Country Name: United States of America
Author: Virginia Kibler and Kavya Kasturi

As carbon markets continue to grow, people are asking themselves, what is the world's next big environmental market. One possibility is water, specifically water quality trading. And, although there are no large-scale water quality trading examples anywhere in the world, there are now dozens of small-scale experiments into this concept around the world. In this article, Virginia Kibler and Kavya Kasturi of the US Environmental Protection Agency look at the nearly two dozen examples of this type of trading taking place across the US.



Water quality trading is a tool that allows a permitted point source to meet its water quality-based permit limit by purchasing pollutant reductions created by another source in the watershed that has lower pollution control costs. This is a summary of twenty-three U.S. water quality trading programs that have actually carried out at least one trade. Information about water quality trading programs is generally not easy to find. Most of these programs do not have web sites, or the web sites devoted to them are sparse in details. This summary divides the trading programs into two types: point-point trades and point-nonpoint trades. Below is a summary table and map of these programs along with a map that shows where they are located, type of program, and pollutants traded.






Currently, there are eight point-point trading programs that have traded at least once. Five of these programs have traded total phosphorus only; two programs traded total nitrogen; and one program (Las Vegas Wash) is trading under a cap for both total phosphorus and total ammonia. One hundred eighteen point source facilities are involved in these trades. Some trades have resulted in environmental cleanup that is not only cheaper, but faster as well. The Long Island Sound Trading Program in Connecticut reduced significantly more total nitrogen in the years between 2002 and 2004 than was needed to meet the phased-in total maximum daily load (TMDL) requirement.

For point–nonpoint trades, the story is a bit more complicated. There are thirteen point-nonpoint trading programs that have traded at least once. Seven of these traded total phosphorus; two traded both total nitrogen and total phosphorus; one program conducted a cross-pollutant trade using upstream phosphorus reductions to offset carbonaceous biochemical oxygen demand; another program is trading temperature; another cleaned up an abandoned copper mine to offset copper limits; and one program is trading nitrogen only. About twenty point source facilities are involved in these trades. Some trades have resulted in reductions far greater than expected. Southern Minnesota Beet Sugar Cooperative needed to offset 6,500 pounds of total phosphorus per year and they have generated reductions of 15,767 pounds per year (personal communication, Klang, 2006). For the pre-TMDL trade in the Great Miami River Trading program, there are 27 contracts to date for 243,831 pounds of total nutrient reductions over the life of these projects (personal communication, D. Hall, 2007). These are voluntary reductions paid for by point sources that do not yet have limits for nutrients in their permits but are hoping for less stringent limits due to the expected water quality improvement resulting from these trades. In Red Cedar River, WI, the city of Cumberland needed to reduce total phosphorus by 4,400 pounds per year. They contracted with 22 landowners who expect to generate a 5,000 pound reduction per year.

There are also trading programs outside of National Pollutant Discharge Elimination System (NPDES) permits. The Grasslands Area Farmers trading program in the Lower San Joaquin River, CA is a nonpoint-nonpoint trade from the perspective of the federal Clean Water Act. California's San Luis & Delta-Mendota Water Authority established a regional cap for selenium discharges for seven Authority members known as the Grasslands Area Farmers. Each of the seven members has a selenium load allocation. If a member exceeds its allocation, it can either buy an allocation from another member or pay a fee.

Another type of trading program outside of NPDES permits is pretreatment trading. This type of trading program allows indirect dischargers (those industries that discharge to a publicly-owned treatment works (POTW)) to trade among themselves to meet local limits set by the POTW. An example of this is the Passaic Valley Sewerage Commissioners Pretreatment Trading Program in New Jersey.

Water quality trading is slowly gaining momentum. As the states adopt nutrient criteria and reissue permits with nutrient limits, more facilities will be looking for cost-effective options to meet those limits. Trading may be an option they consider. However, trading may not be a viable solution in every watershed. Certain threshold conditions for trading must be achieved in order to succeed. Trading is 1) driven by regulation (new or more strict effluent limits in the facility's discharge permit); 2) motivated by economics (a facility will use the most cost-effective option, and trading may not be the most cost-effective); 3) governed by local trading rules (local stakeholders must sit down together and agree on a trading program that the state will approve); and 4) built on trust (not only do the potential buyers and sellers need to trust each other, but the public, environmental community, and the state permitting authority need to trust that the trade is in the best interest of the environment, i.e. the trade will result in equal or better water quality than if the buying facility installed treatment). Where trading works, as illustrated above, these programs can go well beyond other options in terms of water quality improvement and cost savings that make trading highly appealing.

In August 2007, EPA released the Water Quality Trading Toolkit for Permit Writers. The Toolkit will be the first 'how-to-trade' guidance manual published by the Agency and is a good reference document for anyone interested in developing a water quality trading program. In addition, EPA will release in the fall 2007, Understanding Cost-Effectiveness, another 'how-to' document that illustrates how to ensure a program is comparing similar costs per pound of pollutant reduction. For more information on water quality trading go to www.epa.gov/waterqualitytrading or contact Ginny Kibler at kibler.virginia@epa.gov or 202-564-0596.

Virginia Kibler is the lead for water quality trading in the Office of Wastewater Management at the U.S. Environmental Protection Agency. She can be reached at: Kibler.Virginia@epamail.epa.gov. Kavya Kasturi is an Oak Ridge Institute for Science and Education intern in EPA's Office of Wastewater Management.

First published: October 10, 2007

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