Water Quality Water Quality Pollutant Trading Pollutant Trading - - PowerPoint PPT Presentation

Water Quality Water Quality Pollutant Trading Pollutant Trading

Marco Graziani Marco Graziani Minnesota Pollution Control Agency Minnesota Pollution Control Agency February 27, 2007 February 27, 2007

Water Quality Trading Rule Water Quality Trading Rule Development Development

• Our objective is to develop a draft rule by June

Our objective is to develop a draft rule by June 2008 2008

• Operate on the assumption that we will develop

Operate on the assumption that we will develop viable water quality pollutant trading processes viable water quality pollutant trading processes

• The advisory committee process is intended to

The advisory committee process is intended to

• btain guidance from the numerous interested
• btain guidance from the numerous interested

sectors sectors

Water Quality Trading Potential Water Quality Trading Potential

• Water quality trading is an exchange of pollutant credits

Water quality trading is an exchange of pollutant credits between sources between sources

• Sources with high pollutant control costs may be able to

Sources with high pollutant control costs may be able to purchase equivalent or superior pollutant reduction purchase equivalent or superior pollutant reduction credits from sources whose pollution control costs are credits from sources whose pollution control costs are relatively low relatively low

• Credits are generated through “over control” of regulated

Credits are generated through “over control” of regulated pollutants or through the implementation of best pollutants or through the implementation of best management practices (BMPs) that reduce pollutant management practices (BMPs) that reduce pollutant delivery from unregulated sources delivery from unregulated sources

• Credits may be used by sources in order to meet

Credits may be used by sources in order to meet certain certain regulatory requirements regulatory requirements

• System must provide reasonable certainty that trades will

System must provide reasonable certainty that trades will adequately address pollutants of concern adequately address pollutants of concern

Water Quality Trading Options Water Quality Trading Options

• Point sources purchasing offset credits created

Point sources purchasing offset credits created by other point sources by other point sources

• Point sources purchasing offset credits created

Point sources purchasing offset credits created by non by non-

• point sources

point sources

• Point sources offsetting pollutant loads between

Point sources offsetting pollutant loads between multiple outfalls (intra multiple outfalls (intra-

• plant trading)

plant trading)

• Non

Non-

• point sources purchasing credits created by

point sources purchasing credits created by

• ther non
• ther non-
• point sources

point sources

• Pretreatment trading between industrial users of

Pretreatment trading between industrial users of a publicly owned wastewater treatment facility a publicly owned wastewater treatment facility

Water Quality Trading Goals Water Quality Trading Goals

• Improve water quality

Improve water quality

• Manage growth and development in impaired

Manage growth and development in impaired and unimpaired watersheds and unimpaired watersheds

• Flexible and cost effective water quality

Flexible and cost effective water quality management management

• Derive improvements from “ancillary benefits”

Derive improvements from “ancillary benefits” that may result from BMP implementation that may result from BMP implementation

Potential Environmental Potential Environmental Benefits of Water Quality Benefits of Water Quality Trading Programs Trading Programs

Point Source Point Source Upgrade Upgrade Non Non-

• Point

Point Source BMPs Source BMPs Pollutant of Concern Pollutant of Concern Yes Yes Yes Yes Other pollutants Other pollutants Maybe Maybe Yes Yes Habitat creation Habitat creation No No Yes Yes Canopy establishment Canopy establishment No No Yes Yes Stream bank stabilization Stream bank stabilization No No Yes Yes Velocity attenuation Velocity attenuation No No Yes Yes Wetland creation Wetland creation No No Yes Yes Floodplain management Floodplain management No No Yes Yes

Tradable Water Quality Tradable Water Quality Pollutants? Pollutants?

• Flow

Flow

• Sediment

Sediment

• Nutrients

Nutrients

• Phosphorus

Phosphorus

• Nitrogen

Nitrogen

• Temperature

Temperature

• Others?

Others?

• CBOD

CBOD

• TSS

TSS

• Ammonia

Ammonia

• Mercury

Mercury

• Can trading help with future water quality problems

Can trading help with future water quality problems caused by pollutants that are not yet on the radar caused by pollutants that are not yet on the radar screen? screen?

Trade Ratios Trade Ratios

• Trade ratios are frequently applied pollutant

Trade ratios are frequently applied pollutant trading programs in order to: trading programs in order to:

• Retire credits for water quality improvement

Retire credits for water quality improvement

• Account for uncertainty in trades

Account for uncertainty in trades

• Account for pollutant delivery dynamics

Account for pollutant delivery dynamics

• Generally, the greater the uncertainty and/or the

Generally, the greater the uncertainty and/or the dissimilarity between sources, the greater the dissimilarity between sources, the greater the trade ratio trade ratio

US EPA Office of Water US EPA Office of Water Water Quality Trading Policy (2003) Water Quality Trading Policy (2003) Trading Objectives Trading Objectives

EPA supports implementation of water quality trading by states, interstate agencies and tribes where trading:

• A. Achieves early reductions and progress towards water quality

standards pending development of TMDLs for impaired waters.

• B. Reduces the cost of implementing TMDLs through greater

efficiency and flexible approaches.

• C. Establishes economic incentives for voluntary pollutant

reductions from point and nonpoint sources within a watershed.

• D. Reduces the cost of compliance with water quality based

requirements.

• E. Offsets new or increased discharges resulting from growth in
• rder to maintain levels of water quality that support all

designated uses.

US EPA Office of Water US EPA Office of Water Water Quality Trading Policy (2003) Water Quality Trading Policy (2003) Trading Objectives Trading Objectives

EPA supports implementation of water quality trading by states, interstate agencies and tribes where trading:

• F. Achieves greater environmental benefits than those under

existing regulatory programs. EPA supports the creation of water quality trading credits in ways that achieve ancillary environmental benefits beyond the required reductions in specific pollutant loads, such as the creation and restoration of wetlands, floodplains and wildlife and/or waterfowl habitat.

• G. Secures long-term improvements in water quality through the

purchase and retirement of credits by any entity.

• H. Combines ecological services to achieve multiple environmental

and economic benefits, such as wetland restoration or the implementation of management practices that improve water quality and habitat.

When can trading occur? When can trading occur?

• Trading in unimpaired waters

Trading in unimpaired waters

• To maintain or improve water quality

To maintain or improve water quality

• Trading in Impaired Waters without TMDL

Trading in Impaired Waters without TMDL

• To achieve early reductions to improve water quality and gain

To achieve early reductions to improve water quality and gain more favorable TMDL terms or eliminate the need for a TMDL more favorable TMDL terms or eliminate the need for a TMDL

• Trading in Impaired Waters with TMDL

Trading in Impaired Waters with TMDL

• To implement TMDL load and wasteload allocations

To implement TMDL load and wasteload allocations

• Pretreatment

Pretreatment

• To manage source loads to a permitted wastewater facility

To manage source loads to a permitted wastewater facility

• Intra

Intra-

• plant

plant

• To manage overall discharge loads from multiple outfalls

To manage overall discharge loads from multiple outfalls

When can trading NOT When can trading NOT

• ccur?
• ccur?
• Trading cannot be used to meet technology

Trading cannot be used to meet technology based effluent limitations based effluent limitations

• Trades cannot result in non

Trades cannot result in non-

• attainment of

attainment of applicable water quality standards applicable water quality standards

• Trading may not adversely affect water quality at

Trading may not adversely affect water quality at an intake for drinking water supply an intake for drinking water supply

• Trading cannot allow a discharger to exceed a

Trading cannot allow a discharger to exceed a cap established under a TMDL cap established under a TMDL

Minnesota Experience with Minnesota Experience with Water Quality Pollutant Trading Water Quality Pollutant Trading

• Rahr

Rahr Malting NPDES Permit(1997) Malting NPDES Permit(1997)

• Southern Minnesota Sugar Beet

Southern Minnesota Sugar Beet Cooperative NPDES Permit (2000) Cooperative NPDES Permit (2000)

• Minnesota River Basin General

Minnesota River Basin General Phosphorus NPDES Permit (2005) Phosphorus NPDES Permit (2005)

Rahr Rahr Malting Malting

• Permit issued in 1997

Permit issued in 1997

• Pollutants of concern:

Pollutants of concern:

• biochemical oxygen demand (CBOD)

biochemical oxygen demand (CBOD)

• ammonia

ammonia

• Point source/non

Point source/non-

• point source trades

point source trades

• Stream bank restoration in the 8 Mile

Stream bank restoration in the 8 Mile Creek and Rush River watersheds Creek and Rush River watersheds

Rahr Rahr Malting Malting -

• 8 Mile Creek

8 Mile Creek

Rahr Rahr Malting Malting -

• Rush River Site

Rush River Site

Southern Minnesota Southern Minnesota Beet Sugar Cooperative Beet Sugar Cooperative

• NPDES Permit issued in 2000

NPDES Permit issued in 2000

• Pollutant of Concern:

Pollutant of Concern:

• Phosphorus

Phosphorus

• Point source/non

Point source/non-

• point source trades

point source trades

• Stream bank restoration and spring cover

Stream bank restoration and spring cover crops crops

Southern Minnesota Beet Sugar Southern Minnesota Beet Sugar West Fork Beaver Creek West Fork Beaver Creek

Southern Minnesota Beet Sugar Southern Minnesota Beet Sugar

58,832 acres of spring cover crop in 2005 58,832 acres of spring cover crop in 2005

Minnesota River Basin Minnesota River Basin General Phosphorus Permit General Phosphorus Permit

• Watershed wide permit applies all

Watershed wide permit applies all point sources in the Minnesota River point sources in the Minnesota River basin basin

• Pollutants of concern:

Pollutants of concern:

• biochemical oxygen demand (CBOD)

biochemical oxygen demand (CBOD)

• phosphorus

phosphorus

• Point source/point source trades

Point source/point source trades

• 41 point sources authorized to trade

41 point sources authorized to trade

Minnesota River Basin General Minnesota River Basin General Phosphorus Permit Phosphorus Permit -

• Map

Map

Jordan Mankato Shakopee Marshall Montevideo Blue Earth

25 50 75 100 12.5 Miles Pomme de Terre River Watershed Upper Minnesota River Watershed Lac Qui Parle River Watershed

Minnesota River Basin Phosphorus Permit Coverage

MN River Basin from Jordan to Shakopee MN River Basin Watersheds Upstream of Jordan

Areas Covered By the Permit Areas Not Covered By the Permit

Not Covered By Permit

Minnesota River Basin Minnesota River Basin General Phosphorus Permit General Phosphorus Permit

• Establishes effluent phosphorus reductions

Establishes effluent phosphorus reductions from the 40 largest point sources upstream from the 40 largest point sources upstream

• f Jordan
• f Jordan
• Authorizes trading between point sources

Authorizes trading between point sources

• Will achieve a cumulative phosphorus

Will achieve a cumulative phosphorus reduction of 35% in 5 years reduction of 35% in 5 years

Pollutant Trading Experience Pollutant Trading Experience Outside Minnesota Outside Minnesota

• Michigan promulgated water quality trading

Michigan promulgated water quality trading rules in 1999 rules in 1999

• Ohio promulgated water quality pollutant

Ohio promulgated water quality pollutant trading rules in 2007 trading rules in 2007

• A 2004 survey published by Dartmouth

A 2004 survey published by Dartmouth College catalogues 45 existing water quality College catalogues 45 existing water quality trading initiatives and programs trading initiatives and programs

Water Quality Trading Issues Water Quality Trading Issues

• Drivers

Drivers

• NPDES permit requirements

NPDES permit requirements

• TMDL allocations & reserve capacity

TMDL allocations & reserve capacity

• Non

Non-

• degradation policies

degradation policies

• Baselines for credit generation

Baselines for credit generation

• High level of stewardship for credit generation vs. large load r

High level of stewardship for credit generation vs. large load reductions eductions and generation of low cost credits from marginal sources and generation of low cost credits from marginal sources

• Credit stacking

Credit stacking

• Can BMPs established for point source/non

Can BMPs established for point source/non-

• point source trading also

point source trading also generate carbon, wildlife habitat or wetland acreage credits for generate carbon, wildlife habitat or wetland acreage credits for sale in sale in

• ther markets?
• ther markets?
• Might allow land stewardship activities to crate greater monetar

Might allow land stewardship activities to crate greater monetary values y values

• Credit value and longevity

Credit value and longevity

• Trade ratios?

Trade ratios?

• Duration of credits?

Duration of credits?

• Monitoring

Monitoring

• Level of monitoring required to ensure program adequacy?

Level of monitoring required to ensure program adequacy?

• Monitoring funded through transaction costs?

Monitoring funded through transaction costs?

Water Quality Trading Water Quality Trading Market Structures Market Structures

• Bilateral trade agreements

Bilateral trade agreements

• Trade specific agreements

Trade specific agreements

• High transaction costs (research & negotiation)

High transaction costs (research & negotiation)

• Credit brokers/aggregators

Credit brokers/aggregators

• Watershed based “bankers”

Watershed based “bankers”

• Can secure back

Can secure back-

• up credits

up credits

• Can guarantee credit value

Can guarantee credit value

• Board of trade

Board of trade

• “Free market”

“Free market”

• Low transaction costs

Low transaction costs

• Oversight

Oversight

• Costs of regulatory interference?

Costs of regulatory interference?

• Is what is good for the markets necessarily good for water

Is what is good for the markets necessarily good for water quality? quality?

Water Quality Trading Rule Water Quality Trading Rule Development Goals Development Goals

• Simplicity

Simplicity

• Subject matter is complex but rule can and should be simple

Subject matter is complex but rule can and should be simple

• Unnecessary layers of complexity will inhibit success of trading

Unnecessary layers of complexity will inhibit success of trading markets markets

• Flexibility

Flexibility

• Need to design a system that will work for many different

Need to design a system that will work for many different pollutants, different types of sources, different watersheds pollutants, different types of sources, different watersheds

• Must retain sufficient flexibility for various types of situatio

Must retain sufficient flexibility for various types of situations ns

• Policy

Policy

• Planning for a broad set of variables

Planning for a broad set of variables

• Can’t predict the complexity of site specific technical details

Can’t predict the complexity of site specific technical details

• Should design a robust policy basis that can accommodate future

Should design a robust policy basis that can accommodate future needs and developing watershed science needs and developing watershed science

• Basis for technical decisions should operate in parallel to the

Basis for technical decisions should operate in parallel to the rule rule and be updated as necessary in the future and be updated as necessary in the future

Contact Information Contact Information

Marco Graziani Marco Graziani Municipal Division Municipal Division Minnesota Pollution Control Agency Minnesota Pollution Control Agency (651) 296 (651) 296-

• 8632 or 1

8632 or 1-

• (800) 657

(800) 657-

• 3864

3864 marco.graziani@pca.state.mn.us marco.graziani@pca.state.mn.us