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Pollutant Trading

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

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  1. Pollutant Trading Discussion 22 July 2003

  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 do other things No portion of this slide is intended to be truthful, tasteful or factual in any fashion

  3. 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?

  4. 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

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

  6. Policy Level Principles Necessary 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)

  7. Practical Conditions Necessary for Trading • 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

  8. Market Drivers for Trading in Idaho • TMDLs • NPDES permits are the only enforceable mechanisms • Antidegradation • Idaho State Legislature - no net increase statute for impaired waters

  9. 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

  10. Measured Credits 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

  11. 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

  12. Lower Boise River Watershed

  13. Mid Snake River

  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. • Mid Snake River example = 1lb to 1lb for the full river reach

  15. WWTPs 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

  16. Twin Falls WWTP River Mile 608.5 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

  17. 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 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

  18. Tools Available - The TMDL • 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

  19. Tools Available - The NPDES Permit • 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

  20. Tools Available - 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

  21. Tools Available - Trading RulesWater 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

  22. Tools Available - 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

  23. Elements of the Trading Framework: Building Blocks

  24. Point - Point Trade Process

  25. Point - Nonpoint Trade Process

  26. Conclusions • 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.

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