Watershed-based and Effluent Trading

This page is intended to keep interested people informed as to the basis and status of watershed-based trading, and effluent trading, throughout the United States. Key elements of watershed-based trading are basin-wide water quality analysis and evaluation, inventory of basin dischargers, facility best management practices (BMP), site monitoring, and cost-efficient effluent trading through markets and watershed optimization tools. The following projects address many vital effluent trading issues and are discussed in detail later in this section:

Watershed-based Trading Background
Lower Boise River Effluent Trading Demonstration Project
Acid Rain Program Sulfur Dioxide (SO2) Allowance Trading
Chesapeake Bay Nutrient Trading
EPA Water Quality Trading Policy
EPA Draft Framework for Watershed-Based Trading

Current Watershed-based Trading News

Watershed-based Trading Background

Watershed-based trading has great potential for providing cost efficient pollution reduction in response to Total Maximum Daily Load (TMDL) requirements being established throughout the United States. Presently few tools exist to evaluate pollutant reduction costs throughout a basin although the establishment of TMDLs requires a basin-wide water quality investigation. While TMDLs imply a collective basin-wide responsibility for water quality, an operational basin-wide approach for cost-effectively paying for pollution reduction is yet lacking. Individual dischargers and stakeholders may understand their own particular effluent limitations and pollution abatement costs, but comparing those costs to other basin discharger costs is very difficult. An unfortunate outcome of this lack of information is that some dischargers may spend considerably more for the same pollutant reduction than another discharger in the same basin. Receiving water nutrient, temperature, biochemical oxygen demand (BOD) and other types of pollutant parameter trading opportunities may exist.

Watershed-based trading, or effluent trading as it is also called, provides an incentive for dischargers and other stakeholders to effectively communicate pollution reduction costs, and hence opportunities for water quality improvement, in the form of tradable water quality credits. Those dischargers that can most cost effectively reduce pollutants in their point or non-point discharges are able to generate tradable credits that can generate revenue. Other dischargers, less cost-effectively able to reduce their pollutant discharges, can purchase these credits and in effect gain the same pollution reduction at less cost than "going it alone".

In its most developed form, effluent trading would generate a marketplace bringing together basin dischargers and other stakeholders where water quality credits could be exchanged.

Lower Boise River Effluent Trading Demonstration Project

The Effluent Trading Demonstration Project (LBRETDP) was begun by the U.S. Environmental Protection Agency - Region 10 (EPA10) and the Idaho Department of Environmental Quality (IDEQ). The goal of the project is to examine effluent trading potential for improving water quality in the Lower Boise River while at the same time lowering the basin-wide costs of meeting pollutant-reduction objectives established by Total Maximum Daily Load (TMDL) processes. Participants in the project included wide representation from federal, state and local agencies with water-quality responsibilities, agriculture, municipalities, industry and the environmental community. Most Recent Status Report of the LBRETDP (PDF file)

Acid Rain Program Sulfur Dioxide (SO2) Allowance Trading

The EPA's Acid Rain Program (ARP) provides perhaps the best current example of state-of-the-art 'pollutant' trading in the United States if not internationally. The similarity of conditions for ARP airshed emitters and TMDL watershed discharges should be apparent. The trading program related to the electric utility industry was begun in 1994. It includes an environmental cap and trade approach based on the market exchange of emission allowances. Energy utilities can generate tradable credits by reducing emissions through energy conservation measures, increased use of renewable energy, and implementation of innovative pollution control technologies.

Chesapeake Bay Nutrient Trading

The Chesapeake Bay Program has evaluated the feasibility of nutrient trading for point and non-point sources in the Chesapeake Bay watershed and developed nutrient trading guidelines for the Bay jurisdictions to use on a voluntary basis. A wide variety of interested stakeholders from across the watershed used a consensus approach for deriving nutrient trading fundamental principles and guidelines. These are presented in a guidance document to help ensure nutrient trading approaches in the watershed are consistent, compatible and fully supportive of Chesapeake Bay Program goals.

EPA Water Quality Trading Policy

This EPA policy is intended 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. The policy is intended to encourage voluntary trading programs that facilitate implementation of TMDLs, reduce the costs of compliance with Clean Water Act 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. The policy draws upon lessons from a number of recent pilot trading projects and state experiences in developing water quality trading programs.

EPA Draft Framework for Watershed-Based Trading

The EPA Draft Framework for Watershed-Based Trading (1996) is intended to provide basic information to anyone interested in trading. Water quality managers, potential traders, environmental groups, and others will find assistance for identifying and evaluating trading opportunities. This framework can also be used as a resource when designing a trading project or program. Chapter 2, Principles for Trading, Chapter 3, The Economics of Trading, and Chapter 4, Identifying and Evaluating Candidates, are especially important for anyone reading this framework for the first time.

Chapters 5 through 8 describe several types of trading: point/point source and intra-plant trading, pretreatment trading, point/NPS source trading, and non-point/NPS source trading, respectively. These four chapters also address issues specific to each type in detail and are designed so they can be referenced individually. Regardless of your specific interest, a quick study of Chapters 5 through 8 will enhance your understanding of the concepts and issues presented in the framework.