MARKET-BASED WATER-QUALITY PROGRAMS

[ History ] [ Case Studies of Past and Current Programs ]

Since the early 1980s, the U.S. Environmental Protection Agency (EPA) has been planning new and innovative schemes to manage and reduce non-point-source pollution, including trading programs. The Water Quality Act of 1987 required States to assess non-point-source pollution and develop plans for managing it. In 1990, the Coastal Zone Act Reauthorization Amendments (CZARA) required coastal States to develop non-source-point programs that could include land use management and agricultural best-management practices that reduce loadings (16 U.S.C. §§ 1455 (d) (16), 1455b).


Water-quality trading between point (for example, industrial facilities) and nonpoint sources (for example, agricultural farms) is an alternative water quality policy that may help meet water quality standards more cost-effectively [U.S. Environmental Protection Agency Web site (URL http://www.epa.gov/OWOW/watershed/trading.htm)]

The EPA issued a broader Policy Statement on Effluent Trading in Watersheds (2003), establishing a more clearly defined role for water regulation. The EPA supports and encourages

water-quality-trading programs for many reasons: reducing the cost of compliance with water-quality-based requirements, offsetting urban growth (more wastewater discharge), achieving early reductions and progress toward water-quality standards pending the development of such standards, and establishing economic incentives for voluntary reductions (EPA, 2002). Under the EPA’s proposed policy, to create pollution credits for trade or offset, point sources must reduce pollution levels beyond the level of the most stringent technology requirements.

The EPA’s proposed rules for implementing the TMDL program (1998) will have important implications for water-quality trading. A TMDL implies that both point-source and non-point-source contributors must share the responsibility for meeting target levels. The question then becomes, what is the best policy instrument to meet these standards; for example, discharge standards, discharge fees, tradable permits, or offsets (Ortolano, 1997)? Previous environmental regulatory policies have focused on controlling the output of pollutants from each source separately without explicitly addressing outcomes in final overall watershed quality or varying control costs (Boyd, 2000). Individual permits were issued without taking a holistic overview of a watershed. Currently, policymakers and regulators are focusing more on environmental and economic objectives, while giving flexibility to dischargers to find ways to achieve public goals.

Watershed-based trading may provide a tool for sources to meet the stringent limits expected to result from TMDL development. These analyses supporting TMDL development estimate non-point-source and point-source contributions to each watershed through data collection, expert judgment, and water quality modeling (Borsuk et al., 2002). After a TMDL identifies the contributions from each source, the total amount of pollution that can be discharged to the water body is set, and allowable discharges are allocated to individual pollution sources. Then, dischargers are free to develop a “market” to meet their discharger-permit requirements.

Additional Resources:
EPA Water-Quality Trading Handbook