EPA guidance offers boost to water quality trading

February 14, 2019

On February 6, 2019, the Environmental Protection Agency issued a memorandum “Updating the Environmental Protection Agency’s (EPA) Water Quality Trading Policy to Promote Market-Based Mechanisms for Improving Water Quality.” The memorandum is intended to reaffirm EPA’s strong support for water quality trading and other market-based approaches to clean water, accelerate the adoption of and provide guidance on the use of market-based programs to reduce pollution, and promote increased investment in conservation actions. It follows a December joint letter from EPA and the U.S. Department of Agriculture (USDA) encouraging increased engagement and a reinvigoration of state, tribal, and federal efforts to reduce excess nutrients in waterways, with a focus on market-based and other collaborative pollutant reduction approaches.

As a participant in the National Network on Water Quality Trading (National Network), we’re encouraged to see EPA and USDA leadership on water quality trading and other market-based approaches to clean water. EPA’s recent memorandum is consistent with two of the findings of the National Network’s October 2018 report “Breaking Down Barriers: Priority Actions for Advancing Water Quality Trading,” which explored key barriers affecting demand for water quality trading and proposed a suite of actions that could overcome those barriers: 1) To reduce uncertainty around the current administration’s position on trading, the report proposed that EPA release a statement of support for trading under this, and each subsequent administration; 2) To simplify trading program design, the report recommends considering alternative partnership models that emphasize adaptive management and/or innovative finance.

EPA’s memorandum, which, according to agency staff, is on equal standing with EPA’s existing 2003 trading policy, clarifies the agency’s position and offers flexibility on a number of trading program design elements that were a source of uncertainty in the 2003 policy. Even with additional flexibility however, individuals and organizations that are building water quality trading programs will need to decide what will work best for their watershed and program objectives. The National Network’s definitive guide to trading “Building a Water Quality Trading Program: Options and Considerations” is a resource to those looking to interpret the memorandum. The report offers context, a range of options, considerations, and examples for each of the issues addressed by EPA and more. Readers can explore the approaches to drawing the boundaries of their trading area (Sec 2.3), identifying methods to quantify pollutant reductions (Sec.4), the role of third party verification (Sec. 8), banking credits for future use (Sec. 6.1), setting baseline requirements (Sec 3.2), allowing projects to generate credits in multiple markets (Sec 3.2.7), and improving the program adaptively over time (Sec.10). The “Water Quality Trading Toolkit” is a companion to the Options and Considerations guide, offering templates for state and regional regulatory agencies to document their own trading framework.

The National Network on Water Quality Trading is a dialogue among diverse organizations representing agriculture, wastewater utilities, environmental groups, regulatory agencies, and the practitioners delivering water quality trading programs. The National Network’s collaborative efforts seek to improve consistency, innovation, and integrity in water quality trading.