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EPA Advances Policy Work on Water Quality Trading

Nov 20, 2020

(November 20, 2020) – Market-based approaches like water quality trading have been a priority for the current political leadership of EPA’s Office of Water since day one, but other issues have diverted their attention from taking any significant action. With a recent white paper and an anticipated policy statement in the coming weeks, EPA appears to be tying up some loose ends before Inauguration Day.

The Trump Administration first laid out its vision for a modernized approach to market-based programs in a February 2019 memorandum, Updating the Environmental Protection Agency’s (EPA) Water Quality Trading Policy to Promote Market-Based Mechanisms for Improving Water Quality, and had intended to take a number of actions to build on the concepts outlined in the memo.  

The first concrete action EPA took was issuing a Federal Register notice on September 19, 2019 that sought comment on a number of trading-related items, but was focused on the issue of baselines. Then, just a few weeks ago in early November, EPA sent a white paper entitled Water Quality Trading on a Watershed Scale to the state water regulators.

The paper builds on the first of six market-based principles that EPA laid out in its February 2019 memorandum, that states, tribes, and stakeholders should consider implementing water quality trading and other market-based programs on a watershed scale. By looking at a larger watershed scale, EPA hopes to facilitate greater market opportunities and participation. The new white paper provides guidance to states on selecting the right scale for a particular program.

In addition to the white paper, EPA is expected to announce some policy changes in the coming weeks related to the concepts outlined in the 2019 Federal Register notice. In the notice, EPA sought comment on whether nonpoint sources could generate credits before they met their baseline reductions if the actions they took were above and beyond the actions that would be needed to meet their baseline.

Currently, nonpoint sources must implement practices and controls to meet their baseline pollution reductions before generating a credit, which EPA believes has stymied greater market participation. NACWA’s comments raised questions about some aspects of the notice, but supported EPA’s suggested approach on baselines. It is not clear which elements of the 2019 notice will be addressed in the forthcoming policy statement.

NACWA will provide additional details on any new trading policies as they become available. Members with questions can contact Chris Hornback, NACWA’s Deputy CEO. 

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