Water Quality Trading

Water Quality Trading PowerPoint PPT Presentation


  • 103 Views
  • Uploaded on
  • Presentation posted in: General

What is ?Water Quality Trading'?. A source facing higher pollution reduction costs compensates another source for achieving equivalent, less costly reductions.Market-based tool to solve water quality problemsVoluntary, flexible, stimulates innovationCost-effective pollution reductionOperates wit

Download Presentation

Water Quality Trading

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


1. Water Quality Trading Claire Schary Water Quality Trading Coordinator U.S. Environmental Protection Agency, Region 10, Seattle, WA [email protected] (206) 553-8514 May 5, 2005

2. What is ‘Water Quality Trading’? A source facing higher pollution reduction costs compensates another source for achieving equivalent, less costly reductions. Market-based tool to solve water quality problems Voluntary, flexible, stimulates innovation Cost-effective pollution reduction Operates within existing programs Value for the pollution reduction credit is created by limiting the total amount of pollution allowed.

3. Conditions Necessary for Trading Market Driver regulatory requirement sets limit on pollutant discharges defines commodity and market area Cost differential the financial incentive for entering into a trade must cover transaction costs Ability technical feasibility and adequate supply Opportunity tools for trading available Program design cannot achieve environmental goal at least cost unless these 4 conditions are in effect. Market driver is essential to provide “motivation” to reduce, forcing companies to look at cheapest ways to reduce discharge. Voluntary programs with no regulatory drivers are not effective at creating a strong incentive to find least-cost ways to reduce. With market driver in place, then there must be different costs of reduction across the sources affected, and cost differential must be large enough to cover the transaction cost – the “hassle factor” in establishing a trade and getting it approved and processed Differential costs related to technical feasibility, but also need legal feasibility and large enough supply Infrastructure to support trading needed – legal mechanisms, market support functionsProgram design cannot achieve environmental goal at least cost unless these 4 conditions are in effect. Market driver is essential to provide “motivation” to reduce, forcing companies to look at cheapest ways to reduce discharge. Voluntary programs with no regulatory drivers are not effective at creating a strong incentive to find least-cost ways to reduce. With market driver in place, then there must be different costs of reduction across the sources affected, and cost differential must be large enough to cover the transaction cost – the “hassle factor” in establishing a trade and getting it approved and processed Differential costs related to technical feasibility, but also need legal feasibility and large enough supply Infrastructure to support trading needed – legal mechanisms, market support functions

4. Water Quality Trading: TMDLs Are the Primary Regulatory Drivers Total Maximum Daily Loads (TMDLs) are the most common drivers for Water Quality Trading TMDLs set a pollutant “budget” on all sources to achieve reductions necessary to achieve water quality standards in impaired water bodies Under TMDLs point sources are assigned individual Waste Load Allocations Enforced in NPDES permit through specified limit Under TMDLs nonpoint sources are assigned Load Allocation by category State, federal cost-share programs used to encourage use of Best Management Practices (BMPs)

5. EPA Region 10’s Water Quality Trading Experience Idaho: Lower Boise River Water Quality Trading Demonstration Project - phosphorus Mid-Snake River Project - phosphorus Idaho DEQ issued Water Pollutant Trading Guidance for Watersheds based on project experience Oregon: Tualatin River - Clean Water Services Water Quality Trading Project – temperature trading under watershed permit. Oregon DEQ issued “Internal Management Directive” on water quality trading Water Quality Trading Assessment Handbook

6. Lower Boise River

8. Phosphorus Trading: Lower Boise River Dynamic, market-based trading Broad authorization to trade subject to trading rules Liability remains with permit holder PS, NPS sign private trade contracts Environment protected BMP List specifies acceptable practices, measurement Location-based trade ratios applied to achieve environmentally equivalent reductions Robust participation by agriculture Trading driven by economic decisions Private association oversees trading system Mechanisms to support farm-scale and watershed scale participation Turned to the Acid Rain Program’s cap-based trading model and added best parts of open-market/credit-based trading system for an approach to bring in non-permitted farmers to trading system Goal was to establish rules of trading, do all analysis and incorporate trading elements to provide necessary information to protect the environment up-front, so that trading parties could screen their own trades rather than go through trade-by-trade review with EPA permit writer Turned to the Acid Rain Program’s cap-based trading model and added best parts of open-market/credit-based trading system for an approach to bring in non-permitted farmers to trading system Goal was to establish rules of trading, do all analysis and incorporate trading elements to provide necessary information to protect the environment up-front, so that trading parties could screen their own trades rather than go through trade-by-trade review with EPA permit writer

9. Phosphorus Trading: Mid-Snake R. Trades between point sources only (not enough supply from nonpoint sources so far) Upstream point source City of Twin Falls has surplus phosphorus reductions Downstream point source fish farmers need to make reductions Trade: reduction credits from Twin Falls will be used 30 miles downstream by fish farmers Water quality is protected by TMDL’s overall phosphorus reduction requirement, instream concentration limits, and upper limits in fish farmers’ permits to prevent “hot spots”

10. Theory to Practice in Water Quality Trading Not all pollutants are tradable commodities Trading Policy allows nutrients, phosphorus, sediment, and case-by-case for others Issues for pollutant trading suitability: Pollutant form: Different forms of same pollutant discharged Impact: Fate and transport of pollutant, and its varying impact on sensitive portions of the watershed Location of dischargers in the watershed for determining environmentally equivalent reductions Time: Match of timing of discharge and reductions across sources; permit cycles Quantity: supply and demand must align Key chapter: what makes a pollutant suitable for trading Form of pollutant discharged by point sources and nonpoint sources must be equivalent to meet needs of TMDL Fate and transport of pollutant in waterbody must fit with location of dischargers interested in trading Key point: Trade only environmentally equivalent reductions Timing of discharges and reductions must match with TMDL time period, and permit cycles Supply and demand quantities must align Pollutant profiles in Appendices for phosphorus, sediment, temperature and nitrogen – covers these aspects of the pollutant and what TMDLs usually are addressing.Key chapter: what makes a pollutant suitable for trading Form of pollutant discharged by point sources and nonpoint sources must be equivalent to meet needs of TMDL Fate and transport of pollutant in waterbody must fit with location of dischargers interested in trading Key point: Trade only environmentally equivalent reductions Timing of discharges and reductions must match with TMDL time period, and permit cycles Supply and demand quantities must align Pollutant profiles in Appendices for phosphorus, sediment, temperature and nitrogen – covers these aspects of the pollutant and what TMDLs usually are addressing.

11. Financial Attractiveness of Water Quality Trading Need to determine if trading makes financial sense for one or more permittees in the watershed: TMDL allocations affect ability to trade Cost of required reductions based on control technology options and “lumpiness” of reduction amounts achieved Cost of incremental reduction amounts for individual sources are what drives the demand for trading not the same as average cost of reductions Assess potential control costs for other point sources, nonpoint sources in the watershed and identify potential trades Consider transaction costs, risk, and alternative compliance strategies by other sources Once you know if you have something to trade, then the Handbook walks you through how to determine if it is financially worthwhile to trade Key point here is to be aware that treatment technology creates “lumps” of reduction, not a smooth curve Calculating costs of reduction must be done to reflect that: incremental cost of reduction is used here rather than average cost Also need to factor in other costs of trading: transaction costs, forms of risk, and what other sources might be doing. Once you know if you have something to trade, then the Handbook walks you through how to determine if it is financially worthwhile to trade Key point here is to be aware that treatment technology creates “lumps” of reduction, not a smooth curve Calculating costs of reduction must be done to reflect that: incremental cost of reduction is used here rather than average cost Also need to factor in other costs of trading: transaction costs, forms of risk, and what other sources might be doing.

12. Market Infrastructure to Support Trading Transaction costs strongly influenced by market design, regulatory constraints, and uncertainty of outcomes Participants’ uncertainty that a viable water quality trading market will develop Participant’s uncertainty of regulatory approval of trades Designing a market to address these needs, while matching the market size to the volume of trading expected, helps reduce transaction costs. How trades are created, approved, recorded, and enforced strongly influence the market design – and the transaction costs incurred by both trading parties and the regulators. This directly influences the amount of cost savings to the participants – and to society – and also how many trades will occur.How trades are created, approved, recorded, and enforced strongly influence the market design – and the transaction costs incurred by both trading parties and the regulators. This directly influences the amount of cost savings to the participants – and to society – and also how many trades will occur.

13. How Can Water Quality Trading Be Used to Improve Multiple Resources? One project can generate multiple types of credits Depends on what is beneficial for other resources Other types of credit markets need to define what is their baseline and then what is “surplus” for trading Water Quality Trading Policy on baselines for credit calculations: Must be consistent with water quality standards Must lead to reduction amounts that are equal to or greater than those established under existing regulatory requirements or under a TMDL. When there is a TMDL, the Waste Load Allocations and Load Allocations are the baseline.

14. Question For credits to be established for other ecosystem services besides water quality: What is the baseline and what is a “surplus” reduction? How will environmental equivalency be established so the credit can be used in a different location? Will there be sufficient demand and supply, and at the same time?

  • Login