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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


Pollutant trading

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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

  • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

  • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

  • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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


    Lower boise river watershed
    Lower Boise River Watershed (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible


    Mid snake river
    Mid Snake River (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible


    Ratios at work
    Ratios at work (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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 (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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 Rules (money) to protect a scarce resource (assimilative capacity) in the most efficient way possibleWater 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 House (money) to protect a scarce resource (assimilative capacity) in the most efficient way possibleTrade 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


    Elements of the trading framework building blocks
    Elements of the Trading Framework: Building Blocks (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible


    Point point trade process
    Point - Point Trade Process (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible


    Point nonpoint trade process
    Point - Nonpoint Trade Process (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible


    Conclusions
    Conclusions (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible

    • 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.