In conjunction with input from its newly formed Water Quality Trading Working Group, the National Association of Clean Water Agencies (NACWA) is urging the EPA to rewrite its 2003 Water Quality Trading Policy “to overcome some of water quality trading’s main barriers.”

The EPA policy defines “water quality trading” as a process that “allows one source to meet its regulatory obligations by using pollutant reductions created by another source that has lower pollution control costs. Trading capitalizes on economies of scale and the control cost differentials among and between sources.”

Policy limits opportunities

In a letter to the EPA, NACWA states its belief that water quality trading can provide much-needed relief, potentially generating environmental benefits greater than those achieved under traditional regulatory approaches. But, says NACWA, as it is currently written, the EPA policy could limit trading and the broader establishment of regional water quality trading programs.

NACWA’s primary concern is that the EPA’s policy appears to endorse trading only in a watershed or a defined area for which a total maximum daily load (TMDL) has been approved. TMDLs set the maximum load for a pollutant that a water body can hold while maintaining its designated use (e.g., recreation or drinking water). TMDLs also contain wasteload allocations, or the pollutant loads allocated to current and future point sources.

“While a TMDL can help facilitate trading, it is not a requirement and should not be interpreted as such,” states NACWA. “Furthermore, trading outside the TMDL process can provide a means to ensure that water quality standards will be met by reducing overall pollutant loads in a water body and obviate the need for a TMDL.”

Other recommended revisions in the NACWA letter include:

• Extending trading to nonnutrient pollutants such as toxics. “The fundamentals of water-quality trading are such that a well-designed market should work for any type of pollutant,” says NACWA.
• Encouraging trades that equal improvements achieved under baseline regulatory requirements, not just trades that achieve greater improvements.
• Removing “retirement” in the description of trading credits. “So long as a credit is maintained to a rigorous standard and its custody is tracked, a credit should remain valid,” says NACWA.
• Allowing agricultural nonpoint sources to generate credits.
• Making use of best management practices, rather than analysis of individual properties, to establish a baseline for agriculture. A baseline is a certain level of pollutant reduction that must be achieved before credits eligible for sale can be generated.
• Removing requirements to address nonpoint source uncertainty beyond what is addressed in the TMDL margin of safety requirement.

NACWA also believes the policy should place more emphasis on the additional environmental benefits of water quality trading, particularly for wetlands and habitat restoration.

EPA’s water quality trading policy is at http://water.epa.gov/type/watersheds/trading/finalpolicy2003.cfm. NACWA’s letter is at http://www.nacwa.org/images/stories/public/2012-07-19ltr.pdf.