AbstractAbstract AbstractAbstract

Trading Framework Option 2: SchematicTrading Framework Option 2: SchematicTrading Framework Option 2: SchematicTrading Framework Option 2: Schematic

Economic ModelingEconomic ModelingEconomic ModelingEconomic Modeling

Need for Water Quality TradingNeed for Water Quality TradingNeed for Water Quality TradingNeed for Water Quality Trading

ReferencesReferences

Phosphorus loading from point and nonpoint sources within the Non-Tidal Phosphorus loading from point and nonpoint sources within the Non-Tidal Passaic River Basin must be addressed to restore its water quality. Excess Passaic River Basin must be addressed to restore its water quality. Excess phosphorus in freshwater bodies can cause eutrophic conditions, e.g. algal phosphorus in freshwater bodies can cause eutrophic conditions, e.g. algal blooms, depleted oxygen levels, and even fish kills.blooms, depleted oxygen levels, and even fish kills.

A TMDL for phosphorus is being developed for the non-tidal Passaic River A TMDL for phosphorus is being developed for the non-tidal Passaic River Basin due to exceedances of NJ’s water quality criteria for TP (0.1 mg/l in Basin due to exceedances of NJ’s water quality criteria for TP (0.1 mg/l in freshwater streams; 0.05 mg/l in lakes). freshwater streams; 0.05 mg/l in lakes).

The TMDL will establish waste load allocations for phosphorus in the The TMDL will establish waste load allocations for phosphorus in the watershed. It is likely that all point sources will be required to reduce watershed. It is likely that all point sources will be required to reduce phosphorus loading to the Passaic River. Upgrading each WWTP to meet its phosphorus loading to the Passaic River. Upgrading each WWTP to meet its TMDL allocation will be TMDL allocation will be very costlyvery costly..

Water quality trading is based on the premise that sources in a watershed can Water quality trading is based on the premise that sources in a watershed can face very different costs to control the same pollutant.face very different costs to control the same pollutant. A trading program allots A trading program allots a certain number of pollution credits to each source in the watershed. The a certain number of pollution credits to each source in the watershed. The sources can either discharge under their limit and sell their credits, or discharge sources can either discharge under their limit and sell their credits, or discharge over their limit and purchase credits. The net effect will be to improve water over their limit and purchase credits. The net effect will be to improve water quality in the watershed at a lower cost than making each individual pollutant quality in the watershed at a lower cost than making each individual pollutant source upgrade effluent treatment to meet its discharge limit. source upgrade effluent treatment to meet its discharge limit.

The Passaic situation is ideal for a water quality trading program:The Passaic situation is ideal for a water quality trading program:

Presence of a market driver - stringent TP criteriaPresence of a market driver - stringent TP criteria

Presence of a TMDL - TMDL allocations provide a cap, and can be used to Presence of a TMDL - TMDL allocations provide a cap, and can be used to identify potential trading opportunities within the watershedidentify potential trading opportunities within the watershed

High quantity of point sources and potential program participants: 24 High quantity of point sources and potential program participants: 24 WWTPs and 89 municipal separate storm sewer systems (MS4s).WWTPs and 89 municipal separate storm sewer systems (MS4s).

Christopher Obropta, Ph.D., P.E., and Josef Kardos, Department of Environmental Sciences, Rutgers UniversityChristopher Obropta, Ph.D., P.E., and Josef Kardos, Department of Environmental Sciences, Rutgers Universitywww.water.rutgers.edu/Projects/trading/Passaicwww.water.rutgers.edu/Projects/trading/Passaic

Ramanessin Brook, 2003

Trading and Water Quality “Hot Spots”: Trading and Water Quality “Hot Spots”: Concerns and Solutions Concerns and SolutionsTrading and Water Quality “Hot Spots”: Trading and Water Quality “Hot Spots”: Concerns and Solutions Concerns and Solutions

Holmdel Park, 2003

Cornell University team developed economic model to identify trading scheme that can best Cornell University team developed economic model to identify trading scheme that can best minimize treatment costs (Sado, 2006).minimize treatment costs (Sado, 2006).Model uniquely includes marginal abatement costs Model uniquely includes marginal abatement costs and and incremental capital costsincremental capital costsConsidered multiple scenarios based on potential TMDL allocations and trading zones Considered multiple scenarios based on potential TMDL allocations and trading zones Key Findings:Key Findings:

Sufficient incentives for limited but important multi-year bilateral or trilateral dealsSufficient incentives for limited but important multi-year bilateral or trilateral deals

A phased in TMDL cap will reduce costs of TMDL implementation because it allows A phased in TMDL cap will reduce costs of TMDL implementation because it allows flexibility in the timing of capital investmentsflexibility in the timing of capital investments

New Jersey New Jersey Department of Environmental Protection (NJDEP) Department of Environmental Protection (NJDEP) 2005a. New Jersey 2004 Integrated Water Quality Monitoring 2005a. New Jersey 2004 Integrated Water Quality Monitoring and Assessment Report (305(b) and 303(d)). Water Assessment and Assessment Report (305(b) and 303(d)). Water Assessment Team, Trenton, New Jersey.Team, Trenton, New Jersey.

New Jersey New Jersey Department of Environmental Protection (NJDEP) Department of Environmental Protection (NJDEP) 2005b. Amendment to the Northeast, Upper Raritan, Sussex 2005b. Amendment to the Northeast, Upper Raritan, Sussex County and Upper Delaware Water Quality Management Plans: County and Upper Delaware Water Quality Management Plans: Phase I Passaic River Study, Total Maximum Daily Load for Phase I Passaic River Study, Total Maximum Daily Load for Phosphorus in Wanaque Reservoir, Northeast Water Region. Phosphorus in Wanaque Reservoir, Northeast Water Region. Division of Watershed Management, Trenton, New Jersey.Division of Watershed Management, Trenton, New Jersey.

Sado, Y., 2006. Potential Cost Savings from Discharge Permit Sado, Y., 2006. Potential Cost Savings from Discharge Permit Trading to Meet TMDLs for Phosphorus in the Passaic River Trading to Meet TMDLs for Phosphorus in the Passaic River Watershed. Master’s Thesis, Cornell University, Ithaca, New Watershed. Master’s Thesis, Cornell University, Ithaca, New York.York.

IntroductionIntroduction IntroductionIntroductionThe non-tidal portion of the Passaic River Basin encompasses 2080 kmThe non-tidal portion of the Passaic River Basin encompasses 2080 km22, with , with 1733 km1733 km22 of the watershed in New Jersey (NJ) and the remainder in New York. of the watershed in New Jersey (NJ) and the remainder in New York.

23 reservoirs, which provide potable water to 25% of NJ residents (i.e., 2 million 23 reservoirs, which provide potable water to 25% of NJ residents (i.e., 2 million people), are located within the Non-Tidal Passaic River Basin. people), are located within the Non-Tidal Passaic River Basin.

Includes the Wanaque Reservoir, the largest potable water source in NJ Includes the Wanaque Reservoir, the largest potable water source in NJ (capacity: 138.5 billion liters)(capacity: 138.5 billion liters)

Surface water quality standards for nutrients, dissolved oxygen, pH, temperature, Surface water quality standards for nutrients, dissolved oxygen, pH, temperature, pathogens, metals and pesticides are often exceeded in the watershed. pathogens, metals and pesticides are often exceeded in the watershed.

Over 320 stream km are impaired due to total phosphorus (TP) concentrations Over 320 stream km are impaired due to total phosphorus (TP) concentrations in exceedance of 0.1 mg/l (NJDEP, 2005a).in exceedance of 0.1 mg/l (NJDEP, 2005a).

There are 19 wastewater treatment plants within the watershed that are each There are 19 wastewater treatment plants within the watershed that are each permitted to discharge more than 3.8 million liters per day of treated effluent. permitted to discharge more than 3.8 million liters per day of treated effluent. These treatment plants contribute the majority of the phosphorus load to the These treatment plants contribute the majority of the phosphorus load to the watershed watershed (NJDEP, 2005b).(NJDEP, 2005b).

The New Jersey Department of Environmental Protection (NJDEP) is developing The New Jersey Department of Environmental Protection (NJDEP) is developing a Total Maximum Daily Load (TMDL) which will set phosphorus load a Total Maximum Daily Load (TMDL) which will set phosphorus load allocations for point and nonpoint sources in the Non-Tidal Passaic River Basin allocations for point and nonpoint sources in the Non-Tidal Passaic River Basin (area: 1733 km(area: 1733 km22). The most immediate impacts will fall on 24 of the largest ). The most immediate impacts will fall on 24 of the largest wastewater treatment plants (WWTPs) in the basin. Most WWTPs will likely wastewater treatment plants (WWTPs) in the basin. Most WWTPs will likely have to significantly reduce phosphorus effluent concentrations at great expense have to significantly reduce phosphorus effluent concentrations at great expense to meet anticipated TMDL waste load allocations. to meet anticipated TMDL waste load allocations.

Water quality trading is a market-based mechanism to increase the cost-Water quality trading is a market-based mechanism to increase the cost-effectiveness of TMDL implementation. A multi-disciplinary team of Rutgers effectiveness of TMDL implementation. A multi-disciplinary team of Rutgers University and Cornell University faculty, with expertise in water quality University and Cornell University faculty, with expertise in water quality modeling, wastewater treatment, environmental policy and environmental modeling, wastewater treatment, environmental policy and environmental economics, are working together with USEPA, NJDEP, local municipalities and economics, are working together with USEPA, NJDEP, local municipalities and WWTPs, and environmental non-governmental organizations (NGOs) to design, WWTPs, and environmental non-governmental organizations (NGOs) to design, implement, and evaluate a phosphorus trading program for the Non-Tidal Passaic implement, and evaluate a phosphorus trading program for the Non-Tidal Passaic River Basin. Results from the project design phase are presented. The River Basin. Results from the project design phase are presented. The development of a trading framework that addresses trading ratios, trading development of a trading framework that addresses trading ratios, trading boundaries, and the avoidance of pollution “hot spots” are discussed. The results boundaries, and the avoidance of pollution “hot spots” are discussed. The results from economic modeling of simulated trades are also reviewed. from economic modeling of simulated trades are also reviewed.

Each management area (M.A.) is bounded by a TMDL endpoint. The endpoint is the only potential hot Each management area (M.A.) is bounded by a TMDL endpoint. The endpoint is the only potential hot spot in the management area. spot in the management area.

Within each management area, bidirectional trading is allowed; sellers can be downstream of buyers and Within each management area, bidirectional trading is allowed; sellers can be downstream of buyers and vice versa.vice versa.

Inter-management area trading:Inter-management area trading:

Upper Passaic M.A. can sell to Lower Passaic M.A. Upper Passaic M.A. can sell to Lower Passaic M.A.

Pompton M.A. can sell to Upper and Lower Passaic M.A.’sPompton M.A. can sell to Upper and Lower Passaic M.A.’s

Trades that create “hot spots” – localized areas of unacceptably high pollutant levels – must be avoided. Trades that create “hot spots” – localized areas of unacceptably high pollutant levels – must be avoided.

In trading, because the buyer is exceeding its allocation, pollutant levels will increase downstream of the In trading, because the buyer is exceeding its allocation, pollutant levels will increase downstream of the buyer. buyer.

How does the project ensure that hot spots will not develop downstream of buyers?How does the project ensure that hot spots will not develop downstream of buyers?

1.1. Trading ratiosTrading ratios are applied to each transaction to account for fate and transport effects. Ratios are are applied to each transaction to account for fate and transport effects. Ratios are calculated by comparing TP attenuation from each point source relative to downstream locations. In calculated by comparing TP attenuation from each point source relative to downstream locations. In Figure 1, TP summer attenuation coefficients at Dundee Lake (PA-11) are 60% and 50% from Upper Figure 1, TP summer attenuation coefficients at Dundee Lake (PA-11) are 60% and 50% from Upper Passaic Zone 1 and Troy Hill Zone, respectively. Therefore, the trading ratio is 0.5/0.6 = 0.83 (if seller is Passaic Zone 1 and Troy Hill Zone, respectively. Therefore, the trading ratio is 0.5/0.6 = 0.83 (if seller is upstream). If the buyer needs 500 kg of credits, the seller must generate 600 kg of credits to satisfy the upstream). If the buyer needs 500 kg of credits, the seller must generate 600 kg of credits to satisfy the ratio. A table of trading ratios has been calculated for all WWTPs in the watershed. ratio. A table of trading ratios has been calculated for all WWTPs in the watershed.

Figure 1: Phosphorus attenuation from two point source zones in the watershedFigure 1: Phosphorus attenuation from two point source zones in the watershed

2.2. Trades are restrictedTrades are restricted and conducted within a framework that prevents the creation of trading hot spots. and conducted within a framework that prevents the creation of trading hot spots.

Trading Framework Option 1Trading Framework Option 1: : No trading across tributariesNo trading across tributaries

Aims to protect all reaches; assumes excessive TP anywhere is a water quality concernAims to protect all reaches; assumes excessive TP anywhere is a water quality concern

Trading boundaries: Seller must be upstream of buyerTrading boundaries: Seller must be upstream of buyer

Simple to implement; less opportunities to trade; most conservative water quality protection Simple to implement; less opportunities to trade; most conservative water quality protection strategystrategy

Trading Framework Option 2Trading Framework Option 2: : Management Area approachManagement Area approachAims to protect TMDL endpoints; assumes excessive TP is only a water quality concern at the endpoints Aims to protect TMDL endpoints; assumes excessive TP is only a water quality concern at the endpoints (Dundee Lake and Wanaque Reservoir)(Dundee Lake and Wanaque Reservoir)Trading boundaries: Group WWTPs into “management areas”. Trading boundaries: Group WWTPs into “management areas”. See Figure 2.See Figure 2.More opportunities to trade; slightly more complex to implement; sampling and modeling studies More opportunities to trade; slightly more complex to implement; sampling and modeling studies indicate this approach correctly identifies potential hot spots and would protect water quality.indicate this approach correctly identifies potential hot spots and would protect water quality.

Wanaque Wanaque ReservoirReservoir

Dundee Dundee LakeLake

Upper Passaic M.A.: Upper Passaic M.A.: 16 WWTPs 16 WWTPs

Wanaque South Wanaque South intake endpointintake endpoint

Management Management Area boundaryArea boundary

EndpointEndpoint

River / tributaryRiver / tributary

LegendLegend

Lower Passaic Lower Passaic M.A.: 3 WWTPsM.A.: 3 WWTPs

Dundee Dundee Lake Lake

endpointendpoint

Pompton M.A.: Pompton M.A.: 3 WWTPs3 WWTPs

Figure 2: Schematic of management areasFigure 2: Schematic of management areas

Zone Attenuation Coefficient - Passaic Zone 1

0.00

0.10

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0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

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Annual Attenuation

Summer AttenuationZone Attenuation Coefficient - TroyHill Zone

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Reference Location

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Annual Attenuation

Summer Attenuation

ConclusionsConclusionsConclusionsConclusionsWater quality trading has potential to reduce aggregate discharge of total phosphorus from Water quality trading has potential to reduce aggregate discharge of total phosphorus from wastewater treatment plants in the Non-Tidal Passaic River Basin, in turn decreasing the wastewater treatment plants in the Non-Tidal Passaic River Basin, in turn decreasing the frequency and severity of algal blooms in the watershed.frequency and severity of algal blooms in the watershed.Hot spot issues will be avoided through application of trading ratios; careful selection of a Hot spot issues will be avoided through application of trading ratios; careful selection of a trading framework will ensure that trades protect and improve water qualitytrading framework will ensure that trades protect and improve water qualityEconomic modeling indicates that although market size is limited, important multi-year Economic modeling indicates that although market size is limited, important multi-year bilateral or trilateral deals can be achieved which will reduce costs of TMDL bilateral or trilateral deals can be achieved which will reduce costs of TMDL implementation for parties involved. A phased in TMDL cap will enhance trading through implementation for parties involved. A phased in TMDL cap will enhance trading through increased flexibility in timing of capital investments.increased flexibility in timing of capital investments.Upon release of official TMDL allocations, various trading scenarios will be simulated and Upon release of official TMDL allocations, various trading scenarios will be simulated and evaluated from a water quality and economic standpoint. evaluated from a water quality and economic standpoint. A monitoring strategy is in development to study the effects of actual trades and facilitate A monitoring strategy is in development to study the effects of actual trades and facilitate adaptive management.adaptive management.

AcknowledgmentsAcknowledgments

The authors wish to acknowledge Dr. Richard The authors wish to acknowledge Dr. Richard Boisvert, Dr. William Goldfarb, Dr. Greg Poe, Dr. Boisvert, Dr. William Goldfarb, Dr. Greg Poe, Dr. Peter Strom, Dr. Christopher Uchrin, Mehran Niazi, Peter Strom, Dr. Christopher Uchrin, Mehran Niazi, Yukako Sado, USEPA, NJDEP, the Passaic River Yukako Sado, USEPA, NJDEP, the Passaic River Basin Alliance, and TRC Omni Environmental Corp. Basin Alliance, and TRC Omni Environmental Corp. for their involvement in this multidisciplinary for their involvement in this multidisciplinary research effort. The research was supported by a research effort. The research was supported by a USEPA Targeted Watershed Grant. USEPA Targeted Watershed Grant.

Figure 3: Figure 3: Wastewater Wastewater

treatment plants treatment plants in the in the Non-Tidal Non-Tidal

Passaic River Passaic River BasinBasin

Watershed figures:Watershed figures:

1733 km1733 km22 area area

Approximately 2 Approximately 2 million peoplemillion people

Predominantly Predominantly forest (42%), forest (42%),

urban (40%) and urban (40%) and wetlands (12%) wetlands (12%) land use / land land use / land

covercover

23 reservoirs 23 reservoirs including NJ’s including NJ’s

largest – largest – Wanaque Wanaque ReservoirReservoir