pollutant trading discussion 22 july 2003. why allow trading? §to make point sources pay §to lure...
TRANSCRIPT
Pollutant Trading
Discussion
22 July 2003
Why Allow Trading?
To make point sources payTo lure nonpoint sources into doing pollution
control so we can enforce on themTo increase the size of DEQTo allow discharges a mask to hide behind so
they can pollute moreTo distract EPA while we do other things
No portion of this slide is intended to be truthful, tasteful or factual in any fashion
•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?
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 slideYou are you changing the relationship between
stakeholders
Trading should allow us to distribute a scarce commodity (money) to protect a scarce resource (assimilative capacity) in the most efficient way possible
Policy Level Principles Necessary for Trading
Enforceability (for point sources of course)Full environmental protectionCertainty for stakeholders without expanding
EPA or DEQ authoritiesVisibilityRobust participation (getting government out of
day to day trading)
Practical Conditions Necessary for Trading
Market Driver regulatory requirement sets limit on effluent discharges
Definable commodity and market areaCost 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
Market Drivers for Trading in Idaho
TMDLs• NPDES permits are the only enforceable mechanisms
AntidegradationIdaho State Legislature - no net increase statute
for impaired waters
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
Defining the Marketable Commodity
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
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
Lower Boise River Watershed
Mid Snake River
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
Boise River Demonstration Project Cost Differential
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
Mid Snake River Example, Cost Differential
Twin Falls WWTP River Mile 608.5May have upto 325 lbs per day for 9 critical monthsCost of $25/lb per dayClear Springs at River Mile 600.7Would like to buy 40 lbs per day Cost of control is very unstable based on feed
ingredients (strategy is low ash fish food)
Cost Differential Example
Participant ALimit 100 lbs/day
Actual 200 lbs/day
Cost $100 lb/yr
BenefitCost w/o trading $10,000
Willing to pay $50 lb/yr
Cost w/trading $5,000
Participant BLimit 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)
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
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
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
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
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
Elements of the Trading Framework: Building Blocks
PermitMechanisms
Authorization & Limits on
Trading
Trade Execution & Tracking
TradingRules
NPS Credit
Mechanisms
Water Quality
Protection
TMDLMechanisms
Point - Point Trade Process
PSs Identify Trading Partners
PSs Negotiate
Private Contract
Trade Notification
Form Recorded
Seller's Location
Ratio Determines
"Parma Pounds"
DMRs and Trade
SummariesSubmitted
Credit Transferred
Buyer Limit Increases
Seller LimitDecreases
Point - Nonpoint Trade Process
PS & NPS Identify Trading
Partners
PS & NPS Negotiate Private
Contract
Determine Transferable
Credits
PS Submits DMR & Trade Summaries
BMP Constructed, Inspected, & Monitoring
Begins
Measured:monitoring &
ratios determine
credits
Calculated:credit
calculation & ratios
determine credits
Transfer Credit
Submit Trade Notification
Form
Buyer Limit Increases
Seller Account Decreases
Verify Reductions
Submit Reduction
CreditCertificate
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.