[Federal Register Volume 84, Number 182 (Thursday, September 19, 2019)]
[Notices]
[Pages 49293-49297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20324]
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ENVIRONMENTAL PROTECTION AGENCY
[EPA-HQ-OW-2019-0415; FRL-10000-02- OW]
Water Quality Trading Under The National Pollutant Discharge
Elimination System Program
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notification, request for comment.
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SUMMARY: The Environmental Protection Agency (EPA) is requesting
comment on policy approaches for addressing ``baseline'' issues in
watersheds with EPA-approved Total Maximum Daily Loads (TMDLs) where
policy makers would like to pursue water quality trading as a
regulatory option for National Pollutant Discharge Elimination System
(NPDES) permit compliance. These policy approaches may also be of
interest to stakeholders pursuing market-based water quality
improvement programs outside of the NPDES permit program.
DATES: Comments must be received on or before November 18, 2019. A
combined in-person and online listening session will be held at EPA
Headquarters in Washington, DC on October 21, 2019, from 12 p.m. to 5
p.m. EDT.
ADDRESSES: The listening session will be held at the following
location:
US EPA Headquarters, William Jefferson Clinton East
Building, Room 1153, 1201 Constitution Avenue NW, Washington, DC 20004;
The online listening session will be accessible at https://www.epa.gov/npdes/nonpoint-source-baselines-water-quality-trading.
To register for the listening session, go to: https://www.epa.gov/npdes/nonpoint-source-baselines-water-quality-trading.
Submit your comments, identified by Docket ID No. EPA-HQ- OW-2019-
0415, at https://www.regulations.gov. Follow the online instructions
for submitting comments. Once submitted, comments cannot be edited or
removed from Regulations.gov. The EPA may publish any comment received
to its public docket. Do not submit electronically any information you
consider to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute. Multimedia
submissions (audio, video, etc.) must be accompanied by a written
comment. The written comment is considered the official comment and
should include discussion of all points you wish to make. The EPA will
generally not consider comments or comment contents located outside of
the primary submission (i.e., on the web, cloud, or other file sharing
system). For additional submission methods, the full EPA public comment
policy, information about CBI or multimedia submissions, and general
guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
FOR FURTHER INFORMATION CONTACT: Amelia Letnes, Office of Wastewater
Management, Water Permits Division, Mail Code 4203M, Environmental
Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460;
telephone number: (202) 564-5627; email address: [email protected].
SUPPLEMENTARY INFORMATION: This supplementary information section is
organized as follows:
I. General Information
II. Background
III. Nonpoint Source Baselines for Water Quality Trading
IV. Request for Comment
I. General Information
A. Does this action apply to me?
Entities potentially affected by this action are: Authorized NPDES
states, territorial, and tribal programs; municipal and industrial
point sources; and nonpoint sources of pollution. This table is not
intended to be exhaustive; rather, it provides a guide for readers
regarding entities that this action is likely to affect.
Table I-1--Entities Potentially Affected by This Action
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Examples of potentially affected
Category entities
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The Environmental Protection Agency.......................................... The Environmental Protection
Agency when acting as a
permitting authority, conducting
oversight, and enforcing
permits.
State, Territorial, and Indian Tribal Governments............................ States and territories authorized
to administer the National
Pollutant Discharge Elimination
System (NPDES) permitting
program (permitting
authorities); states,
territories, and Indian tribes
that provide certification under
section 401 of the Clean Water
Act (CWA); states, territories,
and Indian tribes that own or
operate treatment works.
Municipalities............................................................... Publicly Owned Treatment Works
(POTWs), municipal separate
storm sewer systems (MS4s), or
other municipal entities
required to apply for or seek
coverage under an NPDES
individual or general permit.
[[Page 49294]]
Industry..................................................................... Facilities required to apply for
or seek coverage under an NPDES
individual or general permit.
Nonpoint Sources............................................................. Facilities that are not required
to apply for or seek coverage
under an NPDES individual or
general permit but may generate
pollutant reduction credits.
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If you have any questions regarding the applicability of this
action to a particular entity, consult the person listed under FOR
FURTHER INFORMATION CONTACT.
B. Public Listening Session
i. Public Listening Session: The EPA will hold a public listening
session to hear feedback from interested members of the public on the
issues and concerns of which the Agency should be aware concerning the
issues presented in this document. The public listening session will
include the ability to make a statement either in person or online in
addition to any official comments. All official comments must be
submitted in writing at https://www.regulations.gov/. The public
listening session will begin with the EPA providing a brief background
on the water quality trading issues discussed in this document,
followed by an opportunity for the public to provide supplemental input
on these issues. The EPA is asking that oral statements be limited to
three minutes or less. The listening session will begin at 12 p.m. EDT
and continue until all those wishing to speak have had a chance to make
statements, or until 5 p.m., whichever comes first. A transcript of
oral remarks made during the listening session will be at https://www.epa.gov/npdes/nonpoint-source-baselines-water-quality-trading and
included in the docket for public review.
ii. Additional Information and Public Meeting Registration: Prior
to each listening session, the EPA will post any relevant materials to
the following website: https://www.epa.gov/npdes/nonpoint-source-baselines-water-quality-trading. Information posted to the website will
include any handouts that may be provided at the meeting as well as a
web link that participants may use to register for the listening
session in advance. Advance registration is not required but is
requested so that the EPA can ensure there is sufficient space and time
allotted for those who wish to participate. The listening session will
continue until all speakers in attendance have had a chance to make
statements, or the listed end time, whichever comes first. If you
choose not to pre-register to speak, it is recommended that you arrive
at the start of the listening session to register in person to ensure
the opportunity to participate.
II. Background
The EPA strongly supports market-based mechanisms to accomplish its
mission to protect human health and the environment. Market-based
mechanisms include water quality trading, an approach that promotes
water quality improvements at lower cost than more traditional
regulatory approaches. The Agency has long interpreted the CWA to allow
pollutant reductions from water quality trading and offsets to achieve
compliance with CWA regulatory requirements including water quality-
based effluent limitations (WQBELs). Neither the CWA nor the EPA's
implementing regulations explicitly address water quality trading. In
the absence of explicit statutory language or regulations, the EPA has
provided guidance for permitting authorities and stakeholders to
consider when developing market-based programs, including water quality
trading. However, the EPA is aware that despite its efforts to support
these types of programs, they have not been implemented to their
fullest potential. In response, the Agency is exploring ways to expand
the implementation of water quality trading and other market-based
mechanisms to accomplish water quality improvements.
In 2003, the EPA issued its Water Quality Trading Policy \1\ (2003
Policy). The 2003 Policy included recommendations for permitting
authorities and stakeholders to consider when developing water quality
trading programs. The Agency issued the Water Quality Trading Toolkit
for Permit Writers in 2007 and updated it in 2009 \2\ (2009 Toolkit) to
expand on the 2003 Policy and provide real-life examples. The EPA
understands that some permitting authorities and stakeholders have
viewed the 2003 Policy and 2009 Toolkit as having the force and effect
of law or regulation, i.e., mandating certain actions or outcomes and
containing standards or requirements with which a market-based program
must conform. The Agency wants to clarify that the 2003 Policy and the
2009 Toolkit do not mandate specific actions, outcomes or requirements;
but rather provide non-binding and non-mandatory recommendations and
guidance for permitting authorities to consider when establishing and
implementing water quality trading programs for NPDES permit
compliance.
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\1\ This document is available at https://www.epa.gov/sites/production/files/2016-04/documents/wqtradingtoolkit_app_b_trading_policy.pdf.
\2\ This document is available at https://www.epa.gov/npdes/water-quality-trading-toolkit-permit-writers.
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In the intervening fifteen years since the release of the 2003
Policy, nonpoint source pollution reduction technologies and practices
have improved. Research has provided better information on the
performance of many best management practices (BMPs). Mapping and
modeling efforts have become more robust. Capabilities for evaluating
resources at the edge-of-field and at the landscape scale have
improved. In-stream and other monitoring approaches have expanded our
understanding of the resources we are working to protect. These
advances have created an opportunity for the Agency to reconsider and,
if appropriate, update and expand its recommendations for policy makers
considering implementing market-based mechanisms, including water
quality trading.
As a first step to modernizing its approach to market-based
programs, the EPA issued ``Updating the Environmental Protection
Agency's (EPA) Water Quality Trading Policy to Promote Market-Based
Mechanisms for Improving Water Quality'' on February 6, 2019 (2019
Memorandum). The 2019 Memorandum reiterates the EPA's strong support
for water quality trading; promotes the adoption of market-based
programs to incentivize the implementation of technologies and
practices to reduce nonpoint source pollution; provides additional
guidance and policy options to stakeholders for developing and
implementing market-based programs; and promotes increased investment
in conservation actions. To achieve these goals, the 2019 Memorandum
identified six market-based principles:
[[Page 49295]]
(1) States, tribes, and stakeholders should consider implementing
water quality trading and other market-based programs on a watershed
scale.
(2) The EPA encourages the use of adaptive management strategies
for implementing market-based programs.
(3) Water quality credits and offsets may be banked for future use.
(4) The EPA encourages simplicity and flexibility in implementing
baseline concepts.
(5) A single project may generate credits for multiple markets.
(6) Financing opportunities exist to assist with deployment of
nonpoint source land use practices.
This document is the next step in modernizing the EPA's approach to
market-based programs and water quality trading and focuses on the
fourth principle in the 2019 Memorandum--simplicity and flexibility in
implementing baseline concepts. The EPA's interpretation of the 2003
Policy, as provided in the 2009 Toolkit, recommended that individual
nonpoint sources were to make their portion of the reductions
identified in a TMDL as the ``load allocation,'' called the
``baseline,'' before nonpoint source pollution reduction activities
could generate credits or offsets. In many TMDLs, the load allocation/
baseline is not an insubstantial portion of reductions necessary in the
watershed; achieving this level of reduction may be costly and a
barrier to entry to a trading or offset market. The EPA is seeking and
will consider comments on proposed recommendations related to baselines
for nonpoint sources in watersheds covered by a TMDL.
The EPA is proposing to provide additional guidance on several of
the market-based principles identified in the 2019 Memorandum. This
proposal seeks comment on additional draft guidance related to nonpoint
source baseline issues and presents a variety of tools and approaches
that could be used to develop and implement nonpoint source trading
baselines. Lastly, the EPA is seeking comment on other topics addressed
in the 2003 Policy and the 2009 Toolkit that should be clarified,
updated, or otherwise modified to be consistent with the 2019
Memorandum.
III. Nonpoint Source Baselines for Water Quality Trading
The EPA has developed and is seeking comment on a variety of policy
options regarding nonpoint source baselines for water quality trading
in areas with a TMDL. These options can be used individually or
combined in a single program. Some of these options would be changes to
existing policy, while others offer additional clarification.
A. Definition of Baseline
As previously noted, neither the CWA nor the EPA's implementing
regulations address water quality trading generally, or the specific
issue of nonpoint source baselines. In the absence of explicit
statutory language or regulations, the EPA provided guidance for
permitting authorities and stakeholders to consider when developing
market-based programs, including water quality trading.
As described above, the 2003 Policy and 2009 Toolkit recommended an
approach to defining a nonpoint source baseline in a watershed where a
TMDL has been approved or established. That approach could lead to
substantial upfront costs for nonpoint sources despite no regulatory
requirement mandating those reductions. The baseline portions of the
2003 Policy were seen by some stakeholders as confusing, complex and
restrictive, creating a barrier to entry for point source-nonpoint
source trading in watersheds where a TMDL has been approved by the EPA.
Another concern is that expecting a nonpoint source to meet a pollutant
reduction baseline derived from a TMDL load allocation before the
nonpoint source can generate tradable credits may be inconsistent with
the definition of baseline in the 2003 Policy. This is because load
allocations on their own are not legally enforceable pollutant control
``requirements.'' As a result, such load allocation baselines should
not be considered to be ``requirements'' that must be met by the
nonpoint source prior to being able to generate credits for sale into a
market. The EPA is seeking comment on the above concerns and whether
the following proposed baseline definition revision would provide
clarity and flexibility to states and tribes to define a nonpoint
source baseline and ensure that market-based programs and water quality
trading may be implemented in watersheds with EPA-approved TMDLs.
The EPA is considering whether to include the language below in an
updated policy memorandum on water quality trading.
B. Baselines for Water Quality Trading
The EPA recommends that pollution reduction credits that are
applied to water quality-based effluent limitations in NPDES permits be
derived from and comply with all applicable water quality standards and
be consistent with the assumptions and requirements of wasteload
allocations in applicable EPA-approved TMDLs, consistent with 40 CFR
122.44(d)(1)(vii).
For point source-nonpoint source trading, where a TMDL has been
established for the particular waterbody, the EPA recommends that
nonpoint sources be allowed to generate credits for any pollutant
reductions the nonpoint source makes that are not included in the
assumptions that support the TMDL load allocation. Under this revised
baseline definition, any such pollutant reductions would be immediately
available for use by point sources as credits.
The EPA seeks comment on whether this language provides the clarity
necessary to support market-based programs, including water quality
trading, and whether there is other language that may provide greater
clarity or regulatory certainty. The EPA intends that, in watersheds
where a TMDL has been approved by the EPA, this definition of
``baseline'' would allow for individual nonpoint sources to generate
pollutant reduction credits for any pollutant reduction above existing
practices, provided there is a reasonable assurance that the overall
load allocation will, over time, be met. Stated differently, nonpoint
sources may not need to apply pollution controls to meet a baseline
derived from a load allocation before pollutant reduction credits could
be generated. This option is intended to encourage stakeholders to make
progress towards meeting water quality standards while allowing credits
to be generated without unnecessary delay.
This approach assumes that: (1) The TMDL, its implementation plan
or other documentation describes plans to achieve the TMDL's load
allocation, and (2) the reductions that a nonpoint source makes to
generate credits are in addition to reductions described in such plans
to achieve the load allocation. If the state, territory, or tribe
desires increased certainty that the overall load allocation will be
met under this approach, it might provide a greater level of detail in
its implementation plan to ensure a greater commitment to achieving the
load allocation. Policy makers and permitting authorities may conclude
that modifying a TMDL implementation plan may be necessary to provide
additional flexibility to prioritize specific areas of the watershed
for reductions; to describe a specifically-identified pollutant
reduction project (such as the Dixie Drain Phosphorus Removal Facility
in Idaho); \3\ or to
[[Page 49296]]
implement other watershed-wide plans for meeting the TMDL.
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\3\ For additional information on the Dixie Drain Phosphorus
Removal Facility see https://www.livboise.org/initiatives/dixie-drain.
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In most cases, the EPA assumes that point source-nonpoint source
water quality trading would represent a relatively small portion of the
total loadings under a TMDL. The EPA solicits comment on the potential
environmental and policy impacts--positive or negative--of the proposed
change to the nonpoint source baseline definition at large volumes and
over larger geographic areas. The EPA solicits comment on the proposed
language and the assumptions articulated above, and on whether
pollutant reductions used to generate credits could also be used to
achieve a TMDL load allocation.
C. Incremental Baseline
As described above, the EPA is requesting comments on additional
recommendations to provide additional flexibility for permitting
authorities whereby nonpoint sources may not need to apply pollution
controls to meet a baseline derived from a TMDL load allocation before
pollutant reduction credits could be generated. Alternatively,
permitting authorities might consider an incremental approach. An
incremental baseline approach divides nonpoint source reductions into
(1) immediately available tradeable credits, and (2) reductions
assigned towards meeting the load allocation. The state, territory, or
tribe would identify the appropriate ratio between the two types of
reductions.
This ratio could be directly aligned with the reductions
anticipated in the TMDL load allocation, or it could be based on an
alternate policy goal. The concept could be analogous to a mortgage
payment divided between principal and interest. Some of the pollutant
reductions would be applied to meeting the load allocation and some of
the pollutant reductions would be applied to generate credits.
Variations on an incremental approach could address alternate
policy goals by establishing a variable percentage on bases such as:
Creating incentives for nonpoint source reductions in
certain areas of a watershed;
A nonpoint source's existing BMPs; or
A community's ability to pay.
Under these variations, some nonpoint sources might generate more
credits than others based on factors such as geography, existing BMPs,
or availability of trading partners.
As in all trading scenarios, a point source would need to make
sufficient reductions to meet its WQBEL. This can be through onsite
controls (a non-trading approach), through the purchase of credits
(water quality trading), or through a combination of the two
approaches. If there are insufficient credits immediately available,
this approach might, where appropriate, be coupled with a compliance
schedule as described below. The EPA solicits comment on the
incremental baseline approach described in this document and if it
could be a useful tool for policy makers and permitting authorities to
implement market-based programs, including water quality trading.
D. Compliance Schedules
Where the appropriate criteria under 40 CFR 122.47 are met, a
permitting authority has the discretion to include a schedule of
compliance with a WQBEL in an NPDES permit. Under this policy option, a
permitting authority might consider including a compliance schedule in
the permit to account for the time it would take for a nonpoint source
partner to generate sufficient pollutant reduction credits or offsets
to achieve compliance with the NPDES permit WQBEL. For example, an
NPDES permit might provide a schedule for a point source permittee to
arrange for a nonpoint source to install BMPs necessary to generate
pollutant reduction credits sufficient to offset reductions required by
WQBEL. A compliance schedule would need to specify the achievement of
these reductions ``as soon as possible'' (see 40 CFR 122.47(a)(1)).
While the types of activities/BMPs leading to nonpoint source pollutant
reductions during the compliance schedule might differ in a trading
scenario from those undertaken by a point source in a non-trading
scenario, the regulatory requirements for a permittee to qualify for
and the authority to establish a compliance schedule would remain the
same under either scenario.
The EPA solicits comment on whether the use of compliance schedules
could be a useful tool for policy makers and permitting authorities to
implement market-based programs, including water quality trading.
E. Water Quality Standard (WQS) Variances
A WQS variance is a time-limited designated use and criterion for a
specific pollutant(s) that reflects the highest attainable condition of
a waterbody during the term of the WQS variance. A WQS variance is a
WQS that is subject to review and approval by the EPA under section
303(c) of the CWA. States and tribes might consider whether in
appropriate cases, a WQS variance might be used to support a market-
based program, including water quality trading.
A WQS variance might be appropriate in those circumstances where it
is not clearly known how or if a point source can buy enough pollutant
reduction credits from nonpoint sources to meet its WQBEL. In that
circumstance, a WQS variance might be designed to ensure that at the
end of the WQS variance, enough pollutant reduction credits would be
generated by nonpoint sources to meet the point source's WQBEL, based
on the terms of the WQS variance.
For example, a state, territory, or authorized tribe might identify
in the WQS variance a quantifiable interim effluent condition that
reflects the greatest pollutant reduction achievable (40 CFR
131.14(b)(1)(ii)(A)(2)) by a combination of point source control and
funding of nonpoint source reductions. The state, territory, or
authorized tribe might collect funds from the point source(s) to pay
for nonpoint source reductions needed to achieve the highest attainable
condition in the WQS variance. Alternatively, the point source might
enter into binding agreements with nonpoint sources directly. In this
situation, the reductions made to achieve the highest attainable
condition could first be credited to the point source, and then applied
to the nonpoint source load allocation.
As another example, the point source might be able to identify and
fund implementation of nonpoint source reductions as part of the
adopted and legally binding pollutant minimization program (PMP) that
would be a required part of the highest attainable condition under 40
CFR 131.14(b)(1)(ii)(A)(3) (where no additional feasible pollutant
control technology can be identified). In this case, the point source
maintains an existing level of treatment, and the activities necessary
to achieve nonpoint source reductions would be part of the adopted PMP.
At the WQS variance reevaluation period (which is required at least
every five years for any WQS variance longer than five years), the
state, territory, or authorized tribe would determine if there are
additional nonpoint source reduction activities to incorporate into the
permit.
The EPA solicits comment on whether the use of WQS variances in
this context could be a useful tool for policy makers and permitting
authorities to implement market-based programs, including water quality
trading.
[[Page 49297]]
F. Alternative Approaches to Disaggregation
Generally, TMDL load allocations are identified very broadly,
covering entire sectors, or even having a single load allocation for
all nonpoint sources in the watershed. The EPA recommends that states,
tribes, and territories consider whether it is appropriate to apply
these broad load allocations uniformly across the watershed or,
instead, apply it differentially to nonpoint sources on a geographic
basis or some other basis within the watershed to maximize water
quality improvements. Examples of options that policy makers and
permitting authorities may consider include:
Reductions of nonpoint source pollution at certain
locations within the watershed will result in reductions sufficient to
meet the TMDL load allocation (e.g., at the headwaters of streams or
along the shoreline of the impaired waterbody). Under this scenario,
because the entire load allocation would be met by reductions in a
certain segment of the watershed, nonpoint sources in other areas of
the watershed could be free to generate credits immediately because
reductions from those sources are not needed to meet the load
allocation.
A group of nonpoint source pollutant reduction practices
will meet the load allocation and any pollutant reduction activities
beyond those practices are eligible to generate credits. This option
addresses equity concerns that might prevent early actors from making
early reductions.
Specific nonpoint source sectors (e.g. agriculture,
silviculture, rangeland) may need different levels of reductions to
meet the overall load allocation.
A treatment facility installed on a polluted waterway
segment (as was done in Idaho on the Dixie Drain) may make sufficient
reductions through wastewater treatment to achieve the load allocation.
The EPA recommends that any alternate approaches that states decide
to adopt should be clear, transparent, and demonstrate that the overall
planned reductions in the watershed are sufficient to meet the overall
TMDL allocations for the watershed. The EPA solicits comment on whether
these are viable and appropriate options and whether additional or
alternate approaches may also be appropriate.
G. In-Lieu Fee Program
An in-lieu fee program might allow NPDES permitted facilities to
meet their WQBELs by paying into a state, territorial, or tribal fund
specifically allocated for nonpoint source pollutant loading
reductions. The state, territory, or tribe might use this funding,
possibly combined with other state, territorial, tribal, or federal
funds, to implement nonpoint source BMPs in the relevant geographic
area. In-lieu fee programs might be based on a payment of a uniform
fee, or payment of varying fees (established in increasing tiers) to:
Incentivize onsite as well as offsite reductions;
Provide equity for early actors;
Address affordability;
Address geographic disparities; or
Address any relevant environmental justice concerns.
The in-lieu fee could be set at a level slightly higher than
necessary for the state, territory, or tribe to fund the BMPs needed to
generate the required credits to cover the administrative costs of
running the program, insure against risk, and enhance overall
environmental benefit.
To ensure water quality protection and progress towards meeting
TMDL goals, the state, territory, or tribe could use these funds to pay
nonpoint sources to implement pollutant reductions or to support other
activities that would reduce overall nutrient loading in the TMDL
watershed. A reverse auction model could maximize reductions per
dollar. In a reverse auction, the buyer (the state, territory, or
tribe) could offer a price it would pay for a specified pollutant
reduction, and whomever is willing to produce that reduction (the
credit) accepts the offer. If the offer is not sufficient to cover
credit generation costs, generally no one would make a bid, and the
buyer would offer a higher bid until it has found a willing generator
of a sufficient amount of credits. This approach could keep costs down
and offer flexibility if the true cost of credit generation rises.
The EPA solicits comment on the concept of an in-lieu fee program
and whether it could be a useful tool for policy makers and permitting
authorities to implement market-based programs, including water quality
trading. The EPA also solicits comment on examples of existing in-lieu
fee programs that are used to achieve environmental improvements and if
there are specific programmatic components that may enhance water
quality improvements.
IV. Request for Comment
The EPA is considering modifying or clarifying existing EPA policy
and guidance on water quality trading to remove unnecessary barriers
and better support market-based mechanisms, including water quality
trading, consistent with the 2019 Memorandum. The EPA is requesting
comment from states, tribes, stakeholders and other members of the
public on all aspects of this document. In particular, the Agency is
requesting comment on:
The proposed approaches described in Section III of this
document, including preferences between the approaches and the
recommended mechanisms to implement those approaches;
Other policy ideas or enhancements that could help promote
or facilitate market-based programs to improve water quality; and
Other aspects of the 2003 Policy and the 2019 Memorandum
(including potential conflicting or ambiguous policy advice) that may
benefit from additional policy or clarification from the EPA.
Dated: September 4, 2019.
David P. Ross,
Assistant Administrator, Office of Water.
[FR Doc. 2019-20324 Filed 9-18-19; 8:45 am]
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