Oversight

1
Oversight
1. Opportunities Constraints
A.
Session 10 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
B.
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
Implementation

• Sessions 9, 10, and 11 move beyond the elements
  and the whole of a market framework covered in
  Sessions 6, 7, and 8
• They focus on key activities associated with
  executing trades and implementing a trading
  program
• A trade is usually not a trade until it is
  documented and verified
• For programs with multiple transactions, periodic
  reconciliations also are often necessary

3
Implementation involves three categories of core
administrative and oversight activities

• Tracking
• General trading opportunities
• Credit generation
• Credit use
• Trade transactions
• Other items and post-trade activities

• Oversight
• Credit certification and/or verification
• Trade reconciliation
• Conformance with other requirements
• Enforcement for non-compliance and
  non-conformance

• Evaluation
• Individual trades
• Several trades
• A program
• Environmental results
• Economic benefits
• Other performance measures
• Overall success

4
This session addresses theseOversight activities

• Credit certification and/or verification
• Trade reconciliation
• Conformance with other requirements
• Enforcement for non-compliance and
  non-conformance
• Oversight of antidegradation requirements was
  covered in Session 2

5
OversightOverview

• For individual trades, oversight activities
  include the following which may be conducted by
  traders, state regulatory agencies, and/or third
  parties as established under the program
• Credit certification and/or verification
• including sellers compliance with trading
  baselines
• Trade reconciliation
• including buyers compliance with trading
  baselines
• Protecting designated uses
• including anti-degradation policies
• Conformance with other applicable rules,
  policies, contractual responsibilities
• Enforcement for non-compliance and
  non-conformance
• For an overall project or program (if
  applicable), oversight activities will involve
  these same areas at an aggregate level

6
Credit Certification/Verification

• As described under Tracking, rules and
  procedures are established for generating credits
• The oversight function ensures that those rules
  are followed through one or more of several
  mechanisms
• Requirement for general documentation
• Proof of generation (pictures, monitoring
  reports)
• Signature certifications
• Document audits
• Site inspections

Examples of Credit Attributes Subject to Oversight

• Name/eligibility of generator
• Location
• Type
• Sellers Baseline
• Life/duration/generation period
• Credit calculation methods
• Application of trading ratios (if required)
• Longevity
• Agreements and contracts (if applicable and if
  required)

7
Credit Certification/VerificationExamples Point
Source Generated Credits

• Most programs require NPDES dischargers to
  certify/verify credit through monthly Discharge
  Monitoring Reports (DMRs)
• DMRs for trading programs may
• Not need to be modified
• May be modified
• May be accompanied by supplementary documentation
• DMRs are signed by the dischargers representative

Examples of Programs Certifying Point
Source-Generated Credits in DMRs

• Connecticut
• Clean Water Services
• Neuse River
• Rahr Malting
• Lower Boise River Trading Pilot
• Michigan Rules
• Virginia General Permit

EPA Policy says that States and tribes should
establish clear enforceable mechanisms consistent
with NPDES regulations that ensure legal
accountability for the generation of credits that
are traded.
8
Credit Certification/VerificationExamples
Certification

• Michigan Rule 19
• The responsible individual submitting the
  notification to DEQ must certify that
• The information is true, accurate, and complete
• The load reductions are real, surplus, and
  quantifiable, and will be generated in the
  appropriate time period and
• The load reductions have not been used elsewhere
  as credits.

• Lower Boise River
• Appendix A of Idahos Pollutant Trading Guidance
  provides a Reduction Credit Certificate for the
  Lower Boise River Trading Pilot

In this program, the Buyer is responsible for
certifying the validity of the credits with his
signature.
Rule Synopsis, Appendix A, Water-Quality Trading
A Guide for the Wastewater Community, Jones et
al, 2005.
9
Credit Certification/VerificationExample
Regulatory Review

• DEQ shall enter the necessary data in the
  water-quality trading registry within five
  business days of the determination of
  completeness and consistency. The information is
  then available to the public.
• DEQ shall explain any determination of
  incompleteness or inconsistency. Following such
  a determination, the applicant may submit a
  corrected or revised notice and certification.
• Once DEQ issues a determination of completeness,
  the methods used to generate the credits become
  legally enforceable requirements.

• Michigan Rule 19
• DEQ shall review the notice and make a
  determination of completeness and consistency and
  provide a written response to the person
  submitting the notice within thirty days.
• This does not constitute DEQ certification that
  the credits are real, surplus, or quantifiable,
  only that the submission is complete and
  consistent with the regulations.

Rule Synopsis, Appendix A, Water-Quality Trading
A Guide for the Wastewater Community, Jones et
al, 2005.
10
Credit Certification/VerificationExample BMP
Monitoring

• Lower Boise River Trading Pilot, BMP
  Monitoring Evaluation Measurement
  Requirements
• BMP performance confirmed to ensure phosphorus
  reductions occur
• BMP evaluation of at least ONE inspection to
  ensure proper application or operation

• Table 3 provides the minimum inspections needed
  for each BMP, and provides a minimal level of
  measurement requirements, though not applicable
  to all BMPs.

11
OversightTrade Reconciliation

• Reconciliation involves matching credit demand to
  supply for a specified compliance period
• Buyers who are not meeting their baselines
  without credits must have a sufficient number for
  the period to attain compliance
• Credit sales and purchases may be reconciled in
  two ways
• Matched 1 to 1, with buyer-seller pairs
  specifically identifiable
• Pooled and redistributed, such that buyer-seller
  pairs are not specifically identifiable

Examples of Reconciliation Periods

• Annual
• CT Nitrogen
• VA Nutrients
• Tar Pamlico
• Neuse River
• Seasonal
• Both Clean Water Services and the Lower Boise
  River Trading Pilot have seasonal components
• Monthly
• Clean Water Services DO
• Daily
• Lower Boise River Trading Pilot

12
Trade ReconciliationExamples Matching Credits
and Debits

• Oregon DEQ reviews Clean Water Services
  submissions to reconcile matched credits and
  debits

• Connecticut DEP keeps a Total Nitrogen Balance
  Sheet, tracking monthly loadings against caps,
  and reports net results from pooling credits and
  debits after the end of the calendar year

13
Trade ReconciliationExamples Matching Credits
and Debits

• Virginia DEQ will review credits generated
  against credits applied to meet individual WLAs
  for the participating NPDES dischargers by major
  Basin

• Michigans Rules and Pennsylvanias Policy
  contemplates using an electronic registry to
  reconcile credits and debits

14
OversightConformance with Other Requirements

• Parties continuing eligibility to participate in
  trading can depend on meeting requirements beyond
  those specific to trading baselines, credit
  generation, and use
• NPDES permit requirements, general or specific
  to trading
• BMP cost-share program requirements
• Contractual agreements between trading parties
• Intergovernmental Agreements between traders and
  regulatory agencies
• Voluntary commitments to stakeholders

Examples of Other Requirements Subject to
Oversight

• Special Plans
• Mapping priority BMP areas
• Stakeholder involvement activities
• Audits and inspections
• Electronic filings
• Compliance with regulatory requirements for
  non-traded parameters
• Maintenance of financial obligations

15
OversightCompliance and Enforcement

• Trading programs must establish the following
• What constitutes compliance for the Buyer
• What happens if credits arent good
• to the Buyer
• to the Seller
• What remedies and back-ups are available
• Who invokes them
• How are they invoked

Examples of Compliance and Enforcement Mechanisms

• NPDES permit language
• Agreements between buyers and sellers
• Forms, certifications, and implied agreements for
  nonpoint sources participating in state-sponsored
  programs
• Performance bonding and insurance tools
• Last Resort pool of ready credits

16
Compliance EnforcementExamples Compliance for
the Buyer

• Clean Water Services permit establishes the
  following

The permittee shall be deemed in compliance with
the wastewater discharge limitations described
in Schedule A of this permit and the trading
baselines described in this Schedule and approved
water quality credit trading plans if (1) Each
facilitys discharge, in concentration or load as
applicable, is less than or equal to the waste
discharge limitation for that facility for the
applicable compliance period (day, month, season,
year) specified in Schedule A or the permittee
owns, holds, or has otherwise secured valid
credits equal in number to the amount necessary
to achieve a specified trading baseline
and (2)The permittee complies with all other
conditions of this Schedule
17
Compliance EnforcementExamples Compliance for
the Buyer

• Connecticuts General Permit establishes the
  following

Section 4 (b) (2) A permittee shall be out of
compliance with the annual discharge limits of
the general permit and subject to the enforcement
provisions of chapter 446k of the Connecticut
General Statutes if (A) the POTW's annual mass
loading of total nitrogen is greater than the
discharge limit set forth 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 P.A. 01-180.
18
Compliance EnforcementExample Compliance for
the Buyer

• The Neuse River Compliance Associations general
  permit establishes the following

A.(3.) EFFLUENT LIMITATIONS (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.
19
Compliance EnforcementExample Non-Compliance

• The Neuse River Compliance Associations general
  permit establishes the following

A.(6.) COMPLIANCE (a.) In the event that the
Association exceeds its Estuary TN Allocation in
a given calendar year, the Association shall make
offset payments for the excess TN for that year
at a rate of 11 per pound. . . (b.) . . . . the
Association shall be in violation of this Permit,
and the Division may take appropriate enforcement
action against the Association for such
exceedance. (c.) . . . . any Co-Permittee Member
that exceeds its Estuary TN Allocation shall also
be in violation of this Permit and the Division
may take appropriate enforcement action against
the Member.
20
Compliance EnforcementExample Compliance for
the Seller

• EPAs Policy and many trading programs establish
  an NPDES-permitted buyer as the responsible party
  for sellers credit performance
• 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 . . . . . establishing appropriate
  enforcement provisions for failure to generate
  the quantity of credits that are traded.

In many programs, point sources retain liability
for the performance of credits. If a seller of
bad credits is another point source, the buyer
and the state usually have enforcement recourse
through the NPDES permit. If the seller is a
nonpoint source, the buyer will have to rely on
other mechanisms to enforce against
non-performance.
21
Compliance EnforcementExample Buyer
Responsible for Credit Performance

• Point source responsible for nonpoint source
  performance in Lower Boise River Trading Pilot
• CWA responsibility retained by NPDES permittee
• Nonpoint source performance addressed as in
  Buyer/Seller contract

REDUCTION CREDIT CERTIFICATE
SIGNATURE OF BUYER
22
Compliance EnforcementExample Limitations on
Buyers Responsibility

• Point source obviated from responsibility for
  duly purchased credits
• Connecticut POTWs needing credits are compliant
  once the state receives their check for the
  invoiced amount
• Point source dischargers in the Tar Pamlico
  Trading Association who buy credits through the
  states agricultural cost-share fund are
  compliant once the state receives their check

Payment Due CT DEP
Appendix C of the Phase III Implementation
Strategy (4/05) tracks payments in the
Association Nitrogen Offset Credit Register
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Session Wrap Up

• Oversight involves the following activities
• Credit certification and/or verification
• Trade reconciliation
• Conformance with other requirements
• Enforcement for non-compliance and non-conformance

24
Session Wrap Up

• Important factors in determining which approaches
  are right for us are similar to those we will
  consider when developing our market framework
• Number of dischargers/sources, potential sellers
  versus buyers
• Geographic layout of the watershed and the
  sources
• Number and frequency of anticipated trading
  transactions
• Communication needs between and among potential
  traders
• Reporting mechanisms for traders to regulatory
  agencies
• Transaction costs for buyers, sellers, and others
• Resources needed to set up and maintain the
  trading system
• Market oversight and evaluation requirements

25
Session Wrap Up

• Questions for discussion
• How can we use the oversight function of a
  credit market to establish
• Credibility in our process and results
• Trust among participants and stakeholders
• How can we build a system that everyone
  understands that provides clear and accessible
  information about
• credit transactions
• credit performance
• overall program performance

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Our Next SessionEvaluation
1. Opportunities Constraints

• Session 11
• Trade and Program Level
• Environmental results
• Economic benefits
• Other performance measures
• Overall success

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