Opportunities

1
Opportunities Constraints
1. Opportunities Constraints

• Session 1 in Water
• Quality Credit Trading
• PowerPoint Workbook for
• a Detailed Assessment of
• Opportunities and Options

2. What to Trade, Where
3. Who Trades, Why
4. Trading Ratios
5. Credit Generation Use
6. Market Elements, Part One
Introduction User Guide (Word)
7. Market Elements, Part Two
A. Are We Ready for Trading
8. Market Models Framework
B. Decision Process
9. Tracking
C. Stakeholder Identification
10. Oversight
D. Stakeholder Readiness
11. Evaluation
E. Information Management
2
Market Feasibility

• This session is one of several designed to help
  assess market feasibility
• It builds on the screening-level assessment
  presented in Session A
• Market potential must be evidenced by untapped
  incentives for action and capacity for additional
  controls or restoration that will provide benefits

3
Market Feasibility depends on these basic
conditions

• Potential benefits from trading
• Drivers for interest and action
• Tradability of pollutant(s) of concern
• Existence of potential buyers and sellers
• Favorable economics
• Sufficient and appropriate trading area
• No undesirable or unallowable local impacts

4
This session addresses these three

• Potential benefits from trading
• Drivers for interest and action
• Tradability of pollutant(s) of concern

5
Benefits of Credit TradingWhat are our
objectives?

• EPA Water Quality Trading Policy says trading
  may
• Provide economic incentives for voluntary
  pollutant reductions
• Reduce compliance costs
• Achieve early reductions/progress towards water
  quality standards in advance of TMDL development
• Reduce TMDL implementation costs through flexible
  approaches
• Offset new/increased discharges

Check those that apply
6
Benefits of Credit TradingWhat are our
objectives?

• EPA Water Quality Trading Policy says trading
  may also
• Achieve ancillary and/or multiple environmental
  benefits
• Secure long-term improvements through the
  purchase and retirement of credits
• Combine ecological services to achieve multiple
  environmental and economic benefits to improve
  water quality and habitat

Check those that apply
7
Drivers for Credit TradingWhy are they
important?

• Drivers create a need for action
• Actions, whether required or requested, cause an
  evaluation of options
• Cost differences across options creates an
  interest among some in accessing alternatives
• A desire for alternatives creates demand for
  credits
• Demand attracts supply where possible
• The timing influences how quickly people are
  willing and able to pursue and develop a trading
  option for themselves and others

8
Drivers for Credit TradingSession A identified
possible mechanisms

• Mechanisms
• TMDL
• Wasteload Allocation(s)
• Load Allocation(s)
• Individual NPDES permit requirements
• Consent decree, administrative order
• Pending/threatened litigation
• Local regulation, ordinance
• Grant or cost-share contingent (semi-voluntary)
• Voluntary under formal or informal program

Mechanisms refer to required or voluntary actions
specified by law, regulation, policy, or other
commitment that may create a trading opportunity
9
Drivers for Credit TradingSession A identified
possible time frames

• Time Frames
• Immediate action
• Immediate progress with action milestones
• Within 5 year permit cycle
• 5 to 10 years
• 10 to 15 years
• 15 to 20 years
• Greater than 20 years

Time frames refer to the grace period a source
has between now and when a mandatory requirement
or voluntary commitment takes effect and action
is necessary
10
Drivers for Credit TradingWhy are we interested
in water quality credit trading for our
watershed?

• Some common drivers
• Regulatory requirements
• Permit Limits
• Load Caps
• TMDLs
• Financial considerations
• e.g., rate impacts
• Cost savings
• Other reasons
• Accommodate Growth/Facilitate Smart Growth
• Environmental Stewardship

11
Drivers for Credit TradingIs there an imperative
to make pollutant reductions and water quality
improvements?

• The mechanism(s) and time frame in combination
  determines the level of urgency or incentive for
  action
• The extent of the imperative can be different
  across individual dischargers or categories of
  sources
• Overall, there is a collective or average level
  of required or perceived need for action

Time Frame Short Medium
Long
Mechanism Requirement Negotiated Voluntary
STRONG
MODERATE
WEAK
The level of imperative?and therefore the driver
for trading?can be characterized as strong,
moderate, or weak with color coding in
gradations, as above, or in matrix format as
shown later.
12
Drivers for Credit TradingGreen flags illustrate
a strong driver

• Clean Water Services (CWS) faced a revised TMDL
  and had permits up for renewal
• CT POTWs faced TMDL for Nitrogen, and pending
  requirement for 63.5 individual load reductions
• Tar Pamlico POTWs faced lower nutrient standards

• VA dischargers faced new WLAs to implement
  voluntary Bay Program
• Sacramento Regional County Sanitation District
  (SRCSD) was required to conduct a mercury offset
  feasibility study as a condition of its NPDES
  permit
• Boise POTWs faced new WLAs and phosphorus control
  costs of 5-200/lb compared to 5-50/lb for
  irrigation districts

13
Drivers for Credit TradingYellow flags
illustrate a moderate driver Red flags
illustrate a weak or uncertain driver

• Water quality impairment identified, but TMDL not
  yet underway
• Requirements are narrative, or offer choice among
  approved BMPs
• Disagreement exists over data, impairment,
  responsibilities

• Point source dischargers comfortably under
  allocations
• Regulated source contributions very small percent
  of total
• Additional actions completely voluntary
• Next regulatory/scientific actions many years
  away

14
Segment Wrap UpDrivers For Trading A
Color-Coded Guide
This matrix presents the example mechanisms and
timeframes used in the earlier slide in a matrix
format using the flags to illustrate perceived
imperative.
15
Segment Wrap UpDrivers For Trading Our
Situation
Fill this out as applicable using the color-coded
guide. This can be completed for an individual
source or for multiple sources.
16
Tradability Is our pollutant of concern
tradable?

• Criteria for good tradability
• The pollutant is widespread
• It has numerous sources
• The primary concern is about dispersed or
  downstream effects and not local impacts
• It is reasonably controllable
• It is easily measured
• Units of trade can be easily derived
• Supported by EPA and/or State policies

17
TradabilityExamples of potentially tradable
pollutants

• Nutrients
• Nitrogen, Phosphorus
• Sediment
• Oxygen-related
• Dissolved Oxygen (DO)
• Biological Oxygen Demand (BOD)
• Bacteria
• Temperature
• Other Non-Toxics
• Selenium, salinity, etc.
• Persistent Bioaccumulative Toxics (PBT)
• Metals, organics, pesticides, etc.

18
TradabilityEPAs Final Trading Policy says

• Sediment and nutrients are tradable
• Cross-trading is permissible for oxygen-related
  pollutants
• Nitrogen, phosphorus, biochemical oxygen demand
• Other pollutants may be traded, if prior approval
  is granted in a NPDES permit, TMDL, watershed
  plan, or pilot trading study
• Bioaccumulative toxic pollutants may not be
  traded
• Except for a limited number of pilot studies
• No trading is allowed where acute toxicity
  criteria are exceeded in mixing zone

19
TradabilityUsing the three-color flag system,
tradability can be coded this way

• Problematic
• PBTs

• Challenging
• ammonia
• bacteria
• CBOD5, NBOD
• selenium
• temperature
• mercury

• Often Allowed
• DO, BO
• nitrogen
• phosphorus
• sediment
• temperature

A pollutant would be listed under more than one
category if it was treated differently in
different states.
These examples and those that follow are based on
the policies and programs in place and under
development at the time this tool kit was
developed. Consult subsequent EPA guidances and
state-specific sources for any new or updated
information regarding potentially tradable
pollutants.
20
Tradability Nutrients Sediment

• These parameters are generally considered
  tradable without special conditions
• Supporting policies
• EPA HQ
• Colorado
• Idaho
• Pennsylvania
• Oregon

• Case Illustrations
• Connecticut Long Island Sound
• Tar Pamlico, Neuse Rivers, NC
• VA Nutrient Credit Exchange
• Conestoga River, PA
• Lower Boise River, ID
• Cherry Creek, CO
• Lake Lewisville TX
• South Nation, Ontario

21
Tradability Oxygen Related Parameters

• Cross-pollutant trading allowed with adequate
  information to establish and correlate water
  quality impacts
• Supporting policies
• EPA HQ
• Colorado
• Oregon

• Case Illustrations
• Clean Water Services, OR
• CBOD5 and ammonia-nitrogen parameters
• Rahr Malting, MN
• CBOD5

22
Tradability Temperature

• EPA Policy is silent on temperature, so the
  following national guidance applies
• 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.
• Oregon DEQ expressly supports temperature credit
  trading in its January 2005 Internal Management
  Directive

• Case Illustration
• Clean Water Services, OR
• Generate heat load reduction credits (k/cal) in
  two ways
• stream surface area shading, by planting trees
  and shrubs
• flow augmentation releasing reservoir water

23
Tradability Salinity and Selenium

• Case Illustrations
• Grasslands Program
• Irrigation districts act cooperatively to meet an
  overall Selenium loading cap
• Denver Metro
• Examining possibilities for Selenium management
• County of Orange, CA
• Will conduct an offset feasibility study for
  Selenium

• EPA Policy is silent on these, so the following
  national guidance applies
• 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.
• Colorado expressly supports salinity credit
  trading in its October 2004 Pollutant Trading
  Policy

24
Tradability PBTs

• EPA Policy does not currently support on program
  basis, but considers supporting case-by-case on a
  pilot basis
• Colorado and Oregon policies are similar to EPAs
• California has issued several NPDES permits and
  draft TMDLs that contemplate, allow, or require
  Mercury offsets in some situations

• Case Illustrations
• Sacramento River Watershed
• Sacramento Regional County Sanitation District
  required by state to conduct a Mercury Offset
  Feasibility Study
• San Francisco Bay Watershed
• Mercury offsets involving mine clean up
  considered as option for POTWs TMDL
  implementation

25
Segment Wrap UpTradability Which pollutant(s)
are ours?

• Problematic?
• PBTs

• Challenging?
• ammonia
• bacteria
• CBOD5, NBOD
• selenium
• temperature
• mercury

• Allowed?
• DO, BO
• nitrogen
• phosphorus
• sediment
• temperature

Which pollutant(s) have a driver for action in
our watershed?
26
Segment Wrap UpTradability Consult Applicable
Policies

• Consult EPA policy, regional EPA office, and any
  state policiesincluding examining which if any
  pollutants are already being traded or considered
  for trading to more specifically determine
  tradability
• Even if the pollutant is not clearly tradable,
  because applicable policies are silent or
  prohibitive, it might be possible to seek special
  permission or broader amendments to allow a pilot
  or full program

27
Session Wrap Up

• Market Feasibility depends on these basic
  conditions
• Potential benefits from trading
• Drivers for interest and action
• Tradability of pollutant(s) of concern
• Existence of potential buyers and sellers
• Favorable economics
• Sufficient and appropriate trading area
• No undesirable or unallowable local impacts

28
Session Wrap Up

• We addressed these questions in this session
• What are our potential benefits from trading?
• Do we have drivers for interest and action?
• Are our pollutants of concern tradable?

29
Our Next SessionWhat to Trade, Where
1. Opportunities Constraints

• Session 2 addresses the following
• Unit for Trading
• Trading Areas
• Protecting Designated Uses

A.
2. What to Trade, Where
3. Who Trades, Why
4. Trading Ratios
5. Credit Generation Use
6. Market Elements, Part One
7. Market Elements, Part Two
8. Market Models Framework
9. Tracking
10. Oversight
11. Evaluation