Water Quality Trading Toolkit for Permit Writers

A-i A p p e n d i x A

Appendix A

Water Quality Trading Program Fact Sheets 

Including Applicable NPDES Permit Conditions and Limits

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Grassland Area Farmers Tradable Loads Program, Lower San Joaquin 

River, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3

Long Island Sound Nitrogen General Permit and Nitrogen Credit 

Exchange Program, Connecticut . . . . . . . . . . . . . . . . . . . . . . A-13

Lower Boise Effluent Trading Demonstration Project, Idaho . . . . . . . . .A-27

Rahr Malting Company Permit, Minnesota . . . . . . . . . . . . . . . . . . .A-35

Southern Minnesota Beet Sugar Cooperative Permit, Minnesota . . . . . . A-47

Truckee River, Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-59

Passaic Valley Sewerage Commissioners Pretreatment Trading, 

New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-65

Neuse River Basin Nutrient Sensitive Waters Management Strategy, 

North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-73

Great Miami River Watershed Trading Pilot Program, Ohio . . . . . . . . . A-85

Clean Water Services, Oregon . . . . . . . . . . . . . . . . . . . . . . . . . .A-91

Water Quality Trading in the Chesapeake Bay Watershed: Virginia’s 

Nutrient Credit Exchange Program . . . . . . . . . . . . . . . . . . . . A-103

Red Cedar River Nutrient Trading Pilot Program, Wisconsin . . . . . . . . . A-115
Water Quality Trading Toolkit for Permit Writers

A-ii
Water Quality Trading Toolkit for Permit Writers

A-1A p p e n d i x A

Introduction

Appendix A to the U.S. Environmental Protection Agency’s (EPA) Water Quality Trading 

Toolkit for Permit Writers contains a series of fact sheets on water quality trading programs nationwide. Water quality trading programs selected for this analysis are geographically 

representative and, on the basis of recent research, are likely to have (1) actual or proposed 

National Pollutant Discharge Elimination System (NPDES) permit language to facilitate trades 

and (2) actual trades. The programs selected for review and analysis are intended to be used 

to compare and contrast different approaches in water quality trading programs; the Office of 

Wastewater Management does not intend to highlight these programs as model programs.

The fact sheets are intended to document the relevant technical details on which each trading program is predicated. The fact sheets also contain some background information to help 

the reader establish a basic understanding of the context and functionality of each water 

quality trading program. As a result, some of the contextual information contained in the 

fact sheets might seem similar to the types of information collected and compiled through 

existing research on water quality trading. The primary difference between the collection of 

fact sheets researched and assembled for this report is the focus on the methodologies and 

technical rationale used in developing water quality trading programs and the associated 

NPDES permits.

The fact sheets summarize information from the following water quality trading programs:

1. Grassland Area Farmers Tradable Loads Program (California)

2. Long Island Sound Nitrogen Credit Exchange Program (Connecticut)

3. Lower Boise River Effluent Trading Demonstration Project (Idaho)

4. Rahr Malting Company Permit (Minnesota)

5. Southern Minnesota Beet Sugar Cooperative Permit (Minnesota)

6. Truckee River (Nevada)

7. Passaic Valley Sewerage Commission Pretreatment Trading Program (New Jersey)

8. Neuse River Basin Nutrient Sensitive Waters Management Strategy (North Carolina)

9. Great Miami River Watershed Trading Pilot (Ohio)

10. Clean Water Services (Oregon)

11. Virginia Nutrient Credit Exchange Program (Virginia)

12. Red Cedar River Watershed Nutrient Trading Pilot Program (Wisconsin).

Several fact sheets are followed by one or more flow charts that illustrate the connections 

among various programs, plans, and strategies integrated through water quality trading 
Water Quality Trading Toolkit for Permit Writers

A-2

programs, as well as the basic process used to administer trades. All fact sheets and 

associated flow charts are a work in progress, and they will be updated as new information is 

obtained.

The NPDES permits referenced in the fact sheets are part of EPA’s inventory of NPDES permits 

containing water quality trading provisions. The inventory also contains additional NPDES 

permits not discussed in the water quality trading program fact sheets. For more information on the inventory of NPDES permit containing water quality trading provisions, contact 

Virginia Kibler in EPA’s Office of Wastewater Management at kibler.virginia@epa.gov or by 

phone at 202-564-0596.
Water Quality Trading Toolkit for Permit Writers

A-3A p p e n d i x A

Overview

Seven irrigation and drainage districts that are members of the San Luis & Delta-Mendota 

Water Authority have the discharges with the greatest impact on the San Joaquin River Basin. 

Referred to as the Grassland Area Farmers, the seven authority members are subject to a 

regional cap on selenium discharges set through the Grassland Bypass Project. If the regional 

authority exceeds the regional cap, it must pay an incentive fee that is a flat price based on 

five exceedance ranges (i.e., percent exceedance over the regional cap) that increase over 

time. Each of the seven members of the regional authority has an allocation of the regional 

cap referred to as a selenium load allocation. If a member of the regional authority exceeds 

its selenium load allocation, it may either pay its portion of the incentive fee or purchase selenium load allocations from another member.

Type of Trading Pollutant(s) Traded

Nonpoint Source–Nonpoint Source* Selenium

*Selenium loading from irrigated agriculture is accurately measured at drainage pumps and is 

regulated by state permits; therefore, the trading program is similar to a point source-to-point 

source trading program. Since irrigated agriculture is not regulated under the Clean Water Act, 

NPDES permits are not applicable.

Number of Trades to Date

Thirty-nine formalized trades

Unknown number of informal trades

Who Is Eligible to Participate?

Seven of the irrigation and drainage districts that are members of the San Luis & Delta-Mendota Water Authority are in a sensitive grassland area and are therefore known as the Grassland Area Farmers. The individual farmers in each of the seven districts do not participate in 

trading; all trades are conducted at the district level among members of the Grassland Area 

Farmers. Other members of the San Luis & Delta-Mendota Water Authority are not eligible to 

participate.

What Generated the Need for Trading?

Agricultural activity in the Grassland Drainage Area depends on irrigation, which leaches 

salts and trace metals in soils and affects growing conditions. Installation of the San Luis 

drain helped to remove irrigation drainage, but it affected sensitive areas in the San Joaquin 

River watershed. The Grassland Bypass Project diverted irrigation drainage around sensitive 

grassland areas into the San Luis drain and eventually to the San Joaquin River. Under the 

Grassland Bypass Project, an agreement for use of the drain (Use Agreement), signed by the 

U.S. Bureau of Reclamation and the San Luis & Delta-Mendota Water Authority in 1995, set a 

district-level selenium cap (i.e., aggregate monthly and annual selenium discharge limits).

Grassland Area Farmers Tradable Loads Program

Lower San Joaquin River, California

Grassland Area Farmers Tradable Loads Program  Lower San Joaquin River, California
Water Quality Trading Toolkit for Permit Writers

A-4

What Serves as the Basis for Trading?

Actions taken through the Grassland Bypass Project established the regional cap for selenium, 

which serves as the basis for the Grassland Area Farmers Tradable Loads Program. The 1995 

Use Agreement signed by the Bureau of Reclamation (i.e., the owner of the section of the 

San Luis Drain used by the Grassland Area Farmers through the Grassland Bypass Project) and 

the San Luis & Delta Mendota Authority established the Grassland Bypass Project. The formal 

agreement contained the initial regional cap for selenium, which decreases over time; established an incentive fee system that increases over time; and stated that if the Grassland Area 

Farmers’ discharges exceed the regional cap by more than 20 percent, the authority’s use 

of the drain would terminate. The initial regional cap contained in the 1995 Use Agreement 

was developed using a consensus-based stakeholder approach and presented in the form of 

interim monthly and annual load limits for the first 5 years of the Grassland Bypass Project, 

(CRWQCB-CVR 2001a). The two parties signed on to the 2001 Use Agreement, which extends 

through December 2009.

At the time the 1995 Use Agreement was signed, the California Regional Water Quality Control Board (Regional Board) was developing an amendment to the existing basin plan for the 

San Joaquin River Basin. The 1996 Basin Plan Amendment contained a draft Total Maximum 

Daily Load (TMDL). The Regional Board set the load limits in the TMDL on a monthly and 

annual basis. In August 2001 the Regional Board published the Total Maximum Daily Load for 

Selenium in the Lower San Joaquin River, which establishes monthly load allocations for selenium depending on the type of water year (see Determining Water Year Types on the next 

page for more information).

In 1998 the Regional Board issued Waste Discharge Requirements for San Luis and DeltaMendota Water Authority and United States Department of the Interior, Bureau of Reclamation, Grassland Bypass Project Fresno and Merced Counties, Order Number 98-171, which 

reflected the interim monthly and annual selenium load limits developed using a consensusbased approach under the 1996 Basin Plan Amendment. In September 2001 the Regional 

Board issued a new Waste Discharge Requirements Order Number 5-01-234, which uses the 

load limits contained in the 2001 Use Agreement. The load limits are designed to meet specific TMDL limits under the 2001 TMDL (CRWQCB-CVR 2001b).

At this point in time, the 2001 TMDL and the 2001 Waste Discharge Requirements Order 

Number 5-01-234 provide the current regional monthly and annual load limits for selenium 

and serve as the basis for water quality trading.

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

2001 Total Maximum Daily Load for Selenium

The 2001 TMDL builds on previous load allocations calculated for the San Joaquin River. A 

simple spreadsheet model calculates monthly selenium load allocations based on critical flow. 

The model uses historical flow records, grouped by season and water year type to calculate 

design flow (low-flow) conditions for each flow regime. The 2001 TMDL uses the following 

water year type classifications: Critical, Dry/Below Normal, Above Normal, and Wet. Four seasonal groups used in the TMDL model represent the seasonality of flows in the San Joaquin 
Water Quality Trading Toolkit for Permit Writers

A-5A p p e n d i x A

River Basin and the Grassland Area. The seasonal groups are September through November, 

December and January, February through May, and June through August. This approach 

resulted in 16 flow regimes, which allows dischargers to make adjustments to meet a season’s 

load allocation. The design flows that correspond to a water year type and a season are key 

to calculating the TMDL monthly limits and the corresponding load allocations.

The TMDL is the assimilative capacity of the waterbody. To calculate the TMDL, the design flow 

for a particular water year type and month is multiplied by the water quality objective and a 

conversion factor that converts acre-feet × micrograms per liter (μg/L) to pounds. A monthly 

load limit is established, rather than a daily limit, because most agricultural water districts lack 

the facilities needed to manage drainage on a daily basis.

Water Quality Objective (μg/L) × Design flow (acre-feet) × 0.0027197 (conversion 

factor) = TMDL (pounds)

Table 1. Example: Calculating the TMDL for Water Year Types in September

Time 

Period Year Type

Water Quality 

Objective (μg/L)

Design 

Flow (ac-ft)

Conversion 

Factor

TMDL

(lb)

September Critical 5 5,016 0.0027197 68

September Dry/Below Normal 5 20,298 0.0027197 276

September Above Normal 5 22,667 0.0027197 308

September Wet 5 27,850 0.0027197 378

Source: CRWQCB-CVR, 2001b

The TMDL must be distributed as a wasteload allocation for point sources, a load allocation 

for nonpoint sources, a margin of safety, and a background load. Because there are no point 

sources of selenium in the lower San Joaquin River Basin, there is no wasteload allocation. 

The margin of safety is 10 percent of the TMDL. The Grassland Bypass Project Area is the only 

nonpoint source in this TMDL and will receive the only load allocation. The load allocation is 

the TMDL minus the background load and the margin of safety. Similar to the TMDL, the load 

allocation and the background load vary according to season and water year type.

Determining Water Year Types

Water year type, as used in the San Joaquin TMDL model, is based on a classification scheme 

called the San Joaquin River Index of Unimpaired Flows. The index is a calculation of the 

percentage of the unimpaired runoff from the four major rivers in the basin during specific 

months of the year, as well as a percentage of the previous year’s index.

Grassland Area Farmers Tradable Loads Program  Lower San Joaquin River, California
Water Quality Trading Toolkit for Permit Writers

A-6

TMDL − (Background Load + Margin of Safety) = Load Allocation

Example: Calculating the TMDL and the Associated Load Allocation

The TMDL for the month of September during a wet year is determined by multiplying the water 

quality objective by the design flow for a wet year in September and the conversion factor of 

0.0027197.

Water Quality Objective = 5 μg/L

Design Flow (September, Wet year) = 27,850 acre-feet (ac-ft)

Conversion Factor = 0.0027197

5 μg/L × 27,850 ac-ft × 0.0027197 = TMDL = 378 lb

The load allocation associated with a TMDL of 378 pounds for a wet year in September is the 

TMDL minus the background load and the margin of safety.

TMDL = 378 lb

Background Load = Loads produced at two upstream points and from wetlands during a Wet 

year in September (flow × concentration) = 8 lb

Margin of Safety = 10% of TMDL = 378 lb (TMDL) × 0.10 = 37.8 lb

378 lb − (8 lb + 37.8 lb) = LA = 332.2 lb

Waste Discharge Requirements Order No. 5-01-234 (2001)

The permit limits in the 2001 Waste Discharge Requirement Order reflect the load allocations by month and water year type in the 2001 TMDL adjusted by the selenium reduction 

goals in the 1996 Basin Plan Amendments, as well as stakeholder negotiations. As a result, no 

straightforward calculation is available to demonstrate how the 2001 TMDL load allocations 

translate to permit limits.

Are Permits Used to Facilitate Trades?

In California, the Regional Boards issue Waste Discharge Requirement Orders that serve the 

same function as permits issued under the National Pollutant Discharge Elimination System 

(NPDES) program. The Regional Board issued Waste Discharge Requirements for San Luis 

& Delta—Mendota Water Authority and United Sates Department of the Interior Bureau 

of Reclamation Grassland Bypass Project, Fresno and Merced Counties, Order No. 98-171, 

in 1998. The order contained the enforceable regional cap for selenium for the Grassland 

Area Farmers. In 2001 the Regional Board issued a new Waste Discharge Requirement 
Water Quality Trading Toolkit for Permit Writers

A-7A p p e n d i x A

Order (No. 5-01-234) and rescinded the previous order. The 2001 Waste Discharge Requirement Order does not contain language that addresses trading. Trading is an internal tool 

that the Grassland Area Farmers use to comply with the regional cap for selenium.

How Are Credits Generated for Trading?

Formalized trading under the Grassland Area Farmers Tradable Loads Program occurred only 

during 1998 and 1999. To facilitate trading, a Steering Committee allocated the regional cap 

for selenium among the seven districts that compose the Grassland Area Farmers. The districtlevel allocations are referred to as selenium load allocations. Selenium load allocations for 

each district were calculated based on tilled acreage, total acreage, and historical selenium 

loads from each district (Anderson 2000). However, there is no precise formula for calculating 

the selenium load allocations because a consensus-based process involving the participating 

districts ultimately determined the final selenium load allocations (Linnemann 2004).

The Steering Committee, in conjunction with a project director and the seven drainage 

districts, developed draft rules to implement the trading program. Rules were developed for 

each water year (i.e., October 1 through September 30 of the following year). They specified 

the district-level selenium load allocations, the role of a regional drainage coordinator, and 

other requirements for reducing selenium loading (Anderson 2000).

Because credits are based on actual monthly selenium loads, the trades that have occurred 

have been retroactive in nature (Breetz et al. 2004). Trades can involve direct purchases of 

selenium load allocations or an exchange of allocations between districts (Anderson 2000). Districts that discharge below their selenium load allocation generate credits eligible for trading. 

Districts with discharges that exceed their selenium load allocation must trade with another 

district or pay their percentage of the regional incentive fee established through the rules for 

a particular water year. The percentage of the incentive fee owed by a district that exceeds its 

selenium load allocation is calculated by dividing the pounds of selenium above that district’s 

selenium load allocation by the total exceedances of all districts (Anderson 2000).

The monthly limit during October for the regional cap in water year 1999 was 348 pounds of 

selenium, with an annual limit of 6,327 pounds. In this example, the Grassland Area Farmers 

collectively exceeded the monthly regional selenium cap by 9 percent. The 1995 Use Agreement 

Performance Incentive System sets the monthly fee for exceeding the monthly regional selenium 

cap at between 0.1 and 10 percent for Year 2 of the program at $1,200. Therefore, the amount 

of incentive fee owed by each district to the Incentive Fee Account is as shown in Table 2.

Selenium load above selenium load allocation (pounds) / Total selenium load of all 

districts above regional selenium cap (pounds) = Incentive fee percentage

Grassland Area Farmers Tradable Loads Program  Lower San Joaquin River, California
Water Quality Trading Toolkit for Permit Writers

A-8

One method used to reduce selenium loads was drainage recycling, where drainage water 

was applied to salt-tolerant crops (Breetz et al. 2004).

What Are the Trading Mechanisms?

When the program formally executed trades, participating districts signed bilateral trade 

agreements that named the parties involved and specified the month and year of the selenium load allocation being traded (Anderson 2000). Trades no longer occur using formal 

mechanisms such as trade agreements; instead, districts make informal agreements when 

trades occur that do not require any type of written documentation (Linneman 2004).

What Is the Pollutant Trading Ratio?

No trading ratio is used. Credits are based on actual monthly selenium loads measured by 

each irrigation district not on estimates of best management practice effectiveness (Breetz et 

al. 2004).

What Type of Monitoring Is Performed?

The drainage districts monitor selenium loads at the 62 sumps where water is pumped into 

the drain. A combination of flow measurements and analytical sampling is used to determine 

selenium loading, although farmers and districts can estimate weekly updates on loading. 

Selenium loading data generated by the districts’ monitoring activities were processed 

over 1 to 2 months to calculate retroactive credits under the formalized trading procedures 

(Anderson 2000).

Table 2. Example: Calculating District-Level Incentive Fees 

District

October 

1998 

Monthly 

Selenium 

Load 

Allocation 

(lb) 

October 

1998 

Monitored 

Selenium 

Load 

(lb) 

Selenium 

Load 

Allocation 

Exceedance 

(lb) 

  -  = 

Incentive Fee 

Percentage 

 /  = 

Portion of Monthly 

Incentive Fee ($1,200)

1 169 180 11 11 lb/33 lb = 33 

percent

$1,200 × 0.333 = $399.60

2 69 71 2 2 lb/33 lb = 6 percent $1,200 × 0.061 = $73.20

3 46 48 2 2 lb/33 lb = 6 percent $1,200 × 0.061 = $73.20

4 28 30 2 2 lb/33 lb = 6 percent $1,200 × 0.061 = $73.20

5 18 26 8 8 lb/33 lb = 24 percent $1,200 × 0.242 = $290.40

6 14 20 6 6 lb/33 lb = 18 percent $1,200 × 0.182 = $218.40

7 4 6 2 2 lb/33 lb = 6 percent $1,200 × 0.061 = $73.20

Total 348 381 33  9 percent over 

monthly regional cap

$1,201.20

In water year 1999, the cost per pound of selenium was approximately $40.00.
Water Quality Trading Toolkit for Permit Writers

A-9

What Are the Incentives for Trading?

A p p e n d i x A

The districts are subject to incentive fees if they exceed their aggregate cap, and their use of 

the irrigation drain is cut off after a 20 percent exceedance. The selenium cap is lowered each 

year, and the incentive fee for exceedances is raised each year, providing a strong incentive 

for the districts to control their discharges. Rather than paying a portion of the incentive fee, 

a district may participate in trading to achieve the monthly and annual regional selenium 

caps for each water year.

What Water Quality Improvements Have Been Achieved?

Selenium loading has decreased every water year from 1995 to 2001, except the wet year 

in 1998, and regional selenium load targets have been met nearly every month through 

February 2004 (Breetz et al. 2004).

What Are the Potential Challenges in Using This Trading 

Approach?

Potential challenges associated with the approach used in the Grassland Area Farmers 

Tradable Loads Program include the following (Breetz et al. 2004):

• Time for processing the data necessary to calculate credits using actual loading data 

as opposed to estimated load reductions

• Resources for conducting continuous monitoring (e.g., irrigation monitoring)

• Negotiations to determine reasonable pricing

What Are the Potential Benefits?

Benefits associated with the Grassland Area Farmers Tradable Loads Program include the 

following (Breetz et al. 2004):

• High degree of certainty because trades are based on actual monitoring data

• No need to adjust credits for relative environmental impacts because there is a single 

discharge point

• No danger of noncompliance with trade agreements because trades are retroactive 

based on actual pollutant loads

Applicable NPDES Permit Language

As mentioned above, the Waste Discharge Requirement Orders issued by the Regional Board 

contain the applicable effluent limits to achieve the water quality objective for selenium. 

However, neither of the Waste Discharge Requirement Orders contains language that specifically references water quality trading to achieve the regional selenium cap set for the Grassland Bypass Project participants.

Grassland Area Farmers Tradable Loads Program  Lower San Joaquin River, California
Water Quality Trading Toolkit for Permit Writers

A-10

Contact Information

Rudy Schnagl

Senior Land and Water Use Scientist

Central Valley Regional Water Quality Control Board

(916) 464-4701

schnagr@rb5s.swrcb.ca.gov

References

Anderson, S.J. 2000. A Companion to Research Paper Number 6, Nine Case Studies: 

Appendices A–I. Appendix B: San Joaquin River Basin, CA: The Grassland Bypass Project 

and Tradable Loads Program. In R.L. Kerr, S.J. Anderson, and J. Jaksch. Crosscutting 

Analysis of Trading Programs: Case Studies in Air, Water, and Wetland Mitigation Trading 

Systems. Prepared for the National Academy of Public Administration, Washington, D.C.

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Linnemann, Chris. 2004. Personal communication. August.

CRWQCB-CVR (California Regional Water Quality Control Board, Central Valley Region). 

2001a. Total Maximum Daily Load for Selenium in the Lower San Joaquin River. California 

Environmental Protection Agency. August. 

<http://www.swrcb.ca.gov/rwqcb5/programs/tmdl/selenium.htm>.

CRWQCB-CVR (California Regional Water Quality Control Board, Central Valley Region). 

2001b. Waste Discharge Requirements: 5-01-234 for San Luis & Delta-Mendota Water 

Authority and United States Department of the Interior, Bureau of Reclamation, 

Grassland Bypass Channel Project (Phase II), Fresno and Merced Counties. September 7.

Resources

Grassland Bypass Compliance Monitoring Program. Summary of Selenium Loads at Station 

B (Discharge from San Luis Drain). San Francisco Estuary Institute, San Francisco, CA. 

<http://www.sfei.org/grassland/reports/>.

U.S. Department of the Interior, Bureau of Reclamation, Central Valley Project, California 

and San Luis & Delta-Mendota Water Authority. 2001. Agreement for Use of the San Luis 

Drain for the Period October 1, 2001 through December 31, 2009. Agreement No. 01-WC20-2075. September 28.
Water Quality Trading Toolkit for Permit Writers

A-11A p p e n d i x A Grassland Area Farmers Tradable Loads Program  Lower San Joaquin River, California
Water Quality Trading Toolkit for Permit Writers

A-12
Water Quality Trading Toolkit for Permit Writers

A-13A p p e n d i x A

Overview

The Connecticut portion of the Long Island Sound watershed encompasses approximately 79 

publicly owned treatment works (POTWs) that contribute to the problem of seasonal hypoxia. The Connecticut Department of Environmental Protection (CTDEP) developed its watershed-based NPDES General Permit for Nitrogen Discharges (General Permit) and Nitrogen 

Credit Exchange Program to help POTWs achieve nitrogen reductions called for in the Total 

Maximum Daily Load (TMDL). POTWs must meet the annual average discharge limits in the 

permit or purchase the necessary credits to achieve their individual limits through the Nitrogen Credit Exchange Program administered by an advisory board and CTDEP. If the POTWs 

generate more credits than purchasing POTWs need, the state is obligated to purchase the 

remaining credits to ensure that the POTWs that made nitrogen reductions are appropriately 

awarded for their efforts.

Type of Trading Pollutant(s) Traded

Point Source–Point Source Total nitrogen

Number of Trades to Date

In 2002, 38 municipalities purchased credits and 39 municipalities sold credits (CTDEP 2003). 

In 2003, 40 municipalities purchased credits and 37 municipalities sold credits (Stacey 2004c). 

In 2004, 44 municipalities purchased credits and 35 municipalities sold credits (CTDEP 2006). 

In 2005, 50 municipalities purchased credits and 28 municipalities sold credits (CTDEP 2006).

Who Is Eligible to Participate?

Seventy-nine municipal sewage treatment plants scattered throughout the state of Connecticut participate in the Nitrogen Credit Exchange Program.

What Generated the Need for Trading?

Seasonal hypoxia affects the bottom waters of the western half of the Long Island Sound 

during the summer. Monitoring, modeling, and research spanning 15 years indicated the 

need for Connecticut and New York to significantly reduce nitrogen loads. Connecticut and 

New York developed a bistate TMDL for nitrogen that EPA approved in 2001. The TMDL is 

based on the states’ dissolved oxygen (DO) criteria.

What Serves as the Basis for Trading?

The TMDL’s wasteload allocation developed for the Long Island Sound serves as the driver for 

trading among the 79 POTWs in Connecticut.

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut

Long Island Sound Nitrogen General Permit and 

Nitrogen Credit Exchange Program

Connecticut
Water Quality Trading Toolkit for Permit Writers

A-14

In 2001 EPA approved the CTDEP and New York State Department of Environmental Conservation (NYSDEC) TMDL calling for nitrogen reductions of 58.5 percent from their combined 

point and non-point sources from 2001 levels by 2014. The TMDL contains an uneven distribution between the wasteload and load allocations: Connecticut has a 10 percent reduction 

requirement from urban and agricultural land cover and a 64 percent reduction from point 

sources, which combined equal the 58.5 percent reduction in the TMDL (Stacey 2004c).

The TMDL was developed to attain DO criteria for Long Island Sound of 5 to 6 milligrams 

per liter (mg/L). Since TMDL adoption, Connecticut has revised its DO criteria establishing a 

minimum concentration of 3.5 mg/L with allowable exposure days within incremental ranges 

to 4.8 mg/L, based on EPA DO criteria. New York is in the process of revising its criteria along 

similar lines. The revised DO criterion, however, have not yet affected the wasteload or load 

allocations in the TMDL.

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

Ambient Monitoring

Year-round monitoring of the Long Island Sound began in 1988 and continues to date. 

Parameters include water temperature, salinity, all nutrient species for phosphorus and nitrogen, silicon, dissolved oxygen, chlorophyll a, and total suspended solids.

LIS 3.0 Hydrodynamic/Water Quality Model

Federal funding facilitated the development of a coupled, three-dimensional, time-variable 

hydrodynamic/water quality model called LIS 3.0. The LIS 3.0 model defined the unique transport mechanisms that distribute nitrogen throughout the Long Island Sound. The transport 

efficiencies identified through LIS 3.0 were key in understanding the relative importance of 

nitrogen sources from various locations around the sound in oxygen depletion (Stacey and 

Tedesco 2004). Information generated through the LIS 3.0 model also assisted in the developing of planned and completed DO criteria revisions relevant to Long Island Sound.

The model has been calibrated using ambient monitoring data collected over the 18-month 

period from April 1988 through September 1989 described earlier. The 18-month calibration 

period covers all seasons of the year; actual hydrological and meteorological conditions for that 

time period were input into the model. Tributary loadings and combined sewer overflows were 

also determined using time-variable rainfall and river flow data. Other factors that influence 

external boundary conditions and internal circulation within the Sound, such as hydrological 

and meteorological conditions (seasonal variations, such as wet and dry weather conditions), 

have been considered and are included in the model as well (CTDEP and NYSDEC 2000).

Nitrogen Management Zones and Equivalency Factors

In-basin loads of nitrogen (i.e., nitrogen originating within the Connecticut and New York 

portions of the Long Island Sound drainage basin, including those deposited directly on the 

sound’s surface) were partitioned by location into 12 nitrogen management zones. Eleven of 

58.5 percent nitrogen reduction from in-basin sources + reductions in nitrogen and 

carbon from out-basin sources + non-treatment alternatives + margin of safety = TMDL 

for Long Island Sound
Water Quality Trading Toolkit for Permit Writers

A-15A p p e n d i x A

the management zones surround the sound in Connecticut and New York, and the 12th zone 

is the surface of Long Island Sound. Zones 1 to 11 are considered terrestrial management 

zones that follow the natural river basin boundaries in Connecticut. Connecticut management zones (Zones 1 to 6) were further divided into tiers to account for nitrogen attenuation 

during transport from one tier to the next (CTDEP and NYSDEC 2000).

By using the LIS 3.0 model and U.S. Geological Survey monitoring data for major tributaries, 

CTDEP gained information on attenuation factors in Long Island Sound and during riverine 

transport, respectively, which are important for quantifying relationships between discharge 

points and actual delivery of nitrogen to Long Island Sound (CTDEP and NYSDEC 2000). These 

factors combined account for relative nitrogen impact on DO depletion in Long Island Sound 

from geographically distributed sources. They are used as trading ratios or equalization factors to put the 79 POTWs involved in trading on an equal basis, which is a critical component 

of the Nitrogen Credit Exchange Program (Stacey 2004b).

To calculate the overall equivalency factors, CTDEP multiplied the river delivery factor for a 

tier within a particular management zone by the Long Island Sound transport efficiency from 

Connecticut’s six management zones once the nitrogen reached the edge of the sound to 

the area of hypoxia. Table 1, taken from the Long Island Sound TMDL, illustrates how CTDEP 

calculated the equivalency factor for two tiers within two management zones.

Table 1. Example: Calculating the TMDL for Water Year Types in September

Zone - Tier

River Delivery 

Factor

LIS Transport 

Factor

Combined 

Equivalency Factor

1-1 (Eastern Long Island 

Sound, along the shore) 1.00 0.17 0.17

2-3 (Northern tier of 

Connecticut River) 0.87 0.20 0.17

CTDEP expresses the factors as the decimal fraction of the nitrogen load delivered (CTDEP 

and NYSDEC 2000). CTDEP made the assumption that the tiers closest to the Long Island 

Sound have no nitrogen attenuation (i.e., they deliver 100 percent of the nitrogen load as 

shown for Zone-Tier 1-1 above) and assigned the value of 1 as the river delivery factor.

Aggregate and Individual Facility Nitrogen Load Baselines

During the TMDL development process, CTDEP had to come to agreement on the nitrogen 

loading from the 79 POTWs to establish a baseline and set reduction targets. Some facilities 

had 10 years of discharge volume data, but other facilities had not conducted nutrient monitoring until 1993 or later. For facilities that did not have nutrient monitoring in place, CTDEP 

applied estimated nitrogen and total organic carbon (TOC) concentrations (usually 15 mg/L 

for nitrogen and 20 mg/L for TOC) to 1990 measured flow to develop each zone’s aggregate 

baseline load estimates (CTDEP and NYSDEC 2000). A facility was given a baseline nitrogen 

load by calculating the relative proportion of flow each individual facility contributed to the 

statewide total flow over a consistent time period for all facilities. The period 1997 to 1999 

was selected for this purpose as representative of the current situation, and it was the starting point for implementing the wasteload allocation in the TMDL (CTDEP 2000).

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut
Water Quality Trading Toolkit for Permit Writers

A-16

Are Permits Used to Facilitate Trades?

The General Permit contains annual end-of-pipe (i.e., attenuation not applied) discharge 

limits for nitrogen for 79 POTWs in the Connecticut portion of the Long Island Sound. Permit 

limits are ramped down each year of the 5-year permit cycle, reflecting anticipated nitrogen 

removal projects coming on line among all 79 permittees. This approach helps ensure consistent and steady progress toward the nitrogen removal goals prescribed in the TMDL. Section 

4 of the General Permit sets forth the conditions of the general permit, referencing annual 

discharge limits (listed in Appendix 1). Credits used on the exchange are equivalent credits, 

and attenuation factors are applied to each permittee’s surplus or deficit below or above the 

end-of-pipe limit. Each permittee can meet its annual discharge limits through treatment or 

purchase of state-owned equivalent nitrogen credits in accordance with the Nitrogen Credit 

Exchange Program. Permittees that do better than their permit limit have credits to sell to 

the Nitrogen Credit Exchange Program.

How Are Credits Generated for Trading?

Each facility is responsible for monitoring its effluent discharge according to the General 

Permit’s monitoring requirements as well as for reporting its monthly mass loading of total 

nitrogen (along with other required monitoring information). CTDEP compiles and analyzes monthly mass loading information for each facility, in conjunction with other required 

information, to determine the facility’s annual mass loading of total nitrogen (i.e., the sum 

of monthly mass loading of total nitrogen for each month from January through December 

divided by 12 and rounded to the nearest whole number).

CTDEP then compares a facility’s annual mass loading of total nitrogen to the facility’s annual 

average discharge limit for that year, applies the appropriate equivalency factor or trading 

ratio, and determines the number of equivalent credits each facility must buy to achieve permit compliance. A facility has generated credits to sell through the Nitrogen Credit Exchange 

Program if it has performed better than its permit limit requires. All permittees are in compliance with the General Permit if they (1) meet the permit limit, (2) do better than the permit 

limit, or (3) purchase adequate equivalent credits to meet their permit limit.

Therefore, the number of credits a facility has to sell—or that a facility must purchase to 

remain in compliance—is the average annual loading above or below the annual discharge 

limit multiplied by the equivalency factor. Under the Nitrogen Credit Exchange Program, an 

equivalent pound of nitrogen is also referred to as an equalized nitrogen credit.

CTDEP works with the Nitrogen Credit Advisory Board to set prices and administer the Nitrogen Credit Exchange each year. Prices are based on the cost of the nitrogen removal projects 

implemented, the number of pounds of nitrogen removed by those projects, plus the cost of 

operating and maintaining those facilities where projects have been implemented. CTDEP 

and the Nitrogen Credit Advisory Board ensure that reporting and accounting are accurate 

and that bills and credits are disbursed in a timely manner, according to the schedule set 

forth in the Connecticut General Statutes.
Water Quality Trading Toolkit for Permit Writers

A-17A p p e n d i x A

End-of-pipe nitrogen loads × Facility’s equivalency factor = Equivalent pounds of nitrogen

Example: Converting End-of-Pipe Nitrogen Discharges to Equivalent Pounds of 

Nitrogen for Trading in the Nitrogen Credit Exchange Program

In January 2002, Facility X discharged a monthly average of 2,594 lb/day of nitrogen. The 

equivalency factor for Facility X is 0.20. To convert the monthly mass loading into equivalent 

pounds of nitrogen generated, Facility X would perform the following calculation:

Total nitrogen loading (lb/day) × equivalency factor = equivalent pounds of nitrogen

2,594 lb/day × 0.20 = 518.8 equivalent pounds of nitrogen

During January 2002, Facility X’s monthly mass loading of total nitrogen was 2,594 lb/day, which 

translates to 518.8 equivalent pounds of nitrogen.

(Annual discharge limit − Annual average mass loading of total nitrogen) × (Facility 

equivalency factor) = Amount of equalized nitrogen credits to buy or sell

Example: Calculating the Number of Equalized Nitrogen Credits Necessary to Achieve 

Permit Compliance

In 2002 Facility X had an annual average mass loading of 2120 lb/day of total nitrogen. Appendix 

1 of the General Permit for Nitrogen sets an annual discharge limit for Facility X in 2002 at 1665 

lb/day. The equivalency factor for Facility X is 0.20.

(Annual discharge limit − Annual average mass loading of total nitrogen) × (Facility 

equivalency factor) = Amount of equivalent nitrogen credits to buy or sell

(1665 lb/day − 2120 lb/day) × (0.20) = −91 equivalent pounds of nitrogen (or equivalent 

nitrogen credits)

Facility X’s annual average mass loading exceeded its annual discharge limit by 455 lb/day of total 

nitrogen. Multiplied by the facility’s equivalency factor of 0.20, the 455 lb/day of total nitrogen 

that exceeds the annual discharge limit translates to 91 equivalent pounds of nitrogen credits 

that Facility X must purchase to comply with its annual discharge limit under the General Permit 

for Nitrogen for 2002.

The Nitrogen Credit Advisory Board establishes credit prices based on equivalent pounds

using final data from a particular year. For example, the Nitrogen Credit Advisory Board waited until monitoring data for January through December 2002 became available to calculate 

the value of credit. In March 2003 the Nitrogen Credit Advisory Board sent each facility a final 

invoice that itemized the facility’s annual mass loading, its annual average discharge limit 

contained in the General Permit for Nitrogen, and the established value of a credit for 2002. 

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut
Water Quality Trading Toolkit for Permit Writers

A-18

Therefore, facilities do not buy or sell credits for a calendar year until the following calendar 

year upon notification from CTDEP.

The Nitrogen Credit Advisory Board derives an annual value for equalized nitrogen credits by 

dividing the total annual cost of all implemented nitrogen removal projects, plus the annual 

operation and maintenance costs of operating the denitrification systems, by the reduction in 

equalized pounds of nitrogen. The total annual project cost is composed of two components: 

(1) total annualized capital costs to construct treatment facilities for nitrogen removal and (2) 

total eligible annual operation and maintenance costs for nitrogen removal treatment (CTDEP 

2003). Total annualized capital costs are defined as the total amount of each project facility’s 

loan from the Clean Water Fund attributable to the total eligible capital cost (i.e., 100 percent 

of the eligible capital costs, based on a 30 percent grant provided to the facility and the loan 

to finance the remaining 70 percent of the eligible capital costs) divided by a 20-year loan 

repayment period. Eligible capital costs are all costs associated with improvements for the 

planning, design, and construction costs for a nitrogen removal facility, excluding costs related 

to the modification of a facility for purposes other than the enhancement of the nitrogen 

treatment process (e.g., secondary treatment upgrades), and the costs of equipment and 

land necessary for nitrogen treatment. Total eligible annual operation and maintenance costs 

means the incremental increase in the cost of labor, administration, electricity, and chemicals 

to remove nitrogen. Operation and maintenance (O&M) costs are estimated using a survey 

sent to all facilities conducting nitrogen removal projects (project facilities). The reduction 

in equalized pounds of nitrogen is calculated by first subtracting the baseline loading established for the facility in the TMDL for Long Island Sound from the actual end-of-pipe pounds 

of nitrogen discharged by each of the project facilities to quantify the reduction from project 

implementation and multiplying by the appropriate equivalency factor, as shown above.

Total annual Nitrogen Removal Project cost/Total reduction in equalized pounds of nitrogen = 

Cost per equalized nitrogen credit

Capital costs (i.e., annual Clean Water Fund repayment amount for nitrogen treatment facilities) 

+ O&M estimated costs (i.e., estimates of O&M costs associated with nitrogen treatment facilities 

from a survey of Project Facilities) = Total annual Nitrogen Removal Project cost

(Actual end-of-pipe pounds of nitrogen discharged by each Project Facility − baseline nitrogen 

loading for a Project Facility from the TMDL) (Project Facility’s equalization factor) = Reduction in 

equalized pounds of nitrogen

Example: Calculating the Annual Value of Nitrogen Credits and

Reductions in Equalized Pounds of Nitrogen

In 2003 the Nitrogen Credit Advisory Board established the value of an equalized nitrogen credit 

for FY 2002 at $1.65.

$1,765,432 Capital Costs + $2,944,013 O&M estimated costs = $4,709,445 Total 

Project Cost
Water Quality Trading Toolkit for Permit Writers

A-19A p p e n d i x A

Each year CTDEP audits the performance of plants operating for the full calendar 

year (January 1 to December 31) to establish the value of nitrogen credits, taking into 

consideration increased capital costs of nitrogen removal for projects implemented 

the prior year (i.e., operational as of January 1 for each trading year), as well as added 

operation and maintenance costs of reduction methods. At the end of March each year, 

CTDEP determines the total number of credits to be bought and sold, publishes the 

annual value of nitrogen credits, and notifies each plant of its nitrogen credit balance. 

Plants have until the end of July to purchase credits from CTDEP to meet their discharge 

limit. By the middle of August, CTDEP must purchase all available credits and send 

payments to the facilities that generated the credits.

In 2002, 38 facilities generated approximately 1,671,105 equalized nitrogen credits to sell at 

$1.65 per credit for a total value of $2,757,323. In 2002, 38 facilities were required to purchase a total of 798,317 equalized nitrogen credits to remain in compliance with the General 

Permit; at $1.65 per credit, the total amount of purchased credits was $1,317,223. As a result, 

approximately 872,788 equalized nitrogen credits were not needed by facilities to achieve 

permit compliance in 2002. The Nitrogen Credit Exchange Program required CTDEP to purchase the remaining 872,788 equalized nitrogen credits at a total cost of $1,440,100.

In 2003, 37 facilities generated approximately 1,134,876 equalized nitrogen credits to sell at 

$2.14 per credit for a total value of $2,428,636. To remain in compliance with the General Permit, 40 facilities purchased equalized nitrogen credits; at $2.14 per credit, the total amount 

of purchased credits was $2,116,875. CTDEP purchased the excess 145,682 equalized nitrogen 

credits for a total cost of $311,761.

In 2004, 35 facilities generated approximately 1,399,896 equalized nitrogen credits to sell at 

$1.90 per credit for a total value of $2,659,804. To remain in compliance with the General Permit, 44 facilities purchased equalized nitrogen credits; at $1.90 per credit, the total amount 

of purchased credits was $1,786,736. CTDEP purchased the excess 459,509 equalized nitrogen 

credits for a total cost of $873,068.

In 2005, 28 facilities generated approximately 623,408 equalized nitrogen credits to sell at 

$2.11 per credit for a total value of $1,315,392. To remain in compliance with the General Permit, 50 facilities purchased equalized nitrogen credits; at $2.11 per credit, the total amount of 

purchased credits was 1,169,553 for a total cost of $2,467,757.

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut

Example: Calculating the Annual Value of Nitrogen Credits and

Reductions in Equalized Pounds of Nitrogen (continued)

To find the total reduction in equalized pounds of nitrogen, it is necessary to look at each of the 

Project Facilities financing nitrogen removal projects. In 2002 a total of 23 Project Facilities 

achieved a reduction of 2,861,852 equalized pounds of nitrogen.

$4,709,445 Total Project Cost/2,861,852 total pounds of equalized nitrogen 

removed = $1.65 per equalized nitrogen credit
Water Quality Trading Toolkit for Permit Writers

A-20

Number of equalized nitrogen credits (equivalent lb/day) × 365 days = Annual total of 

equalized nitrogen credits

Total cost of annual equalized nitrogen credits to achieve permit compliance = Annual total of 

equalized nitrogen credits × Annual value of equalized nitrogen credits

Example: Calculating the Cost of Equalized Nitrogen Credits Necessary to Achieve 

Permit Compliance

In the previous example, Facility X was required to purchase 91 equalized nitrogen credits to 

comply with its annual discharge limit under the General Permit for 2002.

CTDEP will send Facility X a letter that indicates the facility’s annual average mass loading for 

2002, the annual discharge limit for 2002 under the General Permit, the number of equalized 

nitrogen credits that the facility must purchase to achieve permit compliance and the value of 

an equalized nitrogen credit for 2002. To calculate the total number of credits and the total cost, 

CTDEP will make the following calculations:

Number of equalized nitrogen credits (equivalent lb/day) × 365 days = Annual total of equalized 

nitrogen credits

Total cost of annual equalized nitrogen credits to achieve permit compliance = Annual total of 

equalized nitrogen credits × Annual value of equalized nitrogen credits

Therefore, the letter from CTDEP to Facility X will indicate that the facility must purchase 91 

equalized nitrogen credits (equivalent lb/day) for 365 days, for a total of 33,215 equalized nitrogen 

credits. At a cost of $1.65 per credit, Facility X will spend a total of $54,804.75 to achieve permit 

compliance in 2002.

What Are the Trading Mechanisms?

CTDEP sends a final invoice to each POTW at the end of March each year. The final invoice 

indicates the total number of credits to be bought or sold and the annual value of equalized 

nitrogen credits.

What Is the Pollutant Trading Ratio?

CTDEP considers a trading ratio to be a factor that adjusts for variability among sources. 

Using this definition, CTDEP considers the equivalency factors for each of the management 

zones to be the trading ratios of the Long Island Sound Nitrogen Credit Exchange Program 

(Stacey 2004b). The equivalency factors were published in the TMDL and in Connecticut’s 

enabling legislation.
Water Quality Trading Toolkit for Permit Writers

A-21

What Type of Monitoring Is Performed?

A p p e n d i x A

Since 2002 treatment plants have been required to monitor flow and total nitrogen, reporting to the state on a monthly basis. All treatment facilities must monitor daily flow continuously to calculate their average daily flow volume. Depending on the facility’s flow rate, it 

must monitor the final effluent either once per week (if its flow rate is less than 10,000,000 

gallons per day) or twice per week (if its flow rate is greater than or equal to 10,000,000 

gallons per day). Each month, municipalities must enter the results of analyses for the total 

nitrogen and the average daily flow volume of the effluent on Monthly Operating Reports 

and Nitrogen Analysis Reports, which they present to the CTDEP. Plants are also subject to 

annual inspections. CTDEP inspects each of the 79 municipal facilities regulated under the 

General Permit at least once during each year of the program, evaluating all aspects of the 

facility’s operation and monitoring procedures.

What Are the Incentives for Trading?

CTDEP is authorized to conduct compliance audits of the annual operating data for plants 

that participate in the program. Any plant that fails to meet its individual wasteload allocations and does not purchase the appropriate amount of credits is subject to existing statutory water pollution control enforcement provisions. Within 5 days of learning of a violation 

under the General Permit, a point source must determine the cause of the violation, institute 

plans to correct the violation, mitigate its effects, and prevent further forms of it. The permittee is also required to report the violation and subsequent corrective action to the state. 

The state reserves the right to revoke or modify a point source’s authorization under the 

General Permit.

What Water Quality Improvements Have Been Achieved?

Actual nitrogen removal has been ahead of the reduction targets established in the TMDL for 

nitrogen.

What Are the Potential Challenges in Using This Trading 

Approach?

Upgrades to municipal treatment plants require stable, multiyear funding. The single factor 

most critical factor to the continued progress of the program is the continued availability of 

Clean Water Fund dollars to support the infrastructure of nitrogen removal.

What Are the Potential Benefits?

CTDEP’s approach to the Nitrogen Credit Exchange Program establishes a well-defined trading structure supported and regulated by limits mandated in state law. Equivalency factors 

and all accounting methodologies were specified in the state enabling legislation to formalize all calculations used in trading. This might help reduce technical challenges to the program as opposed to, for example, just including equivalency factors in the TMDL and the 

General Permit (Stacey 2004a).

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut
Water Quality Trading Toolkit for Permit Writers

A-22

Applicable NPDES Permit Language

CTDEP initially issued the General Permit for Nitrogen Discharges in January 2002. The permit 

was reissued in December 2005. The following excerpts contain trading provisions found in 

the 2005 permit.

Section 4.(b) Compliance During Term of Permit

(1) A permittee shall be in compliance with its annual discharge limits of this general 

permit if:

(A) the POTW’s annual mass loading of total nitrogen is less than or equal to the 

discharge limit set forth in Appendix 1; or,

(B) the permittee has secured state-owned equivalent nitrogen credits equal to the 

amount the POTW exceeded the annual discharge limit set forth in Appendix 1 

in accordance with the Nitrogen Credit Exchange Program and Sections 22a-521 

through 527 of the Connecticut General Statutes.

(2) A permittee shall be out of compliance with the annual discharge limits of the general permit and subject to the enforcement provisions of chapter 446k of the Connecticut General Statues if:

(A) the POTW’s annual mass loading of total nitrogen is greater than the discharge 

limit set forth in Appendix 1; and

(B) the permittee fails to secure sufficient state-owned equivalent nitrogen credits in a 

timely manner in accordance with the Nitrogen Credit Exchange Program and Sections 22a-521 through 527 of the Connecticut General Statutes.

Section 4. (m) Other Applicable Law

Nothing in this general permit shall relieve the permittee of the obligation to comply with 

any applicable federal, state and local law, including but not limited to the obligation to 

obtain and comply with any authorizations required by such law. In the event a POTW is 

subject to a more stringent nitrogen limitation than set forth in this general permit, the 

Permittee shall comply with that more stringent limitation and may not purchase or transfer 

nitrogen credits to comply with that additional limitation.

Contact Information

Paul E. Stacey

Director, Planning and Standards Division

Bureau of Water Protection and Land Reuse

(860) 424-3704

paul.stacey@po.state.ct.us
Water Quality Trading Toolkit for Permit Writers

A-23

References and Resources

A p p e n d i x A

CTDEP (Connecticut Department of Environmental Protection). 2000. Response to Public 

Comments on the Draft Nitrogen Wasteload Allocation for Point Source Discharges in 

Connecticut. December.

CTDEP (Connecticut Department of Environmental Protection). 2001. General Permit for 

Nitrogen Discharges: Permit Fact Sheet. September.

CTDEP (Connecticut Department of Environmental Protection). 2002. General Permit for 

Nitrogen Discharges. January 2.

CTDEP (Connecticut Department of Environmental Protection). 2003. Second Annual Report 

of the Nitrogen Credit Advisory Board to the Joint Standing Committee of the General 

Assembly Concerning the Nitrogen Credit Exchange Program. September.

CTDEP (Connecticut Department of Environmental Protection). 2005. General Permit for 

Nitrogen Discharges. December 21.

CTDEP and NYSDEC (Connecticut Department of Environmental Protection and New York 

State Department of Environmental Conservation). 2000. A Total Maximum Daily Load 

Analysis to Achieve Water Quality Standards for Dissolved Oxygen in Long Island Sound.

Stacey, Paul. 2004a. Personal communication. July 9.

Stacey, Paul. 2004b. Personal communication. July 22.

Stacey, Paul. 2004c. Personal communication. September 22.

Stacey, P., and M. Tedesco. 2004. Implementing a TMDL, Water Quality Standard Modification 

and Nitrogen Trading to Attain Hypoxia Management Goals in Long Island Sound. In

Watershed 2004 Conference Proceedings, Water Environment Federation, July 11-14, 

2004, Dearborn, MI.

Connecticut Department of Environmental Protection’s Nitrogen Control Program for Long 

Island Sound Web site. 

<http://www.ct.gov/dep/cwp/view.asp?a=2719&q=325572&depNav_GID=1654>.

Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut
Water Quality Trading Toolkit for Permit Writers

A-24
Water Quality Trading Toolkit for Permit Writers

A-25A p p e n d i x A Long Island Sound Nitrogen General Permit and Nitrogen Credit Exchange Program  Connecticut
Water Quality Trading Toolkit for Permit Writers

A-26
Water Quality Trading Toolkit for Permit Writers

A-27A p p e n d i x A

Overview

The Lower Boise Effluent Trading Project will allow point and nonpoint sources to trade 

phosphorus credits generated by approved nonpoint source best management practices 

(BMPs). These BMPs have been assigned an effectiveness ratio and an uncertainty discount. 

Trades will be coordinated through contracts and specified forms and tracked in a statewide 

database.

Type of Trading Pollutant(s) Traded

Point Source–Point Source

Point Source–Nonpoint Source

Total phosphorus

Number of Trades to Date

None

Who Is Eligible to Participate?

Point source NPDES permit holders (e.g., wastewater treatment plants, industrial dischargers) 

and nonpoint sources (e.g., farmers and irrigation districts) are eligible to participate.

What Generated the Need for Trading?

The states of Idaho, Oregon, and Washington worked with EPA Region 10 to explore water 

quality trading as a tool for managing water resources prior to developing and implementing 

total maximum daily loads (TMDLs).

What Serves as the Basis for Trading?

Nutrient reductions in the Lower Boise River TMDL were deferred until the completion and 

approval of the Snake River-Hells Canyon TMDL (Idaho DEQ and Oregon DEQ 2004). The 

TMDL for Snake River-Hells Canyon addresses nutrients and sets nutrient reduction goals for 

the Lower Boise River because loading to the river has a significant impact on nutrient loading and nuisance aquatic growth in downstream portions of the Snake River-Hells Canyon 

watershed. In the interim, the Lower Boise River TMDL called for no net increase of total 

phosphorus (Breetz et al. 2004). Trading has been delayed until the completion and approval 

of the Snake River-Hells Canyon TMDL.

In September 2004, EPA approved the Snake River-Hells Canyon TMDL. The final TMDL 

provides an allocable phosphorus load for three segments. The final TMDL provides only 

phosphorus wasteload allocations for point sources that discharge directly to the Snake River. 

Tributaries to the Snake River, including the Lower Boise River, must set wasteload allocations for point sources through separate tributary TMDL processes. Therefore, point sources 

Lower Boise Effluent Trading Demonstration 

Project

Idaho

Lower Boise Effluent Trading Demonstration Project  Idaho
Water Quality Trading Toolkit for Permit Writers

A-28

in the Lower Boise River Basin do not yet have specific wasteload allocations as a result of the 

Snake River-Hells Canyon TMDL. A Watershed Advisory Group (WAG) is developing the Lower 

Boise TMDL. After the WAG completes the TMDL, the Idaho DEQ will review and revise it and 

submit it for EPA approval. The current target is to complete the TMDL process by the end of 

2007 (Schary 2007).

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

After it is complete, the Lower Boise River Nutrient TMDL, which will reflect allocations based 

on the Snake River-Hells Canyon TMDL, is likely to serve as the basis for trading.

Phosphorus Load Baseline

Appendix J of the 1999 report Lower Boise River TMDL Subbasin Assessment, Total Maximum 

Daily Loads contains an overview of Idaho Department of Environmental Quality’s (DEQ) 

methodology for establishing the proposed no net increase total phosphorus loads. The 

methodology describes the steps as follows (Idaho DEQ 1999):

1. Create a best-fit model to predict the total phosphorus concentration, using the 

FLUX model or non-linear model. Use seasonal or flow stratification, if necessary, to 

minimize error.

2. Use daily 1996 flow data and the model from step 1 to predict daily total phosphorus 

concentrations.

3. Calculate daily total phosphorus loads for the entire 1996 calendar year.

4. Summarize the daily loads seasonally, annually, by averages, and by mass totals.

The FLUX model used in step 1 is a U.S. Army Corps of Engineers program that predicts nutrient loads on the basis of sample data and daily flow information. The FLUX model uses three 

averaging and three linear regression techniques (Idaho DEQ 1999). Idaho DEQ will reassess 

the 1996 phosphorus baseline load because of land use changes in the Lower Boise River; the 

reassessment process will use the same methodology described in Appendix J (Horsburgh 

2004).

Phosphorus Allocations

Although Idaho DEQ has not yet completed the process of determining phosphorus load and 

wasteload allocations, it has developed a work plan that outlines the tasks involved in generating the Lower Boise River Nutrient TMDL. According to the work plan, the technical analysis 

related to developing the phosphorus load and wasteload allocations will involve updating 

the phosphorus mass-balance spreadsheet for the Lower Boise River with recent hydrologic 

and phosphorus concentration data; developing four phosphorus allocation scenarios and 

associated cost-estimates for each scenario; and addressing other technical issues related to 

the TMDL, such as evaluating methods to add a margin of safety to phosphorus allocations 

(Idaho DEQ 2004).

Are Permits Used to Facilitate Trades?

Point sources have discharge limits in their NPDES permits that serve as the basis for their 

trading. The future wasteload allocations established to reflect the phosphorus reduction 

targets identified under the approved Snake River-Hells Canyon TMDL will eventually be 
Water Quality Trading Toolkit for Permit Writers

A-29A p p e n d i x A

translated into new permit limits for point source dischargers in the Lower Boise River. EPA 

Region 10, the NPDES permitting authority in Idaho, is responsible for updating NPDES permits to reflect the new wasteload allocations.

How Are Credits Generated for Trading?

In the Lower Boise River Pollutant Trading Program, credits are defined as “reductions of a 

pollutant below a level set by a TMDL” (Idaho DEQ 2003). If a TMDL requires a reduction of 

100 pounds per day, a source would need to reduce its pollutant load by 101 pounds per day 

to satisfy the requirements of the TMDL and to generate one credit eligible for trading.

For point source–nonpoint source trading, there are two approaches to determine the credits 

generated by nonpoint sources: (1) the calculated approach and (2) the measured approach. 

The calculated approach estimates an average reduction for a specific BMP using existing 

data and management factors or trade ratios. For measured credits, actual grab samples taken during a BMP’s operation are used to determine reductions (ISSC 2002). A more detailed 

description of each approach is provided below.

The calculated credit approach is taken from the Idaho Soil Conservation Commission’s (ISSC) 

BMP List document (ISSC 2002), which describes the methodology for determining BMP effectiveness and calculating credits. The first step is to identify the BMP to be used to generate 

phosphorus reductions and the associated effectiveness discount (i.e., the percent of estimated efficiency of the BMP) and the uncertainty discount (i.e., a multiplier that reduces the 

number of credits generated by a nonpoint source because of variability in the effectiveness 

of the practice). The next step is to determine the estimated phosphorus losses, also referred 

to as the nonpoint source’s baseline load. This is done by using the Surface Irrigation Soil Loss 

(SISL) tool to calculate the amount of soil loss in tons and then multiplying the soil loss by 2 

pounds of phosphorus per ton of soil loss to calculate the equivalent pounds of phosphorus. 

The estimated phosphorus reduction generated by a BMP is the nonpoint source’s baseline 

load multiplied by the BMP effectiveness discount minus the uncertainty discount.

Credits are generated only after the TMDL reduction is met. Therefore, it is also important to 

calculate the nonpoint source’s share of the reduction needed to achieve the TMDL load allocation. To calculate this, the nonpoint source’s baseline load is multiplied by a water quality 

contribution percentage that represents the individual nonpoint source’s share of the reduction amount needed to achieve the load allocation assigned in the TMDL. For example, if the 

load allocation specified in the TMDL is 100 pounds of phosphorus per day and the nonpoint 

source must make a phosphorus reduction of 50 pounds per day to achieve that load allocation, the nonpoint source’s water quality contribution is 50 percent. Therefore, the nonpoint 

source’s phosphorus reductions must exceed its 50 percent water quality contribution before 

generating any credits to sell. To determine the reductions that are eligible to become tradable credits, the nonpoint source’s water quality contribution reduction is subtracted from 

Soil loss (tons) × 2 (lb/ton) = Estimated phosphorus loss (or the nonpoint source’s 

baseline load)

Nonpoint source’s baseline load × (BMP Effectiveness discount − BMP Uncertainty 

discount) = Estimated BMP Phosphorus Reduction

Lower Boise Effluent Trading Demonstration Project  Idaho
Water Quality Trading Toolkit for Permit Writers

A-30

the amount of reduction generated by a BMP. The phosphorus reduction eligible for sale as 

credits is calculated as the difference between the estimated phosphorus reduction generated by the BMP and the phosphorus reduction required to achieve the TMDL load allocation 

(Breetz et al. 2004).

After determining the estimated phosphorus reduction eligible for trading, final credits are calculated by applying three other factors that adjust credits according to location. The geographic factors are referred to as the (1) river location ratio, (2) site location factor, and (3) drainage 

delivery ratio. The three factors are essentially categories of transport factors that take into 

consideration losses of phosphorus as it travels from the point of discharge through the Lower 

Boise River to the mouth of the drainage (referred to as Parma for the town at the mouth of 

the Lower Boise River). For more on these factors see What Is the Pollutant Trading Ratio?

Nonpoint Source Baseline Load × Water Quality Contribution Percentage = 

Phosphorus reduction required to achieve the TMDL load allocation

Estimated BMP Phosphorus Reduction − Phosphorus reduction required to achieve 

the TMDL load allocation = Phosphorus reduction eligible for trading

Estimated Phosphorus Reduction Eligible for Trading × Site Location Factor × Drainage 

Delivery Ratio × River Location Ratio = Phosphorus Credits (Parma Pounds) 

for sale

Credits are generated and used on a monthly basis. Nonpoint source credits are created at the end of 

the month, and point sources must use those credits to offset nutrient loading during the same month 

(Idaho DEQ 2003).

Example: Estimating Phosphorus Reductions and Calculating Phosphorus Credits

Adapted from Pollutant Trading Guidance (Idaho DEQ 2003).

A nonpoint source wants to generate phosphorus credits for trading by converting a 30 acre surface 

irrigated field to a sprinkler system capable of eliminating all sedimentation loss (100 percent 

effectiveness) but with a 10 percent uncertainty discount. The average annual Surface Irrigation Soil 

Loss (SISL) load is determined to be 7.3 tons per acre for the 30 acres of field, for a total of 219 tons 

of soil loss per irrigation season.

The TMDL requires a 78 percent phosphorus reduction from all sources, and therefore the nonpoint 

source’s water quality contribution is equal to the 78 percent required reduction.

The nonpoint source used Idaho’s Pollutant Trading Guidance to determine the applicable trading ratios. 

The Site Location Factor is 0.8, because there is potential reuse, but not through a canal. The distance 

from the river to the entry point at the channel is 2.5 miles, which gives a 0.975 Drainage Delivery 

Ratio. The River Location Ratio is 0.75, which will convert the pounds reduced into Parma Pounds or 

tradeable credits.
Water Quality Trading Toolkit for Permit Writers

A-31A p p e n d i x A

What Are the Trading Mechanisms?

The Lower Boise Trading Framework relies on several trading mechanisms to facilitate and 

report on trading activities. The first mechanism is the Trade Notification Form, which is 

required for each trade. It is the official document that registers the trade, transfers credits, 

and adjusts pollutant limits. The next mechanism is the Reduction Credit Certificate, which 

documents the nonpoint source reduction and creates the credit for a point source–nonpoint source trade. After signing and submitting the Reduction Credit Certificate, the point 

source may use credits generated by the nonpoint source. A third mechanism is the Discharge 

Monitoring Report (DMR) prepared by the point source, as required by its NPDES permit. As 

a trading participant, the point source submits information pertaining to the trade with the 

DMR, including its actual average monthly discharge, the amount of credits bought or sold, 

and the adjusted discharge. A fourth mechanism is the Trade Summary Report, which is sent 

by the Idaho Clean Water Cooperative (the nonprofit responsible for tracking trades) to point 

sources involved in trading for submission to EPA with the DMR (Idaho DEQ 2003).

What Is the Pollutant Trading Ratio?

A series of pollutant trading ratios are used in the Lower Boise River Pollutant Trading Program. For BMP effectiveness, the ISCC assigned each approved BMP an effectiveness ratio and 

an uncertainty discount. The uncertainty discount is to be subtracted from the effectiveness 

ratio.

Lower Boise Effluent Trading Demonstration Project  Idaho

Example: Estimating Phosphorus Reductions and Calculating Phosphorus Credits 

(continued)

To calculate the tradeable credits, the nonpoint source works through the following calculations:

Soil loss (tons) × 2 (lb/ton) = Estimated phosphorus loss (or the nonpoint source’s 

baseline load)

219 tons × 2 lbs/ton = 438 lb P

Nonpoint source’s baseline load × (BMP Effectiveness - BMP Uncertainty discount) = Estimated 

BMP Phosphorus Reduction

438 lb P × (1.0 − 0.10) = 394.2 lb P

Nonpoint Source Baseline Load × Water Quality Contribution Percentage = Phosphorus reduction 

required to achieve the TMDL load allocation

438 lb P × 0.78 = 341.64 lb P

Estimated BMP Phosphorus Reduction–Phosphorus reduction required to achieve the TMDL load 

allocation = Phosphorus reduction eligible for trading

394.2 lb P − 341.64 lb P = 52.56 lb P

Estimated Phosphorus Reduction Eligible for Trading × Site Location Factor × Drainage Delivery 

Ratio × River Location Ratio = Phosphorus Credits (Parma Pounds) for sale

52.56 lb P × 0.8 × 0.975 × 0.75 = 30.75 Parma Pounds of phosphorus credits
Water Quality Trading Toolkit for Permit Writers

A-32

Phosphorus reductions that are eligible to generate credits for trading (i.e., reductions that 

exceed those required by a TMDL) are calculated using three geographic ratios that function 

as transport factors because they are intended to account for phosphorus losses from the site 

of the BMP, through the Lower Boise River, to the mouth. The three ratios are as follows:

• River Location Ratio. This ratio accounts for phosphorus losses due to irrigation diversions that remove flow from the river at many points. A mass-balance model that 

accounts for phosphorus inputs, withdrawals and groundwater is used to calculate 

the river location ratio. The river location ratio is calculated from each source relative 

to Parma; therefore, phosphorus credits are measured in Parma Pounds (Idaho DEQ 

2003).

• Site Location Factor. This ratio takes into account phosphorus losses due to wastewater reuse and natural sediment-phosphorus relationships. Total phosphorus lost at 

the field is less likely to reach the subwatershed’s channel due to travel distance and 

the chance of reuse. Three site location factors take these variables into consideration 

(Idaho DEQ 2003).

• Drainage Delivery Ratio. This ratio also takes into account phosphorus losses in the 

subwatershed’s main channels by using the linear calculation:

(100 − distance in miles to mouth of the drain from the project’s point of discharge on 

the drain) / 100 (Idaho DEQ 2003).

Idaho DEQ will review the ratios at least every 5 years using trading information from the 

trading database. Revisions will be made if Idaho DEQ determines that there is a 30 percent 

discrepancy from the published ratios (Idaho DEQ 2003).

What Type of Monitoring Is Performed?

Point sources must submit a monthly DMR, and purchased credits will be checked against the 

DMRs in audits of NPDES permits. A Trade Summary Report from the Trade Trading System 

must accompany the DMR. For measurable nonpoint reductions, water quality monitoring of 

inflow and outflow verifies the exact amount of reduction. For calculated nonpoint sources 

reductions, BMP installation is monitored by the point source before the creation of credit, 

and maintenance inspections are conducted by the point source to document monthly credits. The point source inspects the nonpoint source projects at least once a year after installation and before seasonal operation (Idaho DEQ 2003).

What Are the Incentives for Trading?

The incentive for point sources to participate in trading is that trading offers a flexible 

approach to meeting the NPDES permit limits, which will soon reflect the phosphorus wasteload allocation in the Snake River-Hells Canyon TMDL. Although nonpoint sources will have 

a load allocation under the Snake River-Hells Canyon TMDL, mechanisms to achieve the load 

allocation are largely voluntary. Therefore, the primary incentive for farmers to participate is 

the partial financial compensation for BMP installation and maintenance (Breetz et al. 2004).

What Water Quality Improvements Have Been Achieved?

No trading has occurred in the Lower Boise River to date; therefore, no water quality 

improvements are associated with trading in the Lower Boise River.
Water Quality Trading Toolkit for Permit Writers

A-33

What Are the Potential Challenges in Using This Trading 

A p p e n d i x A

Approach?

The Lower Boise River Pollutant Trading Program might face a few challenges. The need 

to have the Lower Boise River Trading Framework revised to reflect the recently approved 

Snake River-Hells Canyon TMDL will delay the trading program. Many of the BMP verification 

requirements and much of the paperwork associated with completing the required trading 

documents appear to be the responsibility of participating point sources. Another challenge 

associated with the approach used in the Lower Boise River, and possibly throughout Idaho, is 

the fact that EPA Region 10 is the NPDES permitting authority for the state of Idaho. The fact 

that the NPDES permits that will facilitate point source trades are not developed by Idaho 

DEQ might necessitate an additional layer of coordination and facilitation between the state 

and EPA Region 10.

What Are the Potential Benefits?

Potential benefits of the approach used by the Lower Boise River Pollutant Trading Program 

include a comprehensive trading tracking database that allows Idaho DEQ and other stakeholders to easily assess progress and trends in trading activities. In addition, this approach appears 

to have a thorough process for incorporating BMP uncertainties into trades by using effectiveness ratios and uncertainty discounts for each BMP, rather than a blanket trade ratio that 

applies to all point source–nonpoint source trades. The plan to conduct a 5-year review of all 

ratios is also beneficial, ensuring that trade ratios reflect actual watershed conditions.

Applicable NPDES Permit Language

No trades have occurred at this time; therefore, no NPDES permits contain trading language. 

However, the Lower Boise Effluent Trading Demonstration Project did produce permit 

outlines for three types of trades: (1) point source–point source upstream trades, (2) point 

source–point source downstream trades, and (3) point source–nonpoint source trades. The 

permit outline available for point source–nonpoint source trades does not have the support 

of EPA Region 10, the NPDES permitting authority for the state of Idaho. Ideally, Idaho DEQ 

would like to have permit language developed for point source–nonpoint source trades that 

is dynamic and will allow this type of trade without having to reopen or rewrite permits. EPA 

Region 10, however, has concerns regarding the most effective mechanism for demonstrating 

the pollutant reductions achieved by participating nonpoint sources.

Contact Information

Claire Schary

Water Quality Trading Coordinator

U.S. Environmental Protection Agency, Region 10

(206) 553-8514

Susan Burke

Compliance and Special Projects Coordinator

Water Quality Division

Idaho Department of Environmental Quality

(208) 373-0574

susan.burke@deq.idaho.gov

Lower Boise Effluent Trading Demonstration Project  Idaho
Water Quality Trading Toolkit for Permit Writers

A-34

References and Resources

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Horsburgh, Bryan. 2004. Personal communication. September 23.

Idaho DEQ (Idaho Department of Environmental Quality). 2006. Pollutant Trading Overview. 

<http://www.deq.state.id.us/water/prog_issues/waste_water/pollutant_trading/

overview.cfm>.

Idaho DEQ (Idaho Department of Environmental Quality). 2004. Lower Boise River Nutrient 

TMDL Development Work Plan. Idaho Department of Environmental Quality.

Idaho DEQ (Idaho Department of Environmental Quality). 2003. Pollutant Trading Guidance. 

Idaho Department of Environmental Quality. <http://www.deq.state.id.us/water/

prog_issues/waste_water/pollutant_trading/pollutant_trading_guidance_entire.pdf>.

Idaho DEQ (Idaho Department of Environmental Quality). 1999. Lower Boise River TMDL: 

Subbasin Assessment, Total Maximum Daily Loads. December 18, 1998; revised September 

29, 1999. Idaho Department of Environmental Quality. <http://www.deq.idaho.gov/water/

data_reports/surface_water/tmdls/boise_river_lower/boise_river_lower_entire.pdf>.

Idaho DEQ and Oregon DEQ (Idaho Department of Environmental Quality and Oregon 

Department of Environmental Quality). 2004. Snake River-Hells Canyon Total Maximum 

Daily Load (TMDL). Submitted July 2003 and Revised June 2004. Prepared by Idaho 

Department of Environmental Quality and Oregon Department of Environmental Quality. 

<http://www.deq.idaho.gov/water/data_reports/surface_water/tmdls/

snake_river_hells_canyon/snake_river_hells_canyon_entire.pdf>.

Idaho DEQ (Idaho Department of Environmental Quality). Lower Boise River Effluent 

Trading Demonstration Project: Summary of Participant Recommendations For a 

Trading Framework. Prepared for the Idaho Division of Environmental Quality by Ross & 

Associates Environmental Consulting, Ltd. September 2000. 

<http://www.deq.state.id.us/water/data_reports/surface_water/tmdls/boise_river_lower/

boise_river_lower_effluent_report.pdf>.

ISCC (Idaho Soil Conservation Commission). 2002. Best Management Practice (BMP) List for 

the Lower Boise River Pollution Trading Program. May 1, 2002. 

Schary, Claire. 2007. Personal communication via e-mail. March 14.
Water Quality Trading Toolkit for Permit Writers

A-35A p p e n d i x A

Overview

To expand production and reduce costs, the Rahr Malting Company (Rahr) wanted to construct its own wastewater treatment plant (WWTP) instead of discharging to a regional 

WWTP; however, a 1985 wasteload allocation (WLA) for 5-day carbonaceous biochemical 

oxygen demand (CBOD5) in the lower Minnesota River prohibited any new discharges to 

the river that added to the pollutant loading levels (MPCA 1997c; Breetz et al. 2004). In an 

effort to find a solution, Rahr negotiated an agreement with the Minnesota Pollution Control 

Agency (MPCA) to offset CBOD5

 discharge from its new wastewater treatment plant by funding upstream nonpoint source pollutant reductions.

Rahr was issued a NPDES permit incorporating trading in 1997. The permit allowed Rahr to 

discharge approximately the same amount it currently discharged to the regional WWTP but 

imposed concentration-based effluent limits as well as nonpoint source trading requirements 

to offset the pollutant loading. Rahr was required to establish a $250,000 trust fund to pay 

for its nonpoint source offsets.

In 5 years, Rahr achieved the needed nonpoint source loading reductions through four 

nonpoint source offsets (Fang and Easter 2003). Over the course of the permit cycle, MPCA 

observed opportunities for further refinement of the program and crediting process. This 

fact sheet describes the initial permit and best management practices (BMPs); however, 

future permits may incorporate adjustments to the trade ratios and potentially remove the 

use of nitrogen reduction for CBOD5

 credits (Klang 2006c).

Type of Trading Pollutant(s) Traded

Point Source–Nonpoint Source Phosphorus

Nitrogen

CBOD5

Sediment

Number of Trades to Date

Rahr has implemented four nonpoint source BMP implementation projects to offset loadings from the facility. Two projects at the junction of the Cottonwood and Minnesota Rivers 

involved riparian vegetation restoration on sites that were then donated to the city of New 

Ulm. They resulted in reductions of 28.8 and 71.1 lbs/day CBOD5

 respectively (Sparks and Wallace 2006). The other two, on 8-Mile Creek and Rush River, stabilized eroding banks (Klang 

2006a; Sparks and Wallace 2006). 8-Mile Creek’s project involved the planting of a bank 

stabilization area as well as livestock exclusion and reduced 13.4 lbs/day CBOD5

 (Sparks and 

Wallace 2006). To protect the Rush River site’s eroding cliff face, a bench terrace was constructed and the channel was diverted. This project reduced 98.6 lbs/day CBOD5

 (Sparks and 

Wallace 2006).

Rahr Malting Company Permit

Minnesota

Rahr Malting Company Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-36

Who Is Eligible to Participate?

Rahr is the only point source eligible to trade under the permit. The only limitation placed on 

nonpoint source BMP sites were that they must be upstream of Shakopee in the Minnesota 

River Basin.

What Generated the Need for Trading?

By constructing and operating its own WWTP, Rahr could increase production by 20 percent 

and still reduce costs. Rahr’s increased production and discharge would have cost an additional one million dollars if Rahr continued to have its discharge treated at the regional WWTP 

facility (Breetz et al. 2004). However, because of the lower Minnesota River’s WLA for CBOD5, 

all the pollutant load was already allocated to existing sources and Rahr could not obtain 

the allocation necessary to construct a WWTP. Though the regional WWTP possessed the 

necessary wasteload allocation for Rahr’s discharge, Rahr could not get the discharge rights 

transferred, therefore Rahr came up with a strategy of offsetting its load through nonpoint 

source trading (Breetz et al. 2004).

What Serves as the Basis for Trading?

In 1985 EPA, MPCA and the Metropolitan Council (the regional planning agency for the 

Twin Cities area) negotiated a wasteload allocation, described in the Lower Minnesota River 

Wasteload Allocation Study, for the lower 26 miles of the Minnesota River. The WLA required 

a 40 percent reduction of upstream and sediment CBOD5

 concentrations. Most of the CBOD5

came from loading from WWTPs and manure from feedlots. The Minnesota River Assessment 

Project (MRAP), completed in 1992, identified that the eutrophication in the river supplied a 

significant amount of CBOD5

 load as dead algae.

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

A RMA-12 model was used in the development of the 1985 Waste Allocation Study for point 

sources on the Minnesota River. This is a version of the QUAL-II model, which is a one dimension model for stream quality. The RMA-12 model differs from the QUAL-II model by changing the growth equation for algal biomass and redefining the nitrogen cycle. While the 

QUAL-II model considers nitrogen as Kjeldahl nitrogen, the RMA-12 model allows for organicand ammonia-nitrogen to be considered separately. The RMA-12 also allows for uptake of 

ammonia-nitrogen by algae as opposed to only allowing nitrate-nitrogen uptake by algae as 

in the QUAL-II model (MPCA 1985).

The RMA-12 model is a one-dimensional model and simulates the effects of wasteloads, nitrification, sediment oxygen demand, and algal photosynthesis (USEPA 1992). It uses an advective-dispersive equation to solve for 11 water quality constituents numerically (MPCA 1985). 

The constituents include

1. Phytoplankton algae

2. Chlorophyll a

3. CBOD

4. Dissolved Oxygen

5. Benthic oxygen demand

6. Atmospheric reaeration

 7. Organic nitrogen

 8. Ammonia nitrogen

 9. Nitrite nitrogen

10. Nitrate nitrogen

11. Orthophosphate
Water Quality Trading Toolkit for Permit Writers

A-37A p p e n d i x A

The model considers 30 different transformation pathways for the above constituents including sources/sinks for CBOD5

 by settling or resuspension, loss of ammonia nitrogen to the 

atmosphere, and uptake of phosphorus into phytoplankton biomass. It also uses a finite-difference technique to solve the mass balance equations taking into account various stream 

effects. Since the critical period of concern for low dissolved oxygen was the summer lowflow period, the RMA-12 model was used in steady-state mode for the study (MPCA 1985).

While water quality calibration data existed from an intensive river survey in 1965 and a 

summer low flow survey in 1974, the existing data lacked sufficient measurements of algal 

productivity and benthic demands. Therefore another intensive river survey was conducted 

during a seasonally warm and low-flow period in August 1980, and the resulting data was 

used to calibrate the RMA-12 model (MPCA 1985). Though data existed for nine days, only 

four days were used for calibration because unsteady flow and rainfall conditions prevailed 

during the latter part of the study period. A period of 4 days was sufficient because it captured one complete flow through of the study reach. The model was verified by simulating 

water quality responses observed in the 1974 survey (MPCA 1985).

The Wasteload Allocation Study assumed that no additional load would be added to the 

Minnesota River. The two existing WWTPs, Blue Lake and Seneca, operated at secondary 

treatment requirements which resulted in effluent averaging 25 mg/L CBOD5. In the spring 

and fall, the WWTPs did not need additional treatment to ensure the river met the 5 mg/L 

dissolved oxygen minimum requirement (MPCA 1985). In the summer, additional treatment 

as well as a reduction in the headwater and sediment oxygen demand was required to maintain the 5 mg/L dissolved oxygen minimum requirement. The model predicted that additional 

treatment to 10 mg/L CBOD5

 by the WWTPs and a 40 percent reduction in headwater and 

sediment CBOD5

 concentrations would be required to meet the dissolved oxygen requirement during critical summer conditions (MPCA 1985). The model also predicted that additional treatment may also be required in the winter due to limited atmospheric reaeration 

caused by ice cover; however, it is difficult to quantify the amount of ice cover on the river. 

Under complete ice cover, a reduction to 10 mg/L CBOD5

 would be required by the WWTPs. 

If a 6 percent reduction in ice cover was possible, no additional treatment (beyond 25 mg/L 

CBOD5) would be necessary to maintain the dissolved oxygen requirement (MPCA 1985).

Are Permits Used to Facilitate Trades?

Rahr’s permit required the company to install and maintain limits-of-technology controls 

at the wastewater treatment facility, in addition to the trading requirements included. The 

permit contains a BOD effluent limit of 12-mg/L year round and a phosphorus monthly average limit of 2 mg/L in addition to the requirement to offset 150 lbs/day of CBOD5. The permit 

authorized trading of several pollutants that negatively impact water quality: nitrogen, phosphorus, and sediment to create CBOD5

 credits.

Section II.A.2.a of the permit outlines the effluent limitations for the facility. In addition to 

these limitations, the permit requires Rahr to reduce CBOD5

 mass loadings in accordance with 

Section II.A.2.b or “obtain CBOD5

 nonpoint load reduction [units] equal to or greater than its 

actual CBOD5 discharge.” This section specifies that one nonpoint source load reduction unit 

is the equivalent of one pound per day of CBOD5

 discharge. In addition, this section requires 

that Rahr obtain 20 units of reduction before start up of the wastewater treatment facility (if 

start up is after December 31, 1997).

Rahr Malting Company Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-38

The permit specifies that the permittee must spend a $250,000 trust fund within the 5-year 

permit term by implementing projects approved by MPCA, and if 150 units can be obtained 

for less than this amount, the permittee is required to extend the time period of project 

expenditure to 10 years.

This section also outlines the types of projects that the MPCA would approve. Provision 

II.A.2.b.4 states that “the Permittee shall submit proposed projects for review in accordance 

with two referenced documents: the Point-Nonpoint Source Trading Summary and the 

Nonpoint Source Crediting Calculations” (both dated January 8, 1997). These documents are 

included in full as a separate PDF file on the Toolkit Web site. This section also states that the 

“Commissioner is solely responsible for determining the amount of creditable CBOD5

 nonpoint source load reduction to be credited to the project.”

It was uncertain whether agreements for nonpoint source reductions were likely to be made 

because this was the first permit of its kind. Therefore, to provide an alternate method of 

earning credits, Rahr accepted a phosphorus limit of 2 mg/L even though MPCA did not have 

numeric standards for rivers. MPCA had proposed a limit of 3 mg/L limit and by accepting 

the more stringent limit, Rahr could earn a credit of 30 units of phosphorus to be applied to 

the cumulative load reduction for every year the facility maintained this level of discharge. In 

addition, MPCA allowed the facility to use up to 10 units of this credit in either 1998, 1999, or 

2000 to satisfy any shortfalls that year in nonpoint source load reductions to maintain compliance with permit requirements.

In addition, the facility accepted a year-round CBOD5

 limit of 12 mg/L instead of the seasonal 

limit of 12 mg/L (June–September) and 25 mg/L at other times not covered under the TMDL 

requirements (October–May) as proposed by MPCA. For this reason, MPCA allowed a 30 unit 

credit to be applied to the cumulative value for 2001 and subsequent years provided the 

permittee’s discharge remained at 12 mg/L.

Point–Nonpoint Source Trading Summary

The Point–Nonpoint Source Trading Summary is incorporated by reference into the permit and 

basically explains the premise for Rahr’s point–nonpoint source trading process and the concepts involved in developing the trading program. The summary document explains how the 

ratios were developed to assess the impact of phosphorus and nitrogen loading on CBOD5

 in 

the river and outlines the basic concept of point–nonpoint trading in the watershed. In addition, the summary document highlights methods that will be used to minimize associated risks 

such as pollutant equivalency ratios, safety factors for estimating phosphorus content in loading from soil erosion, calculation of a field loss factor for nitrogen to account for volatilization 

of ammonia and the assimilation of nitrogen prior to entering a surface water, and delivery 

ratios to account for the distance a nonpoint source site is from the stream. Trading-eligible 

BMPs are also described in this document. And finally, the summary document explains how 

the trading agreement and administration of the trades were to occur during the permit term. 

This document also references the Nonpoint Source Trade Crediting Calculations document 

and requires that all pollutant reduction estimation follow the formulas included therein.

Nonpoint Source Trade Crediting Calculations

The Nonpoint Source Trade Crediting Calculations document details the various trade calculations necessary to determine nonpoint source loading reduction units for all nonpoint source 

trades required in Rahr’s permit. Pollutant Equivalency Credits are detailed to determine how 

many pounds/day of reduction of phosphorus, CBOD5, nitrogen and how many tons/ day of 

sediment are necessary to equate to a specified number of units in each of two areas of the 
Water Quality Trading Toolkit for Permit Writers

A-39A p p e n d i x A

river. A more detailed explanation is included under What Is the Pollutant Trading Ratio? and 

in the full version of the document.

The document also details a list of conditions the permittee must use when selecting appropriate BMPs. The conditions are based on a set of assumptions regarding physical process 

constraints inherent in assessing nonpoint source loading and BMP removal effectiveness.

For each type of BMP identified for point-nonpoint source trading in the watershed, this 

document details the calculation procedures necessary to estimate pollutant reductions. As 

previously stated, the discharger’s permit requires that these calculations be used and submitted to the MPCA for approval by the Commissioner.

How Are Credits Generated for Trading?

According to the discharge permit, Rahr can generate credits by implementing nonpoint source 

BMPs that reduce gully erosion (not including high-residue tillage), stabilize gully and bank 

erosion, exclude livestock from stream or river riparian zones, rotate grazing with livestock 

exclusion from riparian zones, or treat stormwater runoff with constructed wetlands (Riggs and 

Hartwell 2000). MPCA justified its BMP selection in the permit’s fact sheet. The BMPs selected 

provide equivalent water quality improvement to downstream point source reductions, can be 

visually tracked or monitored, and promote additional nonpoint source reduction opportunities 

that are not widely used (Riggs and Hartwell 2000). The phosphorus, nitrogen, and sediment 

loading reduction resulting from the implementation of the nonpoint source BMPs were then 

converted into CBOD5

 credits through the use of trading ratios. The permit’s supporting documentation details how reductions were calculated for the different types of approved BMPs.

What Are the Trading Mechanisms?

The permit required that a trust fund be established to fund nonpoint source projects. Rahr 

was required to spend $250,000 to implement BMPs to reduce loading by 150 lbs/day of 

CBOD5. In addition, the permit specifies that if the reductions can be achieved for less than 

$250,000, “the time period for full expenditure of the $250,000 will be extended to ten years 

from the date of the permit issuance.”

A board of citizens concerned with water quality conservation including people from grass 

roots organizations, state offices, and Rahr representatives oversaw the final selection of 

BMP sites, but the process of initial trade identification was very network-driven and depended on local environmental organizations and agency personnel (MPCA 1997c; Breetz et al. 

2004). The Commissioner of the MPCA gave final approval for each nonpoint source project 

and determined the amount of CBOD5

 credits generated (MPCA 1997a).

For two of its BMP sites, Rahr contracted with the landowner while in the other two, Rahr 

bought the land from the landowner, the city of New Ulm, and then sold the land for a dollar, with provisions and restrictions needed for preservation and upkeep, back to the city of 

New Ulm as a wildlife park under a permanent easement (Klang 2006a).

The credits were granted in a schedule to give the point source greater flexibility in meeting 

the permit requirements: 45 percent were granted when the contractual agreements were 

reached, 45 percent when the nonpoint source controls have been implemented, and 10 percent when vegetation establishment criteria were reached (Breetz et al. 2004).

Rahr Malting Company Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-40

What Is the Pollutant Trading Ratio?

The unit of trade is one pound of CBOD5. Phosphorus, nitrogen, and sediment can all be 

traded for CBOD5

 but require the use of trading ratios, because of the varying degrees of persistence in the river and mechanisms for exerting oxygen demand (MPCA 1997b). The trading 

ratios estimate how much CBOD5

 would be reduced in the TMDL zone by a related amount of 

nutrient or sediment reduction upstream.

For phosphorus, the CBOD5

 conversion ratio was 1:8, meaning that an upstream reduction 

of one pound of phosphorus results in a reduction of 8 pounds of CBOD5

 in the TMDL zone. 

This ratio varies depending on the nutrient needs of the biological life forms, flows, turbidity 

impacts on photosynthetic activity and the bio-availability of phosphorus. The ratio of 1:8 is 

conservative; the ecoregion mean estimate of the ratio is closer to 1:17.

For nitrogen, the CBOD5 ratio was 1:4. By balancing the applicable chemical equation, one 

pound of total Kjeldahl nitrogen requires 4.6 pounds of oxygen; however, it is less persistent 

in the river because of atmospheric loss, and it exerts its demand more rapidly than phosphorus. So a ratio of 1:4 is used in the Metro Reach, and a 1:1 ratio is used for upstream reaches 

(MPCA 1997c). Calculation of load reductions from livestock management BMPs include a 50 

percent field loss factor to account for atmospheric nitrogen losses prior to transport into the 

water column (MPCA 1997b).

Controlling sediment loss reduces oxygen demand associated with turbidity. The program 

required one ton of sediment loss reduction for 0.5 CBOD5

 credits.

The previously described trading ratios are the only ratios required in the TMDL zone. Beyond 

the TMDL zone exists a BOD trading zone that extends up to river mile 107. Additional ratios 

are applied in the BOD trading zone and described by Table 2 in the Point-Nonpoint Source 

Trading Summary supporting permit documentation (MPCA 1997c). Beyond river mile 107, 

one percent of the pounds removed are credited (MPCA 1997c).

For more information on the trade ratios, refer to the Nonpoint Source Trade Crediting Calculations and Point-Nonpoint Source Trading Summary supporting documents to the permit 

(MPCA 1997b; MPCA 1997c).

Example: Calculating CBOD5 Credits Achieved through a Critical Area Set-Aside of a 

River Flood Scoured Area

A landowner near river mile 29 has 40 acres of land that are susceptible to flooding. Long term 

records from the U.S. Army Corps of Engineers were used to indicate an annual average rate of 

500 cubic feet of silt loam soil per acre are swept into the river. The landowner is interested in 

establishing woody vegetative cover with structural BMPs to reduce the sediment runoff and in 

turn the CBOD5 loading to the stream. The Nonpoint Source Trade Crediting Calculations document 

was used to calculate the number of credits generated by this BMP as follows.

1. Calculate the annual sediment loading (SED):

SED = AREA × VOL × Dry Density × FREQ

The dry density is found in a table on p. 10 of the Nonpoint Source Trade Crediting Calculations

document. A silt loam soil has a dry density of 0.0425 tons/ft3

.
Water Quality Trading Toolkit for Permit Writers

A-41A p p e n d i x A Rahr Malting Company Permit  Minnesota

Example: Calculating CBOD5 Credits Achieved through a Critical Area Set-Aside of a 

River Flood Scoured Area (continued)

SED = 40 acres × 500 ft3

/acre

yr × 0.0425 tonsft3 = 850 tonsyr

2. Calculate the amount of sediment reduced by the BMPs.

According to the Nonpoint Source Trade Crediting Calculations document, the Scott County SWCD

locally demonstrated that a site with scour erosion rates of 75 tons/acre/yr could, by establishing 

woody vegetative cover and installing some structural BMPs, reduce its erosion rate to 3 tons/

acre/yr, which is a 96 percent reduction. Applying the same reduction ratio to this site, it is 

found that:

SEDReduced = 850 tons

yr × 0.96 = 816 tonsyr

3. Calculate the amount of phosphorus and nitrogen present in the annual sediment loading.

The table on p. 17 of the Nonpoint Source Trade Crediting Calculations document provides the 

phosphorus and nitrogen contents based on soil type. Silt soil contains 1.00 lbs P/ton and 

2.00 lbs N/ton.

P = 816 tons

yr × 1.00 lbston = 816 lbsyr

N = 816 tons

yr × 2.00 lbston = 1632 lbsyr

4. Calculate the total CBOD5 credits.

The Pollutant Equivalency Credits table on p. 2 of the Nonpoint Source Trade Crediting Calculations

document provides conversions from the trade parameter to CBOD5 credits based on whether 

the nonpoint source reduction takes place in the TMDL zone or upstream. For upstream 

reductions, the CBOD5 percent remaining is given in the CBOD5 Percent Crediting Table on p. 

3 based on river mile. One pound of phosphorus reduced upstream is equivalent to 8 units of 

CBOD5 credit and one pound of nitrogen reduced upstream is equivalent to one unit of CBOD5. 

One ton of sediment reduced upstream is equivalent to 0.5 units of CBOD5 credit. 89 percent of 

CBOD5 reduced at mile 29 remains when it reaches Rahr Malting Co.

P credits =

816 lbs P

yr × 8 units CBOD5

1 lb P = 6528

units CBOD5

yr

N credits =

1632 lbs N

yr × 1 unit CBOD5

1 lb N = 1632

units CBOD5

yr

Sediment credits =

816 tons

yr × 0.5 unit CBOD5

1 ton sediment = 408

units CBOD5

yr

Finally, the CBOD5 units are summed and converted to daily credits.

Total credits = 8568 units

yr × 1 year365 days = 23.5 creditsday
Water Quality Trading Toolkit for Permit Writers

A-42

What Type of Monitoring is Performed?

Rahr monitors its wastewater outfall but does not conduct water quality monitoring at the 

BMPs. The estimated reductions from the BMPs are determined by calculation as described 

in the permit’s supporting documentation. Some data were collected on initial phosphorus concentrations in the soil and used in the reduction calculations (Klang 2006a). Rahr is 

responsible for submitting technical and engineering reports detailing the design and installation of the BMPs, including structural specification, operation plans, and detailed photographs, to MPCA before and after each trade (Breetz et al. 2004). The permit also requires 

annual reports accounting for nonpoint source credits. MPCA monitors the implementation 

of BMPs with periodic site inspections; however, MPCA does not verify pollution reduction 

with systematic monitoring, which would be very expensive and would have to be long term 

to generate conclusive results (Breetz et al. 2004).

What Are the Incentives for Trading?

Engaging in trading allowed Rahr to build its own WWTP which reduced costs and provided 

the ability to expand production.

The BMPs installed improved water quality and improved or protected property. In the cases 

of the Cottonwood and Minnesota River sites, the landowners were financially compensated 

for their land by Rahr who restored then donated the land to the city of New Ulm. In the 

cases of the Rush River and 8-Mile Creek projects, the landowners were worried about the 

effects of bank erosion on their land and homes and were eager to participate in the trading 

arrangement with Rahr. Bluff/channel stabilization BMPs were installed on one landowner’s 

property in return for the landowner excluding livestock and maintaining the BMP, while 

another landowner was responsible for the bioengineering maintenance required for the 

BMP on his site (Klang 2006a; Sparks and Wallace 2006).

What Water Quality Improvements Have Been Achieved?

Rahr offset its pollutant loading beyond the necessary amount. Rahr obtained nonpoint 

source credits for 212 lbs/day of CBOD5, which exceeded the permit requirement of 150 lbs/

day of CBOD5

 traded (Breetz et al. 2004).

What Are the Potential Challenges in Using This Trading Approach?

One significant challenge was defining the appropriate trade ratio between upstream 

nonpoint source phosphorus loadings and CBOD5

 discharges from Rahr’s WWTP (Riggs and 

Hartwell 2000; Fang and Easter 2003). The MPCA was able to determine a 1:8 trading ratio by 

conducting studies relating phosphorus to chlorophyll-a and chlorophyll-a to CBOD5

 (Breetz 

et al. 2004).

Local environmentalists initially objected to the trading program, but Rahr gained their support by cooperatively working with and accepting input from environmental organizations.

The permit required approximately 0.25–0.50 full-time equivalency of MPCA staff for permit 

trade calculation development. Immediately after permit completion, some critical time, on 

the order of weeks, was spent setting up the trades. Now MPCA spends only a few days a 

year managing the program (Klang 2006b).
Water Quality Trading Toolkit for Permit Writers

A-43

What Are the Potential Benefits?

A p p e n d i x A

Rahr achieves cost savings through trading. Cost per credit, as determined by Fang and Easter, 

is approximately $8.56/lb phosphorus when including engineering, construction, materials, 

design, and transaction costs. Because costs cannot be estimated for getting to zero phosphorus discharge, which would have been required of Rahr if they had discharged without 

trading, Rahr’s costs were compared to that of WWTPs with comparable design flow that 

have to reduce to one mg/L of phosphorus. These costs ranged between $4 and $18/lb/day 

phosphorus reduced (Fang and Easter 2003). Therefore, implementing nonpoint source 

reductions was very likely cost effective for Rahr.

Ancillary environmental benefits are created by implementing nonpoint source BMPs. For 

example, riparian buffers can reduce sediment loss as well as remove nitrogen and phosphorus from surface water. At two of the sites, the bank stabilization BMPs provided benefits 

to the landowners, who were already experiencing property loss, by improving land stability. The other two sites were sold to the city of New Ulm at virtually no cost creating wildlife 

parks for the city (Klang 2006a).

The trading program raised watershed awareness and provides a good example of both 

community cooperation and allowing for growth on impaired waters (Klang 2006b).

Applicable NPDES Permit Language

b. The Permittee is authorized to discharge CBOD5 in accordance with the following 

effluent limitations in addition to those in Part II.A.2.a. One unit of trading credit is 

the equivalent of 1 pound per day of CBOD5

 discharged.

1. The Permittee shall comply with the cumulative CBOD5 nonpoint load reduction 

specified in the table below or obtain CBOD5

 nonpoint load reduction equal to or 

greater than its actual CBOD5

 discharge. The actual CBOD5 discharge shall be measured as the annual average or the highest monthly average when the river flow 

at the Jordan USGS gauging station is less than 500 cfs as a monthly mean during 

June through September, whichever is greater.

DATE NONPOINT LOAD REDUCTION CUMULATIVE

December 31, 1997 0 units 0 units

December 31, 1998 30 units 30 units

December 31, 1999 30 units 60 units*

December 31, 2000 30 units 90 units

Permit Expiration Date 60 units* 150 units

* The Permittee has accepted a phosphorus limit of 2 mg/l instead of the 3 mg/l 

limit MPCA would otherwise propose at this time. Due to this, a 30 unit credit may 

be applied to the cumulative load reduction during the year 2001 and subsequent 

years provided the Permittee’s phosphorus limit remains 2 mg/l or less. In addition, 

up to 10 units of the phosphorus credit may be used in either 1998, 1999 or, 2000 

for permit compliance purposes to satisfy any shortfall in the year’s nonpoint source 

load reduction requirement. The Permittee has accepted a year-round CBOD5

 limit of 

12 mg/l instead of the limit MPCA would otherwise propose at this time of 12 mg/l 

CBOD5

 from June through September and 25 mg/l CBOD5 from October through 

May. Due to this, a 30-unit credit may be applied to the cumulative value for the 

year 2001 and subsequent years provided the Permittee’s year-round CBOD5

 limit 

remains 12 mg/l or less.

Rahr Malting Company Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-44

2. The Permittee shall obtain 20 units of nonpoint load reduction prior to start-up of 

their wastewater treatment facility if start-up is after December 31, 1997;

3. The Permittee shall spend all of the $250,000.00 dedicated to CBOD5 nonpoint 

source load reduction within 5 years of permit issuance to obtain CBOD5 nonpoint source load reduction by implementing projects approved by the MPCA. 

If 150 units of actual nonpoint source load reduction are obtained for less than 

$250,000.00 during the five-year period, the time period for full expenditure of the 

$250,000.00 will be extended to ten years from the date of permit issuance.

4. The Permittee shall achieve the nonpoint source load reduction units specified 

above by undertaking projects subject to (1) land purchase or (2) easement(s) 

or other contractual obligation(s) in place for the duration of CBOD5 discharge. 

Projects shall be Soil Erosion BMP’s, Livestock Exclusion, Rotational Grazing With 

Livestock Exclusion, Critical Area Set Aside or Wetland Treatment Systems. The 

Permittee shall submit such proposed projects to the MPCA for review in accordance with the Point-Nonpoint Source Trading Summary dated January 8, 1997, 

and the Nonpoint Source Crediting Calculations dated January 8, 1997. The permit 

language shall control if any inconsistency arises from the referenced pollutant 

trading documents: The Commissioner is solely responsible for determining the 

amount of creditable CBOD5 nonpoint source load reduction to be credited for 

5. If the Permittee has not obtained 150 nonpoint source load reduction units within 

the term of this permit because of the Permittee’s actual CBOD5 discharge, in 

accordance with Part II.A.2.b.1, is less than 150 pounds per day and if the Permittee 

is authorized to continue to discharge 150 pounds per day CBOD5 , the Permittee 

shall obtain the remainder of the 150 nonpoint source load reduction units within 

10 years of the issuance of this permit.

6. The Permittee may request the Commissioner to modify Part II.A.2.b.1. of this 

permit for schedule revisions in the event that the Permittee does not commence 

construction of its wastewater treatment facility by September 1, 1999.

Contact Information

Bruce Henningsgaard

Minnesota Pollution Control Agency

(651) 296-7756

bruce.henningsgaard@pca.state.mn.us
Water Quality Trading Toolkit for Permit Writers

A-45A p p e n d i x A Rahr Malting Company Permit  Minnesota

References and Resources

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Fang, F., and K.W. Easter. 2003. Pollution Trading of Offset New Pollutant Loadings—A 

Case Study in the Minnesota River Basin. In Proceedings of the American Agricultural 

Economics Association Annual Meeting. Montreal, Canada. July.

Klang, James. 2006a. Personal communication. May 5.

Klang, James. 2006b. Personal communication via e-mail. September 1.

Klang, James. 2006c. Personal communication via e-mail. September 29.

MPCA (Minnesota Pollution Control Agency). 1997a. National Pollutant Discharge Elimination 

System (NPDES) and State Disposal System (SDS) Permit MN 0031917. January.

MPCA (Minnesota Pollution Control Agency). 1997b. Nonpoint Source Trade Crediting 

Calculations. January.

MPCA (Minnesota Pollution Control Agency). 1997c. Point-Nonpoint Source Trading 

Summary. January.

Riggs, David W. and Christopher A. Hartwell. 2000. Environmental flexibility in action: a 

Minnesota case study. Reason Public Policy Institute, Policy Study #265. 

<http://www.reason.org/ps265.html>.

Sparks, C., and S. Wallace. 2006. Pollutant Trading to Improve Riparian Habitats. Stormwater 

Magazine. January/February. <http://www.stormh2o.com/sw_0601_pollutant.html>.

USEPA (U.S. Environmental Protection Agency). 1992. TMDL Case Study: Lower Minnesota 

River. December. <http://www.epa.gov/OWOW/TMDL/cs6/cs6.htm>.
Water Quality Trading Toolkit for Permit Writers

A-46
Water Quality Trading Toolkit for Permit Writers

A-47A p p e n d i x A

Overview

The Southern Minnesota Beet Sugar Cooperative (SMBSC) is a farmer-owned cooperative 

with a beet-processing facility located in southern Minnesota (MPCA 1999). The processing 

facility treated process wastewater by storing it in lagoons during the processing season and 

spray-irrigating it over 500 acres of alfalfa and grassland during the growing season; however, the SMBSC wanted to build a wastewater treatment plant (WWTP) to serve the facility. 

This would allow SMBSC to expand sugar production and resolve odor problems.

A carbonaceous biochemical oxygen demand (CBOD5) wasteload allocation (WLA) had been 

developed and approved on the lower Minnesota River in 1988, however, which prohibited the additional loading (MPCA 1997). The Minnesota Pollution Control Agency (MPCA) 

allowed SMBSC to obtain a permit for the proposed WWTP provided they offset all of the 

additional loading through nonpoint source projects that reduced total phosphorus. The 

permit required SMBSC to establish a $300,000 trust fund to finance the projects, which was 

overseen by a trade board made up of a processing plant official, SMBSC’s consultant, a Soil 

and Water Conservation District official, the Hawk Creek watershed coordinator, and an environmental advocacy representative (Breetz et al. 2004).

SMBSC’s permit requires that the needed nonpoint source reduction be based on the actual 

discharge. To accomplish this, the actual discharge is grouped into categories that create 

thresholds for the actual nonpoint source reduction needed and that requirement reflects 

the 2.6 to 1 trade ratio. The largest category or tier of nonpoint source trade offsets requires 

13,000 lbs total phosphorus/yr. To date, the facility is achieving nearly 2.5 times the permit’s 

required nonpoint source reductions (Klang 2006b).

Type of Trading Pollutant(s) Traded

Point Source–Nonpoint Source Total phosphorus

Number of Trades to Date

SMBSC contracts for spring sugar beet cover cropping best management practices (BMPs). 

In 2005 SMBSC had contracts on 579 sites totaling 58,832 acres yielding 14,292.5 lbs total 

phosphorus reduction/yr. One contract was established for cattle exclusion and bluff/channel stabilization BMPs yielding 1,475 lbs total phosphorus reduction/yr. SMBSC also has one 

surface tile intake credit as part of a contract with a watershed district; however, because of 

to problems with the agreement the contract was broken off and the credit was not included 

in their total. SMBSC’s total approved credit count is 15,767.5 lbs total phosphorus/yr (Klang 

2006b).

Southern Minnesota Beet Sugar Cooperative 

Permit

Minnesota

Southern Minnesota Beet Sugar Cooperative Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-48

Who Is Eligible to Participate?

SMBSC is the sole point source covered by the permit. Landowners, including sugar beet 

farmers and cattle ranchers, in the lower two-thirds of the Minnesota River Basin are eligible 

nonpoint sources. Landowners do not have to be members of SMBSC. There are 600 beet 

growers in this region (Breetz et al. 2004).

What Generated the Need for Trading?

Before 1999, SMBSC disposed of its sugar beet process wastewater by storing it in lagoons 

during the processing season and spray-irrigating it over 500 acres of alfalfa and grassland 

during the growing season. This process resulted in unpleasant hydrogen sulfide odors that 

brought complaints from neighboring areas. To resolve this problem and accommodate a 40 

percent production expansion, in 1999 SMBSC proposed building a WWTP to treat the wastewater and discharge into a tributary of the Minnesota River. However, in 1985 a CBOD5

 WLA 

was developed and approved, which prohibited new CBOD5

 loading. A permit was issued 

by MPCA, which required SMBSC to offset all of the WWTP’s CBOD5

 loading by funding the 

installation of nonpoint source BMPs (Breetz et al. 2004).

What Serves as the Basis for Trading?

In 1985 EPA, MPCA and the Metropolitan Council (the regional planning agency for the 

Twin Cities area, negotiated a wasteload allocation) described in the Lower Minnesota River 

Wasteload Allocation Study, for the lower 26 miles of the Minnesota River. The wasteload 

allocation required a 40 percent reduction of upstream and sediment CBOD5

 concentrations. 

Most of the CBOD5

 came from loading from wastewater treatment plants and manure from 

feedlots. The Minnesota River Assessment Project (MRAP), completed in 1992, identified 

that eutrophication in the river supplied a significant amount of CBOD5

 load as dead algae.

SMBSC’s WWTP would have discharged into Beaver Creek, a tributary to the Minnesota River 

and so SMBSC’s permit was developed using knowledge gained from these projects (Klang 

2006a). SMBSC was located far enough upstream that its CBOD5

 loading was not of concern; 

however, since 70 percent of the upstream CBOD5

 loading was caused by dead algae decaying 

and phosphorus is the limiting nutrient for algal growth in the basin, SMBSC was required to 

limit phosphorus (Klang 2006d).

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

A RMA-12 model was used in the development of the 1985 Wasteload Allocation Study for 

point sources on the Minnesota River. This is a version of the QUAL-II model, which is a onedimension model for stream quality. The RMA-12 model differs from the QUAL-II model by 

changing the growth equation for algal biomass and redefining the nitrogen cycle. While the 

QUAL-II model considers nitrogen as Kjeldahl nitrogen, the RMA-12 model allows for organicand ammonia-nitrogen to be considered separately. The RMA-12 also allows for uptake of 

ammonia-nitrogen by algae as opposed to only allowing nitrate-nitrogen uptake by algae as 

in the QUAL-II model (MPCA 1985).

The RMA-12 model is a one-dimensional model and simulates the effects of wasteloads, 

nitrification, sediment oxygen demand, and algal photosynthesis (USEPA 1992). It uses an 
Water Quality Trading Toolkit for Permit Writers

A-49A p p e n d i x A

advective-dispersive equation to solve for eleven water quality constituents numerically 

(MPCA 1985). The constituents include

1. Phytoplankton algae

2. Chlorophyll a

3. CBOD

4. Dissolved Oxygen

5. Benthic oxygen demand

6. Atmospheric reaeration

7. Organic nitrogen

8. Ammonia nitrogen

9. Nitrite nitrogen

10. Nitrate nitrogen

11. Orthophosphate

The model considers 30 different transformation pathways for the above constituents including sources/sinks for CBOD5

 by settling or resuspension, loss of ammonia nitrogen to the 

atmosphere, and uptake of phosphorus into phytoplankton biomass. It also used a finite-difference technique to solve the mass balance equations taking into account various stream 

effects. Since the critical period of concern for low dissolved oxygen was the summer lowflow period, the RMA-12 model was used in steady-state mode for the study (MPCA 1985).

While water quality calibration data existed from an intensive river survey in 1965 and 

summer low-flow survey in 1974, the existing data lacked sufficient measurements of algal 

productivity and benthic demands. Therefore another intensive river survey was conducted 

during a seasonally warm and low-flow period in August 1980 and the resulting data was 

used to calibrate the RMA-12 model (MPCA 1985). Though data existed for 9 days, only 4 days 

were used for calibration because unsteady flow and rainfall conditions prevailed during 

the latter part of the study period. A period of 4 days was sufficient because it captured one 

complete flow through of the study reach. The model was verified by simulating water quality responses observed in the 1974 survey (MPCA 1985).

The Wasteload Allocation Study assumed that no additional load would be added to the 

Minnesota River. The two existing WWTPs, Blue Lake and Seneca, operated at secondary 

treatment requirements which resulted in effluent averaging 25 mg/L CBOD5. In the spring 

and fall, the WWTPs did not need additional treatment to ensure the river met the 5 mg/L 

dissolved oxygen minimum requirement (MPCA 1985). In the summer, additional treatment 

as well as a reduction in the headwater and sediment oxygen demand was required to maintain the 5 mg/L dissolved oxygen minimum requirement. The model predicted that additional 

treatment to 10 mg/L CBOD5

 by the WWTPs and a 40 percent reduction in headwater and 

sediment CBOD5

 concentrations would be required to meet the dissolved oxygen requirement 

during critical summer conditions (MPCA 1985). The model also predicted that additional 

treatment may also be required in the winter because of limited atmospheric reaeration 

caused by ice cover; however, it is difficult to quantify the amount of ice cover on the river. 

Under complete ice cover, a reduction to 10 mg/L CBOD5

 would be required by the WWTPs. 

If a 6 percent reduction in ice cover was possible, no additional treatment (beyond 25 mg/L 

CBOD5) would be necessary to maintain the dissolved oxygen requirement (MPCA 1985).

Are Permits Used to Facilitate Trades?

SMBSC’s permit specifies that the new WWTP must meet effluent limitations and offset 

its load through nonpoint source projects. Treated process wastewater and non-contact 

cooling water can be discharged to County Ditch (CD) 45 via Surface Discharge Station 

(SD) 005 at a rate of 3.5 cfs between September and March. Between April and August, 

no discharge is allowed to CD 45. During this time and when the flow effluent limitations 

cannot be met between September and March, treated process wastewater is diverted to 

Southern Minnesota Beet Sugar Cooperative Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-50

wastewater storage ponds. The pond water is land applied over 11 parcels for treatment. 

The permit contains effluent limits for the relevant outfalls. SD 001 and SD 005 must meet 

a 15-mg/L monthly average and a 34-mg/L monthly maximum CBOD5

 concentration. SD 005 

also has a total phosphorus yearly average limit of 0.75-mg/L year-round and a yearly total 

of 1,135- kg/yr (approximately 2,500-lbs/yr) between September and March. Outfalls SD 003 

and 004 must meet a 25-mg/L daily maximum concentration of CBOD5 year-round.

Chapter 12.1 of SMBSC’s NPDES permit describes the provisions for trading under its Phosphorus Management Plan. The permit specifies that Soil Erosion Best Management Practices, 

Cattle Exclusion, Rotational Grazing with Cattle Exclusion, Critical Area Set Aside, Constructed Wetland Treatment Systems, Alternative Surface Tile Inlets, and Cover Cropping are 

acceptable nonpoint source practices that can be used to generate credits. Other BMPs must 

be approved by MPCA. The formulas used to calculate phosphorus credits from each BMP are 

detailed in the document Phosphorus Trade Crediting Calculations that is incorporated into 

the permit (MPCA 2004b). The permit goes on to describe the project eligibility criteria, the 

membership and role of the phosphorus trade board, the schedule for granting credits, the 

project and credit approval processes, and requirements for annual reporting.

Also according to the permit, SMBSC is liable for ensuring nonpoint source phosphorus 

reductions take place (Breetz et al. 2004). SMBSC is responsible for retaining an independent 

auditor to certify project completion as described in section 12.1.22 of the permit (MPCA 

2004a). If BMPs are not properly implemented or maintained, the SMBSC will be responsible 

for identifying another project (Breetz et al. 2004).

The permit includes a document entitled Phosphorus Trade Crediting Calculations which 

provides a brief explanation of the trade ratios and expands upon the requirements for the 

approved BMPs. The document largely focuses on how to calculate the number of phosphorus credits that each BMP generates; however, it also provides some information on the 

purpose of the BMP and how it should be implemented (MPCA 2004b). The entire document 

is attached to the end of the permit fact sheet.

How Are Credits Generated for Trading?

MPCA specified that acceptable BMPs to reduce phosphorus included cattle exclusions, buffer 

strips, constructed wetlands, set-asides, alternative surface tile inlets and cover cropping, all 

of which are designed to reduce the runoff of phosphorus to surface waters.

According to the discharge permit, SMBSC must propose a BMP site to MPCA for approval. 

Some specifics the proposal must include are documentation of the use and condition of 

the site over the previous 5 years, the BMP(s) to be implemented and specifics on the implementation process, operation and maintenance, and the detailed calculations justifying the 

phosphorus credits applied for. The permit specifies the formulas used to calculate phosphorus credits generated by the phosphorus loading reduction assumed for each type of BMP. 

After the project is implemented, SMBSC must submit an implementation report to MPCA 

and a third-party auditor. The auditor will inspect and certify the project implementation. If 

the project is implemented according to MPCA’s approval, the auditor will recommend the 

issuance of credits. MPCA will then approve or deny the credits (MPCA 2004a).
Water Quality Trading Toolkit for Permit Writers

A-51

What Are the Trading Mechanisms?

A p p e n d i x A

A nonpoint source BMP must first be approved by the trade board and then by MPCA. 

SMBSC’s permit prescribes how to document BMPs in order to submit for approval. SMBSC has 

annual contracts for cover crops with the sugar beet farms that are participating and a 9-year 

contract for cattle exclusion and bluff/channel stabilization site (Klang 2006a). The land managers are paid through these contracts based on annual credits.

For each project, SMBSC will receive credits on the basis of the ratio of its financial contributions to that of public sources. It will not receive credits for the portion funded by public 

sources (MPCA 2004a). The credits are granted in a schedule to give the point source greater 

flexibility in meeting the permit requirements: 45 percent are granted when the contractual 

agreements are reached, 45 percent when the nonpoint source controls have been implemented, and 10 percent when vegetation establishment criteria are reached (Breetz et al. 

2004). SMBSC is required to obtain credits amounting to 2.6 times its annual phosphorus mass 

discharge limit.

What Is the Pollutant Trading Ratio?

The trade ratio specified in the SMBSC permit is 2.6:1. This means that for every 2.6 pounds 

of total phosphorus reduced through nonpoint source BMPs, one pound is reduced at the 

wastewater treatment plant. Therefore, one credit is given for every 2.6 pounds of total 

phosphorus reduced by a nonpoint source BMP.

The trade ratio includes three different components: a base of 1:1 to offset the discharge, 

+0.6 as an explicit engineering safety factor which, in addition to conservative assumptions 

implicit in the calculations, accounts for variations among sites, and +1 to allow for water 

quality improvement which takes into account MPCA’s existing plans to improve water quality including the MPCA water quality interim target for the Minnesota River Basin, the MPCA 

dissolved oxygen TMDL on the lower Minnesota River, and the MPCA Phosphorus Strategy 

(MPCA 2004b).

What Type of Monitoring is Performed?

SMBSC monitors its wastewater outfall but does not conduct water quality monitoring at 

the BMPs. The reductions from the BMPs are estimated by using calculations described in the 

permit. Some data were collected on initial phosphorus concentrations in the soil and used in 

the reduction calculations (Klang 2006a). SMBSC is responsible for submitting technical and 

engineering reports, including structural specification, operation plans, and detailed photographs, to MPCA before and after each trade (Breetz et al. 2004). The permit also requires 

annual reports accounting for nonpoint source credits. SMBSC is responsible for submitting 

an implementation report to MPCA and its third-party auditor for comparison with the 

auditor’s findings. If the auditor finds the project was completed as approved, he or she 

can recommend the issuance of credits, which MPCA can then grant or deny (MPCA 2004a). 

Previously, MPCA fulfilled the auditors role (Breetz et al. 2004); however, since December 

2004 (when the permit was reissued) MPCA now requires SMBSC to retain an auditor to 

certify implementation. The auditor can be a professional engineer, certified crop advisor, or 

a representative of a local watershed interest (Klang 2006a; MPCA 2004a). The auditor must 

certify that the project was completed and recommend issuance of credits the first time the 

BMP is implemented. For each year following, SMBSC must certify in the Phosphorus Trading 

Southern Minnesota Beet Sugar Cooperative Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-52

Site Annual Report that the BMP sites remain active. The report is to include photographs 

of each site taken during the previous year or the landowner’s written certification that the 

project remains in-place and effective (MPCA 2004a).

What Are the Incentives for Trading?

The trading program allowed SMBSC to construct and operate its own WWTP which alleviated the land application problems and allowed it to expand the processing operation. In 

addition, SMBSC pays members to plant cover crop BMPs, and they also receive the ancillary 

benefit of protecting young sugar beet plants (Klang 2006a).

What Water Quality Improvements Have Been Achieved?

SMBSC has exceeded its offset requirements by implementing sugar beet spring cover crops, 

cattle exclusion, and bluff/channel stabilization. Because SMBSC’s total phosphorus limit is 

2,500 lbs/yr, the permit requires that the wastewater treatment plant offset 6,500 lbs of total 

phosphorus/year and to date, the nonpoint source BMPs generated reduction credits for 

15,767.5 lbs total phosphorus/year (Klang 2006b). In addition, the new WWTP has solved the 

land application odor problem that was a significant community nuisance.

What Are the Potential Challenges in Using This Trading 

Approach?

The environmental community was initially hesitant to support the trading arrangement due 

to past permit compliance issues at SMBSC. To remedy these concerns, MPCA required SMBSC 

to develop a plan and compliance schedule before the permit was issued (Breetz et al. 2004).

Another concern of the environmental community was that not enough documentation was 

required by the previously issued Rahr Malting Co. trading permit. SMBSC’s permit contains 

many more detailed documentation requirements such as a site-proposal package with 

specific components detailed in the permit, an implementation report and certification by a 

third-party auditor, as well as the specifics regarding what should be included in the Phosphorus Trading Site Annual Report (Breetz et al. 2004; MPCA 2004a). A remaining concern 

from some of the local conservationists is that the permit is not restrictive enough regarding 

the crediting program set up for sugar beet spring cover crop nonpoint source reductions 

even though the NRCS standard equations are used for the erosion estimates.

A concern of the SMBSC representatives is the equity issue of offering one shareholder a cost 

incentive that the other shareholders may not have available to them because they live outside of the watershed. SMBSC was able to resolve this issue after the 2004 Summer Low Flow 

Dissolved Oxygen TMDL, which manages the upstream requirements of the 1985 Wasteload 

Allocation Study, was completed. The TMDL required no discharge during the summer critical 

flow months. SMBSC accepted this by spray irrigating its wastewater during this time. Even 

though SMBSC was no longer required to trade because it did not directly discharge during 

the critical flow months, it chose to continue trading and negotiated an agreement in the 

permit to require 80 percent of the trades to take place inside the Minnesota River basin and 

allow the other 20 percent to be in the adjacent Crow River watershed, resolving the equity 

issue.
Water Quality Trading Toolkit for Permit Writers

A-53A p p e n d i x A

Historically there have been tensions between some ranchers and sugar beet farmers which 

have made it difficult for SMBSC to obtain ranchers as trading partners (Breetz et al. 2004; 

Klang 2006c).

The permit required approximately 0.25–0.50 full-time equivalency of MPCA staff for permit 

trade calculation development. Immediately after permit completion, some critical time, on 

the order of weeks, was spent setting up the trades. Now MPCA spends only a few days a 

year managing the program (Klang 2006c).

What Are the Potential Benefits?

This approach allowed SMBSC to expand its processing operation and alleviate the problems 

associated with land application by building a wastewater treatment plant.

Fang and Easter (2003) found that in 2000–2001, it cost farmers $18.65/lb phosphorus reduction, which is comparable to the cost for a 1–2 mgd WWTP to treat its effluent to meet a 

1 mg/L phosphorus limit. However, SMBSC was required to completely offset its discharge, 

meaning that in the absence of trading, it would have to meet a 0.0 mg/L phosphorus limit. 

Therefore, SMBSC believes that trading provided cost savings over treatment (Breetz et al. 

2004). The representatives from SMBSC also believe the cost estimate does not include the 

production costs saved by avoiding the occasional replanting that may be necessary if the 

young sugar beet plants are not protected by cover crop BMPs.

The trading program raised watershed awareness and provides a good example of both community cooperation and allowing for growth on impaired waters (Klang 2006c).

Applicable NPDES Permit Language

Permit MN0040665

Chapter 12. Total Facility Requirements

1. Phosphorus Management Plan

General Requirements for Phosphorus Trading

1.1 The Permittee shall achieve the phosphorus trade reduction credits by implementing 

projects subject to contractual arrangements. Projects shall be Soil Erosion Best Management Practices (BMPs), Cattle Exclusion, Rotational Grazing With Cattle Exclusion, 

Critical Area Set Aside, Constructed Wetland Treatment Systems, Alternative Surface 

Tile Inlets, or Cover Cropping. The Permittee shall calculate the proposed trade credits for these projects according to the terms of this permit and the “Phosphorus Trade 

Crediting Calculations” appended to and incorporated into this permit. The MPCA is 

responsible for approving the number of phosphorus trade credits for the proposed 

projects.

1.2 BMPs, other than those specified above, cannot be employed without MPCA 

approval.

1.3 A contractual arrangement that the Permittee enters into for trade sites shall require 

the performance of what the MPCA has approved for the sites. However, the Permittee retains responsibility for the proper construction, installation, operation and 

maintenance of the projects the MPCA has approved for phosphorus trade credits 

Southern Minnesota Beet Sugar Cooperative Permit  Minnesota
Water Quality Trading Toolkit for Permit Writers

A-54

under this permit notwithstanding the contractual arrangements that the Permittee 

may have entered into regarding the projects.

1.4 Credits generated from this program, in excess of those required by this permit, can 

be transferred to other Permittees, if approved in writing by the MPCA.

1.5 It is the intent of this permit that the Permittee shall achieve and maintain MPCAapproved phosphorus trade reduction active credits for the life of the wastewater 

treatment plant discharge to surface waters.

General Project Eligibility Criteria

1.6 The Permittee shall achieve and maintain MPCA-approved phosphorus trade reduction credits in the amount of 2.6 times the annual phosphorus mass discharge limit 

(1,130 kg/yr or 2,500 lbs/yr) for SD009 (2.6 × 2,500 lbs P per year = 6,500 credits).

1.7 Phosphorus trade credit projects shall not include activities required to be permitted 

by the MPCA and/or by other entities according to MPCA rules.

1.8 Phosphorus trade credits shall not be proposed or approved for sites which simultaneously track benefits for other environmental programs, including but not limited 

to wetland mitigation under the Wetland Conservation Act. If a site for which trade 

credits already have been approved or granted under this permit is entered into 

another environmental program, the Permittee shall immediately inform the MPCA 

to revoke the trade credits for that site.

1.9 Phosphorus trade credit project best management practices shall be additional to 

those occurring prior to1999 for existing trade projects and for cover crop BMP in 

general and during at least the previous five years for new sites proposed for trade 

credits. 

1.10 At least eighty percent (80%) of the required credits shall be located in the Minnesota River drainage basin, excluding landlocked areas, lakes, or reservoirs with significant phosphorous assimilative capacity.

 Phosphorus Trade Board

1.11 The Permittee shall establish and maintain a Phosphorus Trading Board. The Board 

shall consist of no more than seven members. At least one of these members shall be 

a local, watershed manager, at least one shall be a non-MPCA government representative knowledgeable in the field of agriculture, and at least one shall be the 

leader of a locally based water resources organization. The Phosphorus Trading Board 

shall review and approve the sites proposed by the Permittee before these sites are 

proposed for approval to the MPCA. The MPCA shall provide copies to the Phosphorus Trading Board of its correspondence regarding its review of these proposed sites, 

including MPCA approval and denial decisions on these sites.

 Granting Phosphorus Trade Credits 

1.12 Forty-five percent of the project’s potential phosphorus credits for a site shall be 

granted when the MPCA approves a proposed project

1.13 Forty-five percent of the project’s potential phosphorus credits for a site shall be 

granted when construction is complete, according to the MPCA-approved plans and 

specifications, and the MPCA’s requirement for review has been satisfied.
Water Quality Trading Toolkit for Permit Writers

A-55A p p e n d i x A Southern Minnesota Beet Sugar Cooperative Permit  Minnesota

1.14 Ten percent of the project’s potential phosphorus credits for a site shall be granted 

when vegetation establishment criteria have been achieved at the site, the Permittee 

submits required documentation, and the MPCA’s requirement for review has been 

satisfied. 

1.15 Credits shall not be considered active until they have been granted as described 

above.

1.16 The MPCA may at any time revoke previously approved phosphorus trade credits. In 

order to revoke credits, the MPCA shall make the following findings:

1. The project as credited by the MPCA was not constructed or installed as approved; 

or 

2. The project as credited by the MPCA was not operated or maintained as approved; 

or 

3. The project contractual arrangement(s) have not been honored.

 Project Submittal and Review

1.17 To propose a site for phosphorus trade credit approval by the MPCA, the Permittee 

shall provide to the MPCA, at least 90 days before the Permittee expects to receive an 

approval response from the MPCA, the following information for the site:

1. Site name and location, as detailed on a USGS 7.5-minute quad map with lat/long 

location identified to the nearest second. Identification of the major and minor 

watersheds, and HUC reach codes, in which the site is located. The extent to which 

lakes or reservoirs are downstream of the site. 

2. Landowner name and mailing address. 

3. Documentation, including photos as needed, of the vegetation species, land use 

and specific drainage practices at the site over the previous 5 years. 

4. Type of BMPs proposed to be implemented at the site. 

5. Copy of the signed contractual arrangement that stipulates future management 

requirements and length of term and that stipulates that the construction will not 

begin until MPCA approves the project. 

6. Plan view of the project, and engineering plans, specifications and, for structural 

practices, the professional engineer’s certification, for the project, if needed. 

Operation and maintenance plans. 

7. Vegetation establishment and maintenance criteria and plans to achieve 100 pct 

active crediting for the project. 

8. The total annual pounds (kg) of phosphorus credit applied for, and the basis for 

this value, including the detailed calculations. 

9. Those projects with vegetative components shall include establishment and maintenance criteria and plans to ensure a dense stand, including the dates of seeding.

1.18 Those projects that treat sediment by filtering or settling shall include operation and 

maintenance plans that include, but are not limited to, procedures to:

1. Ensure sheet flow conditions are maintained in upland flow areas; 

2. Remove accumulated sediment that may hinder the operation of the BMP; 

3. Inspect and, if needed, reestablish a structure or vegetation after major storm 

events or fire; and 
Water Quality Trading Toolkit for Permit Writers

A-56

4. Remove harmful infestations, including carp from treatment wetlands, destructive 

insects from vegetation, and beavers from bioengineering sites.

1.19 The MPCA shall in writing approve, or deny with comments, the proposed project. 

The MPCA shall, in its approval of proposed project, certify that appropriate contractual arrangements are in place for the site, confirm the project’s potential trade 

credits, and shall specify the information required to document construction completion and clarify the auditor’s responsibilities. 

1.20 The credit value for a project shall be based upon the ratio of the Permittee’s financial contributions to the contributions from public sources. The Permittee shall not 

receive credits for those portions of a project financed by public funding sources.

 Project Construction/Implementation, Documentation, Auditing, and Credit Approval

1.21 Project Construction shall not begin until MPCA written approval for the project is 

received.

1.22 The Permittee shall retain an independent auditor to certify project completion: 

1. For engineered projects designed by a registered professional engineer, the auditor shall be a registered professional engineer. The professional engineer shall 

provide a construction documentation report for the project and the engineer 

shall certify that the project was completed in substantial conformance with the 

approved plans and specifications. The MPCA may require that photographs 

and/or record drawings be included in the report, depending upon the project 

complexity. 

2. For cover crop, the auditor can be a registered professional engineer, a certified 

crop advisor, or a representative of a local watershed interest. The Permittee 

shall provide the list of MPCA approved cover crop contracts and the auditor shall 

select10% at random for a site inspection. The Permittee shall submit its implementation report to the MPCA and the auditor. The auditor will compare audit site 

information to Permittee’s report, noting any inconsistencies in the auditors report 

submitted. 

3. For other projects, or for portions of projects not designed by the registered 

professional engineer, the auditor can be a registered professional engineer, a 

certified crop advisor, or a representative of a local watershed interest. The auditor shall inspect the construction site as needed to confirm and document that the 

project was completed in accordance with the approved project. 

4. For projects where vegetation establishment is required, the auditor shall provide 

written verification that the vegetation establishment criteria have been achieved. 

5. The auditor will prepare a report to submit to the MPCA and the Permittee, the 

report will provide documentation required for that project. If the project was 

completed as approved, the report will recommend issuance of construction 

credits.

1.23 The MPCA shall respond to the Permittee’s documentation reports and auditor’s 

certification reports and either issue or deny construction credits or vegetation establishment credits. 

 Annual Reporting

1.24 The Permittee shall submit a Phosphorus Trading Site Annual Report: due on November 30 of each year following permit issuance.
Water Quality Trading Toolkit for Permit Writers

A-57A p p e n d i x A Southern Minnesota Beet Sugar Cooperative Permit  Minnesota

1.25 The Permittee shall certify in the Phosphorus Trading Site Annual Report that the 

active sites approved by the MPCA for phosphorus trade credits, remain active 

according to the plans and specifications approved by the MPCA

1.26 The Report covering a site shall include photographs of each site taken during the 

previous year (these photographs shall correspond in view and detail to the initial 

photographs provided to the MPCA for that site) or landowner’s written certification 

that the project remains in-place and effective.

Contact Information

Bruce Henningsgaard

Minnesota Pollution Control Agency

(651) 296-7756

bruce.henningsgaard@pca.state.mn.us

References and Resources

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Fang, F., and K.W. Easter. 2003. Pollution Trading of Offset New Pollutant Loadings—A 

Case Study in the Minnesota River Basin. In Proceedings of the American Agricultural 

Economics Association Annual Meeting. Montreal, Canada. July.

Klang, James. 2006a. Personal communication. May 5.

Klang, James. 2006b. Personal communication via e-mail. May 5.

Klang, James. 2006c. Personal communication via e-mail. September 1.

Klang, James. 2006d. Personal communication via e-mail. November 15.

MPCA (Minnesota Pollution Control Agency). 1997. Point-Nonpoint Source Trading Summary. 

January.

MPCA (Minnesota Pollution Control Agency). 1999. MPCA, Beet Sugar Cooperative,

MPCA (Minnesota Pollution Control Agency). 2004a. National Pollutant Discharge Elimination Elimination 

System (NPDES) and State Disposal System (SDS) Permit MN 0040665. December.

MPCA (Minnesota Pollution Control Agency). 2004b. Phosphorus Trade Crediting 

Calculations. December.

State and Local Groups Craft Innovative Watershed Protections in Southwestern Minnesota. 

News Release, May 12. <http://www.pca.state.mn.us/news/may99/nr51299.html>.

USEPA (U.S. Environmental Protection Agency). 1992. TMDL Case Study: Lower Minnesota 

River. December. <http://www.epa.gov/OWOW/TMDL/cs6/cs6.htm>.
Water Quality Trading Toolkit for Permit Writers

A-58
Water Quality Trading Toolkit for Permit Writers

A-59A p p e n d i x A

Overview

The Truckee Meadows Water Reclamation Facility (TMWRF) provides wastewater treatment 

for the cities of Reno and Sparks in Nevada and is subject to wasteload allocations from a 

1994 TMDL developed to address total nitrogen, total phosphorus, and total dissolved solids. 

TMWRF’s permit, issued by the Nevada Division of Environmental Protection (NDEP), contains 

effluent limits that reflect the wasteload allocations for parameters covered by the TMDL. In 

addition, the permit identifies individual wasteload allocations and contains language that 

allows temporary trading of individual wasteload allocations. The permit also allows NDEP to 

modify the permit to allow water quality trading (or offset) projects that allow permittees to 

generate credits toward their wasteload allocations.

Type of Trading Pollutant(s) Traded

Point Source–Point Source

Point Source–Nonpoint Source

Total nitrogen

Total phosphorus

Total dissolved solids

Number of Trades to Date

None

Who Is Eligible to Participate?

Under its permit, TMWRF is authorized to participate in water quality trading projects that 

could generate credits toward its wasteload allocation. Temporary trading of individual wasteload allocations is an activity authorized under the permit to take place between TMWRF 

and two other dischargers—(1) Vista Canyon Group, LLC, and (2) the city of Sparks–Sparks 

Marina Park.

What Generated the Need for Trading?

Impairments in the Truckee River are associated with low flows and heavy pollutant loading. 

According to TMWRF’s Web site, the Truckee Meadows is one of the fastest growing metropolitan areas in the country. To accommodate growth, TMWRF needs to expand capacity, but 

it faces stringent nitrogen discharge limits as a result of the TMDL (Breetz et al. 2004).

What Serves as the Basis for Trading?

The wasteload allocations derived as part of the 1994 TMDL for total nitrogen, total 

phosphorus, and total dissolved solids serve as the basis for trading.

Truckee River

Nevada

Truckee River  Nevada
Water Quality Trading Toolkit for Permit Writers

A-60

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

The TMDL report for the Truckee River, adopted by NDEP in February 1994, contains a 

description of the data and methodologies used to calculate the wasteload allocations for 

total phosphorus, total dissolved solids, and total nitrogen.

TMDLs and Wasteload Allocations for Total Phosphorus and Total 

Dissolved Solids

NDEP used simple dilution calculations for total phosphorus and total dissolved solids. To 

calculate the TMDLs in pounds per day using flow data and pollutant concentration, NDEP 

calculated the value of a constant to use in the TMDL calculation. The TMDL in pounds per 

day (lb/day) is calculated by multiplying the average flow in cubic feet per second (ft3/sec), 

the average concentration in milligrams per liter (mg/L) and the constant 5.394 lb-L-sec/mgft3-day (NDEP 1994).

TMDL (lb/day) = (average flow in ft3/sec) × (average concentration in mg/L) × 

(5.394 lb-L-sec/mg-ft3-day)

Example: Calculating the TMDL for Total Phosphorus and Total Dissolved Solids

NDEP used simple dilution calculations to develop TMDLs for total phosphorus and total dissolved 

solids, assuming the system is represented by average conditions over time (NDEP, 1994). Using 

average flow data from the U.S. Geological Survey, NDEP selected the time period 1973 to 1992 

to calculate the average flow of 795 ft3/sec; 1973 represented the last significant modification to 

flow control structures in the Truckee River Basin (NDEP 1994). The average concentration of 

phosphorus used by NDEP was 0.05 mg/L, and the average concentration of total dissolved solids 

was 210 mg/L.

(Average flow in ft3

/sec) × (Average concentration in mg/L) × 

(5.394 lb-L-sec/mg-ft3-day) = TMDL (lbs/day)

For total phosphorus:

(795 ft3

/sec) × (0.05 mg/L) × (5.394 lb-L-sec/mg-ft3-day) = 214 lb/day

For total dissolved solids:

(795 ft3

/sec) × (210 mg/L) × (5.394 lb-L-sec/mg-ft3-day) = 900,528 lb/day

NDEP determined that of the 214 lb/day calculated as the total phosphorus TMDL, 80 lb/day 

was associated with nonpoint sources and background; therefore, the wasteload allocation 

for TMWRF is 134 lb/day of total phosphorus. TMWRF’s wasteload allocation for total dissolved solids is a 30-day average load of 120,168 lb/day.
Water Quality Trading Toolkit for Permit Writers

A-61

TMDL and Wasteload Allocation for Total Nitrogen

A p p e n d i x A

To calculate the TMDL for total nitrogen, NDEP used a different approach because it assumed 

total nitrogen to be a nonconservative pollutant (NDEP 1994). NDEP used the Dynamic 

Stream Simulation and Assessment Model (DSSAM III) to calculate the TMDL. Intensive sampling from September 1989 provided a snapshot of nutrient loading to the Truckee River; 

therefore, NDEP used those data to calibrate the DSSAM III model. NDEP used the model to 

run a series of simulations involving differing nutrient loadings to determine the appropriate 

TMDL. Simulation results indicated that nitrogen loads in excess of 1,000 lb/day may result 

in excessive growth of aquatic plants (NDEP 1994). Therefore, NDEP set the TMDL at 1,000 

lb/day during summer low flows.

NDEP stated that existing data indicated that the average nonpoint source contribution of 

total nitrogen is approximately 500 lb/day (NDEP 1994). Therefore, TMWRF received a wasteload allocation of 500 lb/day as an average annual load from November 1 through April 30 

and as a 30-day average load from May 1 through October 31.

TMWRF is using other modeling tools to revisit the TMDL for total nitrogen in a third-party 

TMDL development process. The results from this process could change the facility’s wasteload allocation and the basis for future trading activities (Pahl 2007).

Are Permits Used to Facilitate Trades?

The NPDES permit issued to TMWRF by NDEP contains language that allows temporary 

trading of individual wasteload allocations and water quality trading projects, such as river 

restoration and septic system conversion, to offset wasteload allocations. However, individual 

wasteload allocation trading requires submission of a notification to NDEP. Water quality 

trading projects might require permit modifications to increase the permittee’s wasteload 

allocation.

How Are Credits Generated for Trading?

To date, TMWRF has not developed a proposal to conduct trading. Such a trading proposal 

would contain information about the water quality trading project that would result in credits to offset a pollutant discharge load. It is likely that credits would be based on the Watershed Analysis Risk Management Framework (WARMF) model being developed for the Truckee 

River. The WARMF watershed model, completed in late 2004, would be used to estimate the 

predicted nutrient and sediment loading reductions from nonpoint source projects (Breetz et 

al. 2004).

What Are the Trading Mechanisms?

Temporary trading of individual wasteload allocations requires the submission of a notification signed by the transferring and the receiving dischargers. The notification must describe 

the amount of individual wasteload allocation to be transferred, the length of time of the 

transfer, and the basis for the transfer (i.e., last monthly flows and wasteload discharged for 

both dischargers). Water quality trading projects will most likely require TMWRF to submit a 

project proposal to NDEP for review. The permit does not specify requirements but does mention that NDEP will evaluate the effectiveness of projects as to their effectiveness through 

modeling simulations, pilot studies, and monitoring (NDEP 2003).

Truckee River  Nevada
Water Quality Trading Toolkit for Permit Writers

A-62

What Is the Pollutant Trading Ratio?

Not yet determined.

What Type of Monitoring Is Performed?

Not yet determined.

What Are the Incentives for Trading?

The language contained in the NPDES permit for TMWRF provides flexibility in how the permittee can achieve its wasteload allocation.

What Water Quality Improvements Have Been Achieved?

Not applicable.

What Are the Potential Challenges in Using This Trading 

Approach?

Potential challenges include negotiating terms of proposed water quality projects that 

involve nonpoint source offsets of TMWRF’s pollutant load, particularly in defining the 

appropriate trade ratio and determining effectiveness.

What Are the Potential Benefits?

Potential benefits of the trading provisions integrated into TMWRF’s NPDES permit include 

cost-effective solutions for achieving wasteload allocations and improving overall water quality conditions, as well as consideration of overall watershed conditions when evaluating the 

merits of proposed water quality trading projects.

Applicable NPDES Permit Language

c. Temporary Trading of IWLA: The Permittee may temporarily trade IWLA upon submittal of a notification signed by the transferring and the receiving dischargers describing the amount of IWLA transferred, the length of time the transfer is effective and 

the basis for the transfer. The basis for the transfer shall include the last monthly 

flows and wasteload discharged for both dischargers. The wasteload transfer shall be 

effective on the date of the submittal to the Division.

Any designated transfer is binding on the dischargers and cannot be revoked without a notification signed by the transferring and the receiving dischargers. The 

transferred IWLA shall revert back to the original holder of the IWLA at the end of 

the time specified on the notification. A copy of the latest IWLA agreement and any 

agreements made during the reporting period shall be submitted with each quarterly 

report required by I.B.2.
Water Quality Trading Toolkit for Permit Writers

A-63A p p e n d i x A

I.A.5. Water Quality Trading: The Division may modify the permit to include specific 

water quality trading, or offset, projects based upon review of the results of scientific 

studies, as a major modification. Water quality trading entails the reduction in a pollutant load through implementation of a water quality management project that is 

credited towards the Permittee’s wasteload allocation (WLA), thereby increasing the 

Permittee’s allowable discharge load for a specific pollutant. Potential water quality trading opportunities include, but are not limited to, water augmentation, river 

restoration, septic system conversion, and stormwater management practices. These 

potential water quality management projects will be evaluated as to their effectiveness through watershed/water quality modeling simulations, field pilot studies 

and on-going water quality monitoring. Based on the results of the model simulations and pilot projects, the permit may be modified to incorporate the Permittee’s 

increased WLA(s).

Contact Information

Randy Pahl

Nevada Division of Environmental Protection

Bureau of Water Quality Planning

(775) 687-9453

rpahl@ndep.nv.gov

Bruce Holmgren

Nevada Division of Environmental Protection

Bureau of Water Pollution Control

(775) 687-9423

bholmgre@ndep.nv.gov

References and Resources

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

NDEP (Nevada Division of Environmental Protection). 1994. Truckee River TMDLs and WLAs. 

Nevada Division of Environmental Protection, Bureau of Water Quality Planning. 

February. <http://ndep.nv.gov/bwqp/truckee1.pdf>.

NDEP (Nevada Division of Environmental Protection). 2003. Authorization to Discharge. 

Permit NV0020150. Effective October 15, 2003.

Pahl, Randy. 2007. Personal communication. January 24.

Truckee River  Nevada
Water Quality Trading Toolkit for Permit Writers

A-64
Water Quality Trading Toolkit for Permit Writers

A-65A p p e n d i x A

Overview

The Passaic Valley Sewerage Commissioners (PVSC) operates a large publicly owned treatment works (POTW) that treats wastewater for northern New Jersey. PVSC participated with 

EPA and other partners in a pilot project for indirect dischargers to the POTW that would 

allow water quality trading to meet pretreatment local limits.

Number of Trades to Date

Two

The first trade was for copper between two organic chemical manufacturers; the buyer 

eventually went out of business. The second trade involved a pharmaceutical company that 

purchased zinc and copper credits from an organic chemical manufacturer (the seller in the 

initial trade).

Type of Trading Pollutant(s) Traded

Point Source–Point Source Heavy metals regulated through local pretreatment limits (cadmium, copper, lead, 

mercury, nickel, zinc)

Who Is Eligible to Participate?

Approximately 260 indirect dischargers within the PVSC service area, which encompasses 48 

municipalities in 4 counties, can participate.

What Generated the Need for Trading?

PVSC established more stringent local pretreatment limits for certain heavy metals to meet 

exceptional quality standards for beneficial reuse of biosolids. Indirect dischargers raised concerns about more stringent local limits because many already had to meet federal categorical 

pretreatment standards.

What Serves as the Basis for Trading?

Trading to meet uniform local pretreatment limits by industrial facilities is allowed by PVSC 

in rules and regulations regarding indirect discharges that became effective in 1994, in 

accordance with state and federal pretreatment and residual management regulations. PVSC 

established stringent local pretreatment limits in 1994 for certain heavy metals to meet 

exceptional quality standards for the beneficial reuse of biosolids. PVSC required industrial 

users to comply with the local limits by June 1997.

Passaic Valley Sewerage Commissioners 

Pretreatment Trading

New Jersey

Passaic Valley Sewerage Commissioners Pretreatment Trading  New Jersey
Water Quality Trading Toolkit for Permit Writers

A-66

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

PVSC’s technology-based local limits for certain heavy metals served as the basis for trading. Local limits are conditional discharge limits imposed by municipalities on industrial and 

commercial facilities that discharge to a POTW to prevent site-specific (e.g., POTW or environmental) problems. The methodology for calculating local limits depends on two factors: 

the maximum allowable headworks loading (MAHL) and the maximum allowable industrial 

loadings (MAIL). A MAHL is an estimate of the upper limit of pollutant loading to a POTW 

intended to prevent pass-through or interference and serve as the basis for local limits. The 

MAIL developed by the POTW represents the amount of pollutant loading the POTW may 

receive from industrial users and other controlled sources. After calculating the MAIL, the 

POTW assigns local limits to dischargers. To assign local limits, PVSC used what they refer to 

as a hybrid uniform allocation method that took into account reductions from the two largest dischargers to the POTW.

Data typically needed to develop local limits include pollutant concentration data from the 

POTW (influent, effluent, primary effluent, sludge), collection system, receiving stream, and 

industrial users, as well as flow data, including total POTW flow, POTW sludge flow to the 

digester, POTW sludge flow to disposal, industrial user flows, receiving stream, hauled waste, 

domestic flows, and commercial flows (USEPA 2004).

Are Permits Used to Facilitate Trades?

PVSC administers a pretreatment program according to NPDES regulations. Through its pretreatment program, PVSC issues sewer use permits to indirect dischargers. The sewer use permits contain adjusted permit limits that reflect the terms of an approved trade contained in 

a trading agreement (see What Are the Trading Mechanisms? below). PVSC approves trades 

using a set of criteria that requires the traded amount to be greater than 0.1 pound per day 

and traded in increments of no less than 0.05 pound per day. The 0.1 pound per day increment was selected because it was relatively large and would limit the number of potential 

participants (Caltagirone 2004).

How Are Credits Generated for Trading?

The seller is an industrial facility that demonstrates, using monitoring data and compliance 

records, a positive reduction in a heavy metal through control measures or pollution prevention techniques (i.e., pretreatment). The buyer is an industrial facility that cannot meet its 

local limits for a heavy metal and wants to negotiate with a seller to purchase credits through 

a contract. A seller may sell credits for a particular metal to a maximum of 10 buyers. A buyer 

may purchase credits for more than one metal, but it must purchase all credits for a particular 

metal from one seller.

Credits are traded on a mass basis, rather than a concentration basis; therefore, facilities 

participating in a trade must convert the discharge concentration in milligrams per liter 

(mg/L) to a mass-based unit in pounds per day (lb/day). The buyer may use only 80 percent of 

the purchased quantity because PVSC requires the buyer to retire or reserve 20 percent of the 

reductions for environmental benefit or future needs (Breetz et al. 2004). Therefore, facilities 

purchasing credits must take this retired/reserved percentage into account when calculating 

credits.
Water Quality Trading Toolkit for Permit Writers

A-67A p p e n d i x A

Current discharge concentration of a specific heavy metal–Local limit of a specific heavy 

metal = Concentration exceeding local limit for a heavy metal

Concentration exceeding local limit for a heavy metal (mg/L) × volume (mgd) × 8.344 (conversion 

factor) = Mass (lb/day) of pollutant exceeded

Mass (lb/day) of pollutant exceeded / 0.80 (percentage of purchased quantity that may be used) = 

Total credits that need to be purchased (lb/day)

Example: Calculating Copper Credits a Facility Must Buy to Comply with

Local Limits

The PVSC local limit for copper is 3.02 mg/L. A chemical facility discharges 5.20 mg/L copper and 

has an average annual effluent discharge rate of 0.150 mgd.

Current discharge concentration of a specific heavy metal–Local limit of a specific heavy metal = 

Concentration exceeding local limit for a heavy metal

5.20 mg/L–3.02 mg/L = 2.18 mg/L

Concentration exceeding local limit for a heavy metal (mg/L) × Volume (mgd) × 8.344 

(conversion factor) = Amount over local limit on a mass basis (lb/day)

2.18 mg/L × 0.150 mgd × 8.344 = 2.73 lb/day

Mass (lb/day) of pollutant exceeded / 0.80 (percentage of purchased quantity that can be used) = 

Total credits that need to be purchased (lb/day)

2.73 lb/day / 0.80 = 3.41 lb/day

PVSC’s regulations require a buyer to purchase credits in minimum increments of 0.05 lb/day. As a 

result, the chemical facility would need to round 3.41 lb/day to 3.45 lb/day to determine the total 

amount of credits that it needs to purchase to comply with the local limits for copper.

Example taken from Sharing the Load: Effluent Trading for Indirect Dischargers. Lessons from the New 

Jersey Chemical Industry Project—Effluent Trading Team (USEPA 1998).

The seller would use a similar procedure to determine the amount of credits on a mass basis 

it has available to sell. If a facility plans to sell credits, it needs to determine what its adjusted 

permit limit will be after selling credits. PVSC modifies existing permits using the adjusted 

permit limit. The first step in calculating the adjusted permit limit is to determine the allowable discharge on a mass basis, which involves multiplying the local limit by the facility’s 

volume and the conversion factor. The difference between the allowable discharge and the 

credits available for sale equals the adjusted discharge limit on a mass basis. Converting the 

adjusted discharge limit from a mass-based limit to a concentration-based limit requires dividing the mass-based limit by the product of the facility’s volume and the conversion factor.

Passaic Valley Sewerage Commissioners Pretreatment Trading  New Jersey
Water Quality Trading Toolkit for Permit Writers

A-68

Local limit (mg/L) × Volume (mgd) × 8.344 (conversion factor) = Allowable discharge on a mass 

basis (lb/day)

Allowable discharge on a mass basis (lb/day)–Amount of credits available for sale (lbs/day) = 

Mass-based adjusted discharge limit (lb/day)

Mass-based adjusted discharge limit (lb/day) / (Volume (mgd) × 8.344 (conversion factor)) = 

Concentration-based adjusted discharge limit (mg/L)

Example: Calculating a Seller’s Concentration-Based Adjusted Discharge Limit After 

Selling Credits

A facility has an average annual discharge rate of 0.20 mgd, and the local limit for copper is 3.02 

mg/L. The facility wants to sell credits equaling 3.45 lb/day to a neighboring facility, but it first 

wants to calculate what its adjusted permit limit would be as a result of the sale.

The facility must first convert its allowable discharge to a mass-based limit.

Local limit (mg/L) × Volume (mgd) × 8.344 (conversion factor) = Allowable discharge on a mass 

basis (lb/day) 3.02 mg/L × 0.20 mgd × 8.344 = 5.04 lbs/day

The facility is able to discharge 5.04 lb/day of copper and meet the local limit for copper. A sale of 

3.45 lb/day to a neighboring facility would provide some additional discharge capacity.

Allowable discharge on a mass basis (lb/day)–Amount of credits available for sale (lb/day) = 

Mass-based adjusted discharge limit (lb/day) 5.04 lb/day–3.45 lb/day = 1.59 lb/day

With the sale of 3.45 lb/day, the facility could still discharge 1.59 lb/day. Discharge limits in 

permits are concentration-based limits; therefore, the facility will have to convert the 1.59 lb/day to 

a concentration to determine the final adjusted discharge limit that will appear in its permit.

Mass-based adjusted discharge limit (lb/day) / (Volume (mgd) × 8.344 (conversion factor)) = 

Concentration-based adjusted discharge limit (mg/L) 1.59 lb/day / (0.20 mgd) × (8.344) = 1.59 

lb/day / 1.6688 = 0.95 mg/L

After the sale of credits, the facility’s new permit would require an adjusted discharge limit of 0.95 

mg/L of copper instead of the 3.02 mg/L local limit for copper in the original permit.

Example taken from Sharing the Load: Effluent Trading for Indirect Dischargers. Lessons from the New 

Jersey Chemical Industry Project—Effluent Trading Team (USEPA 1998).
Water Quality Trading Toolkit for Permit Writers

A-69

What Are the Trading Mechanisms?

A p p e n d i x A

PVSC’s rules and regulations state that buyers and sellers must submit documentation acceptable to PVSC that commits buyers and sellers to complying with regulations; PVSC does not 

require a standardized form. PVSC reviews documentation submitted as a contract to determine whether the contract fulfills the criteria contained in the rules and regulations for trading. Criteria include the following (USEPA 1998):

• Demonstrated compliance with all other POTW requirements

• Demonstrated ability to comply with adjusted discharge limits

• Traded amount is greater than 0.1 pound per day

• Traded amount is in increments of no less than 0.05 pound per day

• Defined price of credit and terms of payment (buyer and seller negotiate this 

amount)

• Established time frame of agreement, including timing of renewals and adjustments

What Is the Pollutant Trading Ratio?

The trading ratio is 10:8. The buyer may use only 80 percent of the purchased quantity; 20 

percent of the reductions are retired or reserved for environmental benefit or future needs 

(Breetz et al. 2004). The determination that 20 percent of the reductions should be retired/

reserved was arbitrary and not based on any specific analysis (Caltagirone 2004).

What Type of Monitoring Is Performed?

Facilities must perform monthly sampling, as specified in their permits, and PVSC compiles 

discharge monitoring data.

What Are the Incentives for Trading?

The primary incentive for participating in PVSC’s pretreatment trading program is flexibility 

in complying with more stringent local limits. In addition, sellers are able to defray pretreatment costs through revenue gained from the sale of excess reductions (Breetz et al. 2004).

What Water Quality Improvements Have Been Achieved?

PVSC has demonstrated an improvement in the trend of metals concentrations and loads in 

the influent, effluent, and sludge upon establishing the local limits (PVSC 2003). However, 

the water quality improvements resulting from the two trades that have taken place are 

unknown.

Passaic Valley Sewerage Commissioners Pretreatment Trading  New Jersey
Water Quality Trading Toolkit for Permit Writers

A-70

What Are the Potential Challenges in Using This Trading 

Approach?

The case study report on PVSC’s pretreatment trading program identifies several potential 

challenges, including PVSC’s indirect dischargers’ unfamiliarity with the concept of water 

quality trading and finding suitable trading partners. The case study report also identifies 

specific challenges associated with small-volume dischargers in negotiating trades and determining the appropriate price (USEPA 1998). Since the second trade, PVSC has not had any 

other facilities come forward with a proposed trade agreement; PVSC is uncertain as to why 

facilities have not shown any interest (Breetz et al. 2004).

What Are the Potential Benefits?

Administrative costs for PVSC are negligible, involving only reviewing proposed trade agreements and adjusting permit limits (Breetz et al. 2004). This approach is easily transferable to 

other pretreatment programs (USEPA 1998).

Applicable Permit Language

PVSC modifies the sewer use permits issued to indirect dischargers to reflect the adjusted discharge limit resulting from a trade. The permit shows the adjusted limits; and the parameters 

have asterisks. The explanation of the asterisks state that more information is available on a 

subsequent page. The other page contains three short paragraphs alluding to the adjusted 

limits. One paragraph states that the limits are adjusted pursuant to a signed contract on a 

specified date between the two parties (both named). One paragraph denotes the permittee 

as a buyer and the other facility as a seller, and it adds that the limits were calculated using 

the permittee’s regulated volume. The last paragraph states that PVSC reserves the right to 

change the limit if the contract is terminated (Caltagirone 2004.)

Contact Information

Andy Caltagirone

Manager of Industrial & Pollution Control

Passaic Valley Sewerage Commissioners

(973) 817-5710

acaltagirone@PVSC.com
Water Quality Trading Toolkit for Permit Writers

A-71

References and Resources

A p p e n d i x A

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Caltagirone, Andy. 2004. Personal communication. September 10.

PVSC (Passaic Valley Sewerage Commissioners). 2003. “2003 National Pretreatment Program 

Excellence Award Application.” June 6, 2003.

Passaic Valley Sewerage Commissioners (Home) <http://www.pvsc.com>.

Passaic Valley Sewerage Commissioners (Industrial Rules and Regulations) 

<http://www.pvsc.com/industrial/rules.htm>.

USEPA (U.S. Environmental Protection Agency). National Pollutant Discharge Elimination 

System (NPDES), Pretreatment Standards and Limits Web site 

<http://cfpub.epa.gov/npdes/pretreatment/pstandards.cfm#local>.

USEPA (U.S. Environmental Protection Agency). 1998. Sharing the Load: Effluent Trading for 

Indirect Dischargers. Lessons from the New Jersey Chemical Industry Project–Effluent 

Trading Team. May 1. <http://www.epa.gov/npdes/pubs/sharing_the_load.pdf>.

USEPA (U.S. Environmental Protection Agency). 2004. Local Limits Development Guidance. 

U.S. Environmental Protection Agency, Office of Wastewater Management. July. 

EPA 833-R-04-002A.

Passaic Valley Sewerage Commissioners Pretreatment Trading  New Jersey
Water Quality Trading Toolkit for Permit Writers

A-72
Water Quality Trading Toolkit for Permit Writers

A-73A p p e n d i x A

Overview

Dischargers in the Neuse River Basin are subject to a wasteload allocation set through the 

Neuse River Basin Nutrient Sensitive Waters Management Strategy (Strategy). The rules developed to support implementation of the Strategy allow dischargers to participate in trading 

activities and establish group compliance associations to meet a collective allocation under a 

single NPDES permit. To date, approximately 23 facilities participate in one group compliance 

association referred to as the Neuse River Compliance Association (Compliance Association) 

and have coverage under a group compliance permit. Point–point transactions can occur 

between members of the Compliance Association or between members and non-members 

within the Neuse River Basin. If the Compliance Association does not meet its limit, the terms 

of the permit require the association to make an offset payment to the Wetland Restoration 

Fund to pay for nonpoint source controls. New or expanding dischargers that require additional allocation must also make a payment to the Wetland Restoration Fund.

Type of Trading Pollutant(s) Traded

Point Source–Point Source

Point Source–Nonpoint Source

Total nitrogen

Number of Trades to Date

Trading has occurred; however, the number of trades is unknown because trading occurs 

within the Compliance Association.

Who Is Eligible to Participate?

Approximately 100 active facilities in the Neuse River Basin have a total nitrogen (TN) wasteload allocation and are therefore eligible to participate in trading. However, the 32 largest 

facilities have TN effluent limits and are the most likely to participate.

What Generated the Need for Trading?

The Neuse River is classified as a Nutrient Sensitive Water (NSW) because of nutrient impacts 

on the river’s estuary. Major fish kills in 1995 provided the impetus for updating the 1988 

Nutrient Management Strategy for the Neuse River Basin. The 1997 Strategy established a 

goal that required sources to reduce TN loads to the estuary by 30 percent from 1995 levels 

by the year 2005. Subsequently the North Carolina Environmental Management Commission (EMC) adopted a rules package in 1998 to support the Strategy. The rules were aimed at 

reducing nitrogen impacts in the watershed and supporting the Strategy by managing agriculture, stormwater, point sources, nutrient management activities and riparian areas. One of 

the rules under the Strategy, the Waste Discharge Requirements rule, establishes point source 

nitrogen allocations and control requirements and compliance options, including a group 

compliance association option (EMC 2002).

Neuse River Basin Nutrient Sensitive Waters 

Management Strategy

North Carolina

Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-74

What Serves as the Basis for Trading?

The 1997 Strategy for the Neuse River Basin established a goal for both point and nonpoint 

sources to reduce TN loads to the estuary by 30 percent from the 1995 estuary level of 2.34 

million pounds by 2005. Therefore, the Waste Discharge Requirements rule establishes an 

estuary wasteload allocation of 1.64 million pounds for dischargers in the Neuse River Basin. 

The North Carolina Division of Water Quality (NC DWQ) used a phased-approach to developing Total Maximum Daily Loads (TMDLs) for the basin. The Phase I TMDL, approved by EPA 

in 1999, concluded that the aggregate estuary wasteload allocation in the 1997 Strategy was 

appropriate. The Phase II TMDL, approved by EPA in 2002, used modeling tools to verify the 

30 percent reduction target set in the Phase I TMDL.

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

The 1997 Strategy contains the calculations used to determine the estuary wasteload allocations that serve as the basis for trading. Because of a lack of adequate data and technical 

tools (i.e., computer model for the Neuse River Basin), NC DWQ relied on best professional 

judgment when determining the nitrogen reduction target and other factors (e.g., transport 

factors) that provide a foundation for the estuary wasteload allocations and, therefore, the 

trading program (Templeton 2004a).

1995 Baseline TN Loading

To calculate the aggregate estuary wasteload allocation that represented a 30 percent reduction, NC DWQ had to first determine the 1995 baseline TN load. Determining the baseline TN 

loading required information about point and nonpoint source discharges to the Neuse River 

Basin. For larger dischargers and some small dischargers, NC DWQ had the necessary monitoring data from 1991 through 1995 to calculate an average concentration for each facility. For 

the smaller dischargers that did not conduct monitoring, NC DWQ used the average concentration of the smaller dischargers to estimate the TN concentration. NC DWQ had the necessary 

flow data from all dischargers during this time frame to calculate the average flow. The 1995 

baseline TN loading at end-of-pipe was approximately 3 million pounds per year. The 1997 

Strategy, however, was focused on nitrogen reductions to the estuary; therefore, the baseline 

TN loading had to be converted from and end-of-pipe baseline to an estuary baseline using 

each facility’s applicable nitrogen transport factors. After applying transport factors, NC 

DWQ calculated the 1995 estuary baseline TN loading to be 1.64 million pounds per year.

Transport Factors

The Neuse River Basin is divided into 12 nutrient management zones, each with a transport 

factor of 10, 50, 70, or 100 percent, according to distance from the estuary. According to the 

Wastewater Discharge Requirements rule, a transport factor is the fraction of the TN in a 

discharge that is predicted to reach the estuary. NC DWQ used a first-order decay equation to 

estimate the loss of nitrogen from the point of discharge to the estuary; this equation established transport factors used in the 1997 Strategy, the Phase I TMDL, and the group compliance permit. Transport factors applied to the end-of-pipe baseline loading and wasteload 

allocation result in the estuary baseline loading and wasteload allocation. The Phase II TMDL 

uses a different transport model, referred to as the SPARROW model, to determine transport 

factors where decay is a function of the type of stream and not a function of time.
Water Quality Trading Toolkit for Permit Writers

A-75

Wasteload Allocations

A p p e n d i x A

Determining wasteload allocations for individual facilities required an iterative process that 

relied on a trial-and-error method. Wasteload allocations were calculated using an equivalent 

concentration for individual facilities; for example, the mass equivalent of a discharge concentration below approximately 3 mg/L would not be technically feasible for facilities to achieve.

The Wastewater Discharge Requirements rule established annual discharge allocations (as 

opposed to estuary allocations) for groups of dischargers on the basis of the dischargers’ 

location in the basin (i.e., upstream or downstream from Falls Lake Dam) and the size of their 

permitted flow. According to the rule, dischargers upstream of Falls Lake Dam with permitted 

flows greater than or equal to 0.5 mgd received an annual discharge allocation of 443,700 

pounds of TN. Dischargers downstream of Falls Lake Dam with permitted flows greater than 

or equal to 0.5 mgd received an annual discharge allocation of 2,021,400 pounds of TN. NC 

DWQ divided dischargers into these groups to ensure that similar dischargers would have 

similar requirements.

The rule states that each individual discharger should receive an individual discharge allocation and the equivalent estuary allocation. The individual discharge allocation is calculated 

as the 1995 permitted flow divided by the total permitted flow of the group, multiplied by 

the group discharge allocation. To determine the equivalent estuary allocation, the individual 

discharge allocation is then multiplied by the facility’s applicable transport factor. Appendix 

B of the group compliance permit contains a list of facilities subject to TN allocations and the 

applicable facility transport factor based on location in the Neuse River Basin.

(1995 permitted flow / total permitted flow of the group) × Group discharge allocation = 

Individual discharge allocation

Individual discharge allocation × Facility transport factor = Individual estuary allocation

Example: Calculating Individual Discharge and Estuary Allocations for a

Facility in the Neuse River Basin

Facility X has a 1995 permitted flow of 0.5 mgd and is located upstream of Falls Lake Dam in the 

Neuse River Basin. NC DWQ tells Facility X that it is in subbasin NEU2 and has a transport factor 

of 50 percent. Because Facility X has a permitted flow of 0.5 mgd and is upstream of Falls Lake 

Dam, the Wastewater Discharge Requirements rule places it in the group with an annual discharge 

allocation of 443,700 pounds of TN. Facility X is also told by NC DWQ that the group’s total 

permitted flow is 26.5 mgd.

Facility X uses the following calculations to figure out its individual discharge allocation and 

estuary allocation:

(1995 permitted flow / total permitted flow of the group) × Group discharge allocation = 

Individual discharge allocation

Individual discharge allocation × Facility transport factor = Individual estuary allocation

(0.5 mgd / 26.5 mgd) × 443,700 lb = 8,372 lb

Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-76

Are Permits Used to Facilitate Trades?

Approximately 32 of the point source dischargers in the Neuse River Basin have TN effluent 

limits because the Wastewater Discharge Requirements rule states that every facility with a 

permitted flow equal to or greater than 0.5 mgd is subject to a TN permit limit equal to its 

individual discharge allocation. Of the 32 point sources with TN effluent limits, approximately 

23 participate as co-permittees in the Neuse River Compliance Association, sharing one 

NPDES permit. The group compliance permit issued to the Compliance Association is a mechanism that can help to facilitate trading.

The Compliance Association’s TN limit for a given calendar year is equal to its estuary TN 

allocation. The overall estuary TN allocation is the sum of all estuary TN allocations for members of the Compliance Association, as listed in Appendix A of the permit. TN allocations of 

co-permittee members may change because of purchases, sales, trades, leases, and other 

transactions among Compliance Association members, affecting the Compliance Association’s 

overall TN allocation. All TN transactions are expressed in terms of estuary allocations (i.e., 

individual discharge allocations multiplied by a facility’s transport factor).

For the Compliance Association to remain in compliance, its estuary TN load for a year may 

not exceed its estuary TN allocation. If the Compliance Association exceeds its estuary TN 

allocation, co-permittees under the group compliance permit are subject to their individual 

TN limits (i.e., individual estuary TN allocations). Provisions of the group compliance permit 

state that when the Compliance Association exceeds its estuary TN allocation, it must make 

offset payments for the excess TN at a rate of $11 per pound for that calendar year. When 

the Compliance Association exceeds its estuary TN allocation, NC DWQ may take enforcement actions against it and any individual co-permittee that exceeds its individual estuary TN 

allocation (NC DWQ 2004).

Internal point source–point source trades are not subject to NC DWQ oversight except to 

ensure that allocations are verified and calculated correctly. The Compliance Association or 

affected dischargers must obtain a permit modification from NC DWQ to have the adjusted 

TN effluent limits reflected in the permit (Breetz et al. 2004).

Example: Calculating Individual Discharge and Estuary Allocations for a

Facility in the Neuse River Basin (continued)

Facility X’s individual discharge allocation is 8,372 lb of TN. To determine its individual estuary 

allocation, Facility X must multiply its individual discharge allocation by its transport factor of 50 

percent.

8,372 lb × 0.5 = 4,186 lb

Facility X’s individual estuary allocation is 4,186 lb of TN.
Water Quality Trading Toolkit for Permit Writers

A-77

How Are Credits Generated for Trading?

A p p e n d i x A

Members are allowed to purchase, sell, trade, or lease their estuary TN allocation among copermittees covered under the group compliance permit; they may not exceed the Compliance 

Association’s overall estuary TN allocation. A facility that has a TN estuary load less than its 

individual estuary TN allocation has credits available to sell, trade, or lease.

If the Compliance Association does not meet its limit, or if a new or expanding discharger 

needs an additional allocation, an offset payment to the Wetland Restoration Fund is 

required to pay for nonpoint source controls. Members of the Compliance Association must 

pay an offset rate of $11 per pound per year if they exceed their individual estuary TN allocations during a year that the Compliance Association exceeds the overall estuary TN allocation 

(EMC 1988). New and expanding dischargers must attempt to purchase estuary TN allocation 

from existing dischargers. If a purchase from existing dischargers is not possible, new and 

expanding dischargers must purchase a portion of the nonpoint source load allocation by 

making an offset payment to the Wetlands Restoration Fund at 200 percent the normal rate 

(i.e., at $22 per pound per year); however, the purchase must be sufficient to fund 30 years of 

nitrogen reduction (EMC 2002).

NC DWQ originally used rough cost information from a few offset projects to determine the 

$11/lb/yr cost of an offset payment. Since then, NC DWQ has worked with North Carolina 

State University to develop an updated cost that takes into consideration costs associated 

with land, project administration, and project operation and maintenance. The updated cost 

was estimated at $57/lb/yr. NC DWQ is working to set a final cost that will account for these 

additional factors and will not prove overly burdensome for Compliance Association members 

(Templeton 2007).

What Are the Trading Mechanisms?

The group compliance permit, as well as other individual NPDES permits that reflect TN effluent limits based on the 1997 Strategy wasteload allocations might help to facilitate trading 

because they contain estuary TN allocations and provide a compliance mechanism. However, 

the mechanism for negotiating trades and achieving agreements does not directly involve 

NPDES permits. Trade negotiations and agreements take place between point sources, without the involvement of a third party.

What Is the Pollutant Trading Ratio?

There is no trade ratio for point source–point source trades and no explicit trade ratio for 

point source–nonpoint source offsets (i.e., offset payments to the Wetlands Restoration 

Fund). However, an analysis of the $11/lb/year cost of an offset payment indicates that a 2:1 

trading ratio may be incorporated into the cost (Breetz et al. 2004).

What Type of Monitoring Is Performed?

Co-permittees in the Compliance Association submit monthly Discharge Monitoring Reports 

to NC DWQ as specified in their individual permits. The Compliance Association compiles and 

submits members’ TN monitoring information for its own reporting purposes.

Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-78

What Are the Incentives for Trading?

Trading is a cost-efficient means to meet an individual estuary TN allocation while achieving 

the overall nutrient reduction goal for the Neuse River Basin. However, the Compliance 

Association has not made any offset payments into the Wetland Restoration Fund to 

date because members are running at approximately 40 percent of their total estuary TN 

allocation (Templeton 2004b).

What Water Quality 

Improvements Have 

Been Achieved?

Since 1995, the NRCA members have 

achieved a 69 percent reduction of 

TN loading at estuary. In addition, 

the combined estuary loading was 

approximately 50 percent of the allocation in 2004 (NCDWQ 2005).

What Are the Potential 

Challenges in Using This Trading Approach?

One challenge of trading illustrated through the Neuse River Basin is determining the potential for localized water quality impacts due to shifting of wasteload allocations. The proposed 

trade agreement now under debate would result in an estuary TN load of approximately 

61,000 pounds of TN per year near the headwaters. Concerned stakeholders initiated the 

involvement of NC DWQ in the proposed trade agreement; otherwise, the trade might have 

occurred because it is within the existing parameters for trading in the Neuse River Basin. 

Another challenge focuses on the potential for a co-permittee under the group compliance 

permit to attempt to sell some or all of its estuary TN allocation outside the Compliance 

Association. According to NC DWQ, this type of trade between a member and a nonmember 

would require the approval of the overall Compliance Association because it would affect the 

group’s overall estuary TN allocation.

What Are the Potential Benefits?

Benefits of this trading example include minimal administration of the trading program by 

the regulating authority, although this might change pending the outcome of the proposed 

trade agreement. Using a Compliance Association approach might facilitate increased communication among dischargers in a watershed.

Figure 1. NRCA performance 1999–2004.
Water Quality Trading Toolkit for Permit Writers

A-79

Applicable NPDES Permit Language

A p p e n d i x A

A.(2.) CO-PERMITTEES AND TN ALLOCATIONS

(a.) Co-Permittees to this Permit shall be the Neuse River Compliance Association (the 

“Association”) and each of its Co-Permittee Members. The Co-Permittee Members, 

the Transport Factors assigned to each, the Members’ individual TN allocations, 

and the Association Estuary TN Allocation shall be as listed in Appendix A, which is 

hereby incorporated into this Permit in its entirety.

(b.) Upon timely and proper notification by the Association as described elsewhere in 

this Permit, the Division shall revise Appendix A to incorporate changes in Association membership, allowable changes in TN Allocations, or reapportionment by the 

Association.

(i.) Changes in membership.

(A) Enrollment. In the event that a discharger joins the Association, the Division shall add 

the discharger and its TN Allocation to Appendix A as a Co-Permittee Member and 

adjust the Association’s TN Estuary Allocation accordingly.

(B) Termination. In the event that a Co-Permittee Member’s membership is terminated, 

the Division shall delete the departing Member and its TN Allocation from Appendix 

A and adjust the Association’s TN Estuary Allocation accordingly.

(ii.) For the purposes of this Permit, allowable changes in TN Allocations include those 

resulting from purchase of allocation from the Wetlands Restoration Fund; purchase, sale, trade, or lease of allocation among the Association, its members, and 

non-member dischargers; regionalization; and other transactions approved by the 

Division.

(iii.) The Association may reapportion its TN Allocation among its Co-Permittee Members; however, the Division shall only incorporate the corresponding changes into 

Appendix A when specifically requested in writing by the Association.

(c.) Changes in Association membership and changes in individual or Association TN 

Allocations shall become effective only at the beginning of the following calendar 

year (January 1).

A.(3.) EFFLUENT LIMITATIONS

(a.) Beginning on the effective date of this Permit and lasting no later than the expiration date, the Co-Permittees are authorized to discharge Total nitrogen (TN) 

from the treatment facilities listed in Appendix A subject to the following effluent 

limitations.

(i.) Association TN Limitation. In any calendar year, the Association’s Estuary TN Load 

shall not exceed its Estuary TN Allocation as specified in Appendix A: Association TN 

Limitation: For any calendar year,

Association Estuary TN Load < Association Estuary TN Allocation

Where

Association Estuary TN Load (or Allocation) = 

Sum of Estuary TN Loads (or Allocations)

for All Co-Permittee Members

Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-80

ii.) Co-Permittee Member TN Allocations. In any calendar year, a Co-Permittee Member 

shall be in compliance with its Estuary TN Allocation in Appendix A if:

(A) the Association Estuary TN Load complies with the Association Estuary TN Allocation 

in Appendix A, or

B) in the event that the Association Estuary TN Load exceeds its Estuary TN Allocation, 

the Co-Permittee Member’s Estuary TN Load does not exceed that Member’s Estuary 

TN Allocation in Appendix A.

(b.) Other Individual Limitations. In the event that a Co-Permittee Member’s membership in the Association is terminated, the departing Member shall no longer be 

eligible for coverage under this Permit and shall become subject to the TN limitation 

set forth in its individual NPDES permit.

(i.) Termination of membership shall become effective only at the beginning of a calendar year (January 1). Re-imposition of a discharger’s individual TN limitation shall 

become effective only at the beginning of a calendar year (January 1).

(ii.) The Association shall notify the Division if it determines that any Member will 

depart at the end of a calendar year and shall provide an accounting of all allowable 

changes in the Member’s TN Allocation since the most recent issuance of the departing Member’s individual NPDES permit.

(iii.) Upon receipt of the notification and accounting described above, the Division 

shall modify the TN limitation in the departing Member’s individual NPDES permit, 

effective January 1 of the succeeding year, to reflect all allowable changes in the 

Member’s TN Allocation since the most recent issuance of the departing Member’s 

individual NPDES permit.

(iii.) Upon receipt of the notification and accounting described above, the Division shall 

modify the TN limitation in the departing Member’s individual NPDES permit, effective January 1 of the succeeding year, to reflect all allowable changes in the Member’s TN Allocation and shall also modify Appendix A of this permit accordingly.

Contact Information

Mike Templeton

Point Source Branch

North Carolina Division of Water Quality

(919) 733-5083 ext. 541

mike.templeton@ncmail.net

Jason T. Robinson

Nonpoint Source Management Program

North Carolina Division of Water Quality

(919) 733-5083 ext. 537

jason.robinson@ncmail.net
Water Quality Trading Toolkit for Permit Writers

A-81

References and Resources

A p p e n d i x A

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

City of Raleigh. 2004. Public Works Committee meeting notes from April 27, 2004.

Coleman, P. 2004. Some oppose nutrient trading. New Bern Sun Journal. July 25. New Bern, 

North Carolina. <http://www.newbernsj.com>. Accessed September 13, 2004.

EMC (North Carolina Environmental Management Commission). 1998. Rule T15ANCAC 2B.0240. 

Neuse River Basin - Nutrient Sensitive Waters Management Strategy: Nutrient Offset 

Payments. Effective August 1, 1998. <http://h2o.enr.state.nc.us/nps/2b-0240.pdf>.

EMC (North Carolina Environmental Management Commission). 2002. Rule T15ANCAC 2B.0234. 

Neuse River Basin - Nutrient Sensitive Waters Management Strategy: Wastewater 

Discharge Requirements. Amended rule adopted by EMC October 10, /2002 and, with 

minor revisions, approved by the North Carolina Rules Review Commission December 19, 

2002.

NC DWQ (North Carolina Division of Water Quality). 2004. Neuse River Compliance 

Association NPDES Permit No. NCC000001. Approved January 1, 2004. 

<http://h2o.enr.state.nc.us/NPDES/documents.html>.

NC DWQ (North Carolina Division of Water Quality). 2005. Presentation given to the Virginia 

Department of Environmental Quality’s VPDES Technical Advisory Committee. Presented 

by Mike Templeton. August 31, 2005. Richmond, Virginia. 

Templeton, Mike. 2004a. Personal communication. September 10.

Templeton, Mike. 2004b. Personal communication. September 13.

Templeton, Mike. 2007. Personal communication. January 24.

Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-82
Water Quality Trading Toolkit for Permit Writers

A-83A p p e n d i x A Neuse River Basin Nutrient Sensitive Waters Management Strategy  North Carolina
Water Quality Trading Toolkit for Permit Writers

A-84
Water Quality Trading Toolkit for Permit Writers

A-85A p p e n d i x A

Overview

The nutrient trading program administered by the Miami Conservancy District (MCD) for the 

Great Miami River Watershed allows NPDES permitted dischargers to purchase credits from 

best management practices (BMPs) installed by upstream nonpoint sources (i.e., agricultural 

producers) to offset nutrient loadings.

Type of Trading Pollutant(s) Traded

Point Source–Nonpoint Source Nitrogen

Phosphorus

Number of Trades to Date

As of 2007, two reverse auctions1 have taken place, resulting in 335,636.5 lbs of nutrient 

reductions. Five NPDES permits are undergoing modification to allow participation in the 

trading program (Hall 2007).

Who Is Eligible to Participate?

Eligible participants include NPDES permitted dischargers and upstream agricultural producers 

within the Great Miami River Watershed. There are approximately 450 point source dischargers and over 80 percent of the agricultural lands in the watershed are eligible (ETN 2004).

What Generated the Need for Trading?

Over 40 percent of the rivers and streams in the Great Miami River Watershed are not meeting state water quality standards and will require Total Maximum Daily Loads (TMDLs). The 

watershed is the second largest contributor of nitrogen in the Ohio River Basin (ETN 2004). 

Stakeholders in the watershed would like to address water quality concerns before TMDLs are 

developed for the Great Miami River Watershed. In addition, more restrictive discharge limits 

for nitrogen and phosphorus are scheduled to take effect in the Great Miami River Watershed in 2007 as a result of nuisance conditions.

What Serves as the Basis for Trading?

Dischargers will have to eventually meet a total phosphorus discharge limit of 1.0 mg/L and 

a total nitrogen discharge limit of 10 mg/L, per the nutrient criteria under development by 

Ohio Environmental Protection Agency (Ohio EPA). The trading program is based on the 

premise that dischargers would rather pay upstream nonpoint source dischargers to achieve 

nutrient reductions than invest in treatment technology.

1 Interested credit generators submit bids on the basis of the cost of their nutrient reduction project and their desired 

compensation. The most cost-effective projects are funded using a pool of money created by the buyers.

Great Miami River Watershed Trading Pilot Program  Ohio

Great Miami River Watershed Trading Pilot 

Program

Ohio
Water Quality Trading Toolkit for Permit Writers

A-86

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

Ohio EPA is developing nutrient criteria for streams and rivers with the expectation of 

adopting these nutrient criteria in 2007. Ohio EPA is using monitoring data from watersheds 

around the state, as well as modeling tools, to develop nutrient criteria.

Are Permits Used to Facilitate Trades?

Ohio EPA, the NPDES permitting authority in Ohio, has participated in the development of 

the Great Miami River Watershed trading program and will work with permitted dischargers to modify their NPDES permits to allow participation in the trading program (MCD 2005). 

Appendix C of the trading program’s operation manual contains model draft language for 

inclusion in NPDES permits. Approximately five NPDES permits are undergoing modification 

to allow participation in trading (Hall 2007).

How Are Credits Generated for Trading?

Voluntary nutrient reductions made by upstream agricultural producers will serve as credits. One pound of total phosphorus removed is equal to one credit for phosphorus, and one 

pound of total nitrogen removed is equal to one credit for nitrogen (MCD 2005). The number of credits generated by a specific nonpoint source management practice is determined 

by a qualified soil and water conservation professional using a Load Reduction Spreadsheet 

(MCD 2005). In addition, a qualified soil and water conservation professional will also periodically inspect the management practice to ensure that it is still generating the allocated 

credits (MCD 2005). A management practice will generate credits only after it is installed.

The cost of each credit is determined by the market; it is likely to equal the sum of expenditures for the project (e.g., capital, operating, administrative, and ongoing maintenance costs) 

divided by the number of credits (MCD 2005).

The trading program includes two strategies to ensure NPDES permit compliance if a management practice should fail and no longer generates credits: (1) a management practice contingency plan, and (2) an insurance pool of credits. The insurance pool of credits contains credits 

generated in part by projects funded by eligible buyers in the contributor category (i.e., 

eligible buyers that participate in the trading program but not in advance of their more-stringent regulatory requirements) through their increased trade ratio requirements (see What Is 

the Pollutant Trading Ratio?). Other water quality improvement projects, subsidized by other 

sources of funds (e.g., Section 319 Nonpoint Source Program), might also generate credits for 

the insurance pool. Credits in the insurance pool have a life of 5 years from the date of deposit; if a credit is not used in that time frame, it is retired (MCD 2005).

What Are the Trading Mechanisms?

The trading program process involves the eight steps described below (MCD 2005).

Step 1. Request for Proposals Issued. MCD issues a request for proposals to announce that 

funds are available for qualified projects. A soil and water conservation district must be the 

applicant for the funds.
Water Quality Trading Toolkit for Permit Writers

A-87A p p e n d i x A

Step 2: Applicants Submit Proposals. All project proposals must address the criteria specified 

in the request for proposals.

Step3: Proposal Review and Selection. The Project Advisory Group, composed of stakeholders 

(local, state, and federal), will develop criteria for awarding funds paid by eligible buyers to 

credit-generating projects. The Project Advisory Group will also review proposals and make 

recommendations for funding.

Step 4: Applicants Notified of Projects Selected. MCD notifies all applicants of the selection 

process results.

Step 5: Project Funds Released. The trading program project funds provide the monies necessary to generate credits.

Step 6: Soil and Water Conservation District Contracted to Manage the Projects. MCD serves 

as the broker of the trading program and enters into a contract with the successful soil and 

water conservation district for project implementation. The soil and water conservation district then enters into a project agreement with the agricultural producer responsible for BMP 

implementation.

Step 7: Credit Management. MCD tracks credits generated by projects, allocates credits to 

eligible buyers, and prepares and submits an annual report to buyers, Ohio EPA, and EPA.

Step 8: Adaptive Management. Ohio EPA and Ohio Department of Natural Resources (DNR) 

established a Load Reduction Workgroup to evaluate and enhance the Load Reduction 

Spreadsheet used to determine the amount of credits generated by a management practice. 

This group will direct and oversee an evaluation of the accuracy of reduction estimates made 

for the trading program every 2 years.

What Is the Pollutant Trading Ratio?

The trading ratios are based on water quality conditions and programmatic status of the 

participant. The ratio varies with the type of eligible buyer and whether the receiving water 

is meeting water quality standards. Eligible buyers that fall under the investor category 

are those that participate in the trading program before they are subject to more stringent 

NPDES permit requirements for nutrients. Eligible buyers that participate in the trading program, but not before more stringent NPDES permit requirements for nutrients, fall under the 

contributor category. Investors have trading ratios of 1:1 if the receiving water is attaining 

water quality standards and 2:1 if the receiving water is not in attainment. Contributors have 

a trading ratio of 2:1 if the receiving water is fully attaining water quality standards and 3:1 if 

the receiving waters are impaired (MCD 2005).

What Type of Monitoring Is Performed?

Analytical validation of management practice performance will occur through site-specific 

water quality monitoring at farm fields. The goal is to collect project-specific data on a 

minimum of 5 percent of the total number of projects, with the ultimate goal of 10 percent. 

Analytical validation of the overall trading program will occur through a subwatershed water 

quality monitoring program that collects samples on a continuous basis at four locations 

(MCD 2005).

Great Miami River Watershed Trading Pilot Program  Ohio
Water Quality Trading Toolkit for Permit Writers

A-88

What Are the Incentives for Trading?

Incentives include the following:

• Potential sources of funding for implementing nonpoint source BMPs

• Potential elimination of the need for a TMDL or reduction in the stringency of 

the TMDL because of water quality improvement before TMDL development and 

implementation

• Economic incentive to trade using final credits as opposed to predicted credits due to 

variations in trading ratios and the need for predicted credit insurance

What Water Quality Improvements Have Been Achieved?

As of 2007, projects funded through two request for proposals have resulted in 335,636.5 lbs 

of nutrient reductions.

What Are the Potential Challenges in Using This Trading 

Approach?

Stakeholders involved in the development of the Great Miami River Watershed Trading Program cite potential challenges such as limitations on dischargers in the headwaters participation because of upstream nonpoint source requirements, the uncertainty associated with 

calculating nonpoint source reductions, and the cost of overcoming the uncertainty through 

increased monitoring (Breetz et al. 2004). Other trading programs have cited a lack of incentive to participate when relying solely on permit discharge limits (i.e., absence of a TMDL) 

to drive the program. Without a TMDL, an overall nutrient reduction goal that also helps 

dischargers to meet more stringent permit limits might serve as a more effective driver for 

trading.

What Are the Potential Benefits?

Potential benefits might include the attainment of water quality standards before TMDL 

development and implementation, as well as an incentive for nonpoint source involvement to 

achieve nutrient reductions.

Applicable NPDES Permit Language

Model draft language for inclusion in NPDES permits is contained in the trading program’s 

operation manual as Appendix C. This model draft language is presented below.

Issued to (Investor-Status) Eligible Buyers in the

Great Miami River Water Quality Credit Trading Program

The City of Dayton (Permittee) is a voluntary participant in the Great Miami River Watershed Water Quality Credit Trading Program (Trading Program) that is managed through the 

Water Conservation Subdistrict of The Miami Conservancy District, a political subdivision of 

the State of Ohio. The Ohio Environmental Protection Agency and the Ohio Department of 

Natural Resources work in cooperation with the Water Conservation Subdistrict to implement 

the Trading Program. The Director has reviewed and approved the Operations Manual for the 

Great Miami River Water Quality Credit Trading Program.
Water Quality Trading Toolkit for Permit Writers

A-89A p p e n d i x A

Many stream and river miles within the Great Miami River Watershed currently fail to attain 

Ohio’s water quality standards. Nutrients are frequently cited as a cause for failure to attain 

the standards. The Permittee is voluntarily participating in the Trading Program prior to new 

permit limits for nutrient discharges or the completion of Total Maximum Daily Load studies. 

This voluntary participation generates earlier water quality benefits in the watershed. Furthermore, by beginning the agricultural practices sooner the practices will be more reliable 

for subsequent use in generating credits for permit compliance.

The Trading Program has financial incentives for the Permittee to voluntarily fund projects 

prior to new permit limits for nutrient discharges. As provided for in the approved Operations Manual, voluntary early participation in the Program entitles the permittee to favorable water quality credit trading ratios as a Trading Program “Investor”. The Director and the 

Permittee agree that the Investor ratios apply to the same substance(s) in the same amounts 

as the nutrient reductions voluntarily accomplished by the Permittee. In the event the Great 

Miami River is deemed by the Director to be impaired at the Permittee’s discharge location, 

trading ratios will be modified pursuant to the Operations Manual.

If at any time the permittee no longer participates in the Trading Program the accrued benefit of the voluntary participation by the permittee will be used to offset the Permittee’s current or future regulatory requirements. The specific offset will be determined in consultation 

with the Permittee and subject to the approval of the Director and may include higher discharge limits, delayed compliance schedules, or other actions deemed appropriate to achieve 

attainment of water quality standards throughout the Great Miami River Watershed.

Contact Information

Douglas “Dusty” Hall

Manager, Watershed Initiatives

The Miami Conservancy District

(937) 223-1278, ext. 3210

dhall@miamiconservancy.org

Sarah Hippensteel

Watershed Coordinator

The Miami Conservancy District

(937) 223-1278, ext. 3244

shippensteel@miamiconservancy.org

Great Miami River Watershed Trading Pilot Program  Ohio
Water Quality Trading Toolkit for Permit Writers

A-90

References and Resources

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

ETN (Environmental Trading Network). 2004. Environmental Trading Network April 2004 

Conference Call. Draft conference call meeting summary. April 21. 

<http://www.envtn.org/calls/calls.htm>.

Hall, Dusty. 2007. Personal communication. February 21.

MCD (Miami Conservancy District). 2005. Great Miami River Watershed Water Quality Credit 

Trading Program Operations Manual. <http://www.miamiconservancy.org/water/

documents/TradingProgramOperationManualFeb8b2005secondversion.pdf>. 

Downloaded on February 8, 2007.

MCD (Miami Conservancy District). <http://www.miamiconservancy.org>.
Water Quality Trading Toolkit for Permit Writers

A-91A p p e n d i x A

Overview

Clean Water Services, a public utility in the Tualatin River Basin responsible for wastewater 

and stormwater management, received an integrated municipal watershed-based permit that 

provides coverage for four publicly owned treatment works (POTWs), one municipal separate 

storm sewer system (MS4), and two individual stormwater permits for two of the POTWs. The 

permit allows trading for two oxygen demanding parameters, carbonaceous biochemical oxygen demand (CBOD5) and ammonia, between two POTWs and temperature to offset thermal 

loads from two of the POTWs. This fact sheet focuses on offsetting thermal load. No trading 

of oxygen demanding parameters has occurred to date.

Type of Trading Pollutant(s) Traded

Point Source–Point Source

Point Source–Nonpoint Source

Oxygen demanding parameters (CBOD5 and 

ammonia)

Temperature (thermal loads)

Number of Trades To Date

0 (Point Source–Point Source)

17 landowners enrolled for 2007 to conduct riparian planting to offset thermal load (Point 

Source–Nonpoint Source)

Who Is Eligible to Participate?

Trading for CBOD5 and ammonia takes place between and within the Durham and Rock Creek 

Advanced Wastewater Treatment Facilities.

Trading involving thermal loads functions as an offset program to accommodate increased 

thermal loads for the Rock Creek and Durham Advanced Wastewater Treatment Facilities. 

Trading to offset thermal loads is limited to the area established by the August 2001 Tualatin 

Subbasin TMDL. Clean Water Services can trade their thermal load by taking a combination of 

the following actions:

1. Improving riparian shade along the river and its tributaries

2. Augmenting flow to increase base flows in the Tualatin

3. Using reclaimed water (effluent) for irrigation

What Generated the Need for Trading?

The 2001 Tualatin Subbasin TMDL developed by Oregon Department of Environmental Quality (DEQ) requires Clean Water Services to reduce the impact of its POTWs on the Tualatin 

River. For temperature, the technological control option available to Clean Water Services 

would be both expensive and have other negative impacts on the watershed. The 2001 Tualatin Subbasin TMDL also contains a wasteload allocation for ammonia. The same two wastewater treatment facilities both have NPDES permit limits for CBOD5

 and ammonia; the ability 

Clean Water Services  Oregon

Clean Water Services

Oregon
Water Quality Trading Toolkit for Permit Writers

A-92

to trade these parameters will provide Clean Water Services greater flexibility in plant operations while still protecting water quality.

What Serves as the Basis for Trading?

Oregon DEQ used the 2001 Tualatin Subbasin TMDL wasteload allocations for temperature 

and ammonia to determine the permit limits and conditions contained in the Clean Water 

Services’ watershed-based NPDES permit. Temperature trading, however, is also based on 

information contained in the Temperature Management Plan and the Thermal Load Credit 

Trading Plan required under the permit.

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

Data and methodologies for trading of oxygen demanding parameters are found in the 

2001 Tualatin Subbasin TMDL and the permit. Although the 2001 Tualatin Subbasin TMDL 

does contain wasteload allocations for thermal loads, data and methodologies for trading 

are found in other documents. The wasteload allocation for temperature, referred to as the 

allowable thermal load, changed under the permit, and the thermal load to offset changed 

under the Temperature Management Plan developed by Clean Water Services. All changes 

are authorized under the TMDL and the permit. Therefore, the data and methodologies for 

temperature trading are contained in the permit and the most recent version of the Temperature Management Plan. A brief overview of the data and methodologies used in determining 

the basis for trading is provided below.

Temperature

Trading of thermal load credits is dependent on several variables including (1) system potential temperatures, (2) allowable thermal loads, and (3) the thermal load to offset.

System Potential Temperatures

The system potential temperature is defined as a condition without human activities that 

disturb or remove vegetation (Clean Water Services 2004). The 2001 Tualatin Subbasin TMDL 

uses a system potential temperature approach to determine the thermal load allocations that 

will achieve the temperature water quality standard of 64 degrees Fahrenheit (°F) for the 

Tualatin River. A complex series of equations contained in the TMDL results in a system potential temperature of 58.5° F at the Rock Creek facility and 63.3° F at the Durham Facility. The 

TMDL states that the allowable thermal load (i.e., wasteload allocation) for each treatment 

facility is a thermal load that will cause no measurable increase in river temperature above 

system potential temperature, which means no more than a 0.25° F increase at the edge of 

the mixing zone.

Allowable Thermal Loads

The TMDL set initial wasteload allocations as allowable thermal loads. However, the permit 

revises the allowable thermal loads set by the TMDL due to changes in flow data using an 

equation that varies from the TMDL.
Water Quality Trading Toolkit for Permit Writers

A-93A p p e n d i x A

Allowable Thermal Load = ((QZOD + QPS) × (1000/35.3) × 86,400 × Max ∆ TZOD × 5/9) kcals/day

Where:

QR = Upstream River Flow calculated as 7Q10 low flow statistic (cfs)

QZOD = QR / Dilution Ratio (cfs)

QPS = Treatment Plant Effluent Flow (cfs)

Max ∆ TZOD = 0.25° F

Example: Calculating Allowable Thermal Loads

Oregon DEQ must calculate the allowable thermal loads for the Durham and Rock Creek facilities. 

The following equation will provide the allowable thermal load values reflected in the final permit:

Allowable Thermal Load = ((QZOD + QPS) × (1000/35.3) × 86,400 × Max Δ TZOD × 5/9) kcals/day

Where:

QZOD = 7Q10 River Flow (cfs)/ Dilution Ratio

QPS = Treatment plant effluent flow (cfs)

Max Δ TZOD = 0.25 °F

The values that Oregon DEQ uses to calculate the allowable thermal load for each facility are found 

in the table below.

Durham Rock Creek

Dilution Ratio 4.2:1 4.0:1

QPS 25.2 43.8

TPS 71.0 71.0

QR 144 110

 QZOD + QPS × 

Kcal

Kg ̇o C 

× 

86,400 seconds

day 

×  Max ∆ TZOD × 

5o C

9o C 

× 

m3

35.31 ft3

× 

264.2 gallons

m3 

× 

8.34 lb

gallon 

× 

Kg

2.203 

 QZOD + QPS ×  Max ∆ TZOD ×

1,359652 Kcal  ̇ sec

day  ̇ ft3 

Clean Water Services  Oregon
Water Quality Trading Toolkit for Permit Writers

A-94

Thermal Load to Offset

The thermal load to offset is the amount of thermal load that exceeds the Allowable Thermal 

Load. This is the thermal load that Clean Water Services must reduce using selected temperature reduction methods, including trading through flow augmentation and shading. The 

2001 Tualatin Subbasin TMDL and the permit contain the equations used to calculate the 

thermal load to offset at each wastewater treatment facility.

Example: Calculating Allowable Thermal Loads (continued)

For Durham:

QR = 144 cfs

QZOD = QR / Dilution Ratio (cfs) = 144/4.2 = 34.29 cfs

QPS = 25.2 cfs

Max Δ TZOD = 0.25 degrees F

Allowable Thermal Load (kcals/day) = (59.49) × (0.25) × (1,359,652.378)

 = 20,221,430 kcals/day

 = 2.0 x10^7 kcals/day

For Rock Creek:

QR = 110 cfs

QZOD = QR / Dilution Ratio (cfs) = 110/4.0 = 27.5 cfs

QPS = 43.8 cfs

Max Δ TZOD = 0.25 degrees F

Allowable Thermal Load (kcals/day) = (71.3) × (0.25) × (1,359,652.378)

 = 24,235,803.64 kcals/day

 = 2.4 x10^7 kcals/day
Water Quality Trading Toolkit for Permit Writers

A-95A p p e n d i x A Clean Water Services  Oregon

Current Excess Point Source Load Above System Potential (kcal/day) − Allowable Point 

Source Thermal Load (kcal/day) = Thermal Load to Offset (kcal/day)

Where:

Current Excess Point Source Load Above System Potential = ΔTZOD × (QZOD + QPS) × (1,000/35.3) × 

(86,400 × 5/9) kcal/day

Allowable Point Source Thermal Load = ((QZOD + QPS) × (1,000/35.3) × 86,400 × Max

ΔTZOD × 5/9) kcals/day

ΔTZOD = ((QPS × TPS) + (QZOD × TSP)) / ((QZOD + QPS) − TSP) °F

QR = Upstream River Flow calculated as 7Q10 low flow statistic (cfs)

QZOD = QR / Dilution Ratio (cfs)

QPS = Treatment Plant Effluent Flow (cfs)

Max ΔTZOD = 0.25 °F

TPS= Treatment plant effluent temperature, °F

TSP= System Potential temperature, °F

Other factors: 1,000 kg/m3, 35.3 ft3/m3, 86,400 sec/day; 5/9 °C/°F

The permit states that the thermal load to offset for the Durham facility is 2.0 × 108 kcal/day 

and for the Rock Creek facility is 7.2 × 108 kcal/day (Oregon DEQ 2004).

Are Permits Utilized to Facilitate Trades?

The watershed-based NPDES permit for Clean Water Services contains the permit limits for 

oxygen demanding parameters, as well as the equations that Clean Water Services must use 

to conduct trades.

Schedule C of the permit requires Clean Water Services to develop a Thermal Load Credit 

Trading Plan as part of the Temperature Management Plan. Schedule C requires the Thermal 

Load Credit Trading Plan to include the following:

• A description of the thermal load to be offset based on equations contained in 

Schedule D of the permit and a specified baseline for thermal credit trading

• A discussion of how the permittee will create, purchase or arrange for thermal credits 

generated by flow augmentation and stream surface area shading

• The methodology for calculating the amount of thermal credit that will be generated 

by stream surface water shading through riparian revegetation and high-quality area 

protection

• Other proposed thermal credit trading options for consideration by Oregon DEQ

• Reporting requirements for thermal load trading credit
Water Quality Trading Toolkit for Permit Writers

A-96

How are Credits Generated for Trading?

The permit defines water quality trading credits as one unit of pollutant reduction or other 

defined environmental improvement, multiplied by any applicable trading ratio detailed in 

the permit or in plans covered by the permit. The permit states the terms of credit use by 

requiring its application at the location where compliance with the baseline is measured for 

the applicable time period. Valid credits are those generated before or during the period they 

are applied to the permittee’s baselines, except thermal credits generated by stream surface 

area shading in the Thermal Load Credit Trading Plan. Credits are pollutant reductions that 

exceed the reductions required by the permittee’s baseline or other applicable requirements 

in the permit (Oregon DEQ 2004).

Clean Water Services’ watershed-based NPDES permit and fact sheet provides a description of 

the process for trading oxygen-demanding parameters. Appendix B of the Revised Temperature Management Plan describes the methodologies for calculating the thermal load credits; 

Clean Water Services will soon make the Revised Temperature Management Plan available for 

public review and comment.

Oxygen Demanding Parameters

The process for generating credits for oxygen demanding parameters described in the permit 

is provided below.

(4) Water Quality Trading Plan for Oxygen Demanding Parameters

Water Quality Trading Credits for oxygen demanding parameters (CBOD5 and 

ammonia) between the Durham and Rock Creek Advanced Wastewater Treatment 

Facilities (AWTF) are authorized by Schedule D of this permit provided that the 

permittee uses the following equations to define the available assimilative capacity. 

Whenever the combined load as calculated by the equation in Schedule A, 1.a.(4)(b) 

is less than or equal to the combined load limitation as calculated by the equation in 

Schedule A, 1.a.(4)(a), (the baseline for purposes of water quality trading) the permittee shall be deemed to be in compliance with the CBOD5 and ammonia-nitrogen 

effluent limitations of this permit.

(a) Oxygen Demand Load Limitation
Water Quality Trading Toolkit for Permit Writers

A-97

Outfall 

A p p e n d i x A

Number Parameter

Combined Rock Creek and Durham Oxygen Demand Load 

Limitation at Oswego Dam (lb/day)

D001 , R001 CBOD5 and 

NBOD

R001 NBOD Limit (lb/day) + R001 CBOD5 Limit (lb/day) +

D001 NBOD Limit (lb/day) + D001 CBOD5 Limit (lb/day)

Where,

R001 NBOD Limit =

Weekly R001 NH3-N Load Limit, lb/day (see Schedule A.1.a.(3)) × 

4.33 × Fraction R001 ammonia decayed at dam (see Table 2)

R001 CBOD5 Limit =

Weekly R001 CBOD5 concentration, mg/L, (see Table 1) × Actual 

Weekly Median Rock Creek Effluent Flow, mgd × 8.34 × 4.9 × 

Fraction R001 CBODultimate decayed at dam (see Table 2)

D001 NBOD Limit =

Weekly D001 NH3-N Load Limit, lb/day (see Schedule A.1.a.(3)) × 

4.33 × Fraction D001 ammonia decayed at dam (see Table 2)

D001 CBOD5 Limit =

Weekly D001 CBOD5 concentration, mg/L, (see Table 1) × Actual 

Weekly Median Durham Effluent Flow, mgd × 8.34 × 4.9 × 

Fraction D001 CBODultimate decayed at dam (see Table 2)

Note: 4.33 = NBOD:NH3 ratio

4.9 = CBODultimate:CBOD5 ratio

8.34 = pound conversion

Water Quality Trading Credit for oxygen demanding substances authorized under the water 

quality trading program in Schedule A, 1.a.(4) shall not be allowed if the trade results in an 

exceedance of the CBOD5 mass limitations for outfalls D001 or R001.

(b) Calculation of Combined Rock Creek and Durham Actual Discharged Oxygen 

Demand Load at Oswego Dam: (applies on a calendar week basis)

Actual Discharged Oxygen Demand Load at Oswego Dam (lb/day) =

R001 NBOD Discharge (lb/day) + R001 CBOD5 (lb/day) + D001 NBOD Discharge (lb/

day) + D001 CBOD5

 Discharge (lb/day)

Where:

R001 NBOD Discharge =

Actual Weekly Median R001 NH3-N Concentration, mg/L × Actual Weekly Median 

Rock Creek Effluent Flow, mgd × 8.34 × 4.33 × Fraction Rock Creek ammonia decayed 

at dam (see Table 2)

R001 CBOD5 Discharge =

Actual Weekly Median R001 CBOD5

 Concentration, mg/L × Actual Weekly Median 

Rock Creek Effluent Flow, mgd × 8.34 × 4.9 × Fraction Rock Creek CBODultimate

decayed at dam (see Table 2)

D001 NBOD Discharge =

Actual Weekly Median D001 NH3-N Concentration, mg/L × Actual Weekly Median 

Durham Effluent Flow, mgd × 8.34 × 4.33 × Fraction Durham ammonia decayed at 

dam (see Table 2)

Clean Water Services  Oregon
Water Quality Trading Toolkit for Permit Writers

A-98

	 D001 CBOD5 Discharge =

Actual Weekly Median D001 CBOD5 Concentration, mg/L × Actual Weekly Median

Durham Effluent Flow, mgd × 8.34 × 4.9 × Fraction Durham CBODultimate decayed at

dam (see Table 2)

Table 1. Weekly CBOD5 Concentrations

Rock Creek Durham

1.4 mg/L 3.9 mg/L

Table 2. Fraction Decayed at Oswego Dam

Farmington 

flow, cfs

River

temperature, oC

Rock Creek Durham

Ammonia CBOD Ammonia CBOD

120 – 175

≤10 0.61 0.33 0.22 0.10

>10 to 15 0.70 0.40 0.27 0.12

>15 to 20 0.79 0.48 0.33 0.15

>20 to 25 0.86 0.56 0.40 0.19

>175 – 200

≤10 0.48 0.24 0.15 0.07

>10 to 15 0.56 0.29 0.19 0.09

>15 to 20 0.65 0.36 0.24 0.11

>20 to 25 0.74 0.43 0.29 0.14

>200 – 250

≤10 0.43 0.21 0.14 0.06

>10 to 15 0.52 0.26 0.17 0.08

>15 to 20 0.60 0.32 0.21 0.10

>20 to 25 0.69 0.39 0.26 0.12

>250 – 300

≤10 0.37 0.17 0.11 0.05

>10 to 15 0.44 0.22 0.14 0.06

>15 to 20 0.52 0.27 0.17 0.08

>20 to 25 0.61 0.33 0.22 0.10

>300 – 350

≤10 0.32 0.15 0.09 0.04

>10 to 15 0.38 0.18 0.12 0.05

>15 to 20 0.46 0.23 0.15 0.06

>20 to 25 0.55 0.28 0.18 0.08

Values for each range set at low end of range for flow and high end for temperature

Temperature

Clean Water Services can trade the heat load from the Rock Creek and Durham wastewater

treatment plants through flow augmentation and increased shading. Appendix B of the

Revised Temperature Management Plan contains the process for calculating thermal load

credits using flow augmentation and shade. A brief description of the process for calculating

thermal load credits associated with flow augmentation and shading is provided below.
Water Quality Trading Toolkit for Permit Writers

A-99

Shading

A p p e n d i x A

Thermal credits from shading are generated on a project-by-project basis. Credits generated by shading projects initiated in a given year are calculated by multiplying the solar load 

blocked for a project by a safety factor and an incentive factor. Solar load blocked is calculated by determining the potential solar load for a particular stream reach and the effective shade, which is a “fraction of the daily solar thermal energy flux that is prevented by 

vegetation from reaching the stream surface” (Clean Water Services 2004). Effective shade 

is determined by using a component of Oregon DEQ’s Heat Source model, referred to as the 

Shade-A-Lator (Clean Water Services 2004).

A safety factor of 0.5 is applied to the solar load blocked for a project because of the uncertainty in using riparian restoration projects to generate shade (Clean Water Services 2004). 

An incentive factor is determined using the priority ranking of a particular stream on which a 

shading project will take place. An incentive factor of 4 is applied to projects that occur along 

high-priority streams, while all other streams receive an incentive factor of 1 (Clean Water 

Services 2004).

Flow Augmentation

The thermal energy decrease associated with the temperature change measured just 

upstream of each outfall caused by flow augmentation is the basis for calculating flow augmentation thermal credits (Clean Water Services 2004).

The annual thermal load contributed by each facility is the sum of the thermal load contributed by the facility, the allowed thermal load (as a negative value), and the thermal credit for 

flow augmentation (Clean Water Services 2004).

HFlowAug = 1kcal / 1 kg °C × QRiver × 1 m3 / 35.3 ft3 × 1,000 kg / 1 m3 × 86,400 sec / 1 day × ΔTFlowAug

Where:

For Rock Creek: Δ

TFlowAug = 5.014 (1 − e Flow Augmentation / Farm Flow − RC-WWTP)

For Durham: Δ

TFlowAug = (−0.02636) (Flow Augmentation / 1 + e (−0.03941) ( Farm Flow − 145.5) )

Clean Water Services  Oregon

Reach Width (ft) × Reach Length (ft) × 480 kcal/ft2/day = Potential Solar Load for a Reach

Potential Solar Load for the Reach × Effective Shade = Solar Load Blocked for a Reach

Solar Load Blocked for Project × Safety Factor of 0.5 × Incentive Factor = Thermal Credit per 

Project
Water Quality Trading Toolkit for Permit Writers

A-100

What are the Trading Mechanisms?

Trading of oxygen-demanding parameters occurs between two wastewater treatment plants 

operated by Clean Water Services. In addition, a single wastewater treatment plant may trade 

between CBOD and ammonia. Schedule D of the permit requires that Clean Water Services 

report all trading credit for oxygen-demanding parameters in the monthly Discharge Monitoring Reporting forms submitted to Oregon DEQ. No other trading mechanisms are used to 

facilitate trades of oxygen-demanding parameters.

The permit contains specific language about trade agreements for thermal load offsets. The 

language is as follows (Oregon DEQ 2004):

The permittee may enter into one or more Thermal Credit Trading Agreements with 

one or more reputable land or water conservation organizations or governmental 

entities to implement one or more components of the Temperature Management 

Plan. The permit specifies that the Thermal Credit Trading Agreements must include 

the following terms:

• A commitment by the Conservation Entity to fully implement the Trading Agreement in accordance with its terms, including initial planting and long-term maintenance, monitoring and reporting;

• A provision that the Credit Trading Agreement is enforceable by Clean Water 

Services and Oregon DEQ and any successor agency. A breach of the Credit Trading Agreement by the Conservation Entity shall not be deemed a violation of this 

permit by the permittee. In the event of a breach, the permittee will be required 

to update its Clean Water Services Temperature Management Plan to demonstrate 

that they will still be able to offset the thermal load.

What is the Pollutant Trading Ratio?

Trading of oxygen-demanding parameters does not use a pollutant trade ratio. However, the 

calculations used for trading oxygen-demanding parameters include equivalency factors that 

take into account the different rates at which the river processes CBOD5

 versus ammonia and 

the different amounts of oxygen demand for each pound of material (Oregon DEQ No date). 

The equivalency factors used in the calculations might be considered a form of pollutant trade 

ratio.

The pollutant trading ratio used for thermal load offsets from stream surface shading is 2:1. 

According to the permit fact sheet, “To compensate for the fact that the heat load offset 

by shading will take years to establish, the Department has decided that at the end of the 

20 years that the credit for shading is in effect, the offset heat load must be two times the 

actual thermal load to be offset” (Oregon DEQ No date).
Water Quality Trading Toolkit for Permit Writers

A-101

What Type of Monitoring is Performed?

A p p e n d i x A

Schedule B of the permit contains an initial watershed monitoring plan. The two facilities 

eligible to trade oxygen-demanding parameters are required to monitor CBOD5

 and ammonia 

three times per week using a 24-hour composite sample. Monitoring for ammonia is required 

daily during the ammonia reduction period.

The draft Temperature Management Plan developed by Clean Water Services contains both 

in-stream and effluent temperature monitoring requirements. For in-stream temperature 

monitoring, Clean Water Services states that either grab samples or continuous monitoring will be used with monitoring sites just upstream from the point of discharge and at the 

edge of the mixing zone along the centerline of the plume (Clean Water Services 2003). For 

effluent temperature monitoring, Clean Water Services will monitor before discharge using 

thermistors in the waste stream at final treatment (Clean Water Services 2003). The Thermal 

Load Credit Trading Plan will contain information on temperature monitoring in the context 

of trading.

What are the Incentives for Trading?

For Clean Water Services, the incentive for offsetting thermal loads using shade credits as 

opposed to installing mechanical cooling equipment is the significant potential cost savings. 

It would cost approximately $40 to $50 million to install the necessary refrigeration equipment to comply at both facilities. The cost of riparian planting is estimated at $7 million over 

a 5-year period. Therefore, Clean Water Services estimates a cost avoidance of approximately 

$42 million over 5 years (Logue 2007).

What Water Quality Improvements Have Been Achieved?

In 2006 approximately 30,015 stream feet and seven landowners were enrolled in the riparian stream planting program. Those totals have gone up for 2007, with approximately 56,420 

stream feet and 17 landowners enrolled in the program (Logue 2007). The water quality trading provision of Clean Water Services’ permit has significantly increased the pace and quantity of riparian area restoration in the Tualatin Basin (USEPA 2006). The additional miles of 

stream planted will result in the prevention of 101 million/Kcal/day from reaching the Tualatin River tributaries that would otherwise result in additional increases in water temperature 

(USEPA 2006).

What Are the Potential Challenges in Using this Approach?

Ensuring that the necessary stream miles are shaded during the permit term may prove 

challenging for Clean Water Services. Also, the uncertainty and variability associated with 

riparian restoration projects may prove challenging in achieving the desired temperature 

reductions over time.

What Are the Potential Benefits?

Trading will allow Clean Water Services to improve the Tualatin River’s water quality more 

efficiently by using approaches that will provide additional environmental benefits to the 

watershed.

Clean Water Services  Oregon
Water Quality Trading Toolkit for Permit Writers

A-102

Applicable NPDES Permit Language

The watershed-based permit contains a significant amount of permit language relevant to 

trading; therefore, it is too cumbersome to insert the relevant permit language in the fact 

sheet. Copies of the permit are available at <http://www.deq.state.or.us/wq/wqpermit/

doc/individual/npdes/cws/permit.pdf>.

Contact Information

Charles Logue, P.E.

Director, Technical Services Department

Clean Water Services

(503) 681-3604

loguec@cleanwaterservices.org

Lyle Christensen

NPDES Permit Writer

Oregon Department of Environmental Quality

(503) 229-5295

Christensen.Lyle@deq.state.or.us

References and Resources

Clean Water Services. 2004. Revised Temperature Management Plan. August 20.

Logue, Charles. 2007. Personal communication. January 24.

Oregon DEQ (Oregon Department of Environmental Quality). 2004. National Pollutant 

Discharge Elimination System Watershed-Based Waste Discharge Permit. Issued to Clean 

Water Services and Washington County Department of Land Use and Transportation. 

January. <http://www.deq.state.or.us/wq/wqpermit/cwspermit.htm>.

Oregon DEQ (Oregon Department of Environmental Quality). 2001. Tualatin River TMDL

<http://www.deq.state.or.us/wq/TMDLs/willamette.htm#t>.

Oregon DEQ (Oregon Department of Environmental Quality). 2004. Fact Sheet and NPDES 

Wastewater Discharge Permit Evaluation. <http://www.deq.state.or.us/wq/wqpermit/

docs/individual/npdes/cws/evalrpt.pdf>.

Oregon DEQ (Oregon Department of Environmental Quality). Draft Intergovernmental 

Agreement between Oregon Department of Environmental Quality and Clean Water 

Services.

USEPA (U.S. Environmental Protection Agency). 2006. Watershed-Based Permitting Case 

Study: Tualatin River, Oregon, Clean Water Services. Draft Updated 9/29/06.
Water Quality Trading Toolkit for Permit Writers

A-103A p p e n d i x A

Overview

The Virginia Department of Environmental Quality (DEQ) 2004 Virginia Water Quality 

Assessment 305(b)/303(d) Integrated Report (303(d) List of Impaired Waters) showed that 

83 percent of the Chesapeake Bay mainstem was impaired and could not adequately sustain 

its aquatic communities. Excessive nutrients (nitrogen and phosphorus) were causing algae 

blooms, decreases in dissolved oxygen, and a decline in habitat availability. This not only 

impaired the aquatic life of the Chesapeake Bay, it also took a toll on the food industry, tourism, and the local residents of the surrounding watershed (DEQ 2006).

In March 2003, the Chesapeake Bay Program (CBP) adopted new nutrient reduction goals 

as part of the Chesapeake 2000 Agreement. This agreement was established to protect and 

restore water quality in the Chesapeake Bay by January 1, 2011. The nutrient reduction goals 

established in this agreement aim to decrease the amount of nitrogen and phosphorus entering the bay by 110 million and 6.3 million pounds per year, respectively. The CBP established 

nutrient load allocations for each major watershed of the bay, and each state then developed 

tributary strategies to achieve each watershed’s nutrient reduction goals.

The Virginia DEQ, in conjunction with the Virginia Department of Conservation and Recreation (DCR) and EPA, developed a set of tributary strategies, one for each major watershed 

draining to the Chesapeake Bay in Virginia. These include the Rappahannock, York, James, 

Shenandoah-Potomac, and the Eastern Shore watersheds. Each tributary strategy establishes 

total nutrient load allocations for the point and nonpoint sources within each watershed and 

outlines implementation plans to meet these allocations.

To help point and nonpoint sources meet nutrient load reduction goals in Virginia’s tributary 

strategies, on March 24, 2005, the Governor of Virginia signed legislation that authorized the 

creation of the Chesapeake Bay Watershed Nutrient Credit Exchange Program (Exchange Program), which was codified in Article 4.02 of the Code of Virginia. Virginia’s Exchange Program 

requires Virginia Pollutant Discharge Elimination System (VPDES) permitted facilities on the 

CBP Significant Discharger List (significant dischargers) as well as new and expanding facilities to register for coverage under the associated general permit to collectively meet annual 

nutrient load allocations established in the watershed. If point sources cannot achieve nutrient load reductions through facility upgrades, the Exchange Program authorizes nutrient 

credit exchanges or payment into the Water Quality Improvement Fund2 (WQIF). Trades can 

be facilitated by the Virginia Nutrient Credit Exchange Association (the ExChange) or occur 

directly between trading partners.

2 The purpose of Virginia’s Water Quality Improvement Fund is, “to provide Water Quality Improvement Grants to 

local governments, soil and water conservation districts, institutions of higher education and individuals for point 

and nonpoint source pollution prevention, reduction and control programs and efforts” (Virginia Code section 

10.1-2128 2006). The WQIF is established in section 10.1-2128 of the Code of Virginia.

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program

Water Quality Trading in the Chesapeake 

Bay Watershed

Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-104

Type of Trading Pollutant(s) Traded

Point Source–Point Source (available 

initially)

Point Source–Nonpoint Source (anticipated 

as the program develops further)

Total Nitrogen (TN) and 

Total Phosphorus (TP)

Number of Trades to Date

No trades to date; compliance plans for all significant dischargers are not due to be submitted until August 1, 2007. These plans will detail how each facility will meet water quality 

standards by January 1, 2011, as required by the Chesapeake 2000 Agreement. The DEQ will 

review the plans and determine when each individual facility can begin nutrient trading.

Who Is Eligible to participate?

Every significant discharger authorized by a VPDES permit that meets specific discharge criteria is required to register for coverage under the General VPDES Watershed Permit Regulation 

for Total Nitrogen and Total Phosphorus Discharges and Nutrient Trading in the Chesapeake 

Bay Watershed in Virginia (General Permit – VAN000000). Coverage under the general permit 

provides these dischargers with the ability to participate in the Exchange Program; however, 

participation in the Exchange Program is not required. The criteria for coverage under the 

general permit include any of the following:

• An existing facility that discharges 100,000 gallons or more per day from a wastewater treatment plant, or an equivalent load from an industrial process, directly into 

tidal waters

• An existing facility that discharges 500,000 gallons or more per day from a wastewater treatment plant, or an equivalent load from an industrial process, directly into 

nontidal waters

• A new or expanding facility that proposes to discharge 40,000 gallons or more per 

day from a wastewater treatment plant, or an equivalent load from an industrial process, directly into tidal or nontidal waters

There are 125 significant dischargers and about 12 new/expanding facilities required to register for coverage under the permit and are therefore eligible for participation in the Exchange 

Program. Other facilities can register for coverage under the permit to participate in the 

Exchange Program; however, they are not expected to do so because they do not have load 

limits imposed on them by the permit. Only significant dischargers can generate credits by 

discharging under their permit limit. Other facilities can only purchase credits from significant 

dischargers except for new/expanding facilities who can purchase credits achieved through 

nonpoint source BMPs if those credits are used to offset additional discharge and if no credits 

are available from existing significant dischargers in the same tributary watershed.

Each facility must complete a compliance plan by August 1, 2007, that explicitly details how 

each facility will meet nutrient standards by the compliance date of January 1, 2011, as directed 

by the Chesapeake 2000 Agreement. If the facility wishes to use nutrient credit trading to meet 

nutrient standards, the compliance plan will specify how. The DEQ might adjust the tributarywide compliance dates depending on their review of the individual facility compliance plans.
Water Quality Trading Toolkit for Permit Writers

A-105

What Generated the Need for Trading?

A p p e n d i x A

The Chesapeake 2000 Agreement set a deadline of 2010 to correct water quality issues related to excessive nutrients in the Bay and remove it from the 303(d) List of Impaired Waters. To 

achieve this goal, it would cost the discharging facilities in the Chesapeake Bay watershed an 

estimated $1.5 billion to upgrade their wastewater treatment technology (ExChange 2006). 

However, there are limited funds, contractors, and construction resources available. A balance needed to be struck between meeting these new stringent load limits and allowing for 

economic growth in the region and, as a result, the Exchange Program was developed to ease 

the demands and costs of construction while ensuring compliance with both current VPDES 

regulations and the Chesapeake 2000 Agreement.

What Serves as the Basis for Trading?

The Virginia tributary strategies describe the sources of nutrients in each of the major tributaries and their contributions to the water quality issues in the Chesapeake Bay mainstem. 

The CBP modeled the required nutrient load reductions for each major tributary. Table 1 

presents the mass and percent reduction in TN and TP loading necessary for each watershed 

to meet tributary strategy goals.

Table 1. Loading reductions needed to meet the TN and TP allocations for each 

watershed.*

Watershed

Mass reductiona Percent reduction

TN TP TN TP

Rappahannock 2.66 0.33 34% 35%

Yorkb 2.00 0.27 26% 36%

Jamesb 10.86 2.54 29% 43%

Shenandoah-Potomac 9.96 0.56 44% 29%

Eastern Shore 0.94 0.15 45% 64%

Notes:

a In millions of pounds

b Allocations are considered interim until further water quality standards are adopted. *

 Reductions are based on the 2002 values from each watershed and are derived from the tributary strategies 

(available for download at: http://www.naturalresources.virginia.gov/Initiatives/WaterQuality/).

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

A collaboration of federal and state government agencies, local universities, and the CBP compiled vast amounts of data for the development of the CBP Watershed Model. This model was 

used to set wasteload allocations for each major tributary and set the stage for the nutrient 

trading program. For more information on the watershed Model and other modeling techniques used, visit the CBP modeling Web site (http://www.chesapeakebay.net/model.htm).

The Chesapeake Bay Monitoring Program has assessed the chemical, physical, and biological 

characteristics of various stations throughout the watershed since 1984. The data obtained 

has aided in model improvement and helped to determine the need for a trading program. 

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-106

Various other monitoring programs exist within the Chesapeake Bay watershed that also provide a wealth of information (http://www.chesapeakebay.net/monprgms.htm).

Are Permits Used to Facilitate Trades?

The DEQ has proposed the draft General VPDES Watershed Permit Regulation for Total Nitrogen and Total Phosphorus Discharges and Nutrient Trading in the Chesapeake Bay Watershed in Virginia (General Permit – VAN000000). The general permit addresses the TN and TP 

wasteload allocations (annual), compliance schedules, compliance plans, and monitoring/

reporting requirements for all significant and new/expanding dischargers in the Chesapeake 

Bay. The public comment for the draft permit closed June 30, 2006. The Virginia State Water 

Control Board (SWCB) approved the General Permit Regulation on September 6, 2006, and 

the final permit was issued January 1, 2007. It will expire on December 31, 2011.

The general permit requires that all significant and new/expanding facilities in the Chesapeake 

Bay register for coverage. The DEQ maintains registration lists of facilities in each tributary 

covered by the general permit. These lists contain the load limits for the facilities that are 

enforceable under the general permit (http://beta.deq.virginia.gov/vpdes/homepage.html). 

The general permit supersedes the requirements of the facilities’ individual VPDES permits 

pertaining to TN and TP, except where site-specific conditions (e.g., local water quality standards, TMDLs, or federal effluent guidelines) necessitate more restrictive limits.

Covered facilities must meet standardized effluent limitations, conditions, and monitoring 

requirements. The general permit establishes annual effluent loading limits for nitrogen 

and phosphorus and establishes the conditions by which credits (the difference in pounds 

between the facility’s limit and the mass actually discharged) may be exchanged, or offsets 

(an alternate nutrient removal mechanism) may be purchased by existing facilities whose 

proposed expansion would otherwise cause the facilities to exceed their allocation or by new 

and expanded facilities that do not have an assigned a wasteload allocation.

In addition to point source–point source trading among permitted facilities, covered dischargers also have the option of complying with their existing load limits through treatment 

technology upgrades and payment into the WQIF. Payments to the WQIF for compliance 

credits are $11.06 for each pound of nitrogen and $5.04 for each pound of phosphorus.3

WQIF compliance credits are only available as an option of last resort if there are no credits 

available through the ExChange.

Facilities seeking to offset proposed expansion or new construction have the additional 

option of purchasing nutrient reductions generated by nonpoint source best management 

practices (BMPs); the implementation process for this option is still under development. The 

ExChange will facilitate these and similar trading scenarios for the permitted facilities of each 

3 In 2002 the Nutrient Reduction Technology Task Force, assembled by the CBP, produced a report on the costs 

of nutrient reduction technology to point sources in the Chesapeake Bay watershed (NRT report). After the 

publication of the NRT report, Virginia developed tributary strategies with specific allocations and concentrations 

for each significant point source discharger. Using cost information from the NRT report as well as the load limits 

significant dischargers would be subject to and inflation since the report was published, the average cost per 

pound of nitrogen or phosphorus reduction for Virginia POTWs was determined. The WQIF payments for the 

general permit were set equal to this cost.
Water Quality Trading Toolkit for Permit Writers

A-107A p p e n d i x A

tributary that apply for voluntary membership. Permitted facilities choosing not to join the 

ExChange still have the option of trading, but must seek out trading partners independently.

How Are Credits Generated for Trading?

When a facility discharges less than its annual TP or TN limit, the difference (in pounds) 

between the limit and actual discharge will result in excess pounds available for conversion to 

saleable nutrient exchange credits using an applicable delivery factor. Credits are expressed 

as pounds per year of delivered TN or TP load. If a facility exceeds its TN or TP limit and 

chooses to exchange credits, it can purchase nutrient reduction credits from a more efficient 

point source facility.

What Are the Trading Mechanisms?

If a facility requests to have its annual load cap activated, that facility will be entitled to trade 

and acquire nutrient credits. Each facility is required to generate an annual report. Due by 

February 1 of each year, these reports indicate the number of nitrogen and phosphorus credits to be acquired or exchanged by the facility. Trading partners are then established (by the 

ExChange or individually) on the basis of credits generated and offsets required. Credits may 

be exchanged only between facilities within the same tributary watershed.

Facilities can conduct trading on an individual basis or can voluntarily participate in the 

ExChange. The ExChange coordinates and facilitates nutrient credit trading among its members. Authorized by the General Assembly, the ExChange is funded through the WQIF. Membership in the ExChange is free and open to all significant dischargers, and new/expanding 

facilities interested in participating. A $1,000 membership fee for consultant affiliates applies 

(http://www.theexchangeassociation.org/Default.htm).

Owners of multiple facilities have the option of combining the nutrient caps of those facilities, creating an aggregate nutrient cap. This allows the owner to meet the overall aggregate 

cap through collectively managing the nutrient loads of each individual facility, essentially 

creating its own trading network.

What Is the Pollutant Trading Ratio?

The Exchange Program uses a delivery factor for point sources that takes into account discharge location within the watershed and nutrient attenuation during riverine transport. These 

facility-specific delivery factors are calculated using the CBP Watershed Model. The model factors in the uptake of phosphorus during delivery caused by the movement of phosphorus-laden 

sediment on river bottoms—in other words, the model occasionally generates a delivery ratio 

of greater than 1.00 (i.e., greater than 100 percent of the phosphorus is delivered to the Chesapeake Bay). As a result, the DEQ decided to cap all ratios at 1.00 to provide a measure of consistency and equity among dischargers. In addition to the use of the delivery factor described 

above, offsets purchased from nonpoint source BMPs are traded at the ratio of 2 pounds 

reduced by the BMP for every pound the new or expanding facility proposes to discharge.

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-108

What Type of Monitoring Is Performed?

Each facility is required to be in compliance with TN and TP final effluent limits included 

in the general permit as soon as possible, but no later than January 1, 2011. The dates will 

be subject to DEQ revisions according to individual compliance plans. The general permit 

requires that monitoring and recordkeeping be conducted following approved methods. 

Monitoring frequency is based on design flow and is conducted as shown in Table 2.

Table 2. Monitoring requirements for facilities covered under the general 

permit

Design flow ≥ 20.00 mgd 1.00–19.99 mgd 0.04–0.99 mgd

Parameter Monitoring sample type/frequency

Total nitrogen

24 HC*/

3 days per week

24 HC/

1 days per week

8 HC/

2 per month 

(> 7 days apart)

Total phosphorus

24 HC/

3 days per week

24 HC/

1 days per week

8 HC/

2 per month 

(> 7 days apart)

*HC = hour composite (e.g. 24 HC = 24-hour composite sample)

Total monthly and year-to-date mass loads must be calculated as follows:

ML = MLavg * d

ML = total monthly load (lbs/mo)

MLavg = monthly average load as reported on discharge monitoring report (lbs/day)

d = number of discharge days in sampling month

AL – YTD = ∑ (January – current month) ML

AL-YTD = calendar year-to-date annual load (lbs/yr)

ML = total monthly load (lbs/mo) as reported on discharge monitoring report

Reporting dates are determined for each facility and are due the same date each month. 

Annual reports are due to the ExChange on or before February 1 of each year. These reports 

include the previous year’s annual mass loads of TN and TP, the delivered total loads of nitrogen and phosphorus, and the number of nitrogen and phosphorus credits to be acquired or 

exchanged. For more information on the VPDES General Permit program and the Virginia 

nutrient trading program legislation and regulations, see http://www.deq.state.va.us/vpdes/.

What Are the Incentives for Trading?

The Exchange Program provides facilities with a flexible approach to meeting nutrient load 

allocations set forth in VPDES general permit, taken from the tributary strategies. Upgrading 

existing treatment systems would be expensive and could hinder growth within the Chesapeake Bay watershed. The Exchange Program, on the other hand, offers a market-based and 

cost-effective method for meeting nutrient caps while accommodating continued growth 

and development. It also allows for new upgrades to be phased in, easing construction and 

resource demand while expediting the process of meeting nutrient load allocations by the 

January 1, 2011, deadline.
Water Quality Trading Toolkit for Permit Writers

A-109

What Water Quality Improvements Have Been Achieved?

A p p e n d i x A

No trading has occurred under the Exchange Program; therefore, no water quality improvements associated with nutrient trading in the Chesapeake Bay watershed have been made.

What Are the Potential Challenges in Using This Trading 

Approach?

Point source–point source trading will be conceptually easier than point source–nonpoint 

source trading, primarily because the previous year’s effluent data from all potential trading partners will have been reported to, and published by, DEQ. Prospective trading partners 

should have little difficulty in identifying each other, and the regulation requires that facilities report their trades in sufficient time for DEQ to ascertain the compliance status of the 

respective facilities.

Nonpoint source trading brings about several potential challenges. Estimating nonpoint 

source loading and BMP load reductions is a difficult task. Inspecting nonpoint source BMP 

installation and implementation also poses a number of challenges because of questions surrounding enforceability, pollutant removal effectiveness, and monitoring. These issues are 

being investigated by DEQ and DCR.

What Are the Potential Benefits?

Trading offers a much more flexible approach to achieving nutrient load allocations for 

permitted significant dischargers. A number of options are available for facilities as opposed 

to solely employing costly treatment upgrades. Compliance could be achieved cooperatively 

with other facilities providing faster and more cost-effective results. If a facility decides to 

upgrade treatment technology, there is the possibility of offsetting the associated costs 

through the trading program. In some cases, and as a last resort, compliance may be achieved 

by simply making a payment to the WQIF.

The local food industry, tourists, and residents of the surrounding watershed all have the 

potential to benefit from the trading program because of its ability to expedite water quality 

improvement.

Applicable NPDES Permit Language

The following is pertinent language found in the general permit (9 VAC 25-820-10 et seq.):

PART I 

SPECIAL CONDITIONS APPLICABLE TO ALL FACILITIES.

J. Compliance with wasteload allocations.

1. Methods of Compliance. The permitted facility shall comply with its wasteload allocation contained in the registration list maintained by the Department. The permitted facility shall be in compliance with its wasteload allocation if:

a. the annual mass load is less than, or equal to, the applicable wasteload allocation assigned to the facility in this general permit (or permitted design capacity 

for expanded facilities without allocations);

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-110

b. the permitted facility acquires sufficient point source nitrogen or phosphorus 

credits in accordance with paragraph 2. of this subsection; provided, however, 

that the acquisition of nitrogen or phosphorus credits pursuant to this section 

shall not alter or otherwise affect the individual wasteload allocations for each 

permitted facility, or

c. in the event it is unable to meet the individual wasteload allocation pursuant to 

a. or b. (above), the permitted facility acquires sufficient nitrogen or phosphorus credits through payments made into the Water Quality Improvement Fund 

pursuant to paragraph 3. of this subsection; provided, however, that the acquisition of nitrogen or phosphorus credits pursuant to this section shall not alter or 

otherwise affect the individual wasteload allocations for each permitted facility.

2. Credit acquisition from permitted facilities. A permittee may acquire point source 

nitrogen credits or point source phosphorus credits from one or more permitted 

facilities with wasteload allocations [in Subsection C of Sections 50, 60, 70, 110 and 

120 of the Water Quality Management Planning Regulation (9 VAC 25-720), including the Blue Plains wastewater treatment facility operated by the District of Columbia Water and Sewer Authority, only if:

a. the credits are generated and applied to a compliance obligation in the same 

calendar year,

b. the credits are generated by one or more permitted facilities in the same 

tributary,

c. the exchange or acquisition of credits does not affect any requirement to comply with local water quality-based limitations,

d. the credits are acquired no later than June 1 immediately following the calendar 

year in which the credits are applied,

e. the credits are generated by a facility that has been constructed, and has 

discharged from treatment works whose design flow or equivalent industrial 

activity is the basis for the facility’s wasteload allocations (until a facility is constructed and has commenced operation, such credits are held, and may be sold, 

by the Water Quality Improvement Fund), and

f. no later than June 1 immediately following the calendar year in which the 

credits are applied, the permittee certifies on a credit exchange notification 

form supplied by the Department that he has acquired sufficient credits to satisfy his compliance obligations. The permittee shall comply with the terms and 

conditions contained in the credit exchange notification form submitted to the 

Department.

3. Credit acquisitions from the Water Quality Improvement Fund. Until such time as 

the Board finds that no allocations are reasonably available in an individual tributary, permittees that cannot meet their Total Nitrogen or Total Phosphorus effluent limit may acquire nitrogen or phosphorus credits through payments made into 

the Virginia Water Quality Improvement Fund established in § 10.1-2128 only if, no 

later than June 1 immediately following the calendar year in which the credits are 

to be applied, the permittee certifies on a form supplied by the Department that 

he has diligently sought, but has been unable to acquire, sufficient credits to satisfy his compliance obligations through the acquisition of point source nitrogen or 

phosphorus credits with other permitted facilities in the same tributary, and that 
Water Quality Trading Toolkit for Permit Writers

A-111A p p e n d i x A

he has acquired sufficient credits to satisfy his compliance obligations through one 

or more payments made in accordance with the terms of this general permit. Such 

certification may include, but not be limited to, providing a record of solicitation or 

demonstration that point source allocations are not available for sale in the tributary in which the permittee is located. Payments to the Water Quality Improvement 

Fund shall be in the amount of $11.06 for each pound of nitrogen and $5.04 for each 

pound of phosphorus, and shall be subject to the following requirements:

a. the credits are generated and applied to a compliance obligation in the same 

calendar year,

b. the credits are generated in the same tributary,

c. the acquisition of credits does not affect any requirement to comply with local 

water quality-based limitations, as determined by the board.

4. This general permit neither requires, nor prohibits, a municipality or regional sewerage authority’s development and implementation of trading programs among industrial users, which are consistent with the pretreatment regulatory requirements at 40 

CFR Part 403 and the municipality’s or authority’s individual VPDES permit.

PART II

SPECIAL CONDITIONS APPLICABLE TO NEW AND EXPANDED FACILITIES

B. Acquisition of Wasteload Allocations.

Wasteload allocations required by this section to offset new or increased delivered total 

nitrogen and delivered total phosphorus loads shall be acquired in accordance with this 

section.

1. Such allocations may be acquired from one or a combination of the following:

a. Acquisition of all or a portion of the wasteload allocations from one or more 

permitted facilities, based on delivered pounds by the respective trading parties 

as listed by the Department.

b. Acquisition of nonpoint source load allocations, using a trading ratio of two 

pounds reduced for every pound to be discharged, through the use of best 

management practices that are:

(i) Acquired through a public, or private entity acting on behalf of the land 

owner;

(ii) Calculated using best management practices efficiency rates and attenuation rates, as established by the latest science and relevant technical information, and approved by the board];

(iii) Based on appropriate delivery factors, as established by the latest science 

and relevant technical information, and approved by the board;

(iv) Demonstrated to have achieved reductions beyond those already required 

by or funded under federal or state law, or by the Virginia tributaries strategies 

plans, and

(v) Included as conditions of the facility’s individual Virginia Pollutant Discharge 

Elimination System permit; or

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-112

c. Until such time as the Board finds that no allocations are reasonably available in 

an individual tributary, acquisition of allocations through payments made into 

the Virginia Water Quality Improvement Fund established in § 10.1-2128; or

d. Acquisition of allocations through such other means as may be approved by the 

Department on a case-by-case basis.

2. Acquisition of allocations is subject to the following conditions:

a. the allocations shall be generated and applied to an offset obligation in the 

same calendar year;

b. the allocations shall be generated in the same tributary;

c. such acquisition does not affect any requirement to comply with local water 

quality-based limitations, as determined by the board;

d. the allocations are authenticated (i.e., verified to have been generated) by the 

permittee as required by the facility’s individual Virginia Pollutant Discharge 

Elimination permit, utilizing procedures approved by the Board, no later than 

February 1 immediately following the calendar year in which the allocations are 

applied;

e. if obtained from a permitted point source, the allocations shall be generated by 

a facility that has been constructed, and has discharged from treatment works 

whose design flow or equivalent industrial activity is the basis for the facility’s 

wasteload allocations, and

f. no later than June 1 in the year prior to the calendar year in which the allocations are to be applied, the permittee shall certify on an exchange notification 

form supplied by the Department that he has acquired sufficient allocations to 

satisfy his compliance obligations. The permittee shall comply with the terms 

and conditions contained in the exchange notification form submitted to the 

Department.

3. Priority of Options. The Board shall give priority to allocations acquired in accordance with subdivisions B.1.a and B.1.b. of this section. The Board shall approve allocations acquired in accordance with subdivisions B.1.c and B.1.d of this section only 

after the owner or operator has demonstrated that he has made a good faith effort 

to acquire sufficient allocations in accordance with subdivisions B.1.a and B.1.b, and 

that such allocations are not reasonably available taking into account timing, cost 

and other relevant factors. Such demonstration may include, but not be limited to, 

providing a record of solicitation, or other demonstration that point source allocations or nonpoint source allocations are not available for sale in the tributary in 

which the permittee is located.

4. Annual allocation acquisitions from the Water Quality Improvement Fund. The cost 

for each pound of nitrogen and each pound of phosphorus shall be determined at 

the time payment is made to the WQIF, based on the higher of (i) the estimated 

cost of achieving a reduction of one pound of nitrogen or phosphorus at the facility 

that is securing the allocation, or comparable facility, for each pound of allocation 

acquired; or (ii) the average cost, as determined by the Department of Conservation 

and Recreation on an annual basis, of reducing two pounds of nitrogen or phosphorus from nonpoint sources in the same tributary for each pound of allocation 

acquired.
Water Quality Trading Toolkit for Permit Writers

A-113

Contact Information

A p p e n d i x A

Virginia Department of Environmental Quality

Kyle Ivar Winter, P.E.

Manager, Office of Water Permit Programs

Virginia Department of Environmental Quality

(804) 698-4182

kiwinter@deq.virginia.gov

Allan Brockenbrough, II, P.E.

Office of Water Permit Programs

Virginia Department of Environmental Quality

(804) 698-4147

abrockenbrough@deq.virginia.gov

Virginia Department of Conservation and Recreation

Jack E. Frye

Director, Soil and Water Conservation Division

Virginia Department of Conservation and Recreation

(804) 786-6523

Jack.Frye@dcr.virginia.gov

The Virginia Nutrient Credit Exchange Association

Mark Haley

President

(804) 541-2210

mhaley@hrwtf.org

Chris Pomeroy

(804) 716-9021

chris@aqualaw.com

Glenn Harvey

(703) 549-3381 Ext. 2205

gbharvey@alexsan.com

References and Resources

DCR (Virginia Department of Conservation and Recreation). 2006. Soil and Water 

Conservation: Virginia’s Nutrient Management Program Web site. 

<http://www.dcr.virginia.gov/soil_&_water/nutmgt.shtml>.

DEQ (Virginia Department of Environmental Quality). 2006. Permit to control and trade 

nutrients within the Chesapeake Bay watershed—Frequently Asked Questions.

<http://www.deq.state.va.us/vpdes/>.

Pomeroy, C.D., D.E. Evans, and S.T. Leeth, 2005. Nutrient Credit Trading: The New Bay Cleanup 

Tool. Virginia Lawyer 54(3):38–40. 

<http://www.vsb.org/docs/valawyermagazine/oct05pomeroy_evans_leeth.pdf>.

Water Quality Trading in the Chesapeake Bay Watershed  Virginia’s Nutrient Credit Exchange Program
Water Quality Trading Toolkit for Permit Writers

A-114

The Chesapeake Bay Program. Water Quality Protection and Restoration Web site.

Data Viewer <http://maps2.chesapeakebay.net/Website/modeling/viewer.htm>

Nutrient Trading Web site: <http://www.chesapeakebay.net/trading.htm>

Modeling Web site: <http://www.chesapeakebay.net/model.htm>

Monitoring Programs Web site: <http://www.chesapeakebay.net/monprgms.htm>

Water Quality Web site: <http://www.chesapeakebay.net/wquality.htm>

The Commonwealth of Virginia—Secretary of Natural Resources. 2006. Statewide Tributary 

Strategies. <http://www.naturalresources.virginia.gov/Initiatives/WaterQuality/>.

The Virginia Nutrient Credit Exchange Association. 2006. Outreach Brochure. 

<http://www.naturalresources.virginia.gov/Initiatives/WaterQuality/>.

ExChange (The Virginia Nutrient Credit Exchange Association). 2006. 

<http://www.theexchangeassociation.org/Default.htm>.

USEPA (United States Environmental Protection Agency). 2003. Setting and Allocating the 

Chesapeake Bay Basin Nutrient and Sediment Loads: The Collaborative Process, Technical 

Tools, and Innovative Approaches. Available for download at: 

<http://www.chesapeakebay.net/caploads.htm>.

Virginia Code section 10.1-2128. Virginia Water Quality Improvement Fund established; 

purposes. 2006. <http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+10.1-2128>.
Water Quality Trading Toolkit for Permit Writers

A-115A p p e n d i x A

Overview

Facing stringent phosphorus discharge limits, the city of Cumberland participated in a trading 

pilot project that involves paying farmers in the Red Cedar River watershed to install nonpoint source best management practices (BMPs). The nonpoint source BMPs reduce phosphorus discharges to the Red Cedar watershed and offset the phosphorus discharge from the City 

of Cumberland’s publicly owned treatment works (POTW), helping the city to avoid costly 

upgrades.

Type of Trading Pollutant(s) Traded

Point Source–Nonpoint Source Phosphorus

Number of Trades to Date

More than 60 BMPs purchased

Who Is Eligible to Participate?

Eligible participants include the city of Cumberland’s POTW and farmers in the Red Cedar 

River watershed.

What Generated the Need for Trading?

Eutrophication and algal blooms in Tainter Lake in the Red Cedar River watershed catalyzed 

watershed-wide management (Breetz et al. 2004). The mandated 1 mg/L phosphorus discharge limit for municipal wastewater treatment plants, and the challenge to achieve this 

limit, generated the need for trading. The 1 mg/L phosphorus discharge limit required of 

Cumberland’s POTW caused the city to pursue water quality trading as a means of reducing 

compliance costs. The city believed that reducing phosphorus through nonpoint source discharges rather than removing chemical phosphorus at the POTW would benefit the watershed (Breetz et al. 2004).

What Serves as the Basis for Trading?

The primary regulatory driver for point sources is Chapter NR 217 of the Wisconsin Administrative Code. Chapter NR 217 mandated 1 mg/L phosphorus discharge limits for municipal treatment plants with a monthly discharge exceeding 150 pounds of phosphorus and industrial 

sources with a monthly discharge exceeding 60 pounds of phosphorus (Breetz et al. 2004).

Red Cedar River Nutrient Trading Pilot 

Program

Wisconsin

Red Cedar River Nutrient Trading Pilot Program  Wisconsin
Water Quality Trading Toolkit for Permit Writers

A-116

What Types of Data and Methodologies Were Used to Calculate 

the Basis for Trading?

Cumberland was required to purchase 4,400 pounds of phosphorus credits to offset the phosphorus discharge from its POTW (Breetz et al. 2004). To determine the amount of phosphorus credits that the city had to purchase, calculations traditionally used in nonpoint source 

management programs that quantify soil delivery reductions and associated reductions in 

phosphorus loading were used (Prusak 2004).

Two computer models have been used to facilitate development of the trading pilot program 

in the Red Cedar River watershed. The first model was the Simulator for Water Resources in 

Rural Basins, used to help establish loading rates and make allocations to various land uses. 

The SWAT model is now being used for other impoundments in the watershed. Results from 

both models will help to establish goals and reduction rates (WDNR 2002).

Are Permits Used to Facilitate Trades?

The NPDES permit for the city of Cumberland’s POTW states that the city must commit to 

trading or take actions to meet the 1 mg/L standard; the permit does not contain language 

that specifies the details of the trading program (Environomics 1999). An agreement between 

the Wisconsin Department of Natural Resources (WDNR) and the city contains the details of 

the trading program, including implementation milestones (Environomics 1999).

How Are Credits Generated for Trading?

The phosphorus reduction credits associated with a BMP were estimated using phosphorus 

loading models developed for and used by many Priority Watershed projects. All the trades 

have involved nutrient management planning or no-tillage, which are well-established and 

well-understood practices. Dischargers may trade only to meet phosphorus requirements and 

farmers may receive payment for a BMP for 3 years (Breetz et al. 2004).

What Are the Trading Mechanisms?

The Barren County Land Conservation Department serves as a third-party facilitator, negotiating with farmers and establishing contracts between participating farmers and Cumberland 

(Breetz et al. 2004).

What Is the Pollutant Trading Ratio?

Initially, the WDNR proposed a trading ratio of 20:1, expecting the city of Cumberland to 

negotiate for a smaller ratio. Eventually a trading ratio of 2:1 was agreed upon by WDNR and 

the city (Prusak 2004).

What Type of Monitoring Is Performed?

The Barron County Land Conservation Department and Cumberland evaluated landowners according to the trading area criteria. Soil testing of each field was done to calculate the 

phosphorus delivery to the stream from the field where the BMP was used (Breetz et al. 2004). 

Additional monitoring is taking place to help calibrate the SWAT model (WDNR 2002).
Water Quality Trading Toolkit for Permit Writers

A-117

What Are the Incentives for Trading?

A p p e n d i x A

The city of Cumberland believed that participating in a trading program to promote nonpoint 

source phosphorus reductions would be beneficial to the watershed and would not require 

an investment for phosphorus controls at the POTW. However, the WDNR’s fourth progress 

report on the trading of water pollution credits stated that the effluent limit of 1 mg/L was 

not an adequate driver for a trading program; a total maximum daily load (TMDL) is needed 

to generate interest (WDNR 2002).

What Water Quality Improvements Have Been Achieved?

Water quality improvements are unknown. However, in 2001 the city of Cumberland paid 22 

landowners a total of $14,526, primarily for reduced tillage on lands showing excessive phosphorus in soil tests. These trades resulted in 5,000 pounds of phosphorus credits, although 

Cumberland was required to reduce phosphorus by only 4,400 pounds. Approximately the 

same number of farmers participated in 2002, 2003, and 2004. The number of acres enrolled 

in the program increased from 720 in 2003 to 891 in 2004. In 2004 Cumberland paid 21 

landowners a total of $17,659.45 for no-till planting and reduced conservation tillage that 

resulted in 9,584 lbs of phosphorus saved. As of 2004, Cumberland has paid a total of $58,000 

to remove a total of 31,500 lbs of phosphorus (WDNR 2006). It is anticipated that the city 

will continue trading until it becomes impossible to secure enough nonpoint source credits 

(Breetz et al. 2004).

What Are the Potential Challenges in Using This Trading 

Approach?

One challenge associated with the Red Cedar River Trading Pilot Program is determining a 

precise phosphorus credit for BMPs. Other challenges cited by the WDNR include developing an agreed-upon set of tools for quantifying phosphorus reduction loads from BMPs and 

generating an incentive for participation without a TMDL in place (WDNR 2002).

What Are the Potential Benefits?

Through the Red Cedar River Trading Pilot Program, the watershed could benefit in the long 

term from the installation of BMPs. The city of Cumberland will pay for only one BMP for 

3 years, and after that will find different landowners to generate credits through new BMPs. 

The hope is that the original BMPs will remain up and running in the watershed after the 

3-year, credit-generating period (WDNR 2002). The BMPs installed through the program 

reduce phosphorus loads in part by reducing sediment loads to the watershed; therefore, the 

Red Cedar River watershed is receiving an additional water quality benefit (Prusak 2004).

Applicable NPDES Permit Language

4.0 Schedules of Compliance

4.1 Phosphorus

Pursuant to s. 283.84, Stats., the 1.0 mg/L phosphorus limitation is held in abeyance 

as long as the permittee is active in the Red Cedar River Watershed Pilot Project. If 

the permittee stops participating or the pilot terminates, the permittee shall take 

steps to achieve total phosphorus limits.

Red Cedar River Nutrient Trading Pilot Program  Wisconsin
Water Quality Trading Toolkit for Permit Writers

A-118

Required Action

Letter of Intent: The permittee must submit a letter of intent to the Department 

regarding pollutant trading. The letter of intent shall indicate whether the permittee intends to continue the Red Cedar River Watershed Pilot Project or proceed with 

adjustments/modifications to the facility to achieve compliance with the phosphorus limitation. If the letter of intent states that the permittee does not intend to 

continue trading, then the permittee shall proceed with modifications to the plant 

(or adjust plant operations) to achieve compliance with phosphorus limitation by a 

deadline established by the Department.

Contact Information

Peter Prusak 

Basin Engineer

Wisconsin Department of Natural Resources

(715) 822-2152

peter.prusak@dnr.state.wi.us

James Baumann

Wisconsin Department of Natural Resources

(608) 266-9277

james.baumann@dnr.state.wi.us

Resources and References

Breetz, H., K. Fisher-Vanden, L. Garzon, H. Jacobs, K. Kroetz, and R. Terry. 2004. Water 

Quality Trading and Offset Initiatives in the U.S.: A Comprehensive Survey. Dartmouth 

College, Hanover, NH.

Environomics. 1999. A summary of U.S. Effluent Trading and Offset Projects. Prepared 

for Dr. Mahesh Podar, U.S. Environmental Protection Agency, Office of Water, by 

Environomics. November.

Kramer, J.M. 2003. Lessons from the Trading Pilots: Applications for Wisconsin Water Quality 

Trading Policy. Prepared for the Fox-Wolf Watershed Alliance. July 8. 

<http://www.fwwa.org/pdf/WisconsinTradingFinal.pdf>.

Prusak, Peter. 2004. Personal communication. September 30.

WDNR (Wisconsin Department of Natural Resources). 2002. Fourth Progress Report on the 

Trading of Water Pollution Credits. Submitted to the Governor in October 2002.

<http://www.dnr.state.wi.us/org/water/wm/nps/pt/PT2002.htm>.

WDNR (Wisconsin Department of Natural Resources). 2006. Watershed Based Pollutant 

Trading web site. <http://www.dnr.state.wi.us/org/water/wm/nps/pt/>. 

Accessed January 24, 2007. 
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-i A p p e n d i x B

Appendix B

US EPA Office of Water,

Water Quality Trading Policy

Contents

Water Quality Trading Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Water Quality Trading Toolkit for Permit Writers

B-ii
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-1A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-2
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-3A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-4
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-5A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-6
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-7A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-8
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-9A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-10
Water Quality Trading Appendix B: US EPA Office of Water, Water Quality Trading Policy

B-11A p p e n d i x B
Water Quality Trading Toolkit for Permit Writers

B-12
Water Quality Trading Appendix C: Trading Forms and Templates

C-i A p p e n d i x C

Appendix C

Trading Forms and Templates

Contents

Sample Trade Reporting Form C-1

Sample Trade Notification Form . . . . . . . . . . . . . . . . . . . . . . . . .C-2

Reduction Credit Certificate C-3

Legal Contract to Trade Form A C-5

Legal Contract to Trade Form B C-7

Legal Contract to Trade Form C C-10

Legal Contract to Trade Form D C-12

Permit Application Form C-14

New Nonpoint Source Project Application & Checklist . . . . . . . . . . . . C-16

Purchase of Credits Application & Checklist C-18
Water Quality Trading Toolkit for Permit Writers

C-ii
Water Quality Trading Appendix C: Trading Forms and Templates

C-1A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-2
Water Quality Trading Appendix C: Trading Forms and Templates

C-3A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-4
Water Quality Trading Appendix C: Trading Forms and Templates

C-5A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-6
Water Quality Trading Appendix C: Trading Forms and Templates

C-7A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-8
Water Quality Trading Appendix C: Trading Forms and Templates

C-9A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-10
Water Quality Trading Appendix C: Trading Forms and Templates

C-11A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-12
Water Quality Trading Appendix C: Trading Forms and Templates

C-13A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-14
Water Quality Trading Appendix C: Trading Forms and Templates

C-15A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-16
Water Quality Trading Appendix C: Trading Forms and Templates

C-17A p p e n d i x C
Water Quality Trading Toolkit for Permit Writers

C-18
Water Quality Trading Appendix D: Use of Cost Share 

D-i A P P E N D I X D

Appendix D

Use of Cost Share (Updated June 2009)

Contents

Clean Water State Revolving Fund and Water Quality Trading:

What Funding Is Available? D-1

What is the Clean Water State Revolving Fund? D-1

Clean Water State Revolving Fund Can Support Trading D-2

Conclusions D-4

Section 319 Funds and Water Quality Trading D-4
Water Quality Trading Toolkit for Permit Writers

D-ii
Water Quality Trading Appendix D: Use of Cost Share 

D-1

Use of Cost Share

A P P E N D I X D

Clean Water State Revolving Fund and Water Pollutant 

Trading: What Funding Is Available?

What is the Clean Water State Revolving Fund?

The Clean Water State Revolving Fund (CWSRF) is the Environmental Protection Agency’s largest water quality financing program. 

Operated in all 50 states and Puerto Rico, the CWSRF provides over 

$5 billion in assistance for water quality projects each year. Most 

assistance is in the form of low interest loans. Municipal credit 

enhancements, such as guarantees for local debt and debt insurance, are also available and can mimic the CWSRF subsidy. Guarantees and insurance hold 

the promise of expanding CWSRF assistance to many more water quality projects. 

A very broad array of projects are eligible for funding, including projects defined in 

Sections 212, 319 and 320 of the Clean Water Act. Section 212 projects include publicly 

owned municipal wastewater collection and treatment systems (POTWs), publicly owned 

municipal stormwater projects and publicly owned municipal landfill projects regulated 

by the National Pollutant Discharge Elimination System (NPDES) Program. Section 319 

projects are nonpoint source projects defined in each state’s Nonpoint Source Management Plan. Section 320 projects are water quality projects located in the watershed 

draining to a National Estuary that are defined in the 28 National Estuaries’ Comprehensive Conservation Management Plans. These projects generally overlap with 212 and 

319 projects. However, privately owned projects regulated by the NPDES program, such 

as Concentrated Animal Feeding Operations, some municipal stormwater and landfills 

projects and others are only eligible as Section 320 projects. Both public and private 

borrowers may receive CWSRF loans for nonpoint source and estuary projects, including 

farmers, homeowners, local governments, not-for-profit organizations, businesses and 

others. Projects likely to be involved in water quality pollutant trading for nutrients and 

sediment include advanced municipal wastewater treatment, manure management Best 

Management Practices (BMPs), cropland BMPs, riparian restoration and reforestation 

activities, septic system repair and upgrade and urban runoff BMPs. For more information about eligible projects visit www.epa.gov/owm/cwfinance/cwsrf/index.htm. 

The CWSRF funds the capital expenses of a project. For Section 212 municipal wastewater projects, this includes pipe and plant. Capital costs associated with publicly owned 

stormwater, including traditional collection, storage and treatment projects, as well as 

green infrastructure, such as rain gardens, are eligible. Section 212 projects also include 

the water quality aspects of publicly owned municipal landfills, such as leachate collection and treatment, monitoring wells, liners, and caps. Reforestation, land conservation, 

Funding for the 

capital costs of 

water quality 

projects
Water Quality Trading Toolkit for Permit Writers

D-2

purchasing equipment and environmental cleanups are some of the many publicly and 

privately owned Section 319 projects eligible for CWSRF assistance. The loans are not 

available for costs associated with operation and maintenance. In addition, while there 

are many opportunities to combine CWSRF loans with other federal programs, the combined federal contribution to the projects may not exceed 100% of the capital costs. If 

other federal programs are used to cover operations and maintenance costs, those funds 

may exceed the capital costs of the project. CWSRF loan interest rates range from 0% to 

just under market rate. Loan repayment begins within one year of project completion 

and full repayment of the loan must occur within 20 years or the useful life of the underlying asset, whichever is less.

Clean Water State Revolving Fund Can Support Trading

There are three ways the CWSRF can support water 

quality pollutant trading—direct loans, conduit lending 

and investing in credit generating projects. Direct loans 

involve the typical assistance relationship between the 

CWSRF and a POTW, nonpoint source, or estuary project. 

The CWSRF provides assistance, such as a low interest 

loan, to a project. Loan repayments must begin within 

one year of project completion. After the project is completed, the project may generate water pollution removal credits. Despite the federal subsidy from the lower than market rate interest on the loans or municipal debt guarantees or 

insurance, proceeds from the sale of these credits can be kept by the borrower. Indeed, the 

revenue from these credit sales could be used to repay the CWSRF loan. See Scenario 1

The CWSRF can pay for 

projects that generate water 

pollution removal credits. 

CWSRF assistance can be 

funnelled through a POTW 

who needs the credit.

Water Quality Trading Scenario #1
Water Quality Trading Appendix D: Use of Cost Share 

D-3

The CWSRF can also support financial arrangements between a POTW and other POTWs 

A P P E N D I X D

or nonpoint sources, also called Single Facility Offset in the Trading Policy and conduit 

lending in the CWSRF program. In these arrangements, a POTW borrows from the CWSRF for pollutant removal projects offsite of the treatment plant. The POTW may either 

re-lend that funding or provide a grant (where the POTW repays the loan) for capital 

pollutant removal projects that will benefit the water body. This could involve a POTW 

paying for upgrades at another POTW in the watershed or a POTW paying for nonpoint 

source BMPs or estuary protection projects within the watershed. See Scenario 2

When a trading broker acts as an intermediary/integrator in a water pollutant trading 

market, the transaction to provide financial support for a capital project between the 

POTW and a pollutant credit generator needs to be clear so that CWSRF eligibility can 

be ascertained. Primarily, CWSRF assistance is limited to the capital costs of the project. 

The CWSRF needs to be able to identify the project that is being financed to determine 

if it is eligible, how much it costs and what other federal funds are contributing to it. 

The CWSRF must also be able to conclude that a state’s funds are used within the same 

state or by an eligible interstate agency. The trading broker can continue to serve as the 

intermediary, as well as the credit enforcement arm to ensure the project is completed 

and maintained. 

The CWSRF can also support water quality trading through investments in projects that 

generate credits. Instead of investing in traditional investment vehicles, such as U.S. Treasury notes and certificates of deposit, States can use idle funds to invest in a state fund 

that sponsors eligible projects that generate credits. In return for the capital to build the 

project, the project gives the state investment fund the water quality credit generated 

by the project. The sale of the fund’s shares provides the CWSRF with the return on its 

investment. By ensuring that an adequate supply of credits is available, states can help 

establish a credit market. See Scenario 3

Water Quality Trading Scenario #2 (Offsets)
Water Quality Trading Toolkit for Permit Writers

D-4

Conclusions

While the CWSRF cannot be used to purchase credits directly under a water pollution 

trading program, the resources of the CWSRF can support a water pollutant trading 

market by providing funding for pollutant removal projects both directly and through a 

conduit. States have wide latitude to select and fund their highest priority water quality 

projects. With trading as a catalyst for a watershed level focus, the potential exists for 

CWSRF funds to effect more water quality improvements in individual watersheds.

Section 319 Funds and Water Quality Trading

Since 1990, Congress has annually appropriated grant funds to states, territories and 

tribes (hereinafter referred to as “states”) under section 319(h) of the Clean Water Act 

to help them to implement management programs to control nonpoint source pollution. 

Section 319 grant funds are important resources available to states to restore impaired 

waters and to protect threatened and unimpaired waters. EPA awards funds to states in 

two portions—base funds and incremental funds. The base funds are to be used by the 

states to generally implement all aspects of their nonpoint source programs, while the 

incremental funds are to be primarily focused upon the implementation of watershedbased plans to restore waters impaired by nonpoint source pollution.

The recipients of state awarded section 319 grants (i.e., subgrantees) are subject to 

restrictions on the use of awarded funds, including those grantees that will sell pollutant 

Water Quality Trading Scenario #3
Water Quality Trading Appendix D: Use of Cost Share 

D-5

credits that result from a section 319 project. If a section 319 subgrantee receives finanA P P E N D I X D

cial remuneration during the subgrant period for a best management practice produced 

with these funds that qualifies as creditable under a water quality trading program, 

that payment is considered program income and would be required to be used in one of 

three ways:

• The amount of financial remuneration for the credit(s) created is deducted from 

the total allowable costs incurred by the subgrantee (if the income was not anticipated at the time of the subgrant award, it must be deducted from the grant and 

cannot be used in either of the subsequent methods);

• If authorized, it may be added to the subgrant funds and must be used for the 

purposes and under the conditions of the subgrant agreement; or

• If authorized, it may be used to meet the cost sharing or matching requirement 

of the subgrant (in which case, the amount of the subgrant remains the same).

Any income received after the subgrant award period has expired is not subject to these 

program income restrictions. If section 319 grant funds are only a portion of the cost 

of the project, then only that portion of the credit received would be program income 

(assuming that other funding for the project is not federal).

As the number of water quality trading programs that create opportunities to achieve 

nonpoint source pollutant reductions increases, the amount of section 319 grant funds 

that are sought for credit generating activities may increase. As more nonpoint source 

trading programs are instituted, EPA may need to evaluate the conditions under which 

section 319 funds are used for the purpose of generating credits and may issue a specific 

policy on the application of section 319 grant funds for water quality trading.
Water Quality Trading Toolkit for Permit Writers

D-6
Water Quality Trading Appendix E: Permit Writer Checklists

E-i A p p e n d i x 

E

Appendix E

Permit Writer Checklists

Contents

Trading Program Design Checklist

Common Elements of Credible Trading Programs E-1

Single Point Source–Point Source Trading 

Considerations for Permit Writers – Checklist E-2

Multiple Point Source Trading 

Considerations for Permit Writers – Checklist E-4

Point Source Credit Exchange 

Considerations for Permit Writers – Checklist E-6

Point Source–Nonpoint Source Trading 

Considerations for Permit Writers – Checklist E-8

Nonpoint Source Credit Exchange 

Considerations for Permit Writers – Checklist E-10
Water Quality Trading Toolkit for Permit Writers

E-ii
Water Quality Trading Appendix E: Permit Writer Checklists

E-1A p p e n d i x 

E

Trading Program Design Checklist

Common Elements of Credible Trading Programs

Legal Authority and Mechanisms

(See Legal and Policy Framework for Water Quality Trading)

 Are there clear legal authority and mechanisms to facilitate trading?

Units of Trade 

(See What Are Some Factors Involved in Determining a Reduction Credit?)

 Has a common unit of trade (e.g., mass per unit time) been established?

Creation and Duration of Credits

(See Timing of Credit Generation and the Duration of Credits)

 Are credits generated during the period in which they are used to comply with permit 

limits?

 Is the reconciliation period consistent with the compliance period in each permit?

Quantifying Credits and Addressing Uncertainty 

(See Developing Trade Ratios)

 If the trade involves nonpoint sources, are methods established to account for the 

uncertainty associated with nonpoint source loads and reductions?

Compliance and Enforcement Provisions 

(See What Types of Effluent Limits Could Be Met Through Trading?)

 Are clear enforceable provisions incorporated into the NPDES permit?

Public Participation and Access to Information 

(See What Are the Roles of Stakeholders?)

 Are stakeholders aware of and involved in trading program development?

 Is trading program information easily accessible to the public?

Program Evaluations 

(See How to Know if the Trading Program is Working)

 Have environmental and economic program evaluations been built into the program 

design?
Water Quality Trading Toolkit for Permit Writers

E-2

Single Point Source–Point Source Trading

Considerations for Permit Writers – Checklist

Trade Agreements

 Has a trade agreement been developed between the point sources?

 If yes, does the trade agreement conform to all federal, state, and local regulations or 

policy guidelines concerning water quality trading?

 If not, are the point sources in the process of developing a trade agreement?

Components of a NPDES Permit

Permit Cover Page

 Are there applicable state regulations or policy documents that should be referenced on 

the cover page of the permit?

Effluent Limitations 

Is there need for the permit writer to require a more stringent minimum control level or 

baseline due to:

 Localized areas of unacceptable pollutant levels in the waterbody of concern?

 Desire to retire credits if a facility reduces production or closes?

 Other? 

 If yes, has the permit writer established effluent limits that allow for trading?

 Do the credit purchaser and credit generator have the same effluent limit type (e.g., massbased) and averaging period (e.g., monthly average) for the pollutant being traded?

	Has the permit writer considered antidegradation and anti-backsliding provisions in 

developing the permit which authorizes trading?

Monitoring

 Are additional sample locations or inspections needed to monitor the effectiveness of the 

water quality trading program?

 Is ambient monitoring or site inspection necessary to ensure that the trade is not creating 

localized exceedances of water quality standards?

Reporting Requirements

 Has a mechanism for tracking trades been developed? 

 Is the reconciliation period consistent with NPDES requirements?

 If not, is there adequate justification?

 Do the reporting requirements in the permit ensure that the permitting authority will 

receive the information needed for its EPA reports?

Special Conditions

Are specific trading provisions being included in the permit’s special conditions to address:

 General authority?

 The definition of a credit?

 Reconciliation periods?

 Any notification requirements per the trading agreement?

 Other? 
Water Quality Trading Appendix E: Permit Writer Checklists

E-3A p p e n d i x 

E

 Do the special conditions address individual liability if credits are not available?

 Is a clause included to allow changes to trade agreements without reopening the permit?

 If authorized by the state, are compliance schedules included to require compliance with 

trading provisions?

	Are environmental studies required to assess the effectiveness of the program?

Single Point Source–Point Source Trading Considerations for Permit 

Writers – Checklist (continued)
Water Quality Trading Toolkit for Permit Writers

E-4

Multiple Point Source Trading

Considerations for Permit Writers – Checklist

Trade Agreements

 Has a trade agreement (or multiple agreements) been developed between the point 

sources?

 If yes, does the trade agreement conform to all federal, state, and local regulations or 

policy guidelines concerning water quality trading?

 If not, are the point sources in the process of developing a trade agreement?

Components of a NPDES Permit

Permit Cover Page

 Are there applicable state regulations or policy documents that should be referenced on 

the cover page of the permit?

Effluent Limitations 

Is there need for the permit writer to require a more stringent minimum control level or 

baseline due to:

 Localized areas of unacceptable pollutant levels in the waterbody of concern?

 Desire to retire credits if a facility reduces production or closes?

 Other? 

 If yes, has the permit writer established effluent limits that allow for trading?

 Is an aggregate limit appropriate for the group of point source dischargers?

 Do the credit purchaser and credit generator have the same effluent limit type (e.g., massbased) and averaging period (e.g., monthly average) for the pollutant being traded?

 Has the permit writer considered antidegradation and anti-backsliding provisions in 

developing the permit which authorizes trading?

Monitoring

 Are additional sample locations or inspections needed to monitor the effectiveness of the 

water quality trading program?

 Has it been established, if multiple facilities are covered under the same permit and are 

part of an association, which entities will be responsible for the monitoring?

 Is ambient monitoring or site inspection necessary to ensure that the trade is not creating 

localized exceedances of water quality standards?

Reporting Requirements

 Has a mechanism for tracking trades been developed and incorporated? 

 Is the reconciliation period consistent with NPDES requirements?

 If not, is there adequate justification?

 Do the reporting requirements in the permit ensure that the permitting authority will 

receive the information needed for its EPA reports?

Special Conditions

Are specific trading provisions being included in the permit’s special conditions to address:

 General authority?

 The definition of a credit?

 Reconciliation periods?

 Any notification requirements per the trading agreement?

 Other? 
Water Quality Trading Appendix E: Permit Writer Checklists

E-5A p p e n d i x 

E

 Do these provisions address individual liability issues if credits are not available?

 Is a clause included to allow changes to trade agreements without reopening the 

associated permit?

 If authorized by the state, are compliance schedules included to require compliance with 

trading provisions?

	Are environmental studies required to assess the effectiveness of the program?

Multiple Point Source Trading Considerations for Permit Writers 

– Checklist (continued)
Water Quality Trading Toolkit for Permit Writers

E-6

Point Source Credit Exchange

Considerations for Permit Writers – Checklist

Credit Exchange Administration

 Has the entity administering the credit exchange been established?

 Are the trade management and administration responsibilities of the credit exchange 

clearly listed?

 Will a broker be used to locate and connect appropriate trading partners?

 Has the credit exchange accounted for delivery or location ratios between generators and 

purchasers?

Trade Agreements

 Has a trade agreement (or multiple agreements) been developed between the point 

sources and the credit exchange?

 If yes, does the trade agreement conform to all federal, state, and local regulations or 

policy guidelines concerning water quality trading?

 If not, are the point sources and the credit exchange in the process of developing a trade 

agreement?

 Does the trade agreement include obligations for permitted buyers and sellers?

Components of a NPDES Permit

Permit Cover Page

 Are there applicable state regulations or policy documents that should be referenced on 

the cover page of the permit?

Effluent Limitations 

Is there need for the permit writer to require a more stringent minimum control level or 

baseline due to:

 Localized areas of unacceptable pollutant levels in the waterbody of concern?

 Desire to retire credits if a facility reduces production or closes?

 Other? 

 If yes, has the permit writer established effluent limits that allow for trading?

 Is an aggregate effluent limit appropriate for the group of point source dischargers 

included in the exchange?

 Has the permit writer considered antidegradation and anti-backsliding provisions in 

developing the permit which authorizes trading?

Monitoring

 Are additional sample locations or inspections needed to monitor the effectiveness of the 

water quality trading program?

 Has it been established who will be responsible for the monitoring for the individuals 

participating in the credit exchange?

 Is ambient monitoring or site inspection necessary to ensure that the trade is not creating 

localized exceedances of water quality standards?

Reporting Requirements

 Has a mechanism for tracking trades been developed and incorporated into the permit? 

 Is there an entity identified to track trades?

 Who will perform this tracking? The individual permittee(s) or the credit exchange?
Water Quality Trading Appendix E: Permit Writer Checklists

E-7A p p e n d i x 

E

 Is the reconciliation period consistent with NPDES requirements?

 If not, is there adequate justification?

 Do the reporting requirements in the permit ensure that the permitting authority will 

receive the information needed for its EPA reports?

Special Conditions

Are specific trading provisions being included in the permit’s special conditions to address:

 General authority?

 The definition of a credit?

 Reconciliation periods?

 Any notification requirements per the trading agreement?

 Other? 

 Do these provisions address individual liability issues if necessary pollutant reductions are 

not generated?

 Do the special conditions outline the type of trade tracking information that the 

permittee must provide or request that the credit exchange make available to the 

permitting authority?

 Will a surplus of credits be maintained by the credit exchange in order to address the 

potential inadequacy of generated credits?

 Is a clause included to allow changes to trade agreements without reopening the 

associated permit?

 If authorized by the state, are compliance schedules included to require compliance with 

trading provisions?

	Are environmental studies required to assess the effectiveness of the program?

Point Source Credit Exchange Considerations for Permit Writers 

– Checklist (continued)
Water Quality Trading Toolkit for Permit Writers

E-8

Point Source–Nonpoint Source Trading

Considerations for Permit Writers – Checklist

Quantifying Nonpoint Source Loads and Credits

 Have uncertainty ratios been developed to account for greater uncertainties in estimates 

of nonpoint source loads and reductions?

 Is the permitting authority satisfied that nonpoint source loadings and BMP effectiveness 

have been measured appropriately? 

 If direct measurement is not possible, is the permitting authority comfortable with the 

modeling techniques used to estimate nonpoint source loadings and BMP effectiveness?

 Has an appropriate credit reconciliation period been determined based on the timing of 

credit generation and the duration of credits?

 Has it been considered when, during the year, that nonpoint source credits will be 

generated?

 Has the trade agreement and permit accounted for when credits will expire?

Establishing Baselines for Nonpoint Source Sellers

 Have effluent limitations been established to create minimum pollutant control 

requirements that the point source purchasers must meet?

 Has a clear baseline for nonpoint source credit generation been developed?

Are the baselines based upon:

 Existing TMDL load allocations;

 Loading of the nonpoint source after meeting some level of BMP control as established 

by state and local requirements or the trading agreement;

 Other? 

Accountability

 Are there appropriate provisions in the trade agreement or contract to achieve 

compliance in the event that the nonpoint source does not generate the quantity of 

credits required to meet the point sources’ permit obligations?

 Have the point source dischargers determined that adequate trading credits will be 

generated by the nonpoint sources to account for applicable ratios and supply adequate 

pollutant credits?

Trade Agreements

 Has a trade agreement (or multiple agreements) been developed between the point and 

nonpoint sources?

 If yes, does the trade agreement conform to all federal, state, and local regulations or 

policy guidelines concerning water quality trading?

 If not, are the point sources in the process of developing a trade agreement?

Components of a NPDES Permit

Permit Cover Page

 Are there applicable state regulations or policy documents that should be referenced on 

the cover page of the permit?
Water Quality Trading Appendix E: Permit Writer Checklists

E-9A p p e n d i x 

E

Effluent Limitations 

Is there need for the permit writer to require a more stringent minimum control level or 

baseline due to:

 Localized areas of unacceptable pollutant levels in the waterbody of concern?

 Desire to retire credits if a facility reduces production or closes?

 Other? 

 If yes, has the permit writer established an effluent limit that allows for trading?

 Has the permit writer considered antidegradation and anti-backsliding provisions in 

developing the permit which authorizes trading?

Monitoring

 Are additional sample locations or inspections needed to monitor the effectiveness of the 

water quality trading program?

 Is ambient monitoring or site inspection necessary to ensure that the trade is not creating 

localized exceedances of water quality standards?

Reporting Requirements

 Is there a mechanism for certifying nonpoint source reductions?

 Has a mechanism for tracking trades been developed and incorporated into the permit? 

 Is the reconciliation period consistent with NPDES requirements?

 If not, is there adequate justification?

 Do the reporting requirements in the permit ensure that the permitting authority will 

receive the information needed for its EPA reports?

Special Conditions

Are specific trading provisions being included in the permit’s special conditions to address:

 General authority?

 The definition of a credit?

 Reconciliation periods?

 Any notification requirements per the trading agreement?

 Other? 

 Do these provisions address individual liability issues if credits are not generated by the 

nonpoint sources?

 Is a clause included to allow changes to trade agreements without reopening the 

associated permit?

 If authorized by the state, are compliance schedules included to require compliance with 

trading provisions?

	Are environmental studies required to assess the effectiveness of the program?

Point Source–Nonpoint Source Trading Considerations for Permit 

Writers – Checklist (continued)
Water Quality Trading Toolkit for Permit Writers

E-10

Nonpoint Source Credit Exchange

Considerations for Permit Writers – Checklist

The Function of a Nonpoint Source Credit Exchange

 Is there clear authority in the trade agreement for who will be administering the credit 

exchange?

 Are the trade management and administration responsibilities of the credit exchange 

outlined in detail in the trade agreement?

 Will a third party be used to locate and connect appropriate trading partners?

 Has the credit exchange accounted for delivery or location ratios between generators and 

purchasers?

Quantifying Nonpoint Source Loads and Credits

 Have uncertainty ratios been developed to account for greater uncertainties in estimates 

of nonpoint source loads and reductions?

 Is the permitting authority satisfied that nonpoint source loadings and BMP effectiveness 

have been measured appropriately? 

 If direct measurement is not possible, is the permitting authority comfortable with the 

modeling techniques used to estimate nonpoint source loadings and BMP effectiveness?

 Has an appropriate credit reconciliation period been determined based on the timing of 

credit generation and the duration of credits?

 Has it been considered when, during the year, that nonpoint source credits will be 

generated?

 Has the trade agreement and permit accounted for when credits will expire?

Establishing Baselines for Nonpoint Source Sellers

 Have effluent limitations been established to create minimum pollutant control 

requirements that point source purchasers must meet?

 Has a clear baseline for nonpoint source credit generation been developed? 

Are the baselines based upon:

 Existing TMDL load allocations;

 Loading of the nonpoint source after meeting some level of BMP control as established 

by state and local requirements or the trading agreement;

 Other? 

Accountability

 Are there appropriate provisions in the trade agreement or contract to achieve 

compliance in the event that the nonpoint source does not generate the quantity of 

credits required to meet the point sources’ permit obligations?

 Have the point source dischargers determined that adequate trading credits will be 

generated by the nonpoint sources to account for applicable ratios and supply adequate 

pollutant credits?
Water Quality Trading Appendix E: Permit Writer Checklists

E-11A p p e n d i x 

E

Trade Agreements

 Has a trade agreement (or multiple agreements) been developed between the point 

sources, nonpoint sources, and the credit exchange?

 If yes, does the trade agreement conform to all federal, state, and local regulations or 

policy guidelines concerning water quality trading?

 If not, are the sources in the process of developing a trade agreement?

Components of a NPDES Permit

Permit Cover Page

 Are there applicable state regulations or policy documents that should be referenced on 

the cover page of the permit?

Effluent Limitations 

Is there need for the permit writer to require a more stringent minimum control level or 

baseline due to:

 Localized areas of unacceptable pollutant levels in the waterbody of concern?

 Desire to retire credits if a facility reduces production or closes?

 Other? 

 If yes, has the permit writer established an effluent limit that allows for trading?

 Has the permit writer considered antidegradation and anti-backsliding provisions in 

developing the permit which authorizes trading?

Monitoring

 Are additional sample locations or inspections needed to monitor the effectiveness of the 

water quality trading program?

 Has it been established who will perform the monitoring for the point and nonpoint 

sources participating in the nonpoint source credit exchange?

 Is ambient monitoring or site inspection necessary to ensure that the trade is not creating 

localized exceedances of water quality standards?

 Have permit conditions been included to assure that nonpoint source BMPs are 

performing properly through regular monitoring and inspection? 

 Has it been established who will perform the monitoring and inspections?

Reporting Requirements

 Is there a mechanism for certifying nonpoint source reductions?

 Has a mechanism for tracking trades been developed and incorporated into the permit? 

 Has it been determined who will perform this tracking?

 Are permit provisions necessary to ensure that the installation and performances 

specifications for BMPs are verified prior to the purchase of credits from nonpoint 

sources?

 Is the reconciliation period consistent with NPDES requirements?

 If not, is there adequate justification?

 Do the reporting requirements in the permit ensure that the permitting authority will 

receive the information needed for its EPA reports?

Nonpoint Source Credit Exchange Considerations for Permit Writers 

– Checklist (continued)
Water Quality Trading Toolkit for Permit Writers

E-12

Special Conditions

Are specific trading provisions being included in the permit’s special conditions to address:

 General authority?

 The definition of a credit?

 When a nonpoint source generated credit is available?

 The specific BMPs that are authorized to generate nonpoint source credits?

 Reconciliation periods?

 Any notification requirements per the trading agreement?

 Other? 

 Do these provisions address individual liability issues if credits are not generated by the 

nonpoint sources?

 Do the special conditions outline the type of trade tracking information that the 

permittee must provide or request that the credit exchange make available to the 

permitting authority (e.g. type and location of specific BMPs)?

 Will a surplus of credits be maintained by the credit exchange in order to address the 

potential inadequacy of generated credits or to address the uncertainty of nonpoint 

source generated credits?

 Is a clause included to allow changes to trade agreements without reopening the 

associated permit?

 If authorized by the state, are compliance schedules included to require compliance with 

trading provisions?

	Are environmental studies required to assess the effectiveness of the program?

Nonpoint Source Credit Exchange Considerations for Permit Writers 

– Checklist (continued)
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-i A P P E N D I X F

Appendix F

Trading With Subsurface Septic Systems

(Added June 2009)

Contents

Potential Conditions for Developing an Trading Program

with Subsurface Septic Systems . . . . . . . . . . . . . . . . . . . . . . . . . F-1

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
Water Quality Trading Toolkit for Permit Writers

F-ii
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-1A P P E N D I X F

The reader of this appendix should first read the Point Source–Nonpoint Source Trading 

Scenario. This appendix provides a variation related to the type of nonpoint source trade 

only. The information provided in the Scenario also applies to this type of trade except as 

noted below.

Nonpoint source trading is not limited to agriculture. Subsurface septic systems are also 

nonpoint sources that can be involved in trading. Trading programs involving these 

systems would be similar to trading programs involving agriculture, as outlined in the 

Point Source–Nonpoint Source Trading Scenario; however, there are a few differences. 

This appendix discusses circumstances under which a point source or permitting authority 

might want to consider allowing offsets with subsurface septic systems. A hypothetical 

example of a septic system trading program is included.

The benefits of a permitted point source trading with subsurface septic systems could 

include increased nutrient and pathogen control, as well as overall improvement in septic 

system performance in the watershed. The credit buyer would benefit from finding a 

more economical option for meeting a new or more restrictive discharge permit limit. 

The benefit to the credit-selling homeowners would depend on the type of trading 

arrangement. In cases where a homeowner’s subsurface septic system is repaired and 

enhanced or totally replaced by the credit buyer, and the credit buyer pays for maintenance under the trade agreement, the homeowner is potentially relieved of the cost of 

repairing and enhancing the system, as well as system maintenance. If the option is for 

the credit buyer to retire the septic system and connect the home to the municipal collection system, the advantage to the homeowner is less responsibility for maintenance. The 

homeowner, however, would then presumably have to pay a municipal sewer charge, 

although the economics of the trade might be so favorable to the credit-buying discharger that it is willing to pay for the individual home hookups. One caution is that, depending on how the trading program is structured, it could spur residential development 

where such development may not be wanted. In addition, additional hookups would add 

flow to the receiving publicly owned treatment works (POTW), which, depending on the 

number of existing hookups and the POTW’s capacity, could affect performance at the 

treatment plant. As discussed below, this contingency should be considered in assessing 

the feasibility of the trade.

Potential Conditions for Developing an Trading Program 

with Subsurface Septic Systems

Under what conditions would trading with subsurface septic systems be feasible or desirable? The most obvious case would be where subsurface septic systems already exist and 

a watershed analysis suggests that the systems are contributing to water quality impairment. Thus, a full analysis of the watershed might be completed through a watershedbased permitting approach or a total maximum daily load (TMDL). This analysis would 
Water Quality Trading Toolkit for Permit Writers

F-2

define the existing and potential sources of contamination and help to set the baseline 

for trading in that watershed. 

A permittee considering trades with subsurface systems has a number of options, including (1) hooking up household septic systems to its collection system, (2) replacing the 

existing septic system(s) with an alternative system that controls nitrogen and phosphorus or (3) repairing the existing system(s) and adding enhancements to control nitrogen 

and phosphorus. For options (2) and (3), the trade agreement might require the credit 

buyer to maintain these more sophisticated septic systems. Thus, there would be a management/maintenance section in the trade agreement with the septic owner outlining 

the responsibilities of each party. Those responsibilities might include the credit buyer’s 

notifying the homeowner or business when the credit buyer plans inspections, repair, or 

replacement. The homeowner’s responsibilities might include performing some maintenance and notifying the credit buyer of any problems with the system.

The parties might wish to consider the following factors, among others, before pursuing 

trades with subsurface septic systems:

(1) Source of contamination. Consider doing an analysis of the watershed to assess 

whether subsurface septic systems contribute to water quality impairment.

(2) Results of a buyer’s cost-benefit analysis. Consider doing an analysis, from the 

perspective of the buyer, of the costs and benefits of pursuing a trade. Such an 

analysis could include an evaluation of the amount of reduction expected based 

on an appropriate trade ratio. The analysis might also include the proximity to 

the waterbody of the subsurface septic systems, the density of development, the 

proximity of existing public sewer service to the septic systems, and the potential 

for growth.

(3) Proximity to a waterbody. Consider the possibility that the closer the subsurface 

system is to a waterbody, the faster and higher the rate of nutrient delivery to 

the waterbody.

(4) Density of development. Consider whether connecting low-density development 

to existing or satellite treatment plants is worth the cost. Choosing to replace, or 

repair and enhance, subsurface systems might be more cost-effective.

(5) Proximity to public sewer. Consider the cost-effectiveness of connecting septic 

systems to existing public sewers in light of the distance that public sewers would 

have to be extended to facilitate the hookups.

(6) Potential for growth. Keep in mind that hooking up subsurface systems to waste 

treatment plants may promote growth and development along the new collection line. Depending on the land use planning for the area, this could be a positive or negative outcome.
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-3A P P E N D I X F

(7) Effect of added flow to the POTW. It is important to consider how much additional flow the POTW can accommodate without negative effects on the performance of the treatment plant.

Below is a hypothetical example of a trade agreement with a community of subsurface 

septic systems. The baseline and all other topics for trading with subsurface septic systems would be the same as those outlined in the Point Source–Nonpoint Source Trading 

Scenario.

Maco Creek Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Nitrogen (TN)

Driver: Approved TMDL for Total Nitrogen for Maco Creek

Credit Buyer: Expanding Facility: Troy Manufacturing

This industrial facility has a total nitrogen (TN) wasteload allocation under the TMDL of 3,044 lb/

month. At its current design flow of 200,000 gpd, it must achieve a monthly average TN concentration 

of 5.00 mg/L to comply with the loading limit. 

Troy Manufacturing now wishes to expand its operations and increase its discharge to 250,000 gpd. 

The facility could either upgrade its treatment process and reduce the concentration of nitrogen in its 

discharge to meet the monthly load limit or find TN offsets elsewhere in the watershed. The TMDL 

load allocation calls for reducing the existing septic nitrogen loads by 15 percent. Troy Manufacturing has determined that paying for a combination of connecting septic systems in Frog Town to the 

POTW and upgrading others to denitrifying capability would be less costly than upgrading Troy’s 

wastewater treatment plant. The permitting authority has agreed that Troy Manufacturing could offset its proposed additional nitrogen load by connecting or upgrading septic systems in Frog Town that 

were identified in the TMDL as contributors to the nitrogen impairment in Maco Creek. Frog Town 

has agreed to accept the flow from the hookups at its POTW and has determined that the additional 

nitrogen load that would be discharged by the Frog Town plant could be easily accommodated within 

the plant’s permitted load limit. Frog Town has also agreed to enter into agreements with owners of 

the upgraded septic systems that would ensure adequate operation and maintenance of the systems 

and allow annual inspections. The only additional requirement stipulated by the permitting authority 

in this example is that a portion of the nitrogen load reduction generated by retiring or upgrading the 

septic systems must be used to help achieve the TMDL goal of reducing septic loads in the watershed 

by 15 percent. Hence, 15 percent of any septic load reduction achieved must be used for that purpose 

and may not be used to offset the additional Troy Manufacturing nitrogen loads. 
Water Quality Trading Toolkit for Permit Writers

F-4

The Troy Manufacturing discharge is summarized in the Table 1.

Table 1. Troy Manufacturing’s Discharged Flows, Loads, and Permit Requirements 

Current Proposed

Flow, gpd 200,000 250,000

TN Concentration, mg/L 5.00 5.00

TN Load, lbs/yr 3,044 3,805

TN Load Permit Limit, lbs/yr 3,044 3,044

Excess Load, lbs/yr 761

Troy Manufacturing must offset 761 pounds of additional nitrogen load per month.

Credit Seller: Frog Town has identified 14 households on old subsurface septic systems that have 

agreed to allow the town to remove their septic systems and connect the houses to Frog Town’s 

municipal sewer system. Another five households have agreed to upgrade their systems to denitrifying capability. Frog Town will pay for all necessary construction and will be reimbursed by Troy 

Manufacturing.

To properly design the trade, an adequate analysis of septic pollutant loads is necessary. In this 

example, it is assumed that the TMDL included an assessment of septic loads and that the assessment 

is complete and robust enough to allow trades involving these loads. It is assumed that the TMDL has 

provided the following:

n	GIS mapping of all the septic systems.

n	The annual average nitrogen concentrations at the edge of the septic drain fields, based on monitoring and statistical analysis. These annual averages vary by septic system type, e.g., residential, 

commercial, type of commercial.

n	The annual average nitrogen delivery ratio, based on soil type, slope, monitoring, groundwater 

and surface water modeling, and statistical analysis. The ratios of the discharged septic load to 

the septic load delivered to the Maco River impairment zone were determined. A zone system 

was developed based on zones with similar characteristics, and delivery ratios were assigned to 

individual septic systems based on zone. The delivery ratios were set conservatively, allowing a 

lower uncertainty ratio to be applied in the trade than would otherwise have been the case. 

The zone delivery ratios are shown in Table 2. The load reductions achieved by the hookups and 

upgrades are shown in Tables 3 and 4, respectively. 

Table 2. Maco Creek TMDL Septic System Zones and Delivery Ratios

Zone Delivery Ratio

1 0.75

2 0.69

3 0.78

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-5A P P E N D I X F

Table 3. Load Reductions Attributed to Retired Frog Town Septic Systems 

Septic No. Type

Flow

(gal/day)

TN Conc

Edge of 

Drain 

Field 

(mg/L)

TN Load

Edge of 

Drain 

Field 

(lb/yr)

Delivery 

Ratio

TN Load

to Maco 

Creek 

(lb/yr)

1 Residential 250 45 34 .75 26

2 Residential 250 45 34 .75 26

3 Commercial 1,300 63 249 .75 187

4 Residential 250 45 34 .75 26

5 Commercial 950 70 202 .75 152

6 Residential 250 45 34 .75 26

7 Residential 250 45 34 .69 24

8 Commercial 1,500 55 251 .69 173

9 Residential 250 45 34 .69 24

10 Residential 250 45 34 .69 24

11 Residential 250 45 34 .69 24

12 Medical 1,000 85 259 .78 202

13 Residential 250 45 34 .78 27

14 Residential 250 45 34 .78 27

Total 1,304 965

Table 4. Load Reductions Attributed to Upgraded Frog Town Septic Systems

Septic 

No. Type

Flow

(gal/

day)

TN 

Conc

(mg/L)

TN 

Load

(lb/yr)

Delivery 

Ratio

TN 

Load to 

Maco 

Creek

(lb/yr)

New 

TN 

Conc

(mg/L)

New TN 

Load to 

Maco 

Creek

(lb/yr)

TN 

Reduction 

lbs/year

1 Residential 250 45 34 0.75 26 20 11 14

2 Residential 250 45 34 0.69 24 20 11 13

3 Commercial 450 65 89 0.69 61 20 19 43

4 Residential 250 45 34 0.69 24 20 11 13

5 Commercial 900 45 123 0.78 96 20 43 53

Total 315 231 94 136

The calculation of the total load reduction needed for this trade is shown in Table 5 and the available 

reductions are shown in Table 6. A 10 percent uncertainty ratio has been applied, as shown in Table 

5. The uncertainty is due mainly to uncertainty in the delivery ratios; however, because the TMDL set 

the ratios conservatively high, only a small uncertainty ratio is required in the trade.

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

F-6

Table 5. Required Nitrogen Load Reductions

Use Required Reduction, lbs/yr

Satisfy TMDL Requirement

(15 percent of existing septic load) 180

Offset Troy Manufacturing’s Increase 761

Subtotal 941

10 percent uncertainty ratio 94

Total 1,035

Table 6. Available Nitrogen Load Reductions

Source Required Reduction, lbs/yr

Septic System Connections 965

Septic System Upgrades 137

Total 1,102

Effluent Limitations

Troy Manufacturing needs 1,035 credits per year. It has applied for an NPDES permit modification for the 

increased flow and load and plans to begin construction after the permit is approved. Troy Manufacturing expects that building the added capacity will take one year. Therefore, the permitting authority will 

authorize the discharge beginning one year after permit modification, provided that all 19 septic system 

connections or upgrades have been accomplished by that time. This approach ensures that the load reduction needed to offset the additional discharge will be available when the additional discharge begins. 

The permit writer for Troy Manufacturing will include water quality based effluent limitations 

(WQBEL) for nitrogen and the trading provisions in the permit, particularly the septic system connections and upgrades required to offset Troy Manufacturing’s additional load. The permit fact sheet will 

include the information shown in Tables 1 through 6. 

Permit Language (after modification):

Table 7. Monthly Average Mass Loading Effluent Limitations for Total Nitrogen

Facility Units

WQBEL prior to 

expansion

WQBEL after 

expansion

Troy Manufacturing lbs/yr 3,044 4,805

A. Troy Manufacturing is authorized to discharge total nitrogen from Outfall 001 to Maco Creek 

provided the discharge meets the limitations set forth herein. Provision X of this permit authorizes the permittee to purchase water quality trading credits for total nitrogen from nonpoint 

sources within the Maco Creek watershed that meet the baseline requirements prior to trading.

B. Prior to {insert date 12 months after permit effective date}, the discharge from Outfall 001 

shall comply with the yearly mass loading of total nitrogen established by the WQBEL prior to 

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-7A P P E N D I X F

expansion set forth in Table 7. After {insert date 12 months after permit effective date}, the 

discharge from Outfall 001 shall comply with the yearly mass loading of total nitrogen established by the WQBEL after expansion set forth in Table 7.

C. The permittee shall complete connection or upgrade of the 19 septic systems in Frog Town 

as shown in Tables 3 and 4 prior to increasing its discharge. The permittee shall maintain the 

upgraded septic systems shown in Table 4 for the duration of this permit.

Pollutant Form, Units of Measure, and Timing

Pollutant Form

The TMDL indicates an impairment in Maco Creek for total nitrogen. Because both Troy Manufacturing and the Frog Town septic systems are discharging the same form of nitrogen, no equivalency 

factor is needed.

Units of Measure

The WQBELs are expressed in pounds per year as an annual average to correspond with the units and 

averaging period in the TMDL. The nitrogen load reductions assumed in the trading agreements for 

the septic systems will be calculated and expressed in pounds per year as an annual average to correspond with the offset needed by Troy Manufacturing.

Timing of Credits

Credits are available beginning 12 months after permit issuance. This allows 12 months for Troy 

Manufacturing to enter into trade agreements with the five homeowners in Frog Town to upgrade 

their septic systems and complete the upgrades. These agreements are not part of the NPDES permit 

and the homeowners are not subject to NPDES permit requirements or penalties. The agreement may 

contain other potential actions, such as actions to be taken if the homeowner violates the agreement, 

that are outside NPDES. The permit authorizes the Troy Manufacturing discharge expansion beginning one year after issuance of the permit, so Troy Manufacturing will not expand its discharge before 

the required offset has been obtained and is performing. Trades will occur annually to correspond 

with the annual average effluent limitation. The ability of the upgraded septic systems to continue to 

generate credits will be assessed during the renewal of Troy Manufacturing’s permit every five years. 

Upgraded septic system owners, the POTW, or a third party must verify credits annually.

Monitoring

n In the new permit, Troy Manufacturing will be required to monitor for total nitrogen weekly 

and to submit monthly discharge monitoring reports (DMRs) to the permitting authority yearround by the 15th of the second month following monitoring in order to gauge compliance. 

The DMR shall include monthly total nitrogen loads and cumulative annual total nitrogen load 

to date. Annual inspections of septic systems are also required to ensure proper maintenance.

Permit Language:

n The permittee shall monitor effluent total nitrogen at least once a week. The permittee shall 

determine the average monthly mass loading based on actual monthly average flow. Flow 

monitoring shall be continuous.

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

F-8

Reporting

The permit requires, in addition to monitoring reports, regular reporting of any changes to the trade 

agreement, as well as reports for tracking trades. The facility’s individual permit will contain annual 

average effluent limitations for total nitrogen; therefore, annual trade transactions for the upgraded 

septic systems will be necessary to maintain compliance. The trade agreement between the dischargers indicates that Troy Manufacturing will track the trades. Troy Manufacturing will maintain maintenance records for these systems. The trade-tracking system will generate annual trading summaries 

for the entire program. 

Permit Language:

• No trade is valid unless it is recorded in the permittee’s electronic trade-tracking system or 

an equivalent system that records all trades and generates an annual summary of all trades 

in substantially the same format as forms approved by the state. Trade-tracking information 

must be submitted to [the Permitting Authority] by March 1 of each year.

Special Conditions

The NPDES permit writer has reviewed the signed trade agreements for total nitrogen trading 

between Troy Manufacturing, Frog Town, and homeowners in Frog Town. The agreements describe 

how Troy Manufacturing will offset its discharge through trading with Frog Town and homeowners 

in Frog Town. The NPDES permit writer has developed the appropriate effluent limitations, monitoring, and reporting requirements for Troy Manufacturing. The special conditions in the NPDES permit focus on general authority, credit definition, notification of amendment to the trade agreement, 

notification of unavailability of credits, permit reopeners and modification provisions, compliance 

schedule, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in water quality trading with Frog Town and homeowners in Frog Town as specified in the written signed trade agreements, for the purposes of 

complying with the TMDL-related requirements of this permit. The authority to use trading for 

compliance with these limits is derived from {insert state law where applicable} and section 402 of 

the Federal Clean Water Act (33 U.S.C.§ 1342). USEPA’s policies on Water Quality Trading (1/13/03) 

and Watershed-Based NPDES Permitting (1/7/03) endorse water quality trading. In addition, the 

Maco Creek Nitrogen TMDL authorizes water quality trading as a means of achieving the allocations established by the TMDL.

Credit Definition

Credits will be measured in pounds of total nitrogen per year on an annual basis. One trading 

credit will be defined as one unit of pollutant reduction (pound of total nitrogen) delivered to 

Maco Creek. All pollutant load reductions purchased by the permittee will be in the form of equivalent nitrogen credits that represent pollutant load reductions with the appropriate uncertainty, 

delivery, and retirement ratios applied as detailed in the trade agreement between the permittee 

and point and nonpoint source trading partners. All valid credits are tradable. The permittee is 

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Appendix F: Trading With Subsurface Septic Systems

F-9A P P E N D I X F

required to offset its load by complying with the schedule for annual inspections and maintenance 

of the upgraded septic systems in Frog Town and providing pollutant reductions beyond the load 

allocation, established in the Maco Creek Nitrogen TMDL. All septic systems generating credits 

must be certified as having been properly installed.

Notification of Amendment to the Trade Agreement

The permittee is required to notify the permitting authority in writing within 7 days of the trade 

agreement’s being amended, modified, or revoked. This notification must include the details of 

any amendment or modification in addition to the justification for the change(s).

Notification of Unavailability of Credits

The permittee is required to notify the permitting authority in writing within 7 days of becoming aware that credits used or intended for use by the permittee to comply with the terms of this 

permit are unavailable or determined to be invalid. This notification must include an explanation 

of how the permittee will ensure compliance with the offset provisions established in this permit, 

either by implementing on-site controls or by conducting an approved emergency nitrogen offset 

project approved by the NPDES permit writer.

Permit Reopeners and Modification Provisions

The permitting authority may, for any reason provided by law, summary proceedings, or otherwise, revoke or suspend this permit or modify it to establish any appropriate conditions, schedules 

of compliance, or other provisions that may be necessary to protect human health or the environment or to implement the Maco Creek Nitrogen TMDL. 

Compliance Schedule

This permit includes both interim and final effluent limitations for the discharge of total nitrogen from Outfall 001. Compliance with the final effluent limitations is required on {insert date 12 

months after permit effective date}.

By March 1 of each year, the permittee shall submit a Compliance Plan Annual Report to describe 

the progress of actions undertaken to purchase credits and to achieve compliance with the final 

effluent limitations for the discharge of total nitrogen from Outfall 001 by {insert date 12 months 

after permit effective date}.

Enforcement Liability

The permittee is ultimately responsible for meeting its respective effluent limitations. No liability clauses contained in other legal documents (e.g., trade agreements, contracts) established 

between the permittee and other authorized buyers and sellers are enforceable under this permit.

Maco Creek Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

F-10

References

U.S. Environmental Protection Agency. 2002. Onsite Wastewater Treatment Systems 

Manual, EPA/625/R-00/008. U.S. Environmental Protection Agency, Office of Water and 

Office of Research and Development, Washington, DC. Page 3-29.

U.S. Environmental Protection Agency and Massachusetts Department of Environmental Protection. 1998. Authorization to Discharge under the National Pollutant Discharge 

Elimination System, Town of Wayland, MA. NPDES Permit No. MA0039853. 

Acknowledgements

Cy Jones, World Resources Institute, author of the example.

Jeff Potent, EPA Region 2

Jay Prager, Maryland Department of the Environment

Randy Sovik, West Virginia Department of Environmental Protection
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-i A P P E N D I X G

Appendix G

Sediment and Nutrient Trades with Forestry 

and Drinking Water Treatment Facility

(Added June 2009)

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1

Background Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-9

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-16

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-17

Note to Readers: Prior to reading this appendix, please review the Point Source – Nonpoint Source Trading 

Scenario (referred to as the Scenario). This appendix provides a variation on the type of nonpoint source 

trading partners that a point source buyer might want to consider. The information provided in the Scenario 

will be the same for this type of trade except where noted below. Keep in mind that there are a range of 

options for how water quality trading can occur that will vary according to the needs at the local level. The 

hypothetical example discussed throughout this appendix illustrates just one of the many options an NPDES 

permit writer and stakeholders might use to develop a trading program.
Water Quality Trading Toolkit for Permit Writers

G-ii
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-1

Introduction

A P P E N D I X G

The trading example described in Appendix G follows the Scenario and focuses on three 

areas that the Toolkit does not cover elsewhere: (1) trading by drinking water treatment 

facilities, (2) trading of sediment loading and (3) trades involving vegetative plantings 

with an emphasis on forestry.

As described in 40 CFR 122.45(d) and 40 CFR122.45(e), effluent limitations for all NPDES 

permit holders that discharge continuously must be stated as maximum daily and average monthly discharge limitations, unless impracticable. However, for noncontinuous 

dischargers (as some water treatment facilities are), the permit writer must ensure only 

that effluent limitations are stated to meet the requirements of section 122.45(e)1-4.

There are no national effluent limitation guidelines for drinking water treatment facilities. The permitting authority and permit writer must use best professional judgment 

(BPJ) to establish technology-based NPDES permit limits that are based on the existing 

source performance standards described in the CWA and NPDES regulations (i.e., BPT, 

BCT, and BAT). Water quality-based effluent limits are developed to meet state water 

quality standards. The final limitations included in NPDES permits must satisfy both the 

technology requirements and water quality standards.

Large drinking water treatment facilities often rely on surface water as their water 

source and use flocculation, sedimentation, filtration, and disinfection as treatment processes. Suspended solids from source water are often settled in a sedimentation basin. 

In some situations, the quality of the influent water can be very poor because of high 

turbidity and high sediment loads. The sediment removed through the treatment process 

must be disposed of. The treatment facility might find that it is more cost effective to 

return some or all the sediment to the river and create offsets that will reduce sediment 

loading upstream (e.g., control land erosion). However, to do this, the treatment facility 

must demonstrate to the permitting authority/permit writer that its discharge of sediment will not adversely affect the waterbody at the point of discharge.

Sediment is fragmented material that originates from weathering and erosion of 

rocks or unconsolidated deposits and is transported by, suspended in, or deposited by 

water. Eroding soil particles largely contribute to the sedimentation of waterbodies. 

Sediment particles range in size that directly affects the settling velocity and how the 

particles will affect a waterbody. Soil erosion can produce gravel and coarse sand sediments (> 0.85 mm diameter) as well as fine sediments made up of sand (0.05–2 mm), 

silt (0.002 to 0.05 mm), and clay (< 0.002 mm). Larger sized particles (gravel and coarse 

sands) quickly settle out, filling interstitial rock spaces. This can clog drainage ways, 

increase potential for flooding, decrease reservoir capacity, and negatively affect benthic 

organism communities. Finer sands can remain suspended for a period of time before 

settling out downstream. Fine particles such as clay and silt generally remain suspended 
Water Quality Trading Toolkit for Permit Writers

G-2

in a flowing water column. This causes turbidity, which decreases sunlight penetration, 

disrupting photosynthetic processes.

There are a number of factors to consider when deciding whether allowing sediment discharges at a certain location as allowed by trading is appropriate. For example, given the 

adverse effects that can result from sediment settling, sediment discharges should occur 

in large, fast-flowing, high-volume rivers so that the minimum flow velocity will not 

result in settling sediment particles. In addition, the treatment facility’s discharge should 

be shown to have minimal impact on the overall loadings to the waterbody. Background 

amounts of suspended and embedded sediment are essential to the ecological function 

of a waterbody. Sediment discharged to a waterbody should maintain natural or background levels without adversely affecting the waterbody. Therefore, sediment trading 

on other than a fast-flowing, high-volume river might not be feasible under most conditions. The permit writer and the entities involved must clearly define both baseline pollutant loads and the load to be traded in the credit buyer’s permit so as not to discharge 

in quantities that would adversely affect the receiving waterbody.

Vegetation can stabilize stream banks from erosion and filter sediments and nutrients 

from runoff flow to waterways. Runoff carries sediment, sediment-bound pollutants, 

and dissolved contaminants. Fast-flowing runoff can easily transport sediment to surface 

waters because of an insufficient amount of time for particles to settle out and infiltrate 

the ground. Leaves and branches intercept rainfall and runoff, slowing its movement, 

and reducing its erosive power. Vegetative roots and surface litter improve soil structure, 

which increases infiltration. Once in the soil, contaminants can become immobilized, 

transformed by microbes, or taken up by vegetation. Surface litter also acts as a covering 

that protects exposed soils and stabilizes slopes from erosion. An additional water quality benefit that trees can provide is that they are capable of intercepting and trapping 

airborne particulate matter, preventing deposition to surface waters (USDA National 

Agroforestry Center, 2004).

There is an advantage to trades involving trees: (1) trees are uniquely suited to controlling some processes of erosion on stream banks and shorelines, and (2) trees are likely to 

remain established for a longer period than herbaceous plantings, thus providing more 

certainty to the credit buyer of long-term nutrient or sediment control.

Many trading programs could be designed that involve growing trees that would be 

similar to the Scenario outlined in the Toolkit related to herbaceous BMPs; however, 

there are a few differences. This appendix outlines circumstances when establishing trees 

along waterways to manage nutrient and sediment loadings would be most effective. It 

also includes a hypothetical example of a sediment trading program with forestry.

Generating Credits

The following questions discuss circumstances in which it might be appropriate to 

engage in trading with forestry entities. While this appendix focuses solely on the ability 
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-3

to generate credits for sediment trades, planting vegetation as buffers to waterways can 

A P P E N D I X G

also lead to nitrogen and phosphorus reductions. The discussion below can apply to trading sediment, nitrogen, and phosphorus.

1. Under what conditions would it be feasible to use vegetative planting as an offset for 

a point source sediment or nutrient limit?

To control pollutants in runoff (vegetative filters and riparian buffers as best 

management practice (BMP) options)

•	 Conditions include areas in and downslope of diffuse agricultural or urban

nonpoint source areas (e.g., cropland, livestock grazing and enclosure areas, 

disturbed land, parking lots, malls and other urban nonpoint source areas) 

where sediment and nutrients can leave these areas and enter open waterways 

in surface runoff or in shallow groundwater flow. These areas could be adjacent 

to permanent or intermittent streams, lakes, ponds, and wetlands (i.e., riparian 

zones) or in upland zones.

To control eroding sediments from stream banks and shorelines (stream 

bank stabilization as BMP options)

•	 Conditions include stream banks of natural or constructed channels and shorelines of lakes, reservoirs, or estuaries that are susceptible to erosion and where 

this erosion process can be mitigated by establishing vegetation.

2. How should vegetated areas be designed to function properly as nonpoint source 

sediment and/or nutrient offsets?

To control pollutants in runoff

•	 Removal of contaminants from surface runoff requires that runoff water be sufficiently slowed to allow sediment and sediment associated pollutants to settle 

out. Plant root systems that are established through herbaceous and woody 

groundcovers hold soil in place, allow greater infiltration of water, and trap 

incoming sediment, nutrients, and chemicals. Areas should be positioned appropriately and designed to have sufficient width, length, density, and groundcover structure to intercept and effectively trap pollutants in surface runoff or 

shallow subsurface flow. Guidance on specific practices IS in USDA-NRCS Field 

Office Technical Guides (FOTG).

•	 Existing drainage ditches and underground pipes that would transport pollutants directly from source areas into the waterbody should be closed or plugged 

to allow passage and filtration of drain water through the planting zone.

•	 Surface runoff flow through the planting area should be managed to maintain

sheet flow, thereby promoting even interception and infiltration. Concentrated 

flows should be controlled both in the planting area and in areas immediately 

adjacent and up gradient of the planting area.
Water Quality Trading Toolkit for Permit Writers

G-4

– An example—Riparian Buffers: mainly woody vegetation (trees or shrubs) 

sediment, organic material, nutrients, pesticides, and other chemicals found 

in surface runoff. Design criteria and considerations should follow the USDANRCS FOTG for Riparian Forest Buffer (Conservation Practice Standard, Code 

391) pertaining to the purpose of reducing pollutants in runoff. In situations where surface runoff volume or pollutant load is relatively high, typically when slopes are greater than 10 percent or when erosion flow into the 

proposed buffer site is greater than 10 tons/acre/year, other conservation 

practices should be used in combination with tree plantings. Filter strips, field 

borders, critical area plantings, or grassed waterways are recommended. 

These additional practices will slow and disperse the excess runoff before it 

enters the tree planting area. Design criteria and considerations for these 

conservation practices should follow the FOTG for Filter Strips, Field Borders, 

Critical Area Plantings and/or Grassed Waterways (Conservation Practice 

Standard, Code 393, 386, 342 and/or 412) with specific regard to their use in 

conjunction with a Riparian Forest Buffer (Code 391).

– An example—Vegetated Filter Strips: Contrary to riparian forested buffers, 

filter strips use mainly herbaceous vegetation for contaminants in surface 

runoff. Design criteria and considerations should follow the USDA-NRCS 

FOTG for Filter Strips (Conservation Practice Standard, Code 393). Trees can 

also be planted and grown in the filter strip as long as adequate structure 

and density of herbaceous groundcover is maintained. Weed control is permitted around individual trees during the initial growing seasons to promote 

survival and establishment but only to the extent that the continuity of 

herbaceous ground cover between individual trees is not compromised along 

the length and width of the tree planting area. As the trees grow larger, the 

canopy should be managed to maintain adequate herbaceous ground cover 

for functioning effectively for slowing and dispersing surface runoff flow.

To prevent sediments from eroding stream banks and shorelines

•	 An assessment should be conducted in sufficient detail to identify the causes

contributing to instability and erosion and to ensure with reasonable confidence that establishing trees or shrubs on the bank or shoreline will contribute 

significantly to long-term control of the erosion. The assessment should provide 

estimates of the time it will take for erosion controls to become fully functional, 

sediment load reductions obtained at the site, and any sediment load increases 

that the site installation might cause elsewhere along the banks and channel. 

The time it will take for controls to become fully functional depends on the 

BMPs installed.

•	 Design criteria and considerations should follow the FOTG for Streambank and

Shoreline Protection (Conservation Practice Standard, Code 580) pertaining 
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-5

to vegetative techniques that include woody plant materials for controlling 

A P P E N D I X G

erosion.

3. What kind of vegetation should be planted?

•	 Favor trees, shrubs, or other herbaceous vegetation adapted to the locality and

site conditions. Ultimately, the required technical specification of the BMP being 

installed should be followed.

•	 Favor native, noninvasive species. Substitution with improved and locally accepted

cultivars is allowed.

•	 For nitrogen control, avoid nitrogen-fixing species (e.g., alder, locust).

•	 Favor species that have multiple values such as those additionally suited for various products (e.g., timber, biomass, nuts, fruit), wildlife habitat, aesthetics, and 

for riparian plantings, those that promote healthy aquatic ecosystems.

4. Are there additional management considerations to be made when considering vegetation planting for sediment and nutrient reductions?

•	 Fertilizers or other nutrient- or sediment-containing amendments should not be

applied in the planting area.

•	 Livestock should be controlled or excluded as necessary to achieve and maintain

appropriate vegetative cover and health for proper functioning. Trees and vegetation should also be protected from other wildlife in nonagricultural areas that 

could threaten the health and proper function of the plantings.

•	 Any manipulation of species composition, structure, and stocking of overstory,

understory, or groundcover vegetation should maintain the pollutant reduction 

functions of the area.

•	 Periodic removal of some plant products (trees, herbs, nuts, forages) can occur, if

the pollutant-reduction function is not compromised by the loss of vegetation or 

harvesting disturbance.

•	 Any other activities that create soil and vegetation disturbance, such as cultivation activities and traffic, should be minimized so as not to compromise the pollutant reduction function of the area.

•	 For installing BMPs that require vegetative maintenance, the landscaping practices should aim to reduce fertilizer and pesticide use whenever possible through 

practices such as the following:

– Using compost as a soil amendment 

– Implementing an Integrated Pest Management program 

– Spot treating whenever possible

– Setting mower blades higher to fight weeds and diseases without pesticides
Water Quality Trading Toolkit for Permit Writers

G-6

– Leaving deciduous tree leaves on the ground so the can contribute to building 

soil organic matter levels

– Leaving grass clippings in place (instead of bagging) when mowing 

– Using mulch around trees and in flowering beds as weed prevention

5. How to calculate sediment and nutrient reductions for credits?

Before calculating water quality credits, all credit sellers and buyers must determine what 

their baseline, minimum control levels and trading limits are. Baselines apply to the buyer 

and seller. Minimum control levels apply only to the buyer and trading limits apply only 

to the seller. 

Baselines—This is the level of control which would apply in the absence of trading.

Nonpoint Source Credit Sellers—If a TMDL is established for the watershed, 

this is the baseline. If there is no TMDL, the state and local requirements or 

existing practices or both should determine the baseline. At no point should 

the baseline be less than existing practices.

Point Source Credit Buyers—For point sources, the baseline would be the 

water quality-based effluent limitation (WQBEL). Facilities are not allowed 

to trade to meet a technology-based effluent limitation (TBEL), therefore, 

trading would only be done to meet a more stringent WQBEL.

Minimum Control Levels—Even when trading, a point source discharger is expected to 

treat the effluent to a certain minimum level. When a TBEL is applicable to a facility, the 

TBEL would be the minimum control level. As previously stated, facilities are not allowed 

to trade to meet a TMDL. In other words, the facility must treat the effluent to that level 

rather than trade. When a TBEL does not exist, then the existing level of discharge would 

be the minimum control level unless the permitting authority decided to impose a more 

stringent level to prevent localized impacts.

Trading Limits—The level of control that a pollutant is controlled beyond the baseline 

becomes the trading limit. For nonpoint source sellers, this is dependent on the type of 

BMP installed and what type of pollutant reduction it achieves.

The difference between trading limit and the baseline (assuming applicable trade ratios 

are also applied) determines the number of credits generated.

To control pollutants in runoff

•	 Credit is obtained for reducing pollutant load generated from the area on

which the plantings have been established and for reducing the load of sediment and nutrients in runoff from a source area that passes through the planting area to a waterway. As previously mentioned, the time it takes for controls 
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-7

to become established and fully functional depends on the type of BMP 

A P P E N D I X G

installed and vegetation used.

– An example—Riparian Buffers: Tree plantings in riparian zones, apply the 

same effectiveness and trading ratio levels as would be appropriate for 

Riparian Forest Buffer (Code 391), Filter Strip (Code 393) in a riparian zone, or 

Riparian Herbaceous Cover (Code 390) of similar dimension and circumstance 

(Dosskey, 2007). Upland planting areas can be expected to function less efficiently for nitrogen reduction (smaller percent reduction of nitrogen load in 

runoff) than riparian planting areas of similar size and conditions. Enhanced 

infiltration in upland planting areas diverts more nitrogen to subsurface 

flow, and shallow subsurface filtration typically is significant in only riparian 

zones.

To control eroding sediments from stream banks and shorelines

•	 Credit is obtained for reducing pollutant loads generated from the area on

which the plantings have been established. Because some bank erosion is natural over the long term, complete elimination of sediments from bank erosion 

sources should not be expected. Furthermore, installing offsets at one location 

can increase erosion rates at another. As the hypothetical example at the end 

of this appendix will illustrate, when calculating reduction credits, the most 

conservative control obtained should be assumed. Additionally, the calculation must take into consideration any increases in erosion that the stream bank 

could experience that should be determined in the stream bank assessment.

6. How long will it take to get adequate sediment and nutrient reduction coverage?

To control pollutants in runoff

•	 The generation of nutrient and sediment loads is reduced, and filtration is

increased as soon as tillage, fertilization, grazing, and other disturbance are 

halted. For surface runoff filtering, the herbaceous groundcover vegetation 

becomes established. Removal of loading can be accomplished within one 

growing season after planting, but ultimately it depends on the type of vegetation planted.

To control eroding sediments from stream banks and shorelines

•	 Specialized bioengineered practices that include trees and shrubs for stabilizing toe slopes and anchoring steep banks provide immediate protection. 

Bioengineering creates a system of living plant materials used as structural 

components. Woody vegetation (shrubs and trees) is installed in specified configurations that offer immediate soil protection and reinforcement. With time 

as roots develop, the system creates resistance to sliding or shear displacement 

in the stream bank (USDA-NRCS, 1996).

•	 Vegetative plantings alone can provide stream bank protection on small

streams or areas subject to minimal erosive forces. For protecting banks from 
Water Quality Trading Toolkit for Permit Writers

G-8

greater erosive energy of flood flows, wave action, and ice action, establishing 

mature trees and shrubs could be required or using vegetative plantings in combination with bioengineered practices. The lag time for adequate growth and 

development of protective trees and shrubs can vary from one growing season 

to many years depending on site needs, growth rates of the selected species, 

and the site conditions.

7. How long will sediment and nutrient reduction coverage last?

To control of sediments in runoff

•	 Full coverage lasts as long as sheet flow is maintained and herbaceous vegetation is not buried by sediment buildup. Where sediment load is very high, 

coverage may last for as short as one growing season. Longer coverage can 

be expected where sediment loads and associated deposition rates are lower. 

Effectiveness may be restored or maintained by periodic sediment removal, 

re-grading, and re-establishment of herbaceous cover.

To control phosphorus in runoff

•	 For total phosphorus, coverage will be similar to sediment where most runoff

phosphorus is sediment-bound, such as in runoff from cultivated agricultural 

fields. For dissolved phosphorus, coverage depends upon how quickly the 

phosphorus immobilization capacity of the soil and vegetation in the planting 

area becomes saturated. Where dissolved phosphorus loads are high, such as 

in runoff from confined livestock areas, and the soil capacity is low, phosphorus saturation could occur within a few years. Soil testing might be needed to 

monitor the immobilization capacity for dissolved phosphorus.

To control nitrogen in runoff

•	 Nutrient reduction coverage will last as long as the planting areas are maintained as designed for proper functioning.

To control sediments from eroding stream banks and shorelines

•	 Sediment reduction coverage will last as long as there are no other instabilities

existing or created elsewhere in the watershed that would propagate through 

the channel network to the site.
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-9

Background Information

A P P E N D I X G

Riparian forest buffer and filter strip-type practices have been approved for nonpoint 

source water quality trades by environmental protection agencies in several states (e.g., 

Idaho1, Michigan2, Oregon3, Colorado4, Pennsylvania5, Virginia6, and Vermont7). The 

approved application and design specifications could differ somewhat from the NRCS 

FOTG for those practices.

Each state determines effectiveness levels and trading ratios for nonpoint source BMPs 

and by determination processes of its own choosing. Consequently, effectiveness levels 

and trading ratios can differ from state to state for essentially the same nonpoint source 

control practice.

Research indicates that forested filter strips are equally effective as herbaceous filter 

strips for surface runoff control as long as substantial herbaceous groundcover is established and maintained in the forested strips (Dosskey et al. 2007).

The hypothetical example below is used to illustrate a trade agreement that offsets sediment loads with forestry BMPs.

1 Idaho Department of Environmental Quality. Idaho’s Agricultural Pollution Abatement Plan (2003).

2 Michigan Department of Environmental Quality, Surface Water Quality Division, Water Resource Protection, Part 30 

Water Quality Trading, Rule 323.3006.

3 Oregon Department of Environmental Quality’s Permit 101141 section 9(c)(1)(d).

4 Colorado Department of Public Health and the Environment. Non-point Source Management Program (2000 and 

2005 Supplement).

5 Pennsylvania Department of Environmental Protection. Trading Nutrients and Sediment Reduction Credits Policy: 

Guidelines, Appendix A and Attachments (December 30, 2006).

6 Virginia Department of Environmental Quality. Trading Nutrient Reductions from Non-Point Source BMPs in the 

Chesapeake Bay Watershed: Guidance for Agriculture Landowners and Your Potential Trading Partners 

(February 5, 2008).

7 Vermont Statues Title 10 Conservation and Development, Chapter 47 Water Pollution Control § 1264a. Interim 

stormwater permitting authority.
Water Quality Trading Toolkit for Permit Writers

G-10

Centerville Water Treatment Plant

Waterbody

The Great North South River (GNSR)—a highly turbid river that is impaired for sediment but has no 

established total maximum daily load (TMDL). The impairment is the result of both man-made activities, such as nonpoint source runoff and point source discharges, and natural stream bank erosion 

from the mainstem and its tributaries.

Buyer

The Centerville Water Treatment Plant (WTP)—a large conventional drinking WTP that discharges 

its waste stream on a noncontinuous basis.

Seller

Pine Hill Land Developer (Pine Hill) —the Little Muddy Creek is a tributary of the GNSR. It enters 

the river 5 miles upstream of the Centerville WTP. Pine Hill owns land adjacent to 25 miles of Little 

Muddy Creek. This land was historically in agriculture production but has been fallow for the past 

15 years. Pine Hill purchased the land 2 years ago and anticipates developing a subdivision in the next 

20 years. This creek is subject to stretches of moderate and severe stream bank erosion, contributing 

in the range of 150–300 and 600–700 tons of sediment per stream mile per year into Little Muddy 

Creek (The Federal Interagency Stream Restoration Working Group, 1998).

Scenario

The Centerville WTP discharges its waste stream directly to the GNSR. Actual flow discharge data indicates that an average of 10 million gallons/day (mgd) is discharged when discharges occur. The City of 

Centerville is projecting an increase in population growth over the next 10 years. In response, the Centerville WTP is expanding its facility to serve the community, including areas upstream of Little Muddy 

Creek. This expansion will increase the discharge flow to 15 mgd. The discharge includes total suspended solids (TSS) along with other pollutants typically associated with conventional water treatment.

The Centerville WTP has a water quality-based effluent limitation (WQBEL) derived from a narrative water quality criterion in the state water quality standards that requires, in part, that receiving 

waters be “free from suspended solids or other substances attributable to human activity that form 

objectionable deposits or adversely affect aquatic life.” The permitting authority has implemented this 

narrative criterion through a combination of a mass loading TSS limitation and a concentration-based 

TSS limitation for the Centerville WTP.

The permitting authority is allowing the plant to meet its mass loading limitation on a seasonal 

basis. The discharge from the Centerville WTP must achieve a mass loading of less than 225 tons/

season which must be met for the spring (March–May) and fall seasons (September–November) and 

a concentration-based maximum daily TSS limitation of 60 mg/L TSS during discharge events. The 

permitting authority has determined that, together, the concentration and mass loading limitations 

would be protective of water quality standards in the receiving water and would exceed technologybased requirements developed using BPJ for water treatment plants similar to the Centerville plant.

The permitting authority has authorized the expansion of the plant but maintains that the 

facility must not increase its total discharge beyond the current tons/season requirement or the 

concentration-based limitation of 60 mg/L due to the existing sediment impairment of the GNSR 
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-11A P P E N D I X G

and the need to continue meeting a technology-based requirement. The expansion will not affect 

the WTP’s ability to meet the 60 mg/L concentration-based limitation, but to in order to allow the 

WTP to expand and still meet the mass loading WQBEL, the permitting authority is allowing a trade 

agreement to be incorporated into the Centerville’s WTP NPDES permit. 

The Centerville WTP will enter into a trade agreement with Pine Hill and Takon Land Conservancy 

that will generate the credits Centerville WTP needs to meet its WQBEL. Takon Land Conservancy is a 

nonprofit environmental organization that has agreed to work with Pine Hill to implement and install 

stream bank stabilization BMPs along the Little Muddy Creek before the expansion of the WTP. These 

stabilization mechanisms will be used to offset the additional sediment load that will result from the 

expansion of the WTP. Takon will take on the responsibility of conducting a land and channel stability 

assessment to determine the best locations along the eroding stream bank to achieve sediment reduction as well as determining the value of net sediment credits that can be generated. Erosion rates will 

be measured before installing the stream bank stabilization mechanisms as well as throughout the 

duration of the permit to ensure that the sediment reductions are achieved and maintained.

Through studies, modeling, and field evaluations, the buyer has provided documented evidence 

that the increased discharge (even under critical, low-flow conditions) of other pollutants from the 

plant, which are commonly used in the coagulation and filter backwash processes, will not cause an 

exceedence of water quality standards beyond the facility’s established mixing zone. The increased 

sediment load to the GNSR will also not have a localized impact beyond the allowable mixing zone 

because the offsets upstream will have reduced the turbidity of the downstream water to which the 

WTP discharges and the quantity of sediments discharged is negligible compared to the sediment 

already present in the GNSR.

Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Suspended Solids (TSS) (milligrams per liter [mg/L])

Driver: A WQBEL for TSS of 450,000 lbs/season = 225 tons/season

Season: Given the seasonal volatility of sediment loading into the GNSR, only during certain points 

of the year (spring and fall) is the GNSR impaired for TSS. During the spring and fall seasons, the 

Centerville WTP is subject to meeting the WQBEL of 225 tons/season. Spring is defined as the 90-day 

period from March 1 through May 29. Fall is defined as the 90-day period from September 1 through 

November 29.

Credit Buyer: Expanding Centerville WTP 

n Baseline Discharge Concentration

Discharge from Filter Backwash, Sedimentation Basin Washdown: 60 (mg/L)

n Baseline Flow 

Discharge from Filter Backwash, Sedimentation Basin Washdown: 10 mgd

Centerville Water Treatment Plant Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

G-12

n Maximum Permitted Sediment Load

225 tons/season

n Total Sediment Load Currently Discharged from WTP

175 tons/season

Proposed Change in Discharge:

n Proposed Flow Increase

+ 5 mgd

n Proposed Increase in Potential Total Sediment Load

5 mgd * 60 mg/L * 8.34 * 90 days/season = 225180 lbs/season = 113 tons/season

n Total Sediment Load after Expansion

175 + 113 = 288 tons/season

n Load Reduction necessary to remain in compliance with the WQBEL 

288 – 225 = 63 tons/season

Credit Seller: Pine Hill land developer

Step 1: Estimate Sediment Load from Land with no BMPs

In a multiyear study conducted by a technical stream analyst from Takon Land Conservancy before 

the permit effectiveness, stream bank erosion calculations were used to measure and determine average annual erosion rates:

n Stream bank erosion calculations—The rate of erosion is determined by placing measuring 

stakes along the stream bank and observing the drop in soil level over time. From this study the 

following range in annual erosion rates were determined:

n Moderate stream bank erosion—150 to 300 tons of sediment/stream mile/year 

n Severe stream bank erosion—600 to 700 tons of sediment/stream mile/year

Step 2: Planning and Installing BMPs along 5 Miles of the Little Muddy Creak 

Stream Bank

Takon Land Conservancy will install combinations of the following bioengineered stream bank stabilization mechanisms as determined suitable for each segment of the eroding stream bank. The stream 

technical analyst chose these types of practices because of their ability to become effective within 

one growing season. They also provide the same amount of protection year round because they do not 

depend on leaves to function properly. The roots, and to some extent the stems, of the plants provide 

the stabilization (Dosskey, 2008).

Structural Measures

Tree Revetment. Uprooted, live, whole trees that have a diameter of at least 12 inches are cabled 

together and anchored by earth anchors and buried in the bank. Easter red cedar (Juniperus virginiana) are common to use in the Midwest because of its abundance and rot resistance. Trees are laid 

on their sides and secured to the bases of eroded stream banks. Tree tops are pointed downstream 

Centerville Water Treatment Plant Example: Trade Agreements (continued)
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-13A P P E N D I X G

Centerville Water Example: Trade Agreements (continued)

and overlapped about 30 percent. The abundant and dense branching slows the water flow while 

promoting sediment and nutrient trapping. Revetment ends are anchored at stable points along the 

bank. The diameter of the tree’s crown is two-thirds the height of the eroding bank, and trees are at 

least 20 feet tall.

Dormant Post Plantings. The post plantings serve as a permeable revetment of rootable vegetative 

material that is placed along the stream bank to reduce the stream velocity allowing for sediment to 

be deposited within the treated area. Live posts of locally native willows in combination with locally 

native cottonwoods and dogwoods are cut approximately 9 feet long and 5 inches in diameter. The 

basal ends of the post are tapered for easier insertion into the ground. Approximately half of the post 

length is installed into the saturated soil, pointing upwards, along the eroding stream bank. Two rows 

are posts are inserted along the bank in a triangular formation. All posts are 3 feet apart.

Soil Bioengineering

Live Stakes. A system of live stakes is used to create a living root mat to stabilize the soil. Erosion control fabric is placed on the slopes subject to erosive degradation. Side branches on the live 

stakes are cleanly removed keeping the bark intact. The basal ends are cut at an angle, and the top is 

cut square. The stakes are roughly 1-inch diameter and 3 feet long. Four-fifths of the length of the 

live stake is inserted into the ground, and soil is firmly packed around it. They are packed into the 

ground at right angles to the slope. The live stakes are installed 2 to 3 feet apart using triangular 

spacing with a density of two to four stakes per square yard. Lives stakes are installed the same day 

that they are prepared. Locally native willows intermixed with cottonwood and dogwoods are also 

suitable for live stakes.

Live Fascines. Branch cuttings (approximately 10 feet long) from locally native young willows and 

shrub dogwoods are bound together with untreated twine to form 6- to 8-inch diameter cylinders. 

The bundles are placed at an angle on the erosive slope to reduce erosion and shallow sliding. Starting at the base of the slope, trenches are dug, 10 inches wide and deep. Trenches are excavated on the 

contour of the slope every 3 feet. Long straw and annual grasses are placed between each trench. Dead 

stout stakes that are 2.5 feet long are driven directly through the live fascine. The top of the dead stout 

stake is flush with the installed bundle. The live stakes (from above) are installed on the down slope 

of the side bundle with 3 inches still protruding from the ground. Most soil is used to fill in along the 

sides of the bundles.

Step 3: Estimate Sediment Load Reductions from BMPs

Once installed and if maintained appropriately throughout the lifetime of the trade, the stabilization 

mechanisms are assumed to reduce erosion rates of 150 tons sediment/stream mile/year and 600 tons 

sediment/stream mile/year to near zero for the segments of stream on which they are established. 

However, because channel energy and sediment loads tend to maintain equilibrium, treatment that 

reduces sediment inputs at one location can often increase erosion rates at other locations nearby, 

yielding less of an overall stream load reduction than anticipated from reductions at only the treated 

site (Dosskey, 2008). Therefore, this load increase must be accounted for when estimating total sediment load reductions.

Centerville Water Treatment Plant Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

G-14

Step 3a: Estimate Sediment Load Reductions at Treated Sites

A range in erosion rates is determined for over the course of a year. While the stabilization mechanisms will reduce erosion to near zero year round, for calculating the amount of sediment credit for 

terms of the permit, the most conservative control (150 tons and 600 tons) should be assumed for the 

wettest seasons of the year (spring and fall). These BMP installments should provide equal sediment 

reduction year round because they are not dependent on leaves for proper function. The roots and, 

to some extent, the stems of the plants provide the stabilization function. Three (3) miles of stream 

bank experiencing moderate erosion and two (2) miles of stream bank experiencing severe erosion as 

determined by Takon Land Conservancy

n Moderate Stream bank erosion = 150 tons sediment/mile/year 

(150 tons/mile/year) × (3 miles) × (year/365 days) × (90 days/season) = 111 tons/season 

n Severe Stream bank erosion = 600 tons sediment/stream mile/year 

(600 tons/mile/year) × (2 miles) × (year/365 days) × (90 days/season) = 296 tons/season 

Step 3b: Estimate Sediment Load Increases along Other Segments of the Stream

Conservative estimates from the land and stream channel stability assessment conducted by Takon 

Land Conservancy:

0.5 miles of stream bank experience erosion rates of 5 tons/stream mile/year

2.5 miles of stream bank experiencing erosion rates of 15 tons/stream mile/year

1.5 mile of stream bank experiencing erosion rates of 30 tons/stream mile/year

Sediment load increase = (0.5 × 5) + (2.5 × 15) + (1 × 20) = 60 tons/year = 15 tons/season

Step 3c: Estimate Total Sediment Savings

111 tons/season + 296 tons/season = 407 tons of sediment saved/season on treated sections

407 tons of sediment saved/season – 15 tons sediment released/season = 392 tons of TSS saved and 

available for credit during the 90-day spring season and the 90-day fall season.

Step 4: Apply an Applicable and Scientifically Based Trade Ratios 

Uncertainty Ratio: 2:1 due to the uncertainty of accurately measuring nonpoint source BMP performance as well as accounting for its design, installation, maintenance, and operation over the duration of the permit. Because some bank erosion is natural over the long term, complete elimination of 

sediments from bank erosion sources should not be expected. Installing the above-mentioned BMPs 

will result in sediment reductions to near zero in only treated sections of Little Muddy Creek. While 

it is possible for erosion to be reduced to near zero, there are many factors such as poor design, large 

storms, and channel incision that can reduce the expected sediment reductions to values much greater 

than zero. The 2:1 uncertainty ratio accounts for this inefficiency and uncertainty.

Delivery Ratio: 1.1:1 based on fate and transport modeling to account for the difference in transport 

and settling velocity of various sized sediment particles.

Centerville Water Treatment Plant Example: Trade Agreements (continued)
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-15A P P E N D I X G

Equivalency Ratio: 2:1 to account for the variation in particle size being discharged and variation in 

particle size being protected from stream bank stabilization installments.

Trade Ratio to be applied: 2 × 1.1 × 2 = 4.4

Step 5: Determine Net Reduction Credits and Value Available for Sale

Total sediment savings = 392 tons/season

Apply trade ratio: 392 tons saved by seller ÷ 4.4 = 89 tons available for purchase by buyer

Each ton available for purchase is equal to one credit.

392 tons of sediment saved/season that are worth 89 credits available for sale 

The Trade Agreement

The scheduled expansion of the Centerville WTP is scheduled to take 1 year. At the end of the expansion, the permit will be renewed, and it will contain the provisions for trading.

Centerville WTP must purchase credits to account for a reduction of 63 tons/season. This requirement 

must be met during both the spring and fall seasons to meet its WQBEL. For every ton of sediment 

the WTP needs, it must purchase one credit. The WTP needs 63 credits, and there are 89 available for 

purchase. Centerville WTP was given a 1-year compliance schedule, which allows time for the BMPs 

to be installed and become fully operational in that time frame. At the time of completion of the WTP 

expansion, the BMPs should be in place and fully functional. Until then, the facility will operate under 

the current permit conditions. The permit writer will include both limitations that apply if trading 

occurs and the limitations that apply if no trading occurs.

The basic terms of the trade agreement are as follows:

n Pine Hill will implement BMPs along at least the 5 miles of eroding stream bank that will result 

in an estimated TSS load reduction of 392 tons/season. Pine Hill guarantees this TSS load reduction for as long as the BMPs are in place and functioning properly.

n Centerville WTP will require a 63 tons/season of TSS reduction to meet its WQBEL.

n Centerville WTP will purchase at least 63 credits from Pine Hill’s load reduction. On the basis 

of the 2:1 uncertainty ratio that is applied to all nonpoint source credits, the 1.1:1 delivery ratio 

based on fate and transport modeling, and the 2:1 equivalency ratio based on the various particle sizes of sediment that are discharged and protected, Pine Hill will need to implement BMPs 

to reduce 277 tons of sediment both in the spring and fall season to generate the 63 credits.

(63 tons/season × 4.4 = 277 tons/season)

n Pine Hill will install BMPs one year before the effective date of Centerville’s renewed NPDES 

permit to ensure that BMPs are achieving estimated pollutant load reductions and are generating full credits.

n Centerville WTP will enter into a memorandum of understanding with the Takon Land Conservancy to perform monthly monitoring and inspection at Pine Hill properties to ensure that the 

Centerville Water Treatment Plant Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

G-16

estimated TSS load reductions are achieved through BMP implementation. If the Takon Land 

Conservancy fails to perform this function, Centerville WTP will conduct the monthly monitoring and inspections and submit the necessary monitoring and inspection reports.

As the permittee, Centerville WTP is required to notify the permitting authority in writing within 

7 days of becoming aware that credits used or intended for use to comply with the terms of this permit 

are unavailable or determined to be invalid. This notification must include an explanation of how the 

permittee will ensure compliance with the WQBELs established in this permit, either by implementing on-site controls or by conducting approved emergency sediment offset project approved by the 

NPDES permit writer.

Failure to fulfill the terms of this trade agreement will result in Pine Hill’s ineligibility to participate 

in future trading activities with any permitted point source in the state for a period of 5 years from 

the time of the breach of the trade agreement terms.

Centerville Water Treatment Plant Example: Trade Agreements (continued)

References

Dosskey, Michael. Research Ecologist USDA-FS National Agroforestry Center. E-mail 

correspondence. May 9, 2008.

Dosskey M.G., K.D. Hoagland, and J.R. Brandle. 2007. Changes in Filter Strip Performance 

Over Ten Years. Journal of Soil and Water Conservation 62:21–32.

The Federal Interagency Stream Restoration Working Group. 1998. Stream Corridor 

Restoration: Principles, Processes, and Practices. Table 8.5 Example of a Sediment 

Budget for a Watershed. U.S. Department of Agriculture, Washington, DC.

U.S. Department of Agriculture – National Agroforestry Center. 2004 Working Trees for 

Water Quality. 1st ed. Lincoln, NE 

USDA-NRCS (U.S. Department of Agriculture – Natural Resource Conservation Service). 

1996. Engineering Field Handbook. Part 650. Chapter 16, Streambank and Shoreline 

Protection. U.S. Department of Agriculture, Washington, DC

USDA-NRCS (U.S. Department of Agriculture – Natural Resource Conservation Service). 

National Handbook of Conservation Practices. U.S. Department of Agriculture, 

Washington, DC. <http://www.nrcs.usda.gov/technical/standards/nhcp.html>. 
Water Quality Trading Appendix G: Sediment and Nutrient Trades with Forestry and Drinking Water Treatment Facility

G-17

Acknowledgements

A P P E N D I X G

Caitlin Kovzelove, EPA Water Permits Division, author of the example

Pat Bradley, EPA Office of Wastewater Management (former EPA employee)

James Curtin, EPA Office of General Council

Todd Doley, EPA Office of Science and Technology

Mike Dosskey, U.S. Department of Agriculture Forest Service

Ginny Kibler, EPA Office of Wastewater Management

Claire Schary, EPA Region 10

Peter E. Shanaghan, EPA Office of Ground Water and Drinking Water

Ahmar Siddiqui, EPA Office of Science and Technology

Ann Smith, Pennsylvania Department of Environmental Protection

William Swietlik, EPA Office of Science and Technology

Chris Zabawa, EPA Office of Wetlands, Oceans, and Watersheds

Marcus Zorbrist, EPA Office of Wastewater Management
Water Quality Trading Toolkit for Permit Writers

G-18