Chesapeake Bay

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• Chesapeake Bay
• Water Quality Trading

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• What is Water Quality Trading?
• Voluntary exchange of pollutant reduction
  credits.
• Sources with higher pollutant control costs may
  purchase pollutant reduction credits from
  sources with lower control costs.
• How are Trading and Offsets Related?
• Trading is the economic activity used to purchase
  sufficient pollutant loadings to offset a
  facilitys excess discharge.
• Trade Economic
• Offset Pollutant

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What is Being Traded?

• Pollutant Reduction Credits
• A unit of pollutant reduction needed by a buyer
  usually measured in pounds equivalent.
• Generated by a point source (regulated)
  over-controlling its discharge.
• Generated by a non-point source (unregulated)
  from the installation of best management
  practices beyond those required for baseline.

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Baselines for Credit Generators

• A source that wants to sell pollutant reduction
  credits must first meet a baseline level of
  discharge.

Point Source Pre-TMDL -WQBEL in
permit TMDL -WQBEL in permit which is consistent
with the TMDL wasteload allocation (WLA)
Non-point Source Pre-TMDL -State and local
requirements and/or existing practice TMDL -TMDL
load allocation (LA)
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Trade Ratios

• In most cases, pollutant credits are not
  generated on a 11 basis. Rather a trading ratio
  is used to normalize differences between the
  sources discharges.
• There are four types of trade ratios
• Delivery or Location Ratios
• Account for fate and transport, pollutant
  attenuation
• Equivalency Ratio
• Account for different forms of the same pollutant
  (e.g., total vs. dissolved nitrogen)
• Uncertainty Ratio
• Account for uncertainty about the actual volume
  of credits produced (generally seen with PS-NPS
  trading)
• Retirement Ratio
• Accelerate the rate of water quality improvement

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When Can Trading Not Occur?

• Trading cannot be used to meet technology-based
  effluent limitations.
• Trades cannot cause nonattainment of an
  applicable water quality standard.
• Trading cannot cause an exceedance of a cap
  established under a TMDL.

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EPAs New Dischargers and Offsets Rulemaking

• Will address the appropriate use of offsets to
  compensate for new discharger loadings both prior
  to the issuance of a TMDL and where a TMDL is in
  place.
• Potential schedule
• -March 2012 Options Selection
• -Summer 2012 Proposed Rule/Public Comment.

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• The question is what can be done in the interim?
• In Section 10 and Appendix S of the Chesapeake
  Bay TMDL established on December 29, 2010, EPA
  states it will use the full scope of its
  authority to ensure offsets and trades for
  nitrogen, phosphorus, and sediment are fully
  consistent with the Clean Water Act, its
  implementing regulations and NPDES permits.
• Unlike the Clean Air Act, under the Clean Water
  Act EPA lacks clear authority to establish
  requirements for water quality trading programs.
  Thus, the offset appendix provides EPAs
  expectations for water quality trading in the
  Chesapeake Bay under the new TMDL

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Appendix S (Offsets) outlines the minimum common
  elements for the Chesapeake Bay jurisdictions
  offset and trading programs.
• Authority
• Offsets Baseline That any point or non-point
  source generating a credit has implemented
  practices or met any reductions necessary to be
  consistent with the Bay TMDL allocations.
• Minimum Controls That any point or non-point
  source using a credit has implemented certain
  minimum controls (e.g., a discharger using a
  credit will meet on-site any relevant minimum
  technology based standards or secondary treatment
  standards).

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Eligibility
• Credit Calculation and Verification Ensuring
  that credits are quantified using appropriate
  metrics and are verified to ensure that they are
  producing the expected reductions.
• For example, accounting for uncertainty of source
  reductions due to factors such as practice
  efficiencies related to the use of BMPs, a lack
  of required reporting compared to other sources,
  and/or lack of regulation of the source by
  federal, state and/or local regulations.
• This process also entails verifying the credit
  was and continues to be generated, via
  monitoring, inspection, reporting or some other
  mechanism.
• Issue is the scope of information gathering and
  inspection authority (non-point sources vs. point
  sources).

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Safeguards Including in the basis and record
  for any offset, safeguards to ensure that the
  entire delivered load is accounted for and that
  water quality will be protected.
• Safeguards include restricting the use or
  generation of offsets by an unpermitted point
  source or a source in noncompliance with its
  NPDES permit.
• Additionally, EPA and states must ensure temporal
  consistency between the period when a credit or
  offset is generated and when it is used.

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Certification and Enforceability Designating
  the process to be used and responsibility for
  credit/offset certification and ensuring the
  enforceability of permits and offset
  transactions.
• Must ensure an NPDES permittee remains
  accountable for meeting the water quality based
  effluent limits in its permit. After all, CWA
  Section 309 enforcement provisions do not apply
  to non point source credit generators.

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Accountability and Tracking Developing
  accountability and tracking system(s) that are
  holistic and focused on performance outcomes
  while providing maximum transparency, operational
  efficiency, and accessibility to all interested
  parties.
• The systems should include the NPDES permit
  number or other identification of the purchaser
  of the offset or credit, where and when the
  credit was generated, and documentation of
  agreements between parties to the offset
  transaction.

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• Nutrient-impaired Segments Ensuring that
  offsets in nutrient-impaired water segments
  result in progress toward attainment of WQS in
  the impaired segment and do not lead to
  exceedances of WQS elsewhere.
• Credit Banking Articulating whether aggregation
  and/or banking of offsets is permissible under
  the jurisdictions program and, if so, under what
  circumstances these will be allowed and the
  procedures for such activity.
•  

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The Chesapeake Bay TMDL and Tradings Role in
Meeting its Goals

• EPA intends to maintain regular oversight of
  jurisdictions offset and trading programs
  through periodic audits and evaluations.
• EPA will report its findings to the respective
  jurisdiction.
• First such review of jurisdictional offset and
  trading programs will take place in calendar year
  2011.
• Expectation is that the findings of this review
  will inform offset and trading provisions
  included in the jurisdictions Phase II Watershed
  Implementation Plans (WIPs).

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Bay Jurisdictions Existing Trading Programs

• Jurisdictions with existing water quality
  trading statutes, regulations and/or policies
• Maryland ,Pennsylvania, Virginia, West
  Virginia
• Jurisdictions that do not have water quality
  trading statutes, regulations and/or policies
• New York, Delaware, District of Columbia

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Review Legal and Technical Considerations

• Baseline that any PS or NPS generating a credit
  has implemented practices or met any reductions
  necessary to be consistent with the Bay TMDL
  allocations.
• Minimum controls any PS or NPS using a credit
  has implemented certain minimum controls.
• Credit calculation and verification ensure
  credits are quantified using appropriate metrics
  and verified to ensure they produce the expected
  reductions.
• Concerns exist about the scope of CWA Section 308
  and how it applies to nonpoint sources.

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Review Legal and Technical Considerations

• Safeguards
• Restrict the use or generation of offsets by an
  unpermitted PS or a source in noncompliance with
  its NPDES permit.
• Ensure the entire delivered load is accounted for
  and water quality will be protected.
• Accountability and tracking holistic and focused
  on performance outcomes while providing maximum
  transparency, operational efficiency, and
  accessibility to all interested parties.
• Certification and enforceability ensure an NPDES
  permittee remains accountable for meeting the
  WQBELs in its permit.
• CWA Section 309s enforcement provisions do not
  apply to NPS credit generators.

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Review Legal and Technical Considerations

• Nutrient-impaired Segments ensure that offsets
  in nutrient-impaired water segments result in
  progress toward attainment of WQS in the impaired
  segment and do not lead to exceedances of WQS
  elsewhere.
• Credit Banking articulate whether aggregation
  and/or banking of offsets is permissible under
  the jurisdictions program and, if so, under what
  circumstances these will be allowed and the
  procedures for such activity.