Effluent Trading

1
Effluent Trading

• Lower Boise River
• Demonstration Project
• March 2001
• I pirated this slide show from Sally Goodell _at_
  Ross and Associates

2
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 pollute.

No portion of this slide is intended to be
truthful, tasteful or factual in any fashion
3
Why Allow Trading?

• To let the market help allocate the assimilative
  capacity of a stream.
• What CWA tools have the policy makers given us
  to deal with this problem?
• TMDLs.
• NPDES permits are the only enforceable
  mechanisms.
• Antidegradation.
• Idaho State Legislature gave us a no net increase
  statute for impaired waters.

4
Trading should allow us to distribute a scarce
commodity (money) to protect a scarce resource
(assimilative capacity) in the most efficient and
effective way possible.
5
Conditions Necessary for Trading

• Market Driver
• regulatory requirement sets limit on effluent
  discharges
• defines 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

6
What are the Worst Possible Conditions for
Trading?

• No primacy for the NPDES permit program.
• No mandatory BMP programs for nonpoint sources.
• A very complex hydrologic system.
• Generally a high level of distrust among
  stakeholders including regulators.

7
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

8
Defining the Marketable Commodity

• Measured Credits
• Monitoring the WQ
• Minimum design, construction and OM requirements

• Calculated Credits
• Monitoring the BMP
• Design, construction and OM requirements
• Credit calculation
• Uncertainty discount

9
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

10
Boise River Demonstration Project Participants

• Agriculture
• Idaho Water Users Association
• Idaho Farm Bureau
• Pioneer Irrigation District
• Ada and Canyon SCDs
• Agricultural Agencies
• SCC
• NRCS
• Environmental Agencies
• US EPA
• DEQ
• Environmental Interests
• Idaho Rivers United

• Local Government
• Cities of Boise, Meridian. Nampa, Middleton
• ACHD
• Industry
• Micron
• Simplot
• Idaho Power
• Other
• SW Idaho RC D Council
• USBR
• American Wetlands

11
Lower Boise River Watershed
12
Boise River Demonstration Project Phase I
Regulatory Drivers

• Lower Boise River TMDL
• Sediment and bacteria TMDLs done
• Phosphorus due December 31, 2001
• No net increase
• Snake River and Brownlee TMDLs
• Due December 31, 2001
• Phosphorus reductions likely

13
Boise River Demonstration Project Phase I Cost
Differential

• WWTPs
• Costs range from less than 5/LB to more than
  200/LB
• Costs depend on current technology and options
• PS-PS trading can save money

• Agricultural Practices
• Costs range from about 5/LB to 50/LB
• Cost are specific to both site and control
  measure
• PS-NPS trading can save money if transaction
  costs managed

14
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.

15
How Trading Might Work

• 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 lbs/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)

16
Elements of the Trading Framework Building Blocks
17
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

18
How Can The NPDES Permit Be Used

• 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

19
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

20
Point - Point Trade Process
21
Point - Nonpoint Trade Process
22
Five Principles 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)

23
Trading should allow us to distribute a
scarce commodity (money) to protect a scarce
resource (assimilative capacity) in the most
efficient and effective way possible.