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Water: Water Quality Trading

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Water Quality Trading Assessment Handbook: Will Trading Help You Achieve a Cleaner Watershed?

Water quality trading is an innovative approach to achieve water quality goals more efficiently. Trading is based on the fact that sources in a watershed can face very different costs to control the same pollutant. Trading programs allow facilities to meet regulatory obligations by purchasing equivalent or superior pollution reductions from another source -- achieving water quality improvements in a cost-effective manner.

EPA is releasing a document to help water quality managers and watershed stakeholders determine if trading can be used in their watershed to make cost-effective pollutant reductions that achieve water quality standards. The Water Quality Trading Assessment Handbook will help users decide whether water quality trading will work in their watershed and when and where trading is likely to be the appropriate tool for achieving water quality goals.

Water quality trading has gained increasing attention as an innovative approach for achieving water quality goals at lower cost. Where it is the appropriate tool, trading is a powerful and effective market-based approach to achieving cleaner water. Because the innovation of trading is unfamiliar to many, watershed managers and stakeholders may ask how to determine whether trading will work in a particular watershed. The Water Quality Trading Assessment Handbook is designed to help users answer this question based on the actual circumstances and information in a specific watershed.

Using a hypothetical river basin, the handbook illustrates an analytical framework that can be used in any watershed to evaluate the conditions and water quality problem(s) and determine if water quality trading might effectively address local conditions. It also illustrates how to assess relative costs of controlling key pollutant sources in the watershed to decide whether cost differences would make trading financially attractive to watershed participants.

Three current trading program designs are reviewed to illustrate different approaches that can be used to provide essential functions of a trading program such as assuring compliance with the Clean Water Act and executing and tracking specific trades. The handbook discusses the necessity of engaging a wide range of watershed stakeholders in discussions about water quality trading and program design. Finally, the handbook anticipates issues and questions that may arise.

The information in the handbook focuses on conducting an analysis to determine whether watershed scale trading is likely to be viable in a particular watershed once environmental and economic factors are considered. The handbook assumes some familiarity with water quality trading and the basic mechanisms by which trading is implemented. If you are seeking a basic introduction to water quality trading, please check the EPA website site www.epa.gov/owow/watershed/trading.htm including the Frequently Asked Questions and 2003 Water Quality Trading Policy. Examples of trading projects across the country can also be found at the website.

You can order paper copies of the handbook free of charge through the National Service Center for Environmental Publications at (800) 490-9198, or you can send an email request to nscep@bps-lmit.com. You can also read and download the handbook at www.epa.gov/owow/watershed/trading/handbook/.

For handbook questions you may contact Ginny Kibler, EPA Office of Water (202) 564-0596, or Chis Lewicki, EPA Office of Water (202) 564-1293.

Water Quality Trading Assessment Handbook
EPA-841-B-04-001, November 2004
U.S. Environmental Protection Agency (4503T)
1200 Pennsylvania Avenue, N.W.
Washington, D.C. 20460


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