Water Quality Trading
Water quality trading – sometimes called pollutant trading – is a market
concept to help achieve water quality goals. Trading relies on the fact that
many different facilities and activities – such as businesses and industries,
wastewater treatment facilities, urban stormwater systems, and agricultural
sites may discharge the same pollutant into a water body, yet each may face
substantially different costs to control that pollutant.
The use of trading allows pollution reduction activities to be assigned a
water quality improvement value in the form of credits. These credits can then
be traded in a local market to achieve cost-effective water quality
improvements. The objective of a water quality trading program is to facilitate
economic exchanges that demonstrably reduce pollution and clean up polluted
surface waters more quickly.
While no water quality trades have yet occurred in Washington State, the
Department of Ecology produced a draft water quality trading
framework in 2010. Ecology also produced a
response to comments on the draft framework.
It is Ecology’s intent that all proposed water quality trading programs
follow the requirements of the trading framework in order to achieve compliance
with NPDES permits. Although our state’s trading framework is in effect, Ecology
considers it to be a draft at this time because we intend to modify it once we
have established an actual trading program for a Washington watershed. The
framework was initially produced because there was a potential for establishing
a trading program in the Spokane River watershed to meet the TMDL wasteload
allocations for phosphorus in the Spokane River Dissolved Oxygen TMDL.
How trading works
The simplest form of trading would involve two point sources. Both
discharge the same pollutant, but because of the process used by one, it is able
to control its discharge much more easily and cheaply than the other. The
amount the first discharger is able to “over control” its discharge can be sold
as credits to the second discharger.
As an example, if it is cheaper for Plant A to reduce phosphorus in its
discharge than it is for Plant B, then Plant B can pay Plant A to reduce its
phosphorus to meet both its own and Plant B’s reduction requirements.
Many other flexible permitting approaches are also described as trading, but
do not necessarily involve a market or even actual trades. For instance,
some trading programs are actually using a group compliance approach, in which a
group of dischargers has both a single cumulative effluent limit and individual
limits. Other programs use a watershed-based permit to apply a cumulative
limit for all sources.
All of these approaches represent potentially flexible and cost-effective
ways of meeting water quality goals, and could be considered based on local
conditions. However, the choice of a specific method to meet an effluent
limit is up to the point source discharger, and may include technological
solutions as well as flexible permit options.
Lack of buyers stalling trading in Washington
In recent years, several groups expressed an interest in developing trading
programs in various watersheds in Washington. Most of these ideas involved
having point sources pay for nonpoint improvements, and most of the groups
proposing these programs were potential sellers, not buyers.
During the 2013/2014 legislative session
House Bill 2454 directed the state Conservation Commission, in partnership
with Ecology, to explore whether there are a sufficient number of potential
buyers and sellers for a water quality trading program to be successful in
watersheds where total maximum daily loads
have been established. The project must be conducted in coordination with
other interested entities, and the final report must be delivered to the
Legislature by October 31, 2017.
is an interested point source buyer in a Washington watershed, no trading will
If you’d like to read more about water quality trading, here are a few
Focus on Water Quality Trading (Ecology publication)
Quality Trading website
EPA’s Water Quality Trading Evaluation
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Last updated March 2016