New York
portions of the Long Island Sound drainage basin, including those deposited directly on the
sound's surface) were partitioned by location into 12 nitrogen management zones. Eleven of

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Water Quality Trading Toolkit for Permit Writers
the management zones surround the sound in Connecticut and New York, and the 12th zone
is the surface of Long Island Sound. Zones 1 to 11 are considered terrestrial management
zones that follow the natural river basin boundaries in Connecticut. Connecticut manage-
ment zones (Zones 1 to 6) were further divided into tiers to account for nitrogen attenuation
during transport from one tier to the next (CTDEP and NYSDEC 2000).
By using the LIS 3.0 model and U.S. Geological Survey monitoring data for major tributaries,
CTDEP gained information on attenuation factors in Long Island Sound and during riverine
transport, respectively, which are important for quantifying relationships between discharge
points and actual delivery of nitrogen to Long Island Sound (CTDEP and NYSDEC 2000). These
factors combined account for relative nitrogen impact on DO depletion in Long Island Sound
from geographically distributed sources. They are used as trading ratios or equalization fac-
tors to put the 79 POTWs involved in trading on an equal basis, which is a critical component
of the Nitrogen Credit Exchange Program (Stacey 2004b).
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To calculate the overall equivalency factors, CTDEP multiplied the river delivery factor for a
tier within a particular management zone by the Long Island Sound transport efficiency from
Connecticut's six management zones once the nitrogen reached the edge of the sound to
the area of hypoxia. Table 1, taken from the Long Island Sound TMDL, illustrates how CTDEP
calculated the equivalency factor for two tiers within two management zones.
Table 1. Example: Calculating the TMDL for Water Year Types in September
Zone - Tier
River Delivery
Factor
LIS Transport
Factor
Combined
Equivalency Factor
1-1 (Eastern Long Island
Sound, along the shore)
1.00
0.17
0.17
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CTDEP expresses the factors as the decimal fraction of the nitrogen load delivered (CTDEP
and NYSDEC 2000). CTDEP made the assumption that the tiers closest to the Long Island
Sound have no nitrogen attenuation (i.e., they deliver 100 percent of the nitrogen load as
shown for Zone-Tier 1-1 above) and assigned the value of 1 as the river delivery factor.
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Aggregate and Individual Facility Nitrogen Load Baselines
During the TMDL development process, CTDEP had to come to agreement on the nitrogen
loading from the 79 POTWs to establish a baseline and set reduction targets. Some facilities
had 10 years of discharge volume data, but other facilities had not conducted nutrient moni-
toring until 1993 or later. For facilities that did not have nutrient monitoring in place, CTDEP
applied estimated nitrogen and total organic carbon (TOC) concentrations (usually 15 mg/L
for nitrogen and 20 mg/L for TOC) to 1990 measured flow to develop each zone's aggregate
baseline load estimates (CTDEP and NYSDEC 2000). A facility was given a baseline nitrogen
load by calculating the relative proportion of flow each individual facility contributed to the
statewide total flow over a consistent time period for all facilities. The period 1997 to 1999
was selected for this purpose as representative of the current situation, and it was the start-
ing point for implementing the wasteload allocation in the TMDL (CTDEP 2000).
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Water Quality Trading Toolkit for Permit Writers
Are Permits Used to Facilitate Trades?
The General Permit contains annual end-of-pipe (i.e., attenuation not applied) discharge
limits for nitrogen for 79 POTWs in the Connecticut portion of the Long Island Sound. Permit
limits are ramped down each year of the 5-year permit cycle, reflecting anticipated nitrogen
removal projects coming on line among all 79 permittees. This approach helps ensure consis-
tent and steady progress toward the nitrogen removal goals prescribed in the TMDL. Section
4 of the General Permit sets forth the conditions of the general permit, referencing annual
discharge limits (listed in Appendix 1). Credits used on the exchange are equivalent credits,
and attenuation factors are applied to each permittee's surplus or deficit below or above the
end-of-pipe limit. Each permittee can meet its annual discharge limits through treatment or
purchase of state-owned equivalent nitrogen credits in accordance with the Nitrogen Credit
Exchange Program. Permittees that do better than their permit limit have credits to sell to
the Nitrogen Credit Exchange Program.
How Are Credits Generated for Trading?
Each facility is responsible for monitoring its effluent discharge according to the General
Permit's monitoring requirements as well as for reporting its monthly mass loading of total
nitrogen (along with other required monitoring information). CTDEP compiles and ana-
lyzes monthly mass loading information for each facility, in conjunction with other required
information, to determine the facility's annual mass loading of total nitrogen (i.e., the sum
of monthly mass loading of total nitrogen for each month from January through December
divided by 12 and rounded to the nearest whole number).
CTDEP then compares a facility's annual mass loading of total nitrogen to the facility's annua
average discharge limit for that year, applies the appropriate equivalency factor or trading
ratio, and determines the number of equivalent credits each facility must buy to achieve per-
mit compliance. A facility has generated credits to sell through the Nitrogen Credit Exchange
Program if it has performed better than its permit limit requires. All permittees are in compli
ance with the General Permit if they (1) meet the permit limit, (2) do better than the permit
limit, or (3) purchase adequate equivalent credits to meet their permit limit.
Therefore, the number of credits a facility has to sell—or that a facility must purchase to
remain in compliance—is the average annual loading above or below the annual discharge
limit multiplied by the equivalency factor. Under the Nitrogen Credit Exchange Program, an
equivalent pound of nitrogen is also referred to as an equalized nitrogen credit.
CTDEP works with the Nitrogen Credit Advisory Board to set prices and administer the Nitro-
gen Credit Exchange each year. Prices are based on the cost of the nitrogen removal projects
implemented, the number of pounds of nitrogen removed by those projects, plus the cost of
operating and maintaining those facilities where projects have been implemented. CTDEP
and the Nitrogen Credit Advisory Board ensure that reporting and accounting are accurate
and that bills and credits are disbursed in a timely manner, according to the schedule set
forth in the Connecticut General Statutes.

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Water Quality Trading Toolkit for Permit Writers
(Annual discharge limit - Annual average mass loading of total nitrogen) x (Facility
equivalency factor) = Amount of equivalent nitrogen credits to buy or sell
End-of-pipe nitrogen loads x Facility's equivalency factor = Equivalent pounds of nitrogen
	 I Ti
Example: Converting End-of-Pipe Nitrogen Discharges to Equivalent Pounds of
Nitrogen for Trading in the Nitrogen Credit Exchange Program
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In January 2002, Facility X discharged a monthly average of 2,594 lb/day of nitrogen. The
equivalency factor for Facility X is 0.20. To convert the monthly mass loading into equivalent
pounds of nitrogen generated, Facility X would perform the following calculation:
Total nitrogen loading (lb/day) x equivalency factor = equivalent pounds of nitrogen
2,594 lb/day x 0.20 = 518.8 equivalent pounds of nitrogen
During January 2002, Facility X's monthly mass loading of total nitrogen was 2,594 lb/day, which
translates to 518.8 equivalent pounds of nitrogen.
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In 2002 Facility X had an annual average mass loading of 2120 lb/day of total nitrogen. Appendix	f?
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lb/day. The equivalency factor for Facility X is 0.20.	^
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(1665 lb/day - 2120 lb/day) x (0.20) = -91 equivalent pounds of nitrogen (or equivalent	g
nitrogen credits)
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Facility X's annual average mass loading exceeded its annual discharge limit by 455 lb/day of total
nitrogen. Multiplied by the facility's equivalency factor of 0.20, the 455 lb/day of total nitrogen	§
that exceeds the annual discharge limit translates to 91 equivalent pounds of nitrogen credits	™
that Facility X must purchase to comply with its annual discharge limit under the General Permit	^
for Nitrogen for 2002.	g
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The Nitrogen Credit Advisory Board establishes credit prices based on equivalent pounds	sr.
using final data from a particular year. For example, the Nitrogen Credit Advisory Board wait-	*
ed until monitoring data for January through December 2002 became available to calculate
the value of credit. In March 2003 the Nitrogen Credit Advisory Board sent each facility a final
invoice that itemized the facility's annual mass loading, its annual average discharge limit	A-17
contained in the General Permit for Nitrogen, and the established value of a credit for 2002.

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Water Quality Trading Toolkit for Permit Writers
Therefore, facilities do not buy or sell credits for a calendar year until the following calendar
year upon notification from CTDEP.
The Nitrogen Credit Advisory Board derives an annual value for equalized nitrogen credits by
dividing the total annual cost of all implemented nitrogen removal projects, plus the annual
operation and maintenance costs of operating the denitrification systems, by the reduction in
equalized pounds of nitrogen. The total annual project cost is composed of two components:
(1) total annualized capital costs to construct treatment facilities for nitrogen removal and (2)
total eligible annual operation and maintenance costs for nitrogen removal treatment (CTDEP
2003). Total annualized capital costs are defined as the total amount of each project facility's
loan from the Clean Water Fund attributable to the total eligible capital cost (i.e., 100 percent
of the eligible capital costs, based on a 30 percent grant provided to the facility and the loan
to finance the remaining 70 percent of the eligible capital costs) divided by a 20-year loan
repayment period. Eligible capital costs are all costs associated with improvements for the
planning, design, and construction costs for a nitrogen removal facility, excluding costs related
to the modification of a facility for purposes other than the enhancement of the nitrogen
treatment process (e.g., secondary treatment upgrades), and the costs of equipment and
land necessary for nitrogen treatment. Total eligible annual operation and maintenance costs
means the incremental increase in the cost of labor, administration, electricity, and chemicals
to remove nitrogen. Operation and maintenance (O&M) costs are estimated using a survey
sent to all facilities conducting nitrogen removal projects (project facilities). The reduction
in equalized pounds of nitrogen is calculated by first subtracting the baseline loading estab-
lished for the facility in the TMDL for Long Island Sound from the actual end-of-pipe pounds
of nitrogen discharged by each of the project facilities to quantify the reduction from project
implementation and multiplying by the appropriate equivalency factor, as shown above.
Total annual Nitrogen Removal Project cost/Total reduction in equalized pounds of nitrogen =
Cost per equalized nitrogen credit
Capital costs (i.e., annual Clean Water Fund repayment amount for nitrogen treatment facilities)
+ O&M estimated costs (i.e., estimates of O&M costs associated with nitrogen treatment facilities
from a survey of Project Facilities) = Total annual Nitrogen Removal Project cost
(Actual end-of-pipe pounds of nitrogen discharged by each Project Facility - baseline nitrogen
loading for a Project Facility from the TMDL) (Project Facility's equalization factor) = Reduction in
equalized pounds of nitrogen
Example: Calculating the Annual Value of Nitrogen Credits and
Reductions in Equalized Pounds of Nitrogen
In 2003 the Nitrogen Credit Advisory Board established the value of an equalized nitrogen credit
for FY 2002 at $1.65.
$1,765,432 Capital Costs + $2,944,013 O&M estimated costs = $4,709,445 Total
Project Cost

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Water Quality Trading Toolkit for Permit Writers
Example: Calculating the Annual Value of Nitrogen Credits and
Reductions in Equalized Pounds of Nitrogen (continued)
To find the total reduction in equalized pounds of nitrogen, it is necessary to look at each of the
Project Facilities financing nitrogen removal projects. In 2002 a total of 23 Project Facilities
achieved a reduction of 2,861,852 equalized pounds of nitrogen.
$4,709,445 Total Project Cost/2,861,852 total pounds of equalized nitrogen
removed = $1.65 per equalized nitrogen credit
Each year CTDEP audits the performance of plants operating for the full calendar
year (January 1 to December 31) to establish the value of nitrogen credits, taking into
consideration increased capital costs of nitrogen removal for projects implemented
the prior year (i.e., operational as of January 1 for each trading year), as well as added
operation and maintenance costs of reduction methods. At the end of March each year,
CTDEP determines the total number of credits to be bought and sold, publishes the
annual value of nitrogen credits, and notifies each plant of its nitrogen credit balance.
Plants have until the end of July to purchase credits from CTDEP to meet their discharge
limit. By the middle of August, CTDEP must purchase all available credits and send
payments to the facilities that generated the credits.
In 2002, 38 facilities generated approximately 1,671,105 equalized nitrogen credits to sell at
$1.65 per credit for a total value of $2,757,323. In 2002, 38 facilities were required to pur-
chase a total of 798,317 equalized nitrogen credits to remain in compliance with the General
Permit; at $1.65 per credit, the total amount of purchased credits was $1,317,223. As a result,
approximately 872,788 equalized nitrogen credits were not needed by facilities to achieve
permit compliance in 2002. The Nitrogen Credit Exchange Program required CTDEP to pur-
chase the remaining 872,788 equalized nitrogen credits at a total cost of $1,440,100.
In 2003, 37 facilities generated approximately 1,134,876 equalized nitrogen credits to sell at
$2.14 per credit for a total value of $2,428,636. To remain in compliance with the General Per-
mit, 40 facilities purchased equalized nitrogen credits; at $2.14 per credit, the total amount
of purchased credits was $2,116,875. CTDEP purchased the excess 145,682 equalized nitrogen
credits for a total cost of $311,761.
In 2004, 35 facilities generated approximately 1,399,896 equalized nitrogen credits to sell at
$1.90 per credit for a total value of $2,659,804. To remain in compliance with the General Per-
mit, 44 facilities purchased equalized nitrogen credits; at $1.90 per credit, the total amount
of purchased credits was $1,786,736. CTDEP purchased the excess 459,509 equalized nitrogen
credits for a total cost of $873,068.
In 2005, 28 facilities generated approximately 623,408 equalized nitrogen credits to sell at
$2.11 per credit for a total value of $1,315,392. To remain in compliance with the General Per-
mit, 50 facilities purchased equalized nitrogen credits; at $2.11 per credit, the total amount of
purchased credits was 1,169,553 for a total cost of $2,467,757.

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Water Quality Trading Toolkit for Permit Writers
Number of equalized nitrogen credits (equivalent lb/day) x 365 days = Annual total of
equalized nitrogen credits
Total cost of annual equalized nitrogen credits to achieve permit compliance = Annual total of
equalized nitrogen credits x Annual value of equalized nitrogen credits
Example: Calculating the Cost of Equalized Nitrogen Credits Necessary to Achieve
Permit Compliance
In the previous example, Facility X was required to purchase 91 equalized nitrogen credits to
comply with its annual discharge limit under the General Permit for 2002.
CTDEP will send Facility X a letter that indicates the facility's annual average mass loading for
2002, the annual discharge limit for 2002 under the General Permit, the number of equalized
nitrogen credits that the facility must purchase to achieve permit compliance and the value of
an equalized nitrogen credit for 2002. To calculate the total number of credits and the total cost,
CTDEP will make the following calculations:
Number of equalized nitrogen credits (equivalent lb/day) x 365 days = Annual total of equalized
nitrogen credits
Total cost of annual equalized nitrogen credits to achieve permit compliance = Annual total of
equalized nitrogen credits x Annual value of equalized nitrogen credits
Therefore, the letter from CTDEP to Facility X will indicate that the facility must purchase 91
equalized nitrogen credits (equivalent lb/day) for 365 days, for a total of 33,215 equalized nitrogen
credits. At a cost of $1.65 per credit, Facility X will spend a total of $54,804.75 to achieve permit
compliance in 2002.
What Are the Trading Mechanisms?
CTDEP sends a final invoice to each POTW at the end of March each year. The final invoice
indicates the total number of credits to be bought or sold and the annual value of equalized
nitrogen credits.
What Is the Pollutant Trading Ratio?
CTDEP considers a trading ratio to be a factor that adjusts for variability among sources.
Using this definition, CTDEP considers the equivalency factors for each of the management
zones to be the trading ratios of the Long Island Sound Nitrogen Credit Exchange Program
(Stacey 2004b). The equivalency factors were published in the TMDL and in Connecticut's
enabling legislation.

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Water Quality Trading Toolkit for Permit Writers
What Type of Monitoring Is Performed?
Since 2002 treatment plants have been required to monitor flow and total nitrogen, report-
ing to the state on a monthly basis. All treatment facilities must monitor daily flow continu-
ously to calculate their average daily flow volume. Depending on the facility's flow rate, it
must monitor the final effluent either once per week (if its flow rate is less than 10,000,000
gallons per day) or twice per week (if its flow rate is greater than or equal to 10,000,000
gallons per day). Each month, municipalities must enter the results of analyses for the total
nitrogen and the average daily flow volume of the effluent on Monthly Operating Reports
and Nitrogen Analysis Reports, which they present to the CTDEP. Plants are also subject to
annual inspections. CTDEP inspects each of the 79 municipal facilities regulated under the
General Permit at least once during each year of the program, evaluating all aspects of the
facility's operation and monitoring procedures.
What Are the Incentives for Trading?
CTDEP is authorized to conduct compliance audits of the annual operating data for plants
that participate in the program. Any plant that fails to meet its individual wasteload alloca-
tions and does not purchase the appropriate amount of credits is subject to existing statu-	o*
tory water pollution control enforcement provisions. Within 5 days of learning of a violation «
under the General Permit, a point source must determine the cause of the violation, institute §
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plans to correct the violation, mitigate its effects, and prevent further forms of it. The per-
mittee is also required to report the violation and subsequent corrective action to the state.	§
The state reserves the right to revoke or modify a point source's authorization under the	z
What Are the Potential Benefits?
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General Permit.
What Water Quality Improvements Have Been Achieved?
Actual nitrogen removal has been ahead of the reduction targets established in the TMDL for
nitrogen.
What Are the Potential Challenges in Using This Trading
Approach?
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and all accounting methodologies were specified in the state enabling legislation to formal-	•
ize all calculations used in trading. This might help reduce technical challenges to the pro-	|
gram as opposed to, for example, just including equivalency factors in the TMDL and the	8
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Water Quality Trading Toolkit for Permit Writers
Applicable NPDES Permit Language
CTDEP initially issued the General Permit for Nitrogen Discharges in January 2002. The permit
was reissued in December 2005. The following excerpts contain trading provisions found in
the 2005 permit.
Section 4. (b) Compliance During Term of Permit
(1)	A permittee shall be in compliance with its annual discharge limits of this general
permit if:
(A)	the POTW's annual mass loading of total nitrogen is less than or equal to the
discharge limit set forth in Appendix 1; or,
(B)	the permittee has secured state-owned equivalent nitrogen credits equal to the
amount the POTW exceeded the annual discharge limit set forth in Appendix 1
in accordance with the Nitrogen Credit Exchange Program and Sections 22a-521
through 527 of the Connecticut General Statutes.
(2)	A permittee shall be out of compliance with the annual discharge limits of the gen-
eral permit and subject to the enforcement provisions of chapter 446k of the Con-
necticut General Statues if:
(A) the POTW's annual mass loading of total nitrogen is greater than the discharge
limit setforth in Appendix 1; and
(B) the permittee fails to secure sufficient state-owned equivalent nitrogen credits in a
timely manner in accordance with the Nitrogen Credit Exchange Program and Sec-
tions 22a-521 through 527 of the Connecticut General Statutes.
Section 4. (m) Other Applicable Law
Nothing in this general permit shall relieve the permittee of the obligation to comply with
any applicable federal, state and local law, including but not limited to the obligation to
obtain and comply with any authorizations required by such law. In the event a POTW is
subject to a more stringent nitrogen limitation than set forth in this general permit, the
Permittee shall comply with that more stringent limitation and may not purchase or transfer
nitrogen credits to comply with that additional limitation.
Contact Information
Paul E. Stacey
Director, Planning and Standards Division
Bureau of Water Protection and Land Reuse
(860) 424-3704
paul.stacey@po.state.ct.us

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Water Quality Trading Toolkit for Permit Writers
References and Resources
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CTDEP (Connecticut Department of Environmental Protection). 2000. Response to Public
Comments on the Draft Nitrogen Wasteload Allocation for Point Source Discharges in
Connecticut. December.
2,
CTDEP (Connecticut Department of Environmental Protection). 2001. General Permit for
Nitrogen Discharges: Permit Fact Sheet. September.
>
CTDEP (Connecticut Department of Environmental Protection). 2002. General Permit for
Nitrogen Discharges. January 2.
CTDEP (Connecticut Department of Environmental Protection). 2003. Second Annual Report
of the Nitrogen Credit Advisory Board to the Joint Standing Committee of the General
Assembly Concerning the Nitrogen Credit Exchange Program. September.
CTDEP (Connecticut Department of Environmental Protection). 2005. General Permit for
Nitrogen Discharges. December 21.
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CTDEP and NYSDEC (Connecticut Department of Environmental Protection and New York	<£
State Department of Environmental Conservation). 2000. A Total Maximum Daily Load	S
Analysis to Achieve Water Quality Standards for Dissolved Oxygen in Long Island Sound.	eL
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Stacey, Paul. 2004a. Personal communication. July 9.	eL
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Stacey, Paul. 2004b. Personal communication. July 22.
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Stacey, Paul. 2004c. Personal communication. September 22.	g1
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Stacey, P., and M. Tedesco. 2004. Implementing a TMDL, Water Quality Standard Modification	jo
and Nitrogen Trading to Attain Hypoxia Management Goals in Long Island Sound. In	g
Watershed 2004 Conference Proceedings, Water Environment Federation, July 11-14,
2004, Dearborn, Ml.
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Connecticut Department of Environmental Protection's Nitrogen Control Program for Long	<§
Island Sound Web site.	n
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TMDLfor Long Island Sound1
LIS
3.0
Mode
Process for Developing the TMDL and
Equivalency Factors:
Foundation of the Long Island Sound
Nitrogen General Permit and the
Nitrogen Credit Exchange
* In addition to 58.5 percent
nitrogen reduction from in-basin
sources, also includes reductions
from out--basin sources, non-
treatment alternatives, and a
margin of safety
fsitrogen General
Permit and Nitrogen
credt ek change
Equivalency
Factors for
Point Sources
Load Allocations
for Nonpci nt
Sources
Annual Discharge
Limits (lbs./day) for
Each Facility
Wasteload Allocations
for Point Soirees (by
Zone and Facility)
5S.5lQ.ii Reduction
Target for Point and
Nonpoint In-Basin
Sources	
Model Inputs
Metered a gical
conditions
Pollutant sources
Water quality
standards
Model outputs
D e^ie e o f efft ct of hyp on a
(area and duration)
Baseline pollutant
loading data
Unit re sp onse matrix
(spreadsheet tool)
Effects of various
management scenarios
River D diirery F ado r
LIS Transport Efficiency

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Overview of the Long Island Sound
Nitrogen General Perm it and Nitrogen
Credit Exchange Program
79 CT v
POTWS
Nitrogen General Permit
Nitrogen Credit Exchange
program (CT dep)
Annual mass loading >
annual discbarge permit
limit
' Annual mass loading < '
annual discharge permit
.limit
POTW must buy
credits
Credits Weeded =
Multiply loading
enceedance by
equivalency factor
Credits fix Sale=
Multiply excess
loading by
equivalency factor
POTW can srll
credits
Con tact POTW g Purchase any
remaining credits; Disburse
finds to all sellers
Calculate total # of credits
available, total tf needed,
and annual cost of an
equalized nitrogen credit
Monitor and Report
Monthly Mass
Loading of Total
Nitrogen and
Average Daily Flow
Com p arePOTWs'an n u a I
mass loading of TN to
annual cist harge limit in
NGP
Ca leu I atePOTWs'ann u a I
mass loading of TN from
monthly mass loading
data for the year
inoiioauuoj « uiejgcuj aSueipxg	uaSojjtj*j puB iiuuaj jejauag	punog puejsj Suoq
v xiaNaaa

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Toolkit for Permit Writers
Lower Boise Effluent Trading Demonstration
Project	S
Idaho
0
i—i
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Overview
The Lower Boise Effluent Trading Project will allow point and nonpoint sources to trade
phosphorus credits generated by approved nonpoint source best management practices
(BMPs). These BMPs have been assigned an effectiveness ratio and an uncertainty discount.
Trades will be coordinated through contracts and specified forms and tracked in a statewide
database.
Type of Trading	Pollutant (s) Traded
Point Source-Point Source	Total phosphorus
Point Source-Nonpoint Source	t-
1
a>
Number of Trades to Date
None
Who Is Eligible to Participate?
Point source NPDES permit holders (e.g., wastewater treatment plants, industrial dischargers)
and nonpoint sources (e.g., farmers and irrigation districts) are eligible to participate.
03
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era
What Generated the Need for Trading?	?
pi*
The states of Idaho, Oregon, and Washington worked with EPA Region 10 to explore water	§
quality trading as a tool for managing water resources prior to developing and implementing
total maximum daily loads (TMDLs).
"3
a*
What Serves as the Basis for Trading?	§•
Nutrient reductions in the Lower Boise River TMDL were deferred until the completion and
approval of the Snake River-Hells Canyon TMDL (Idaho DEQ and Oregon DEQ 2004). The
TMDL for Snake River-Hells Canyon addresses nutrients and sets nutrient reduction goals for
the Lower Boise River because loading to the river has a significant impact on nutrient load-
ing and nuisance aquatic growth in downstream portions of the Snake River-Hells Canyon
watershed. In the interim, the Lower Boise River TMDL called for no net increase of total
phosphorus (Breetz et al. 2004). Trading has been delayed until the completion and approval
of the Snake River-Hells Canyon TMDL.
In September 2004, EPA approved the Snake River-Hells Canyon TMDL. The final TMDL
provides an allocable phosphorus load for three segments. The final TMDL provides only
phosphorus wasteload allocations for point sources that discharge directly to the Snake River.
Tributaries to the Snake River, including the Lower Boise River, must set wasteload alloca-
tions for point sources through separate tributary TMDL processes. Therefore, point sources	A-27

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Water Quality Trading Toolkit for Permit Writers
in the Lower Boise River Basin do not yet have specific wasteload allocations as a result of the
Snake River-Hells Canyon TMDL. A Watershed Advisory Group (WAG) is developing the Lower
Boise TMDL. After the WAG completes the TMDL, the Idaho DEQ will review and revise it and
submit it for EPA approval. The current target is to complete the TMDL process by the end of
2007 (Schary 2007).
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
After it is complete, the Lower Boise River Nutrient TMDL, which will reflect allocations based
on the Snake River-Hells Canyon TMDL, is likely to serve as the basis for trading.
Phosphorus Load Baseline
Appendix J of the 1999 report Lower Boise River TMDL Subbasin Assessment, Total Maximum
Daily Loads contains an overview of Idaho Department of Environmental Quality's (DEQ)
methodology for establishing the proposed no net increase total phosphorus loads. The
methodology describes the steps as follows (Idaho DEQ 1999):
1.	Create a best-fit model to predict the total phosphorus concentration, using the
FLUX model or non-linear model. Use seasonal or flow stratification, if necessary, to
minimize error.
2.	Use daily 1996 flow data and the model from step 1 to predict daily total phosphorus
concentrations.
3.	Calculate daily total phosphorus loads for the entire 1996 calendar year.
4.	Summarize the daily loads seasonally, annually, by averages, and by mass totals.
The FLUX model used in step 1 is a U.S. Army Corps of Engineers program that predicts nutri-
ent loads on the basis of sample data and daily flow information. The FLUX model uses three
averaging and three linear regression techniques (Idaho DEQ 1999). Idaho DEQ will reassess
the 1996 phosphorus baseline load because of land use changes in the Lower Boise River; the
reassessment process will use the same methodology described in Appendix J (Horsburgh
2004).
Phosphorus Allocations
Although Idaho DEQ has not yet completed the process of determining phosphorus load and
wasteload allocations, it has developed a work plan that outlines the tasks involved in gener-
ating the Lower Boise River Nutrient TMDL. According to the work plan, the technical analysis
related to developing the phosphorus load and wasteload allocations will involve updating
the phosphorus mass-balance spreadsheet for the Lower Boise River with recent hydrologic
and phosphorus concentration data; developing four phosphorus allocation scenarios and
associated cost-estimates for each scenario; and addressing other technical issues related to
the TMDL, such as evaluating methods to add a margin of safety to phosphorus allocations
(Idaho DEQ 2004).
Are Permits Used to Facilitate Trades?
Point sources have discharge limits in their NPDES permits that serve as the basis for their
trading. The future wasteload allocations established to reflect the phosphorus reduction
targets identified under the approved Snake River-Hells Canyon TMDL will eventually be

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Water Quality Trading Toolkit for Permit Writers
translated into new permit limits for point source dischargers in the Lower Boise River. EPA
Region 10, the NPDES permitting authority in Idaho, is responsible for updating NPDES per-
mits to reflect the new wasteload allocations.
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How Are Credits Generated for Trading?
In the Lower Boise River Pollutant Trading Program, credits are defined as "reductions of a
pollutant below a level set by a TMDL" (Idaho DEQ 2003). If a TMDL requires a reduction of
100 pounds per day, a source would need to reduce its pollutant load by 101 pounds per day
to satisfy the requirements of the TMDL and to generate one credit eligible for trading.
For point source-nonpoint source trading, there are two approaches to determine the credits
generated by nonpoint sources: (1) the calculated approach and (2) the measured approach.
The calculated approach estimates an average reduction for a specific BMP using existing
data and management factors or trade ratios. For measured credits, actual grab samples tak-
en during a BMP's operation are used to determine reductions (ISSC 2002). A more detailed
description of each approach is provided below.
t-1
The calculated credit approach is taken from the Idaho Soil Conservation Commission's (ISSC)	§
n>
BMP List document (ISSC 2002), which describes the methodology for determining BMP effec-
tiveness and calculating credits. The first step is to identify the BMP to be used to generate
phosphorus reductions and the associated effectiveness discount (i.e., the percent of esti-
mated efficiency of the BMP) and the uncertainty discount (i.e., a multiplier that reduces the
number of credits generated by a nonpoint source because of variability in the effectiveness	^
of the practice). The next step is to determine the estimated phosphorus losses, also referred	^
to as the nonpoint source's baseline load. This is done by using the Surface Irrigation Soil Loss	^
(SISL) tool to calculate the amount of soil loss in tons and then multiplying the soil loss by 2	5?
3
pounds of phosphorus per ton of soil loss to calculate the equivalent pounds of phosphorus.	§
The estimated phosphorus reduction generated by a BMP is the nonpoint source's baseline	g"
load multiplied by the BMP effectiveness discount minus the uncertainty discount.
Soil loss (tons) x 2 (lb/ton) = Estimated phosphorus loss (or the nonpoint source's
baseline load)
Nonpoint sources baseline load x (BMP Effectiveness discount - BMP Uncertainty
discount) = Estimated BMP Phosphorus Reduction
3
O
3
*3
§•
S"
Credits are generated only after the TMDL reduction is met. Therefore, it is also important to
calculate the nonpoint source's share of the reduction needed to achieve the TMDL load allo-
cation. To calculate this, the nonpoint source's baseline load is multiplied by a water quality
contribution percentage that represents the individual nonpoint source's share of the reduc-
tion amount needed to achieve the load allocation assigned in the TMDL. For example, if the
load allocation specified in the TMDL is 100 pounds of phosphorus per day and the nonpoint
source must make a phosphorus reduction of 50 pounds per day to achieve that load alloca-
tion, the nonpoint source's water quality contribution is 50 percent. Therefore, the nonpoint
source's phosphorus reductions must exceed its 50 percent water quality contribution before
generating any credits to sell. To determine the reductions that are eligible to become trad-
able credits, the nonpoint source's water quality contribution reduction is subtracted from	A-29

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Water Quality Trading Toolkit for Permit Writers
the amount of reduction generated by a BMP. The phosphorus reduction eligible for sale as
credits is calculated as the difference between the estimated phosphorus reduction gener-
ated by the BMP and the phosphorus reduction required to achieve the TMDL load allocation
(Breetz et al. 2004).
Nonpoint Source Baseline Load x Water Quality Contribution Percentage =
Phosphorus reduction required to achieve the TMDL load allocation
Estimated BMP Phosphorus Reduction - Phosphorus reduction required to achieve
the TMDL load allocation = Phosphorus reduction eligible for trading
After determining the estimated phosphorus reduction eligible for trading, final credits are cal-
culated by applying three other factors that adjust credits according to location. The geograph-
ic factors are referred to as the (1) river location ratio, (2) site location factor, and (3) drainage
delivery ratio. The three factors are essentially categories of transport factors that take into
consideration losses of phosphorus as it travels from the point of discharge through the Lower
Boise River to the mouth of the drainage (referred to as Parma for the town at the mouth of
the Lower Boise River). For more on these factors see What Is the Pollutant Trading Ratio?
Estimated Phosphorus Reduction Eligible for Trading x Site Location Factor x Drainage
Delivery Ratio x River Location Ratio = Phosphorus Credits (Parma Pounds)
for sale
Credits are generated and used on a monthly basis. Nonpoint source credits are created at the end of
the month, and point sources must use those credits to offset nutrient loading during the same month
(Idaho DEQ 2003).
Example: Estimating Phosphorus Reductions and Calculating Phosphorus Credits
Adapted from Pollutant Trading Guidance (Idaho DEQ 2003).
A nonpoint source wants to generate phosphorus credits for trading by converting a 30 acre surface
irrigated field to a sprinkler system capable of eliminating all sedimentation loss (100 percent
effectiveness) but with a 10 percent uncertainty discount. The average annual Surface Irrigation Soil
Loss (SISL) load is determined to be 7.3 tons per acre for the 30 acres of field, for a total of 219 tons
of soil loss per irrigation season.
The TMDL requires a 78 percent phosphorus reduction from all sources, and therefore the nonpoint
source's water quality contribution is equal to the 78 percent required reduction.
The nonpoint source used Idaho's Pollutant Trading Guidance to determine the applicable trading ratios.
The Site Location Factor is 0.8, because there is potential reuse, but not through a canal. The distance
from the river to the entry point at the channel is 2.5 miles, which gives a 0.975 Drainage Delivery
Ratio. The River Location Ratio is 0.75, which will convert the pounds reduced into Parma Pounds or
tradeable credits.

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Water Quality Trading Toolkit for Permit Writers
Example: Estimating Phosphorus Reductions and Calculating Phosphorus Credits
(continued)
Tl
To calculate the tradeable credits, the nonpoint source works through the following calculations:
Soil loss (tons) x 2 (lb/ton) = Estimated phosphorus loss (or the nonpoint source s
baseline load)
219 tons x 2 lbs/ton = 438 lb P
Nonpoint sources baseline load x (BMP Effectiveness - BMP Uncertainty discount) = Estimated
BMP Phosphorus Reduction
438 lb P x (1.0 - 0.10) = 394.2 lb P
Nonpoint Source Baseline Load x Water Quality Contribution Percentage = Phosphorus reduction
required to achieve the TMDL load allocation
438 lb P x 0.78 = 341.64 lb P
O
Estimated BMP Phosphorus Reduction-Phosphorus reduction required to achieve the TMDL load	«
allocation = Phosphorus reduction eligible for trading	®
394.2 lb P - 341.64 lb P = 52.56 lb P	"
to
3
e
a>
Estimated Phosphorus Reduction Eligible for Trading x Site Location Factor x Drainage Delivery	3-
Ratio x River Location Ratio = Phosphorus Credits (Parma Pounds) for sale	3
52.56 lb P x 0.8 x 0.975 x 0.75 = 30.75 Parma Pounds of phosphorus credits	5
QfQ
*3
S-
What Are the Trading Mechanisms?	?
The Lower Boise Trading Framework relies on several trading mechanisms to facilitate and	§
report on trading activities. The first mechanism is the Trade Notification Form, which is
required for each trade. It is the official document that registers the trade, transfers credits,	S
and adjusts pollutant limits. The next mechanism is the Reduction Credit Certificate, which	•
documents the nonpoint source reduction and creates the credit for a point source-non-	|*
point source trade. After signing and submitting the Reduction Credit Certificate, the point
source may use credits generated by the nonpoint source. A third mechanism is the Discharge
Monitoring Report (DMR) prepared by the point source, as required by its NPDES permit. As
a trading participant, the point source submits information pertaining to the trade with the
DMR, including its actual average monthly discharge, the amount of credits bought or sold,
and the adjusted discharge. A fourth mechanism is the Trade Summary Report, which is sent
by the Idaho Clean Water Cooperative (the nonprofit responsible for tracking trades) to point
sources involved in trading for submission to EPA with the DMR (Idaho DEQ 2003).
What Is the Pollutant Trading Ratio?
A series of pollutant trading ratios are used in the Lower Boise River Pollutant Trading Pro-
gram. For BMP effectiveness, the ISCC assigned each approved BMP an effectiveness ratio and
an uncertainty discount. The uncertainty discount is to be subtracted from the effectiveness

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Water Quality Trading Toolkit for Permit Writers
Phosphorus reductions that are eligible to generate credits for trading (i.e., reductions that
exceed those required by a TMDL) are calculated using three geographic ratios that function
as transport factors because they are intended to account for phosphorus losses from the site
of the BMP, through the Lower Boise River, to the mouth. The three ratios are as follows:
•	River Location Ratio. This ratio accounts for phosphorus losses due to irrigation diver-
sions that remove flow from the river at many points. A mass-balance model that
accounts for phosphorus inputs, withdrawals and groundwater is used to calculate
the river location ratio. The river location ratio is calculated from each source relative
to Parma; therefore, phosphorus credits are measured in Parma Pounds (Idaho DEQ
2003).
•	Site Location Factor. This ratio takes into account phosphorus losses due to wastewa-
ter reuse and natural sediment-phosphorus relationships. Total phosphorus lost at
the field is less likely to reach the subwatershed's channel due to travel distance and
the chance of reuse. Three site location factors take these variables into consideration
(Idaho DEQ 2003).
•	Drainage Delivery Ratio. This ratio also takes into account phosphorus losses in the
subwatershed's main channels by using the linear calculation:
(100 - distance in miles to mouth of the drain from the project's point of discharge on
the drain) / 100 (Idaho DEQ 2003).
Idaho DEQ will review the ratios at least every 5 years using trading information from the
trading database. Revisions will be made if Idaho DEQ determines that there is a 30 percent
discrepancy from the published ratios (Idaho DEQ 2003).
What Type of Monitoring Is Performed?
Point sources must submit a monthly DMR, and purchased credits will be checked against the
DMRs in audits of NPDES permits. A Trade Summary Report from the Trade Trading System
must accompany the DMR. For measurable nonpoint reductions, water quality monitoring of
inflow and outflow verifies the exact amount of reduction. For calculated nonpoint sources
reductions, BMP installation is monitored by the point source before the creation of credit,
and maintenance inspections are conducted by the point source to document monthly cred-
its. The point source inspects the nonpoint source projects at least once a year after installa-
tion and before seasonal operation (Idaho DEQ 2003).
What Are the Incentives for Trading?
The incentive for point sources to participate in trading is that trading offers a flexible
approach to meeting the NPDES permit limits, which will soon reflect the phosphorus waste-
load allocation in the Snake River-Hells Canyon TMDL. Although nonpoint sources will have
a load allocation under the Snake River-Hells Canyon TMDL, mechanisms to achieve the load
allocation are largely voluntary. Therefore, the primary incentive for farmers to participate is
the partial financial compensation for BMP installation and maintenance (Breetz et al. 2004).
What Water Quality Improvements Have Been Achieved?
No trading has occurred in the Lower Boise River to date; therefore, no water quality
improvements are associated with trading in the Lower Boise River.

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Water Quality Trading Toolkit for Permit Writers

What Are the Potential Challenges in Using This Trading
Approach?
The Lower Boise River Pollutant Trading Program might face a few challenges. The need
t~d
to have the Lower Boise River Trading Framework revised to reflect the recently approved
Snake River-Hells Canyon TMDL will delay the trading program. Many of the BMP verification
requirements and much of the paperwork associated with completing the required trading
documents appear to be the responsibility of participating point sources. Another challenge		
associated with the approach used in the Lower Boise River, and possibly throughout Idaho, is
the fact that EPA Region 10 is the NPDES permitting authority for the state of Idaho. The fact
that the NPDES permits that will facilitate point source trades are not developed by Idaho
DEQ might necessitate an additional layer of coordination and facilitation between the state
and EPA Region 10.
What Are the Potential Benefits?
Potential benefits of the approach used by the Lower Boise River Pollutant Trading Program
include a comprehensive trading tracking database that allows Idaho DEQ and other stakehold-
ers to easily assess progress and trends in trading activities. In addition, this approach appears	§
(TS
to have a thorough process for incorporating BMP uncertainties into trades by using effec-
tiveness ratios and uncertainty discounts for each BMP, rather than a blanket trade ratio that
applies to all point source-nonpoint source trades. The plan to conduct a 5-year review of all
ratios is also beneficial, ensuring that trade ratios reflect actual watershed conditions.
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Applicable NPDES Permit Language
No trades have occurred at this time; therefore, no NPDES permits contain trading language.
However, the Lower Boise Effluent Trading Demonstration Project did produce permit	I
outlines for three types of trades: (1) point source-point source upstream trades, (2) point
source-point source downstream trades, and (3) point source-nonpoint source trades. The
3
o
permit outline available for point source-nonpoint source trades does not have the support	®
"3
of EPA Region 10, the NPDES permitting authority for the state of Idaho. Ideally, Idaho DEQ
would like to have permit language developed for point source-nonpoint source trades that
is dynamic and will allow this type of trade without having to reopen or rewrite permits. EPA
Region 10, however, has concerns regarding the most effective mechanism for demonstrating	li-
the pollutant reductions achieved by participating nonpoint sources.
a*
Contact Information
Claire Schary
Water Quality Trading Coordinator
U.S. Environmental Protection Agency, Region 10
(206)553-8514
Susan Burke
Compliance and Special Projects Coordinator
Water Quality Division
Idaho Department of Environmental Quality
(208)373-0574
susan.burke@deq.idaho.gov

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Water Quality Trading Toolkit for Permit Writers
References and Resources
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
Horsburgh, Bryan. 2004. Personal communication. September 23.
Idaho DEQ (Idaho Department of Environmental Quality). 2006. Pollutant Trading Overview.
.
Idaho DEQ (Idaho Department of Environmental Quality). 2004. Lower Boise River Nutrient
TMDL Development Work Plan. Idaho Department of Environmental Quality.
Idaho DEQ (Idaho Department of Environmental Quality). 2003. Pollutant Trading Guidance.
Idaho Department of Environmental Quality, .
Idaho DEQ (Idaho Department of Environmental Quality). 1999. Lower Boise River TMDL:
Subbasin Assessment, Total Maximum Daily Loads. December 18, 1998; revised September
29, 1999. Idaho Department of Environmental Quality, .
Idaho DEQ and Oregon DEQ (Idaho Department of Environmental Quality and Oregon
Department of Environmental Quality). 2004. Snake River-Hells Canyon Total Maximum
Daily Load (TMDL). Submitted July 2003 and Revised June 2004. Prepared by Idaho
Department of Environmental Quality and Oregon Department of Environmental Quality.
.
Idaho DEQ (Idaho Department of Environmental Quality). Lower Boise River Effluent
Trading Demonstration Project: Summary of Participant Recommendations For a
Trading Framework. Prepared for the Idaho Division of Environmental Quality by Ross &
Associates Environmental Consulting, Ltd. September 2000.
.
ISCC (Idaho Soil Conservation Commission). 2002. Best Management Practice (BMP) List for
the Lower Boise River Pollution Trading Program. May 1, 2002.
Schary, Claire. 2007. Personal communication via e-mail. March 14.

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Water Quality Trading Toolkit for Permit Writers
Rahr Malting Company Permit
Minnesota
Overview
>
Tl
Tl
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To expand production and reduce costs, the Rahr Malting Company (Rahr) wanted to con-
struct its own wastewater treatment plant (WWTP) instead of discharging to a regional
WWTP; however, a 1985 wasteload allocation (WLA) for 5-day carbonaceous biochemical
oxygen demand (CBOD5) in the lower Minnesota River prohibited any new discharges to
the river that added to the pollutant loading levels (MPCA 1997c; Breetz et al. 2004). In an
effort to find a solution, Rahr negotiated an agreement with the Minnesota Pollution Control
Agency (MPCA) to offset CBOD5 discharge from its new wastewater treatment plant by fund-
ing upstream nonpoint source pollutant reductions.
Rahr was issued a NPDES permit incorporating trading in 1997. The permit allowed Rahr to
discharge approximately the same amount it currently discharged to the regional WWTP but
imposed concentration-based effluent limits as well as nonpoint source trading requirements
to offset the pollutant loading. Rahr was required to establish a $250,000 trust fund to pay
for its nonpoint source offsets.
Type of Trading	Pollutant (s) Traded
Point Source-Nonpoint Source	Phosphorus
Nitrogen
CBOD5
Sediment
to
0J
tr
3
era
n
*3
In 5 years, Rahr achieved the needed nonpoint source loading reductions through four	|
nonpoint source offsets (Fang and Easter 2003). Over the course of the permit cycle, MPCA
observed opportunities for further refinement of the program and crediting process. This
fact sheet describes the initial permit and best management practices (BMPs); however,
future permits may incorporate adjustments to the trade ratios and potentially remove the
use of nitrogen reduction for CBOD5 credits (Klang 2006c).
Number of Trades to Date
Rahr has implemented four nonpoint source BMP implementation projects to offset load-
ings from the facility. Two projects at the junction of the Cottonwood and Minnesota Rivers
involved riparian vegetation restoration on sites that were then donated to the city of New
Ulm. They resulted in reductions of 28.8 and 71.1 lbs/day CBOD5 respectively (Sparks and Wal-
lace 2006). The other two, on 8-Mile Creek and Rush River, stabilized eroding banks (Klang
2006a; Sparks and Wallace 2006). 8-Mile Creek's project involved the planting of a bank
stabilization area as well as livestock exclusion and reduced 13.4 lbs/day CBOD5 (Sparks and
Wallace 2006). To protect the Rush River site's eroding cliff face, a bench terrace was con-
structed and the channel was diverted. This project reduced 98.6 lbs/day CBOD5 (Sparks and
Wallace 2006).
A-35

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Water Quality Trading Toolkit for Permit Writers
Who Is Eligible to Participate?
Rahr is the only point source eligible to trade under the permit. The only limitation placed on
nonpoint source BMP sites were that they must be upstream of Shakopee in the Minnesota
River Basin.
What Generated the Need for Trading?
By constructing and operating its own WWTP, Rahr could increase production by 20 percent
and still reduce costs. Rahr's increased production and discharge would have cost an addition-
al one million dollars if Rahr continued to have its discharge treated at the regional WWTP
facility (Breetz et al. 2004). However, because of the lower Minnesota River's WLA for CBOD5,
all the pollutant load was already allocated to existing sources and Rahr could not obtain
the allocation necessary to construct a WWTP. Though the regional WWTP possessed the
necessary wasteload allocation for Rahr's discharge, Rahr could not get the discharge rights
transferred, therefore Rahr came up with a strategy of offsetting its load through nonpoint
source trading (Breetz et al. 2004).
What Serves as the Basis for Trading?
In 1985 EPA, MPCA and the Metropolitan Council (the regional planning agency for the
Twin Cities area) negotiated a wasteload allocation, described in the Lower Minnesota River
Wasteload Allocation Study, for the lower 26 miles of the Minnesota River. The WLA required
a 40 percent reduction of upstream and sediment CBOD5 concentrations. Most of the CBOD5
came from loading from WWTPs and manure from feedlots. The Minnesota River Assessment
Project (MRAP), completed in 1992, identified that the eutrophication in the river supplied a
significant amount of CBOD5 load as dead algae.
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
A RMA-12 model was used in the development of the 1985 Waste Allocation Study for point
sources on the Minnesota River. This is a version of the QUAL-II model, which is a one dimen-
sion model for stream quality. The RMA-12 model differs from the QUAL-II model by chang-
ing the growth equation for algal biomass and redefining the nitrogen cycle. While the
QUAL-II model considers nitrogen as Kjeldahl nitrogen, the RMA-12 model allows for organic-
and ammonia-nitrogen to be considered separately. The RMA-12 also allows for uptake of
ammonia-nitrogen by algae as opposed to only allowing nitrate-nitrogen uptake by algae as
in the QUAL-II model (MPCA 1985).
The RMA-12 model is a one-dimensional model and simulates the effects of wasteloads, nitri-
fication, sediment oxygen demand, and algal photosynthesis (USEPA 1992). It uses an advec-
tive-dispersive equation to solve for 11 water quality constituents numerically (MPCA 1985).
The constituents include
1.	Phytoplankton algae	7. Organic nitrogen
2.	Chlorophyll a	8. Ammonia nitrogen
3.	CBOD	9. Nitrite nitrogen
4.	Dissolved Oxygen	10. Nitrate nitrogen
5.	Benthic oxygen demand	11. Orthophosphate
6.	Atmospheric reaeration

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Water Quality Trading Toolkit for Permit Writers
The model considers 30 different transformation pathways for the above constituents includ-
ing sources/sinks for CBOD5 by settling or resuspension, loss of ammonia nitrogen to the
atmosphere, and uptake of phosphorus into phytoplankton biomass. It also uses a finite-dif-
ference technique to solve the mass balance equations taking into account various stream
effects. Since the critical period of concern for low dissolved oxygen was the summer low-
flow period, the RMA-12 model was used in steady-state mode for the study (MPCA 1985).
>
While water quality calibration data existed from an intensive river survey in 1965 and a
summer low flow survey in 1974, the existing data lacked sufficient measurements of algal
productivity and benthic demands. Therefore another intensive river survey was conducted
during a seasonally warm and low-flow period in August 1980, and the resulting data was
used to calibrate the RMA-12 model (MPCA 1985). Though data existed for nine days, only
four days were used for calibration because unsteady flow and rainfall conditions prevailed
during the latter part of the study period. A period of 4 days was sufficient because it cap-
tured one complete flow through of the study reach. The model was verified by simulating
water quality responses observed in the 1974 survey (MPCA 1985).
The Wasteload Allocation Study assumed that no additional load would be added to the	-a
Minnesota River. The two existing WWTPs, Blue Lake and Seneca, operated at secondary
treatment requirements which resulted in effluent averaging 25 mg/L CBOD5. In the spring	^
and fall, the WWTPs did not need additional treatment to ensure the river met the 5 mg/L	g-
GfQ
dissolved oxygen minimum requirement (MPCA 1985). In the summer, additional treatment	n
O
as well as a reduction in the headwater and sediment oxygen demand was required to main-	,3
tain the 5 mg/L dissolved oxygen minimum requirement. The model predicted that additional	J
treatment to 10 mg/L CBOD,. by the WWTPs and a 40 percent reduction in headwater and	2?
=>	Hj
sediment CBOD concentrations would be required to meet the dissolved oxygen require-	3.
rt*
ment during critical summer conditions (MPCA 1985). The model also predicted that addi-	•
tional treatment may also be required in the winter due to limited atmospheric reaeration	|!
caused by ice cover; however, it is difficult to quantify the amount of ice cover on the river.	|
Under complete ice cover, a reduction to 10 mg/L CBOD5 would be required by the WWTPs.	!
If a 6 percent reduction in ice cover was possible, no additional treatment (beyond 25 mg/L
CBOD5) would be necessary to maintain the dissolved oxygen requirement (MPCA 1985).
Are Permits Used to Facilitate Trades?
Rahr's permit required the company to install and maintain limits-of-technology controls
at the wastewater treatment facility, in addition to the trading requirements included. The
permit contains a BOD effluent limit of 12-mg/L year round and a phosphorus monthly aver-
age limit of 2 mg/L in addition to the requirement to offset 150 lbs/day of CBOD5. The permit
authorized trading of several pollutants that negatively impact water quality: nitrogen, phos-
phorus, and sediment to create CBOD5 credits.
Section II.A.2.a of the permit outlines the effluent limitations for the facility. In addition to
these limitations, the permit requires Rahr to reduce CBOD5 mass loadings in accordance with
Section II.A.2.b or "obtain CBOD5 nonpoint load reduction [units] equal to or greater than its
actual CBOD5 discharge." This section specifies that one nonpoint source load reduction unit
is the equivalent of one pound per day of CBOD5 discharge. In addition, this section requires
that Rahr obtain 20 units of reduction before start up of the wastewater treatment facility (if
start up is after December 31, 1997).	A-37

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Water Quality Trading Toolkit for Permit Writers
The permit specifies that the permittee must spend a $250,000 trust fund within the 5-year
permit term by implementing projects approved by MPCA, and if 150 units can be obtained
for less than this amount, the permittee is required to extend the time period of project
expenditure to 10 years.
This section also outlines the types of projects that the MPCA would approve. Provision
II.A.2.b.4 states that "the Permittee shall submit proposed projects for review in accordance
with two referenced documents: the Point-Nonpoint Source Trading Summary and the
Nonpoint Source Crediting Calculations" (both dated January 8, 1997). These documents are
included in full as a separate PDF file on the Toolkit Web site. This section also states that the
"Commissioner is solely responsible for determining the amount of creditable CBOD5 non-
point source load reduction to be credited to the project."
It was uncertain whether agreements for nonpoint source reductions were likely to be made
because this was the first permit of its kind. Therefore, to provide an alternate method of
earning credits, Rahr accepted a phosphorus limit of 2 mg/L even though MPCA did not have
numeric standards for rivers. MPCA had proposed a limit of 3 mg/L limit and by accepting
the more stringent limit, Rahr could earn a credit of 30 units of phosphorus to be applied to
the cumulative load reduction for every year the facility maintained this level of discharge. In
addition, MPCA allowed the facility to use up to 10 units of this credit in either 1998, 1999, or
2000 to satisfy any shortfalls that year in nonpoint source load reductions to maintain compli-
ance with permit requirements.
In addition, the facility accepted a year-round CBOD5 limit of 12 mg/L instead of the seasonal
limit of 12 mg/L (June-September) and 25 mg/L at other times not covered under the TMDL
requirements (October-May) as proposed by MPCA. For this reason, MPCA allowed a 30 unit
credit to be applied to the cumulative value for 2001 and subsequent years provided the
permittee's discharge remained at 12 mg/L.
Point-Nonpoint Source Trading Summary
The Point-Nonpoint Source Trading Summary is incorporated by reference into the permit and
basically explains the premise for Rahr's point-nonpoint source trading process and the con-
cepts involved in developing the trading program. The summary document explains how the
ratios were developed to assess the impact of phosphorus and nitrogen loading on CBOD5 in
the river and outlines the basic concept of point-nonpoint trading in the watershed. In addi-
tion, the summary document highlights methods that will be used to minimize associated risks
such as pollutant equivalency ratios, safety factors for estimating phosphorus content in load-
ing from soil erosion, calculation of a field loss factor for nitrogen to account for volatilization
of ammonia and the assimilation of nitrogen prior to entering a surface water, and delivery
ratios to account for the distance a nonpoint source site is from the stream. Trading-eligible
BMPs are also described in this document. And finally, the summary document explains how
the trading agreement and administration of the trades were to occur during the permit term.
This document also references the Nonpoint Source Trade Crediting Calculations document
and requires that all pollutant reduction estimation follow the formulas included therein.
Nonpoint Source Trade Crediting Calculations
The Nonpoint Source Trade Crediting Calculations document details the various trade calcula-
tions necessary to determine nonpoint source loading reduction units for all nonpoint source
trades required in Rahr's permit. Pollutant Equivalency Credits are detailed to determine how
many pounds/day of reduction of phosphorus, CBOD5, nitrogen and how many tons/ day of
sediment are necessary to equate to a specified number of units in each of two areas of the

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Water Quality Trading Toolkit for Permit Writers
river. A more detailed explanation is included under What Is the Pollutant Trading Ratio? and
in the full version of the document.
Tl
l-H
The document also details a list of conditions the permittee must use when selecting appro-
priate BMPs. The conditions are based on a set of assumptions regarding physical process
constraints inherent in assessing nonpoint source loading and BMP removal effectiveness.
I—I
For each type of BMP identified for point-nonpoint source trading in the watershed, this
document details the calculation procedures necessary to estimate pollutant reductions. As
previously stated, the discharger's permit requires that these calculations be used and submit-
ted to the MPCA for approval by the Commissioner.
How Are Credits Generated for Trading?
According to the discharge permit, Rahr can generate credits by implementing nonpoint source
BMPs that reduce gully erosion (not including high-residue tillage), stabilize gully and bank
erosion, exclude livestock from stream or river riparian zones, rotate grazing with livestock
exclusion from riparian zones, or treat stormwater runoff with constructed wetlands (Riggs and
Hartwell 2000). MPCA justified its BMP selection in the permit's fact sheet. The BMPs selected
provide equivalent water quality improvement to downstream point source reductions, can be	^
visually tracked or monitored, and promote additional nonpoint source reduction opportunities
that are not widely used (Riggs and Hartwell 2000). The phosphorus, nitrogen, and sediment	era
loading reduction resulting from the implementation of the nonpoint source BMPs were then	°
converted into CBOD5 credits through the use of trading ratios. The permit's supporting docu-
mentation details how reductions were calculated for the different types of approved BMPs.
to
0J
tr
*3
3
What Are the Trading Mechanisms?
The permit required that a trust fund be established to fund nonpoint source projects. Rahr	3
was required to spend $250,000 to implement BMPs to reduce loading by 150 lbs/day of
CBOD5. In addition, the permit specifies that if the reductions can be achieved for less than	0
$250,000, "the time period for full expenditure of the $250,000 will be extended to ten years
from the date of the permit issuance."
A board of citizens concerned with water quality conservation including people from grass
roots organizations, state offices, and Rahr representatives oversaw the final selection of
BMP sites, but the process of initial trade identification was very network-driven and depend-
ed on local environmental organizations and agency personnel (MPCA 1997c; Breetz et al.
2004). The Commissioner of the MPCA gave final approval for each nonpoint source project
and determined the amount of CBOD5 credits generated (MPCA 1997a).
For two of its BMP sites, Rahr contracted with the landowner while in the other two, Rahr
bought the land from the landowner, the city of New Ulm, and then sold the land for a dol-
lar, with provisions and restrictions needed for preservation and upkeep, back to the city of
New Ulm as a wildlife park under a permanent easement (Klang 2006a).
The credits were granted in a schedule to give the point source greater flexibility in meeting
the permit requirements: 45 percent were granted when the contractual agreements were
reached, 45 percent when the nonpoint source controls have been implemented, and 10 per-
A-39
cent when vegetation establishment criteria were reached (Breetz et al. 2004).

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Water Quality Trading Toolkit for Permit Writers
What Is the Pollutant Trading Ratio?
The unit of trade is one pound of CBOD5. Phosphorus, nitrogen, and sediment can all be
traded for CBOD5 but require the use of trading ratios, because of the varying degrees of per-
sistence in the river and mechanisms for exerting oxygen demand (MPCA 1997b). The trading
ratios estimate how much CBOD5 would be reduced in the TMDL zone by a related amount of
nutrient or sediment reduction upstream.
For phosphorus, the CBOD5 conversion ratio was 1:8, meaning that an upstream reduction
of one pound of phosphorus results in a reduction of 8 pounds of CBOD5 in the TMDL zone.
This ratio varies depending on the nutrient needs of the biological life forms, flows, turbidity
impacts on photosynthetic activity and the bio-availability of phosphorus. The ratio of 1:8 is
conservative; the ecoregion mean estimate of the ratio is closer to 1:17.
For nitrogen, the CBOD5 ratio was 1:4. By balancing the applicable chemical equation, one
pound of total Kjeldahl nitrogen requires 4.6 pounds of oxygen; however, it is less persistent
in the river because of atmospheric loss, and it exerts its demand more rapidly than phospho-
rus. So a ratio of 1:4 is used in the Metro Reach, and a 1:1 ratio is used for upstream reaches
(MPCA 1997c). Calculation of load reductions from livestock management BMPs include a 50
percent field loss factor to account for atmospheric nitrogen losses prior to transport into the
water column (MPCA 1997b).
Controlling sediment loss reduces oxygen demand associated with turbidity. The program
required one ton of sediment loss reduction for 0.5 CBOD5 credits.
The previously described trading ratios are the only ratios required in the TMDL zone. Beyond
the TMDL zone exists a BOD trading zone that extends up to river mile 107. Additional ratios
are applied in the BOD trading zone and described by Table 2 in the Point-Nonpoint Source
Trading Summary supporting permit documentation (MPCA 1997c). Beyond river mile 107,
one percent of the pounds removed are credited (MPCA 1997c).
For more information on the trade ratios, refer to the Nonpoint Source Trade Crediting Cal-
culations and Point-Nonpoint Source Trading Summary supporting documents to the permit
(MPCA 1997b; MPCA 1997c).
Example: Calculating CBOD5 Credits Achieved through a Critical Area Set-Aside of a
River Flood Scoured Area
A landowner near river mile 29 has 40 acres of land that are susceptible to flooding. Long term
records from the U.S. Army Corps of Engineers were used to indicate an annual average rate of
500 cubic feet of silt loam soil per acre are swept into the river. The landowner is interested in
establishing woody vegetative cover with structural BMPs to reduce the sediment runoff and in
turn the CBODs loading to the stream. The Nonpoint Source Trade Crediting Calculations document
was used to calculate the number of credits generated by this BMP as follows.
1. Calculate the annual sediment loading (SED):
SED = AREA x VOL x Dry Density x FREQ
The dry density is found in a table on p. 10 of the Nonpoint Source Trade Crediting Calculations
document. A silt loam soil has a dry density of 0.0425 tons/ft3.

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Water Quality Trading Toolkit for Permit Writers
Example: Calculating CBOD5 Credits Achieved through a Critical Area Set-Aside of a
River Flood Scoured Area (continued)
500 ftVacre 0.0425 tons	tons
yr	ft3	yr
p = " " x	= 816	N = " " ^ x ' — 1632 —
yr	ton	yr	yr	ton	yr
Tl
tfl
_	JUUiL/dLie U.u-i/j lUiib	UOI1S
SED = 40 acres x 	x	—	= 850 	
O
2.	Calculate the amount of sediment reduced by the BMPs.
According to the Nonpoint Source Trade Crediting Calculations document, the Scott County SWCD
locally demonstrated that a site with scour erosion rates of 75 tons/acre/yr could, by establishing
woody vegetative cover and installing some structural BMPs, reduce its erosion rate to 3 tons/
acre/yr, which is a 96 percent reduction. Applying the same reduction ratio to this site, it is
found that:
SEDReduced = 850 — x 0.96 = 816
yr	yr
3.	Calculate the amount of phosphorus and nitrogen present in the annual sediment loading.
The table on p. 17 of the Nonpoint Source Trade Crediting Calculations document provides the	§?
phosphorus and nitrogen contents based on soil type. Silt soil contains 1.00 lbs P/ton and
2.00 lbs N/ton.
sr
s
816 tons 1.00 lbs	lbs „T 816 tons 2.00 lbs 	lbs	g
B
v
u
3
T3
Calculate the total CBODs credits.
The Pollutant Equivalency Credits table on p. 2 of the Nonpoint Source Trade Crediting Calculations
document provides conversions from the trade parameter to CBODs credits based on whether
the nonpoint source reduction takes place in the TMDL zone or upstream. For upstream
reductions, the CBODs percent remaining is given in the CBODs Percent Crediting Table on p.
3 based on river mile. One pound of phosphorus reduced upstream is equivalent to 8 units of
CBODs credit and one pound of nitrogen reduced upstream is equivalent to one unit of CBODs.
One ton of sediment reduced upstream is equivalent to 0.5 units of CBODs credit. 89 percent of
CBODs reduced at mile 29 remains when it reaches Rahr Malting Co.
816 lbs P 8 units CBOD^	units CBODc
P credits = 	 x			5 = 6528 	^
yr	1 lb P	yr
1632 lbs N 1 unit CBOD	units CBOD,
N credits =	x 			^ = 1632 	^
yr	1 lb N	yr
816 tons 0.5 unit CBOD,-	units CBOD,
Sediment credits =	x 			= 408 	
yr	1 ton sediment	yr
Finally, the CBODs units are summed and converted to daily credits.
m ,	8568 units lyear __ _ credits
Total credits = 	x , = 23.5 —		.
yr	365 days	day	A-41

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Water Quality Trading Toolkit for Permit Writers
What Type of Monitoring is Performed?
Rahr monitors its wastewater outfall but does not conduct water quality monitoring at the
BMPs. The estimated reductions from the BMPs are determined by calculation as described
in the permit's supporting documentation. Some data were collected on initial phospho-
rus concentrations in the soil and used in the reduction calculations (Klang 2006a). Rahr is
responsible for submitting technical and engineering reports detailing the design and instal-
lation of the BMPs, including structural specification, operation plans, and detailed photo-
graphs, to MPCA before and after each trade (Breetz et al. 2004). The permit also requires
annual reports accounting for nonpoint source credits. MPCA monitors the implementation
of BMPs with periodic site inspections; however, MPCA does not verify pollution reduction
with systematic monitoring, which would be very expensive and would have to be long term
to generate conclusive results (Breetz et al. 2004).
What Are the Incentives for Trading?
Engaging in trading allowed Rahr to build its own WWTP which reduced costs and provided
the ability to expand production.
The BMPs installed improved water quality and improved or protected property. In the cases
of the Cottonwood and Minnesota River sites, the landowners were financially compensated
for their land by Rahr who restored then donated the land to the city of New Ulm. In the
cases of the Rush River and 8-Mile Creek projects, the landowners were worried about the
effects of bank erosion on their land and homes and were eager to participate in the trading
arrangement with Rahr. Bluff/channel stabilization BMPs were installed on one landowner's
property in return for the landowner excluding livestock and maintaining the BMP, while
another landowner was responsible for the bioengineering maintenance required for the
BMP on his site (Klang 2006a; Sparks and Wallace 2006).
What Water Quality Improvements Have Been Achieved?
Rahr offset its pollutant loading beyond the necessary amount. Rahr obtained nonpoint
source credits for 212 lbs/day of CBOD5, which exceeded the permit requirement of 150 lbs/
day of CBOD5 traded (Breetz et al. 2004).
What Are the Potential Challenges in Using This Trading Approach?
One significant challenge was defining the appropriate trade ratio between upstream
nonpoint source phosphorus loadings and CBOD5 discharges from Rahr's WWTP (Riggs and
Hartwell 2000; Fang and Easter 2003). The MPCA was able to determine a 1:8 trading ratio by
conducting studies relating phosphorus to chlorophyll-a and chlorophyll-a to CBOD5 (Breetz
et al. 2004).
Local environmentalists initially objected to the trading program, but Rahr gained their sup-
port by cooperatively working with and accepting input from environmental organizations.
The permit required approximately 0.25-0.50 full-time equivalency of MPCA staff for permit
trade calculation development. Immediately after permit completion, some critical time, on
the order of weeks, was spent setting up the trades. Now MPCA spends only a few days a
year managing the program (Klang 2006b).

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Water Quality Trading Toolkit for Permit Writers
Applicable NPDES Permit Language
DATE	NONPOINT LOAD REDUCTION CUMULATIVE
December 31, 1997	0 units	0 units
December 31, 1998	30 units	30 units
December 31, 1999	30 units	60 units*
December 31,2000	30 units	90 units
Permit Expiration Date	60 units*	150 units
* The Permittee has accepted a phosphorus limit of 2 mg/l instead of the 3 mg/l
limit MPCA would otherwise propose at this time. Due to this, a 30 unit credit may
be applied to the cumulative load reduction during the year 2001 and subsequent
years provided the Permittee's phosphorus limit remains 2 mg/l or less. In addition,
up to 10 units of the phosphorus credit may be used in either 1998, 1999 or, 2000
for permit compliance purposes to satisfy any shortfall in the year's nonpoint source
load reduction requirement. The Permittee has accepted a year-round CBOD5 limit of
12 mg/l instead of the limit MPCA would otherwise propose at this time of 12 mg/l
CBOD5 from June through September and 25 mg/l CBOD5 from October through
May. Due to this, a 30-unit credit may be applied to the cumulative value for the
year 2001 and subsequent years provided the Permittee's year-round CBOD5 limit
remains 12 mg/l or less.
2
O
What Are the Potential Benefits?
Rahr achieves cost savings through trading. Cost per credit, as determined by Fang and Easter,
is approximately $8.56/lb phosphorus when including engineering, construction, materials,
design, and transaction costs. Because costs cannot be estimated for getting to zero phos-
phorus discharge, which would have been required of Rahr if they had discharged without
trading, Rahr's costs were compared to that of WWTPs with comparable design flow that
have to reduce to one mg/L of phosphorus. These costs ranged between $4 and $18/lb/day
phosphorus reduced (Fang and Easter 2003). Therefore, implementing nonpoint source
reductions was very likely cost effective for Rahr.
Ancillary environmental benefits are created by implementing nonpoint source BMPs. For
example, riparian buffers can reduce sediment loss as well as remove nitrogen and phospho-
rus from surface water. At two of the sites, the bank stabilization BMPs provided benefits
to the landowners, who were already experiencing property loss, by improving land stabil-
ity. The other two sites were sold to the city of New Ulm at virtually no cost creating wildlife
parks for the city (Klang 2006a).
The trading program raised watershed awareness and provides a good example of both	po
community cooperation and allowing for growth on impaired waters (Klang 2006b).	sf
3
GfQ
n
b. The Permittee is authorized to discharge CBOD5 in accordance with the following	|
effluent limitations in addition to those in Part II.A.2.a. One unit of trading credit is	1
the equivalent of 1 pound per day of CBOD5 discharged.	^
!T>
a
1. The Permittee shall comply with the cumulative CBOD5 nonpoint load reduction	2.
specified in the table below or obtain CBOD5 nonpoint load reduction equal to or	•
greater than its actual CBOD5 discharge. The actual CBOD5 discharge shall be mea-	jf"
sured as the annual average or the highest monthly average when the river flow
at the Jordan USGS gauging station is less than 500 cfs as a monthly mean during
June through September, whichever is greater.
3
A-43

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Water Quality Trading Toolkit for Permit Writers
2.	The Permittee shall obtain 20 units of nonpoint load reduction prior to start-up of
their wastewater treatment facility if start-up is after December 31, 1997;
3.	The Permittee shall spend all of the $250,000.00 dedicated to CBOD5 nonpoint
source load reduction within 5 years of permit issuance to obtain CBOD5 non-
point source load reduction by implementing projects approved by the MPCA.
If 150 units of actual nonpoint source load reduction are obtained for less than
$250,000.00 during the five-year period, the time period for full expenditure of the
$250,000.00 will be extended to ten years from the date of permit issuance.
4.	The Permittee shall achieve the nonpoint source load reduction units specified
above by undertaking projects subject to (1) land purchase or (2) easement(s)
or other contractual obligation(s) in place for the duration of CBOD5discharge.
Projects shall be Soil Erosion BMP's, Livestock Exclusion, Rotational Grazing With
Livestock Exclusion, Critical Area Set Aside or Wetland Treatment Systems. The
Permittee shall submit such proposed projects to the MPCA for review in accor-
dance with the Point-Nonpoint Source Trading Summary dated January 8, 1997,
and the Nonpoint Source Crediting Calculations dated January 8, 1997. The permit
language shall control if any inconsistency arises from the referenced pollutant
trading documents: The Commissioner is solely responsible for determining the
amount of creditable CBOD5 nonpoint source load reduction to be credited for
5.	If the Permittee has not obtained 150 nonpoint source load reduction units within
the term of this permit because of the Permittee's actual CBOD5 discharge, in
accordance with Part II.A.2.b.1, is less than 150 pounds per day and if the Permittee
is authorized to continue to discharge 150 pounds per day CBOD5, the Permittee
shall obtain the remainder of the 150 nonpoint source load reduction units within
10 years of the issuance of this permit.
6.	The Permittee may request the Commissioner to modify Part II.A.2.b.1. of this
permit for schedule revisions in the event that the Permittee does not commence
construction of its wastewater treatment facility by September 1, 1999.
Contact Information
Bruce Henningsgaard
Minnesota Pollution Control Agency
(651) 296-7756
bruce.henningsgaard@pca.state.mn.us

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Water Quality Trading Toolkit for Permit Writers
References and Resources
>
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
Fang, F., and K.W. Easter. 2003. Pollution Trading of Offset New Pollutant Loadings—A
Case Study in the Minnesota River Basin. In Proceedings of the American Agricultural
Economics Association Annual Meeting. Montreal, Canada. July.
Klang, James. 2006a. Personal communication. May 5.
Klang, James. 2006b. Personal communication via e-mail. September 1.
Klang, James. 2006c. Personal communication via e-mail. September 29.
MPCA (Minnesota Pollution Control Agency). 1997a. National Pollutant Discharge Elimination
System (NPDES) and State Disposal System (SDS) Permit MN 0031917. January.
MPCA (Minnesota Pollution Control Agency). 1997b. Nonpoint Source Trade Crediting	s*
Calculations. January.	S
pi*
3*
MPCA (Minnesota Pollution Control Agency). 1997c. Point-Nonpoint Source Trading	^
Summary. January.	§
TJ
0)
3
Riggs, David W. and Christopher A. Hartwell. 2000. Environmental flexibility in action: a	^
!T>
Minnesota case study. Reason Public Policy Institute, Policy Study #265.	|
.	^
g;
Sparks, C., and S. Wallace. 2006. Pollutant Trading to Improve Riparian Habitats. Stormwater
Magazine. January/February, .	§
a
USEPA (U.S. Environmental Protection Agency). 1992. TMDL Case Study: Lower Minnesota
River. December. .
A-45

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Water Quality Trading Toolkit for Permit Writers
Southern Minnesota Beet Sugar Cooperative
Permit	S
Minnesota
o
i—i
X
Overview
The Southern Minnesota Beet Sugar Cooperative (SMBSC) is a farmer-owned cooperative
with a beet-processing facility located in southern Minnesota (MPCA 1999). The processing
facility treated process wastewater by storing it in lagoons during the processing season and
spray-irrigating it over 500 acres of alfalfa and grassland during the growing season; how-
ever, the SMBSC wanted to build a wastewater treatment plant (WWTP) to serve the facility.
This would allow SMBSC to expand sugar production and resolve odor problems.
A carbonaceous biochemical oxygen demand (CBOD5) wasteload allocation (WLA) had been
developed and approved on the lower Minnesota River in 1988, however, which prohib-
ited the additional loading (MPCA 1997). The Minnesota Pollution Control Agency (MPCA)	o3
allowed SMBSC to obtain a permit for the proposed WWTP provided they offset all of the
additional loading through nonpoint source projects that reduced total phosphorus. The	3
permit required SMBSC to establish a $300,000 trust fund to finance the projects, which was	g-
overseen by a trade board made up of a processing plant official, SMBSC's consultant, a Soil	$
O
and Water Conservation District official, the Hawk Creek watershed coordinator, and an envi-	sr
ronmental advocacy representative (Breetz et al. 2004).
03
C/s
c
era
£D
SMBSC's permit requires that the needed nonpoint source reduction be based on the actual
discharge. To accomplish this, the actual discharge is grouped into categories that create	£>
thresholds for the actual nonpoint source reduction needed and that requirement reflects	^
the 2.6 to 1 trade ratio. The largest category or tier of nonpoint source trade offsets requires
13,000 lbs total phosphorus/yr. To date, the facility is achieving nearly 2.5 times the permit's
required nonpoint source reductions (Klang 2006b).
Type of Trading	Pollutant (s) Traded
Point Source-Nonpoint Source	Total phosphorus
Number of Trades to Date
SMBSC contracts for spring sugar beet cover cropping best management practices (BMPs).
In 2005 SMBSC had contracts on 579 sites totaling 58,832 acres yielding 14,292.5 lbs total
phosphorus reduction/yr. One contract was established for cattle exclusion and bluff/chan-
nel stabilization BMPs yielding 1,475 lbs total phosphorus reduction/yr. SMBSC also has one
surface tile intake credit as part of a contract with a watershed district; however, because of
to problems with the agreement the contract was broken off and the credit was not included
in their total. SMBSC's total approved credit count is 15,767.5 lbs total phosphorus/yr (Klang
2006b).
A-47

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Water Quality Trading Toolkit for Permit Writers
Who Is Eligible to Participate?
SMBSC is the sole point source covered by the permit. Landowners, including sugar beet
farmers and cattle ranchers, in the lower two-thirds of the Minnesota River Basin are eligible
nonpoint sources. Landowners do not have to be members of SMBSC. There are 600 beet
growers in this region (Breetz et al. 2004).
What Generated the Need for Trading?
Before 1999, SMBSC disposed of its sugar beet process wastewater by storing it in lagoons
during the processing season and spray-irrigating it over 500 acres of alfalfa and grassland
during the growing season. This process resulted in unpleasant hydrogen sulfide odors that
brought complaints from neighboring areas. To resolve this problem and accommodate a 40
percent production expansion, in 1999 SMBSC proposed building a WWTP to treat the waste-
water and discharge into a tributary of the Minnesota River. However, in 1985 a CBOD5 WLA
was developed and approved, which prohibited new CBOD5 loading. A permit was issued
by MPCA, which required SMBSC to offset all of the WWTP's CBOD5 loading by funding the
installation of nonpoint source BMPs (Breetz et al. 2004).
What Serves as the Basis for Trading?
In 1985 EPA, MPCA and the Metropolitan Council (the regional planning agency for the
Twin Cities area, negotiated a wasteload allocation) described in the Lower Minnesota River
Wasteload Allocation Study, for the lower 26 miles of the Minnesota River. The wasteload
allocation required a 40 percent reduction of upstream and sediment CBOD5 concentrations.
Most of the CBOD5 came from loading from wastewater treatment plants and manure from
feedlots. The Minnesota River Assessment Project (MRAP), completed in 1992, identified
that eutrophication in the river supplied a significant amount of CBOD5 load as dead algae.
SMBSC's WWTP would have discharged into Beaver Creek, a tributary to the Minnesota River
and so SMBSC's permit was developed using knowledge gained from these projects (Klang
2006a). SMBSC was located far enough upstream that its CBOD5 loading was not of concern;
however, since 70 percent of the upstream CBOD5 loading was caused by dead algae decaying
and phosphorus is the limiting nutrient for algal growth in the basin, SMBSC was required to
limit phosphorus (Klang 2006d).
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
A RMA-12 model was used in the development of the 1985 Wasteload Allocation Study for
point sources on the Minnesota River. This is a version of the QUAL-II model, which is a one-
dimension model for stream quality. The RMA-12 model differs from the QUAL-II model by
changing the growth equation for algal biomass and redefining the nitrogen cycle. While the
QUAL-II model considers nitrogen as Kjeldahl nitrogen, the RMA-12 model allows for organic-
and ammonia-nitrogen to be considered separately. The RMA-12 also allows for uptake of
ammonia-nitrogen by algae as opposed to only allowing nitrate-nitrogen uptake by algae as
in the QUAL-II model (MPCA 1985).
The RMA-12 model is a one-dimensional model and simulates the effects of wasteloads,
nitrification, sediment oxygen demand, and algal photosynthesis (USEPA 1992). It uses an

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Water Quality Trading Toolkit for Permit Writers
2
o
advective-dispersive equation to solve for eleven water quality constituents numerically
(MPCA 1985). The constituents include
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1.	Phytoplankton algae	7. Organic nitrogen
2.	Chlorophyll a	8. Ammonia nitrogen
3.	CBOD	9. Nitrite nitrogen
4.	Dissolved Oxygen	10. Nitrate nitrogen
5.	Benthic oxygen demand	11. Orthophosphate
6.	Atmospheric reaeration
The model considers 30 different transformation pathways for the above constituents includ-
ing sources/sinks for CBOD5 by settling or resuspension, loss of ammonia nitrogen to the
atmosphere, and uptake of phosphorus into phytoplankton biomass. It also used a finite-dif-
ference technique to solve the mass balance equations taking into account various stream
effects. Since the critical period of concern for low dissolved oxygen was the summer low-
flow period, the RMA-12 model was used in steady-state mode for the study (MPCA 1985).
While water quality calibration data existed from an intensive river survey in 1965 and
summer low-flow survey in 1974, the existing data lacked sufficient measurements of algal	^
O
productivity and benthic demands. Therefore another intensive river survey was conducted	£.
sr
during a seasonally warm and low-flow period in August 1980 and the resulting data was	3
used to calibrate the RMA-12 model (MPCA 1985). Though data existed for 9 days, only 4 days	%
were used for calibration because unsteady flow and rainfall conditions prevailed during	a
a>
the latter part of the study period. A period of 4 days was sufficient because it captured one	§
complete flow through of the study reach. The model was verified by simulating water qual-	«
ity responses observed in the 1974 survey (MPCA 1985).
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The Wasteload Allocation Study assumed that no additional load would be added to the
Minnesota River. The two existing WWTPs, Blue Lake and Seneca, operated at secondary	§
treatment requirements which resulted in effluent averaging 25 mg/L CBOD,.. In the spring	3
=>	0)
and fall, the WWTPs did not need additional treatment to ensure the river met the 5 mg/L	J-
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dissolved oxygen minimum requirement (MPCA 1985). In the summer, additional treatment	v
as well as a reduction in the headwater and sediment oxygen demand was required to main-	3
tain the 5 mg/L dissolved oxygen minimum requirement. The model predicted that additional	Z
treatment to 10 mg/L CBOD5 by the WWTPs and a 40 percent reduction in headwater and
sediment CBOD5 concentrations would be required to meet the dissolved oxygen requirement	|
during critical summer conditions (MPCA 1985). The model also predicted that additional
treatment may also be required in the winter because of limited atmospheric reaeration
caused by ice cover; however, it is difficult to quantify the amount of ice cover on the river.
Under complete ice cover, a reduction to 10 mg/L CBOD5 would be required by the WWTPs.
If a 6 percent reduction in ice cover was possible, no additional treatment (beyond 25 mg/L
CBOD5) would be necessary to maintain the dissolved oxygen requirement (MPCA 1985).
3
Are Permits Used to Facilitate Trades?
SMBSC's permit specifies that the new WWTP must meet effluent limitations and offset
its load through nonpoint source projects. Treated process wastewater and non-contact
cooling water can be discharged to County Ditch (CD) 45 via Surface Discharge Station
(SD) 005 at a rate of 3.5 cfs between September and March. Between April and August,
no discharge is allowed to CD 45. During this time and when the flow effluent limitations	A-49
cannot be met between September and March, treated process wastewater is diverted to

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Water Quality Trading Toolkit for Permit Writers
wastewater storage ponds. The pond water is land applied over 11 parcels for treatment.
The permit contains effluent limits for the relevant outfalls. SD 001 and SD 005 must meet
a 15-mg/L monthly average and a 34-mg/L monthly maximum CBOD5 concentration. SD 005
also has a total phosphorus yearly average limit of 0.75-mg/L year-round and a yearly total
of 1,135- kg/yr (approximately 2,500-lbs/yr) between September and March. Outfalls SD 003
and 004 must meet a 25-mg/L daily maximum concentration of CBOD5 year-round.
Chapter 12.1 of SMBSC's NPDES permit describes the provisions for trading under its Phos-
phorus Management Plan. The permit specifies that Soil Erosion Best Management Practices,
Cattle Exclusion, Rotational Grazing with Cattle Exclusion, Critical Area Set Aside, Con-
structed Wetland Treatment Systems, Alternative Surface Tile Inlets, and Cover Cropping are
acceptable nonpoint source practices that can be used to generate credits. Other BMPs must
be approved by MPCA. The formulas used to calculate phosphorus credits from each BMP are
detailed in the document Phosphorus Trade Crediting Calculations that is incorporated into
the permit (MPCA 2004b). The permit goes on to describe the project eligibility criteria, the
membership and role of the phosphorus trade board, the schedule for granting credits, the
project and credit approval processes, and requirements for annual reporting.
Also according to the permit, SMBSC is liable for ensuring nonpoint source phosphorus
reductions take place (Breetz et al. 2004). SMBSC is responsible for retaining an independent
auditor to certify project completion as described in section 12.1.22 of the permit (MPCA
2004a). If BMPs are not properly implemented or maintained, the SMBSC will be responsible
for identifying another project (Breetz et al. 2004).
The permit includes a document entitled Phosphorus Trade Crediting Calculations which
provides a brief explanation of the trade ratios and expands upon the requirements for the
approved BMPs. The document largely focuses on how to calculate the number of phos-
phorus credits that each BMP generates; however, it also provides some information on the
purpose of the BMP and how it should be implemented (MPCA 2004b). The entire document
is attached to the end of the permit fact sheet.
How Are Credits Generated for Trading?
MPCA specified that acceptable BMPs to reduce phosphorus included cattle exclusions, buffer
strips, constructed wetlands, set-asides, alternative surface tile inlets and cover cropping, all
of which are designed to reduce the runoff of phosphorus to surface waters.
According to the discharge permit, SMBSC must propose a BMP site to MPCA for approval.
Some specifics the proposal must include are documentation of the use and condition of
the site over the previous 5 years, the BMP(s) to be implemented and specifics on the imple-
mentation process, operation and maintenance, and the detailed calculations justifying the
phosphorus credits applied for. The permit specifies the formulas used to calculate phospho-
rus credits generated by the phosphorus loading reduction assumed for each type of BMP.
After the project is implemented, SMBSC must submit an implementation report to MPCA
and a third-party auditor. The auditor will inspect and certify the project implementation. If
the project is implemented according to MPCA's approval, the auditor will recommend the
issuance of credits. MPCA will then approve or deny the credits (MPCA 2004a).

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Water Quality Trading Toolkit for Permit Writers
What Are the Trading Mechanisms?
A nonpoint source BMP must first be approved by the trade board and then by MPCA.
SMBSC's permit prescribes how to document BMPs in order to submit for approval. SMBSC has
annual contracts for cover crops with the sugar beet farms that are participating and a 9-year
contract for cattle exclusion and bluff/channel stabilization site (Klang 2006a). The land man-
agers are paid through these contracts based on annual credits.
X
For each project, SMBSC will receive credits on the basis of the ratio of its financial contribu-
tions to that of public sources. It will not receive credits for the portion funded by public
sources (MPCA 2004a). The credits are granted in a schedule to give the point source greater
flexibility in meeting the permit requirements: 45 percent are granted when the contractual
agreements are reached, 45 percent when the nonpoint source controls have been imple-
mented, and 10 percent when vegetation establishment criteria are reached (Breetz et al.
2004). SMBSC is required to obtain credits amounting to 2.6 times its annual phosphorus mass
discharge limit.
What Is the Pollutant Trading Ratio?
The trade ratio specified in the SMBSC permit is 2.6:1. This means that for every 2.6 pounds
of total phosphorus reduced through nonpoint source BMPs, one pound is reduced at the
wastewater treatment plant. Therefore, one credit is given for every 2.6 pounds of total
phosphorus reduced by a nonpoint source BMP.
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The trade ratio includes three different components: a base of 1:1 to offset the discharge,	^
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+0.6 as an explicit engineering safety factor which, in addition to conservative assumptions	£
£
implicit in the calculations, accounts for variations among sites, and +1 to allow for water
quality improvement which takes into account MPCA's existing plans to improve water qual-	r>
ity including the MPCA water quality interim target for the Minnesota River Basin, the MPCA
dissolved oxygen TMDL on the lower Minnesota River, and the MPCA Phosphorus Strategy	3
(MPCA 2004b).
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3
What Type of Monitoring is Performed?	•
jg
SMBSC monitors its wastewater outfall but does not conduct water quality monitoring at
the BMPs. The reductions from the BMPs are estimated by using calculations described in the	g
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permit. Some data were collected on initial phosphorus concentrations in the soil and used in	S?
the reduction calculations (Klang 2006a). SMBSC is responsible for submitting technical and
engineering reports, including structural specification, operation plans, and detailed photo-
graphs, to MPCA before and after each trade (Breetz et al. 2004). The permit also requires
annual reports accounting for nonpoint source credits. SMBSC is responsible for submitting
an implementation report to MPCA and its third-party auditor for comparison with the
auditor's findings. If the auditor finds the project was completed as approved, he or she
can recommend the issuance of credits, which MPCA can then grant or deny (MPCA 2004a).
Previously, MPCA fulfilled the auditors role (Breetz et al. 2004); however, since December
2004 (when the permit was reissued) MPCA now requires SMBSC to retain an auditor to
certify implementation. The auditor can be a professional engineer, certified crop advisor, or
a representative of a local watershed interest (Klang 2006a; MPCA 2004a). The auditor must
certify that the project was completed and recommend issuance of credits the first time the
BMP is implemented. For each year following, SMBSC must certify in the Phosphorus Trading
A-51

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Water Quality Trading Toolkit for Permit Writers
Site Annual Report that the BMP sites remain active. The report is to include photographs
of each site taken during the previous year or the landowner's written certification that the
project remains in-place and effective (MPCA 2004a).
What Are the Incentives for Trading?
The trading program allowed SMBSC to construct and operate its own WWTP which allevi-
ated the land application problems and allowed it to expand the processing operation. In
addition, SMBSC pays members to plant cover crop BMPs, and they also receive the ancillary
benefit of protecting young sugar beet plants (Klang 2006a).
What Water Quality Improvements Have Been Achieved?
SMBSC has exceeded its offset requirements by implementing sugar beet spring cover crops,
cattle exclusion, and bluff/channel stabilization. Because SMBSC's total phosphorus limit is
2,500 Ibs/yr, the permit requires that the wastewater treatment plant offset 6,500 lbs of total
phosphorus/year and to date, the nonpoint source BMPs generated reduction credits for
15,767.5 lbs total phosphorus/year (Klang 2006b). In addition, the new WWTP has solved the
land application odor problem that was a significant community nuisance.
What Are the Potential Challenges in Using This Trading
Approach?
The environmental community was initially hesitant to support the trading arrangement due
to past permit compliance issues at SMBSC. To remedy these concerns, MPCA required SMBSC
to develop a plan and compliance schedule before the permit was issued (Breetz et al. 2004).
Another concern of the environmental community was that not enough documentation was
required by the previously issued Rahr Malting Co. trading permit. SMBSC's permit contains
many more detailed documentation requirements such as a site-proposal package with
specific components detailed in the permit, an implementation report and certification by a
third-party auditor, as well as the specifics regarding what should be included in the Phos-
phorus Trading Site Annual Report (Breetz et al. 2004; MPCA 2004a). A remaining concern
from some of the local conservationists is that the permit is not restrictive enough regarding
the crediting program set up for sugar beet spring cover crop nonpoint source reductions
even though the NRCS standard equations are used for the erosion estimates.
A concern of the SMBSC representatives is the equity issue of offering one shareholder a cost
incentive that the other shareholders may not have available to them because they live out-
side of the watershed. SMBSC was able to resolve this issue after the 2004 Summer Low Flow
Dissolved Oxygen TMDL, which manages the upstream requirements of the 1985 Wasteload
Allocation Study, was completed. The TMDL required no discharge during the summer critical
flow months. SMBSC accepted this by spray irrigating its wastewater during this time. Even
though SMBSC was no longer required to trade because it did not directly discharge during
the critical flow months, it chose to continue trading and negotiated an agreement in the
permit to require 80 percent of the trades to take place inside the Minnesota River basin and
allow the other 20 percent to be in the adjacent Crow River watershed, resolving the equity
issue.

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Water Quality Trading Toolkit for Permit Writers
Historically there have been tensions between some ranchers and sugar beet farmers which
have made it difficult for SMBSC to obtain ranchers as trading partners (Breetz et al. 2004;
Klang 2006c).
tfl
The permit required approximately 0.25-0.50 full-time equivalency of MPCA staff for permit
trade calculation development. Immediately after permit completion, some critical time, on
the order of weeks, was spent setting up the trades. Now MPCA spends only a few days a
year managing the program (Klang 2006c).
>
What Are the Potential Benefits?
This approach allowed SMBSC to expand its processing operation and alleviate the problems
associated with land application by building a wastewater treatment plant.
Fang and Easter (2003) found that in 2000-2001, it cost farmers $18.65/lb phosphorus reduc-
tion, which is comparable to the cost for a 1-2 mgd WWTP to treat its effluent to meet a
1 mg/L phosphorus limit. However, SMBSC was required to completely offset its discharge,
meaning that in the absence of trading, it would have to meet a 0.0 mg/L phosphorus limit.
Therefore, SMBSC believes that trading provided cost savings over treatment (Breetz et al.	|
2004). The representatives from SMBSC also believe the cost estimate does not include the	«
production costs saved by avoiding the occasional replanting that may be necessary if the	g
young sugar beet plants are not protected by cover crop BMPs.	|
The trading program raised watershed awareness and provides a good example of both com-
munity cooperation and allowing for growth on impaired waters (Klang 2006c).
03
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Applicable NPDES Permit Language
Permit MN0040665
Chapter 12. Total Facility Requirements
1. Phosphorus Management Plan
General Requirements for Phosphorus Trading
1.1 The Permittee shall achieve the phosphorus trade reduction credits by implementing	3
3
projects subject to contractual arrangements. Projects shall be Soil Erosion Best Man-
agement Practices (BMPs), Cattle Exclusion, Rotational Grazing With Cattle Exclusion,	=>
Critical Area Set Aside, Constructed Wetland Treatment Systems, Alternative Surface
Tile Inlets, or Cover Cropping. The Permittee shall calculate the proposed trade cred-
its for these projects according to the terms of this permit and the "Phosphorus Trade
Crediting Calculations" appended to and incorporated into this permit. The MPCA is
responsible for approving the number of phosphorus trade credits for the proposed
projects.
1.2	BMPs, other than those specified above, cannot be employed without MPCA
approval.
1.3	A contractual arrangement that the Permittee enters into for trade sites shall require
the performance of what the MPCA has approved for the sites. However, the Per-
mittee retains responsibility for the proper construction, installation, operation and	A-53
maintenance of the projects the MPCA has approved for phosphorus trade credits

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Water Quality Trading Toolkit for Permit Writers
under this permit notwithstanding the contractual arrangements that the Permittee
may have entered into regarding the projects.
1.4	Credits generated from this program, in excess of those required by this permit, can
be transferred to other Permittees, if approved in writing by the MPCA.
1.5	It is the intent of this permit that the Permittee shall achieve and maintain MPCA-
approved phosphorus trade reduction active credits for the life of the wastewater
treatment plant discharge to surface waters.
General Project Eligibility Criteria
1.6	The Permittee shall achieve and maintain MPCA-approved phosphorus trade reduc-
tion credits in the amount of 2.6 times the annual phosphorus mass discharge limit
(1,130 kg/yr or 2,500 Ibs/yr) for SD009 (2.6 x 2,500 lbs P per year = 6,500 credits).
1.7	Phosphorus trade credit projects shall not include activities required to be permitted
by the MPCA and/or by other entities according to MPCA rules.
1.8	Phosphorus trade credits shall not be proposed or approved for sites which simulta-
neously track benefits for other environmental programs, including but not limited
to wetland mitigation under the Wetland Conservation Act. If a site for which trade
credits already have been approved or granted under this permit is entered into
another environmental program, the Permittee shall immediately inform the MPCA
to revoke the trade credits for that site.
1.9	Phosphorus trade credit project best management practices shall be additional to
those occurring prior to1999 for existing trade projects and for cover crop BMP in
general and during at least the previous five years for new sites proposed for trade
credits.
1.10	At least eighty percent (80%) of the required credits shall be located in the Minneso-
ta River drainage basin, excluding landlocked areas, lakes, or reservoirs with signifi-
cant phosphorous assimilative capacity.
Phosphorus Trade Board
1.11	The Permittee shall establish and maintain a Phosphorus Trading Board. The Board
shall consist of no more than seven members. At least one of these members shall be
a local, watershed manager, at least one shall be a non-MPCA government repre-
sentative knowledgeable in the field of agriculture, and at least one shall be the
leader of a locally based water resources organization. The Phosphorus Trading Board
shall review and approve the sites proposed by the Permittee before these sites are
proposed for approval to the MPCA. The MPCA shall provide copies to the Phospho-
rus Trading Board of its correspondence regarding its review of these proposed sites,
including MPCA approval and denial decisions on these sites.
Granting Phosphorus Trade Credits
1.12	Forty-five percent of the project's potential phosphorus credits for a site shall be
granted when the MPCA approves a proposed project
1.13	Forty-five percent of the project's potential phosphorus credits for a site shall be
granted when construction is complete, according to the MPCA-approved plans and
specifications, and the MPCA's requirement for review has been satisfied.

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Water Quality Trading Toolkit for Permit Writers
1.14	Ten percent of the project's potential phosphorus credits for a site shall be granted
when vegetation establishment criteria have been achieved at the site, the Permittee
submits required documentation, and the MPCA's requirement for review has been
satisfied.
1.15	Credits shall not be considered active until they have been granted as described
above.
X
1.16	The MPCA may at any time revoke previously approved phosphorus trade credits. In
order to revoke credits, the MPCA shall make the following findings:
1.	The project as credited by the MPCA was not constructed or installed as approved;
or
2.	The project as credited by the MPCA was not operated or maintained as approved;
or
3.	The project contractual arrangement(s) have not been honored.
Project Submittal and Review
1.17	To propose a site for phosphorus trade credit approval by the MPCA, the Permittee	g
shall provide to the MPCA, at least 90 days before the Permittee expects to receive an &
approval response from the MPCA, the following information for the site: g
1.	Site name and location, as detailed on a USGS 7.5-minute quad map with lat/long	p
location identified to the nearest second. Identification of the major and minor S
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watersheds, and HUC reach codes, in which the site is located. The extent to which	S-
lakes or reservoirs are downstream of the site.	^
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2.	Landowner name and mailing address.	g
3.	Documentation, including photos as needed, of the vegetation species, land use	"
and specific drainage practices at the site over the previous 5 years. §
13
4.	Type of BMPs proposed to be implemented at the site.	jj
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5.	Copy of the signed contractual arrangement that stipulates future management	%
requirements and length of term and that stipulates that the construction will not
a
begin until MPCA approves the project.	3.
6.	Plan view of the project, and engineering plans, specifications and, for structural	^
practices, the professional engineer's certification, for the project, if needed. |"
Operation and maintenance plans. §
O
a
7.	Vegetation establishment and maintenance criteria and plans to achieve 100 pet
active crediting for the project.
8.	The total annual pounds (kg) of phosphorus credit applied for, and the basis for
this value, including the detailed calculations.
9.	Those projects with vegetative components shall include establishment and main-
tenance criteria and plans to ensure a dense stand, including the dates of seeding.
1.18	Those projects that treat sediment by filtering or settling shall include operation and
maintenance plans that include, but are not limited to, procedures to:
1.	Ensure sheet flow conditions are maintained in upland flow areas;
2.	Remove accumulated sediment that may hinder the operation of the BMP;
3.	Inspect and, if needed, reestablish a structure or vegetation after major storm	A-55
events or fire; and

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Water Quality Trading Toolkit for Permit Writers
4. Remove harmful infestations, including carp from treatment wetlands, destructive
insects from vegetation, and beavers from bioengineering sites.
1.19	The MPCA shall in writing approve, or deny with comments, the proposed project.
The MPCA shall, in its approval of proposed project, certify that appropriate con-
tractual arrangements are in place for the site, confirm the project's potential trade
credits, and shall specify the information required to document construction comple-
tion and clarify the auditor's responsibilities.
1.20	The credit value for a project shall be based upon the ratio of the Permittee's finan-
cial contributions to the contributions from public sources. The Permittee shall not
receive credits for those portions of a project financed by public funding sources.
Project Construction/Implementation, Documentation, Auditing, and Credit Approval
1.21	Project Construction shall not begin until MPCA written approval for the project is
received.
1.22	The Permittee shall retain an independent auditor to certify project completion:
1.	For engineered projects designed by a registered professional engineer, the audi-
tor shall be a registered professional engineer. The professional engineer shall
provide a construction documentation report for the project and the engineer
shall certify that the project was completed in substantial conformance with the
approved plans and specifications. The MPCA may require that photographs
and/or record drawings be included in the report, depending upon the project
complexity.
2.	For cover crop, the auditor can be a registered professional engineer, a certified
crop advisor, or a representative of a local watershed interest. The Permittee
shall provide the list of MPCA approved cover crop contracts and the auditor shall
select10% at random for a site inspection. The Permittee shall submit its imple-
mentation report to the MPCA and the auditor. The auditor will compare audit site
information to Permittee's report, noting any inconsistencies in the auditors report
submitted.
3.	For other projects, or for portions of projects not designed by the registered
professional engineer, the auditor can be a registered professional engineer, a
certified crop advisor, or a representative of a local watershed interest. The audi-
tor shall inspect the construction site as needed to confirm and document that the
project was completed in accordance with the approved project.
4.	For projects where vegetation establishment is required, the auditor shall provide
written verification that the vegetation establishment criteria have been achieved.
5.	The auditor will prepare a report to submit to the MPCA and the Permittee, the
report will provide documentation required for that project. If the project was
completed as approved, the report will recommend issuance of construction
credits.
1.23	The MPCA shall respond to the Permittee's documentation reports and auditor's
certification reports and either issue or deny construction credits or vegetation estab-
lishment credits.
Annual Reporting
1.24	The Permittee shall submit a Phosphorus Trading Site Annual Report: due on Novem-
ber 30 of each year following permit issuance.

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Water Quality Trading Toolkit for Permit Writers
1.25 The Permittee shall certify in the Phosphorus Trading Site Annual Report that the
active sites approved by the MPCA for phosphorus trade credits, remain active
according to the plans and specifications approved by the MPCA
hd
1.26 The Report covering a site shall include photographs of each site taken during the
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previous year (these photographs shall correspond in view and detail to the initial
photographs provided to the MPCA for that site) or landowner's written certification
that the project remains in-place and effective.
>
Contact Information
Bruce Henningsgaard
Minnesota Pollution Control Agency
(651) 296-7756
bruce.henningsgaard@pca.state.mn.us
References and Resources
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water	g
£
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth	5.
!T>
College, Hanover, NH.	g
|2
Fang, F., and K.W. Easter. 2003. Pollution Trading of Offset New Pollutant Loadings—A	s
Case Study in the Minnesota River Basin. In Proceedings of the American Agricultural	§
£D
Economics Association Annual Meeting. Montreal, Canada. July.	a
(V
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¦	5/5
Klang, James. 2006a. Personal communication. May 5.
0)
n
Klang, James. 2006b. Personal communication via e-mail. May 5.	§
TJ
a>
Klang, James. 2006c. Personal communication via e-mail. September 1.
a>
*3
Klang, James. 2006d. Personal communication via e-mail. November 15.	|
pi*
MPCA (Minnesota Pollution Control Agency). 1997. Point-Nonpoint Source Trading Summary.	^
January.	3
MPCA (Minnesota Pollution Control Agency). 1999. MPCA, Beet Sugar Cooperative,
MPCA (Minnesota Pollution Control Agency). 2004a. National Pollutant Discharge Elimination
System (NPDES) and State Disposal System (SDS) Permit MN 0040665. December.
MPCA (Minnesota Pollution Control Agency). 2004b. Phosphorus Trade Crediting
Calculations. December.
State and Local Groups Craft Innovative Watershed Protections in Southwestern Minnesota.
News Release, May 12. .
3
USEPA (U.S. Environmental Protection Agency). 1992. TMDL Case Study: Lower Minnesota
River. December. .
A-57

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Toolkit for Permit Writers
Truckee River
Nevada
Overview
>xi
The Truckee Meadows Water Reclamation Facility (TMWRF) provides wastewater treatment
for the cities of Reno and Sparks in Nevada and is subject to wasteload allocations from a
1994 TMDL developed to address total nitrogen, total phosphorus, and total dissolved solids.
TMWRF's permit, issued by the Nevada Division of Environmental Protection (NDEP), contains
effluent limits that reflect the wasteload allocations for parameters covered by the TMDL. In
addition, the permit identifies individual wasteload allocations and contains language that
allows temporary trading of individual wasteload allocations. The permit also allows NDEP to
modify the permit to allow water quality trading (or offset) projects that allow permittees to
generate credits toward their wasteload allocations.
Type of Trading	Pollutant (s) Traded
e
Point Source-Point Source	Total nitrogen	£*
Point Source-Nonpoint Source	Total phosphorus
Total dissolved solids
Number of Trades to Date
None
<
*3
a
a-
a
Who Is Eligible to Participate?
Under its permit, TMWRF is authorized to participate in water quality trading projects that
could generate credits toward its wasteload allocation. Temporary trading of individual was-
teload allocations is an activity authorized under the permit to take place between TMWRF
and two other dischargers—(1) Vista Canyon Group, LLC, and (2) the city of Sparks-Sparks
Marina Park.
What Generated the Need for Trading?
Impairments in the Truckee River are associated with low flows and heavy pollutant loading.
According to TMWRF's Web site, the Truckee Meadows is one of the fastest growing metro-
politan areas in the country. To accommodate growth, TMWRF needs to expand capacity, but
it faces stringent nitrogen discharge limits as a result of the TMDL (Breetz et al. 2004).
What Serves as the Basis for Trading?
The wasteload allocations derived as part of the 1994 TMDL for total nitrogen, total
phosphorus, and total dissolved solids serve as the basis for trading.
A-59

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Water Quality Trading Toolkit for Permit Writers
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
The TMDL report for the Truckee River, adopted by NDEP in February 1994, contains a
description of the data and methodologies used to calculate the wasteload allocations for
total phosphorus, total dissolved solids, and total nitrogen.
TMDLs and Wasteload Allocations for Total Phosphorus and Total
Dissolved Solids
NDEP used simple dilution calculations for total phosphorus and total dissolved solids. To
calculate the TMDLs in pounds per day using flow data and pollutant concentration, NDEP
calculated the value of a constant to use in the TMDL calculation. The TMDL in pounds per
day (lb/day) is calculated by multiplying the average flow in cubic feet per second (ft3/sec),
the average concentration in milligrams per liter (mg/L) and the constant 5.394 Ib-L-sec/mg-
ft3-day (NDEP 1994).
TMDL (lb/day) = (average flow in ft3/sec) x (average concentration in mg/L) x
(5.394 Ib-L-sec/mg-ft3-day)
Example: Calculating the TMDL for Total Phosphorus and Total Dissolved Solids
NDEP used simple dilution calculations to develop TMDLs for total phosphorus and total dissolved
solids, assuming the system is represented by average conditions over time (NDEP, 1994). Using
average flow data from the U.S. Geological Survey, NDEP selected the time period 1973 to 1992
to calculate the average flow of 795 ft3/sec; 1973 represented the last significant modification to
flow control structures in the Truckee River Basin (NDEP 1994). The average concentration of
phosphorus used by NDEP was 0.05 mg/L, and the average concentration of total dissolved solids
was 210 mg/L.
(Average flow in ft3/sec) x (Average concentration in mg/L) x
(5.394 lb-L-sec/mg-ft3-day) = TMDL (lbs/day)
For total phosphorus:
(795 ft3/sec) x (0.05 mg/L) x (5.394 lb-L-sec/mg-ft3-day) = 214 lb/day
For total dissolved solids:
(795 ft3/sec) x (210 mg/L) x (5.394 lb-L-sec/mg-ft3-day) = 900,528 lb/day
NDEP determined that of the 214 lb/day calculated as the total phosphorus TMDL, 80 lb/day
was associated with nonpoint sources and background; therefore, the wasteload allocation
for TMWRF is 134 lb/day of total phosphorus. TMWRF's wasteload allocation for total dis-
solved solids is a 30-day average load of 120,168 lb/day.

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Water Quality Trading Toolkit for Permit Writers
TMDL and Wasteload Allocation for Total Nitrogen
To calculate the TMDL for total nitrogen, NDEP used a different approach because it assumed
total nitrogen to be a nonconservative pollutant (NDEP 1994). NDEP used the Dynamic
Stream Simulation and Assessment Model (DSSAM III) to calculate the TMDL. Intensive sam-
pling from September 1989 provided a snapshot of nutrient loading to the Truckee River;
therefore, NDEP used those data to calibrate the DSSAM III model. NDEP used the model to
run a series of simulations involving differing nutrient loadings to determine the appropriate
TMDL. Simulation results indicated that nitrogen loads in excess of 1,000 lb/day may result
in excessive growth of aquatic plants (NDEP 1994). Therefore, NDEP set the TMDL at 1,000
lb/day during summer low flows.
NDEP stated that existing data indicated that the average nonpoint source contribution of
total nitrogen is approximately 500 lb/day (NDEP 1994). Therefore, TMWRF received a was-
teload allocation of 500 lb/day as an average annual load from November 1 through April 30
and as a 30-day average load from May 1 through October 31.
TMWRF is using other modeling tools to revisit the TMDL for total nitrogen in a third-party
TMDL development process. The results from this process could change the facility's waste-	g3
load allocation and the basis for future trading activities (Pahl 2007).
a>
E?
<'
Are Permits Used to Facilitate Trades?	\
The NPDES permit issued to TMWRF by NDEP contains language that allows temporary
trading of individual wasteload allocations and water quality trading projects, such as river	|,
restoration and septic system conversion, to offset wasteload allocations. However, individual
wasteload allocation trading requires submission of a notification to NDEP. Water quality
trading projects might require permit modifications to increase the permittee's wasteload
allocation.
How Are Credits Generated for Trading?
To date, TMWRF has not developed a proposal to conduct trading. Such a trading proposal
would contain information about the water quality trading project that would result in cred-
its to offset a pollutant discharge load. It is likely that credits would be based on the Water-
shed Analysis Risk Management Framework (WARMF) model being developed for the Truckee
River. The WARMF watershed model, completed in late 2004, would be used to estimate the
predicted nutrient and sediment loading reductions from nonpoint source projects (Breetz et
al. 2004).
What Are the Trading Mechanisms?
Temporary trading of individual wasteload allocations requires the submission of a notifica-
tion signed by the transferring and the receiving dischargers. The notification must describe
the amount of individual wasteload allocation to be transferred, the length of time of the
transfer, and the basis for the transfer (i.e., last monthly flows and wasteload discharged for
both dischargers). Water quality trading projects will most likely require TMWRF to submit a
project proposal to NDEP for review. The permit does not specify requirements but does men-
tion that NDEP will evaluate the effectiveness of projects as to their effectiveness through
modeling simulations, pilot studies, and monitoring (NDEP 2003).

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Water Quality Trading Toolkit for Permit Writers
What Is the Pollutant Trading Ratio?
Not yet determined.
What Type of Monitoring Is Performed?
Not yet determined.
What Are the Incentives for Trading?
The language contained in the NPDES permit for TMWRF provides flexibility in how the per-
mittee can achieve its wasteload allocation.
What Water Quality Improvements Have Been Achieved?
Not applicable.
What Are the Potential Challenges in Using This Trading
Approach?
Potential challenges include negotiating terms of proposed water quality projects that
involve nonpoint source offsets of TMWRF's pollutant load, particularly in defining the
appropriate trade ratio and determining effectiveness.
What Are the Potential Benefits?
Potential benefits of the trading provisions integrated into TMWRF's NPDES permit include
cost-effective solutions for achieving wasteload allocations and improving overall water qual-
ity conditions, as well as consideration of overall watershed conditions when evaluating the
merits of proposed water quality trading projects.
Applicable NPDES Permit Language
c. Temporary Trading of IWLA: The Permittee may temporarily trade IWLA upon submit-
tal of a notification signed by the transferring and the receiving dischargers describ-
ing the amount of IWLA transferred, the length of time the transfer is effective and
the basis for the transfer. The basis for the transfer shall include the last monthly
flows and wasteload discharged for both dischargers. The wasteload transfer shall be
effective on the date of the submittal to the Division.
Any designated transfer is binding on the dischargers and cannot be revoked with-
out a notification signed by the transferring and the receiving dischargers. The
transferred IWLA shall revert back to the original holder of the IWLA at the end of
the time specified on the notification. A copy of the latest IWLA agreement and any
agreements made during the reporting period shall be submitted with each quarterly
report required by I.B.2.

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Water Quality Trading Toolkit for Permit Writers
>
I.A.5. Water Quality Trading: The Division may modify the permit to include specific
water quality trading, or offset, projects based upon review of the results of scientific
studies, as a major modification. Water quality trading entails the reduction in a pol-
lutant load through implementation of a water quality management project that is
credited towards the Permittee's wasteload allocation (WLA), thereby increasing the
Permittee's allowable discharge load for a specific pollutant. Potential water qual-
I—H
ity trading opportunities include, but are not limited to, water augmentation, river
restoration, septic system conversion, and stormwater management practices. These
potential water quality management projects will be evaluated as to their effec-
tiveness through watershed/water quality modeling simulations, field pilot studies
and on-going water quality monitoring. Based on the results of the model simula-
tions and pilot projects, the permit may be modified to incorporate the Permittee's
increased WLA(s).
Contact Information
Randy Pahl
Nevada Division of Environmental Protection
Bureau of Water Quality Planning	g3
(775) 687-9453	**
rpahl@ndep.nv.gov	&
<'
a>
Bruce Holmgren	•
Nevada Division of Environmental Protection
a
Bureau of Water Pollution Control	§-
(775) 687-9423
bholmgre@ndep.nv.gov
References and Resources
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
NDEP (Nevada Division of Environmental Protection). 1994. Truckee River TMDLsand WLAs.
Nevada Division of Environmental Protection, Bureau of Water Quality Planning.
February, .
NDEP (Nevada Division of Environmental Protection). 2003. Authorization to Discharge.
Permit NV0020150. Effective October 15, 2003.
Pahl, Randy. 2007. Personal communication. January 24.
A-63

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1994 TMDL for the
Truckee River
Total
Dissolved
Solids WLA
Total
Nitrogen
WLA
Total
Phosphorus
WLA
Nevada Department of
Environmental
Protection
Truckee Meadows Water
Reclamation Facility
2003 NPDES Permit
Basis for Trading in the
Truckee Meadows Water
Reclamation Facility
NPDES Permit
Point-Point Trading Option:
Temporary Trading of Individual
Wasteload Allocation
Point-Non point Trading Option:
Water Quality Trading Project

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Water Quality Trading Toolkit for Permit Writers
Passaic Valley Sewerage Commissioners
Pretreatment Trading
New Jersey	g
i—i
x
Overview
The Passaic Valley Sewerage Commissioners (PVSC) operates a large publicly owned treat-
ment works (POTW) that treats wastewater for northern New Jersey. PVSC participated with
EPA and other partners in a pilot project for indirect dischargers to the POTW that would
allow water quality trading to meet pretreatment local limits.
Number of Trades to Date
Two
The first trade was for copper between two organic chemical manufacturers; the buyer
eventually went out of business. The second trade involved a pharmaceutical company that
purchased zinc and copper credits from an organic chemical manufacturer (the seller in the	<;
initial trade).
Type of Trading	Pollutant (s) Traded
0)
C/s
CD
era
Point Source-Point Source	Heavy metals regulated through local pre-	n
O
treatment limits (cadmium, copper, lead,	3
3
mercury, nickel, zinc)
O*
3
Who Is Eligible to Participate?	|
Approximately 260 indirect dischargers within the PVSC service area, which encompasses 48	S.
municipalities in 4 counties, can participate.	S
3
a>
3
What Generated the Need for Trading?	3
PVSC established more stringent local pretreatment limits for certain heavy metals to meet	Jj"
exceptional quality standards for beneficial reuse of biosolids. Indirect dischargers raised con-	•
cerns about more stringent local limits because many already had to meet federal categorical	»
pretreatment standards.	^
3
vs
What Serves as the Basis for Trading?
Trading to meet uniform local pretreatment limits by industrial facilities is allowed by PVSC
in rules and regulations regarding indirect discharges that became effective in 1994, in
accordance with state and federal pretreatment and residual management regulations. PVSC
established stringent local pretreatment limits in 1994 for certain heavy metals to meet
exceptional quality standards for the beneficial reuse of biosolids. PVSC required industrial
users to comply with the local limits by June 1997.
A-65

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Water Quality Trading Toolkit for Permit Writers
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
PVSC's technology-based local limits for certain heavy metals served as the basis for trad-
ing. Local limits are conditional discharge limits imposed by municipalities on industrial and
commercial facilities that discharge to a POTW to prevent site-specific (e.g., POTW or envi-
ronmental) problems. The methodology for calculating local limits depends on two factors:
the maximum allowable headworks loading (MAHL) and the maximum allowable industrial
loadings (MAIL). A MAHL is an estimate of the upper limit of pollutant loading to a POTW
intended to prevent pass-through or interference and serve as the basis for local limits. The
MAIL developed by the POTW represents the amount of pollutant loading the POTW may
receive from industrial users and other controlled sources. After calculating the MAIL, the
POTW assigns local limits to dischargers. To assign local limits, PVSC used what they refer to
as a hybrid uniform allocation method that took into account reductions from the two larg-
est dischargers to the POTW.
Data typically needed to develop local limits include pollutant concentration data from the
POTW (influent, effluent, primary effluent, sludge), collection system, receiving stream, and
industrial users, as well as flow data, including total POTW flow, POTW sludge flow to the
digester, POTW sludge flow to disposal, industrial user flows, receiving stream, hauled waste,
domestic flows, and commercial flows (USEPA 2004).
Are Permits Used to Facilitate Trades?
PVSC administers a pretreatment program according to NPDES regulations. Through its pre-
treatment program, PVSC issues sewer use permits to indirect dischargers. The sewer use per-
mits contain adjusted permit limits that reflect the terms of an approved trade contained in
a trading agreement (see What Are the Trading Mechanisms? below). PVSC approves trades
using a set of criteria that requires the traded amount to be greater than 0.1 pound per day
and traded in increments of no less than 0.05 pound per day. The 0.1 pound per day incre-
ment was selected because it was relatively large and would limit the number of potential
participants (Caltagirone 2004).
How Are Credits Generated for Trading?
The seller is an industrial facility that demonstrates, using monitoring data and compliance
records, a positive reduction in a heavy metal through control measures or pollution preven-
tion techniques (i.e., pretreatment). The buyer is an industrial facility that cannot meet its
local limits for a heavy metal and wants to negotiate with a seller to purchase credits through
a contract. A seller may sell credits for a particular metal to a maximum of 10 buyers. A buyer
may purchase credits for more than one metal, but it must purchase all credits for a particular
metal from one seller.
Credits are traded on a mass basis, rather than a concentration basis; therefore, facilities
participating in a trade must convert the discharge concentration in milligrams per liter
(mg/L) to a mass-based unit in pounds per day (lb/day). The buyer may use only 80 percent of
the purchased quantity because PVSC requires the buyer to retire or reserve 20 percent of the
reductions for environmental benefit or future needs (Breetz et al. 2004). Therefore, facilities
purchasing credits must take this retired/reserved percentage into account when calculating
credits.

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Water Quality Trading Toolkit for Permit Writers
Current discharge concentration of a specific heavy metal-Local limit of a specific heavy
metal = Concentration exceeding local limit for a heavy metal
Concentration exceeding local limit for a heavy metal (mg/L) x volume (mgd) x 8.344 (conversion
factor) = Mass (lb/day) of pollutant exceeded
Mass (lb/day) of pollutant exceeded / 0.80 (percentage of purchased quantity that may be used) =
Total credits that need to be purchased (lb/day)
Example: Calculating Copper Credits a Facility Must Buy to Comply with
Local Limits
The PVSC local limit for copper is 3.02 mg/L. A chemical facility discharges 5.20 mg/L copper and
has an average annual effluent discharge rate of 0.150 mgd.
Current discharge concentration of a specific heavy metal-Local limit of a specific heavy metal =
Concentration exceeding local limit for a heavy metal
5.20 mg/L-3.02 mg/L = 2.18 mg/L
Concentration exceeding local limit for a heavy metal (mg/L) x Volume (mgd) x 8.344
(conversion factor) = Amount over local limit on a mass basis (lb/day)
2.18 mg/L x 0.150 mgd x 8.344 = 2.73 lb/day
Mass (lb/day) of pollutant exceeded / 0.80 (percentage of purchased quantity that can be used) =
Total credits that need to be purchased (lb/day)
2.73 lb/day / 0.80 = 3.41 lb/day
PVSC's regulations require a buyer to purchase credits in minimum increments of 0.05 lb/day. As a
result, the chemical facility would need to round 3.41 lb/day to 3.45 lb/day to determine the total
amount of credits that it needs to purchase to comply with the local limits for copper.
Example taken from Sharing the Load: Effluent Trading for Indirect Dischargers. Lessons from the New
Jersey Chemical Industry Project—Effluent Trading Team (USEPA 1998).
The seller would use a similar procedure to determine the amount of credits on a mass basis
it has available to sell. If a facility plans to sell credits, it needs to determine what its adjusted
permit limit will be after selling credits. PVSC modifies existing permits using the adjusted
permit limit. The first step in calculating the adjusted permit limit is to determine the allow-
able discharge on a mass basis, which involves multiplying the local limit by the facility's
volume and the conversion factor. The difference between the allowable discharge and the
credits available for sale equals the adjusted discharge limit on a mass basis. Converting the
adjusted discharge limit from a mass-based limit to a concentration-based limit requires divid-
ing the mass-based limit by the product of the facility's volume and the conversion factor.

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Water Quality Trading Toolkit for Permit Writers
Local limit (mg/L) x Volume (mgd) x 8.344 (conversion factor) = Allowable discharge on a mass
basis (lb/day)
Allowable discharge on a mass basis (Iblday)-Amount of credits available for sale (lbs/day) =
Mass-based adjusted discharge limit (lb/day)
Mass-based adjusted discharge limit (lb/day) / (Volume (mgd) x 8.344 (conversion factor)) =
Concentration-based adjusted discharge limit (mg/L)
Example: Calculating a Seller's Concentration-Based Adjusted Discharge Limit After
Selling Credits
A facility has an average annual discharge rate of 0.20 mgd, and the local limit for copper is 3.02
mg/L. The facility wants to sell credits equaling 3.45 lb/day to a neighboring facility, but it first
wants to calculate what its adjusted permit limit would be as a result of the sale.
The facility must first convert its allowable discharge to a mass-based limit.
Local limit (mg/L) x Volume (mgd) x 8.344 (conversion factor) = Allowable discharge on a mass
basis (lb/day) 3.02 mg/L x 0.20 mgd x 8.344 = 5.04 lbs/day
The facility is able to discharge 5.04 lb/day of copper and meet the local limit for copper. A sale of
3.45 lb/day to a neighboring facility would provide some additional discharge capacity.
Allowable discharge on a mass basis (lb/day)-Amount of credits available for sale (lb/day) =
Mass-based adjusted discharge limit (lb/day) 5.04 lb/day-3.45 lb/day = 1.59 lb/day
With the sale of 3.45 lb/day, the facility could still discharge 1.59 lb/day. Discharge limits in
permits are concentration-based limits; therefore, the facility will have to convert the 1.59 lb/day to
a concentration to determine the final adjusted discharge limit that will appear in its permit.
Mass-based adjusted discharge limit (lb/day) / (Volume (mgd) x 8.344 (conversion factor)) =
Concentration-based adjusted discharge limit (mg/L) 1.59 lb/day / (0.20 mgd) x (8.344) = 1.59
lb/day / 1.6688 = 0.95 mg/L
After the sale of credits, the facility's new permit would require an adjusted discharge limit of 0.95
mg/L of copper instead of the 3.02 mg/L local limit for copper in the original permit.
Example taken from Sharing the Load: Effluent Trading for Indirect Dischargers. Lessons from the New
Jersey Chemical Industry Project—Effluent Trading Team (USEPA 1998).

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Water Quality Trading Toolkit for Permit Writers
What Are the Trading Mechanisms?
PVSC's rules and regulations state that buyers and sellers must submit documentation accept-
able to PVSC that commits buyers and sellers to complying with regulations; PVSC does not
require a standardized form. PVSC reviews documentation submitted as a contract to deter-
!Z|
mine whether the contract fulfills the criteria contained in the rules and regulations for trad-
ing. Criteria include the following (USEPA 1998):
>
•	Demonstrated compliance with all other POTW requirements
•	Demonstrated ability to comply with adjusted discharge limits
•	Traded amount is greater than 0.1 pound per day
•	Traded amount is in increments of no less than 0.05 pound per day
•	Defined price of credit and terms of payment (buyer and seller negotiate this
amount)
•	Established time frame of agreement, including timing of renewals and adjustments
What Is the Pollutant Trading Ratio?
The trading ratio is 10:8. The buyer may use only 80 percent of the purchased quantity; 20
percent of the reductions are retired or reserved for environmental benefit or future needs
(Breetz et al. 2004). The determination that 20 percent of the reductions should be retired/	
a
discharge monitoring data.	|
What Are the Incentives for Trading?	3
•"Cl
The primary incentive for participating in PVSC's pretreatment trading program is flexibility	s
in complying with more stringent local limits. In addition, sellers are able to defray pretreat-	j?
ment costs through revenue gained from the sale of excess reductions (Breetz et al. 2004).	3
fD
3
pi*
H
What Water Quality Improvements Have Been Achieved?	S;
GfQ
PVSC has demonstrated an improvement in the trend of metals concentrations and loads in	.
the influent, effluent, and sludge upon establishing the local limits (PVSC 2003). However,	^
the water quality improvements resulting from the two trades that have taken place are	E,
ft
unknown.
A-69

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Water Quality Trading Toolkit for Permit Writers
What Are the Potential Challenges in Using This Trading
Approach?
The case study report on PVSC's pretreatment trading program identifies several potential
challenges, including PVSC's indirect dischargers' unfamiliarity with the concept of water
quality trading and finding suitable trading partners. The case study report also identifies
specific challenges associated with small-volume dischargers in negotiating trades and deter-
mining the appropriate price (USEPA 1998). Since the second trade, PVSC has not had any
other facilities come forward with a proposed trade agreement; PVSC is uncertain as to why
facilities have not shown any interest (Breetz et al. 2004).
What Are the Potential Benefits?
Administrative costs for PVSC are negligible, involving only reviewing proposed trade agree-
ments and adjusting permit limits (Breetz et al. 2004). This approach is easily transferable to
other pretreatment programs (USEPA 1998).
Applicable Permit Language
PVSC modifies the sewer use permits issued to indirect dischargers to reflect the adjusted dis-
charge limit resulting from a trade. The permit shows the adjusted limits; and the parameters
have asterisks. The explanation of the asterisks state that more information is available on a
subsequent page. The other page contains three short paragraphs alluding to the adjusted
limits. One paragraph states that the limits are adjusted pursuant to a signed contract on a
specified date between the two parties (both named). One paragraph denotes the permittee
as a buyer and the other facility as a seller, and it adds that the limits were calculated using
the permittee's regulated volume. The last paragraph states that PVSC reserves the right to
change the limit if the contract is terminated (Caltagirone 2004.)
Contact Information
Andy Caltagirone
Manager of Industrial & Pollution Control
Passaic Valley Sewerage Commissioners
(973) 817-5710
acaltagirone@PVSC.com

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Water Quality Trading Toolkit for Permit Writers
References and Resources
>
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
Caltagirone, Andy. 2004. Personal communication. September 10.
X
PVSC (Passaic Valley Sewerage Commissioners). 2003. "2003 National Pretreatment Program
Excellence Award Application." June 6, 2003.
Passaic Valley Sewerage Commissioners (Home) .
Passaic Valley Sewerage Commissioners (Industrial Rules and Regulations)
.
USEPA (U.S. Environmental Protection Agency). National Pollutant Discharge Elimination
System (NPDES), Pretreatment Standards and Limits Web site
.	-o
USEPA (U.S. Environmental Protection Agency). 1998. Sharing the Load: Effluent Trading for
Indirect Dischargers. Lessons from the New Jersey Chemical Industry Project-Effluent
Trading Team. May 1. .
USEPA (U.S. Environmental Protection Agency). 2004. Local Limits Development Guidance.
U.S. Environmental Protection Agency, Office of Wastewater Management. July.
S3
C/s
CD
era
n
EPA 833-R-04-002A.	I
3
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3
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3*
era
A-71

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Update Rules
and Regulations
Adjust permit limits to reflect
approved trade agreement
Development of
Local Limits for
Metals and Trading
Provisions
PVSC
Pretreatmen:
Program
Passaic Valley Sewerage Commissioners
(PVSC) Pretreatment Trading Program
Development and
Issuance of
Industrial Sewer
Use Permit
PermitReissuance
HO
Seeking flexibility in
meeting local Limits?
Continue to
meet local
limits
Negotiate terms of
trade and develop
trade agreement
Submit proposed trade
ag"eemeiit to PVSC for
review and approi/al

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Water Quality Trading Toolkit for Permit Writers
Neuse River Basin Nutrient Sensitive Waters
Management Strategy
North Carolina
o
i—i
X
Overview
Dischargers in the Neuse River Basin are subject to a wasteload allocation set through the
Neuse River Basin Nutrient Sensitive Waters Management Strategy (Strategy). The rules devel-
oped to support implementation of the Strategy allow dischargers to participate in trading
activities and establish group compliance associations to meet a collective allocation under a
single NPDES permit. To date, approximately 23 facilities participate in one group compliance
association referred to as the Neuse River Compliance Association (Compliance Association)
and have coverage under a group compliance permit. Point-point transactions can occur
between members of the Compliance Association or between members and non-members
within the Neuse River Basin. If the Compliance Association does not meet its limit, the terms
of the permit require the association to make an offset payment to the Wetland Restoration	g
Fund to pay for nonpoint source controls. New or expanding dischargers that require addi-	"
b?
tional allocation must also make a payment to the Wetland Restoration Fund.	
3
Z
Who Is Eligible to Participate?	<£
Approximately 100 active facilities in the Neuse River Basin have a total nitrogen (TN) waste-	I
load allocation and are therefore eligible to participate in trading. However, the 32 largest
pi*
facilities have TN effluent limits and are the most likely to participate.
0)
QfQ
What Generated the Need for Trading?	^
The Neuse River is classified as a Nutrient Sensitive Water (NSW) because of nutrient impacts	3-
on the river's estuary. Major fish kills in 1995 provided the impetus for updating the 1988	S3
O
Nutrient Management Strategy for the Neuse River Basin. The 1997 Strategy established a	^
a
goal that required sources to reduce TN loads to the estuary by 30 percent from 1995 levels
by the year 2005. Subsequently the North Carolina Environmental Management Commis-
sion (EMC) adopted a rules package in 1998 to support the Strategy. The rules were aimed at
reducing nitrogen impacts in the watershed and supporting the Strategy by managing agri-
culture, stormwater, point sources, nutrient management activities and riparian areas. One of
the rules under the Strategy, the Waste Discharge Requirements rule, establishes point source
nitrogen allocations and control requirements and compliance options, including a group	A-73
compliance association option (EMC 2002).

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Water Quality Trading Toolkit for Permit Writers
What Serves as the Basis for Trading?
The 1997 Strategy for the Neuse River Basin established a goal for both point and nonpoint
sources to reduce TN loads to the estuary by 30 percent from the 1995 estuary level of 2.34
million pounds by 2005. Therefore, the Waste Discharge Requirements rule establishes an
estuary wasteload allocation of 1.64 million pounds for dischargers in the Neuse River Basin.
The North Carolina Division of Water Quality (NC DWQ) used a phased-approach to develop-
ing Total Maximum Daily Loads (TMDLs) for the basin. The Phase I TMDL, approved by EPA
in 1999, concluded that the aggregate estuary wasteload allocation in the 1997 Strategy was
appropriate. The Phase II TMDL, approved by EPA in 2002, used modeling tools to verify the
30 percent reduction target set in the Phase I TMDL.
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
The 1997 Strategy contains the calculations used to determine the estuary wasteload alloca-
tions that serve as the basis for trading. Because of a lack of adequate data and technical
tools (i.e., computer model for the Neuse River Basin), NC DWQ relied on best professional
judgment when determining the nitrogen reduction target and other factors (e.g., transport
factors) that provide a foundation for the estuary wasteload allocations and, therefore, the
trading program (Templeton 2004a).
1995 Baseline TN Loading
To calculate the aggregate estuary wasteload allocation that represented a 30 percent reduc-
tion, NC DWQ had to first determine the 1995 baseline TN load. Determining the baseline TN
loading required information about point and nonpoint source discharges to the Neuse River
Basin. For larger dischargers and some small dischargers, NC DWQ had the necessary monitor-
ing data from 1991 through 1995 to calculate an average concentration for each facility. For
the smaller dischargers that did not conduct monitoring, NC DWQ used the average concentra-
tion of the smaller dischargers to estimate the TN concentration. NC DWQ had the necessary
flow data from all dischargers during this time frame to calculate the average flow. The 1995
baseline TN loading at end-of-pipe was approximately 3 million pounds per year. The 1997
Strategy, however, was focused on nitrogen reductions to the estuary; therefore, the baseline
TN loading had to be converted from and end-of-pipe baseline to an estuary baseline using
each facility's applicable nitrogen transport factors. After applying transport factors, NC
DWQ calculated the 1995 estuary baseline TN loading to be 1.64 million pounds per year.
Transport Factors
The Neuse River Basin is divided into 12 nutrient management zones, each with a transport
factor of 10, 50, 70, or 100 percent, according to distance from the estuary. According to the
Wastewater Discharge Requirements rule, a transport factor is the fraction of the TN in a
discharge that is predicted to reach the estuary. NC DWQ used a first-order decay equation to
estimate the loss of nitrogen from the point of discharge to the estuary; this equation estab-
lished transport factors used in the 1997 Strategy, the Phase I TMDL, and the group compli-
ance permit. Transport factors applied to the end-of-pipe baseline loading and wasteload
allocation result in the estuary baseline loading and wasteload allocation. The Phase II TMDL
uses a different transport model, referred to as the SPARROW model, to determine transport
factors where decay is a function of the type of stream and not a function of time.

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Water Quality Trading Toolkit for Permit Writers
Wasteload Allocations
Determining wasteload allocations for individual facilities required an iterative process that
'"d
relied on a trial-and-error method. Wasteload allocations were calculated using an equivalent
concentration for individual facilities; for example, the mass equivalent of a discharge concen-
tration below approximately 3 mg/L would not be technically feasible for facilities to achieve.
O
I—H
The Wastewater Discharge Requirements rule established annual discharge allocations (as
opposed to estuary allocations) for groups of dischargers on the basis of the dischargers'
location in the basin (i.e., upstream or downstream from Falls Lake Dam) and the size of their
permitted flow. According to the rule, dischargers upstream of Falls Lake Dam with permitted
flows greater than or equal to 0.5 mgd received an annual discharge allocation of 443,700
pounds of TN. Dischargers downstream of Falls Lake Dam with permitted flows greater than
or equal to 0.5 mgd received an annual discharge allocation of 2,021,400 pounds of TN. NC
DWQ divided dischargers into these groups to ensure that similar dischargers would have
similar requirements.
The rule states that each individual discharger should receive an individual discharge alloca-
tion and the equivalent estuary allocation. The individual discharge allocation is calculated	z
as the 1995 permitted flow divided by the total permitted flow of the group, multiplied by |
the group discharge allocation. To determine the equivalent estuary allocation, the individual 5
discharge allocation is then multiplied by the facility's applicable transport factor. Appendix S
CO
B of the group compliance permit contains a list of facilities subject to TN allocations and the
3'
applicable facility transport factor based on location in the Neuse River Basin.	z
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(1995 permitted flow / total permitted flow of the group) x Group discharge allocation =	£
Individual discharge allocation	3
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Individual discharge allocation x Facility transport factor = Individual estuary allocation	%
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Example: Calculating Individual Discharge and Estuary Allocations for a	|
Facility in the Neuse River Basin
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Facility X has a 1995 permitted flow of 0.5 mgd and is located upstream of Falls Lake Dam in the	§
Neuse River Basin. NC DWQ tells Facility X that it is in subbasin NEU2 and has a transport factor	£
of 50 percent. Because Facility X has a permitted flow of 0.5 mgd and is upstream of Falls Lake	2
Dam, the Wastewater Discharge Requirements rule places it in the group with an annual discharge	w
allocation of 443,700 pounds of TN. Facility X is also told by NC DWQ that the group's total	•
permitted flow is 26.5 mgd.	o
Facility X uses the following calculations to figure out its individual discharge allocation and	|
estuary allocation:	|
(1995 permitted flow / total permitted flow of the group) x Group discharge allocation =
Individual discharge allocation
Individual discharge allocation x Facility transport factor = Individual estuary allocation
(0.5 mgd / 26.5 mgd) x 443,700 lb = 8,372 lb
A-75

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Water Quality Trading Toolkit for Permit Writers
Example: Calculating Individual Discharge and Estuary Allocations for a
Facility in the Neuse River Basin (continued)
Facility X's individual discharge allocation is 8,372 lb of TN. To determine its individual estuary
allocation, Facility X must multiply its individual discharge allocation by its transport factor of 50
percent.
8,372 lb x 0.5 = 4,186 lb
Facility X's individual estuary allocation is 4,186 lb of TN.
Are Permits Used to Facilitate Trades?
Approximately 32 of the point source dischargers in the Neuse River Basin have TN effluent
limits because the Wastewater Discharge Requirements rule states that every facility with a
permitted flow equal to or greater than 0.5 mgd is subject to a TN permit limit equal to its
individual discharge allocation. Of the 32 point sources with TN effluent limits, approximately
23 participate as co-permittees in the Neuse River Compliance Association, sharing one
NPDES permit. The group compliance permit issued to the Compliance Association is a mecha-
nism that can help to facilitate trading.
The Compliance Association's TN limit for a given calendar year is equal to its estuary TN
allocation. The overall estuary TN allocation is the sum of all estuary TN allocations for mem-
bers of the Compliance Association, as listed in Appendix A of the permit. TN allocations of
co-permittee members may change because of purchases, sales, trades, leases, and other
transactions among Compliance Association members, affecting the Compliance Association's
overall TN allocation. All TN transactions are expressed in terms of estuary allocations (i.e.,
individual discharge allocations multiplied by a facility's transport factor).
For the Compliance Association to remain in compliance, its estuary TN load for a year may
not exceed its estuary TN allocation. If the Compliance Association exceeds its estuary TN
allocation, co-permittees under the group compliance permit are subject to their individual
TN limits (i.e., individual estuary TN allocations). Provisions of the group compliance permit
state that when the Compliance Association exceeds its estuary TN allocation, it must make
offset payments for the excess TN at a rate of $11 per pound for that calendar year. When
the Compliance Association exceeds its estuary TN allocation, NC DWQ may take enforce-
ment actions against it and any individual co-permittee that exceeds its individual estuary TN
allocation (NC DWQ 2004).
Internal point source-point source trades are not subject to NC DWQ oversight except to
ensure that allocations are verified and calculated correctly. The Compliance Association or
affected dischargers must obtain a permit modification from NC DWQ to have the adjusted
TN effluent limits reflected in the permit (Breetz et al. 2004).
A-76

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Water Quality Trading Toolkit for Permit Writers
How Are Credits Generated for Trading?
Members are allowed to purchase, sell, trade, or lease their estuary TN allocation among co-
permittees covered under the group compliance permit; they may not exceed the Compliance
Association's overall estuary TN allocation. A facility that has a TN estuary load less than its
individual estuary TN allocation has credits available to sell, trade, or lease.
What Type of Monitoring Is Performed?
Co-permittees in the Compliance Association submit monthly Discharge Monitoring Reports
to NC DWQ as specified in their individual permits. The Compliance Association compiles and
submits members' TN monitoring information for its own reporting purposes.
2
O
If the Compliance Association does not meet its limit, or if a new or expanding discharger
needs an additional allocation, an offset payment to the Wetland Restoration Fund is
required to pay for nonpoint source controls. Members of the Compliance Association must
pay an offset rate of $11 per pound per year if they exceed their individual estuary TN alloca-
tions during a year that the Compliance Association exceeds the overall estuary TN allocation
(EMC 1988). New and expanding dischargers must attempt to purchase estuary TN allocation
from existing dischargers. If a purchase from existing dischargers is not possible, new and
expanding dischargers must purchase a portion of the nonpoint source load allocation by
making an offset payment to the Wetlands Restoration Fund at 200 percent the normal rate
(i.e., at $22 per pound per year); however, the purchase must be sufficient to fund 30 years of
nitrogen reduction (EMC 2002).
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NC DWQ originally used rough cost information from a few offset projects to determine the
$11/lb/yr cost of an offset payment. Since then, NC DWQ has worked with North Carolina
State University to develop an updated cost that takes into consideration costs associated
with land, project administration, and project operation and maintenance. The updated cost
was estimated at $57/lb/yr. NC DWQ is working to set a final cost that will account for these	z
additional factors and will not prove overly burdensome for Compliance Association members	?
(Templeton 2007).	g.
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What Are the Trading Mechanisms?	f
<2
The group compliance permit, as well as other individual NPDES permits that reflect TN efflu-	Sr
ent limits based on the 1997 Strategy wasteload allocations might help to facilitate trading	5
because they contain estuary TN allocations and provide a compliance mechanism. However,
the mechanism for negotiating trades and achieving agreements does not directly involve
NPDES permits. Trade negotiations and agreements take place between point sources, with-
out the involvement of a third party.
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What Is the Pollutant Trading Ratio?	^
There is no trade ratio for point source-point source trades and no explicit trade ratio for	^
O
point source-nonpoint source offsets (i.e., offset payments to the Wetlands Restoration	3
Fund). However, an analysis of the $11/lb/year cost of an offset payment indicates that a 2:1	£>
trading ratio may be incorporated into the cost (Breetz et al. 2004).	~
A-77

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Water Quality Trading Toolkit for Permit Writers
What Are the Incentives for Trading?
Trading is a cost-efficient means to meet an individual estuary TN allocation while achieving
the overall nutrient reduction goal for the Neuse River Basin. However, the Compliance
Association has not made any offset payments into the Wetland Restoration Fund to
date because members are running at approximately 40 percent of their total estuary TN
allocation (Templeton 2004b).
What Water Quality
Improvements Have
Been Achieved?
Since 1995, the NRCA members have
achieved a 69 percent reduction of
TN loading at estuary. In addition,
the combined estuary loading was
approximately 50 percent of the allo-
cation in 2004 (NCDWQ 2005).
What Are the Potential
Challenges in Using This Trading Approach?
One challenge of trading illustrated through the Neuse River Basin is determining the poten-
tial for localized water quality impacts due to shifting of wasteload allocations. The proposed
trade agreement now under debate would result in an estuary TN load of approximately
61,000 pounds of TN per year near the headwaters. Concerned stakeholders initiated the
involvement of NC DWQ in the proposed trade agreement; otherwise, the trade might have
occurred because it is within the existing parameters for trading in the Neuse River Basin.
Another challenge focuses on the potential for a co-permittee under the group compliance
permit to attempt to sell some or all of its estuary TN allocation outside the Compliance
Association. According to NC DWQ, this type of trade between a member and a nonmember
would require the approval of the overall Compliance Association because it would affect the
group's overall estuary TN allocation.
What Are the Potential Benefits?
Benefits of this trading example include minimal administration of the trading program by
the regulating authority, although this might change pending the outcome of the proposed
trade agreement. Using a Compliance Association approach might facilitate increased com-
munication among dischargers in a watershed.
Estuary TN
(M Ib/yr)
Flow
(MGD)
-- 110
'--80 O
Z 1.000-
Limit 1.073 M Ib/yr
--70 <
0.000
1995 1996 1997 1 998 1999 2000 2001 2002 2003 2004
Figure 1. NRCA performance 1999-2004.

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Water Quality Trading Toolkit for Permit Writers
Applicable NPDES Permit Language
A.(2.) CO-PERMITTEES AND TN ALLOCATIONS
hrj
(a.) Co-Permittees to this Permit shall be the Neuse River Compliance Association (the
"Association") and each of its Co-Permittee Members. The Co-Permittee Members,
the Transport Factors assigned to each, the Members' individual TN allocations,
and the Association Estuary TN Allocation shall be as listed in Appendix A, which is
hereby incorporated into this Permit in its entirety.
>
(b.) Upon timely and proper notification by the Association as described elsewhere in
this Permit, the Division shall revise Appendix A to incorporate changes in Associa-
tion membership, allowable changes in TN Allocations, or reapportionment by the
Association.
(i.) Changes in membership.
(A)	Enrollment. In the event that a discharger joins the Association, the Division shall add
the discharger and its TN Allocation to Appendix A as a Co-Permittee Member and
adjust the Association's TN Estuary Allocation accordingly.
(B)	Termination. In the event that a Co-Permittee Member's membership is terminated,	z
ft
the Division shall delete the departing Member and its TN Allocation from Appendix	|
A and adjust the Association's TN Estuary Allocation accordingly.	5
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(ii.) For the purposes of this Permit, allowable changes in TN Allocations include those
£D
resulting from purchase of allocation from the Wetlands Restoration Fund; pur-	2.
chase, sale, trade, or lease of allocation among the Association, its members, and	z
non-member dischargers; regionalization; and other transactions approved by the	5.
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Division.	2-
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(iii.) The Association may reapportion its TN Allocation among its Co-Permittee Mem-	g
bers; however, the Division shall only incorporate the corresponding changes into
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Appendix A when specifically requested in writing by the Association.	^
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(c.) Changes in Association membership and changes in individual or Association TN	»j
Allocations shall become effective only at the beginning of the following calendar	2
year (January 1).	^
A.(3.) EFFLUENT LIMITATIONS	|
3
(a.) Beginning on the effective date of this Permit and lasting no later than the expi-	%
ration date, the Co-Permittees are authorized to discharge Total nitrogen (TN)	S-
from the treatment facilities listed in Appendix A subject to the following effluent
limitations.
£
(i.) Association TN Limitation. In any calendar year, the Association's Estuary TN Load	S
shall not exceed its Estuary TN Allocation as specified in Appendix A: Association TN	£>
Limitation: For any calendar year,	~
a
Association Estuary TN Load < Association Estuary TN Allocation
Where
Association Estuary TN Load (or Allocation) =
Sum of Estuary TN Loads (or Allocations)
for All Co-Permittee Members
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Water Quality Trading Toolkit for Permit Writers
ii.) Co-Permittee Member TN Allocations. In any calendar year, a Co-Permittee Member
shall be in compliance with its Estuary TN Allocation in Appendix A if:
(A) the Association Estuary TN Load complies with the Association Estuary TN Allocation
in Appendix A, or
B) in the event that the Association Estuary TN Load exceeds its Estuary TN Allocation,
the Co-Permittee Member's Estuary TN Load does not exceed that Member's Estuary
TN Allocation in Appendix A.
(b.) Other Individual Limitations. In the event that a Co-Permittee Member's member-
ship in the Association is terminated, the departing Member shall no longer be
eligible for coverage under this Permit and shall become subject to the TN limitation
set forth in its individual NPDES permit.
(i.) Termination of membership shall become effective only at the beginning of a calen-
dar year (January 1). Re-imposition of a discharger's individual TN limitation shall
become effective only at the beginning of a calendar year (January 1).
(ii.) The Association shall notify the Division if it determines that any Member will
depart at the end of a calendar year and shall provide an accounting of all allowable
changes in the Member's TN Allocation since the most recent issuance of the depart-
ing Member's individual NPDES permit.
(iii.) Upon receipt of the notification and accounting described above, the Division
shall modify the TN limitation in the departing Member's individual NPDES permit,
effective January 1 of the succeeding year, to reflect all allowable changes in the
Member's TN Allocation since the most recent issuance of the departing Member's
individual NPDES permit.
(iii.) Upon receipt of the notification and accounting described above, the Division shall
modify the TN limitation in the departing Member's individual NPDES permit, effec-
tive January 1 of the succeeding year, to reflect all allowable changes in the Mem-
ber's TN Allocation and shall also modify Appendix A of this permit accordingly.
Contact Information
Mike Templeton
Point Source Branch
North Carolina Division of Water Quality
(919) 733-5083 ext. 541
mike.templeton@ncmail.net
Jason T. Robinson
Nonpoint Source Management Program
North Carolina Division of Water Quality
(919) 733-5083 ext.537
jason.robinson@ncmail.net

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Water Quality Trading Toolkit for Permit Writers
References and Resources
>
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
City of Raleigh. 2004. Public Works Committee meeting notes from April 27, 2004.
X
Coleman, P. 2004. Some oppose nutrient trading. New Bern Sun Journal. July 25. New Bern,
North Carolina, . Accessed September 13, 2004.
EMC (North Carolina Environmental Management Commission). 1998. Rule T15ANCAC 2B.0240.
Neuse River Basin - Nutrient Sensitive Waters Management Strategy: Nutrient Offset
Payments. Effective August 1, 1998. .
EMC (North Carolina Environmental Management Commission). 2002. Rule T15ANCAC 2B.0234.
Neuse River Basin - Nutrient Sensitive Waters Management Strategy: Wastewater
Discharge Requirements. Amended rule adopted by EMC October 10, /2002 and, with
minor revisions, approved by the North Carolina Rules Review Commission December 19,	z
2002.	5
0>
2s
03
u
3
Z
NC DWQ (North Carolina Division of Water Quality). 2004. Neuse River Compliance
Association NPDES Permit No. NCC000001. Approved January 1, 2004.
.
NC DWQ (North Carolina Division of Water Quality). 2005. Presentation given to the Virginia	g'
Department of Environmental Quality's VPDES Technical Advisory Committee. Presented	3a
by Mike Templeton. August 31, 2005. Richmond, Virginia.	%
rt
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Templeton, Mike. 2004a. Personal communication. September 10.	^
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Templeton, Mike. 2004b. Personal communication. September 13.	^
0)
3
SD
Templeton, Mike. 2007. Personal communication. January 24.
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A-81

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se
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Foundation of the Neuse River Basin Sensitive Waters
Strategy Total Nitrogen (TN)Trading Program
Nutrient Offset Payments
30^o TN reduction
from 1995 baseline
Basin Nutrient Reduction Goal
$ll/lb./yr. to the
Wetland Restoration
Fund
Wastewater Discharger
Requirements Rule
New and
Expanding
Dischargers
Neuse River
Compliance
Association Co-
Permittees
Dischargers with
permitted flow
over 0.5 MGD
Group Compliance Provision
Discharger Group Wasteload
Allocations
Indvidual Discharge and Estuary TN
Allocation Formlias
New and Expanding Facilities'
Requirements
Neuse River Sensitive
Waters Strategy (1997) and
Supporting Rules Package
(1998)
Eligible Participants for TN Trading and Nonpoint Source Offsets

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APPENDIX A
Neuse River Basin Nutrient Sensitive Waters Management Strategy • North Carolina
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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Toolkit for Permit Writers
Great Miami River Watershed Trading Pilot	>
Program
Ohio
0
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Overview
The nutrient trading program administered by the Miami Conservancy District (MCD) for the
Great Miami River Watershed allows NPDES permitted dischargers to purchase credits from
best management practices (BMPs) installed by upstream nonpoint sources (i.e., agricultural
producers) to offset nutrient loadings.
Type of Trading	Pollutant (s) Traded
Point Source-Nonpoint Source	Nitrogen
Phosphorus
Number of Trades to Date
As of 2007, two reverse auctions1 have taken place, resulting in 335,636.5 lbs of nutrient
reductions. Five NPDES permits are undergoing modification to allow participation in the
trading program (Hall 2007).	jg"
1
Who Is Eligible to Participate?	|
a>
Eligible participants include NPDES permitted dischargers and upstream agricultural producers	^
within the Great Miami River Watershed. There are approximately 450 point source discharg-	^
ers and over 80 percent of the agricultural lands in the watershed are eligible (ETN 2004).	^
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What Generated the Need for Trading?	g
Over 40 percent of the rivers and streams in the Great Miami River Watershed are not meet-	|
ing state water quality standards and will require Total Maximum Daily Loads (TMDLs). The	•
watershed is the second largest contributor of nitrogen in the Ohio River Basin (ETN 2004).	§
Stakeholders in the watershed would like to address water quality concerns before TMDLs are
developed for the Great Miami River Watershed. In addition, more restrictive discharge limits
for nitrogen and phosphorus are scheduled to take effect in the Great Miami River Water-
shed in 2007 as a result of nuisance conditions.
What Serves as the Basis for Trading?
Dischargers will have to eventually meet a total phosphorus discharge limit of 1.0 mg/L and
a total nitrogen discharge limit of 10 mg/L, per the nutrient criteria under development by
Ohio Environmental Protection Agency (Ohio EPA). The trading program is based on the
premise that dischargers would rather pay upstream nonpoint source dischargers to achieve
nutrient reductions than invest in treatment technology.
1 Interested credit generators submit bids on the basis of the cost of their nutrient reduction project and their desired
compensation. The most cost-effective projects are funded using a pool of money created by the buyers.
A-85

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Water Quality Trading Toolkit for Permit Writers
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
Ohio EPA is developing nutrient criteria for streams and rivers with the expectation of
adopting these nutrient criteria in 2007. Ohio EPA is using monitoring data from watersheds
around the state, as well as modeling tools, to develop nutrient criteria.
Are Permits Used to Facilitate Trades?
Ohio EPA, the NPDES permitting authority in Ohio, has participated in the development of
the Great Miami River Watershed trading program and will work with permitted discharg-
ers to modify their NPDES permits to allow participation in the trading program (MCD 2005).
Appendix C of the trading program's operation manual contains model draft language for
inclusion in NPDES permits. Approximately five NPDES permits are undergoing modification
to allow participation in trading (Hall 2007).
How Are Credits Generated for Trading?
Voluntary nutrient reductions made by upstream agricultural producers will serve as cred-
its. One pound of total phosphorus removed is equal to one credit for phosphorus, and one
pound of total nitrogen removed is equal to one credit for nitrogen (MCD 2005). The num-
ber of credits generated by a specific nonpoint source management practice is determined
by a qualified soil and water conservation professional using a Load Reduction Spreadsheet
(MCD 2005). In addition, a qualified soil and water conservation professional will also peri-
odically inspect the management practice to ensure that it is still generating the allocated
credits (MCD 2005). A management practice will generate credits only after it is installed.
The cost of each credit is determined by the market; it is likely to equal the sum of expendi-
tures for the project (e.g., capital, operating, administrative, and ongoing maintenance costs)
divided by the number of credits (MCD 2005).
The trading program includes two strategies to ensure NPDES permit compliance if a manage-
ment practice should fail and no longer generates credits: (1) a management practice contin-
gency plan, and (2) an insurance pool of credits. The insurance pool of credits contains credits
generated in part by projects funded by eligible buyers in the contributor category (i.e.,
eligible buyers that participate in the trading program but not in advance of their more-strin-
gent regulatory requirements) through their increased trade ratio requirements (see What Is
the Pollutant Trading Ratio?). Other water quality improvement projects, subsidized by other
sources of funds (e.g.. Section 319 Nonpoint Source Program), might also generate credits for
the insurance pool. Credits in the insurance pool have a life of 5 years from the date of depos-
it; if a credit is not used in that time frame, it is retired (MCD 2005).
What Are the Trading Mechanisms?
The trading program process involves the eight steps described below (MCD 2005).
Step 1. Request for Proposals Issued. MCD issues a request for proposals to announce that
funds are available for qualified projects. A soil and water conservation district must be the
applicant for the funds.

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Water Quality Trading Toolkit for Permit Writers
Step 2: Applicants Submit Proposals. All project proposals must address the criteria specified
in the request for proposals.
Tl
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Step3: Proposal Review and Selection. The Project Advisory Group, composed of stakeholders
(local, state, and federal), will develop criteria for awarding funds paid by eligible buyers to
credit-generating projects. The Project Advisory Group will also review proposals and make
recommendations for funding.
Step 4: Applicants Notified of Projects Selected. MCD notifies all applicants of the selection
process results.
Step 5: Project Funds Released. The trading program project funds provide the monies neces-
sary to generate credits.
Step 6: Soil and Water Conservation District Contracted to Manage the Projects. MCD serves
as the broker of the trading program and enters into a contract with the successful soil and
water conservation district for project implementation. The soil and water conservation dis-
trict then enters into a project agreement with the agricultural producer responsible for BMP
implementation.
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Step 7: Credit Management. MCD tracks credits generated by projects, allocates credits to
eligible buyers, and prepares and submits an annual report to buyers, Ohio EPA, and EPA.
Step 8: Adaptive Management. Ohio EPA and Ohio Department of Natural Resources (DNR)
established a Load Reduction Workgroup to evaluate and enhance the Load Reduction
Spreadsheet used to determine the amount of credits generated by a management practice.
This group will direct and oversee an evaluation of the accuracy of reduction estimates made	^
for the trading program every 2 years.	£*
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y.
What Is the Pollutant Trading Ratio?	|
The trading ratios are based on water quality conditions and programmatic status of the	^
participant. The ratio varies with the type of eligible buyer and whether the receiving water	|
is meeting water quality standards. Eligible buyers that fall under the investor category	•
are those that participate in the trading program before they are subject to more stringent	§
O*
NPDES permit requirements for nutrients. Eligible buyers that participate in the trading pro-
gram, but not before more stringent NPDES permit requirements for nutrients, fall under the
contributor category. Investors have trading ratios of 1:1 if the receiving water is attaining
water quality standards and 2:1 if the receiving water is not in attainment. Contributors have
a trading ratio of 2:1 if the receiving water is fully attaining water quality standards and 3:1 if
the receiving waters are impaired (MCD 2005).
What Type of Monitoring Is Performed?
Analytical validation of management practice performance will occur through site-specific
water quality monitoring at farm fields. The goal is to collect project-specific data on a
minimum of 5 percent of the total number of projects, with the ultimate goal of 10 percent.
Analytical validation of the overall trading program will occur through a subwatershed water
quality monitoring program that collects samples on a continuous basis at four locations
(MCD 2005).

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Water Quality Trading Toolkit for Permit Writers
What Are the Incentives for Trading?
Incentives include the following:
•	Potential sources of funding for implementing nonpoint source BMPs
•	Potential elimination of the need for a TMDL or reduction in the stringency of
the TMDL because of water quality improvement before TMDL development and
implementation
•	Economic incentive to trade using final credits as opposed to predicted credits due to
variations in trading ratios and the need for predicted credit insurance
What Water Quality Improvements Have Been Achieved?
As of 2007, projects funded through two request for proposals have resulted in 335,636.5 lbs
of nutrient reductions.
What Are the Potential Challenges in Using This Trading
Approach?
Stakeholders involved in the development of the Great Miami River Watershed Trading Pro-
gram cite potential challenges such as limitations on dischargers in the headwaters partici-
pation because of upstream nonpoint source requirements, the uncertainty associated with
calculating nonpoint source reductions, and the cost of overcoming the uncertainty through
increased monitoring (Breetz et al. 2004). Other trading programs have cited a lack of incen-
tive to participate when relying solely on permit discharge limits (i.e., absence of a TMDL)
to drive the program. Without a TMDL, an overall nutrient reduction goal that also helps
dischargers to meet more stringent permit limits might serve as a more effective driver for
trading.
What Are the Potential Benefits?
Potential benefits might include the attainment of water quality standards before TMDL
development and implementation, as well as an incentive for nonpoint source involvement to
achieve nutrient reductions.
Applicable NPDES Permit Language
Model draft language for inclusion in NPDES permits is contained in the trading program's
operation manual as Appendix C. This model draft language is presented below.
Issued to (Investor-Status) Eligible Buyers in the
Great Miami River Water Quality Credit Trading Program
The City of Dayton (Permittee) is a voluntary participant in the Great Miami River Water-
shed Water Quality Credit Trading Program (Trading Program) that is managed through the
Water Conservation Subdistrict of The Miami Conservancy District, a political subdivision of
the State of Ohio. The Ohio Environmental Protection Agency and the Ohio Department of
Natural Resources work in cooperation with the Water Conservation Subdistrict to implement
the Trading Program. The Director has reviewed and approved the Operations Manual for the
Great Miami River Water Quality Credit Trading Program.

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Water Quality Trading Toolkit for Permit Writers
Many stream and river miles within the Great Miami River Watershed currently fail to attain
Ohio's water quality standards. Nutrients are frequently cited as a cause for failure to attain
the standards. The Permittee is voluntarily participating in the Trading Program prior to new
permit limits for nutrient discharges or the completion of Total Maximum Daily Load studies.
This voluntary participation generates earlier water quality benefits in the watershed. Fur-
thermore, by beginning the agricultural practices sooner the practices will be more reliable
I—H
for subsequent use in generating credits for permit compliance.
The Trading Program has financial incentives for the Permittee to voluntarily fund projects
prior to new permit limits for nutrient discharges. As provided for in the approved Opera-
tions Manual, voluntary early participation in the Program entitles the permittee to favor-
able water quality credit trading ratios as a Trading Program "Investor". The Director and the
Permittee agree that the Investor ratios apply to the same substance(s) in the same amounts
as the nutrient reductions voluntarily accomplished by the Permittee. In the event the Great
Miami River is deemed by the Director to be impaired at the Permittee's discharge location,
trading ratios will be modified pursuant to the Operations Manual.
If at any time the permittee no longer participates in the Trading Program the accrued ben-	n
efit of the voluntary participation by the permittee will be used to offset the Permittee's cur-	8
rent or future regulatory requirements. The specific offset will be determined in consultation	S
with the Permittee and subject to the approval of the Director and may include higher dis-	g
charge limits, delayed compliance schedules, or other actions deemed appropriate to achieve	5
attainment of water quality standards throughout the Great Miami River Watershed.	3
pT
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Contact Information	f*
a-
Douglas "Dusty" Hall	tj3
Manager, Watershed Initiatives	S;
GfQ
•"O
The Miami Conservancy District
(937) 223-1278, ext. 3210
dhall@miamiconservancy.org
O
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0)
Sarah Hippensteel	3
Watershed Coordinator
The Miami Conservancy District
(937) 223-1278, ext. 3244
shippensteel@miamiconservancy.org
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Water Quality Trading Toolkit for Permit Writers
References and Resources
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
ETN (Environmental Trading Network). 2004. Environmental Trading Network April 2004
Conference Call. Draft conference call meeting summary. April 21.
.
Hall, Dusty. 2007. Personal communication. February 21.
MCD (Miami Conservancy District). 2005. Great Miami River Watershed Water Quality Credit
Trading Program Operations Manual, .
Downloaded on February 8, 2007.
MCD (Miami Conservancy District), .

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Water Quality Trading Toolkit for Permit Writers
Clean Water Services
Oregon
Overview
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Clean Water Services, a public utility in the Tualatin River Basin responsible for wastewater
and stormwater management, received an integrated municipal watershed-based permit that
provides coverage for four publicly owned treatment works (POTWs), one municipal separate
storm sewer system (MS4), and two individual stormwater permits for two of the POTWs. The
permit allows trading for two oxygen demanding parameters, carbonaceous biochemical oxy-
gen demand (CBOD5) and ammonia, between two POTWs and temperature to offset thermal
loads from two of the POTWs. This fact sheet focuses on offsetting thermal load. No trading
of oxygen demanding parameters has occurred to date.
Type of Trading	Pollutant (s) Traded
Point Source-Point Source	Oxygen demanding parameters (CBOD5 and	2
Point Source-Nonpoint Source	ammonia)	s
Temperature (thermal loads)	Sr
a>
in
Number of Trades To Date	|
rs
0 (Point Source-Point Source)	01
17 landowners enrolled for 2007 to conduct riparian planting to offset thermal load (Point	0
Source-Nonpoint Source)	$
3
Who Is Eligible to Participate?
Trading for CBOD5 and ammonia takes place between and within the Durham and Rock Creek
Advanced Wastewater Treatment Facilities.
Trading involving thermal loads functions as an offset program to accommodate increased
thermal loads for the Rock Creek and Durham Advanced Wastewater Treatment Facilities.
Trading to offset thermal loads is limited to the area established by the August 2001 Tualatin
Subbasin TMDL. Clean Water Services can trade their thermal load by taking a combination of
the following actions:
1.	Improving riparian shade along the river and its tributaries
2.	Augmenting flow to increase base flows in the Tualatin
3.	Using reclaimed water (effluent) for irrigation
What Generated the Need for Trading?
The 2001 Tualatin Subbasin TMDL developed by Oregon Department of Environmental Qual-
ity (DEQ) requires Clean Water Services to reduce the impact of its POTWs on the Tualatin
River. For temperature, the technological control option available to Clean Water Services
would be both expensive and have other negative impacts on the watershed. The 2001 Tuala-
tin Subbasin TMDL also contains a wasteload allocation for ammonia. The same two waste-
water treatment facilities both have NPDES permit limits for CBOD5 and ammonia; the ability

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Water Quality Trading Toolkit for Permit Writers
to trade these parameters will provide Clean Water Services greater flexibility in plant opera-
tions while still protecting water quality.
What Serves as the Basis for Trading?
Oregon DEQ used the 2001 Tualatin Subbasin TMDL wasteload allocations for temperature
and ammonia to determine the permit limits and conditions contained in the Clean Water
Services' watershed-based NPDES permit. Temperature trading, however, is also based on
information contained in the Temperature Management Plan and the Thermal Load Credit
Trading Plan required under the permit.
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
Data and methodologies for trading of oxygen demanding parameters are found in the
2001 Tualatin Subbasin TMDL and the permit. Although the 2001 Tualatin Subbasin TMDL
does contain wasteload allocations for thermal loads, data and methodologies for trading
are found in other documents. The wasteload allocation for temperature, referred to as the
allowable thermal load, changed under the permit, and the thermal load to offset changed
under the Temperature Management Plan developed by Clean Water Services. All changes
are authorized under the TMDL and the permit. Therefore, the data and methodologies for
temperature trading are contained in the permit and the most recent version of the Tempera-
ture Management Plan. A brief overview of the data and methodologies used in determining
the basis for trading is provided below.
Temperature
Trading of thermal load credits is dependent on several variables including (1) system poten-
tial temperatures, (2) allowable thermal loads, and (3) the thermal load to offset.
System Potential Temperatures
The system potential temperature is defined as a condition without human activities that
disturb or remove vegetation (Clean Water Services 2004). The 2001 Tualatin Subbasin TMDL
uses a system potential temperature approach to determine the thermal load allocations that
will achieve the temperature water quality standard of 64 degrees Fahrenheit (°F) for the
Tualatin River. A complex series of equations contained in the TMDL results in a system poten-
tial temperature of 58.5° F at the Rock Creek facility and 63.3° F at the Durham Facility. The
TMDL states that the allowable thermal load (i.e., wasteload allocation) for each treatment
facility is a thermal load that will cause no measurable increase in river temperature above
system potential temperature, which means no more than a 0.25° F increase at the edge of
the mixing zone.
Allowable Thermal Loads
The TMDL set initial wasteload allocations as allowable thermal loads. However, the permit
revises the allowable thermal loads set by the TMDL due to changes in flow data using an
equation that varies from the TMDL.

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Water Quality Trading Toolkit for Permit Writers
Allowable Thermal Load = ((QZ0D + Qps) x (1000/35.3) x 86,400 x Max A TZ0D x 5/9) kcalsIday
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Where:
Qr = Upstream River Flow calculated as 7Q10 low flow statistic (cfs)
Qzod = 7 Dilution Ratio (cfs)
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Qps = Treatment Plant Effluent Flow (cfs)
Max ATzod = 0.25° F
Example: Calculating Allowable Thermal Loads
Oregon DEQ must calculate the allowable thermal loads for the Durham and Rock Creek facilities.
The following equation will provide the allowable thermal load values reflected in the final permit:
Allowable Thermal Load = ((QZCD + Qps) x (1000/35.3) x 86,400 x Max A TZ0D x 5/9) kcals/day
Where:
Qzqd = 7Q10 River Flow (cfs)/ Dilution Ratio
Qps = Treatment plant effluent flow (cfs)
MaxATZ0D = 0.25 °F
The values that Oregon DEQ uses to calculate the allowable thermal load for each facility are found
in the table below.

Durham
Rock Creek
Dilution Ratio
4.2:1
4.0:1
Qps
25.2
43.8
Tps
71.0
71.0
Qr
144
110
Kcal \ / 86,400 seconds \	, / 5f_C \ / m3 \ (264.2 gallons \ j 8.34 lb \ j Kg \
Kg 0 C / \ day jX ^	Z0D ' X 1 9° C jX 135.31 ft3 jX 1 m3 jX 1 gallon jX (2.203)
( Qzoo + Qps ) X ( Max A Tzod ) x (1,359652	)
Crc,
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Water Quality Trading Toolkit for Permit Writers
Example: Calculating Allowable Thermal Loads (continued)
For Durham:
Q(( = 144 cfs
Qzod = Qr / Dilution Ratio (cfs) = 144/4.2 = 34.29 cfs
Qps = 25.2 cfs
MaxATZCD = 0.25 degrees F
Allowable Thermal Load (kcals/day) = (59.49) x (0.25) x (1,359,652.378)
= 20,221,430 kcals/day
= 2.0 xlOA7 kcals/day
For Rock Creek:
Qr= 110 cfs
Qzod = Qr / Dilution Ratio (cfs) = 110/4.0 = 27.5 cfs
Qps = 43.8 cfs
MaxATZCD = 0.25 degrees F
Allowable Thermal Load (kcals/day) = (71.3) x (0.25) x (1,359,652.378)
= 24,235,803.64 kcals/day
= 2.4 xlOA7 kcals/day
Thermal Load to Offset
The thermal load to offset is the amount of thermal load that exceeds the Allowable Thermal
Load. This is the thermal load that Clean Water Services must reduce using selected tempera-
ture reduction methods, including trading through flow augmentation and shading. The
2001 Tualatin Subbasin TMDL and the permit contain the equations used to calculate the
thermal load to offset at each wastewater treatment facility.
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Current Excess Point Source Load Above System Potential (kcallday) - Allowable Point
Source Thermal Load (kcallday) = Thermal Load to Offset (kcallday)
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Where:
Current Excess Point Source Load Above System Potential = ATZ0D x (QZ0D + QPS) x (1,000/35.3) x
(86,400 x 5/9) kcal/day
X
Allowable Point Source Thermal Load = ((QZ0D + Qps) x (1,000/35.3) x 86,400 x Max
aTZ0D x 5/9) kcals/day
Ajzod = ((Qps x Tps) + (Qzod x TSp» 7 zod + Qps) " Tsp> °F
Qb= Upstream River Flow calculated as 7Q10 low flow statistic (cfs)
Qzod = Q|, / Dilution Ratio (cfs)
Qps = Treatment Plant Effluent Flow (cfs)
MaxATmD = 0.25 °F
Tps= Treatment plant effluent temperature, °F
Tsp= System Potential temperature, °F
Other factors: 1,000 kg/m3, 35.3 ft3/m3, 86,400 sec/day; 5/9 °C/°F
ZOD	0)
3
The permit states that the thermal load to offset for the Durham facility is 2.0 x 108 kcal/day
and for the Rock Creek facility is 7.2 x 108 kcal/day (Oregon DEQ 2004).
Are Permits Utilized to Facilitate Trades?
The watershed-based NPDES permit for Clean Water Services contains the permit limits for
oxygen demanding parameters, as well as the equations that Clean Water Services must use
to conduct trades.
Schedule C of the permit requires Clean Water Services to develop a Thermal Load Credit
Trading Plan as part of the Temperature Management Plan. Schedule C requires the Thermal
Load Credit Trading Plan to include the following:
•	A description of the thermal load to be offset based on equations contained in
Schedule D of the permit and a specified baseline for thermal credit trading
•	A discussion of how the permittee will create, purchase or arrange for thermal credits
generated by flow augmentation and stream surface area shading
•	The methodology for calculating the amount of thermal credit that will be generated
by stream surface water shading through riparian revegetation and high-quality area
protection
•	Other proposed thermal credit trading options for consideration by Oregon DEQ
•	Reporting requirements for thermal load trading credit
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How are Credits Generated for Trading?
The permit defines water quality trading credits as one unit of pollutant reduction or other
defined environmental improvement, multiplied by any applicable trading ratio detailed in
the permit or in plans covered by the permit. The permit states the terms of credit use by
requiring its application at the location where compliance with the baseline is measured for
the applicable time period. Valid credits are those generated before or during the period they
are applied to the permittee's baselines, except thermal credits generated by stream surface
area shading in the Thermal Load Credit Trading Plan. Credits are pollutant reductions that
exceed the reductions required by the permittee's baseline or other applicable requirements
in the permit (Oregon DEQ 2004).
Clean Water Services' watershed-based NPDES permit and fact sheet provides a description of
the process for trading oxygen-demanding parameters. Appendix B of the Revised Tempera-
ture Management Plan describes the methodologies for calculating the thermal load credits;
Clean Water Services will soon make the Revised Temperature Management Plan available for
public review and comment.
Oxygen Demanding Parameters
The process for generating credits for oxygen demanding parameters described in the permit
is provided below.
(4) Water Quality Trading Plan for Oxygen Demanding Parameters
Water Quality Trading Credits for oxygen demanding parameters (CBOD5 and
ammonia) between the Durham and Rock Creek Advanced Wastewater Treatment
Facilities (AWTF) are authorized by Schedule D of this permit provided that the
permittee uses the following equations to define the available assimilative capacity.
Whenever the combined load as calculated by the equation in Schedule A, 1.a.(4)(b)
is less than or equal to the combined load limitation as calculated by the equation in
Schedule A, 1.a.(4)(a), (the baseline for purposes of water quality trading) the per-
mittee shall be deemed to be in compliance with the CBOD5 and ammonia-nitrogen
effluent limitations of this permit.
(a) Oxygen Demand Load Limitation

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Water Quality Trading Toolkit for Permit Writers
Outfall
Number
D001,R001
Parameter
CBOD5and
NBOD
Combined Rock Creek and Durham Oxygen Demand Load
Limitation at Oswego Dam (lb/day)
R001 NBOD Limit (lb/day) + R001 CBOD5 Limit (lb/day) +
D001 NBOD Limit (lb/day) + D001 CBOD5 Limit (lb/day)
Where,
R001 NBOD Limit =
Weekly R001 NH3-N Load Limit, lb/day (see Schedule A.l.a.(3)) x
4.33 x Fraction R001 ammonia decayed at dam (see Table 2)
R001 CBOD5 Limit =
Weekly R001 CBOD5 concentration, mg/L, (see Table 1) x Actual
Weekly Median Rock Creek Effluent Flow, mgd x 8.34 x 4.9 x
Fraction R001 CBODultim;ite decayed at dam (see Table 2)
D001 NBOD Limit =
Weekly D001 NH3-N Load Limit, lb/day (see Schedule A.l.a.(3)) x
4.33 x Fraction D001 ammonia decayed at dam (see Table 2)
D001 CBOD5 Limit =
Weekly D001 CBOD5 concentration, mg/L, (see Table 1) x Actual
Weekly Median Durham Effluent Flow, mgd x 8.34 x 4.9 x
Fraction D001 CBODultim;ite decayed at dam (see Table 2)
Note: 4.33 = NBOD:NH3 ratio
4.9 = CBOD ... :CBODq ratio
ultimate	5
8.34 = pound conversion
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Water Quality Trading Credit for oxygen demanding substances authorized under the water
quality trading program in Schedule A, 1.a.(4) shall not be allowed if the trade results in an
exceedance of the CBOD5 mass limitations for outfalls D001 or R001.
(b) Calculation of Combined Rock Creek and Durham Actual Discharged Oxygen
Demand Load at Oswego Dam: (applies on a calendar week basis)
Actual Discharged Oxygen Demand Load at Oswego Dam (lb/day) =
R001 NBOD Discharge (lb/day) + R001 CBOD5 (lb/day) + D001 NBOD Discharge (lb/
day) + D001 CBOD5 Discharge (lb/day)
R001 NBOD Discharge =
Actual Weekly Median R001 NH3-N Concentration, mg/L x Actual Weekly Median
Rock Creek Effluent Flow, mgd x 8.34 x 4.33 x Fraction Rock Creek ammonia decayed
at dam (see Table 2)
R001 CBOD5 Discharge =
Actual Weekly Median R001 CBOD5 Concentration, mg/L x Actual Weekly Median
Rock Creek Effluent Flow, mgd x 8.34 x 4.9 x Fraction Rock Creek CBOD lt „
~J	ultimate
decayed at dam (see Table 2)
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Where:
D001 NBOD Discharge =
Actual Weekly Median D001 NH3-N Concentration, mg/L x Actual Weekly Median
Durham Effluent Flow, mgd x 8.34 x 4.33 x Fraction Durham ammonia decayed at
dam (see Table 2)
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D001 CBOD5 Discharge =
Actual Weekly Median D001 CBOD5 Concentration, mg/L x Actual Weekly Median
Durham Effluent Flow, mgd x 8.34 x 4.9 x Fraction Durham CBODu|timate decayed at
dam (see Table 2)
Table 1. Weekly CBOD5 Concentrations
Rock Creek
Durham
1.4 mg/L
3.9 mg/L
Table 2. Fraction Decayed at Oswego Dam
Farmington
flow, cfs
River
temperature,
°C
Rock Creek
Durham
Ammonia
CBOD
Ammonia
CBOD
120 -175
<10
0.61
0.33
0.22
0.10
>10 to 15
0.70
0.40
0.27
0.12
>15 to 20
0.79
0.48
0.33
0.15
>20 to 25
0.86
0.56
0.40
0.19
>175 - 200
<10
0.48
0.24
0.15
0.07
>10 to 15
0.56
0.29
0.19
0.09
>15 to 20
0.65
0.36
0.24
0.11
>20 to 25
0.74
0.43
0.29
0.14
>200-250
<10
0.43
0.21
0.14
0.06
>10 to 15
0.52
0.26
0.17
0.08
>15 to 20
0.60
0.32
0.21
0.10
>20 to 25
0.69
0.39
0.26
0.12
>250-300
<10
0.37
0.17
0.11
0.05
>10 to 15
0.44
0.22
0.14
0.06
>15 to 20
0.52
0.27
0.17
0.08
>20 to 25
0.61
0.33
0.22
0.10
>300-350
<10
0.32
0.15
0.09
0.04
>10 to 15
0.38
0.18
0.12
0.05
>15 to 20
0.46
0.23
0.15
0.06
>20 to 25
0.55
0.28
0.18
0.08
Values for each range set at low end of range for flow and high end for temperature
Temperature
Clean Water Services can trade the heat load from the Rock Creek and Durham wastewater
treatment plants through flow augmentation and increased shading. Appendix B of the
Revised Temperature Management Plan contains the process for calculating thermal load
credits using flow augmentation and shade. A brief description of the process for calculating
thermal load credits associated with flow augmentation and shading is provided below.

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Water Quality Trading Toolkit for Permit Writers
Flow Augmentation
The thermal energy decrease associated with the temperature change measured just
upstream of each outfall caused by flow augmentation is the basis for calculating flow aug-
mentation thermal credits (Clean Water Services 2004).
The annual thermal load contributed by each facility is the sum of the thermal load contrib-
uted by the facility, the allowed thermal load (as a negative value), and the thermal credit for
flow augmentation (Clean Water Services 2004).
Hc, A = 1kcal/1 kg °C x Q0. x 1 m3 / 35.3 ft3 x 1,000 kg / 1 m3 x 86,400 sec / 1 day x ATC, A
FlowAug	3	River	'	z>	'	j	FlowAug
Where:
For ROCk Cr66k" ^T	=5014(1 — 0 Flow Augmentation/Farm Flow-RC-WWTP\
Flnw/Aun	'	*	'
FlowAug
' FlowAug
2,
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Shading
Thermal credits from shading are generated on a project-by-project basis. Credits gener-
ated by shading projects initiated in a given year are calculated by multiplying the solar load
blocked for a project by a safety factor and an incentive factor. Solar load blocked is calcu-
lated by determining the potential solar load for a particular stream reach and the effec-
tive shade, which is a "fraction of the daily solar thermal energy flux that is prevented by
vegetation from reaching the stream surface" (Clean Water Services 2004). Effective shade
is determined by using a component of Oregon DEQ's Heat Source model, referred to as the
Shade-A-Lator (Clean Water Services 2004).
Reach Width (ft) x Reach Length (ft) x 480 kcal/ft2/day = Potential Solar Load for a Reach
Potential Solar Load for the Reach x Effective Shade = Solar Load Blocked for a Reach
Solar Load Blocked for Project x Safety Factor of 0.5 x Incentive Factor = Thermal Credit per
Project
A safety factor of 0.5 is applied to the solar load blocked for a project because of the uncer-	3
tainty in using riparian restoration projects to generate shade (Clean Water Services 2004).	Sr
An incentive factor is determined using the priority ranking of a particular stream on which a	^
shading project will take place. An incentive factor of 4 is applied to projects that occur along	5
high-priority streams, while all other streams receive an incentive factor of 1 (Clean Water	S
Services 2004).	•
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For Durham: &T = (-0.02636) (Flow Augmentation / 1 + e <-° 03941>)
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Water Quality Trading Toolkit for Permit Writers
What are the Trading Mechanisms?
Trading of oxygen-demanding parameters occurs between two wastewater treatment plants
operated by Clean Water Services. In addition, a single wastewater treatment plant may trade
between CBOD and ammonia. Schedule D of the permit requires that Clean Water Services
report all trading credit for oxygen-demanding parameters in the monthly Discharge Moni-
toring Reporting forms submitted to Oregon DEQ. No other trading mechanisms are used to
facilitate trades of oxygen-demanding parameters.
The permit contains specific language about trade agreements for thermal load offsets. The
language is as follows (Oregon DEQ 2004):
The permittee may enter into one or more Thermal Credit Trading Agreements with
one or more reputable land or water conservation organizations or governmental
entities to implement one or more components of the Temperature Management
Plan. The permit specifies that the Thermal Credit Trading Agreements must include
the following terms:
•	A commitment by the Conservation Entity to fully implement the Trading Agree-
ment in accordance with its terms, including initial planting and long-term mainte-
nance, monitoring and reporting;
•	A provision that the Credit Trading Agreement is enforceable by Clean Water
Services and Oregon DEQ and any successor agency. A breach of the Credit Trad-
ing Agreement by the Conservation Entity shall not be deemed a violation of this
permit by the permittee. In the event of a breach, the permittee will be required
to update its Clean Water Services Temperature Management Plan to demonstrate
that they will still be able to offset the thermal load.
What is the Pollutant Trading Ratio?
Trading of oxygen-demanding parameters does not use a pollutant trade ratio. However, the
calculations used for trading oxygen-demanding parameters include equivalency factors that
take into account the different rates at which the river processes CBOD5 versus ammonia and
the different amounts of oxygen demand for each pound of material (Oregon DEQ No date).
The equivalency factors used in the calculations might be considered a form of pollutant trade
ratio.
The pollutant trading ratio used for thermal load offsets from stream surface shading is 2:1.
According to the permit fact sheet, "To compensate for the fact that the heat load offset
by shading will take years to establish, the Department has decided that at the end of the
20 years that the credit for shading is in effect, the offset heat load must be two times the
actual thermal load to be offset" (Oregon DEQ No date).

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Water Quality Trading Toolkit for Permit Writers
What Type of Monitoring is Performed?
Schedule B of the permit contains an initial watershed monitoring plan. The two facilities
eligible to trade oxygen-demanding parameters are required to monitor CBOD5 and ammonia
three times per week using a 24-hour composite sample. Monitoring for ammonia is required
daily during the ammonia reduction period.
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The draft Temperature Management Plan developed by Clean Water Services contains both
in-stream and effluent temperature monitoring requirements. For in-stream temperature
monitoring. Clean Water Services states that either grab samples or continuous monitor-
ing will be used with monitoring sites just upstream from the point of discharge and at the
edge of the mixing zone along the centerline of the plume (Clean Water Services 2003). For
effluent temperature monitoring. Clean Water Services will monitor before discharge using
thermistors in the waste stream at final treatment (Clean Water Services 2003). The Thermal
Load Credit Trading Plan will contain information on temperature monitoring in the context
of trading.
What are the Incentives for Trading?	g
For Clean Water Services, the incentive for offsetting thermal loads using shade credits as	s
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opposed to installing mechanical cooling equipment is the significant potential cost savings.	£
It would cost approximately $40 to $50 million to install the necessary refrigeration equip-	^
ment to comply at both facilities. The cost of riparian planting is estimated at $7 million over	g
a 5-year period. Therefore, Clean Water Services estimates a cost avoidance of approximately	S
$42 million over 5 years (Logue 2007).	•
What Water Quality Improvements Have Been Achieved?
In 2006 approximately 30,015 stream feet and seven landowners were enrolled in the ripar-
ian stream planting program. Those totals have gone up for 2007, with approximately 56,420
stream feet and 17 landowners enrolled in the program (Logue 2007). The water quality trad-
ing provision of Clean Water Services' permit has significantly increased the pace and quan-
tity of riparian area restoration in the Tualatin Basin (USEPA 2006). The additional miles of
stream planted will result in the prevention of 101 million/Kcal/day from reaching the Tuala-
tin River tributaries that would otherwise result in additional increases in water temperature
(USEPA 2006).
What Are the Potential Challenges in Using this Approach?
Ensuring that the necessary stream miles are shaded during the permit term may prove
challenging for Clean Water Services. Also, the uncertainty and variability associated with
riparian restoration projects may prove challenging in achieving the desired temperature
reductions over time.
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What Are the Potential Benefits?
Trading will allow Clean Water Services to improve the Tualatin River's water quality more
efficiently by using approaches that will provide additional environmental benefits to the
watershed.
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Applicable NPDES Permit Language
The watershed-based permit contains a significant amount of permit language relevant to
trading; therefore, it is too cumbersome to insert the relevant permit language in the fact
sheet. Copies of the permit are available at .
Contact Information
Charles Logue, P.E.
Director, Technical Services Department
Clean Water Services
(503)681-3604
loguec@cleanwaterservices.org
Lyle Christensen
NPDES Permit Writer
Oregon Department of Environmental Quality
(503)229-5295
Christensen. Lyle@deq.state.or.us
References and Resources
Clean Water Services. 2004. Revised Temperature Management Plan. August 20.
Logue, Charles. 2007. Personal communication. January 24.
Oregon DEQ (Oregon Department of Environmental Quality). 2004. National Pollutant
Discharge Elimination System Watershed-Based Waste Discharge Permit. Issued to Clean
Water Services and Washington County Department of Land Use and Transportation.
January, .
Oregon DEQ (Oregon Department of Environmental Quality). 2001. Tualatin River TMDL
.
Oregon DEQ (Oregon Department of Environmental Quality). 2004. Fact Sheet and NPDES
Wastewater Discharge Permit Evaluation, .
Oregon DEQ (Oregon Department of Environmental Quality). Draft Intergovernmental
Agreement between Oregon Department of Environmental Quality and Clean Water
Services.
USEPA (U.S. Environmental Protection Agency). 2006. Watershed-Based Permitting Case
Study: Tualatin River, Oregon, Clean Water Services. Draft Updated 9/29/06.

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Water Quality Trading Toolkit for Permit Writers
Water Quality Trading in the Chesapeake
Bay Watershed
Virginia's Nutrient Credit Exchange Program
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Overview
The Virginia Department of Environmental Quality (DEQ) 2004 Virginia Water Quality
Assessment 305(b)/303(d) Integrated Report (303(d) List of Impaired Waters) showed that
83 percent of the Chesapeake Bay mainstem was impaired and could not adequately sustain
its aquatic communities. Excessive nutrients (nitrogen and phosphorus) were causing algae
blooms, decreases in dissolved oxygen, and a decline in habitat availability. This not only
impaired the aquatic life of the Chesapeake Bay, it also took a toll on the food industry, tour-
ism, and the local residents of the surrounding watershed (DEQ 2006).
In March 2003, the Chesapeake Bay Program (CBP) adopted new nutrient reduction goals
as part of the Chesapeake 2000 Agreement. This agreement was established to protect and	^
restore water quality in the Chesapeake Bay by January 1, 2011. The nutrient reduction goals	§ 3
established in this agreement aim to decrease the amount of nitrogen and phosphorus enter-	^ c
ing the bay by 110 million and 6.3 million pounds per year, respectively. The CBP established	^
nutrient load allocations for each major watershed of the bay, and each state then developed	| j?
tributary strategies to achieve each watershed's nutrient reduction goals.
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The Virginia DEQ, in conjunction with the Virginia Department of Conservation and Recre-	j
ation (DCR) and EPA, developed a set of tributary strategies, one for each major watershed	n
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draining to the Chesapeake Bay in Virginia. These include the Rappahannock, York, James,
Shenandoah-Potomac, and the Eastern Shore watersheds. Each tributary strategy establishes
total nutrient load allocations for the point and nonpoint sources within each watershed and
outlines implementation plans to meet these allocations.
To help point and nonpoint sources meet nutrient load reduction goals in Virginia's tributary
strategies, on March 24, 2005, the Governor of Virginia signed legislation that authorized the
creation of the Chesapeake Bay Watershed Nutrient Credit Exchange Program (Exchange Pro-
gram), which was codified in Article 4.02 of the Code of Virginia. Virginia's Exchange Program
requires Virginia Pollutant Discharge Elimination System (VPDES) permitted facilities on the
CBP Significant Discharger List (significant dischargers) as well as new and expanding facili-
ties to register for coverage under the associated general permit to collectively meet annual	e1
nutrient load allocations established in the watershed. If point sources cannot achieve nutri-	5*
ent load reductions through facility upgrades, the Exchange Program authorizes nutrient	o
credit exchanges or payment into the Water Quality Improvement Fund2 (WQIF). Trades can	a,
be facilitated by the Virginia Nutrient Credit Exchange Association (the Exchange) or occur
directly between trading partners.
3*
S*
2 The purpose of Virginia's Water Quality Improvement Fund is, "to provide Water Quality Improvement Grants to
local governments, soil and water conservation districts, institutions of higher education and individuals for point
and nonpoint source pollution prevention, reduction and control programs and efforts" (Virginia Code section
10.1-2128 2006). The WQIF is established in section 10.1-2128 of the Code of Virginia.

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Water Quality Trading Toolkit for Permit Writers
Type of Trading	Pollutant (s) Traded
Point Source-Point Source (available	Total Nitrogen (TN) and
initially)	Total Phosphorus (TP)
Point Source-Nonpoint Source (anticipated
as the program develops further)
Number of Trades to Date
No trades to date; compliance plans for all significant dischargers are not due to be submit-
ted until August 1, 2007. These plans will detail how each facility will meet water quality
standards by January 1, 2011, as required by the Chesapeake 2000 Agreement. The DEQ will
review the plans and determine when each individual facility can begin nutrient trading.
Who Is Eligible to participate?
Every significant discharger authorized by a VPDES permit that meets specific discharge crite-
ria is required to register for coverage under the General VPDES Watershed Permit Regulation
for Total Nitrogen and Total Phosphorus Discharges and Nutrient Trading in the Chesapeake
Bay Watershed in Virginia (General Permit - VAN000000). Coverage under the general permit
provides these dischargers with the ability to participate in the Exchange Program; however,
participation in the Exchange Program is not required. The criteria for coverage under the
general permit include any of the following:
•	An existing facility that discharges 100,000 gallons or more per day from a wastewa-
ter treatment plant, or an equivalent load from an industrial process, directly into
tidal waters
•	An existing facility that discharges 500,000 gallons or more per day from a wastewa-
ter treatment plant, or an equivalent load from an industrial process, directly into
nontidal waters
•	A new or expanding facility that proposes to discharge 40,000 gallons or more per
day from a wastewater treatment plant, or an equivalent load from an industrial pro-
cess, directly into tidal or nontidal waters
There are 125 significant dischargers and about 12 new/expanding facilities required to regis-
ter for coverage under the permit and are therefore eligible for participation in the Exchange
Program. Other facilities can register for coverage under the permit to participate in the
Exchange Program; however, they are not expected to do so because they do not have load
limits imposed on them by the permit. Only significant dischargers can generate credits by
discharging under their permit limit. Other facilities can only purchase credits from significant
dischargers except for new/expanding facilities who can purchase credits achieved through
nonpoint source BMPs if those credits are used to offset additional discharge and if no credits
are available from existing significant dischargers in the same tributary watershed.
Each facility must complete a compliance plan by August 1, 2007, that explicitly details how
each facility will meet nutrient standards by the compliance date of January 1, 2011, as directed
by the Chesapeake 2000 Agreement. If the facility wishes to use nutrient credit trading to meet
nutrient standards, the compliance plan will specify how. The DEQ might adjust the tributary-
^ ^	wide compliance dates depending on their review of the individual facility compliance plans.

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Water Quality Trading Toolkit for Permit Writers
What Generated the Need for Trading?
The Chesapeake 2000 Agreement set a deadline of 2010 to correct water quality issues relat-
ed to excessive nutrients in the Bay and remove it from the 303(d) List of Impaired Waters. To
achieve this goal, it would cost the discharging facilities in the Chesapeake Bay watershed an
estimated $1.5 billion to upgrade their wastewater treatment technology (Exchange 2006).
However, there are limited funds, contractors, and construction resources available. A bal-
ance needed to be struck between meeting these new stringent load limits and allowing for
economic growth in the region and, as a result, the Exchange Program was developed to ease
the demands and costs of construction while ensuring compliance with both current VPDES
regulations and the Chesapeake 2000 Agreement.
What Serves as the Basis for Trading?
The Virginia tributary strategies describe the sources of nutrients in each of the major tribu-
taries and their contributions to the water quality issues in the Chesapeake Bay mainstem.
The CBP modeled the required nutrient load reductions for each major tributary. Table 1
presents the mass and percent reduction in TN and TP loading necessary for each watershed
to meet tributary strategy goals.
Table 1. Loading reductions needed to meet the TN and TP allocations for each
watershed.*
Watershed
Mass reduction*
Percent reduction
TN
TP
TN
TP
Rappahannock
2.66
0.33
34%
35%
Yorkb
2.00
0.27
26%
36%
Jamesb
10.86
2.54
29%
43%
Shenandoah-Potomac
9.96
0.56
44%
29%
Eastern Shore
0.94
0.15
45%
64%
Notes:
aIn millions of pounds
b Allocations are considered interim until further water quality standards are adopted.
* Reductions are based on the 2002 values from each watershed and are derived from the tributary strategies
(available for download at: http://www.naturalresources.virginia.gov/Initiatives/WaterQuality/).
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
A collaboration of federal and state government agencies, local universities, and the CBP com-
piled vast amounts of data for the development of the CBP Watershed Model. This model was
used to set wasteload allocations for each major tributary and set the stage for the nutrient
trading program. For more information on the watershed Model and other modeling tech-
niques used, visit the CBP modeling Web site (http://www.chesapeakebay.net/model.htm).
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The Chesapeake Bay Monitoring Program has assessed the chemical, physical, and biological
characteristics of various stations throughout the watershed since 1984. The data obtained
has aided in model improvement and helped to determine the need for a trading program.
A-105

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Water Quality Trading Toolkit for Permit Writers
Various other monitoring programs exist within the Chesapeake Bay watershed that also pro-
vide a wealth of information (http://www.chesapeakebay.net/monprgms.htm).
Are Permits Used to Facilitate Trades?
The DEQ has proposed the draft General VPDES Watershed Permit Regulation for Total Nitro-
gen and Total Phosphorus Discharges and Nutrient Trading in the Chesapeake Bay Water-
shed in Virginia (General Permit - VANOOOOOO). The general permit addresses the TN and TP
wasteload allocations (annual), compliance schedules, compliance plans, and monitoring/
reporting requirements for all significant and new/expanding dischargers in the Chesapeake
Bay. The public comment for the draft permit closed June 30, 2006. The Virginia State Water
Control Board (SWCB) approved the General Permit Regulation on September 6, 2006, and
the final permit was issued January 1, 2007. It will expire on December 31, 2011.
The general permit requires that all significant and new/expanding facilities in the Chesapeake
Bay register for coverage. The DEQ maintains registration lists of facilities in each tributary
covered by the general permit. These lists contain the load limits for the facilities that are
enforceable under the general permit (http://beta.deq.virginia.gov/vpdes/homepage.html).
The general permit supersedes the requirements of the facilities' individual VPDES permits
pertaining to TN and TP, except where site-specific conditions (e.g., local water quality stan-
dards, TMDLs, or federal effluent guidelines) necessitate more restrictive limits.
Covered facilities must meet standardized effluent limitations, conditions, and monitoring
requirements. The general permit establishes annual effluent loading limits for nitrogen
and phosphorus and establishes the conditions by which credits (the difference in pounds
between the facility's limit and the mass actually discharged) may be exchanged, or offsets
(an alternate nutrient removal mechanism) may be purchased by existing facilities whose
proposed expansion would otherwise cause the facilities to exceed their allocation or by new
and expanded facilities that do not have an assigned a wasteload allocation.
In addition to point source-point source trading among permitted facilities, covered dis-
chargers also have the option of complying with their existing load limits through treatment
technology upgrades and payment into the WQIF. Payments to the WQIF for compliance
credits are $11.06 for each pound of nitrogen and $5.04 for each pound of phosphorus.3
WQIF compliance credits are only available as an option of last resort if there are no credits
available through the Exchange.
Facilities seeking to offset proposed expansion or new construction have the additional
option of purchasing nutrient reductions generated by nonpoint source best management
practices (BMPs); the implementation process for this option is still under development. The
Exchange will facilitate these and similar trading scenarios for the permitted facilities of each
3 In 2002 the Nutrient Reduction Technology Task Force, assembled by the CBP, produced a report on the costs
of nutrient reduction technology to point sources in the Chesapeake Bay watershed (NRT report). After the
publication of the NRT report, Virginia developed tributary strategies with specific allocations and concentrations
for each significant point source discharger. Using cost information from the NRT report as well as the load limits
significant dischargers would be subject to and inflation since the report was published, the average cost per
pound of nitrogen or phosphorus reduction for Virginia POTWs was determined. The WQIF payments for the
general permit were set equal to this cost.

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Water Quality Trading Toolkit for Permit Writers

tributary that apply for voluntary membership. Permitted facilities choosing not to join the
Exchange still have the option of trading, but must seek out trading partners independently.
Tl
How Are Credits Generated for Trading?
When a facility discharges less than its annual TP or TN limit, the difference (in pounds)
between the limit and actual discharge will result in excess pounds available for conversion to
saleable nutrient exchange credits using an applicable delivery factor. Credits are expressed
as pounds per year of delivered TN or TP load. If a facility exceeds its TN or TP limit and
chooses to exchange credits, it can purchase nutrient reduction credits from a more efficient
point source facility.
What Are the Trading Mechanisms?
If a facility requests to have its annual load cap activated, that facility will be entitled to trade
and acquire nutrient credits. Each facility is required to generate an annual report. Due by
February 1 of each year, these reports indicate the number of nitrogen and phosphorus cred-
its to be acquired or exchanged by the facility. Trading partners are then established (by the
Exchange or individually) on the basis of credits generated and offsets required. Credits may	g* S-
be exchanged only between facilities within the same tributary watershed
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Facilities can conduct trading on an individual basis or can voluntarily participate in the	^
2 H
Exchange. The Exchange coordinates and facilitates nutrient credit trading among its mem-	2 2
bers. Authorized by the General Assembly, the Exchange is funded through the WQIF. Mem-	3'
CTQ
bership in the Exchange is free and open to all significant dischargers, and new/expanding	5'
el-
facilities interested in participating. A $1,000 membership fee for consultant affiliates applies	J*
(http://www.theexchangeassociation.org/Default.htm).	P
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•73
Owners of multiple facilities have the option of combining the nutrient caps of those facili-	2
ties, creating an aggregate nutrient cap. This allows the owner to meet the overall aggregate	^
cap through collectively managing the nutrient loads of each individual facility, essentially	^
creating its own trading network.	»
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What Is the Pollutant Trading Ratio?	^
The Exchange Program uses a delivery factor for point sources that takes into account dis-	S
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charge location within the watershed and nutrient attenuation during riverine transport. These	3'
a*
facility-specific delivery factors are calculated using the CBP Watershed Model. The model fac-	<•"
tors in the uptake of phosphorus during delivery caused by the movement of phosphorus-laden	£
sediment on river bottoms—in other words, the model occasionally generates a delivery ratio	§'
ft-
of greater than 1.00 (i.e., greater than 100 percent of the phosphorus is delivered to the Chesa-	qs
peake Bay). As a result, the DEQ decided to cap all ratios at 1.00 to provide a measure of con-	&
sistency and equity among dischargers. In addition to the use of the delivery factor described
above, offsets purchased from nonpoint source BMPs are traded at the ratio of 2 pounds
reduced by the BMP for every pound the new or expanding facility proposes to discharge.
A-107

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Water Quality Trading Toolkit for Permit Writers
What Type of Monitoring Is Performed?
Each facility is required to be in compliance with TN and TP final effluent limits included
in the general permit as soon as possible, but no later than January 1, 2011. The dates will
be subject to DEQ revisions according to individual compliance plans. The general permit
requires that monitoring and recordkeeping be conducted following approved methods.
Monitoring frequency is based on design flow and is conducted as shown in Table 2.
Table 2. Monitoring requirements for facilities covered under the general
permit
Design flow
> 20.00 mgd
1.00-19.99 mgd
0.04-0.99 mgd
Parameter
Monitoring sample type/frequency
Total nitrogen
24 HC*/
3 days per week
24 HC/
1 days per week
8 HC/
2 per month
(> 7 days apart)
Total phosphorus
24 HC/
3 days per week
24 HC/
1 days per week
8 HC/
2 per month
(> 7 days apart)
*HC = hour composite (e.g. 24 HC = 24-hour composite sample)
Total monthly and year-to-date mass loads must be calculated as follows:
ML = ML * d
avg
ML = total monthly load (lbs/mo)
ML = monthly average load as reported on discharge monitoring report (lbs/day)
d = number of discharge days in sampling month
AL- YTD = I, ...ML
(January - current month)
AL-YTD = calendar year-to-date annual load (lbs/yr)
ML = total monthly load (lbs/mo) as reported on discharge monitoring report
Reporting dates are determined for each facility and are due the same date each month.
Annual reports are due to the Exchange on or before February 1 of each year. These reports
include the previous year's annual mass loads of TN and TP, the delivered total loads of nitro-
gen and phosphorus, and the number of nitrogen and phosphorus credits to be acquired or
exchanged. For more information on the VPDES General Permit program and the Virginia
nutrient trading program legislation and regulations, see http://www.deq.state.va.us/vpdes/.
What Are the Incentives for Trading?
The Exchange Program provides facilities with a flexible approach to meeting nutrient load
allocations set forth in VPDES general permit, taken from the tributary strategies. Upgrading
existing treatment systems would be expensive and could hinder growth within the Chesa-
peake Bay watershed. The Exchange Program, on the other hand, offers a market-based and
cost-effective method for meeting nutrient caps while accommodating continued growth
and development. It also allows for new upgrades to be phased in, easing construction and
resource demand while expediting the process of meeting nutrient load allocations by the
January 1, 2011, deadline.

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Water Quality Trading Toolkit for Permit Writers
What Water Quality Improvements Have Been Achieved?
No trading has occurred under the Exchange Program; therefore, no water quality improve-
ments associated with nutrient trading in the Chesapeake Bay watershed have been made.
tfl
What Are the Potential Challenges in Using This Trading
Approach?
Point source-point source trading will be conceptually easier than point source-nonpoint
source trading, primarily because the previous year's effluent data from all potential trad-
ing partners will have been reported to, and published by, DEQ. Prospective trading partners
should have little difficulty in identifying each other, and the regulation requires that facili-
ties report their trades in sufficient time for DEQ to ascertain the compliance status of the
respective facilities.
Nonpoint source trading brings about several potential challenges. Estimating nonpoint
source loading and BMP load reductions is a difficult task. Inspecting nonpoint source BMP
installation and implementation also poses a number of challenges because of questions sur-
rounding enforceability, pollutant removal effectiveness, and monitoring. These issues are
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What Are the Potential Benefits?
Trading offers a much more flexible approach to achieving nutrient load allocations for
permitted significant dischargers. A number of options are available for facilities as opposed
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to solely employing costly treatment upgrades. Compliance could be achieved cooperatively
a>
with other facilities providing faster and more cost-effective results. If a facility decides to	n
upgrade treatment technology, there is the possibility of offsetting the associated costs
through the trading program. In some cases, and as a last resort, compliance may be achieved
by simply making a payment to the WQIF.
The local food industry, tourists, and residents of the surrounding watershed all have the
potential to benefit from the trading program because of its ability to expedite water quality
improvement.
Applicable NPDES Permit Language
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The following is pertinent language found in the general permit (9 VAC 25-820-10 et seq.):
£
PART I
SPECIAL CONDITIONS APPLICABLE TO ALL FACILITIES.	*
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J. Compliance with wasteload allocations.
1. Methods of Compliance. The permitted facility shall comply with its wasteload allo-
cation contained in the registration list maintained by the Department. The permit-
ted facility shall be in compliance with its wasteload allocation if:
a. the annual mass load is less than, or equal to, the applicable wasteload alloca-
tion assigned to the facility in this general permit (or permitted design capacity
for expanded facilities without allocations);	A-109

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Water Quality Trading Toolkit for Permit Writers
A-110
b.	the permitted facility acquires sufficient point source nitrogen or phosphorus
credits in accordance with paragraph 2. of this subsection; provided, however,
that the acquisition of nitrogen or phosphorus credits pursuant to this section
shall not alter or otherwise affect the individual wasteload allocations for each
permitted facility, or
c.	in the event it is unable to meet the individual wasteload allocation pursuant to
a. or b. (above), the permitted facility acquires sufficient nitrogen or phospho-
rus credits through payments made into the Water Quality Improvement Fund
pursuant to paragraph 3. of this subsection; provided, however, that the acquisi-
tion of nitrogen or phosphorus credits pursuant to this section shall not alter or
otherwise affect the individual wasteload allocations for each permitted facility.
2.	Credit acquisition from permitted facilities. A permittee may acquire point source
nitrogen credits or point source phosphorus credits from one or more permitted
facilities with wasteload allocations [in Subsection C of Sections 50, 60, 70, 110 and
120 of the Water Quality Management Planning Regulation (9 VAC 25-720), includ-
ing the Blue Plains wastewater treatment facility operated by the District of Colum-
bia Water and Sewer Authority, only if:
a.	the credits are generated and applied to a compliance obligation in the same
calendar year,
b.	the credits are generated by one or more permitted facilities in the same
tributary,
c.	the exchange or acquisition of credits does not affect any requirement to com-
ply with local water quality-based limitations,
d.	the credits are acquired no later than June 1 immediately following the calendar
year in which the credits are applied,
e.	the credits are generated by a facility that has been constructed, and has
discharged from treatment works whose design flow or equivalent industrial
activity is the basis for the facility's wasteload allocations (until a facility is con-
structed and has commenced operation, such credits are held, and may be sold,
by the Water Quality Improvement Fund), and
f.	no later than June 1 immediately following the calendar year in which the
credits are applied, the permittee certifies on a credit exchange notification
form supplied by the Department that he has acquired sufficient credits to sat-
isfy his compliance obligations. The permittee shall comply with the terms and
conditions contained in the credit exchange notification form submitted to the
Department.
3.	Credit acquisitions from the Water Quality Improvement Fund. Until such time as
the Board finds that no allocations are reasonably available in an individual tribu-
tary, permittees that cannot meet their Total Nitrogen or Total Phosphorus efflu-
ent limit may acquire nitrogen or phosphorus credits through payments made into
the Virginia Water Quality Improvement Fund established in § 10.1-2128 only if, no
later than June 1 immediately following the calendar year in which the credits are
to be applied, the permittee certifies on a form supplied by the Department that
he has diligently sought, but has been unable to acquire, sufficient credits to sat-
isfy his compliance obligations through the acquisition of point source nitrogen or
phosphorus credits with other permitted facilities in the same tributary, and that

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Water Quality Trading Toolkit for Permit Writers
he has acquired sufficient credits to satisfy his compliance obligations through one
or more payments made in accordance with the terms of this general permit. Such
certification may include, but not be limited to, providing a record of solicitation or
demonstration that point source allocations are not available for sale in the tribu-
tary in which the permittee is located. Payments to the Water Quality Improvement
Fund shall be in the amount of $11.06 for each pound of nitrogen and $5.04 for each
I—H
pound of phosphorus, and shall be subject to the following requirements:
a.	the credits are generated and applied to a compliance obligation in the same
calendar year,
b.	the credits are generated in the same tributary,
c.	the acquisition of credits does not affect any requirement to comply with local
water quality-based limitations, as determined by the board.
4. This general permit neither requires, nor prohibits, a municipality or regional sewer-
age authority's development and implementation of trading programs among indus-
trial users, which are consistent with the pretreatment regulatory requirements at 40
CFR Part 403 and the municipality's or authority's individual VPDES permit.
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PART II	I* £
SPECIAL CONDITIONS APPLICABLE TO NEW AND EXPANDED FACILITIES	"S <9
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B. Acquisition of Wasteload Allocations.	2
3 2
5;
Wasteload allocations required by this section to offset new or increased delivered total	w
nitrogen and delivered total phosphorus loads shall be acquired in accordance with this	®
section.
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1. Such allocations may be acquired from one or a combination of the following:	»
13
a.	Acquisition of all or a portion of the wasteload allocations from one or more
permitted facilities, based on delivered pounds by the respective trading parties	«
SD
as listed by the Department.	^
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b.	Acquisition of nonpoint source load allocations, using a trading ratio of two	j?
pounds reduced for every pound to be discharged, through the use of best S*
management practices that are:
(i)	Acquired through a public, or private entity acting on behalf of the land	S
owner; g-
s;
(ii)	Calculated using best management practices efficiency rates and attenua-	^
tion rates, as established by the latest science and relevant technical informa- q-
tion, and approved by the board];	§
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(iii)	Based on appropriate delivery factors, as established by the latest science
and relevant technical information, and approved by the board;	"
(iv)	Demonstrated to have achieved reductions beyond those already required
by or funded under federal or state law, or by the Virginia tributaries strategies
plans, and
(v)	Included as conditions of the facility's individual Virginia Pollutant Discharge
Elimination System permit; or
A-lll

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Water Quality Trading Toolkit for Permit Writers
A-112
c.	Until such time as the Board finds that no allocations are reasonably available in
an individual tributary, acquisition of allocations through payments made into
the Virginia Water Quality Improvement Fund established in § 10.1-2128; or
d.	Acquisition of allocations through such other means as may be approved by the
Department on a case-by-case basis.
2.	Acquisition of allocations is subject to the following conditions:
a.	the allocations shall be generated and applied to an offset obligation in the
same calendar year;
b.	the allocations shall be generated in the same tributary;
c.	such acquisition does not affect any requirement to comply with local water
quality-based limitations, as determined by the board;
d.	the allocations are authenticated (i.e., verified to have been generated) by the
permittee as required by the facility's individual Virginia Pollutant Discharge
Elimination permit, utilizing procedures approved by the Board, no later than
February 1 immediately following the calendar year in which the allocations are
applied;
e.	if obtained from a permitted point source, the allocations shall be generated by
a facility that has been constructed, and has discharged from treatment works
whose design flow or equivalent industrial activity is the basis for the facility's
wasteload allocations, and
f.	no later than June 1 in the year prior to the calendar year in which the alloca-
tions are to be applied, the permittee shall certify on an exchange notification
form supplied by the Department that he has acquired sufficient allocations to
satisfy his compliance obligations. The permittee shall comply with the terms
and conditions contained in the exchange notification form submitted to the
Department.
3.	Priority of Options. The Board shall give priority to allocations acquired in accor-
dance with subdivisions B.1.a and B.1.b. of this section. The Board shall approve allo-
cations acquired in accordance with subdivisions B.1.c and B.1.d of this section only
after the owner or operator has demonstrated that he has made a good faith effort
to acquire sufficient allocations in accordance with subdivisions B.1.a and B.1.b, and
that such allocations are not reasonably available taking into account timing, cost
and other relevant factors. Such demonstration may include, but not be limited to,
providing a record of solicitation, or other demonstration that point source alloca-
tions or nonpoint source allocations are not available for sale in the tributary in
which the permittee is located.
4.	Annual allocation acquisitions from the Water Quality Improvement Fund. The cost
for each pound of nitrogen and each pound of phosphorus shall be determined at
the time payment is made to the WQIF, based on the higher of (i) the estimated
cost of achieving a reduction of one pound of nitrogen or phosphorus at the facility
that is securing the allocation, or comparable facility, for each pound of allocation
acquired; or (ii) the average cost, as determined by the Department of Conservation
and Recreation on an annual basis, of reducing two pounds of nitrogen or phos-
phorus from nonpoint sources in the same tributary for each pound of allocation
acquired.

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Water Quality Trading Toolkit for Permit Writers
Contact Information
>
Virginia Department of Environmental Quality
Kyle Ivar Winter, P.E.
Manager, Office of Water Permit Programs
Virginia Department of Environmental Quality
(804) 698-4182
kiwinter@deq.virginia.gov
>
Allan Brockenbrough, II, P.E.
Office of Water Permit Programs
Virginia Department of Environmental Quality
(804)698-4147
abrockenbrough@deq.virginia.gov
Virginia Department of Conservation and Recreation
Jack E. Frye
Director, Soil and Water Conservation Division
Virginia Department of Conservation and Recreation	^
(804) 786-6523	f *
Jack.Frye@dcr.virginia.gov
chris@aqualaw.com
Glenn Harvey
(703) 549-3381 Ext. 2205
gbharvey@alexsan.com
References and Resources
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The Virginia Nutrient Credit Exchange Association	| h
Mark Haley	5;
President	°S.
(804) 541-2210	g:
mhaley@hrwtf.org	n
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Chris Pomeroy	^
(804) 716-9021	**
03
0)
a-
s*
DCR (Virginia Department of Conservation and Recreation). 2006. Soil and Water	jz;
Conservation: Virginia's Nutrient Management Program Web site.	2.
.	S
o
a-
DEQ (Virginia Department of Environmental Quality). 2006. Permit to control and trade	fc"
nutrients within the Chesapeake Bay watershed—Frequently Asked Questions.
.
Pomeroy, C.D., D.E. Evans, and S.T. Leeth, 2005. Nutrient Credit Trading: The New Bay Cleanup
Tool. Virginia Lawyer 54(3):38-40.
.
A-113

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Water Quality Trading Toolkit for Permit Writers
The Chesapeake Bay Program. Water Quality Protection and Restoration Web site.
Data Viewer 
Nutrient Trading Web site: 
Modeling Web site: 
Monitoring Programs Web site: 
Water Quality Web site: 
The Commonwealth of Virginia—Secretary of Natural Resources. 2006. Statewide Tributary
Strategies. .
The Virginia Nutrient Credit Exchange Association. 2006. Outreach Brochure.
.
Exchange (The Virginia Nutrient Credit Exchange Association). 2006.
.
USEPA (United States Environmental Protection Agency). 2003. Setting and Allocating the
Chesapeake Bay Basin Nutrient and Sediment Loads: The Collaborative Process, Technical
Tools, and Innovative Approaches. Available for download at:
.
Virginia Code section 10.1-2128. Virginia Water Quality Improvement Fund established;
purposes. 2006. .

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Water Quality Trading Toolkit for Permit Writers
Red Cedar River Nutrient Trading Pilot	>
Program
Wisconsin
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Overview
Facing stringent phosphorus discharge limits, the city of Cumberland participated in a trading
pilot project that involves paying farmers in the Red Cedar River watershed to install non-
point source best management practices (BMPs). The nonpoint source BMPs reduce phospho-
rus discharges to the Red Cedar watershed and offset the phosphorus discharge from the City
of Cumberland's publicly owned treatment works (POTW), helping the city to avoid costly
upgrades.
Type of Trading	Pollutant (s) Traded
Point Source-Nonpoint Source	Phosphorus	pa
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Number of Trades to Date
More than 60 BMPs purchased
What Generated the Need for Trading?
Eutrophication and algal blooms in Tainter Lake in the Red Cedar River watershed catalyzed
watershed-wide management (Breetz et al. 2004). The mandated 1 mg/L phosphorus dis-
charge limit for municipal wastewater treatment plants, and the challenge to achieve this
limit, generated the need for trading. The 1 mg/L phosphorus discharge limit required of
Cumberland's POTW caused the city to pursue water quality trading as a means of reducing
compliance costs. The city believed that reducing phosphorus through nonpoint source dis-
charges rather than removing chemical phosphorus at the POTW would benefit the water-
shed (Breetz et al. 2004).
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Who Is Eligible to Participate?	«
Eligible participants include the city of Cumberland's POTW and farmers in the Red Cedar	JL
River watershed.	&
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What Serves as the Basis for Trading?
The primary regulatory driver for point sources is Chapter NR 217 of the Wisconsin Administra-
tive Code. Chapter NR 217 mandated 1 mg/L phosphorus discharge limits for municipal treat-
ment plants with a monthly discharge exceeding 150 pounds of phosphorus and industrial
sources with a monthly discharge exceeding 60 pounds of phosphorus (Breetz et al. 2004).
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Water Quality Trading Toolkit for Permit Writers
What Types of Data and Methodologies Were Used to Calculate
the Basis for Trading?
Cumberland was required to purchase 4,400 pounds of phosphorus credits to offset the phos-
phorus discharge from its POTW (Breetz et al. 2004). To determine the amount of phospho-
rus credits that the city had to purchase, calculations traditionally used in nonpoint source
management programs that quantify soil delivery reductions and associated reductions in
phosphorus loading were used (Prusak 2004).
Two computer models have been used to facilitate development of the trading pilot program
in the Red Cedar River watershed. The first model was the Simulator for Water Resources in
Rural Basins, used to help establish loading rates and make allocations to various land uses.
The SWAT model is now being used for other impoundments in the watershed. Results from
both models will help to establish goals and reduction rates (WDNR 2002).
Are Permits Used to Facilitate Trades?
The NPDES permit for the city of Cumberland's POTW states that the city must commit to
trading or take actions to meet the 1 mg/L standard; the permit does not contain language
that specifies the details of the trading program (Environomics 1999). An agreement between
the Wisconsin Department of Natural Resources (WDNR) and the city contains the details of
the trading program, including implementation milestones (Environomics 1999).
How Are Credits Generated for Trading?
The phosphorus reduction credits associated with a BMP were estimated using phosphorus
loading models developed for and used by many Priority Watershed projects. All the trades
have involved nutrient management planning or no-tillage, which are well-established and
well-understood practices. Dischargers may trade only to meet phosphorus requirements and
farmers may receive payment for a BMP for 3 years (Breetz et al. 2004).
What Are the Trading Mechanisms?
The Barren County Land Conservation Department serves as a third-party facilitator, negoti-
ating with farmers and establishing contracts between participating farmers and Cumberland
(Breetz et al. 2004).
What Is the Pollutant Trading Ratio?
Initially, the WDNR proposed a trading ratio of 20:1, expecting the city of Cumberland to
negotiate for a smaller ratio. Eventually a trading ratio of 2:1 was agreed upon by WDNR and
the city (Prusak 2004).
What Type of Monitoring Is Performed?
The Barron County Land Conservation Department and Cumberland evaluated landown-
ers according to the trading area criteria. Soil testing of each field was done to calculate the
phosphorus delivery to the stream from the field where the BMP was used (Breetz et al. 2004).
Additional monitoring is taking place to help calibrate the SWAT model (WDNR 2002).

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Water Quality Trading Toolkit for Permit Writers
What Are the Incentives for Trading?
The city of Cumberland believed that participating in a trading program to promote nonpoint
source phosphorus reductions would be beneficial to the watershed and would not require
an investment for phosphorus controls at the POTW. However, the WDNR's fourth progress
report on the trading of water pollution credits stated that the effluent limit of 1 mg/L was
not an adequate driver for a trading program; a total maximum daily load (TMDL) is needed
to generate interest (WDNR 2002).
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What Water Quality Improvements Have Been Achieved?
Water quality improvements are unknown. However, in 2001 the city of Cumberland paid 22
landowners a total of $14,526, primarily for reduced tillage on lands showing excessive phos-
phorus in soil tests. These trades resulted in 5,000 pounds of phosphorus credits, although
Cumberland was required to reduce phosphorus by only 4,400 pounds. Approximately the
same number of farmers participated in 2002, 2003, and 2004. The number of acres enrolled
in the program increased from 720 in 2003 to 891 in 2004. In 2004 Cumberland paid 21
landowners a total of $17,659.45 for no-till planting and reduced conservation tillage that
resulted in 9,584 lbs of phosphorus saved. As of 2004, Cumberland has paid a total of $58,000
to remove a total of 31,500 lbs of phosphorus (WDNR 2006). It is anticipated that the city
will continue trading until it becomes impossible to secure enough nonpoint source credits
(Breetz et al. 2004).	^
What Are the Potential Challenges in Using This Trading
Approach?
One challenge associated with the Red Cedar River Trading Pilot Program is determining a
precise phosphorus credit for BMPs. Other challenges cited by the WDNR include develop-
ing an agreed-upon set of tools for quantifying phosphorus reduction loads from BMPs and
generating an incentive for participation without a TMDL in place (WDNR 2002).
What Are the Potential Benefits?
Through the Red Cedar River Trading Pilot Program, the watershed could benefit in the long
term from the installation of BMPs. The city of Cumberland will pay for only one BMP for
3 years, and after that will find different landowners to generate credits through new BMPs.
The hope is that the original BMPs will remain up and running in the watershed after the
3-year, credit-generating period (WDNR 2002). The BMPs installed through the program
reduce phosphorus loads in part by reducing sediment loads to the watershed; therefore, the
Red Cedar River watershed is receiving an additional water quality benefit (Prusak 2004).
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Applicable NPDES Permit Language
4.0	Schedules of Compliance
4.1	Phosphorus
Pursuant to s. 283.84, Stats., the 1.0 mg/L phosphorus limitation is held in abeyance
as long as the permittee is active in the Red Cedar River Watershed Pilot Project. If
the permittee stops participating or the pilot terminates, the permittee shall take
steps to achieve total phosphorus limits.

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Water Quality Trading Toolkit for Permit Writers
Required Action
Letter of Intent: The permittee must submit a letter of intent to the Department
regarding pollutant trading. The letter of intent shall indicate whether the permit-
tee intends to continue the Red Cedar River Watershed Pilot Project or proceed with
adjustments/modifications to the facility to achieve compliance with the phospho-
rus limitation. If the letter of intent states that the permittee does not intend to
continue trading, then the permittee shall proceed with modifications to the plant
(or adjust plant operations) to achieve compliance with phosphorus limitation by a
deadline established by the Department.
Contact Information
Peter Prusak
Basin Engineer
Wisconsin Department of Natural Resources
(715) 822-2152
peter. prusak@dnr.state.wi.us
James Baumann
Wisconsin Department of Natural Resources
(608)266-9277
james.baumann@dnr.state.wi.us
Resources and References
Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water
Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth
College, Hanover, NH.
Environomics. 1999. A summary of U.S. Effluent Trading and Offset Projects. Prepared
for Dr. Mahesh Podar, U.S. Environmental Protection Agency, Office of Water, by
Environomics. November.
Kramer, J.M. 2003. Lessons from the Trading Pilots: Applications for Wisconsin Water Quality
Trading Policy. Prepared for the Fox-Wolf Watershed Alliance. July 8.
.
Prusak, Peter. 2004. Personal communication. September 30.
WDNR (Wisconsin Department of Natural Resources). 2002. Fourth Progress Report on the
Trading of Water Pollution Credits. Submitted to the Governor in October 2002.
.
WDNR (Wisconsin Department of Natural Resources). 2006. Watershed Based Pollutant
Trading web site, .
Accessed January 24, 2007.

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Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy
Appendix B
US EPA Office of Water,
Water Quality Trading Policy
Contents
Water Quality Trading Policy
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Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
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Office of Water
Water Quality Trading Policy
January 13, 2003
I. Background and Purpose of the Policy
The Clean Water Act (CWA)1 was enacted in 1972 to restore and maintain the chemical,
physical, and biological integrity of the nation's waters. It established a national policy
that called for the discharge of pollutants to be eliminated and established interim goals
for protecting fish, wildlife and recreational uses. The CWA also established a national
policy for development and implementation of programs so the goals of the Act could be
met through controls of point and nonpoint sources of pollution. Congress recognized
and preserved the primary responsibilities and rights of the States to prevent, reduce and
eliminate pollution.
The application of technology and water quality based requirements through the National
Pollutant Discharge Elimination System (NPDES) permit program has achieved and
remains critical to success in controlling point source pollution and restoring the nation's
waters. Despite these accomplishments approximately 40% of the rivers, 45% of the
streams and 50% of the lakes that have been assessed still do not support their designated
uses . Sources of pollution such as urban storm water, agricultural runoff and
atmospheric deposition continue to threaten our nation's waters. Nutrient and sediment
loading from agriculture and storm water are significant contributors to water quality
problems such as hypoxia in the Gulf of Mexico and decreased fish populations in
Chesapeake Bay. Population growth and development place increasing demands on the
environment making it more difficult to achieve and maintain water quality standards.
Finding solutions to these complex water quality problems requires innovative
approaches that are aligned with core water programs. Water quality trading is an
approach that offers greater efficiency in achieving water quality goals on a watershed
basis. It allows one source to meet its regulatory obligations by using pollutant
reductions created by another source that has lower pollution control costs. Trading
capitalizes on economies of scale and the control cost differentials among and between
sources.
The United States Environmental Protection Agency (EPA) believes that market-based
approaches such as water quality trading provide greater flexibility and have potential to
achieve water quality and environmental benefits greater than would otherwise be
achieved under more traditional regulatory approaches. Market-based programs can
1	Federal Water Pollution Control Act (Public Law 92-500, as amended), 33 U.S.C. Sec. 1251, et. seg.
2	About 33 percent of the nation's waters have been assessed by States and tribes pursuant to Section
305(b) of the Clean Water Act (National Water Quality Inventory: 2000 Report, EPA). The proportion of
non-assessed water that do not meet designated uses is likely lower since assessments tend to be focused in
known problem areas.
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Water Quality Trading Toolkit for Permit Writers
USEPA	Office of Water
Water Quality Trading Policy Statement
achieve water quality goals at a substantial economic savings. EPA estimates that in
1997 annual private point source control costs were about $14 billion and public point
source costs were about $34 billion3. The National Cost to Implement Total Maximum
Daily Loads (TMDLs) Draft Report estimates that flexible approaches to improving
water quality could save $900 million dollars annually compared to the least flexible
approach (EPA, August 2001). Nitrogen trading among publicly owned treatment works
in Connecticut that discharge into Long Island Sound is expected to achieve the required
reductions under a TMDL while saving over $200 million dollars in control costs.
Market-based approaches can also create economic incentives for innovation, emerging
technology, voluntary pollution reductions and greater efficiency in improving the quality
of the nation's waters.
The purpose of this policy is to encourage states, interstate agencies and tribes to develop
and implement water quality trading programs for nutrients, sediments and other
pollutants where opportunities exist to achieve water quality improvements at reduced
costs. More specifically, the policy is intended to encourage voluntary trading programs
that facilitate implementation of TMDLs, reduce the costs of compliance with C WA
regulations, establish incentives for voluntary reductions and promote watershed-based
initiatives. A number of states are in various stages of developing trading programs.
This policy provides guidance for states, interstate agencies and tribes to assist them in
developing and implementing such programs.
This policy addresses issues left open by and limitations encountered implementing
projects and programs under EPA's January 1996 Effluent Trading In Watersheds Policy
and May 1996 Draft Framework for Watershed-Based Trading ("Draft Framework").
This policy should be given precedence over any inconsistencies with the Draft
Framework.
This policy draws upon lessons from a number of recent pilot trading projects and state
experiences in developing water quality trading programs. These initiatives demonstrate
how trading can occur under the CWA and existing federal regulations. They illustrate
the importance of voluntary watershed-based partnerships, inter-agency cooperation and
public participation in implementation of trading programs. They show that flexible
market-based approaches can facilitate states and tribes finding solutions to complex and
diverse water quality and socioeconomic issues. These efforts have also highlighted the
importance of keeping transaction and administrative costs manageable while retaining
accountability. The lessons learned from these efforts have informed the development of
this policy.
This policy describes various requirements of the CWA and implementing regulations
that are relevant to water quality trading, including: requirements to obtain permits
(Sections 402 and 404), antibacksliding provisions (Section 303(d)(4) and Section
402(o)), the development of water quality standards including antidegradation policy
(Section 303(c)), federal NPDES permit regulations (40 CFR Parts 122, 123 and 124),
TMDLs (Section 303d(l)) and water quality management plans (40 CFR Part 130).
3 A Retrospective Assessment of the Costs of the Clean Water Act: 1972 - 1997 (EPA October, 2000).

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II. Trading Objectives
EPA supports implementation of water quality trading by states, interstate agencies and
tribes where trading:
A.	Achieves early reductions and progress towards water quality standards pending
development of TMDLs for impaired waters.
B.	Reduces the cost of implementing TMDLs through greater efficiency and flexible
approaches.
C.	Establishes economic incentives for voluntary pollutant reductions from point and
nonpoint sources within a watershed.
D.	Reduces the cost of compliance with water quality-based requirements.
E.	Offsets new or increased discharges resulting from growth in order to maintain
levels of water quality that support all designated uses.
F.	Achieves greater environmental benefits than those under existing regulatory
programs. EPA supports the creation of water quality trading credits in ways that
achieve ancillary environmental benefits beyond the required reductions in
specific pollutant loads, such as the creation and restoration of wetlands,
floodplains and wildlife and/or waterfowl habitat.
G.	Secures long-term improvements in water quality through the purchase and
retirement of credits by any entity.
H.	Combines ecological services to achieve multiple environmental and economic
benefits, such as wetland restoration or the implementation of management
practices that improve water quality and habitat.
USEPA	Office of Water
Water Quality Trading Policy Statement
These CWA provisions and regulations contain legally binding requirements. This policy
does not substitute for those provisions or requirements. In addition, this policy identifies
general elements and provisions that EPA believes are important for creating credible
water quality trading programs.
When EPA makes a decision with regard to any particular permit, TMDL, water quality
standards or water quality management plan that includes provisions for trading to occur,
it will make each decision on a case-by-case basis guided by the applicable requirements
of the CWA and implementing regulations and the specific facts and circumstances
involved.
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USEPA	Office of Water
Water Quality Trading Policy Statement
III. Water Quality Trading Policy Statement
A.	CWA Requirements. Water quality trading and other market-based programs
must be consistent with the CWA.
B.	Trading Areas. All water quality trading should occur within a watershed or a
defined area for which a TMDL has been approved. Establishing defined trading
areas that coincide with a watershed or TMDL boundary results in trades that
affect the same water body or stream segment and helps ensure that water quality
standards are maintained or achieved throughout the trading area and contiguous
waters.
C.	Pollutants and Parameters Traded. EPA supports trading that involves nutrients
(e.g., total phosphorus and total nitrogen) or sediment loads. In addition, EPA
recognizes that trading of pollutants other than nutrients and sediments has the
potential to improve water quality and achieve ancillary environmental benefits if
trades and trading programs are properly designed. EPA believes that such trades
may pose a higher level of risk and should receive a higher level of scrutiny to
ensure that they are consistent with water quality standards. EPA may support
trades that involve pollutants other than nutrients and sediments on a case-by-case
basis where prior approval is provided through an NPDES permit, a TMDL or in
the context of a watershed plan or pilot trading project that is supported by a state,
tribe or EPA.
EPA also supports cross-pollutant trading for oxygen-related pollutants where
adequate information exists to establish and correlate impacts on water quality.
Reducing upstream nutrient levels to offset a downstream biochemical oxygen
demand or to improve a depressed in-stream dissolved oxygen level are examples
of cross-pollutant trading.
EPA does not currently support trading of pollutants considered by EPA to be
persistent bioaccumulative toxics (PBTs). EPA would consider a limited number
of pilot projects over the next two to three years to obtain more information
regarding trading of PBTs. EPA believes pilot projects may be appropriate where
the predominant loads do not come from point sources, trading achieves a
substantial reduction of the PBT traded and where trading does not cause an
exceedance of an aquatic life or human health criterion. Based on the findings of
these pilot projects, EPA will consider making revisions to its policy.
Where state or tribal water quality standards allow for mixing zones, EPA does
not support any trading activity that would exceed an acute aquatic life criteria
within a mixing zone or a chronic aquatic life or human health criteria at the edge
of a mixing zone using design flows specified in the water quality standards.
D.	Baselines for Water Quality Trading. As explained below, the baselines for
generating pollution reduction credits should be derived from and consistent with

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Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy
USEPA	Office of Water
Water Quality Trading Policy Statement
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water quality standards. The term pollution reduction credits ("credits"), as used
in this policy, means pollutant reductions greater than those required by a
regulatory requirement or established under a TMDL.
For example, where a TMDL has been approved or established by EPA, the
applicable point source waste load allocation or nonpoint source load allocation
would establish the baselines for generating credits. For trades that occur where
water quality fully supports designated uses, or in impaired waters prior to a
TMDL being established, the baseline for point sources should be established by
the applicable water quality based effluent limitation, a quantified performance
requirement or a management practice derived from water quality standards. In
these scenarios the baseline for nonpoint sources should be the level of pollutant
load associated with existing land uses and management practices that comply
with applicable state, local or tribal regulations.
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E. When Trading May Occur.
1. Trading to Maintain Water Quality Standards. Trading may be used to
maintain high water quality in waters where water quality standards are attained,
such as by compensating for new or increased discharges of pollutants.
2. Pre-TMDL Trading In Impaired Waters. EPA supports pre-TMDL trading
in impaired waters to achieve progress towards or the attainment of water quality
standards. EPA believes this may be accomplished by individual trades that
achieve a net reduction of the pollutant traded or by watershed-scale trading
programs that reduce loadings to a specified cap supported by baseline
information on pollutant sources and loadings.
EPA also supports pre-TMDL trading that achieves a direct environmental benefit
relevant to the conditions or causes of impairment to achieve progress towards
restoring designated uses where reducing pollutant loads alone is not sufficient or
as cost-effective.
If pre-TMDL trading does not result in the attainment of applicable water quality
standards, EPA expects a TMDL to be developed. After a TMDL has been
approved or established by EPA, the reductions made to generate credits for pre-
TMDL trading may no longer be adequate to generate credits under the TMDL.
This will depend on the remaining level of reduction needed to achieve water
quality standards and, where applicable, the allocation of point and nonpoint
source pollutant loads established by the TMDL.
3. TMDL Trading. Trades and trading programs in impaired waters for
which a TMDL has been approved or established by EPA should be consistent
with the assumptions and requirements upon which the TMDL is established.
EPA encourages the inclusion of specific trading provisions in the TMDL itself,
in NPDES permits, in watershed plans and the continuing planning process.	B-5

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USEPA	Office of Water
Water Quality Trading Policy Statement
EPA does not support any trading activity that would delay implementation of a
TMDL approved or established by EPA or that would cause the combined point
source and nonpoint source loadings to exceed the cap established by a TMDL.
4.	Technology-Based Trading. EPA does not support trading to comply with
existing technology-based effluent limitations except as expressly authorized by
federal regulations. Existing technology-based effluent guidelines for the iron
and steel industry allow intraplant trading of conventional, nonconventional and
toxic pollutants between outfalls under certain circumstances (40 CFR 420.03).
EPA will consider including provisions for trading in the development of new
and revised technology-based effluent guidelines and other regulations to achieve
technology-based requirements, reduce implementation costs and increase
environmental benefits.
5.	Pretreatment Trading. EPA supports a municipality or regional sewerage
authority developing and implementing trading programs among industrial users
that are consistent with the pretreatment regulatory requirements at 40 CFR Part
403 and the municipality's or authority's NPDES permit.
6.	Intra-Plant Trading. EPA supports intra-plant trading that involves the
generation and use of credits between multiple outfalls that discharge to the same
receiving water from a single facility that has been issued an NPDES permit.
F. Alignment With The CWA. Provisions for water quality trading should be
aligned with and incorporated into core water quality programs. EPA believes
this may be done by including provisions for trading in water quality management
plans, the continuing planning process, watershed plans, water quality standards,
including antidegradation policy and, by incorporating provisions for trading into
TMDLs and NPDES permits.
When developing water quality trades and trading programs, states and tribes
should, at a minimum, take into account the following provisions of the CWA and
implementing regulations:
1.	Requirements to Obtain Permits. Sources and activities that are required to
obtain a federal permit pursuant to Sections 402 or 404 of the CWA must do so to
participate in a trade or trading program.
2.	Incorporating Provisions For Trading Into Permits. In some cases, specific
trades may be identified in NPDES permits, including requirements related to the
control of nonpoint sources where appropriate. EPA also supports several flexible
approaches for incorporating provisions for trading into NPDES permits: i)
general conditions in a permit that authorize trading and describe appropriate
conditions and restrictions for trading to occur, ii) the use of variable permit limits
that may be adjusted up or down based on the quantity of credits generated or

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3.	Public Notice, Comment and Opportunity For Hearing. Notice, comment
and opportunity for hearing must be provided for all NPDES permits (40 CFR
124). NPDES permits and fact sheets should describe how baselines and
conditions or limits for trading have been established and how they are consistent
with water quality standards. EPA does not expect that an NPDES permit would
need to be modified to incorporate an individual trade if that permit contains
authorization and provisions for trading to occur and the public was given notice
and an opportunity to comment and/or attend a public hearing at the time the
permit was issued.
4.	Consistency With Standard Methods. Where methods and procedures
(e.g., sampling protocols, monitoring frequencies) are specified by federal
regulations or in NPDES permits, they should continue to be used where
applicable for measuring compliance for point sources that engage in trading.
EPA believes this is necessary to provide clear and consistent standards for
measuring compliance and to ensure that appropriate enforcement action can be
taken.
5.	Protecting Designated Uses. EPA does not support any use of credits or
trading activity that would cause an impairment of existing or designated uses,
adversely affect water quality at an intake for drinking water supply or that would
exceed a cap established under a TMDL.
6.	Antibacksliding. EPA believes that the antibacksliding provisions of
Section 303(d)(4) of the CWA will generally be satisfied where a point source
increases its discharge through the use of credits in accordance with alternate or
variable water quality based effluent limitations contained in an NPDES permit,
in a manner consistent with provisions for trading under a TMDL, or consistent
with the provisions for pre-TMDL trading included in a watershed plan.
USEPA	Office of Water
Water Quality Trading Policy Statement
used; and/or, iii) the use of alternate permit limits or conditions that establish
restrictions on the amount of a point source's pollution reduction obligation that
may be achieved by the use of credits if trading occurs. EPA also encourages the
use of watershed general permits, where appropriate, to establish pollutant-
specific limitations for a group of sources in the same or similar categories to
achieve net pollutant reductions or water quality goals through trading.
Watershed permits issued to point sources should include facility specific effluent
limitations or other conditions that would apply in the event the pollutant cap
established by the watershed permit is exceeded.
These antibacksliding provisions will also generally be satisfied where a point
source generates pollution reduction credits by reducing its discharge below a
water quality based effluent limitation (WQBEL) that implements a TMDL or is
otherwise established to meet water quality standards and it later decides to
discontinue generating credits, provided that the total pollutant load to the

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Water Quality Trading Toolkit for Permit Writers
USEPA	Office of Water
Water Quality Trading Policy Statement
receiving water is not increased, or is otherwise consistent with state or tribal
antidegradation policy.
7. Antidegradation. Trading should be consistent with applicable water
quality standards, including a state's and tribe's antidegradation policy established
to maintain and protect existing instream water uses and the level of water quality
necessary to support them, as well as high quality waters and outstanding national
resource waters (40 CFR 131.12). EPA recommends that state or tribal
antidegradation policies include provisions for trading to occur without requiring
antidegradation review for high quality waters. EPA does not believe that trades
and trading programs will result in "lower water quality" as that term is used in 40
CFR 131.12(a)(2), or that antidegradation review would be required under EPA's
regulations when the trades or trading programs achieve a no net increase of the
pollutant traded and do not result in any impairment of designated uses.
G. Common Elements of Credible Trading Programs. EPA believes that, in addition
to including provisions to be consistent with the CWA, trading programs should
include the following general elements to be credible and successful:
1.	Legal Authority and Mechanisms. Clear legal authority and mechanisms
are necessary for trading to occur. EPA believes the CWA provides authority for
EPA, states and tribes to develop a variety of programs and activities to control
pollution, including trading programs. The CWA and federal regulations provide
authority to incorporate provisions for trading into NPDES permits issued to point
sources and for trading under TMDLs that include provisions for trading to occur.
In addition, states and tribes should use specific legal mechanisms to facilitate
trading. Provisions for trading may be established through various mechanisms,
including: legislation, rule making, incorporating provisions for trading into
NPDES permits and establishing provisions for trading in TMDLs or watershed
plans. These provisions may incorporate or be supplemented by private contracts
between sources or third-party contracts where the third party provides an
indemnification or enforcement function.
2.	Units of Trade. Clearly defined units of trade are necessary for trading to
occur. Pollutant specific credits are examples of tradable units for water quality
trading. These may be expressed in rates or mass per unit time as appropriate to
be consistent with the time periods that are used to determine compliance with
NPDES permit limitations or other regulatory requirements.
3.	Creation and Duration of Credits. Credits should be generated before or
during the same period they are used to comply with a monthly, seasonal or
annual limitation or requirement specified in an NPDES permit. Credits may be
generated as long as the pollution controls or management practices are
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4. Quantifying Credits and Addressing Uncertainty. Standardized protocols
are necessary to quantify pollutant loads, load reductions, and credits. States and
tribes should develop procedures to account for the generation and use of credits
in NPDES permits and discharge monitoring reports in order to track the
generation and use of credits between sources and assess compliance.
Where trading involves nonpoint sources, states and tribes should adopt methods
to account for the greater uncertainty in estimates of nonpoint source loads and
reductions. Greater uncertainty in nonpoint source estimates is due to several
factors including but not limited to variability in precipitation, variable
performance of land management practices, time lag between implementation of
some practices and full performance, and the effect of soils, cover and slope on
pollutant load delivery to receiving waters.
EPA supports a number of approaches to compensate for nonpoint source
uncertainty. These include monitoring to verify load reductions, the use of greater
than 1:1 trading ratios between nonpoint and point sources, using demonstrated
performance values or conservative assumptions in estimating the effectiveness of
nonpoint source management practices, using site- or trade-specific discount
factors, and retiring a percentage of nonpoint source reductions for each
transaction or a predetermined number of credits. Where appropriate, states and
tribes may elect to establish a reserve pool of credits that would be available to
compensate for unanticipated shortfalls in the quantity of credits that are actually
generated.
The site-specific procedures and protocols used in water quality trading programs
that involve agriculture and forestry operations should be developed by states and
tribes in consultation with United States Department of Agriculture (USD A)
agencies. Those procedures should estimate nutrient or sediment load delivery to
the stream segment, water body or watershed where trading occurs. Numerous
methods and procedures to determine nutrient and sediment load reductions
associated with conservation practices on agricultural and forest land have been
developed or used by the USDA agencies, including the Natural Resources
Conservation Service, Forest Service, Agricultural Research Service and the
Cooperative State, Research, Education and Extension Service. Some of these
methods may be applied to water quality trading.
As an example, the Revised Universal Soil Loss Equation (RUSLE) may be used
in some locations to estimate the sediment yield at the end of a slope in
agricultural settings. The sediment yield at the end of a slope coupled with an
appropriate method to estimate sediment delivery to the receiving waters can
provide a reasonable estimate of sediment load and load reductions.
Representative soil sampling to determine the phosphorus content of soils can be
used with this approach to estimate non-soluble sediment-bound phosphorus loads
and load reductions. Different methods are appropriate to estimate soluble
phosphorus and nitrogen loads and load reductions.	B-9

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Water Quality Trading Toolkit for Permit Writers
USEPA	Office of Water
Water Quality Trading Policy Statement
EPA and the USD A are working with other agencies to evaluate existing methods
and to develop improved methods and procedures for estimating loads from
agricultural and forestry lands. More precise estimations will be possible as
technologies improve and new technologies are developed.
For storm water runoff other than agriculture, EPA recommends monitoring or
modeling to estimate pollutant loads and load reductions. EPA believes this may
be based on local hydrology and actual data or pollutant loading factors that relate
land use patterns, percent imperviousness or percent disturbed land and controls
or management practices in a watershed to per acre or per unit pollutant loads,
where other methods are not specified in a permit or regulation.
5.	Compliance and Enforcement Provisions. Mechanisms for determining
and ensuring compliance are essential for all trades and trading programs. These
may include a combination of record keeping, monitoring, reporting and
inspections. Compliance audits should be conducted frequently enough to ensure
that a high level of compliance is maintained across the program. States and
tribes should establish clear enforceable mechanisms consistent with NPDES
regulations that ensure legal accountability for the generation of credits that are
traded. In the event of default by another source generating credits, an NPDES
permittee using those credits is responsible for complying with the effluent
limitations that would apply if the trade had not occurred. EPA also recommends
that states and tribes consider providing periodic accounting and reconciliation
periods and establishing appropriate enforcement provisions for failure to
generate the quantity of credits that are traded.
EPA recommends that states and tribes consider the role of compliance history in
determining source eligibility to participate in trading.
EPA recommends that states and tribes consider including provisions to address
situations where nonpoint source controls and management practices that are
implemented to generate credits fail due to extreme weather conditions or other
circumstances that are beyond the control of the source.
6.	Public Participation And Access To Information. EPA supports public
participation at the earliest stages and throughout the development of water
quality trading programs to strengthen program effectiveness and credibility.
Easy and timely public access to information is necessary for markets to function
efficiently and for the public to monitor trading activity. EPA encourages states
and tribes to make electronically available to the public information on the
sources that trade, the quantity of credits generated and used on a watershed basis,
market prices where available, and delineations of watershed and trading
boundaries. This information is necessary to identify potential trading

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Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy
ta
USEPA	Office of Water
Water Quality Trading Policy Statement
hd
opportunities, allow easy aggregation of credits, reduce transaction costs and
establish public credibility.
O
7. Program Evaluations. Periodic assessments of environmental and
economic effectiveness should be conducted and program revisions made as
needed. Environmental evaluations should include ambient monitoring to ensure
impairments of designated uses (including existing uses) do not occur and to
document water quality conditions. Studies should be performed to quantify
nonpoint source load reductions, validate nonpoint source pollutant removal
efficiencies and determine whether the anticipated water quality objectives have
been achieved. Economic evaluations should include the number and type of
trades, the price paid for pollutant reduction credits, transaction costs, the costs
incurred to administer the program, and where possible any net cost savings
resulting from trading.
The results of program evaluations should be made available to the public. An
opportunity for comment should also be provided on changes to the program as
necessary to ensure that water quality objectives and economic efficiencies are
achieved, and that trading does not result in an impairment of designated uses
(including existing uses).
H. EPA's Oversight Role. States and tribes are encouraged to consult with EPA
throughout development of trading programs to facilitate alignment with the
CWA. EPA has various oversight responsibilities under the CWA, including
approval or establishment of TMDLs, approval of revisions to state or tribal water
quality standards, review of NPDES permits and provisions for reviewing and
making recommendations regarding revisions to a state's or tribe's water quality
management plans through the continuing planning process. In general, EPA
does not believe that the development and implementation by states and tribes of
trading programs consistent with the provisions of this policy necessarily warrant
a higher level of scrutiny under these oversight authorities than is appropriate for
activities not involving trading. However, where questions or concerns arise,
EPA will use its oversight authorities to ensure that trades and trading programs
are fully consistent with the CWA and its implementing regulations.
B-ll

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Appendix C: Trading Forms and Templates
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Appendix C
Trading Forms and Templates
Contents
Sample Trade Reporting Form	C-1
Sample Trade Notification Form	C-2
Reduction Credit Certificate	C-3
Legal Contract to Trade Form A	C-5
Legal Contract to Trade Form B	C-7
Legal Contract to Trade Form C	C-10
Legal Contract to Trade Form D	C-12
Permit Application Form	C-14
New Nonpoint Source Project Application & Checklist	C-16
Purchase of Credits Application & Checklist	C-18
C-i

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Water Quality Trading Toolkit for Permit Writers

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Sample Trade Reporting Form
Chesapeake Bay Program Nutrient Trading Program
FACILITY IDENTIFICATION (BUYER OR SELLER)
FACILITY OR ESTABLISHMENT NAME
NPDES PERMIT NUMBER
NAME AND TELEPHONE NUMBER OF AUTHORIZED REPRESENTATIVE
( ) -	
MONITORING PERIOD
THIS REPORT IS BEING FILED FOR THE MONITORING PERIOD:
¦1 / - !/ !/¦
TRADE PARAMETERS
PARAMETER
FACILITY
EFFLUENT LIMIT
(lbs/yr, not adjusted
by delivery factor)
FACILITY
DELIVERY FACTOR
(%)
ADJUSTED FACILITY
EFFLUENT LIMIT*
(lbs/yr, delivered load)
# OF DELIVERED
CREDITS BOUGHT
OR SOLD* (lbs/yr,
delivered load)	
LOAD ALLOCATION
PERMANENTLY
TRANSFERRED*
(lbs/yr, delivered load)
TOTAL
NITROGEN (TN)
BOUGHT/SOLD
(circle one)
TO / FROM
(circle one)
TOTAL
PHOSPHOROUS
(TP)	
BOUGHT/SOLD
(circle one)
TO / FROM
(circle one)
* (adjustment based on facility deliver}- factor)
TRADE DESCRIPTION
DURATION OF TRADE:
(enter time frame or indicate "permanent transfer"
DESCRIPTION OF CREDITS GENERATED OR SOLD:
CERTIFICATION
SEND WITH DMR TO:
NAME OF PERMITTING
AUTHORITY
SIGNATURE OF AUTHORIZED AGENT
DATE
d xiaNaaav

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Water Quality Trading Toolkit for Permit Writers
Sample Trade Notification Form
Chesapeake Bay Program Nutrient Trading Program
TO BE COMPLETED BY THE BUYER	
Name of Buyer		
Type of Facility or Operation		
Permit # (if applicable)		
Name of Authorized Representative of Buyer 	
Phone Number		
TO BE COMPLETED BY THE SELLER	
Name of Seller		
Type of Facility or Operation		
Permit # (if applicable)		
Name of Authorized Representative of Seller 	
Phone Number
TO BE COMPLETED BY EITHER PARTY	
Parameter Being Traded		
Amount of Nitrogen or Phosphorus traded
(specify units)		
Sellers' Reduction Credit Certificate #		
Dates the trade will be in effect		
Purchasing price of the trade (include all units)		
Costs of nutrient removal (in the same units as
the purchase price) if a trade were not conducted		
I certify that the above information is accurate and truthful to the best of my knowledge and is in accord with
state's trading program.
Signature of Authorized Representative of Buyer:	
Signature of Authorized Representative of Seller:	

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Water Quality Trading Appendix C: Trading Forms and Templates
Reduction Credit Certificate
Lower Boise River Watershed
VALID FOR REDUCTION ACTIVITY FOR MONTH(S) OF
YEAR
NAME OF NON-PERMITTED SOURCE:

CONTACT NAME:
ADDRESS:
PHONE NUMBER:
BEST MANAGEMENT PRACTICE (BMP) IDENTIFIER:
- Type of BMP:

- Location of BMP:

MONTTORTNG METHOD:
MONITORING FREQUENCY:
MONITORING RESULTS (LOCAL POUNDS):
PARMA POUNDS (AMOUNT OF MARKETABLE CREDITS):

Total Reduction Amount in Local Pounds

Subtract Water Quality Contribution* amount -
(*TMDL determines what this amount or calculation is)

multiply by River Location Ratio =
(tradable credit amount in Parma Pounds if
next two factors are not applicable)
(if applicable) multiply bv Drainage Delivery Ratio =
(tradable credit amount in Parma Pounds
if next factor is not applicable)
(if applicable) multiply bv Site Location Factor =
(tradable credit amount in Parma Pounds)
C-3

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Water Quality Trading Toolkit for Permit Writers
CERTIFICATION:
This form has been prepared for the purpose of submitting the information contained in it to the U.S. Environmental Protection
Agency.
I certify under penalty of law that I have personally examined and am familiar with the information submitted herein; and based on
my inquiry of those individuals immediately responsible for obtaining the information, I believe the submitted information is true,
accurate and complete. I further certify that I am authorized to bind the party on behalf of which I am signing to the terms of this
document. I further certify that the BMP, the monitoring, and the credit calculation described above satisfies the requirements for
that type of BMP as set forth in the BMP list. I am aware that there are significant penalties for submitting false information,
including the possibility of fine and imprisonment. See 18 U.S.C. § 1001 and 33 U.S.C. § 1319. (Penalties under these statutes may
include fines up to $10,000 and or maximum imprisonment of between 6 months and 5 years.)
	DATE:
SIGNATURE OF BUYER

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Water Quality Trading Appendix C: Trading Forms and Templates
Minnesota
Pollution
Control
Agency
Legal Contract to Trade Form
Minnesota River Basin General
Phosphorus Permit - Phase I
(For transfers of Jordan Trading Units between individual
Permittees)
Date Received
Month
Day
Year



The terms used in this form have the same meaning and definitions as used in the Minnesota River Basin General Phosphorus Permit. Submit
this form to: Water Quality Submittal Center, Minnesota Pollution Control Agency, 520 Lafayette Road North, St. Paul, MN 55155-4194.
Trade Information
Buyer Name and Permit No.: 	
Seller Name and Permit No.: 	
Year of Jordan Trading Unit (JTU) Transfer:
Buyer Information
Seller Information
A.
Upward Adjustment to
Buyer's 5-Month Mass
Phosphorus Limit (kg)
B.
Buyer
JBOD
Factor
C.
JTUs Needed to Adjust
Buyer's 5-Month Mass
Phosphorus Limit
D.
Buyer
Trade
Ratio
E.
Total
JTUs
Purchased
F.
Total
JTUs
Sold
G.
Seller
JBOD
Factor
H.
Downward Adjustment to
Seller's 5-Month Mass
Phosphorus Limit (kg)








A - The buyer's upward adjustment to its facility's 5-Month Mass Phosphorus Limit due to this trade.
B - Buyer Jordan Biological Oxygen Demand Factor as indicated in Minnesota River Basin General
Phosphorus Permit (Permit).
C - Number of JTUs needed to adjust buyer's 5-Month Mass Phosphorus Limit (C=A*B).
D - Buyer Trade Ratio as required by Appendix B of the Permit.
E - Total number of JTUs required to adjust the buyer's 5-Month Mass Phosphorus Limit and for the Trade Ratio required by the Permit (E=C*D).
F- Total number of JTUs sold equals the number of JTUs purchased (F=E).
G - Seller Jordan BOD Factor as indicated in Permit.
H - The seller's downward adjustment to its facility's 5-Month Mass Phosphorus Limit due to this trade (H=F/G).
Certification and Signatures
I certify under penalty of law that this document and any attachments were prepared under my direction or supervision in accordance with a system designed to assure
that qualified personnel properly gathered and evaluated the information submitted. Based on my inquiry of the person, or persons, who manage the system, or those
persons directly responsible for gathering the information, the information is, to the best of my knowledge and belief, true, accurate, and complete. I am aware that
there are significant penalties for submitting false information, including the possibility of fine and imprisonment. The buyer agrees that its facility's 5-Month Mass
Phosphorus Limit will be adjusted upward as indicated in column A of the table above. The seller agrees that its facility's 5-Month Mass Phosphorus Limit will be
adjusted downward as indicated in column H of the table above. Both parties agree to the terms of this form. I understand that this trade is not valid unless my facility
is a Permittee of the Minnesota River Basin General Phosphorus Permit (MNG420000). This Agreement shall be binding upon each party and its successors and
assigns. If either party sells or otherwise conveys or assigns any of its right, title or interest in its facility, the conveyance shall not release the party from any obligation
imposed by this Agreement, unless the party to whom the right, title or interest has been transferred or assigned agrees in writing to fulfill the obligations of this
Agreement and the MPCA approves the transfer or assignment. The parties to this Agreement shall ensure the party's agents, contractors and subsidiaries comply with
the terms and conditions of the Agreement.
Signature of Seller (Principal Executive Office)	Date
Printed name of person signing	Title
Signature of Buyer (Principal Executive Officej	Date
Printed name of person signing
Title

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Water Quality Trading Toolkit for Permit Writers
Instructions For
Legal Contract to Trade Form
Minnesota River Basin General
Phosphorus Permit - Phase I
(For transfers of Jordan Trading Units between individual Permittees)
This form is required to be submitted to the MPCA for any trades of Jordan Trading Units (JTU) between individual Permittees of
the Minnesota River Basin General Phosphorus Permit - Phase I (Permit). Trades can only be made by facilities which are
Permittees of the Permit. A copy of the trade form must be submitted by each party to the agreement. This is not the correct form
to use for trades involving a Trade Association. The trade is not valid until it is received by the MPCA.
1.	Trade Information:
•	Facility Name and Permit Number (buyer and seller}: Fill in the facility name as listed in Appendix B of the
Permit. If this facility is not listed in Appendix B of the Permit, fill in the name listed in the facility's individual
or applicable general NPDES/SDS permit. Provide the facility's Permit ID from Appendix B of the Permit. If
this facility does not have a Permit ID number, fill in the facility's ID number from its individual or applicable
general NPDES/SDS permit.
•	Year of JTU Transfer: Specify the year in which this trade will occur. A separate Legal Contract to Trade Form
is required for each year in which the facility trades. A trade specified for a particular year may nol be
transferred to another year.
2.	Trade Table: Trades result in the buyer's 5-Month Mass Phosphorus Limit to be adjusted upwards and the seller's
5-Month Mass Phosphorus Limit to be adjusted downwards according to the procedure specified by the Permit.
•	Column A - Indicate the mass in kilograms that the buyer wishes to increase its 5-Month Mass Phosphorus Limit
due to this trade. For example, if a facility has a 5-Month Mass Phosphorus Limit of 0 kg listed in Appendix B
of the Permit and it would like authorization to discharge 1000 kg during the May-September period of the
specified year, il would indicate 1000 kg in column A of this table.
•	Column B - Indicate the Jordan BOD Factor of the buyer in this trade. Existing facilities have their Jordan BOD
Factor listed in Appendix B of the Permit. New facilities can determine their Jordan BOD Factor by consulting
the map in Appendix G of the Permit. This fac tor is used in the calculation of the number of Jordan Trading
Units (JTUs) that the facility needs for the trade.
•	Column C - Calculate the number of JTUs that will be needed to increase the buyer's 5-Month Mass Phosphorus
Limit by the amount requested in Column A. This value is equivalent to the value listed in column A multiplied
by the value listed in column B.
•	Column D - List the Trade Ratio of the buyer. The Permit specifies a Trade Ratio of either 1.1:1 (for facilities
listed in Appendix B, part 1 of Permit) or 1.2:1 (new facilities ).
•	Column E - Calculate the total number of JTUs that the buyer needs to purchase. This value is equal to the sum
of the number of JTUs purchased to adjust Ihe buyers limit upwards and the number of JTUs purchased for the
Trade Ratio. This value can be calculated by multiplying the values in columns C and D. The difference
between column L and column A is the number of JTUs required by the Permit for the trading program margin
of safety.
•	Column F- List the number of JTUs sold by the seller. This is equivalent to the number of JTUs bought by the
buyer (i.e., column F = column E).
•	Column G - List the Jordan BOD Factor of the seller. This factor is used to calculate the downward adjustment
(in kg) to the seller's 5-Month Mass Phosphorus Limit. This value can be found in the Permit.
•	Column H- Calculate the downward adjustment (in kg) to the seller's 5-Month Mass Phosphorus Limit. This is
equivalent to column F divided by column G.
3.	Certification and Signatures:
•	Both parties must sign and date this agreement for it to be a valid agreement. All signatures must be made by a
responsible official. The MPCA is not a party to this agreement. A copy of this agreement must be recorded by
each party. A copy of this agreement must be submitted to the MPCA by each party to this agreement. The
terms used in this form have the meanings defined in the Permit. Permittees may enter into Legal Contracts to
Trade up to September 30th of the trading year. The Irade must be submitted to the MPCA by November 30lh of
the trading year.

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Water Quality Trading Appendix C: Trading Forms and Templates
Minnesota
Pollution
Control
Agency
Legal Contract to Trade
Form B
Trade Association - Internal Trading
Minnesota River Basin General
Phosphorus Permit - Phase I (Permit)
Date Received
Month Day Year
Trade Assoc. No.
The terms used in this form have the same meaning and definitions as used in the Permit. This form must he signed by each Trade
Association member (i.e., Permittee) and the Trade Association Representative by April 30th of the trading year in order to be valid. As
stated in the Permit, individual members of a Trade Association must each submit, a copy of this form to the MPCA by April 30th of each year
in which the Association intends to trade. Submit this form to: Water Quality Submittal Center, Minnesota Pollution Control Agency, 520
Lafayette Road North, St. Paid, MN 55155-4194.
>
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O
I—I
X
n
Calendar Year
Year of Jordan Trading Unit (JTU) Transfer (use one form per year):
General Information
Trade Association Name:
Trade Association Mailing Address: 	
City: 	 State: 	Zip:
Trade Association Representative Name: 	 Phone: 	
Member Information
List the name and permit number of every member of this Trade Association in the table below. Each member must be a Permittee of the
Minnesota River Basin General Phosphorus Permit. The Permittee name is the same name that the facility listed in its application for the
Minnesota River Basin General Phosphorus Permit. The permit number is the MNG number that the facility received on its Notice of
Coverage that the MPCA sent to the Permittee in response to its Permit application. Add rows to the table as needed to accommodate the
actual number of Trade Association members.
Trade Association Members
Member
No.
Permittee Name
Facility MN River Basin General
Phosphorus Permit Number
1.


2.


C-7

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Water Quality Trading Toolkit for Permit Writers
Form B
Trade Association - Internal Trading
Minnesota River Basin General Phosphorus Permit - Phase I (Permit)
Trade Information
Provide the information requested below about every member of this Trade Association (by Trade Association member number as indicated in the
previous table) in either the buyer or seller table below as applicable. If a Trade Association member is not buying or selling JTUs to the Trade
Association in this trading year, list them in the Trade Association Buyer's table below with a zero for the Chosen Increase to 5-Month Mass Phosphorus
Limit (i.e., column CfJ. Add rows to the table as needed.
Trade Association Buyers (Members purchasing JTUs from Association)
Permittee Limit Information
Trade Association Limit Information
Ab.
Member
No.
Bb.
5-Month
Mass
Phosphorus
Limit
(kg)
Cb.
Chosen
Increase to
5-Month
Mass
Phosphorus
Limit
(kg)
D„.
Trade
Association
Member
Adjusted
Phosphorus
Limit
(kg)
Eb.
JBOD
Factor
Fb.
JTUs from
5-Month
Mass
Phosphorus
Limit
Gb.
JTUs
Purchased to
Increase 5-
Month Mass
Phosphorus
Limit
Hb.
Trade
Ratio
lb-
JTUs
Purchased for
Trade Ratio
Jb.
Total JTUs
Purchased
from Trade
Association
Kb.
Total JTUs
Available to
Trade
Association
from Buyers











Total










Ab - Indicate each Permittee's Trade Association member number as listed in the Member Information table above.
Bb - Indicate each buyer's 5-Month Mass Phosphorus Limit (converted to kilograms) from Appendix B of the Permit.
Cb - Indicate the number of kilograms of phosphorus that the buyer's 5-Month Mass Phosphorus Limit will be increased due to this trade (the amount of
phosphorus purchased by buyer). This value must be a whole number.
Db - Indicate the buyer's Trade Association Member Adjusted Phosphorus Limit after this trade (Db= Bb+Cb). This number will become the facility's
phosphorus limit if this Trade Association exceeds its Final Adjusted Phosphorus Limit. This value must be a whole number.
Eb - Specify the buyer's Jordan Biochemical Oxygen Demand Factor as listed in Appendix B and/or indicated in Appendix G of the Permit.
Fq - Indicate the buyer's 5-Month Mass Phosphorus Limit converted from kilograms to JTUs (Fb= Bb X Eb).
Gb - Indicate the number of JTUs required to be purchased from the Trade Association to adjust the buyer's 5-Month Mass Phosphorus Limit upward by the
amount specified in column Cb(Gb= Cb X Eb).
Hb - Specify the numerical value of the buyer's Trade Ratio as listed in Appendix B of the Permit (i.e.. 1.1 or 1.2).
Ib- Indicate the number of JTUs required to be purchased by the member for the Trade Ratio (lb= [Gb X Hb] - Gb). These JTUs are not applied towards the
Association's limit.
Jb - The total number of JTUs purchased from the Trade Association for its phosphorus limit adjustment and for the Trade Ratio (Jb= Gb +lb).
Kb - Number of JTUs that will be applied towards the Trade Association 5-Month Mass Phosphorus Limit (JTUs) from buyers (Kb = Fb + Gb).
Trade Association Sellers (Members selling JTUs to Association)
Permittee Limit Info
Trade Association Limit Information
Permittee Limit Information
Trade Association
As.
Member
No.
Bs.
5-Month Mass
Phosphorus Limit
(kg)
C,
Seller
JBOD
Factor
Ds.
JTUs Available
Based on 5-Month
Mass Phosphorus
Limit
Es.
JTUs Sold to
Trade
Association
Fs.
Decrease to 5-Month
Mass Phosphorus
Limit Based on Trade
(kg)
Gs.
Trade Association
Member Adjusted
Phosphorus Limit
(kg)
Hs.
Total JTUs Available
to Trade Association
from Sellers








Total







As - Indicate each Permittee's Trade Association member number as listed in the Member Information table above.
Bs - Indicate each seller's 5-Month Mass Phosphorus Limit (converted to kilograms) from Appendix B of the Permit.
Cs - Specify the seller's Jordan Biochemical Oxygen Demand Factor as listed in Appendix B and or indicated in Appendix G of the Permit.
Ds - Indicate the seller's 5-Month Mass Phosphorus Limit converted from kilograms to JTUs (Ds= Bs X Cs).
Es - Indicate the number of JTUs sold to the Trade Association by the individual member. Note: The total number of JTUs sold to the Trade Association must
match the total number of JTUs purchased from the Trade Association (i.e., total of column Esmust equal total of column Jbin buyer's table).
Fs - Indicate the decrease to the seller's 5-Month Mass Phosphorus Limit (kg) due to this trade (Fs= Es/ Cs). Express this value as a whole number. If the
calculated value is not a whole number, round up the calculated value to the nearest whole number.
Gs - Indicate the seller's Trade Association Member Adjusted Phosphorus Limit (Gs= Bs- Fs). This number becomes a phosphorus limit for the individual
facility if the Trade Association exceeds its Final Adjusted Phosphorus Limit. This value must be a whole number.
Hs- Number of JTUs that will be applied towards the Trade Association 5-Month Mass Phosphorus Limit (JTUs) from sellers (Hs= Ds- Es).
Trade Association Limit
This Trade Association's 5-Month Mass Phosphorus Limit is equal to the sum of the number of JTUs available from its member buyers and sellers (Kb of table
above + Hsof table above). This limit is not the Association's Final Adjusted Limit because this limit can be adjusted later by any valid trade that the Trade
Association makes with an outside entity.
Trade Association 5-Month Mass Phosphorus Limit =
JTUs

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Water Quality Trading Appendix C: Trading Forms and Templates
Form B
Trade Association - Internal Trading
Minnesota River Basin General Phosphorus Permit - Phase I (Permit)
The Trade Association Representative and all members must sign the form as indicated below. Add more signature lines as
needed.	
Certification and Signatures
I certify under penalty of law that this document and any attachments were prepared under my direction or superv ision in accordance with a system designed to assure
that qualified personnel properly gathered and evaluated the information submitted. Based on my inquiry of the person, or persons, who manage the system, or those
persons directly responsible for gathering the information, the information is, to the best of my knowledge and belief, true, accurate, and complete. I am aware that
there are significant penalties for submitting false information, including the possibility of fine and imprisonment. 1 understand that if the total phosphorus discharge
(in JTUs) of the members of this Trade Association exceed the Trade Association's Final Adjusted Phosphorus Limit, that my facility will be individually held
responsible for meeting its own Trade Association Member Adjusted Phosphorus Limit (kg) as indicated in this contract. I understand that each buyer's 5-Month
Mass Phosphorus Limit will be adjusted upward as indicated in the Trade Association Buyer table. I understand that each seller's 5-Month Mass Phosphorus Limit
will be adjusted downward as indicated in the Trade Association Seller table. I understand that this trade is not valid unless all members of the Trade Association are
Permittees of the Minnesota River Basin General Phosphorus Permit (MNG420000). This Agreement shall be binding upon each party and its successors and
assignees. If any party sells or otherwise conveys or assigns any of its right, title or interest in its facility, the conveyance shall not release the parly from any
obligation imposed by this Agreement, unless the party to whom the right, title or interest has been transferred or assigned agrees in writing to fulfill the obligations of
this Agreement and the MPCA approves the transfer or assignment. The parties to this Agreement shall ensure the party's agents, contractors and subsidiaries comply
with the terms and conditions of the Agreement. I hereby agree to authorize the Trade Association Representative listed below to make trades with other Trade
Associations and or Individual Permittees on behalf of the Trade Association.
Trade
Association: 					
Signature (Trade Association Representative)	Date	Title
Member 1: 					
Signature (Principal Executive Officer)	Date	Title
Member 2: 					
Signature (Principal Executive Officer)	Date	Title

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Water Quality Trading Toolkit for Permit Writers
Minnesota
Pollution
Control
Agency
Legal Contract to Trade
Form C
Trade Association - Internal Trading
Between Association and Individual Permittee
Minnesota River Basin General Phosphorus Permit -
Phase I (Permit)
Date Received
Month
Day
Year



The terms used in this form have the same meaning and definitions as used in the Permit. This form must be signed by both the individual
Permittee and the Trade Association Representative in order to be valid. As stated in the Permit. Permittees may only enter into Legal Contracts
to Trade up to September 3
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Water Quality Trading Appendix C: Trading Forms and Templates
Form C
Trade Association - Internal Trading
Between Association and Individual Permittee
Minnesota River Basin General Phosphorus Permit - Phase I (Permit)
TABLE B
Trade Association (Buyer)
Individual Permittee (Seller)
A.
Upward Adjustment to Trade
Association's 5-Month Mass
Phosphorus Limit (JTUs)
B.
Buyer
Trade
Ratio
C.
Total Number of JTUs
Purchased
D.
Total
Number of
JTUs Sold
E.
Seller JBOD Factor
F.
Reduction in Seller's 5-Month
Mass Phosphorus Limit (kg)






A - Indicate the number of JTUs that the Trade Association has purchased to increase its 5-Month Mass Phosphorus Limit. This is not the same as
the total number of JTUs purchased. The total will include the JTUs purchased for the Trade Ratio.
B - Enter the highest Trade Ratio of all of the Trade Association's members (i.e., either 1.1 or 1.2) as listed in Appendix B of the Permit).
C - Calculate the total number of JTUs that must be purchased in order to increase the Trade Association's 5-Month Mass Phosphorus Limit by the
amount specified in column A and for the Trade Ratio (C = A X B).
D - Specify the number of JTUs sold to the buyer. This equals the number of JTUs purchased by the Trade Association (D = C).
E - Specify the seller's JBOD Factor as listed in Appendix B or as indicated in Appendix G of the Permit.
F - Indicate the reduction in the seller's 5-Month Mass Phosphorus Limit due to this trade (F = D / E). Express this value as a whole number. If the
calculation does not result in a whole number, round up to nearest whole number.
The individual Permittee and the Trade Association representative must both sign this form below.	
Certification and Signatures
I certify under penalty of law that this document and any attachments were prepared under my direction or supervision in accordance with a system designed to assure
that qualified personnel properly gathered and evaluated the information submitted. Based on my inquiry of the person, or persons, who manage the system, or those
persons directly responsible for gathering the information, the information is, to the best of my knowledge and belief, true, accurate, and complete. I am aware that
there are significant penalties for submitting false information, including the possibility of fine and imprisonment. I understand that the buyer's 5-Month Mass
Phosphorus Limit will be increased and the seller's 5-Month Mass Phosphorus Limit will be decreased by the values specified in the appropriate table above. I further
understand lhal if Ihe total phosphorus discharge (in JTUs) of the members of a Trade Association exceed their Trade Association's Final Adjusted Phosphorus Limit,
that each member Permittee of the Trade Association will be individually held responsible for meeting its own Final Adjusted Phosphorus Limit in kilograms as
indicated in its Legal Contract to Trade Form - Internal Trading (Form B). I understand that this trade is not valid unless all members of the Trade Association are
Permittees of the Minnesota River Basin General Phosphorus Permit (MNG420000). This Agreement shall be binding upon each party and its successors and
assignees. If any party sells or otherwise conveys or assigns any of its right, title or interest in its facility, the conveyance shall not release the party from any
obligation imposed by this Agreement, unless the party to whom the right, title or interest has been transferred or assigned agrees in writing to fulfill the obligations of
this Agreement and the MPCA approves the transfer or assignment. The parties to this Agreement shall ensure the party's agents, contractors and subsidiaries comply
with the terms and conditions of the Agreement. I certify that I have the authority to sign this contract of behalf of my Trade Association.
Individual Permittee:					
Signature (Principal Executive Officer)	Date	Title
Trade Association Representative:	
Signature (Authorized Representative)
Date
Title

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Water Quality Trading Toolkit for Permit Writers
Minnesota
Pollution
Control
Agency
Legal Contract to Trade
Form D
Trade Association - External Trading
Between Two Trade Associations
Minnesota River Basin General Phosphorus Permit ¦
Phase I (Permit)
Date Received
Month
Day
Year



The terms used in this form have the same meaning and definitions as used in the Permit. This form must be signed by both Trade Association
Representatives in order to be valid. As stated in the Permit, Permittees may only enter into Legal Contracts to Trade up to September J fi"' of the
trading year. Submit this form to: Water Quality Submittal Center, Minnesota Pollution Control Agency. 520 Lafayette Road North. St. Paul. MN
55155-4194 by November Mt" of the trading year.
Calendar Year
Year of Jordan Trading Unit (JTU) Transfer (use one form per year):
Buyer Information
Provide the following information regarding the Trade Association that is the buyer in this contract.
Trade Association Name: 	 Trade Association ID No.:
Authorized Representative Name: 	 Phone: 	
Seller Information
Provide the following information regarding the Trade Association that is the seller in this contract.
Trade Association Name: 	 Trade Association ID No.:
Authorized Representative Name: 	 Phone: 	
Trade Information
Buyer
Seller
A.
Buyer Chosen Increase to its Trade Association
5-Month Mass Phosphorus Limit (JTUs)
B.
Buyer Trade
Ratio
C.
Total Number of JTUs Purchased
D.
Total Number of JTUs Sold




A - Indicate the number of JTUs that the buyer wishes to increase its 5-Month Mass Phosphorus Limit due to this trade.
B - Enter the highest Trade Ratio of the members of the buyer Trade Association (i.e., either 1.1 or 1.2 as shown in Appendix B of the Permit).
C - Calculate the total number of JTUs purchased by the buying Trade Association (C = A X B). This is equivalent to the number of JTUs purchased
for the required increase to the buyer's 5-Month Mass Phosphorus Limit and for the JTUs required by the Trade Ratio.
D - Indicate the number of JTUs that were sold by this Trade Association in this contract. This is equivalent to the number of JTUs that the seller
Trade Association's 5-Month Mass Phosphorus Limit will decrease due to this trade (D = C).

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Water Quality Trading Appendix C: Trading Forms and Templates
Form D
Trade Association - Internal Trading
Between Two Trade Associations
Minnesota River Basin General Phosphorus Permit - Phase I (Permit)
	
Certification and Signatures
I certify under penalty of law that this document and any attachments were prepared under my direction or supervision in accordance with a system
designed to assure that qualified personnel properly gathered and evaluated the information submitted. Based on my inquiry of the person, or
persons, who manage the system, or those persons directly responsible for gathering the information, the information is, to the best of my knowledge
and belief, true, accurate, and complete. I am aware that there are significant penalties for submitting false information, including the possibility of fine
and imprisonment. I understand that the buyer Trade Association's 5-Month Mass Phosphorus Limit (JTUs) will be increased by the value listed in
column A of the table above. I understand that the seller Trade Association's 5-Month Mass Phosphorus Limit (JTUs) will be decreased by the
number of JTUs specified in column D of the table above. I further understand that if the total phosphorus discharge (in JTUs) of the members of a
Trade Association exceed their Trade Association's Final Adjusted Phosphorus Limit, that each member Permittee of the Trade Association will be
individually held responsible for meeting its own Final Adjusted Phosphorus Limit. I understand that this trade is not valid unless all facilities in these
Trade Associations are Permittees of the Minnesota River Basin General Phosphorus Permit (MNG420000). This Agreement shall be binding upon
each party and its successors and assignees. If any party sells or otherwise conveys or assigns any of its right, title or interest in its facility, the
conveyance shall not release the party from any obligation imposed by this Agreement, unless the party to whom the right, title or interest has been
transferred or assigned agrees in writing to fulfill the obligations of this Agreement and the MPCA approves the transfer or assignment. The parties to
this Agreement shall ensure the party's agents, contractors and subsidiaries comply with the terms and conditions of the Agreement. I certify that I
have the authority to sign this contract of behalf of my Trade Association.
Buying Trade Association Representative: 					
Signature (Authorized Representative)	Date	Title
Selling Trade Association Representative: 					
Signature (Authorized Representative)	Date	Title
C-13

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Water Quality Trading Toolkit for Permit Writers
Minnesota
Pollution
Control
Agency
Permit Application Form
Minnesota River Basin General
Phosphorus Permit - Phase I
MNG420000
MPCA USE ONLY
Application Number
MNG42

Date Received
Month
Day
Year



Print or type application. Before submitting, make a photocopy for your records. Submit form and required
attachments to: Beckie Olson, Minnesota Pollution Control Agency, 520 Lafayette Road North, St. Paul, MN 55155-
4194
Facility Information	
Facility's Existing NPDES/'SDS Permit Number: MN 	
Name of Facility: 	
Facility Mailing Address:
City	
State
ZIP
Name of Facility Contact Person:
Telephone (
Application Information
Check the box below which describes the reason for this request for wastewater treatment facility (WWTF) coverage
under Appendix B of the Minnesota River Basin General Phosphorus Permit - Phase I (Permit):
~	WWTF currently listed in Appendix B of the Permit and must apply for coverage.
~	Existing continuously discharging WWTF, not currently listed in Appendix B of the Permit, but wishes to
trade Jordan Trading Units (JTU).
~	New continuously discharging WWTF (i.e., not in existence as of 9/28/04) or expanding continuously
discharging WWTF which needs to trade to offset increased mass of phosphorus.
Certification and Signature
T certify under penalty of law that this document and any attachments were prepared under my direction or supervision
in accordance with a system designed to assure that qualified personnel properly gathered and evaluated the
information submitted. Based on my inquiry of the person, or persons, who manage the system, or those persons
directly responsible for gathering the information, the information is, to the best of my knowledge and belief, true,
accurate, and complete.
I am aware that there are significant penalties for submitting false information, including the possibility of fine and
imprisonment. 1 hereby apply for coverage under the terms and conditions of the Minnesota River Basin General
Phosphorus Permit - Phase I.
Signature (Principal Executive Officer )
Date
Printed name of person signing
Title

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Water Quality Trading Appendix C: Trading Forms and Templates
Instructions For
Permit Application Form
Minnesota River Basin General
Phosphorus Permit - Phase I
MNG420000
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This application form must be filled out and submitted to the MPCA in order to be covered under the Minnesota River
Basin General Phosphorus Permit - Phase I (Permit). Submit the completed application to Beckie Olson, Minnesota
Pollution Control Agency, 520 Lafayette Road North, St. Paul, MN 55155-4194.
1.	Facility Information:
•	Identification Number of Facility's Existing Individual or General NPDES/SDS Permit: Fill in the
identification number of the facility's individual NPDES/SDS permit (e.g. MN0000000). If the
facility is operating under a general NPDES/SDS permit instead of an individual permit, list that
permit number.
•	Name of Facility: Fill in the facility name as listed in its NPDES/SDS permit.
•	Facility Mailing Address: Provide the complete mailing address of the actual facility that will be
covered by this Permit.
•	Facility Contact Person: Provide the name and telephone number of the main contact person at the
facility (e.g. Wastewater Treatment Facility Superintendent).
2.	Application Information:
•	Reason for Application: Check the box which describes why this facility needs coverage under the
Permit.
1.	Existing continuously discharging facilities listed in Appendix B of the Permit must check
the top box.
2.	Existing continuously discharging facilities which are not listed in Appendix B, but wish to
trade, must check the middle box.
3.	New continuously discharging facilities must check the bottom box.
3. Certification and Signature: An application submitted by a corporation must be signed by a principal
executive officer of at least the level of vice president. In the case of a partnership or a sole proprietorship, the
application must be signed by a general partner of the proprietor, respectively. In the case of a municipal,
state, federal, or other public facility, the application must be signed by either a principal executive officer or
ranking elected official. In some cases, a duly authorized representative of the individuals listed above may
sign on behalf of the applicant if such representative is responsible for the overall operation of the facility.
C-15

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Water Quality Trading Toolkit for Permit Writers
New Nonpoint Source Project Application & Checklist
Adapted from Cherry Creek Guidance
Name of Project Owner:
Address of Project Owner:
Phone number:
Email address:
Name of Trade Credit Allocatee:
Allocatee's Current
Phosphorus Allocation:
Allocatee's Current and Projected
Capacity:	
General location of point of discharge and the proposed project:
Type of Project:
Trade Ratio Proposed:
Estimated phosphorus trade credits requested:
Proposed Use and Disposition of Credits by Project Owner or Allocatee:
Schedule for Design and Construction:
Estimate of Annual Cost of Project:
Estimate of Annual Cost per Pound of Pollutant Removed:
Financing Mechanism:
Party(s) Responsible for Operations and Maintenance and Monitoring:

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Water Quality Trading Appendix C: Trading Forms and Templates
Checklist of Required Application Attachments:
~	Map of location of point of discharge, the proposed project, the receiving water body, the major
drainage way (s) from the project.
~	Sketch and/or diagram of the proposed project
~	Evidence of ownership or legal control over project site
~	Supporting technical bases for trade ratio and credits
~	Operation and maintenance plans for project
~	Evidence of sufficient financial resources to construct, operate, and maintain the project throughout the
expected life.
~	Monitoring and reporting plans for the proposed project to assess performance
~	Plan for verification of monitoring to substantiate credits
CERTIFICATION:
I certify under penalty of law that I have personally examined and am familiar with the information submitted herein; and based on
my inquiry of those individuals immediately responsible for obtaining the information, I believe the submitted information is true,
accurate and complete. I further certify that I am authorized to bind the party on behalf of which I am signing to the terms of this
document. T further certify that the Project specified in this application document is not mandated nor required by any enforcement
action, order, or consent decree for water quality violations or exceedances, nor is the Project constructed as a supplemental
environmental project, mitigation, offset, or in lieu of any fine or penalty. I am aware that there are significant penalties for
submitting false information, including the possibility of fine and imprisonment. See 18 U.S.C. § 1001 and 33 U.S.C. § 1319.
(Penalties under these statutes may include fines up to SI0,000 and or maximum imprisonment of between 6 months and 5 years.)
	DATE:	
SIGNATURE OF APPLICANT
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Water Quality Trading Toolkit for Permit Writers
Purchase of Credits Application & Checklist
	Adapted from Cherry Creek Guidance	
Name of Allocatee:
Address of Allocatee:
Phone number:
Email address:
Allocatee's Current
Pollutant Allocation:
Projected Pollutant Allocation
Requirements:	
Explanation of why credits are being requested:
Description of permit provision which allows for increased allocation:

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Water Quality Trading Appendix D: Use of Cost Share
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Appendix D	I
Use of Cost Share (Updated June 2009)
Contents
Clean Water State Revolving Fund and Water Quality Trading:
What Funding Is Available?	D-1
What is the Clean Water State Revolving Fund?	D-1
Clean Water State Revolving Fund Can Support Trading	D-2
Conclusions	D-4
Section 319 Funds and Water Quality Trading	D-4

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Water Quality Trading Toolkit for Permit Writers
D-ii

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Water Quality Trading Appendix D: Use of Cost Share
Use of Cost Share
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Clean Water State Revolving Fund and Water Pollutant
Trading: What Funding Is Available?
What is the Clean Water State Revolving Fund?
The Clean Water State Revolving Fund (CWSRF) is the Environmen-
tal Protection Agency's largest water quality financing program.
Operated in all 50 states and Puerto Rico, the CWSRF provides over
$5 billion in assistance for water quality projects each year. Most
assistance is in the form of low interest loans. Municipal credit
enhancements, such as guarantees for local debt and debt insur-
ance, are also available and can mimic the CWSRF subsidy. Guarantees and insurance hold
the promise of expanding CWSRF assistance to many more water quality projects.
A very broad array of projects are eligible for funding, including projects defined in
Sections 212, 319 and 320 of the Clean Water Act. Section 212 projects include publicly
owned municipal wastewater collection and treatment systems (POTWs), publicly owned
municipal stormwater projects and publicly owned municipal landfill projects regulated
by the National Pollutant Discharge Elimination System (NPDES) Program. Section 319
projects are nonpoint source projects defined in each state's Nonpoint Source Manage-
ment Plan. Section 320 projects are water quality projects located in the watershed
draining to a National Estuary that are defined in the 28 National Estuaries' Compre-
hensive Conservation Management Plans. These projects generally overlap with 212 and
319 projects. However, privately owned projects regulated by the NPDES program, such
as Concentrated Animal Feeding Operations, some municipal stormwater and landfills
projects and others are only eligible as Section 320 projects. Both public and private
borrowers may receive CWSRF loans for nonpoint source and estuary projects, including
farmers, homeowners, local governments, not-for-profit organizations, businesses and
others. Projects likely to be involved in water quality pollutant trading for nutrients and
sediment include advanced municipal wastewater treatment, manure management Best
Management Practices (BMPs), cropland BMPs, riparian restoration and reforestation
activities, septic system repair and upgrade and urban runoff BMPs. For more informa-
tion about eligible projects visit www.epa.gov/owm/cwfinance/cwsrf/index.htm.
The CWSRF funds the capital expenses of a project. For Section 212 municipal wastewa-
ter projects, this includes pipe and plant. Capital costs associated with publicly owned
stormwater, including traditional collection, storage and treatment projects, as well as
green infrastructure, such as rain gardens, are eligible. Section 212 projects also include
the water quality aspects of publicly owned municipal landfills, such as leachate collec-
tion and treatment, monitoring wells, liners, and caps. Reforestation, land conservation,
D-l
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Funding for the
capital costs of
water quality
projects

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Water Quality Trading Toolkit for Permit Writers
purchasing equipment and environmental cleanups are some of the many publicly and
privately owned Section 319 projects eligible for CWSRF assistance. The loans are not
available for costs associated with operation and maintenance. In addition, while there
are many opportunities to combine CWSRF loans with other federal programs, the com-
bined federal contribution to the projects may not exceed 100% of the capital costs. If
other federal programs are used to cover operations and maintenance costs, those funds
may exceed the capital costs of the project. CWSRF loan interest rates range from 0% to
just under market rate. Loan repayment begins within one year of project completion
and full repayment of the loan must occur within 20 years or the useful life of the under-
lying asset, whichever is less.
Clean Water State Revolving Fund Can Support Trading
There are three ways the CWSRF can support water		
quality pollutant trading—direct loans, conduit lending	Hie CWSRF can pay for
and investing in credit generating projects. Direct loans	projects that generate water
loan, to a project. Loan repayments must begin within
one year of project completion. After the project is com-
pleted, the project may generate water pollution removal credits. Despite the federal sub-
sidy from the lower than market rate interest on the loans or municipal debt guarantees or
insurance, proceeds from the sale of these credits can be kept by the borrower. Indeed, the
revenue from these credit sales could be used to repay the CWSRF loan. See Scenario 1
involve the typical assistance relationship between the
CWSRF and a POTW, nonpoint source, or estuary project.
The CWSRF provides assistance, such as a low interest
pollution removal credits.
CWSRF assistance can be
funnelled through a POTW
who needs the credit.
Water Quality Trading Scenario #1
Clean Water
State Revolving Fund
POTW,
Nonpoint
Source
or Estuary
Project
'Hjcre^

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Water Quality Trading Appendix D: Use of Cost Share
The CWSRF can also support financial arrangements between a POTW and other POTWs
or nonpoint sources, also called Single Facility Offset in the Trading Policy and conduit
lending in the CWSRF program. In these arrangements, a POTW borrows from the CWS-
RF for pollutant removal projects offsite of the treatment plant. The POTW may either
re-lend that funding or provide a grant (where the POTW repays the loan) for capital
pollutant removal projects that will benefit the water body. This could involve a POTW
paying for upgrades at another POTW in the watershed or a POTW paying for nonpoint
source BMPs or estuary protection projects within the watershed. See Scenario 2
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Water Quality Trading Scenario #2 (Offsets)

Clean Water
State Revolving Fund
&
%paysLoOn^°
POTW
Faced
with
Upgrade
Granfor/
Another
POTW,
Nonpoint
Source or
Estuary
Project
When a trading broker acts as an intermediary/integrator in a water pollutant trading
market, the transaction to provide financial support for a capital project between the
POTW and a pollutant credit generator needs to be clear so that CWSRF eligibility can
be ascertained. Primarily, CWSRF assistance is limited to the capital costs of the project.
The CWSRF needs to be able to identify the project that is being financed to determine
if it is eligible, how much it costs and what other federal funds are contributing to it.
The CWSRF must aiso be able to conclude that a state's funds are used within the same
state or by an eligible interstate agency. The trading broker can continue to serve as the
intermediary, as well as the credit enforcement arm to ensure the project is completed
and maintained.
The CWSRF can also support water quality trading through investments in projects that
generate credits. Instead of investing in traditional investment vehicles, such as U.S. Trea-
sury notes and certificates of deposit, States can use idle funds to invest in a state fund
that sponsors eligible projects that generate credits. In return for the capital to build the
project, the project gives the state investment fund the water quality credit generated
by the project. The sale of the fund's shares provides the CWSRF with the return on its
investment. By ensuring that an adequate supply of credits is available, states can help
establish a credit market. See Scenario 3
D-3

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Water Quality Trading Toolkit for Permit Writers
Water Quality Trading Scenario #3
POTW,
Nonpoint
Source
or Estuary
Project
Clean Water
State Revolving Fund
'HjckkS^

Clean Water
State Revolving Fund

Conclusions
While the CWSRF cannot be used to purchase credits directly under a water pollution
trading program, the resources of the CWSRF can support a water pollutant trading
market by providing funding for pollutant removal projects both directly and through a
conduit. States have wide latitude to select and fund their highest priority water quality
projects. With trading as a catalyst for a watershed level focus, the potential exists for
CWSRF funds to effect more water quality improvements in individual watersheds.
Section 319 Funds and Water Quality Trading
Since 1990, Congress has annually appropriated grant funds to states, territories and
tribes (hereinafter referred to as "states") under section 319(h) of the Clean Water Act
to help them to implement management programs to control nonpoint source pollution.
Section 319 grant funds are important resources available to states to restore impaired
waters and to protect threatened and unimpaired waters. EPA awards funds to states in
two portions—base funds and incremental funds. The base funds are to be used by the
states to generally implement all aspects of their nonpoint source programs, while the
incremental funds are to be primarily focused upon the implementation of watershed-
based plans to restore waters impaired by nonpoint source pollution.
The recipients of state awarded section 319 grants (i.e., subgrantees) are subject to
restrictions on the use of awarded funds, including those grantees that will sell pollutant
D-4

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Water Quality Trading Appendix D: Use of Cost Share
credits that result from a section 319 project. If a section 319 subgrantee receives finan-
cial remuneration during the subgrant period for a best management practice produced
with these funds that qualifies as creditable under a water quality trading program,
that payment is considered program income and would be required to be used in one of
three ways:
•	The amount of financial remuneration for the credit(s) created is deducted from
the total allowable costs incurred by the subgrantee (if the income was not antici-
pated at the time of the subgrant award, it must be deducted from the grant and
cannot be used in either of the subsequent methods);
•	If authorized, it may be added to the subgrant funds and must be used for the
purposes and under the conditions of the subgrant agreement; or
•	If authorized, it may be used to meet the cost sharing or matching requirement
of the subgrant (in which case, the amount of the subgrant remains the same).
Any income received after the subgrant award period has expired is not subject to these
program income restrictions. If section 319 grant funds are only a portion of the cost
of the project, then only that portion of the credit received would be program income
(assuming that other funding for the project is not federal).
As the number of water quality trading programs that create opportunities to achieve
nonpoint source pollutant reductions increases, the amount of section 319 grant funds
that are sought for credit generating activities may increase. As more nonpoint source
trading programs are instituted, EPA may need to evaluate the conditions under which
section 319 funds are used for the purpose of generating credits and may issue a specific
policy on the application of section 319 grant funds for water quality trading.

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Water Quality Trading Toolkit for Permit Writers
D-6

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Water Quality Trading Appendix E: Permit Writer Checklists
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Contents
Trading Program Design Checklist
Common Elements of Credible Trading Programs	E-1
Single Point Source-Point Source Trading
Considerations for Permit Writers - Checklist	E-2
Multiple Point Source Trading
Considerations for Permit Writers - Checklist	E-4
Point Source Credit Exchange
Considerations for Permit Writers - Checklist	E-6
Point Source-Nonpoint Source Trading
Considerations for Permit Writers - Checklist	E-8
Nonpoint Source Credit Exchange
Considerations for Permit Writers - Checklist	E-10
Appendix E
Permit Writer Checklists
E-i

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Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Appendix E: Permit Writer Checklists
Trading Program Design Checklist
Common Elements of Credible Trading Programs
Legal Authority and Mechanisms
(See Legal and Policy Framework for Water Quality Trading)
~	Are there clear legal authority and mechanisms to facilitate trading?
Units of Trade
(See What Are Some Factors Involved in Determining a Reduction Credit?)
~	Has a common unit of trade (e.g., mass per unit time) been established?
Creation and Duration of Credits
(See Timing of Credit Generation and the Duration of Credits)
~	Are credits generated during the period in which they are used to comply with permit
limits?
~	Is the reconciliation period consistent with the compliance period in each permit?
Quantifying Credits and Addressing Uncertainty
(See Developing Trade Ratios)
~	If the trade involves nonpoint sources, are methods established to account for the
uncertainty associated with nonpoint source loads and reductions?
Compliance and Enforcement Provisions
(See What Types of Effluent Limits Could Be Met Through Trading?)
~	Are clear enforceable provisions incorporated into the NPDES permit?
Public Participation and Access to Information
(See What Are the Roles of Stakeholders?)
~	Are stakeholders aware of and involved in trading program development?
~	Is trading program information easily accessible to the public?
Program Evaluations
(See How to Know if the Trading Program is Working)
~	Have environmental and economic program evaluations been built into the program
design?

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Water Quality Trading Toolkit for Permit Writers
Single Point Source-Point Source Trading
Considerations for Permit Writers - Checklist
Trade Agreements
~	Has a trade agreement been developed between the point sources?
~	If yes, does the trade agreement conform to all federal, state, and local regulations or
policy guidelines concerning water quality trading?
~	If not, are the point sources in the process of developing a trade agreement?
Components of a NPDES Permit
Permit Cover Page
~	Are there applicable state regulations or policy documents that should be referenced on
the cover page of the permit?
Effluent Limitations
Is there need for the permit writer to require a more stringent minimum control level or
baseline due to:
~	Localized areas of unacceptable pollutant levels in the waterbody of concern?
~	Desire to retire credits if a facility reduces production or closes?
~	Other?	
~	If yes, has the permit writer established effluent limits that allow for trading?
~	Do the credit purchaser and credit generator have the same effluent limit type (e.g., mass-
based) and averaging period (e.g., monthly average) for the pollutant being traded?
~	Has the permit writer considered antidegradation and anti-backsliding provisions in
developing the permit which authorizes trading?
Monitoring
~	Are additional sample locations or inspections needed to monitor the effectiveness of the
water quality trading program?
~	Is ambient monitoring or site inspection necessary to ensure that the trade is not creating
localized exceedances of water quality standards?
Reporting Requirements
~	Has a mechanism for tracking trades been developed?
~	Is the reconciliation period consistent with NPDES requirements?
~	If not, is there adequate justification?
~	Do the reporting requirements in the permit ensure that the permitting authority will
receive the information needed for its EPA reports?
Special Conditions
Are specific trading provisions being included in the permit's special conditions to address:
~	General authority?
~	The definition of a credit?
~	Reconciliation periods?
~	Any notification requirements per the trading agreement?
~	Other?	

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Water Quality Trading Appendix E: Permit Writer Checklists
Single Point Source-Point Source Trading Considerations for Permit
Writers - Checklist (continued)
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~	Do the special conditions address individual liability if credits are not available?
~	Is a clause included to allow changes to trade agreements without reopening the permit?
~	If authorized by the state, are compliance schedules included to require compliance with
trading provisions?
~	Are environmental studies required to assess the effectiveness of the program?
E-3

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Water Quality Trading Toolkit for Permit Writers
Multiple Point Source Trading
Considerations for Permit Writers - Checklist
Trade Agreements
~	Has a trade agreement (or multiple agreements) been developed between the point
sources?
~	If yes, does the trade agreement conform to all federal, state, and local regulations or
policy guidelines concerning water quality trading?
~	If not, are the point sources in the process of developing a trade agreement?
Components of a NPDES Permit
Permit Cover Page
~	Are there applicable state regulations or policy documents that should be referenced on
the cover page of the permit?
Effluent Limitations
Is there need for the permit writer to require a more stringent minimum control level or
baseline due to:
~	Localized areas of unacceptable pollutant levels in the waterbody of concern?
~	Desire to retire credits if a facility reduces production or closes?
~	Other?	
~	If yes, has the permit writer established effluent limits that allow for trading?
~	Is an aggregate limit appropriate for the group of point source dischargers?
~	Do the credit purchaser and credit generator have the same effluent limit type (e.g., mass-
based) and averaging period (e.g., monthly average) for the pollutant being traded?
~	Has the permit writer considered antidegradation and anti-backsliding provisions in
developing the permit which authorizes trading?
Monitoring
~	Are additional sample locations or inspections needed to monitor the effectiveness of the
water quality trading program?
~	Has it been established, if multiple facilities are covered under the same permit and are
part of an association, which entities will be responsible for the monitoring?
~	Is ambient monitoring or site inspection necessary to ensure that the trade is not creating
localized exceedances of water quality standards?
Reporting Requirements
~	Has a mechanism for tracking trades been developed and incorporated?
~	Is the reconciliation period consistent with NPDES requirements?
~	If not, is there adequate justification?
~	Do the reporting requirements in the permit ensure that the permitting authority will
receive the information needed for its EPA reports?
Special Conditions
Are specific trading provisions being included in the permit's special conditions to address:
~	General authority?
~	The definition of a credit?
~	Reconciliation periods?
~	Any notification requirements per the trading agreement?
~	Other?	

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Water Quality Trading Appendix E: Permit Writer Checklists
Multiple Point Source Trading Considerations for Permit Writers
- Checklist (continued)
~	Do these provisions address individual liability issues if credits are not available?
~	Is a clause included to allow changes to trade agreements without reopening the
associated permit?
~	If authorized by the state, are compliance schedules included to require compliance with
trading provisions?
~	Are environmental studies required to assess the effectiveness of the program?

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Water Quality Trading Toolkit for Permit Writers
Point Source Credit Exchange
Considerations for Permit Writers - Checklist
Credit Exchange Administration
~	Has the entity administering the credit exchange been established?
~	Are the trade management and administration responsibilities of the credit exchange
clearly listed?
~	Will a broker be used to locate and connect appropriate trading partners?
~	Has the credit exchange accounted for delivery or location ratios between generators and
purchasers?
Trade Agreements
~	Has a trade agreement (or multiple agreements) been developed between the point
sources and the credit exchange?
~	If yes, does the trade agreement conform to all federal, state, and local regulations or
policy guidelines concerning water quality trading?
~	If not, are the point sources and the credit exchange in the process of developing a trade
agreement?
~	Does the trade agreement include obligations for permitted buyers and sellers?
Components of a NPDES Permit
Permit Cover Page
~	Are there applicable state regulations or policy documents that should be referenced on
the cover page of the permit?
Effluent Limitations
Is there need for the permit writer to require a more stringent minimum control level or
baseline due to:
~	Localized areas of unacceptable pollutant levels in the waterbody of concern?
~	Desire to retire credits if a facility reduces production or closes?
~	Other?	
~	If yes, has the permit writer established effluent limits that allow for trading?
~	Is an aggregate effluent limit appropriate for the group of point source dischargers
included in the exchange?
~	Has the permit writer considered antidegradation and anti-backsliding provisions in
developing the permit which authorizes trading?
Monitoring
~	Are additional sample locations or inspections needed to monitor the effectiveness of the
water quality trading program?
~	Has it been established who will be responsible for the monitoring for the individuals
participating in the credit exchange?
~	Is ambient monitoring or site inspection necessary to ensure that the trade is not creating
localized exceedances of water quality standards?
Reporting Requirements
~	Has a mechanism for tracking trades been developed and incorporated into the permit?
~	Is there an entity identified to track trades?
~	Who will perform this tracking? The individual permittee(s) or the credit exchange?

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Water Quality Trading Appendix E: Permit Writer Checklists
Point Source Credit Exchange Considerations for Permit Writers
- Checklist (continued)
~	Is the reconciliation period consistent with NPDES requirements?
~	If not, is there adequate justification?
~	Do the reporting requirements in the permit ensure that the permitting authority will
receive the information needed for its EPA reports?
Special Conditions
Are specific trading provisions being included in the permit's special conditions to address:
~	General authority?
~	The definition of a credit?
~	Reconciliation periods?
~	Any notification requirements per the trading agreement?
~	Other?	
~	Do these provisions address individual liability issues if necessary pollutant reductions are
not generated?
~	Do the special conditions outline the type of trade tracking information that the
permittee must provide or request that the credit exchange make available to the
permitting authority?
~	Will a surplus of credits be maintained by the credit exchange in order to address the
potential inadequacy of generated credits?
~	Is a clause included to allow changes to trade agreements without reopening the
associated permit?
~	If authorized by the state, are compliance schedules included to require compliance with
trading provisions?
~	Are environmental studies required to assess the effectiveness of the program?

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Water Quality Trading Toolkit for Permit Writers
Point Source-Nonpoint Source Trading
Considerations for Permit Writers - Checklist
Quantifying Nonpoint Source Loads and Credits
~	Have uncertainty ratios been developed to account for greater uncertainties in estimates
of nonpoint source loads and reductions?
~	Is the permitting authority satisfied that nonpoint source loadings and BMP effectiveness
have been measured appropriately?
~	If direct measurement is not possible, is the permitting authority comfortable with the
modeling techniques used to estimate nonpoint source loadings and BMP effectiveness?
~	Has an appropriate credit reconciliation period been determined based on the timing of
credit generation and the duration of credits?
~	Has it been considered when, during the year, that nonpoint source credits will be
generated?
~	Has the trade agreement and permit accounted for when credits will expire?
Establishing Baselines for Nonpoint Source Sellers
~	Have effluent limitations been established to create minimum pollutant control
requirements that the point source purchasers must meet?
~	Has a clear baseline for nonpoint source credit generation been developed?
Are the baselines based upon:
~	Existing TMDL load allocations;
~	Loading of the nonpoint source after meeting some level of BMP control as established
by state and local requirements or the trading agreement;
~	Other?	
Accountability
~	Are there appropriate provisions in the trade agreement or contract to achieve
compliance in the event that the nonpoint source does not generate the quantity of
credits required to meet the point sources' permit obligations?
~	Have the point source dischargers determined that adequate trading credits will be
generated by the nonpoint sources to account for applicable ratios and supply adequate
pollutant credits?
Trade Agreements
~	Has a trade agreement (or multiple agreements) been developed between the point and
nonpoint sources?
~	If yes, does the trade agreement conform to all federal, state, and local regulations or
policy guidelines concerning water quality trading?
~	If not, are the point sources in the process of developing a trade agreement?
Components of a NPDES Permit
Permit Cover Page
~	Are there applicable state regulations or policy documents that should be referenced on
the cover page of the permit?

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Water Quality Trading Appendix E: Permit Writer Checklists
Point Source-Nonpoint Source Trading Considerations for Permit
Writers - Checklist (continued)
Effluent Limitations
Is there need for the permit writer to require a more stringent minimum control level or
baseline due to:
~	Localized areas of unacceptable pollutant levels in the waterbody of concern?
~	Desire to retire credits if a facility reduces production or closes?
~	Other?	
~	If yes, has the permit writer established an effluent limit that allows for trading?
~	Has the permit writer considered antidegradation and anti-backsliding provisions in
developing the permit which authorizes trading?
Monitoring
~	Are additional sample locations or inspections needed to monitor the effectiveness of the
water quality trading program?
~	Is ambient monitoring or site inspection necessary to ensure that the trade is not creating
localized exceedances of water quality standards?
Reporting Requirements
~	Is there a mechanism for certifying nonpoint source reductions?
~	Has a mechanism for tracking trades been developed and incorporated into the permit?
~	Is the reconciliation period consistent with NPDES requirements?
~	If not, is there adequate justification?
~	Do the reporting requirements in the permit ensure that the permitting authority will
receive the information needed for its EPA reports?
Special Conditions
Are specific trading provisions being included in the permit's special conditions to address:
~	General authority?
~	The definition of a credit?
~	Reconciliation periods?
~	Any notification requirements per the trading agreement?
~	Other?	
~	Do these provisions address individual liability issues if credits are not generated by the
nonpoint sources?
~	Is a clause included to allow changes to trade agreements without reopening the
associated permit?
~	If authorized by the state, are compliance schedules included to require compliance with
trading provisions?
~	Are environmental studies required to assess the effectiveness of the program?

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Water Quality Trading Toolkit for Permit Writers
Nonpoint Source Credit Exchange
Considerations for Permit Writers - Checklist
The Function of a Nonpoint Source Credit Exchange
~	Is there clear authority in the trade agreement for who will be administering the credit
exchange?
~	Are the trade management and administration responsibilities of the credit exchange
outlined in detail in the trade agreement?
~	Will a third party be used to locate and connect appropriate trading partners?
~	Has the credit exchange accounted for delivery or location ratios between generators and
purchasers?
Quantifying Nonpoint Source Loads and Credits
~	Have uncertainty ratios been developed to account for greater uncertainties in estimates
of nonpoint source loads and reductions?
~	Is the permitting authority satisfied that nonpoint source loadings and BMP effectiveness
have been measured appropriately?
~	If direct measurement is not possible, is the permitting authority comfortable with the
modeling techniques used to estimate nonpoint source loadings and BMP effectiveness?
~	Has an appropriate credit reconciliation period been determined based on the timing of
credit generation and the duration of credits?
~	Has it been considered when, during the year, that nonpoint source credits will be
generated?
~	Has the trade agreement and permit accounted for when credits will expire?
Establishing Baselines for Nonpoint Source Sellers
~	Have effluent limitations been established to create minimum pollutant control
requirements that point source purchasers must meet?
~	Has a clear baseline for nonpoint source credit generation been developed?
Are the baselines based upon:
~	Existing TMDL load allocations;
~	Loading of the nonpoint source after meeting some level of BMP control as established
by state and local requirements or the trading agreement;
~	Other?	
Accountability
~	Are there appropriate provisions in the trade agreement or contract to achieve
compliance in the event that the nonpoint source does not generate the quantity of
credits required to meet the point sources' permit obligations?
~	Have the point source dischargers determined that adequate trading credits will be
generated by the nonpoint sources to account for applicable ratios and supply adequate
pollutant credits?

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Water Quality Trading Appendix E: Permit Writer Checklists
Nonpoint Source Credit Exchange Considerations for Permit Writers
- Checklist (continued)
Tl
tfl
Trade Agreements
~	Has a trade agreement (or multiple agreements) been developed between the point
sources, nonpoint sources, and the credit exchange?
~	If yes, does the trade agreement conform to all federal, state, and local regulations or
policy guidelines concerning water quality trading?
~	If not, are the sources in the process of developing a trade agreement?
Components of a NPDES Permit
Permit Cover Page
~	Are there applicable state regulations or policy documents that should be referenced on
the cover page of the permit?
Effluent Limitations
Is there need for the permit writer to require a more stringent minimum control level or
baseline due to:
~	Localized areas of unacceptable pollutant levels in the waterbody of concern?
~	Desire to retire credits if a facility reduces production or closes?
~	Other?	
~	If yes, has the permit writer established an effluent limit that allows for trading?
~	Has the permit writer considered antidegradation and anti-backsliding provisions in
developing the permit which authorizes trading?
Monitoring
~	Are additional sample locations or inspections needed to monitor the effectiveness of the
water quality trading program?
~	Has it been established who will perform the monitoring for the point and nonpoint
sources participating in the nonpoint source credit exchange?
~	Is ambient monitoring or site inspection necessary to ensure that the trade is not creating
localized exceedances of water quality standards?
~	Have permit conditions been included to assure that nonpoint source BMPs are
performing properly through regular monitoring and inspection?
~	Has it been established who will perform the monitoring and inspections?
Reporting Requirements
~	Is there a mechanism for certifying nonpoint source reductions?
~	Has a mechanism for tracking trades been developed and incorporated into the permit?
~	Has it been determined who will perform this tracking?
~	Are permit provisions necessary to ensure that the installation and performances
specifications for BMPs are verified prior to the purchase of credits from nonpoint
sources?
~	Is the reconciliation period consistent with NPDES requirements?
~	If not, is there adequate justification?
~ Do the reporting requirements in the permit ensure that the permitting authority wil
receive the information needed for its EPA reports?
E-ll

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Water Quality Trading Toolkit for Permit Writers
Nonpoint Source Credit Exchange Considerations for Permit Writers
- Checklist (continued)
Special Conditions
Are specific trading provisions being included in the permit's special conditions to address:
~	General authority?
~	The definition of a credit?
~	When a nonpoint source generated credit is available?
~	The specific BMPs that are authorized to generate nonpoint source credits?
~	Reconciliation periods?
~	Any notification requirements per the trading agreement?
~	Other?	
~	Do these provisions address individual liability issues if credits are not generated by the
nonpoint sources?
~	Do the special conditions outline the type of trade tracking information that the
permittee must provide or request that the credit exchange make available to the
permitting authority (e.g. type and location of specific BMPs)?
~	Will a surplus of credits be maintained by the credit exchange in order to address the
potential inadequacy of generated credits or to address the uncertainty of nonpoint
source generated credits?
~	Is a clause included to allow changes to trade agreements without reopening the
associated permit?
~	If authorized by the state, are compliance schedules included to require compliance with
trading provisions?
~	Are environmental studies required to assess the effectiveness of the program?

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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
Appendix F
Trading With Subsurface Septic Systems
(Added June 2009)
Contents
References	
Acknowledgements
F-10
F-10

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Water Quality Trading Toolkit for Permit Writers
F-ii

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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
The reader of this appendix should first read the Point Source-Nonpoint Source Trading
Scenario. This appendix provides a variation related to the type of nonpoint source trade
'"Tj
only. The information provided in the Scenario also applies to this type of trade except as
noted below.
Nonpoint source trading is not limited to agriculture. Subsurface septic systems are also
nonpoint sources that can be involved in trading. Trading programs involving these
systems would be similar to trading programs involving agriculture, as outlined in the
Point Source-Nonpoint Source Trading Scenario; however, there are a few differences.
This appendix discusses circumstances under which a point source or permitting authority
might want to consider allowing offsets with subsurface septic systems. A hypothetical
example of a septic system trading program is included.
The benefits of a permitted point source trading with subsurface septic systems could
include increased nutrient and pathogen control, as well as overall improvement in septic
system performance in the watershed. The credit buyer would benefit from finding a
more economical option for meeting a new or more restrictive discharge permit limit.
The benefit to the credit-selling homeowners would depend on the type of trading
arrangement. In cases where a homeowner's subsurface septic system is repaired and
enhanced or totally replaced by the credit buyer, and the credit buyer pays for mainte-
nance under the trade agreement, the homeowner is potentially relieved of the cost of
repairing and enhancing the system, as well as system maintenance. If the option is for
the credit buyer to retire the septic system and connect the home to the municipal collec-
tion system, the advantage to the homeowner is less responsibility for maintenance. The
homeowner, however, would then presumably have to pay a municipal sewer charge,
although the economics of the trade might be so favorable to the credit-buying discharg-
er that it is willing to pay for the individual home hookups. One caution is that, depend-
ing on how the trading program is structured, it could spur residential development
where such development may not be wanted. In addition, additional hookups would add
flow to the receiving publicly owned treatment works (POTW), which, depending on the
number of existing hookups and the POTW's capacity, could affect performance at the
treatment plant. As discussed below, this contingency should be considered in assessing
the feasibility of the trade.
Potential Conditions for Developing an Trading Program
with Subsurface Septic Systems
Under what conditions would trading with subsurface septic systems be feasible or desir-
able? The most obvious case would be where subsurface septic systems already exist and
a watershed analysis suggests that the systems are contributing to water quality impair-
ment. Thus, a full analysis of the watershed might be completed through a watershed-
based permitting approach or a total maximum daily load (TMDL). This analysis would
F-l

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Water Quality Trading Toolkit for Permit Writers
define the existing and potential sources of contamination and help to set the baseline
for trading in that watershed.
A permittee considering trades with subsurface systems has a number of options, includ-
ing (1) hooking up household septic systems to its collection system, (2) replacing the
existing septic system(s) with an alternative system that controls nitrogen and phospho-
rus or (3) repairing the existing system(s) and adding enhancements to control nitrogen
and phosphorus. For options (2) and (3), the trade agreement might require the credit
buyer to maintain these more sophisticated septic systems. Thus, there would be a man-
agement/maintenance section in the trade agreement with the septic owner outlining
the responsibilities of each party. Those responsibilities might include the credit buyer's
notifying the homeowner or business when the credit buyer plans inspections, repair, or
replacement. The homeowner's responsibilities might include performing some mainte-
nance and notifying the credit buyer of any problems with the system.
The parties might wish to consider the following factors, among others, before pursuing
trades with subsurface septic systems:
(1)	Source of contamination. Consider doing an analysis of the watershed to assess
whether subsurface septic systems contribute to water quality impairment.
(2)	Results of a buyer's cost-benefit analysis. Consider doing an analysis, from the
perspective of the buyer, of the costs and benefits of pursuing a trade. Such an
analysis could include an evaluation of the amount of reduction expected based
on an appropriate trade ratio. The analysis might also include the proximity to
the waterbody of the subsurface septic systems, the density of development, the
proximity of existing public sewer service to the septic systems, and the potential
for growth.
(3)	Proximity to a waterbody. Consider the possibility that the closer the subsurface
system is to a waterbody, the faster and higher the rate of nutrient delivery to
the waterbody.
(4)	Density of development. Consider whether connecting low-density development
to existing or satellite treatment plants is worth the cost. Choosing to replace, or
repair and enhance, subsurface systems might be more cost-effective.
(5)	Proximity to public sewer. Consider the cost-effectiveness of connecting septic
systems to existing public sewers in light of the distance that public sewers would
have to be extended to facilitate the hookups.
(6)	Potential for growth. Keep in mind that hooking up subsurface systems to waste
treatment plants may promote growth and development along the new collec-
tion line. Depending on the land use planning for the area, this could be a posi-
tive or negative outcome.
F-2

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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
(7) Effect of added flow to the POTW. It is important to consider how much addi-
tional flow the POTW can accommodate without negative effects on the perfor-
'"Tj
mance of the treatment plant.
tu
Below is a hypothetical example of a trade agreement with a community of subsurface
septic systems. The baseline and all other topics for trading with subsurface septic sys-
tems would be the same as those outlined in the Point Source-Nonpoint Source Trading
Scenario.
'-n
Maco Creek Example: Trade Agreements
What You Need to Know...
Pollutant: Total Nitrogen (TN)
Driver: Approved TMDL for Total Nitrogen for Maco Creek
Credit Buyer: Expanding Facility: Troy Manufacturing
This industrial facility has a total nitrogen (TN) wasteload allocation under the TMDL of 3,044 lb/
month. At its current design flow of 200,000 gpd, it must achieve a monthly average TN concentration
of 5.00 mg/L to comply with the loading limit.
Troy Manufacturing now wishes to expand its operations and increase its discharge to 250,000 gpd.
The facility could either upgrade its treatment process and reduce the concentration of nitrogen in its
discharge to meet the monthly load limit or find TN offsets elsewhere in the watershed. The TMDL
load allocation calls for reducing the existing septic nitrogen loads by 15 percent. Troy Manufactur-
ing has determined that paying for a combination of connecting septic systems in Frog Town to the
POTW and upgrading others to denitrifying capability would be less costly than upgrading Troy's
wastewater treatment plant. The permitting authority has agreed that Troy Manufacturing could off-
set its proposed additional nitrogen load by connecting or upgrading septic systems in Frog Town that
were identified in the TMDL as contributors to the nitrogen impairment in Maco Creek. Frog Town
has agreed to accept the flow from the hookups at its POTW and has determined that the additional
nitrogen load that would be discharged by the Frog Town plant could be easily accommodated within
the plant's permitted load limit. Frog Town has also agreed to enter into agreements with owners of
the upgraded septic systems that would ensure adequate operation and maintenance of the systems
and allow annual inspections. The only additional requirement stipulated by the permitting authority
in this example is that a portion of the nitrogen load reduction generated by retiring or upgrading the
septic systems must be used to help achieve the TMDL goal of reducing septic loads in the watershed
by 15 percent. Hence, 15 percent of any septic load reduction achieved must be used for that purpose
and may not be used to offset the additional Troy Manufacturing nitrogen loads.
F-3

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Water Quality Trading Toolkit for Permit Writers
Maco Creek Example: Trade Agreements (continued)
The Troy Manufacturing discharge is summarized in the Table 1.
Table 1. Troy Manufacturing's Discharged Flows, Loads, and Permit Requirements

Current
Proposed
Flow, gpd
200,000
250,000
TN Concentration, mg/L
5.00
5.00
TN Load, lbs/yr
3,044
3,805
TN Load Permit Limit, lbs/yr
3,044
3,044
Excess Load, lbs/yr

761
Troy Manufacturing must offset 761 pounds of additional nitrogen load per month.
Credit Seller: Frog Town has identified 14 households on old subsurface septic systems that have
agreed to allow the town to remove their septic systems and connect the houses to Frog Town's
municipal sewer system. Another five households have agreed to upgrade their systems to denitri-
fying capability. Frog Town will pay for all necessary construction and will be reimbursed by Troy
Manufacturing.
To properly design the trade, an adequate analysis of septic pollutant loads is necessary. In this
example, it is assumed that the TMDL included an assessment of septic loads and that the assessment
is complete and robust enough to allow trades involving these loads. It is assumed that the TMDL has
provided the following:
¦	GIS mapping of all the septic systems.
¦	The annual average nitrogen concentrations at the edge of the septic drain fields, based on moni-
toring and statistical analysis. These annual averages vary by septic system type, e.g., residential,
commercial, type of commercial.
¦	The annual average nitrogen delivery ratio, based on soil type, slope, monitoring, groundwater
and surface water modeling, and statistical analysis. The ratios of the discharged septic load to
the septic load delivered to the Maco River impairment zone were determined. A zone system
was developed based on zones with similar characteristics, and delivery ratios were assigned to
individual septic systems based on zone. The delivery ratios were set conservatively, allowing a
lower uncertainty ratio to be applied in the trade than would otherwise have been the case.
The zone delivery ratios are shown in Table 2. The load reductions achieved by the hookups and
upgrades are shown in Tables 3 and 4, respectively.
Table 2. Maco Creek TMDL Septic System Zones and Delivery Ratios
Zone
Delivery Ratio
1
0.75
2
0.69
3
0.78
F-4

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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
Maco Creek Example: Trade Agreements (continued)
Table 3. Load Reductions Attributed to Retired Frog Town Septic Systems
Septic No.
Type
Flow
(gal/day)
TN Cone
Edge of
Drain
Field
(mg/L)
TN Load
Edge of
Drain
Field
(lb/yr)
Delivery
Ratio
TN Load
to Maco
Creek
(lb/yr)
1
Residential
250
45
34
.75
26
2
Residential
250
45
34
.75
26
3
Commercial
1,300
63
249
.75
187
4
Residential
250
45
34
.75
26
5
Commercial
950
70
202
.75
152
6
Residential
250
45
34
.75
26
7
Residential
250
45
34
.69
24
8
Commercial
1,500
55
251
.69
173
9
Residential
250
45
34
.69
24
10
Residential
250
45
34
.69
24
11
Residential
250
45
34
.69
24
12
Medical
1,000
85
259
.78
202
13
Residential
250
45
34
.78
27
14
Residential
250
45
34
.78
27
Total
1,304

965
Table 4. Load Reductions Attributed to Upgraded Frog Town Septic Systems
Septic
No.
Type
Flow
(gal/
day)
TN
Cone
(mg/L)
TN
Load
(lb/yr)
Delivery
Ratio
TN
Load to
Maco
Creek
(lb/yr)
New
TN
Cone
(mg/L)
NewTN
Load to
Maco
Creek
(lb/yr)
TN
Reduction
lbs/year
1
Residential
250
45
34
0.75
26
20
11
14
2
Residential
250
45
34
0.69
24
20
11
13
3
Commercial
450
65
89
0.69
61
20
19
43
4
Residential
250
45
34
0.69
24
20
11
13
5
Commercial
900
45
123
0.78
96
20
43
53
Total
315

231

94
136
The calculation of the total load reduction needed for this trade is shown in Table 5 and the available
reductions are shown in Table 6. A10 percent uncertainty ratio has been applied, as shown in Table
5. The uncertainty is due mainly to uncertainty in the delivery ratios; however, because the TMDL set
the ratios conservatively high, only a small uncertainty ratio is required in the trade.

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Water Quality Trading Toolkit for Permit Writers
Maco Creek Example: Trade Agreements (continued)
Table 5. Required Nitrogen Load Reductions
Use
Required Reduction, lbs/yr
Satisfy TMDL Requirement
(15 percent of existing septic load)
180
Offset Troy Manufacturing's Increase
761
Subtotal
941
10 percent uncertainty ratio
94
Total
1,035
Table 6. Available Nitrogen Load Reductions
Source
Required Reduction, lbs/yr
Septic System Connections
965
Septic System Upgrades
137
Total
1,102
Effluent Limitations
Troy Manufacturing needs 1,035 credits per year. It has applied for an NPDES permit modification for the
increased flow and load and plans to begin construction after the permit is approved. Troy Manufactur-
ing expects that building the added capacity will take one year. Therefore, the permitting authority will
authorize the discharge beginning one year after permit modification, provided that all 19 septic system
connections or upgrades have been accomplished by that time. This approach ensures that the load reduc-
tion needed to offset the additional discharge will be available when the additional discharge begins.
The permit writer for Troy Manufacturing will include water quality based effluent limitations
(WQBEL) for nitrogen and the trading provisions in the permit, particularly the septic system connec-
tions and upgrades required to offset Troy Manufacturing's additional load. The permit fact sheet will
include the information shown in Tables 1 through 6.
Permit Language (after modification):
Table 7. Monthly Average Mass Loading Effluent Limitations for Total Nitrogen
Facility
Units
WQBEL prior to
expansion
WQBEL after
expansion
Troy Manufacturing
lbs/yr
3,044
4,805
A.	Troy Manufacturing is authorized to discharge total nitrogen from Outfall 001 to Maco Creek
provided the discharge meets the limitations set forth herein. Provision X of this permit autho-
rizes the permittee to purchase water quality trading credits for total nitrogen from nonpoint
sources within the Maco Creek watershed that meet the baseline requirements prior to trading.
B.	Prior to {insert date 12 months after permit effective date}, the discharge from Outfall 001
shall comply with the yearly mass loading of total nitrogen established by the WQBEL prior to
F-6

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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
>
Tl
tfl
2,
O
I—I
X
rn
Pollutant Form, Units of Measure, and Timing
Pollutant Form
The TMDL indicates an impairment in Maco Creek for total nitrogen. Because both Troy Manufac-
turing and the Frog Town septic systems are discharging the same form of nitrogen, no equivalency
factor is needed.
Units of Measure
The WQBELs are expressed in pounds per year as an annual average to correspond with the units and
averaging period in the TMDL. The nitrogen load reductions assumed in the trading agreements for
the septic systems will be calculated and expressed in pounds per year as an annual average to corre-
spond with the offset needed by Troy Manufacturing.
Timing of Credits
Credits are available beginning 12 months after permit issuance. This allows 12 months for Troy
Manufacturing to enter into trade agreements with the five homeowners in Frog Town to upgrade
their septic systems and complete the upgrades. These agreements are not part of the NPDES permit
and the homeowners are not subject to NPDES permit requirements or penalties. The agreement may
contain other potential actions, such as actions to be taken if the homeowner violates the agreement,
that are outside NPDES. The permit authorizes the Troy Manufacturing discharge expansion begin-
ning one year after issuance of the permit, so Troy Manufacturing will not expand its discharge before
the required offset has been obtained and is performing. Trades will occur annually to correspond
with the annual average effluent limitation. The ability of the upgraded septic systems to continue to
generate credits will be assessed during the renewal of Troy Manufacturing's permit every five years.
Upgraded septic system owners, the POTW, or a third party must verify credits annually.
Monitoring
¦	In the new permit, Troy Manufacturing will be required to monitor for total nitrogen weekly
and to submit monthly discharge monitoring reports (DMRs) to the permitting authority year-
round by the 15th of the second month following monitoring in order to gauge compliance.
The DMR shall include monthly total nitrogen loads and cumulative annual total nitrogen load
to date. Annual inspections of septic systems are also required to ensure proper maintenance.
Permit Language:
¦	The permittee shall monitor effluent total nitrogen at least once a week. The permittee shall
determine the average monthly mass loading based on actual monthly average flow. Flow
monitoring shall be continuous.
Maco Creek Example: Trade Agreements (continued)
expansion set forth in Table 7. After {insert date 12 months after permit effective date}, the
discharge from Outfall 001 shall comply with the yearly mass loading of total nitrogen estab-
lished by the WQBEL after expansion set forth in Table 7.
C. The permittee shall complete connection or upgrade of the 19 septic systems in Frog Town
as shown in Tables 3 and 4 prior to increasing its discharge. The permittee shall maintain the
upgraded septic systems shown in Table 4 for the duration of this permit.
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Water Quality Trading Toolkit for Permit Writers
Maco Creek Example: Trade Agreements (continued)
Reporting
The permit requires, in addition to monitoring reports, regular reporting of any changes to the trade
agreement, as well as reports for tracking trades. The facility's individual permit will contain annual
average effluent limitations for total nitrogen; therefore, annual trade transactions for the upgraded
septic systems will be necessary to maintain compliance. The trade agreement between the discharg-
ers indicates that Troy Manufacturing will track the trades. Troy Manufacturing will maintain main-
tenance records for these systems. The trade-tracking system will generate annual trading summaries
for the entire program.
Permit Language:
• No trade is valid unless it is recorded in the permittee's electronic trade-tracking system or
an equivalent system that records all trades and generates an annual summary of all trades
in substantially the same format as forms approved by the state. Trade-tracking information
must be submitted to [the Permitting Authority] by March 1 of each year.
Special Conditions
The NPDES permit writer has reviewed the signed trade agreements for total nitrogen trading
between Troy Manufacturing, Frog Town, and homeowners in Frog Town. The agreements describe
how Troy Manufacturing will offset its discharge through trading with Frog Town and homeowners
in Frog Town. The NPDES permit writer has developed the appropriate effluent limitations, monitor-
ing, and reporting requirements for Troy Manufacturing. The special conditions in the NPDES per-
mit focus on general authority, credit definition, notification of amendment to the trade agreement,
notification of unavailability of credits, permit reopeners and modification provisions, compliance
schedule, and enforcement liability.
Permit Language:
General Authority
The permittee is authorized to participate in water quality trading with Frog Town and hom-
eowners in Frog Town as specified in the written signed trade agreements, for the purposes of
complying with the TMDL-related requirements of this permit. The authority to use trading for
compliance with these limits is derived from {insert state law where applicable} and section 402 of
the Federal Clean Water Act (33 U.S.C.§ 1342). USEPA's policies on Water Quality Trading (1/13/03)
and Watershed-Based NPDES Permitting (1/7/03) endorse water quality trading. In addition, the
Maco Creek Nitrogen TMDL authorizes water quality trading as a means of achieving the alloca-
tions established by the TMDL.
Credit Definition
Credits will be measured in pounds of total nitrogen per year on an annual basis. One trading
credit will be defined as one unit of pollutant reduction (pound of total nitrogen) delivered to
Maco Creek. All pollutant load reductions purchased by the permittee will be in the form of equiv-
alent nitrogen credits that represent pollutant load reductions with the appropriate uncertainty,
delivery, and retirement ratios applied as detailed in the trade agreement between the permittee
and point and nonpoint source trading partners. All valid credits are tradable. The permittee is
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Water Quality Trading Appendix F: Trading With Subsurface Septic Systems
Maco Creek Example: Trade Agreements (continued)
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required to offset its load by complying with the schedule for annual inspections and maintenance
of the upgraded septic systems in Frog Town and providing pollutant reductions beyond the load
allocation, established in the Maco Creek Nitrogen TMDL. All septic systems generating credits
must be certified as having been properly installed.
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Water Quality Trading Toolkit for Permit Writers
References
U.S. Environmental Protection Agency. 2002. Onsite Wastewater Treatment Systems
Manual, EPA/625/R-00/008. U.S. Environmental Protection Agency, Office of Water and
Office of Research and Development, Washington, DC. Page 3-29.
U.S. Environmental Protection Agency and Massachusetts Department of Environmen-
tal Protection. 1998. Authorization to Discharge under the National Pollutant Discharge
Elimination System, Town of Wayland, MA. NPDES Permit No. MA0039853.
Acknowledgements
Cy Jones, World Resources Institute, author of the example.
Jeff Potent, EPA Region 2
Jay Prager, Maryland Department of the Environment
Randy Sovik, West Virginia Department of Environmental Protection
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Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility
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Appendix 6
Sediment and Nutrient Trades with Forestry
and Drinking Water Treatment Facility
(Added June 2009)
Contents
Note to Readers: Prior to reading this appendix, please review the Point Source - Nonpoint Source Trading
Scenario (referred to as the Scenario). This appendix provides a variation on the type of nonpoint source
trading partners that a point source buyer might want to consider. The information provided in the Scenario
will be the same for this type of trade except where noted below. Keep in mind that there are a range of
options for how water quality trading can occur that will vary according to the needs at the local level. The
hypothetical example discussed throughout this appendix illustrates just one of the many options an NPDES
permit writer and stakeholders might use to develop a trading program.
Introduction	
Background Information
References	
Acknowledgements. . .
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G-9
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Water Quality Trading Toolkit for Permit Writers
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Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility
Introduction
The trading example described in Appendix G follows the Scenario and focuses on three
areas that the Toolkit does not cover elsewhere: (1) trading by drinking water treatment
facilities, (2) trading of sediment loading and (3) trades involving vegetative plantings
with an emphasis on forestry.
As described in 40 CFR 122.45(d) and 40 CFR122.45(e), effluent limitations for all NPDES
permit holders that discharge continuously must be stated as maximum daily and aver-
age monthly discharge limitations, unless impracticable. However, for noncontinuous
dischargers (as some water treatment facilities are), the permit writer must ensure only
that effluent limitations are stated to meet the requirements of section 122.45(e)1-4.
There are no national effluent limitation guidelines for drinking water treatment facili-
ties. The permitting authority and permit writer must use best professional judgment
(BPJ) to establish technology-based NPDES permit limits that are based on the existing
source performance standards described in the CWA and NPDES regulations (i.e., BPT,
BCT, and BAT). Water quality-based effluent limits are developed to meet state water
quality standards. The final limitations included in NPDES permits must satisfy both the
technology requirements and water quality standards.
Large drinking water treatment facilities often rely on surface water as their water
source and use flocculation, sedimentation, filtration, and disinfection as treatment pro-
cesses. Suspended solids from source water are often settled in a sedimentation basin.
In some situations, the quality of the influent water can be very poor because of high
turbidity and high sediment loads. The sediment removed through the treatment process
must be disposed of. The treatment facility might find that it is more cost effective to
return some or all the sediment to the river and create offsets that will reduce sediment
loading upstream (e.g., control land erosion). However, to do this, the treatment facility
must demonstrate to the permitting authority/permit writer that its discharge of sedi-
ment will not adversely affect the waterbody at the point of discharge.
Sediment is fragmented material that originates from weathering and erosion of
rocks or unconsolidated deposits and is transported by, suspended in, or deposited by
water. Eroding soil particles largely contribute to the sedimentation of waterbodies.
Sediment particles range in size that directly affects the settling velocity and how the
particles will affect a waterbody. Soil erosion can produce gravel and coarse sand sedi-
ments (> 0.85 mm diameter) as well as fine sediments made up of sand (0.05-2 mm),
silt (0.002 to 0.05 mm), and clay (< 0.002 mm). Larger sized particles (gravel and coarse
sands) quickly settle out, filling interstitial rock spaces. This can clog drainage ways,
increase potential for flooding, decrease reservoir capacity, and negatively affect benthic
organism communities. Finer sands can remain suspended for a period of time before
settling out downstream. Fine particles such as clay and silt generally remain suspended

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Water Quality Trading Toolkit for Permit Writers
in a flowing water column. This causes turbidity, which decreases sunlight penetration,
disrupting photosynthetic processes.
There are a number of factors to consider when deciding whether allowing sediment dis-
charges at a certain location as allowed by trading is appropriate. For example, given the
adverse effects that can result from sediment settling, sediment discharges should occur
in large, fast-flowing, high-volume rivers so that the minimum flow velocity will not
result in settling sediment particles. In addition, the treatment facility's discharge should
be shown to have minimal impact on the overall loadings to the waterbody. Background
amounts of suspended and embedded sediment are essential to the ecological function
of a waterbody. Sediment discharged to a waterbody should maintain natural or back-
ground levels without adversely affecting the waterbody. Therefore, sediment trading
on other than a fast-flowing, high-volume river might not be feasible under most condi-
tions. The permit writer and the entities involved must clearly define both baseline pol-
lutant loads and the load to be traded in the credit buyer's permit so as not to discharge
in quantities that would adversely affect the receiving waterbody.
Vegetation can stabilize stream banks from erosion and filter sediments and nutrients
from runoff flow to waterways. Runoff carries sediment, sediment-bound pollutants,
and dissolved contaminants. Fast-flowing runoff can easily transport sediment to surface
waters because of an insufficient amount of time for particles to settle out and infiltrate
the ground. Leaves and branches intercept rainfall and runoff, slowing its movement,
and reducing its erosive power. Vegetative roots and surface litter improve soil structure,
which increases infiltration. Once in the soil, contaminants can become immobilized,
transformed by microbes, or taken up by vegetation. Surface litter also acts as a covering
that protects exposed soils and stabilizes slopes from erosion. An additional water qual-
ity benefit that trees can provide is that they are capable of intercepting and trapping
airborne particulate matter, preventing deposition to surface waters (USDA National
Agroforestry Center, 2004).
There is an advantage to trades involving trees: (1) trees are uniquely suited to control-
ling some processes of erosion on stream banks and shorelines, and (2) trees are likely to
remain established for a longer period than herbaceous plantings, thus providing more
certainty to the credit buyer of long-term nutrient or sediment control.
Many trading programs could be designed that involve growing trees that would be
similar to the Scenario outlined in the Toolkit related to herbaceous BMPs; however,
there are a few differences. This appendix outlines circumstances when establishing trees
along waterways to manage nutrient and sediment loadings would be most effective. It
also includes a hypothetical example of a sediment trading program with forestry.
Generating Credits
The following questions discuss circumstances in which it might be appropriate to
engage in trading with forestry entities. While this appendix focuses solely on the ability

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Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility
to generate credits for sediment trades, planting vegetation as buffers to waterways can
also lead to nitrogen and phosphorus reductions. The discussion below can apply to trad-
ing sediment, nitrogen, and phosphorus.
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1.	Under what conditions would it be feasible to use vegetative planting as an offset for
a point source sediment or nutrient limit?
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To control pollutants in runoff (vegetative filters and riparian buffers as best
management practice (BMP) options)
•	Conditions include areas in and downslope of diffuse agricultural or urban
nonpoint source areas (e.g., cropland, livestock grazing and enclosure areas,
disturbed land, parking lots, malls and other urban nonpoint source areas)
where sediment and nutrients can leave these areas and enter open waterways
in surface runoff or in shallow groundwater flow. These areas could be adjacent
to permanent or intermittent streams, lakes, ponds, and wetlands (i.e., riparian
zones) or in upland zones.
To control eroding sediments from stream banks and shorelines (stream
bank stabilization as BMP options)
•	Conditions include stream banks of natural or constructed channels and shore-
lines of lakes, reservoirs, or estuaries that are susceptible to erosion and where
this erosion process can be mitigated by establishing vegetation.
2.	How should vegetated areas be designed to function properly as nonpoint source
sediment and/or nutrient offsets?
To control pollutants in runoff
•	Removal of contaminants from surface runoff requires that runoff water be suf-
ficiently slowed to allow sediment and sediment associated pollutants to settle
out. Plant root systems that are established through herbaceous and woody
groundcovers hold soil in place, allow greater infiltration of water, and trap
incoming sediment, nutrients, and chemicals. Areas should be positioned appro-
priately and designed to have sufficient width, length, density, and ground-
cover structure to intercept and effectively trap pollutants in surface runoff or
shallow subsurface flow. Guidance on specific practices IS in USDA-NRCS Field
Office Technical Guides (FOTG).
•	Existing drainage ditches and underground pipes that would transport pollut-
ants directly from source areas into the waterbody should be closed or plugged
to allow passage and filtration of drain water through the planting zone.
•	Surface runoff flow through the planting area should be managed to maintain
sheet flow, thereby promoting even interception and infiltration. Concentrated
flows should be controlled both in the planting area and in areas immediately
adjacent and up gradient of the planting area.
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Water Quality Trading Toolkit for Permit Writers
-	An example—Riparian Buffers: mainly woody vegetation (trees or shrubs)
sediment, organic material, nutrients, pesticides, and other chemicals found
in surface runoff. Design criteria and considerations should follow the USDA-
NRCS FOTG for Riparian Forest Buffer (Conservation Practice Standard, Code
391) pertaining to the purpose of reducing pollutants in runoff. In situa-
tions where surface runoff volume or pollutant load is relatively high, typi-
cally when slopes are greater than 10 percent or when erosion flow into the
proposed buffer site is greater than 10 tons/acre/year, other conservation
practices should be used in combination with tree plantings. Filter strips, field
borders, critical area plantings, or grassed waterways are recommended.
These additional practices will slow and disperse the excess runoff before it
enters the tree planting area. Design criteria and considerations for these
conservation practices should follow the FOTG for Filter Strips, Field Borders,
Critical Area Plantings and/or Grassed Waterways (Conservation Practice
Standard, Code 393, 386, 342 and/or 412) with specific regard to their use in
conjunction with a Riparian Forest Buffer (Code 391).
-	An example—Vegetated Filter Strips: Contrary to riparian forested buffers,
filter strips use mainly herbaceous vegetation for contaminants in surface
runoff. Design criteria and considerations should follow the USDA-NRCS
FOTG for Filter Strips (Conservation Practice Standard, Code 393). Trees can
also be planted and grown in the filter strip as long as adequate structure
and density of herbaceous groundcover is maintained. Weed control is per-
mitted around individual trees during the initial growing seasons to promote
survival and establishment but only to the extent that the continuity of
herbaceous ground cover between individual trees is not compromised along
the length and width of the tree planting area. As the trees grow larger, the
canopy should be managed to maintain adequate herbaceous ground cover
for functioning effectively for slowing and dispersing surface runoff flow.
To prevent sediments from eroding stream banks and shorelines
•	An assessment should be conducted in sufficient detail to identify the causes
contributing to instability and erosion and to ensure with reasonable confi-
dence that establishing trees or shrubs on the bank or shoreline will contribute
significantly to long-term control of the erosion. The assessment should provide
estimates of the time it will take for erosion controls to become fully functional,
sediment load reductions obtained at the site, and any sediment load increases
that the site installation might cause elsewhere along the banks and channel.
The time it will take for controls to become fully functional depends on the
BMPs installed.
•	Design criteria and considerations should follow the FOTG for Streambank and
Shoreline Protection (Conservation Practice Standard, Code 580) pertaining
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Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility
to vegetative techniques that include woody plant materials for controlling
erosion.
3.	What kind of vegetation should be planted?
•	Favor trees, shrubs, or other herbaceous vegetation adapted to the locality and
site conditions. Ultimately, the required technical specification of the BMP being
installed should be followed.
•	Favor native, noninvasive species. Substitution with improved and locally accepted
cultivars is allowed.
•	For nitrogen control, avoid nitrogen-fixing species (e.g., alder, locust).
•	Favor species that have multiple values such as those additionally suited for vari-
ous products (e.g., timber, biomass, nuts, fruit), wildlife habitat, aesthetics, and
for riparian plantings, those that promote healthy aquatic ecosystems.
4.	Are there additional management considerations to be made when considering veg-
etation planting for sediment and nutrient reductions?
•	Fertilizers or other nutrient- or sediment-containing amendments should not be
applied in the planting area.
•	Livestock should be controlled or excluded as necessary to achieve and maintain
appropriate vegetative cover and health for proper functioning. Trees and veg-
etation should also be protected from other wildlife in nonagricultural areas that
could threaten the health and proper function of the plantings.
•	Any manipulation of species composition, structure, and stocking of overstory,
understory, or groundcover vegetation should maintain the pollutant reduction
functions of the area.
•	Periodic removal of some plant products (trees, herbs, nuts, forages) can occur, if
the pollutant-reduction function is not compromised by the loss of vegetation or
harvesting disturbance.
•	Any other activities that create soil and vegetation disturbance, such as cultiva-
tion activities and traffic, should be minimized so as not to compromise the pol-
lutant reduction function of the area.
•	For installing BMPs that require vegetative maintenance, the landscaping prac-
tices should aim to reduce fertilizer and pesticide use whenever possible through
practices such as the following:
-	Using compost as a soil amendment
-	Implementing an Integrated Pest Management program
-	Spot treating whenever possible
-	Setting mower blades higher to fight weeds and diseases without pesticides

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Water Quality Trading Toolkit for Permit Writers
-	Leaving deciduous tree leaves on the ground so the can contribute to building
soil organic matter levels
-	Leaving grass clippings in place (instead of bagging) when mowing
-	Using mulch around trees and in flowering beds as weed prevention
5. How to calculate sediment and nutrient reductions for credits?
Before calculating water quality credits, all credit sellers and buyers must determine what
their baseline, minimum control levels and trading limits are. Baselines apply to the buyer
and seller. Minimum control levels apply only to the buyer and trading limits apply only
to the seller.
Baselines—This is the level of control which would apply in the absence of trading.
Nonpoint Source Credit Sellers—If a TMDL is established for the watershed,
this is the baseline. If there is no TMDL, the state and local requirements or
existing practices or both should determine the baseline. At no point should
the baseline be less than existing practices.
Point Source Credit Buyers—For point sources, the baseline would be the
water quality-based effluent limitation (WQBEL). Facilities are not allowed
to trade to meet a technology-based effluent limitation (TBEL), therefore,
trading would only be done to meet a more stringent WQBEL.
Minimum Control Levels—Even when trading, a point source discharger is expected to
treat the effluent to a certain minimum level. When a TBEL is applicable to a facility, the
TBEL would be the minimum control level. As previously stated, facilities are not allowed
to trade to meet a TMDL. In other words, the facility must treat the effluent to that level
rather than trade. When a TBEL does not exist, then the existing level of discharge would
be the minimum control level unless the permitting authority decided to impose a more
stringent level to prevent localized impacts.
Trading Limits—The level of control that a pollutant is controlled beyond the baseline
becomes the trading limit. For nonpoint source sellers, this is dependent on the type of
BMP installed and what type of pollutant reduction it achieves.
The difference between trading limit and the baseline (assuming applicable trade ratios
are also applied) determines the number of credits generated.
To control pollutants in runoff
• Credit is obtained for reducing pollutant load generated from the area on
which the plantings have been established and for reducing the load of sedi-
ment and nutrients in runoff from a source area that passes through the plant-
ing area to a waterway. As previously mentioned, the time it takes for controls
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Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility
to become established and fully functional depends on the type of BMP
installed and vegetation used.
- An example—Riparian Buffers: Tree plantings in riparian zones, apply the
same effectiveness and trading ratio levels as would be appropriate for
Riparian Forest Buffer (Code 391), Filter Strip (Code 393) in a riparian zone, or
Riparian Herbaceous Cover (Code 390) of similar dimension and circumstance
(Dosskey, 2007). Upland planting areas can be expected to function less effi-
ciently for nitrogen reduction (smaller percent reduction of nitrogen load in
runoff) than riparian planting areas of similar size and