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Pollutant Trading. Discussion 22 July 2003. Why Allow Trading?. To make point sources pay To lure nonpoint sources into doing pollution control so we can enforce on them To increase the size of DEQ To allow discharges a mask to hide behind so they can pollute more

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pollutant trading

Pollutant Trading

Discussion

22 July 2003

why allow trading
Why Allow Trading?
  • To make point sources pay
  • To lure nonpoint sources into doing pollution control so we can enforce on them
  • To increase the size of DEQ
  • To allow discharges a mask to hide behind so they can pollute more
  • To distract EPA while we do other things

No portion of this slide is intended to be truthful, tasteful or factual in any fashion

what problem does trading solve
What problem does trading solve?
  • To let the market help allocate the assimilative capacity of a stream. Who wants to force existing sources to make additional cutbacks for future growth?
  • Who wants to decide which new applicant should get to use the allocation of pollutants for new growth?
  • Who wants to make cost decisions for the watershed?
what problems are caused by trading
What problems are caused by trading?
  • Finding the resources to set up the market
  • Speculation
    • Need to force the commodity into the market place
  • All of the perceptions in the second slide
  • You are you changing the relationship between stakeholders
slide5

Trading should allow us to distribute a scarce commodity (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

policy level principles necessary for trading
Policy Level Principles Necessary for Trading
  • Enforceability (for point sources of course)
  • Full environmental protection
  • Certainty for stakeholders without expanding EPA or DEQ authorities
  • Visibility
  • Robust participation (getting government out of day to day trading)
practical conditions necessary for trading
Practical Conditions Necessary for Trading
  • Market Driver
    • regulatory requirement sets limit on effluent discharges
  • Definable commodity and market area
  • Cost Differential
    • the financial incentive for entering into a trade
    • must cover transaction costs
  • Ability - technical feasibility & adequate supply
  • Opportunity - tools for trading available
  • Three watersheds evaluated; 2 successful - 1 failed
market drivers for trading in idaho
Market Drivers for Trading in Idaho
  • TMDLs
      • NPDES permits are the only enforceable mechanisms
  • Antidegradation
  • Idaho State Legislature - no net increase statute for impaired waters
defining the marketable commodity
Defining the Marketable Commodity
  • Nonpoint Source Trades Limited to Practices on BMP List
  • Nonpoint Source Baseline = TMDL Baseline Conditions
  • Water Quality Contribution
    • Pre-TMDL Implementation Plan: each NPS project contributes between 10% and 20% of reduction to water quality by reducing marketable credits
    • Post-TMDL Implementation Plan: credits created only by reductions exceeding TMDL implementation plan requirements
  • Process for Adding New BMPs
defining the marketable commodity1
Measured Credits

Monitoring the WQ

Minimum design, construction and O&M requirements

Calculated Credits

Monitoring the BMP

Design, construction and O&M requirements

Credit calculation

Uncertainty discount

Defining the Marketable Commodity
defining the marketable commodity2
Defining the Marketable Commodity
  • Ratios apply to credit calculations to ensure equivalent reductions (Parma Pounds)
    • River Location Ratios: transmission losses in the Boise River
    • Drainage Delivery Ratios: transmission losses within a sub-watershed
    • Site Location Factors: potential for water re-use
  • Market places high value on high quality reductions
ratios at work
Ratios at work
  • Boise location ratio = 0.56, needs 10lbs. So 10lbs(.56)=5.6 Parma Pounds
  • Mason Drain Location ratio = .75, have 10lbs in excess of TMDL needs. So 10lbs(.75)=7.5lbs to sell.
  • Mid Snake River example = 1lb to 1lb for the full river reach
boise river demonstration project cost differential
WWTPs

Costs range from less than $5/lbs to more than $200/lbs

Costs depend on current technology and options

PS-PS trading can save money

Agricultural Practices

Costs range from about $5/lbs to $50/lbs

Cost are specific to both site and control measure

PS-NPS trading can save money if transaction costs managed

Boise River Demonstration Project Cost Differential
mid snake river example cost differential
Twin Falls WWTP River Mile 608.5

May have upto 325 lbs per day for 9 critical months

Cost of $25/lb per day

Clear Springs at River Mile 600.7

Would like to buy 40 lbs per day

Cost of control is very unstable based on feed ingredients (strategy is low ash fish food)

Mid Snake River Example, Cost Differential
cost differential example
Participant A

Limit 100 lbs/day

Actual 200 lbs/day

Cost $100 lb/yr

Benefit

Cost w/o trading $10,000

Willing to pay $50 lb/yr

Cost w/trading $5,000

Participant B

Limit 500 lbs/day

Actual 600 lbs/day

Cost $10 lb/yr.

Can reduce 200 lbs/day

Benefit

Cost w/o trading $1000

Cost w/trading ($3,000)

Cost Differential Example
tools available the tmdl
Tools Available - The TMDL
  • Authorizes trading subject to permit & trading rules
  • Establishes adjustable WLA allocations/implementation plans
  • Establish NPS load allocation
  • A mechanism for reasonable assurance
  • Evaluates the potential for local impacts and propose remedies
tools available the npdes permit
Tools Available - The NPDES Permit
  • Adjustable permit limits that have conditions to prevent localized impacts
  • Point sources liable for trade performance
  • Reporting and documentation of trade
    • Modified Discharge Monitoring Report form reports trades to EPA
    • Monthly Trade Summary provides watershed-wide reconciliation
  • Permit audits
    • Standard permit audits by EPA and DEQ
    • NPS project reviews by SCC, under agreement to EPA & DEQ
  • To provide certainty to NPDES permit holders
tools available the private contract
Tools Available - The Private Contract
  • Willing buyer and willing seller.
  • Establish a price.
  • Establish the remedy for contract failure. Certainty for the NPS delivery of reductions.
  • Establish the amounts, parties, and duration of the trade.
  • Assign monitoring responsibilities
tools available trading rules water quality protection
Tools Available - Trading RulesWater Quality Protection
  • Ratios apply to credit calculations to ensure equivalent reductions (Parma Pounds)
  • Nonpoint Source Mechanisms
    • Nonpoint Source Trades Limited to Practices on BMP List
  • Water Quality Contribution
    • Pre-TMDL Implementation Plan: each NPS project contributes 10% of reduction to water quality by reducing marketable credits
    • Post-TMDL Implementation Plan: credits created only by reductions exceeding TMDL implementation plan requirements
  • Process for Adding New BMPs
tools available the clearing house trade execution tracking
Tools Available - The Clearing HouseTrade Execution & Tracking
  • Reduction Credit Certificates: certifies nonpoint source reductions, establishes credit, signed by point source
  • Trade Notification Forms: transfers credits from seller to buyer
  • Trade Tracking Database: records all trade transactions
  • Monthly Trade Summary: ensures watershed-wide trade reconciliation
  • Trade Tracking Audits: conducted by DEQ
conclusions
Conclusions
  • We can make pollution a commodity and trade it.
  • There is a demand in many basins - but not all..
  • The tools necessary for trading are available and can fit within existing programs.
  • Trading framework summary is available from IDEQ at WWW2.state.id.us/deq.
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