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3.3.4. Effluent Trading Programs

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Savings from Economic Incentives

Until very recently, water effluent trading in the United States was confined to five separate programs. Certain plants in the iron and steel industry are allowed to treat discharges from different points within the facility as if they originated at a single point, a so-called "water effluent bubble". Wisconsin has a program that allows trading of effluent discharge credits between point sources and savings from this program should be credited to point source programs. Three water effluent trading programs are designed to gain efficiencies in controlling nutrient discharges among point and nonpoint sources: Dillon and Cherry Creek Reservoirs in Colorado and the Tar-Pamlico Basin in North Carolina. In a recent policy statement, the EPA proposed expanding significantly the scope of water point-nonpoint effluent trading to include many more water bodies.

Effluent Bubble

In concept, a water effluent bubble operates identically to the air emission bubble described earlier. A facility with multiple discharge points is wrapped in an imaginary bubble, with a facility-wide discharge limit rather than separate limits at the individual points of discharge. In contrast to the 100-some bubbles approved under the air emission trading program, only a handful of facilities within the iron and steel industry have received the authority to bubble effluents. The historical development of that program is described below.

It should be noted at the outset that opportunities to apply effluent bubbles outside the steel industry are very limited. When asked by EPA to evaluate the potential for water effluent bubbling, a contractor ventured in 1981 that bubbling would not produce cost savings for most industrial facilities.Putnam, Hayes & Bartlett, Inc., 1981. The reasons include the fact that most industrial facilities already have centralized wastewater treatment plants with a single point of discharge, trades between outfalls may be circumscribed due to water quality concerns, and some facilities already operated under permits that allowed all technologically feasible tradeoffs to be made.

Despite the acknowledged limitations, a subsequent study identified 4 plants in the iron and steel industry that potentially would benefit from water bubbling as they went from BPT (best practicable control technology currently available) to BAT (best available technology economically achievable). Temple, Barker and Sloane, 1981. The iron and steel industry offered what might be unique opportunities for bubbling inasmuch as many plants had yet to consolidate their water treatment at a single processing facility. The projected savings from effluent bubbles were modest as a percent of control costs, though, as shown in the table below.

EPA's implementation of the effluent bubble for the iron and steel industry was dictated by a 1983 settlement agreement among the EPA, the Natural Resources Defense Council, and the American Iron and Steel Institute. The agreement supports the use of bubbling under the Clean Water Act, but imposes constraints on the approach. Bubbling of effluents from iron and steel plants is acceptable provided that net reductions are achieved in total effluents. Relative to BAT limits that are in effect, bubbling must involve an average reduction of at least 15 percent in the mass of suspended solids and 10 percent in the mass of other pollutants. The NRDC reserved the right to challenge bubbles that might be proposed for other industries.

Since the bubble became available to the industry, 7 iron and steel plants in the midwest have used the provision. Industrial Economics. Three of the mills no longer use the bubble: one facility closed and two have changed ownership, a cause for termination of bubbling rights. The steel effluent bubble undoubtedly has produced some compliance cost savings for the industry, but according to a former EPA employee who is now a consultant to the industry the bubble has not resulted in any pollution control innovations. (Gary Amendola, cited in Industrial Economics memorandum).
Projected Cost Savings from Effluent Bubble
(in thousands of 1978 dollars)
One-Time Savings in Capital Costs
Percent of BAT Capital
Savings in O&M Costs
Percent of Annual BAT
O&M Costs
    Republic Steel,
    Republic Steel, Warren
    U.S. Steel,
    Wheeling Pittsburgh, Steubenville
source: Temple, Barker and Sloane

Effluent Trading (point-point)

Effluent trading dates to the early 1980s, when the State of Wisconsin created a State-wide program to give sources such as wastewater treatment plants and pulp and paper mills added flexibility to meet state water quality standards through the trading of effluent rights. The first and only application of this authority is on the heavily industrialized lower Fox River.

Analysis showed that the potential from trading was significant: $7 million annually or roughly one-half of anticipated compliance costs for BOD (biological oxygen demand) regulations. O'Neil. The program that was implemented allows trading between point sources of rights to discharge wastes that increase BOD. Sources that control more than required under their discharge permit may sell those incremental right to sources that control less than is required. Strict conditions are imposed on would-be buyers of rights: trading of rights is allowed only if the buyer is a new facility, is increasing production, or is unable to meet required discharge limits despite optimal operation of its treatment facilities. Traded rights must have a life of at least one year, but may not run past the expiration date of the seller's discharge permit, at most a five year period. Since effluent discharge limits may change with each permit renewal, there can be no guarantee that rights that were traded in during one permit period would be available during subsequent permit periods.

The State initiated BOD trading programs on two rivers: a 35-mile stretch of the Fox River and 500 miles of the Wisconsin River. For administrative reasons, the Fox River was divided into three segments, the Wisconsin River 5 segments. The Fox River program includes 21 parties: five mills and two towns in each of the three administrative segments. Twenty-six parties are included in the Wisconsin River program. To date, trading under these programs has been disappointing, involving a single trade on the Fox River between a municipal wastewater plant and a paper mill. In return for a cash payment, the paper mill was able to close its wastewater treatment facility and send its effluent to the wastewater treatment plant. One reason for the limited activity is that dischargers developed a variety of compliance alternatives not contemplated when the regulations were drafted. Second, there were and remain questions about the vulnerability of the program to legal challenge, since the Clean Water Act does not explicitly authorize trading and the standards set by the State do not conform fully to the national policy of uniformity established in the CWA. Finally, as noted above, the State imposed severe restrictions on the ability of sources to trade.

Currently, the EPA is investigating the feasibility of extending point-point trading to San Francisco Bay, where copper discharges would be traded, and Tampa Bay, where nitrogen and suspended solids would be traded. "Effluent Trading in Watersheds Policy Statement"

EFFLUENT TRADING (point-nonpoint)

Three programs allow the trading of nutrient discharges between point and nonpoint sources: Dillon Reservoir, Cherry Creek Reservoir, and the Tar-Pamlico Basin. These programs are discussed in turn.

Dillon Reservoir

Dillon Reservoir, which supplies Denver with more than one-half of its water supply, is situated in the midst of a popular recreational area. Four municipal wastewater treatment plants discharge into the reservoir: the Frisco Sanitation District, Copper Mountain, the Breckenridge Sanitation District, and the Snake River treatment plant of the Keystone area.

Due to concerns that future population growth in the region could lead to eutrophic conditions in Dillon Reservoir, as well as the discovery that Copper Mountain was exceeding its discharge limits, EPA launched a study of the Dillon Reservoir in 1982 under its Clean Lakes program. The study indicated that phosphorus discharges would have to be reduced to maintain water quality and accommodate future growth. Point source controls alone were unlikely to be sufficient; runoff from lawns and streets and seepage from septic tanks also would have to be reduced.

A coalition of government and private interests developed a plan to reduce phosphorus releases to the reservoir. The plan established a cap on total phosphorus loadings, allocated loadings to the four wastewater treatment plants, and provided for the first-ever trading of phosphorus loadings with nonpoint sources.

The plan relies on 1982 phosphorus discharges as the baseline; that year represented a near worst-case scenario due to high rainfall and water levels that led to high nonpoint loadings. Discharges from new nonpoint sources are restricted through regulations requiring developers to show a 50 percent reduction from pre-1984 norms. The plan established a trading ratio of 2:1, whereby point sources that are above their allocation must obtain credits for twice the amount of the excess from sources that are below their allocation. New nonpoint sources must offset all of their discharges using a trading ratio of 1:1 with existing nonpoint sources. The system would be monitored through existing NPDES permits for point sources.

Trading has been very slow. Not only has the region experienced a recession for a number of years limiting population growth but the wastewater treatment plants have found cheaper means of controlling phosphorus than were previously envisioned. In the future, though, opportunities for further control at the wastewater treatment plants are thought to be limited and population growth is once again evident, leading to the conclusion that more trading activity is likely.

Cherry Creek

Like the Dillon Reservoir, Cherry Creek Reservoir also is a source of water for the Denver region and an important recreation area. The Denver Regional Council of Governments established an effluent trading program for Cherry Creek very similar to that at Dillon. One difference is that trading at Cherry Creek has been nonexistent to date, reflecting the fact that phosphorus loadings at municipal wastewater treatment facilities remain below limits set by the Colorado Water Quality Commission.

Tar-Pamlico Basin

The North Carolina Environmental Management Commission designated the Tar Pamlico Basin as nutrient sensitive waters in 1989, in response to findings that algae blooms and low dissolved oxygen threatened fisheries in the estuary. North Carolina law requires that upon designating an area as nutrient sensitive, the Division of Environmental Management (DEM) must identify the nutrient sources, set nutrient limitation objectives, and develop a nutrient control plan.

DEM prepared analysis showing that most of the nutrient loadings (nitrogen as the limiting factor but also phosphorus) came from nonpoint sources, principally agricultural runoff. Other identified sources included municipal wastewater treatment plants and industrial and mining operations. DEM proposed a solution to control both nitrogen and phosphorus discharges from wastewater treatment plants: nitrogen at 4 mg/l in the summer and 8 mg/l in the winter; phosphorus at 2 mg/l year-round.

Concerned about the potential costs of this regulation, municipal wastewater dischargers worked with state agencies and the North Carolina Environmental Defense Fund to design an alternative approach. Ultimately accepted by the DEM, the plan requires the parties to the accord to develop a model of the estuary, identify engineering control options, and implement a trading program for nutrient reductions. The trading program allows each of the 12 point source dischargers the opportunity to offset any discharges above their permitted limits. They may trade with feedlot operators on a 2:1 basis or cropland managers on a 3:1 basis. To date point source dischargers have found means of meeting new and stricter discharge limits without resorting to trading. In the future trading may become more attractiv as a compliance option. EPA provides more details of the program in its TMDL analysis.

Other Point-Nonpoint Trading Proposals

The EPA is actively involved in a number of other projects that are likely to lead to effluent trading between point and nonpoint sources. These projects include: Chehalis Basin, Washington (BOD); Boone Reservoir, Tennessee (nutrients); Wicomico River, Maryland (phosphorus); Long Island Sound, New York (dissolved oxygen); Tampa Bay, Florida (nitrogen and suspended solids); and Chatfield Basin, Colorado (phosphorus). (EPA)

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