Office of Wastewater Management

Water Permits Division

EPA 833-R-07-004

Water Quality Trading 

Toolkit 

for Permit Writers

Published August 2007

Updated June 2009
Disclaimer

This guidance expresses the U.S. Environmental Protection Agency’s (EPA) support for implementation 

of water quality trading through National Pollutant Discharge Elimination System (NPDES) permitting. Implementation of water quality trading will be governed by existing requirements of the Clean 

Water Act (CWA) and EPA’s NPDES implementing regulations. Those CWA provisions and regulations 

contain legally binding requirements. This document does not substitute for those provisions or regulations. The recommendations in this guidance are not binding; the permitting authority may consider 

other approaches consistent with the CWA and EPA regulations. The use of non-mandatory words like 

“should,” “could,” “would,” “may,” “might,” “recommend,” “encourage,” “expect,” and “can” in this 

guidance mean solely that something is suggested or recommended, and not that it is legally required, 

or that the suggestion or recommendation imposes legally binding requirements, or that following the 

suggestion or recommendation necessarily creates an expectation of EPA approval. When EPA makes a 

permitting decision, it will make each decision on a case-by-case basis and will be guided by the applicable requirements of the CWA and implementing regulations, taking into account comments and information presented at that time by interested persons regarding the appropriateness of applying these 

recommendations to the particular situation. EPA may change this guidance in the future.

Foreword

EPA is pleased to issue the Water Quality Trading Toolkit, the first-ever how-to-trade manual with realworld examples. In January 2003, EPA released the National Water Quality Trading Policy which laid out 

a framework for trading under the Clean Water Act. In 2004 we published the Water Quality Trading 

Assessment Handbook to help users determine whether trading is environmentally viable and financially 

attractive in a watershed. This Toolkit builds upon the two earlier documents and provides more detail 

regarding actual design and implementation of trading programs. This document will not only help 

permit writers incorporate trading into National Pollutant Discharge Elimination System (NPDES) permits 

but is a guide for anyone interested in establishing a water quality trading program in their watershed. 

We look forward to hearing about the innovative trading programs generated by this useful resource.

Benjamin H. Grumbles

Assistant Administrator for Water
Water Quality Trading 

Toolkit 

for Permit Writers

August 2007

Water Quality Trading Toolkit for Permit Writers

i

Contents

C o n t e n t s

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Fundamentals of Water Quality Trading . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Toolkit Organization and Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Overview of Water Quality Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

NPDES Permitting Authority Role in Water Quality Trading . . . . . . . . . . . . . . . . . 5

Legal and Policy Framework for Water Quality Trading . . . . . . . . . . . . . . . . . . . . 5

Essential Trading Information for Permit Writers . . . . . . . . . . . . . . . . . . . . 10

What Pollutant Trading Does EPA Support? . . . . . . . . . . . . . . . . . . . . . . . . . .10

What Is the Appropriate Geographic Scope for Water Quality Trading? . . . . . . . . . . 12

Types of Trading Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Under What Circumstances Does EPA Support Trading? . . . . . . . . . . . . . . . . . . .20

What Are Some Factors Involved in Determining a Reduction Credit? . . . . . . . . . . . 28

What Types of Effluent Limitations Could Be Met Through Trading? . . . . . . . . . . . .36

What Are the Roles of Stakeholders? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

How to Know if the Trading Program is Working . . . . . . . . . . . . . . . . . . . . . . 40

Developing NPDES Permits for Specific Trading Scenarios . . . . . . . . . . . . . . . . . . 41

Where Can I Get More Information? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Water Quality Trading Scenario: 

Single Point Source–Single Point Source Trading . . . . . . . . . . . . . . . . . . . 1

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Permit Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Effluent Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Water Quality Trading Scenario: 

Multiple Facility Point Source Trading . . . . . . . . . . . . . . . . . . . . . . . . . 1

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Permit Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Effluent Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Water Quality Trading Toolkit for Permit Writers

ii

Water Quality Trading Scenario: 

Point Source Credit Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Credit Exchange Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Permit Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Effluent Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Water Quality Trading Scenario: 

Point Source–Nonpoint Source Trading . . . . . . . . . . . . . . . . . . . . . . . . .1

Quantifying Nonpoint Source Loads and Credits . . . . . . . . . . . . . . . . . . . . .2

Potential Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Establishing Baselines for Nonpoint Source Sellers . . . . . . . . . . . . . . . . . . . 6

Nonpoint Source Baseline Derived from TMDL Load Allocations . . . . . . . . . . . . . . . 7

Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation . . . . . . . . . 8

Determining Maximum Feasible Nonpoint Source Load Reductions . . . . . . . . . . . . . 9

Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Mechanisms Under the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Mechanisms Outside of the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . 11

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Permit Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Effluent Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Water Quality Trading Scenario: 

Nonpoint Source Credit Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

The Function of a Nonpoint Source Credit Exchange . . . . . . . . . . . . . . . . . . 2

Accounting for Delivery and Location Ratios in a Nonpoint Source Credit Exchange . . . . 3

Quantifying Nonpoint Source Loads and Credits . . . . . . . . . . . . . . . . . . . . .4

Potential Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Establishing Baselines for Nonpoint Source Sellers . . . . . . . . . . . . . . . . . . . 8

Nonpoint Source Baseline Derived from TMDL Load Allocations . . . . . . . . . . . . . . . 9

Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation . . . . . . . . 10

Determining Maximum Feasible Nonpoint Source Load Reductions . . . . . . . . . . . . .11

Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Mechanisms Under the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Mechanisms Outside of the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . 13
Water Quality Trading Toolkit for Permit Writers

iii C O N T E N T S

Trade Agreements 14

Trade Agreements with Nonpoint Source Credit Exchanges 14

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Permit Cover Page 18

Effluent Limitations 19

Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Reporting Requirements 27

Special Conditions 30

Glossary

References

Appendix A Water Quality Trading Program Fact Sheets

Appendix B US EPA Office of Water, Water Quality Trading Policy

Appendix C Trading Forms and Templates

Appendix D Use of Cost Share (Updated June 2009)

Appendix E Permit Writer Checklists

Appendix F Trading With Subsurface Septic Systems (Added June 2009)

Appendix G Sediment and Nutrient Trades with Forestry and Drinking Water

Treatment Facility (Added June 2009)
Water Quality Trading Toolkit for Permit Writers

iv
Water Quality Trading Toolkit for Permit Writers

v

A

c k n o w l e d g

E m e n t s

Acknowledgements 

Virginia (Ginny) Kibler, Water Permits Division, Office of Wastewater Management, 

Office of Water, U.S. Environmental Protection Agency, Washington, DC, was the primary 

author of this Toolkit. 

Many individuals assisted in this effort, including the following: 

George Azevedo, Water Division, U.S. EPA, Region 5, Chicago, IL

Patrick Bradley, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Jim Curtin, Office of General Counsel, U.S. EPA, Washington, DC

Todd Doley, Engineering and Analysis Division, U.S. EPA, Washington, DC

Jordan Dorfman, Municipal Support Division, U.S. EPA, Washington, DC

Katharine Dowell, Water Policy Office, Office of Water, U.S. EPA, Washington, DC

Pete Ford, Office of General Counsel, U.S. EPA, Washington, DC

Mindy Gampel, Office of Policy, Economics and Innovation, U.S. EPA, Washington, DC

Lynda Hall, Wetlands Division, Office of Water, U.S. EPA, Washington, DC

Sylvia Horwitz, Office of General Counsel, U.S. EPA, Washington, DC

Kavya Kasturi, ORISE intern, Water Permits Division, U.S. EPA, Washington, DC

Michele Knorr, Office of General Counsel, U.S. EPA, Washington, DC

Robert Koroncai, Water Protection Division, U.S. EPA, Region 3, Philadelphia, PA

Maureen Krudner, Division of Environmental Planning and Protection, U.S. EPA, 

Region 2, New York City, NY.

Chris Lewicki, Assessment and Watershed Protection Division, U.S. EPA, Washington, DC

Mike Muse, Drinking Water Protection Division, U.S. EPA, Washington,

Brian Nickel, Office of Water and Watersheds, U.S. EPA, Region 10, Seattle, WA

Pooja Parikh, Office of General Counsel, U.S. EPA. Washington, DC

Amy Parker, Health and Ecological Criteria Division, U.S. EPA, Washington, DC

Eric Perkins, Office of Ecosystem Protection, U.S. EPA, Region 1, Boston, MA

Jan Pickrel, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Gerald Potamis, Office of Ecosystem Protection, U.S. EPA, Region 1, Boston, MA (retired)

Morgan Robertson, ORISE intern, Wetlands Division, U.S. EPA, Washington, DC

Steve Rubin, Office of Enforcement and Compliance Assurance, U.S. EPA, Washington, DC

Claire Schary, Office of Water and Watersheds, U.S. EPA, Region 10, Seattle, WA

Lisa Thorstenberg, Water Division, U.S. EPA, Region 5, Chicago, IL (retired)

Stephanie VonFeck, Municipal Support Division, U.S. EPA, Washington, DC

Allison Wiedeman, Water Permits Division, U.S. EPA, Washington, DC

Richard Witt, Office of General Counsel, U.S. EPA, Washington, DC
Water Quality Trading Toolkit for Permit Writers

vi

Water Permits Wet Weather Team

Kevin Bell, Office of Enforcement and Compliance Assurance, U.S. EPA, Washington, DC

Donald Brady, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Roosevelt Childress, Water Management Division, U.S. EPA, Region 4, Atlanta, GA

Susmita Dubay, Office of General Counsel, U.S. EPA, Washington, DC

Jack Faulk, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Barry Korb, Office of Policy, Economics, and Innovation, U.S. EPA, Washington, DC

Michael Lee, Office of General Counsel, U.S. EPA, Washington, DC

Jenny Molloy, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Hale Thurston, National Center for Environmental Assessment, Office of Research and 

Development, Cincinnati, OH

Kevin Weiss, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

Marcus Zobrist, Water Permits Division, Office of Water, U.S. EPA, Washington, DC

States

Dan Dell, Department of Environmental Quality, Lansing, MI

Steve Sommer, Pollution Control Agency, St. Paul, MN

Ann Smith, Department of Environmental Protection, Harrisburg, PA

Paul Stacey, Department of Environmental Protection, Hartford, CT

Andrew Zemba, Department of Environmental Protection, Harrisburg, PA

Municipality

Jim Middaugh, Bureau of Environmental Services, Portland, OR

In addition, Kellie DuBay, Greg Currey, Jennifer Ferrando, Christy Williams, Krista Carlson, 

Jae Kim, Kristin Schatmeyer, Regina Scheibner, and Jeff Strong from Tetra Tech, Inc., 

contributed to the development, design, and final production of this Toolkit.
Water Quality Trading Toolkit for Permit Writers

vii A b b r e v i

a t i o n s 

a

n

D A

c r o n y m s

Abbreviations and Acronyms

AFO animal feeding operation

AML average monthly limit

AWL average weekly limit

BMP best management practices

BPJ best professional judgment

CBOD carbonaceous biochemical oxygen demand

CSO combined sewer overflow

CWA Clean Water Act

DMR discharge monitoring report

EPA U.S. Environmental Protection Agency

gpd gallons per day

ICIS Integrated Compliance Information System

LA load allocation

MEP maximum extent practicable

mgd million gallons per day

MS4 municipal separate storm sewer system

NPDES National Pollutant Discharge Elimination System

NRCS Natural Resources Conservation Service

PBTs persistent bioaccumulative toxics

PCS Permit Compliance System

POTW publicly owned treatment works

RNC reportable noncompliance

SISL Surface Irrigation Soil Loss

SNC significant noncompliance

SWCD Soil and Water Conservation District

TBEL technology-based effluent limitations

TKN total Kjeldahl nitrogen

TMDL total maximum daily load

TN total nitrogen

TP total phosphorus

TRE toxicity reduction evaluations

USDA U.S. Department of Agriculture

USLE Universal Soil Loss Equation

WLA wasteload allocation

WQBEL water quality-based effluent limitations
Water Quality Trading Toolkit for Permit Writers

viii
Water Quality Trading Toolkit for Permit Writers

ix

E x e cu t i v e Su m m

a r y

Water Quality Trading

Keys to Success

Every trading program should strive to be:

Transparent

Keep the public informed at every step of the process by:

 Involving stakeholders in the design of the trading program 

 Communicating to the public information deemed necessary to 

maintain stakeholder confidence

Real

Show pollutant reductions and water quality improvement by:

 Measuring reductions 

 Verifying BMP installation and maintenance, e.g., through a 

third party

Accountable

Manage the program effectively by:

 Including trade tracking mechanisms in the program design

 Periodically reviewing the program’s process and results

Defensible

Base the program on sound science and protocol by:

 Using dynamic water quality models

 Requiring credit generators to certify credits

 Developing scientifically based trading ratios

Enforceable

Establish responsibility for meeting or exceeding water quality 

standards by:

 Incorporating clearly articulated trading provisions in NPDES 

permits
Water Quality Trading Toolkit for Permit Writers

F u n d a m e n t a l s

Introduction

For more than a decade, the U.S. Environmental Protection Agency (EPA) has promoted 

and supported the concept of water quality trading as an innovative approach for achieving water quality standards with flexibility and economic efficiency. A variety of pilot programs and projects have generated useful information on how to conduct water quality 

trading, yet the number of actual trades that have occurred is relatively small. EPA believes 

that as awareness of the potential benefits of water quality trading grows, National Pollution 

Discharge Elimination System (NPDES) permittees will be more interested in water quality 

trading and request permitting authorities to incorporate trading provisions into their permits. As a result, the process for crafting water quality trading programs and requirements 

should involve the permitting authority staff as early as possible. This will help ensure that 

trading programs are effective and workable and fully consistent with the implementation 

and compliance framework of the permitting authority’s NPDES program.

This Water Quality Trading Toolkit for Permit Writers (Toolkit) is intended to facilitate trading by providing NPDES permitting authorities with the tools they need to facilitate trading 

and to authorize and incorporate trading in NPDES permits. Although the Toolkit primarily 

targets state, tribal and EPA NPDES permitting authorities, it might also be useful to other 

stakeholders interested in water quality trading and the NPDES permitting process. Users of 

the Toolkit should have an existing, fundamental understanding of both water quality trading concepts and the NPDES permitting process. To ensure consistency and minimize redundancy, the Toolkit refers users to existing EPA guidance on water quality trading and NPDES 

permit development and issuance whenever possible.

This guidance is based on EPA’s Water Quality Trading Policy (Trading Policy) published in 

January 2003. The Trading Policy was written on the assumption that, if a total maximum 

daily load (TMDL) were in place, all trading partners would be covered by the TMDL. In this 

case, wasteload allocations (WLAs) and load allocations (LAs) under the TMDL form the 

baseline for trading. In all cases, permits must be designed to meet water quality standards as 

required under Clean Water Act (CWA) section 301(b)(1)(C). Inclusion of trading provisions in 

NPDES permits should facilitate meeting this requirement.

Water quality trading programs are necessarily tailored to meet the needs of the dischargers and stakeholders in the watersheds for which they are developed. Because each watershed is unique, water quality trading programs may exist in many different forms. It would 

be impracticable and cumbersome to attempt to cover in this document every possible type 

of program that might be developed to meet an individual watershed’s needs. This Toolkit 

attempts to equip program developers and permit writers with an understanding of the 

issues involved in water quality trading and the types of program characteristics that are best 

suited to address them. The fact that a particular trading program design or element is not 

represented in the examples presented in the Toolkit does not necessarily mean that it is not 

appropriate or would not be supported by EPA.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers



Toolkit Organization and Instructions

With the permitting authority as the primary target user, the Toolkit first addresses broad 

water quality trading policy issues and then focuses on specific trading scenarios. Water quality trading scenarios fall into two major categories: (1) point source–point source trading and 

(2) point source–nonpoint source trading. Point source–point source trading includes single 

point source–single point source trading, multiple facility point source trading, and point 

source credit exchanges. Point source–nonpoint source trading includes single point source–

nonpoint source trading and nonpoint source credit exchanges.

The first section of the Toolkit, Fundamentals of Water Quality Trading, addresses broad 

water quality trading policy issues; this section applies to all Toolkit users. Within the Fundamentals section, the Overview of Water Quality Trading section addresses the role of NPDES 

permitting authorities in water quality trading and the legal and policy framework for water 

quality trading. The Essential Trading Information for Permit Writers section discusses specific 

water quality trading issues relevant to NPDES permitting authorities. Issues addressed in this 

section include the type of pollutants to be traded, definition of a pollutant reduction credit, 

circumstances conducive to trading, baselines for water quality trading, trading ratios, timing 

and duration of credits, and the geographic scope of trades. All Toolkit users should have a 

thorough understanding of the policy and technical issues addressed in these sections before 

proceeding to the specific trading scenario sections. Understanding of the important policy 

and technical issues contained in the initial sections of the Toolkit is essential to prevent ineffective or inappropriate water quality trading conditions in NPDES permits. After reviewing 

the initial sections of the Toolkit, the user is prepared to proceed to the appropriate section 

of the Toolkit that focuses on a specific trading scenario. The intent is to allow the Toolkit 

user to review only the information that applies to the specific trading scenario of interest. 

The following diagram (Figure 1) is intended to help navigate the trading scenario sections of 

the Toolkit:

Yes No

Will a 

Credit Exchange 

be used?

More than two

point sources?

Point Source 

Credit Exchange

 used?

Yes No Yes No

No Yes

Toolkit Navigation

Are nonpoint sources 

participating in 

the trading program?

Go to

Nonpoint Source 

Credit Exchange

Section

Go to

Point SourcePoint Source

Trading

Section

Go to

Multiple Facility

Point Source

Trading

Section

Go to

Point Source

Credit Exchange

Section

Start

here

Go to

Point SourceNonpoint Source

Trading

Section

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Figure 1. Toolkit navigation.
Water Quality Trading Toolkit for Permit Writers

F u n d a m e n t a l s

For example, a permitting authority developing conditions in a NPDES permit to authorize 

and facilitate trading between two single point sources would first review the Overview 

of Water Quality Trading and Essential Trading Information for Permit Writers sections 

for important policy and technical information and then carefully review the Single Point 

Source–Single Point Source Trading scenario for specifics pertaining to trading between two 

single point sources.

The Toolkit is intended to assist with developing and implementing NPDES permits that allow 

for water quality trading. Each trading scenario section walks NPDES permitting authorities 

through the normal process of developing the components of a NPDES permit and provides 

the tools they need to incorporate water quality trading into that process. Each section of the 

Toolkit contains two important components that supplement the narrative: (1) a hypothetical 

trading example and (2) real-world examples that apply the trading concepts discussed in the 

section. Each of these components of the Toolkit is presented in a unique format, as illustrated below, to ensure easy identification.

Real-World Examples

Where applicable, each section includes either summaries of real-world examples or Web pages 

that provide more detailed information. These examples appear in a green-shaded text box. When 

actual permit provisions from these examples are available, see Appendix A for the exact permit 

language.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Hypothetical Examples 

Hypothetical examples appear throughout each section highlighted in a blue-shaded text box.
Water Quality Trading Toolkit for Permit Writers

 Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Overview of Water Quality Trading

Water quality trading is an innovative, market-based approach that if used in certain 

watersheds can achieve water quality standards more efficiently and at lower cost 

than traditional approaches. Costs to control discharges compared with runoff for a given 

pollutant often vary significantly in a watershed, creating the impetus for water quality trading. Through water quality trading, facilities that face higher pollutant control costs to meet 

their regulatory obligations can purchase pollutant reduction credits from other sources that 

can generate these reductions at lower cost, thus achieving the same or better overall water 

quality improvement. In most cases, trading takes place on a watershed level under a pollutant cap (the total pollutant load that can be assimilated by a waterbody without exceeding 

water quality standards) developed through the TMDL process or a similar type of water 

quality analysis that produces information on pollutant loadings and resulting water quality 

conditions (USEPA 2004).

For example, where a TMDL has been established, the baselines relative to which point 

sources and nonpoint sources can generate credits are their WLAs and LAs (for definitions, 

see glossary), respectively. To generate tradable credits, a source would need to reduce loadings below the allocation set by the TMDL. A source buying credits would be able to increase 

its discharge over what would otherwise be allowed, but only by the amount of the credits 

purchased from another source (or sources) and subject to other conditions specified in the 

permit and trading program. The result would be that, at a minimum, the post-trade loadings 

from the trading sources would be equal to or less than the loadings that would have been 

discharged by the sources in the absence of trading. Trading programs may also be designed 

to require a net reduction in loadings when trading occurs.

EPA’s 2004 Water Quality Trading Assessment Handbook notes that, in water quality trading markets, the marketable product is the over control of pollutant loadings. A pollutant 

reduction credit is the amount (mass) of pollutant reduced over a specified time period 

(day, month, year) that is in excess of the required reduction for a certain source. The excess 

pounds of pollutant reduced can be made available for a NPDES permittee to purchase as 

credits. It is important to note that, due to trade ratios, one pound of pollutant reduced at 

the seller’s discharge location is not necessarily equal to one pound of pollutant reduced at 

the buyer’s location. Therefore, for the purposes of this Toolkit, one credit will be equal to 

one unit of load reduction per time (lb/day) at the location of the buyer.1 One credit may be 

greater or less than one unit of load reduction per time at the location of the seller.

1 The definition of a credit may vary from program to program.
Water Quality Trading Toolkit for Permit Writers



NPDES Permitting Authority Role in Water Quality 

F u n d a m e n t a l s

Trading

EPA or an authorized state, territory, or tribe is the permitting authority for NPDES permits. 

When states are referenced in this document, it is meant to also include state, territorial, and 

tribal permitting authorities. Regardless of the entity issuing NPDES permits, the process for 

crafting water quality trading requirements should involve the permitting authority staff. 

This will help ensure that trading provisions are fully consistent with the implementation and 

compliance framework of the particular jurisdiction’s NPDES program. The role of NPDES permitting authorities in water quality trading should include the following:

• Advising state or local entities, as they develop trading frameworks, on what is 

needed for NPDES programs to authorize trading

• Developing enforceable trading provisions, NPDES permit limitations and conditions 

that meet the requirements of the CWA and its implementing regulations, consistent 

with the following:

− EPA’s Trading Policy

− State laws, regulations, and policy

− Any applicable trading program

• Helping to develop and implement mechanisms to ensure accountability and 

compliance with trading requirements. Examples include the following:

− Credit certification forms

− Trade tracking mechanisms

− Enforcement if permit requirements are not met

− Review of monitoring data from credit buyers and sellers

In addition to the expertise used to develop permits and especially water quality-based 

effluent limits (WQBELs), the NPDES permitting authority will need an understanding of the 

following:

• The legal and policy framework for water quality trading

• The specific issues involved in incorporating water quality trading into NPDES permits

• The various trading scenarios and the types of sources, watersheds and pollutants for 

which they are appropriate

The remainder of this section briefly describes the federal legal and policy framework for 

water quality trading and provides examples of state regulations, policy, and guidance that 

establish a framework for trading or address specific aspects of trading.

Legal and Policy Framework for Water Quality Trading

Where trading is feasible, the terms of a trade will depend, in part, on the structure of a 

trading program or other trading requirements developed by the state or other permitting 

authority. These in turn must comply with federal and state rules that define the legal framework within which trading programs and requirements are developed.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers



Federal Law, Regulations, and Policy

The CWA, 33 United States Code (U.S.C.) section 1251, et seq. and its implementing regulations establish the legal framework within which a trading program involving regulated point 

sources would be developed. The NPDES regulations at Title 40 of the Code of Federal Regulations (CFR) 122.44(d) describe the requirements for WQBELs that are set at levels necessary 

to achieve water quality standards. EPA’s Trading Policy provides states with guidance on how 

to facilitate trading consistent with the CWA and its implementing regulations. The Trading Policy is included in this document as Appendix B. Many of the concepts in the Trading 

Policy are explored in greater detail in the section on Essential Trading Information for Permit 

Writers. In addition, relevant portions of the Trading Policy are referenced throughout the 

Toolkit.

Under CWA section 301(b), NPDES permits must contain technology-based effluent limitations (TBELs) and more stringent effluent limitations when necessary to meet applicable 

water quality standards. Trading cannot be used to meet TBELs, except where specifically 

authorized by effluent guidelines (e.g., the water bubble provisions in the effluent guidelines for the Iron and Steel point source category). EPA has promulgated regulations at 40 

CFR Part 122 specifying when WQBELs under CWA section 301(b)(1)(C) are necessary and 

how such limitations are to be derived. Among other things, EPA’s regulations at 40 CFR 

122.44(d)(1)(vii) require the permitting authority to ensure that: (a) the level of water quality 

to be achieved by limits on point sources is derived from, and complies with, all applicable 

water quality standards; and (b) effluent limitations developed to protect a narrative water 

quality criterion, a numeric water quality criterion, or both, are consistent with the assumptions and requirements of any applicable WLA for the discharge prepared by the state and 

approved by EPA pursuant to 40 CFR 130.7. To be lawful, a WQBEL must be consistent with 

the requirements of CWA section 301(b)(1)(C) and EPA’s regulations at 40 CFR 122.44(d)(1).

WQBELs must also be calculated at levels that do not result in a shift in loadings that causes 

a localized impairment of designated uses. A localized impairment may occur wherever the 

applicable water quality criteria are exceeded. Where state or tribal water quality standards 

allow for mixing zones, the WQBELs must be consistent with the restrictions associated with 

those mixing zones.

The requirements of CWA section 301(b)(1)(C) and EPA’s regulations at 40 CFR Part 122 apply 

to all WQBELs, including those based on a water quality trade.

State Regulations, Policy, and Guidance

EPA issued its Trading Policy to encourage state regulatory agencies to include trading as 

an option for a point source to meet water quality standards. Some states have chosen to 

develop regulations, policy, or guidance to do any of the following:

• Establish a statewide or watershed trading framework

• Support local trading frameworks

• Address specific aspects of a trading program

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

F u n d a m e n t a l s

State trading rules should be consistent with the CWA, NPDES permit requirements, and state 

water quality standards. The following sections describe various state approaches for facilitating water quality trading.

Establishing a Statewide or Watershed Trading Framework

States may choose to develop state rules or regulations to facilitate the consistent and 

efficient implementation of a statewide or watershed-wide trading program and provide a 

regulatory framework for local rulemaking. Where a statewide or watershed trading program is in place, permittees or other stakeholders interested in pursuing trading know what 

is expected, what rules apply, and with whom they need to coordinate. NPDES authorities 

should participate in the development of state rules to ensure trading programs are consistent with NPDES permitting requirements and will address the needs of permit writers.

Connecticut has adopted trading legislation. Public Act No. 01-180 establishes the trading 

framework for a Long Island Sound Nitrogen Credit Exchange Program to be directed by a 

Nitrogen Credit Advisory Board appointed by the General Assembly and the governor. The 

Nitrogen Credit Exchange Program establishes a well-defined trading structure supported 

and regulated by limits mandated in state law. The state legislation specifies trading ratios 

(e.g., delivery and location ratios) and accounting methodologies to formalize all calculations 

used in trading.

States do not necessarily have to develop trading rules and regulations to provide a trading 

framework. Some states have developed guidance documents and other tools to assist dischargers interested in trading. Pollutant trading is recognized in Idaho’s Water Quality Standards regulations, and the Idaho Department of Environmental Quality (DEQ) has produced 

the Pollutant Trading Guidance that establishes the procedures to be followed for pollutant 

trading. The draft document specifies the conditions under which pollutant trading may take 

place, establishes record-keeping and reporting procedures, and prescribes how best management practices (BMPs) are to be developed for each watershed in which pollutant trading occurs. Idaho DEQ and EPA Region 10 will rely on this document to convey information 

to stakeholders about the state’s ground rules for authorizing and verifying trades and to 

ensure a level of regulatory consistency between the Lower Boise project and other emerging projects across the state. The nonprofit organization established to record trades for the 

Lower Boise and other watersheds with trading programs will also refer to the guidance for 

the transaction information it needs to record and make available to trading participants, 

EPA and DEQ, and the general public.

Trade Facilitation

The Virginia General Assembly passed legislation authorizing the creation of a Chesapeake 

Bay Nutrient Credit Exchange Program in 2005. This program includes the issuance of a 

watershed-based nutrient general permit that incorporates trading, as well as the formation of the Virginia Nutrient Credit Exchange Association, which coordinates and facilitates 

trading among its members. The Virginia Department of Environmental Quality (VA DEQ) is 

charged with developing the watershed-based permit and overseeing the credit exchange. 

The VA DEQ must certify the credits purchased by facilities and publish a record of all credits 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers



available as well as the trades that have taken place. In addition, the legislation established 

that the VA DEQ may conduct audits of the Virginia Nutrient Credit Exchange Association to 

ensure completeness and accuracy of reports.

Supporting Local Trading Frameworks

Some states allow trading without having state trading rules, policy, or guidance specifically addressing pollutant trading. For example, the North Carolina Department of Environment and Natural Resources (DENR) works with any watershed group interested in trading 

to develop a trading framework for that watershed and cover dischargers under an overlay 

permit. This trading framework originated in the Neuse River watershed. The state classified 

the river as a Nutrient Sensitive Water (NSW). Major fish kills in 1995 prompted legislation 

requiring nutrient controls and led the North Carolina Environmental Management Commission (EMC) to revise its 1988 Nutrient Management Strategy for the Neuse River Basin. The 

1997 strategy established a goal that sources would reduce total nitrogen (TN) loads to the 

estuary by 30 percent by the year 2003. Subsequently, the North Carolina EMC adopted a 

rules package in 1998 to support the strategy. The rules were aimed at reducing TN impacts 

in the watershed by promoting nutrient management activities for agriculture, stormwater, 

point sources, and riparian areas. One of the rules under the strategy, the Wastewater Discharge Requirements rule, allowed dischargers to form an association to meet their allocated 

TN load collectively. Though not expressly stated in the rule, trading is allowed under this 

option among the members of the association. Members are allowed to purchase, sell, trade, 

or lease their individual portions of the estuary TN allocation (which are included in their 

permits as mass-based effluent limits) among co-permittees covered under an overlay permit 

so as long as they do not exceed the association’s overall estuary TN allocation (2.8 million 

pounds per year). Individual trades conducted under the overlay permits are typically not 

reviewed by the state.

Market Drivers

In most states, meeting water quality standards, WLAs under TMDLs, or other kinds of pollutant caps are the leading drivers for water quality trading markets; however, some states have 

developed state regulations to allow trading in other circumstances, such as on Wisconsin’s 

Red Cedar River. The primary regulatory driver for point sources involved in trading on the 

Red Cedar River is Chapter NR 217 of the Wisconsin Administrative Code. This chapter of 

the code mandates 1 mg/L total phosphorus (TP) discharge limits for municipal treatment 

plants with a monthly discharge exceeding 150 pounds of TP and for industrial sources with a 

monthly discharge exceeding 60 pounds of TP. This cap is used to control phosphorous loadings and provides an incentive for water quality trading in the Red Cedar River watershed, as 

well as a baseline against which trading can be conducted.

There may be other specific aspects of a trading program that a state chooses to address 

through regulation, policy or guidance, such as selection of approved BMPs for generating 

tradable credits from nonpoint sources or general eligibility requirements (e.g., compliance 

history) for point sources wishing to engage in a trading program. Permitting authorities 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

F u n d a m e n t a l s

should be familiar with all applicable federal and state policies, regulations, and guidance 

before beginning to develop a permit that incorporates trading.

As is apparent from this discussion of the legal and policy framework for water quality trading, the decision to incorporate trading into a NPDES permit requires careful consideration. 

The permitting authority should, first, be aware of the broader state/local/watershed context 

for trading and consider how this context will affect the incorporation of trading provisions 

into NPDES permits. Specific permit conditions should be guided by state regulations and 

policies, including any established trading framework. The following section, Essential Trading Information for Permit Writers, provides an overview of issues that permitting authorities 

should consider, within the context of established regulation and policy, before developing 

permits that incorporate water quality trading.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

10

Essential Trading Information for Permit 

Writers

Permitting authorities are key players in any water quality trading program. Trades involving point sources, whether they are buyers or sellers, should be reflected in their NPDES 

permits. Listed below are some fundamental issues regulatory authorities should address 

when establishing a trading program or evaluating potential trading opportunities.2 It is 

essential that the permitting authority have a clear understanding of these fundamental 

issues and how they will affect development of the NPDES permit that implements water 

quality trading.

• Pollutants most suitable for trading

• Geographic scope of trading

• Types of trading scenarios

• Appropriate circumstances for trading

• Definition of a pollutant reduction credit

• Definition of a baseline for generating credits

• Trading ratios

• Types of effluent limitations that may be met through trading

• Credit reconciliation based on timing and duration of credits

• Role of stakeholders

• Potential for and avoidance of localized exceedances of water quality standards

Appendix E provides the permit writer with a list of fundamental questions that should be 

answered when implementing water quality trading in a NPDES permit.

What Pollutant Trading Does EPA Support?

Not all pollutants are necessarily suitable for trading. Regulatory authorities should determine which pollutants may be traded within a specific watershed or as part of a particular 

trading program and may determine that certain pollutants may not be traded at all. EPA’s 

Trading Policy supports trading for TN, TP, and sediment and indicates that other pollutants may be considered for trading on a case-by-case basis. EPA does not support trading of 

persistent bioaccumulative toxics (PBTs). For a list of pollutants that EPA considers PBTs see 

www.epa.gov/pbt/index.htm. In general, pollutants that cause adverse water quality effects 

2 This guidance is based on EPA’s Trading Policy. The Trading Policy was written on the assumption that all trading 

partners would be covered by the same TMDL analysis. Thus, there are some suggestions within this document that 

may not apply to trades in which the trading partners are not under the same TMDL. In all cases where trading 

provisions are included in a permit, it remains the responsibility of the permitting authority to issue permits 

designed to meet water quality standards as required under CWA section 301(b)(1)(C). 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants Geographic Scope

Possible 

Trading 

Scenarios Circumstances for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits Effl uent Limit Types Stakeholder Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

11F u n d a m e n t a l s

primarily as a result of cumulative loadings that are high relative to the contributions of any 

individual source are more suitable for trading than those that exert acute effects over small 

areas and in relatively low concentrations. Chapter 2 of EPA’s Water Quality Trading Assessment Handbook provides more information regarding trading suitability analyses for specific 

pollutants.

Nonconventional Pollutants

EPA’s Trading Policy explicitly supports trading to reduce 

nutrients. A number of established trading programs and 

pilot projects have shown that nitrogen and phosphorus 

can be successfully traded within a watershed to make 

progress toward meeting a TMDL and water quality 

standards. Appendices A and B of EPA’s Water Quality Trading 

Assessment Handbook provide detailed information on 

evaluating trading suitability for phosphorus and nitrogen.

Trading of other types of nonconventional pollutants may 

be supported on a case-by-case basis provided the trading 

programs are properly designed and prior approval is provided through a NPDES permit, a 

TMDL, or in a state-, tribe-, or EPA-supported watershed plan or pilot trading project.

Conventional Pollutants

The Trading Policy explicitly supports trading to reduce sediment loads. Another conventional 

pollutant that may be suitable for trading is temperature, or thermal load. Appendices C 

and D of EPA’s Water Quality Trading Assessment Handbook provide detailed information 

on evaluating trading suitability for temperature and 

sediments. Trading of other types of conventional pollutants 

may be supported on a case-by-case basis, as long as the 

trading program is properly designed to ensure that trades 

are consistent with water quality standards.

Does EPA Support Cross-Pollutant Trading?

EPA’s Trading Policy supports cross-pollutant trading programs (i.e., trading between two 

different pollutant parameters) when mass loads that are approximately equal with respect 

to their impacts on the aquatic environment can be calculated. The Trading Policy explicitly 

supports cross-pollutant trading for oxygen-related pollutants where there is adequate 

information to establish and correlate impacts on water quality.

Nutrient trading programs:

Long Island Sound, Connecticut

Lower Boise River, Idaho

Truckee River, Nevada

Neuse River Basin, North Carolina

Red Cedar River, Wisconsin

Southern Minnesota Beet Sugar 

Cooperative, Minnesota

Conventional pollutant trading programs:

Truckee River, Nevada: Total Dissolved Solids

Clean Water Services, Oregon: Temperature

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants Geographic Scope

Possible 

Trading 

Scenarios Circumstances for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits Effl uent Limit Types Stakeholder Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Rahr Malting Company, Minnesota

The Rahr Malting facility offsets 5-day carbonaceous biochemical oxygen demand (CBOD5) discharges from its facility by funding upstream nonpoint source phosphorus reductions. This trade 

was implemented to reduce downstream oxygen demand (Breetz et al. 2004). Phosphorus loads 

affect oxygen demand and thus could be traded for CBOD5 once correlations between the impacts of 

the upstream phosphorus discharges and the downstream CBOD5 discharges were determined.
Water Quality Trading Toolkit for Permit Writers

12

What Is the Appropriate Geographic Scope for Water 

Quality Trading?

EPA’s Trading Policy states that all water quality trading should occur either within a watershed or within a defined area for which a TMDL has been approved. But what, exactly, does 

“trading within a watershed” mean? For example, how large can the watershed be? Is it 

appropriate to trade between dischargers to different streams within the same watershed? 

Does it matter where the trading partners’ discharges are located relative to one another? 

The answers to these questions will vary on the basis of a number of factors. In general, the 

geographic scope of a trade should be no larger than necessary to encompass the universe 

of sources that contribute to a specific water quality problem that is to be addressed through 

trading. Beyond this, regulatory authorities should carefully consider the following factors 

when determining the appropriate geographic scope of a water quality trade. Many of the 

decisions regarding geographic scope are synonymous with decisions that define TMDLs. For 

this reason, EPA encourages the inclusion of specific trading provisions in the TMDL itself.

First, trading should occur only within a hydrologic unit that is appropriately defined to 

ensure that trades will maintain water quality standards within that unit, as well as within 

downstream and contiguous waters. Second, it is important to remember that the purpose 

of trading is to improve water quality. This can occur only if the parties to the trade discharge, either directly or indirectly, to the same waterbody where water quality improvement is necessary. This may involve trading across a wide geographic area if the waterbody 

to be addressed drains a large area (e.g., the Chesapeake Bay), or across a small area if the 

impaired waterbody is itself small (e.g., an individual stream segment). Inappropriate trading 

across geographic or hydrologic units (i.e., where the dischargers are not both contributing to 

the same water quality problem) will not improve, and could worsen, water quality downstream of the credit purchaser. Water quality trading is intended to provide opportunities for 

efficiently achieving and maintaining water quality standards within watersheds, as opposed 

to cleaning up one watershed at the expense of another.

As noted above, trades can also occur on a very small scale. The Trading Policy supports 

several types of trading that, by definition, would occur below the watershed scale. Specifically, pretreatment trading, intraplant trading, and intramunicipal trading are limited to the 

geographic scale that encompasses the collection system, facility, or municipality involved in 

trading.

The appropriate size of the area within which trading may occur depends on the specific 

characteristics of the site and the trade. Regulatory authorities should consider hydrogeologic 

conditions, fate and transport of pollutants, ecological parameters, the location and types of 

point sources, the parameters to be traded, and the regulations and management structure 

affecting the trading program in evaluating appropriate trading boundaries (USEPA 1996a). 

These factors, obviously, will vary from watershed to watershed and even within watersheds 

depending on the pollutants and trading partners. Some example considerations are provided 

below.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

13F u n d a m e n t a l s

Regulatory authorities should take into account the following factors in determining appropriate boundaries for a trading program and the geographic coverage of a permit that incorporates water quality trading:

• Where are the dischargers located relative to the waterbody for which reductions are 

needed?

• What is the distance between the potential trading partners’ discharges, either along 

a shared receiving stream, or to the point where the receiving streams converge?3

• Is the potential credit purchaser upstream or downstream of the potential credit 

generator?

• If the credit generator is a nonpoint source, where is its loading released?

• Are there diversions, tributaries, impoundments, drinking water intakes, or other 

water withdrawals between the potential trading partners’ discharges?

• What political boundaries exist between trading partners or within a watershed 

of interest that may impact the requirements or regulations affecting trades? Are 

potential partners regulated by the same permitting authority?

• What are the water quality impacts and fate and transport (e.g., decay) characteristics 

of the pollutant(s) to be traded?4

• Can appropriate trade ratios be established to account for the distance between 

trading partners’ discharges?

• Are other water quality trades being conducted in the waterbody, and how might 

they affect the water quality impacts of the trade being considered?

Interstate trading may be a viable option in some parts of the country. For instance, in the 

Chesapeake Bay, CWA section 117(g) says that the administrator, in coordination with other 

members of the Chesapeake Bay Executive Council, “shall ensure that management plans are 

developed and implementation is begun by signatories to the Chesapeake Bay Agreement to 

achieve and maintain - (A) the nutrient goals of the Chesapeake Bay Program for the quantity 

of nitrogen and phosphorus entering the Chesapeake Bay and its watershed...”. EPA interprets this language as supporting the Chesapeake Bay states in establishing multijurisdictional 

water quality trading programs as part of the management planning and implementation

necessary to achieve the Bay’s nutrient goals.

Also, trading could be an option under already established interstate compacts (e.g., Ohio 

River Valley Water Sanitation Commission (ORSANCO)). CWA section 103(b) expresses 

3 The difference between these two measuring points relates to the location of the trading partners and the 

waterbody of concern. If the waterbody of concern is downstream from the trading partners, the permitting 

authority should compare the distance between the buyer and the waterbody of concern and the seller and the 

waterbody of concern to determine the appropriate location ratio. If the buyer is on the waterbody of concern, the 

permitting authority should determine the distance between the buyer and the seller to calculate the appropriate 

delivery ratio. More information on trade ratios is available later in this document.

4 Fate and transport modeling will often be needed and should be the same as or consistent with any model used to 

develop the TMDL.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

14

Congress’ consent that states “negotiate and enter into agreements or compacts... for 

(1) cooperative effort and mutual assistance for the prevention and control of pollution and 

the enforcement of their respective laws relating thereto, and (2) the establishment of such 

agencies, joint or otherwise, as they may deem desirable for making effective such agreements and compacts.” To be binding, the CWA says such agreements or compacts must be 

approved by Congress.

For interstate trading outside of congressionally approved compacts, section 103(a) of the 

CWA directs EPA to “encourage cooperative activities by the states for the prevention, reduction, and elimination of pollution, [and] encourage the enactment of improved and, so far 

as practicable, uniform state laws relating to the prevention, reduction, and elimination of 

pollution.” EPA believes that encouraging states to engage in cooperative, interstate activities like establishing multijurisdictional water quality trading programs designed to prevent, 

reduce, and eliminate pollution is consistent with the directives in section 103(a).

In many cases, the trading boundaries will be established under a trading program or agreement, independent of the NPDES permit that implements the trade. As such programs and 

agreements are developed, NPDES permitting authorities should provide input on the appropriate trading boundaries on the basis of their experience permitting the facilities potentially 

involved. In any case, the permitting authority should write permit conditions in such way as 

to ensure that trades occur only within appropriate boundaries.

Types of Trading Scenarios

NPDES permitting authorities are likely to encounter a variety of trading scenarios. In general, 

however, all trades included in permits will involve either trading between point sources or 

trading between point sources and nonpoint sources. Trading between multiple point sources 

or between point sources and nonpoint sources can occur with or without an intermediary or 

broker to facilitate the trades. A third-party broker—a person, organization, or Web site—can 

help trading partners identify one another in a watershed. For example, NutrientNet acts as a 

Web-based broker.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

NutrientNet©

The World Resources Institute has created a trading Web site (NutrientNet - 

www.nutrientnet.org), which acts as a trading broker, facilitating a way for buyers and sellers to 

connect, “by making it relatively easy for both point sources and nonpoint sources to estimate 

their remediation costs using standard, consistent methods, and by making the record of trade 

readily accessible. Specifically, NutrientNet is designed to serve the following functions:

 Provide potential market participants and other stakeholders with background information 

on nutrient trading;

 Provide farmers, municipal treatment works, and industrial plants with tools for estimating 

releases of nutrients to surface waters from their operations, exploring reduction options, 

estimating the costs of achieving reductions;
Water Quality Trading Toolkit for Permit Writers

15F u n d a m e n t a l s

5	 A trade agreement is a document that specifies the overall trading policies that a buyer and a seller must follow to

participate in trading. The NPDES permitting authority could approve the trade agreement and either reference

the terms of the trade agreement in the NPDES permit or include the trade agreement as part of the permit for

each point source participating in a trade.

Point Source–Point Source Trading

Trading between point sources is the most basic form of water quality trading. Point source–

point source trading is relatively straightforward, easily measurable, and directly enforceable. Trading between point sources is generally the easiest type of trading to implement,

to measure reductions from, and to ensure compliance and enforcement with because all

sources have a permit, the effectiveness of removal technologies is relatively well known, and

monitoring protocols are in place. For example, in a particular watershed a publicly owned

treatment works (POTW) that installs advanced technology to meet new nutrient limits could

create credits by achieving greater reductions than necessary to meet its WQBELs. Other

POTWs in the same watershed may find that, instead of installing expensive new technology,

it is more economical for them to buy pollutant reduction credits to meet their own WQBELs.

Trading Between Two Point Sources

Single point source–single point source trades generally involve a trade agreement5

between two point sources (see Figure 2). In this type of trade, one point source is

the credit generator and the other is the credit

purchaser. For point source–point source

trades, a single permit can be issued

that incorporates or references

the trade agreement and

includes both point sources as

co-permittees. Alternatively,

each discharger can be issued

an individual permit with

trading provisions placed in each

permit.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Figure 2. Point source–point source trade.

	 Help market participants identify potential trading partners;

 Track the volume and type of trades within a watershed;

 Share lessons learned about trading across the watersheds where it is being tried or

considered; and

	 Provide information on water quality problems and trading as a possible means to address

them.” (World Resources Institute 2004)

NutrientNet© (continued)
Water Quality Trading Toolkit for Permit Writers

16

Multiple Facility Point Source Trading/No Exchange

Multiple facility point source trades involve a group of point sources operating under a single 

trade agreement (see Figure 3). The agreement can 

establish ground rules for trading to allow point 

sources to trade among themselves as needed. 

The trade agreement can specifically identify 

the point sources that may participate in 

water quality trading, or it can identify 

a geographic boundary (typically a 

watershed) or a type of discharger, 

or both, and allow qualifying point 

sources to participate in trading as 

desired or appropriate. An overall limit or cap set by the permit 

regulates all trades. Point sources 

trading under a multiple facility 

trade agreement are sometimes 

organized under a group that facilitates and oversees trading among the 

members.

Point Source Credit Exchanges

Another type of multiple facility point source trade involves a group of point sources that 

may purchase credits from a central exchange as needed to comply with individual effluent 

limitations (see Figure 4). The credit exchange is maintained by a separate entity, which may 

be a state agency, a conservation district, or other organization established to administer the 

Neuse River Basin, North Carolina

Point sources participate in the Neuse River Compliance Association and have coverage under a 

group compliance permit that includes individual and group allocations of TN. Members of the 

association can trade with each other as long as they remain under the cap. If the cap is exceeded, 

members will be subject to their individual limits. The North Carolina Division of Water Quality 

may take enforcement action against the compliance association and any individual discharger. 

When trades occur that involve nonmembers or new or expanding dischargers within the Neuse 

River Basin, the group cap is modified. If credits are not available from existing dischargers, a new 

or expanding discharger can also obtain an allocation by paying into the Wetlands Restoration 

Fund; however, it must pay at double the rate of a compliance association member, and the purchase must be sufficient to fund 30 years of nitrogen reduction.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Multiple

Point Source

Trading

TRADE AGREEMENT

$$$

point source – 

point source trade

$$$

point source – 

point source trade

$$$

point source – 

point source trade

Figure 3. Multiple point source trading.
Water Quality Trading Toolkit for Permit Writers

17F u n d a m e n t a l s

credit exchange. Credits in the exchange are generated 

by point sources that over control their discharges. 

The trade agreement can specify how credits 

may be generated and purchased, how trade 

ratios are calculated, and individual and 

group responsibilities for meeting effluent 

limitations and overall pollutant loading 

caps. Credit exchanges do not hold credits 

for longer than the reconciliation period, 

which typically corresponds to the type 

of effluent limitation. For example, the 

reconciliation period for trades to meet 

monthly average effluent limitations for 

phosphorus would be one month. For each 

reconciliation period, new credits are generated for purchase. The credit exchange would 

likely have to be either operated by or approved 

and overseen by a state regulatory agency.

Point Source–Nonpoint Source Trades

Trading between point source buyers and nonpoint source sellers provides another opportunity to meet water quality standards. In successful point source–nonpoint source trading 

programs, point sources benefit by purchasing credits for required reductions at lower cost 

than technology upgrades; nonpoint sources benefit by gaining income from better resource 

management; and water quality improves. One major advantage of trading is that it may 

reduce the cost to achieve water quality goals. For example, as shown in Figure 5, it is often 

less expensive to remove nutrients through the use of improved agricultural practices, such 

as conservation tillage, grass buffers, and enhanced animal waste management than through 

upgraded municipal waste treatment.6 In developing point source–nonpoint source trading 

programs and associated NPDES permits, extra care should be taken to ensure that nonpoint 

source load reduction uncertainty is addressed. EPA’s Trading Policy recommends that states 

Point Source

Credit Exchange

$$$

$$$

$$$

$$$

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Long Island Sound, Connecticut

POTWs in the Connecticut portion of the Long Island Sound watershed may participate in the Nitrogen 

General Permit and Nitrogen Credit Exchange Program. Participating POTWs must individually meet 

the annual average discharge limits in the permit or purchase the necessary credits to achieve their 

individual limits through the program, which is administered by an advisory board and Connecticut 

Department of Environmental Protection. POTWs performing better than required by their permit limits generate credits to sell through the program. The reconciliation period for this program is one year.

6 Data for this table was taken from information gathered to support the Chesapeake Bay Commission’s 2004 CostEffective Strategies for the Bay. There are other areas in the country where municipal waste treatment costs for TN 

have been shown to be lower, depending on the level of TN removal.

Figure 4. Point source credit exchange.
Water Quality Trading Toolkit for Permit Writers

18

and tribes establish methods to account for uncertainties inherent in trading with nonpoint sources. 

These methods include monitoring to verify load 

reductions, the use of greater than 1:1 trading ratios 

between nonpoint and point sources (see the discussion of trading ratios later in this document), using 

demonstrated performance values or conservative 

assumptions in estimating the effectiveness of nonpoint source management practices, and retiring 

credits. Permitting authorities should be aware of 

such methods and incorporate them into permit 

requirements for point source–nonpoint source 

trades as appropriate. The nonpoint source trading 

scenario sections of this document include detailed 

discussions on using trading ratios to account for 

uncertainties in nonpoint source modeling, BMP 

effectiveness, and nonpoint source compliance.

There are a number of ways trading between point and nonpoint sources may occur. These 

include single point source–nonpoint source trades, multiple facility point source–nonpoint 

source trades, and multiple facility trades where credits are exchanged through a third party.

Single Point Source–Nonpoint Source Trades

Single point source–nonpoint source trades involve a trade agreement between a single 

point source and one or more nonpoint sources (see Figure 6). Under this type of trade, the 

nonpoint source(s) reduce(s) pollutant loads below the established baseline to generate credits, and these credits are purchased by the point source. Single point source–nonpoint source 

trades should be reflected in an individual permit for the point source that either references 

or incorporates the terms of the trade agreement.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Nutrient Reduction Costs

BMP

Phosphorous 

($/lb)

Nitrogen 

($/lb)

Municipal waste 

treatment $4.78-$105.67 $5.73-$10.78

Conservation 

tillage $7.39 $1.59

Agricultural 

grass bufffers $20.69 $1.03

Animal waste 

management/

runoff control

$30.55 $3.93

Figure 5. Nutrient reduction costs for 

Chesapeake Bay.

Figure 6. Point source–nonpoint source trade.
Water Quality Trading Toolkit for Permit Writers

19F u n d a m e n t a l s

Nonpoint Source Credit Exchange

In this scenario, a credit exchange program is established 

to buy credits from multiple nonpoint sources to sell 

to point sources (see Figure 7). A credit exchange 

could be managed by the state, a conservation 

district, a private entity, or another third party. A 

broker can be used to identify trading partners 

and facilitate trades. There are two general 

types of exchanges: (1) a broker-facilitated 

exchange where the broker brings parties 

together to trade directly with each 

other and (2) a central exchange 

where the point sources are 

not required to deal directly 

with nonpoint sources. For this 

second type of exchange, the 

credit sellers (nonpoint sources) 

generate pollutant load reductions using a variety of approved 

BMPs and sell the credits to the credit 

exchange. Point sources may then purchase 

credits from the credit exchange rather than directly from the nonpoint sources. This can save 

transaction costs for the point source purchasers and minimizes administrative burden for 

credit sellers. In addition, the credit exchange can perform various other functions such as 

establishing standards for trading, incorporating monitoring, determining the maximum feasible nonpoint source load reductions available to generate credits in the watershed, setting 

credit prices, determining eligibility of credits, ensuring that the buyer has a steady supply of 

credits by creating a reserve pool of credits, verifying the operation and maintenance of BMPs, 

and tracking important trade information for all participants. The credit exchange would likely 

have to be either operated by or approved and overseen by a state regulatory agency.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Southern Minnesota Beet Sugar Cooperative, Minnesota

The Southern Minnesota Beet Sugar Cooperative (SMBSC) wanted to build its own waste­water 

treatment plant; however, because of a WLA on the Lower Minnesota River, SMBSC had to 

completely offset its phosphorus discharge. To do so, SMBSC negotiated contracts with 256 of its 

member farmers to install BMPs (e.g., cover crops) to reduce their phosphorus loads.

NPS Credit 

Exchange

$$$

$$$

$$$

Riparian

buffers

Nutrient reduction

Figure 7. Nonpoint source credit exchange.

Red Cedar River, Wisconsin

The city of Cumberland participated in the Red Cedar River Nutrient Trading Pilot 

Program, which involves paying farmers in the Red Cedar watershed to install BMPs 

that reduce phosphorus loads. The Barren County Land Conservation Department 

facilitates the trades by negotiating with farmers and establishing contracts between 

the farmers and the city of Cumberland.
Water Quality Trading Toolkit for Permit Writers

20

Under What Circumstances Does EPA Support Trading?

Trading is driven by regulation, motivated by economics, and governed by project-specific 

trading rules. The drivers for trading are typically new, more stringent WQBELs in NPDES 

permits derived from new or existing water quality criteria, a TMDL or the establishment of 

a pollutant cap. For trading to be economically viable, there must be other sources that can 

achieve excess reductions at lower cost than the permitted point source. Other factors, such as 

a stakeholder agreement to implement a trading program, may also play an important role.

Trading to Address Impaired Waters Under a Pollutant Loading 

Cap or TMDL

Trades and trading programs in impaired waters for which a TMDL has been 

approved or established by EPA should be consistent with the assumptions and 

requirements upon which the TMDL is established. EPA encourages the inclusion 

of specific trading provisions in the TMDL itself, in NPDES permits, in watershed 

plans and the continuing planning process (USEPA 2003).

TMDL development or the establishment of a pollutant cap often serves as the driver for 

point sources to get involved in trading. Therefore, water quality trading provisions included 

in NPDES permits often will address impaired waters where a TMDL or similar pollutant loading cap has been established. In these cases, the baseline water quality requirement for a 

particular point source is specified by a WLA in the TMDL and expressed in the point source’s 

NPDES permit as a WQBEL that is consistent with the WLA. A point source’s required pollutant reduction is the difference between the discharger’s current pollutant load and the load 

required to meet the WQBEL.

The facility could potentially have three options for complying with its WQBEL. One option 

is to implement pollution prevention, reuse, or recycling measures adequate to meet the 

WQBEL at the point of discharge. The second option is to install treatment technology. The 

third option is trading. Trading allows the facility to purchase the needed reductions from 

point or nonpoint source credit sellers in the watershed. The facility also could choose to 

implement some treatment or pollution reduction measure to partially reduce its discharge of 

the pollutant and purchase the remaining reductions through trading.

If a discharger installs a control technology that results in pollutant reductions greater than 

those required by the WQBEL, the discharger may potentially generate credits. The number 

of credits generated would be the difference between the discharger’s WQBEL in its permit 

implementing the WLA and the pollutant load actually discharged after installing treatment 

processes or other pollutant reduction measures.

Trading to Address Impaired Waters Pre-TMDL

EPA’s Trading Policy specifically states that “EPA supports pre-TMDL trading in impaired 

waters to achieve progress toward or the attainment of water quality standards. EPA believes 

this may be accomplished by individual trades that achieve a net reduction of the pollutant 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

21F u n d a m e n t a l s

traded or by watershed-scale trading programs that reduce loadings to a specified cap supported by baseline information on pollutant sources and loadings.”

Trading is an option in impaired waters to reduce pollutant loads where a TMDL has not yet 

been established. A pre-TMDL trade must not cause or contribute to further impairments of 

the waterbody. CWA 301(b)(1)(C); 40 CFR 122.44(d)(1)(vii)(A). The Trading Policy presents 

two approaches for pre-TMDL trading depending on the scale of the trade. One approach is 

individual trades, which could be individual point source–point source trades or individual 

point source–nonpoint source trades. These sources may choose to trade to eliminate the 

need for a TMDL or to ameliorate conditions for a pending TMDL. An example of this type of 

trading is the Great Miami River Watershed Trading Pilot Program. Trades should result in a 

net reduction of the pollutant traded to ensure that further impairment to the waterbody is 

avoided. (For details of this program, see Appendix A.)

The other approach is where a pollutant loadings cap has been set for a waterbody at a 

watershed-scale through watershed-based permitting (e.g., Neuse River7) or a voluntary cap 

has been set on a downstream waterbody and a strategy has been developed to allocate 

reductions within the watershed (e.g., Chesapeake 2000 Bay Agreement and Tributary Strategies). A cap on total loadings can be derived from baseline information on pollutant sources 

and loadings that is consistent with water quality standards. Trades can occur to make progress toward or meet that cap.

To establish a target or loading cap below current conditions that represents progress in the 

attainment of water quality standards, it is necessary to quantify the current conditions. Current conditions would be the pollutant loads represented by current permit and regulatory 

requirements for point sources (i.e., the applicable effluent limitations or other quantified performance requirements) and the current level of pollutant loads from all nonpoint sources and 

background conditions. Once the total current pollutant load is quantified, EPA would support 

trading to achieve a target or cap representing a reduction in the overall pollutant load.

For discharges to impaired waters pre-TMDL, trading need not trigger the anti-backsliding 

provision of CWA section 402(o) or the limitations under CWA section 303(d)(4) even where 

the effect of the permit authorizing trading is to allow a greater actual discharge from the 

facility itself (because of the purchase of credits) than the previous permit issued to the trading point source. Allowing a facility to meet an established WQBEL through trading does 

not necessarily constitute a less stringent effluent limitation as specified in section 402(o) if 

the facility is still responsible for the same level of pollutant reduction. In that case, trading 

merely offers the discharger an additional means of achieving that limitation and must not 

result in a net increase in the pollutant discharged to the waterbody or in a localized impairment. Similarly, allowing a facility to meet a WQBEL through trading does not necessarily 

constitute a revised effluent limit under section 303(d)(4)(A) if a facility is still responsible for 

the same level of pollution reduction. All WQBELs, including those that are subject to CWA 

section 402(o), must meet the requirements of CWA section 301(b)(1)(C). Section 301(b)(1)(C) 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

7 In 1999 a TMDL was completed for the Neuse River. The Neuse River Compliance Association was formed before 

this TMDL, and the cap that was incorporated into the TMDL was set by the state as part of its 1997 nutrient 

strategy for the Neuse River.
Water Quality Trading Toolkit for Permit Writers

22

requires that the limitations be set at levels necessary to achieve water quality standards, 

which also includes avoiding localized impairments.

In the absence of a watershed-wide trading program to meet a specific target or pollutant loading cap, EPA supports individual pre-TMDL trades that achieve a net reduction in 

loadings of the pollutant traded and, thus, progress toward attainment of water quality 

standards.

Trading in Unimpaired Waters

Federal regulations (40 CFR 131.12) establish requirements for states and tribes to develop 

and adopt statewide antidegradation policies that, at a minimum, maintain and protect the 

level of water quality necessary to support existing uses and to protect high-quality waters 

including outstanding national resource waters. Where the level of water quality exceeds the 

level necessary to support propagation of fish, shellfish, and wildlife and recreation in and 

on the water, federal regulations allow a state or tribe to authorize new or increased pollutant discharges to that water under two circumstances: (1) when the jurisdiction determines 

that the new or increased discharge would not lower water quality; or (2) when lower water 

quality will occur, but the jurisdiction finds that such lower water quality is necessary to 

accommodate important economic or social development in the area in which the waters are 

located. In allowing lower water quality, a state or tribe must assure water quality adequate 

to fully protect existing uses and also assure achievement of the most stringent statutory 

and regulatory requirements for all new and existing point sources and all cost-effective and 

reasonable BMPs for nonpoint source control (40 CFR 131.12(a)(2)).

When drafting or interpreting their antidegradation policies, jurisdictions have the flexibility 

under current law to determine when a new or increased discharge lowers water quality. A 

jurisdiction can explicitly provide in its antidegradation policy that no lowering of water quality occurs within the meaning of 40 CFR131.12(a)(2) in the case of new or increased discharges 

when, as a result of a water quality trade, there is no net increase of the pollutant being 

discharged into the waterbody and the trade will not result in any localized impairments. EPA 

encourages jurisdictions to use trading in high-quality waters for the purpose of mitigating 

the effects of new or increased discharges that, without the trade, might lower water quality.

It is important to note that this guidance does not preclude a jurisdiction from requiring an 

antidegradation review under 40 CFR 131.12(a)(2) or from finding that a lowering of water 

quality would occur as a result of a proposed new or increased discharge. Nor is this guidance 

intended to mean that there necessarily would be a lowering of water quality if there is a net 

increase of pollutants. Rather, it simply identifies a trade-related situation where a jurisdiction could authorize a new or increased discharge without a review because the increased 

load would be compensated for through trading.

Intraplant and Intramunicipal Trading

One straightforward form of trading is intraplant trading, or trading between different 

outfalls within a plant. Intraplant trading can be accomplished within the context of a single 

NPDES permit and, thus, does not require the establishment of a formal trading program.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

23F u n d a m e n t a l s

EPA supports intraplant trading that involves the generation and use of credits 

between multiple outfalls that discharge to the same receiving water from a 

single facility that has been issued an NPDES permit (USEPA 2003).

A facility with multiple outfalls may receive a mass WLA of a particular pollutant through 

a TMDL, another watershed-level analysis, or calculation of individual effluent limitations. 

Typically a permitting authority would assign fixed, mass-based, effluent limitations to each 

outfall contributing the pollutant by apportioning the loading on the basis of the outfall’s 

historical or design flow. By incorporating intraplant trading into the permit, the permitting 

authority could assign the overall mass loading limitation to the facility but allow the permit 

holder to manage the facility as a system, apportioning the loading among outfalls in a way 

that makes the most sense both technically and economically. The NPDES permit should still 

ensure that the overall mass loading requirement for the facility is reflected in the effluent 

limitations and that there is no potential for creating a localized exceedance of water quality 

standards.

Another form of trading that would not require establishing a formal trading program is 

intramunicipal trading. Similar to intraplant trading, intramunicipal trading allows a municipality to manage its multiple discharges as a system. The difference is that intramunicipal 

trading involves trading among multiple facilities or point sources owned by a single municipality that, traditionally, would be covered under separate individual NPDES permits. A 

permitting authority could assign a mass loading of a particular pollutant to the municipality as a whole (if appropriate) or to its individual discharges on the basis of a TMDL or other 

watershed-level analysis. An overall mass loading assigned to the municipality would be 

appropriate only where localized impacts would not be expected from each of the municipality’s individual discharges. The municipality could apportion the overall allocation among its 

facilities to meet the overall mass limitation. Where its discharges received individual allocations, it still could trade among sources to allow them to meet those individual allocations. 

This type of trading may be more complex than intraplant trading because trade ratios for 

the different discharges may have to be established to address differences in their locations. 

Also, the intramunicipal trading would have to be incorporated into NPDES permits by either 

developing individual permits with coordinated requirements or developing an integrated 

municipal permit. Where facilities are assigned individual allocations, a facility would have to 

perform better than its WQBEL to generate credits. Any facility accepting credits would have 

to first meet any applicable TBELs and ensure that its discharge would not create a localized 

exceedance of water quality standards. This requirement could be implemented through a 

limit on the number of credits the facility may accept.

New sources and new dischargers, including those involved in intramunicipal trading must 

meet the requirements of 40 CFR 122.4(i), which states that

No permit may be issued to a new source or a new discharger, if the discharge 

from its construction or operation will cause or contribute to the violation of 

water quality standards. The owner or operator of a new source or new discharger proposing to discharge into a water segment which does not meet applicable 

water quality standards or is not expected to meet those standards even after 

the application of the effluent limitations required by sections 301(b)(1)(A) and 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

24

301(b)(1)(B) of CWA, and for which the State or interstate agency has performed 

a pollutants load allocation for the pollutant to be discharged must demonstrate, before the close of the public comment period, that:

(1) There are sufficient remaining pollutant load allocations to allow for 

the discharge; and

(2) The existing dischargers into that segment are subject to compliance 

schedules designed to bring the segment into compliance with applicable 

water quality standards. The Director may waive the submission of information by the new source or new discharger required by paragraph (i) 

of this section if the Director determines that the Director already has 

adequate information to evaluate the request.

EPA interprets 40 CFR 122.4(i) to allow for a new source or new discharger to compensate for 

its entire increased load through trading. In the case of intramunicipal trading, new sources or 

dischargers operated by a municipality may discharge to an impaired water if their discharge 

does not cause the municipality to exceed its overall cap for the pollutant(s) of concern.

Trading Involving Wet Weather Point Sources

Several classes of wet weather point sources, including combined sewer overflows (CSOs), 

discharges from municipal separate storm sewer systems (MS4), and stormwater discharges 

from industrial activities, are regulated under the NPDES program and could provide opportunities for trading. The general framework for trading involving point sources8 is applicable 

to wet weather point sources, with some additional considerations to account for the nature 

of the wet weather point sources and their permits. First, wet weather point sources cannot 

trade to meet their TBELs. EPA has not established effluent limitations guidelines for CSOs, 

MS4s or most types of stormwater discharges associated with industrial activities; however, 

the CWA provides technology-based standards for the different classes of wet weather point 

sources. For CSOs and stormwater discharges from industrial activities, the technology-based 

standard is Best Available Technology Economically Achievable/Best Conventional Pollutant 

Control Technology. For MS4s, the technology-based standard is Maximum Extent Practicable 

(MEP). Therefore, in the absence of effluent limitations guidelines, a permit writer must use 

the CWA’s technology-based standard to establish TBELs on a permit-by-permit basis using 

the permit writers’ best professional judgment (BPJ).

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Clean Water Services, Oregon

Trading of oxygen-demanding parameters is permitted between two wastewater treatment plants 

operated by Clean Water Services, a public utility in the Tualatin River Basin responsible for wastewater and stormwater management. These facilities are covered under a general permit that specifically authorizes the Durham and Rock Creek Advanced Wastewater Treatment Facilities to trade 

CBOD5 and ammonia.

8 For more information about the general framework for trading involving point sources, see the discussion What 

Discharge Limits Apply in Water Quality Trading? in this document.
Water Quality Trading Toolkit for Permit Writers

25F u n d a m e n t a l s

EPA supports trading involving wet weather point sources where it can be shown to have a 

water quality benefit. However, to ensure water quality improvement, the following conditions are generally necessary for trading involving wet weather point sources to occur:

A Wet Weather Point Source as a Seller:

• The seller meets its most stringent effluent limitation (baseline), which is either its 

TBEL or WQBEL. Reductions in excess of the most stringent effluent limitation are 

eligible to be sold as credits.

• The seller’s permit or fact sheet includes numeric effluent limitations or allowable 

loads. The fact sheet for the seller’s permit clearly describes the value of the trade in 

terms of a numeric pollutant load and clearly demonstrates that water quality objectives will be achieved after all trades have been made.

• The permit requires discharge monitoring to verify that all discharges involved in the 

trade are performing consistent with expectations of the trade.

• No credit can be generated without an actual reduction in pollutants. An existing 

discharge that is either uncontrolled or has existing controls with concentrations/

loads that do not meet water quality standards would not be able to generate credits 

without achieving additional reductions.

A Wet Weather Source as a Buyer:

• The buyer’s permit or fact sheet identifies numeric effluent limitations or allowable 

loads to be achieved to meet the technology-based standard (minimum control level).

• The permit or fact sheet identifies the actual controls that the buyer must implement 

to meet its minimum control level.

• Credits are purchased to meet the buyer’s baseline (WQBEL).

• Discharge monitoring data is available in advance of the trade to verify that the control measures for the wet weather sources are capable of meeting minimum control 

levels. After the trade, discharge monitoring data is able to ensure the goals of the 

trade are being met.

Credits are generated only by actual reductions of pollutants in discharges. Credits should not 

be for nondirect or indirect water quality-based measures such as educational programs, public outreach, and so on, unless these practices are translated into quantified load reductions.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Lake Lewisville, Texas

The city of Denton, Texas, draws its drinking water from and discharges its wastewater to Lake Lewisville. 

Lake Lewisville is also used for recreation. It is in the interest of the city of Denton to improve and maintain 

the quality of water in Lake Lewisville. Thus, Denton has implemented an aggressive water quality improvement program. More than 70 monitoring sites have been installed in the three watersheds that encompass the 

city. The city has monitored a variety of parameters monthly. This data plus extensive modeling has provided 

Denton with excellent data to assess the condition of its water as well as make future projections on the basis 

of expected growth. Denton is a stormwater phase II city and has gone well beyond the six minimum measures 

required by the stormwater phase II regulations. The city is investigating water quality trading as an option for 

developers as the city requires any sediment or nutrient loadings coming from development to be compensated 

for through other reductions. Because the city has extensive monitoring and modeling of the water quality in 

the three watersheds, it will have the data to set the baseline for trading at pre-development conditions.
Water Quality Trading Toolkit for Permit Writers

26

Using Flow as the Trading Parameter

State and local regulations that regulate stormwater flow may create a market for wet 

weather trading outside of the NPDES program. For example, state or local ordinances could 

require offsets for wet weather flow and thus create a market for trading flow across all wet 

weather sources to meet these requirements.

Portland, Oregon

The city of Portland, Oregon, is evaluating the viability of a stormwater trading program. An 

approach under evaluation would allow redevelopers to buy credits for flow reductions required 

for their site from other parties, for example from the city, which would install green streets. This 

trade may be viable where the permitting authority determined that the installation of green 

streets represented technology over and above what was determined to meet the MEP standard 

of the NPDES program. The first phase of the study will determine if the approach is economically beneficial and if the program can provide acceptable environmental results. If the trading 

approach is determined to be feasible, later phases of the study will outline the model approach, 

determine the geographic trading area, select appropriate BMPs, and develop economic models 

for program valuation. In later phases, the city also plans to demonstrate the operation of the 

trading system by implementing a pilot program.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Vermont

The state of Vermont is also developing an approach under which a form of trading could be used to meet flow 

restrictions. This approach would identify site-specific stormwater/hydrologic indicators for use as surrogate 

TMDL targets. The approach provides a tailored estimation of target storm­water runoff volumes and stream 

characteristics using reference watersheds that represent the stream channel conditions and pollutant loadings necessary to support aquatic life. In addition to providing a tailored target for TMDLs, this site-specific 

approach will also generate information to support the development of stormwater permit limits on a 

watershed-basis. These limits could then serve as a baseline for trading.

For the interim period before TMDL adoption, Vermont’s 2005 rules for stormwater discharges to impaired 

waters (Vermont Environmental Protection Rules, Chapter 22) specify that new development in impaired 

waters must cause no net increase in sediment loading or hydrologic impact (VTDEC 2005). To achieve this 

standard, the rules allow for one of the following: (1) the development of projects that offset the new discharges within the same watershed; (2) payment of a stormwater impact fee to the state to obtain the necessary offset charge capacity9

 (the fee is based on amount of impervious cover created and is used to purchase 

the comparable amount of impervious cover removed—or the discharge equivalent) from a stand-alone offset 

project within the watershed; or (3) a combination of options 1 and 2. To determine the size of the offset 

project or the amount of offset charge capacity needed, the applicant must calculate the increase in impervious cover and sediment loading or hydrologic impact expected to result from the project following stormwater 

BMP implementation. The no-net-increase provision of the Vermont rules is consistent with 40 CFR 122.4(i) 

for new discharges to impaired waters.

9 Offset Charge Capacity is defined in Vermont’s 2005 Stormwater Rules as “the amount of reduction in sediment 

load or hydrologic impact that an offset project generates” (VTDEC, 2005).
Water Quality Trading Toolkit for Permit Writers

27

Pretreatment Trading

F u n d a m e n t a l s

EPA supports a municipality or regional sewerage authority developing and 

implementing trading programs among industrial users that are consistent with 

the pretreatment regulatory requirements at 40 CFR Part 403 and the municipality’s or authority’s NPDES permit (USEPA 2003).

Pretreatment trading gives a municipality the flexibility to allow trading among industrial 

users to meet its maximum allowable load as an alternative to allocating the load among 

users directly. Under this trading scenario, the effluent limitations for the permitted wastewater treatment facility would not change. The trading program itself can be established 

and administered by the POTW that has responsibility for administering the pretreatment 

program. The permitting authority need not incorporate the details of individual trades into 

the wastewater treatment facility’s permit; however, the permit should acknowledge that 

the permittee has or will establish a pretreatment trading program to facilitate and supervise 

trading among industrial users to meet the effluent limitations established in the permit. In 

addition, before including pretreatment trading in a NPDES permit, the permitting authority 

should confirm that pretreatment trading is permissible under municipal sewer use ordinances establishing local limits and other local requirements. In addition, indirect industrial users 

cannot trade to meet categorical effluent discharge limits based on federal pretreatment 

standards because these are technology-based standards or other national pretreatment 

standards (e.g., general and specific prohibitions at 40 CFR 403.5). There are no categorical 

pretreatment standards that specifically allow for trading. For more on pretreatment trading, 

see Sharing the Load: Effluent Trading for Indirect Dischargers.

Some Trading Scenarios Are Not Supported

EPA’s Trading Policy does not support trading to meet TBELs. The intent of a TBEL is to require 

a minimum performance level for point sources based on currently available treatment technologies. EPA expects all dischargers within a particular industrial category to achieve the 

defined basic level of pollutant control and does not support the use of water quality trading 

to meet technology standards. The only time trading is supported by EPA to meet TBELs is 

when federal regulations expressly authorize trading. For example, existing technology-based 

effluent guidelines for the iron and steel industry allow intraplant trading of conventional, 

nonconventional, and toxic pollutants between outfalls under certain circumstances. The 

Trading Policy does state that the Agency will consider including provisions for trading in the 

development of new and revised TBEL guidelines and other similar regulations. Unless such 

effluent guidelines have been promulgated, permitting authorities should not include trading provisions into a permit designed to achieve compliance with TBELs.

EPA does not support any use of credits or trading activity that would cause an 

impairment of existing or designated uses, adversely affect water quality at an 

intake for drinking water supply or that would exceed a cap established under a 

TMDL (USEPA 2003).

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Passaic Valley Sewerage Commissioners, New Jersey

Indirect dischargers to the POTW may participate in trading to meet uniform local 

pretreatment limits.
Water Quality Trading Toolkit for Permit Writers

28

NPDES permits must not incorporate trades that would cause impairment of a designated use 

(CWA 301(b)(1)(C); 40 CFR 122.44(d)(1)(vii)(A)). This restriction includes localized exceedances 

of water quality standards caused by increased pollutant loads from a credit purchaser.

Also, NPDES permits should not incorporate trades that would adversely affect drinking 

water systems by creating the need to increase the level of drinking water treatment over 

what was needed before the trade or by causing a water supplier to exceed regulatory standards established under the Safe Drinking Water Act.

What Are Some Factors Involved in Determining a 

Reduction Credit?

As stated earlier, EPA’s Water Quality Trading Assessment Handbook notes that, in water quality trading markets, the marketable product is the over control of pollutant loadings. A pollutant reduction credit is a measured or estimated unit of pollutant reduction per unit of time at 

the discharge location of the buyer or user of the credit.10 A seller generates excess load reductions by controlling its discharge beyond what is needed to meet its baseline. A buyer compensates a seller for creating the excess load reductions, which are then converted into credits 

by using trade ratios. Where appropriate, the buyer can use the credits to meet a regulatory 

obligation. To determine when a pollutant reduction credit has been generated, a regulatory 

authority will need to develop procedures for determining baselines for credit generation, 

trading ratios, timing of credit generation, and the duration of credits. These issues are summarized in the checklist in Appendix E and are explained in the following sections.

What Discharge Limits Apply in Water Quality Trading?

Trading participants should have an understanding of three types of discharge limits: baselines, minimum control levels, and trading limits (see Figure 8). Baselines apply to both a 

buyer and a seller. Minimum control levels are relevant 

only to the buyer and trading limits are relevant only to 

the seller. Each limit should be contained in the trade 

agreement.

Baselines

The baselines for water quality trading are the NPDES 

permit limits (for point sources) or BMPs (for nonpoint 

sources) that would apply in the absence of trading.

These baselines will vary depending on the sources 

involved and the specific circumstances under which 

trading will occur. Figure 8. Point source discharge limits.

10 It is important to note that, because of trade ratios, one pound of pollutant reduced at the seller’s discharge 

location is not necessarily equal to one pound of pollutant reduced at the buyer’s location. Therefore, for the 

purposes of this Toolkit, one credit will be equal to one unit of load reduction per time (lb/day) at the location of 

the buyer. One credit may be greater or less than one unit of load reduction per time at the location of the seller. 

Different programs may define credit differently.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

29

Point Source Seller

F U N D A M E N T A L S

The baseline for a point source seller is its most stringent effluent limitation. A point source 

seller generates credits when it reduces its discharge below its baseline.

Point Source Buyer

Because a buyer cannot buy credits to meet its TBEL, a point source would buy credits only 

if its WQBEL is more stringent than its TBEL. Therefore, the baseline for a point source buyer 

would be its WQBEL. WQBELs are developed to meet state water quality standards.

Nonpoint Source Seller

For a nonpoint source seller in a watershed under a TMDL, the source’s baseline would be 

derived from the nonpoint source’s LA. In the absence of a TMDL, EPA’s Trading Policy states 

that state and local requirements and/or existing practices should determine a nonpoint 

source’s baseline (see Figure 9). The trading program provisions could also specify some 

additional minimum level of control that nonpoint sources would 

have to achieve before they could generate credits. The baseline 

level of control should never be less than existing practice.

A more in-depth discussion of establishing a baseline for nonpoint sources is provided in the nonpoint source trading scenario

sections of the Toolkit.

Minimum Control Levels

A discharger that chooses trading to meet its baseline can buy 

credits; however, the discharger would still be expected to meet 

a minimum control level at the point of discharge (see Figure 8). 

The minimum control levels are either the TBELs specified in a 

permit or the current discharge levels, depending on which are 

more stringent. TBELs are derived from secondary treatment 

standards for POTWs and effluent guidelines or BPJ for industries 

(see Figure 10). After a discharger meets its minimum control 

level through treatment, it can buy credits to meet its baseline.

A permitting authority can choose to impose a more stringent 

minimum control level than the TBEL or current discharge to prevent localized exceedances of water quality standards near the 

point of discharge but not one that is less stringent the TBEL. For 

a more detailed discussion of how these minimum control levels 

are incorporated into a permit, see the discussion in the trading 

scenario sections.

Nonpoint Source Seller 

Baseline for Trading

NPS Seller

With TMDL

NPS Seller

Without TMDL

Load allocation

State and local 

requirements 

and/or existing 

practice

Figure 9. Nonpoint source seller 

baseline for trading.

Point Source Buyer 

Minimum Control Level

POTW

Buyer

Industrial

Buyer

Secondary 

Treatment * TBEL *

* Must be stringent enough to 

avoid localized exceedences of 

water quality standards

Figure 10. Point source buyer 

minimum control level.
Water Quality Trading Toolkit for Permit Writers

30

Trading Limits

To become a seller, a discharger would control its pollutant discharge beyond its baseline. The 

seller can choose to what level it will control its pollutant discharge (based on the technology 

or BMPs it will implement) and this level becomes its trading limit (see Figure 8). If the seller 

does not meet its trading limit, it could violate its trade agreement, and the buyer could be 

out of compliance with its permit. The number of credits generated could be calculated by 

taking the difference between the seller’s baseline and its trading limit and multiplying that 

difference by the applicable trading ratio.

Developing Trade Ratios

In many cases, pollutant credits are not generated on a “one pollutant pound-to-one pollutant credit” basis. Rather, some type of a trading ratio is used to either discount or normalize 

the value of pollutant credits. For example, a trading program with a trading ratio of 4:1 

would require a buyer to purchase 4 pounds of nitrogen reduction to achieve a credit worth 

one pound of nitrogen reduction from its facility. There is no set limit for how high a trading 

ratio can be.

Trading ratios depend on the specific circumstances in the watershed. Factors that drive the 

use of trading ratios might relate to environmental conditions, pollutants, or programmatic 

goals. Although existing trading programs use various types of trading ratios and different 

terms to describe them, the basic categories of trading ratios are delivery, location, equivalency, retirement, and uncertainty.

11

Delivery or location ratios are calculated as part of the overall trading ratio for a particular pair 

of sources to account for pollutant attenuation because of the fate and transport characteristics of a pollutant, the unique characteristics of the watershed (e.g., hydrology, vegetation), 

distance, and time. This type of ratio accounts for the fact that a pound of a pollutant discharged upstream will not arrive as a pound of a pollutant at a given point downstream.

• Delivery ratios are used when sources are directly discharging to the waterbody of concern. These ratios account for 

the distance and unique watershed features (e.g., hydrologic conditions) that will affect pollutant fate and transport 

between trading partners (see Figure 11). For example, an 

upstream point source is interested in trading with another 

point source that is several miles downstream. Because 

of the distance between the two dischargers, modeling 

shows that a 5:1 delivery ratio should be applied to trades 

between the two sources. This means that the downstream 

point source would need to purchase 5 pounds of pollutant 

credits to achieve the equivalent of one pound of pollutant 

reduction at its own discharge point. Sources that are closer 

in proximity with less intervening hydrological features are 

likely to have a lower delivery ratio.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

11 It is important to note that trading programs are likely to use a variety of names for trading ratios and the 

categories described are generalized for simplicity.

Figure 11. Delivery ratio.
Water Quality Trading Toolkit for Permit Writers

31F u n d a m e n t a l s

• Location ratios are used when sources are upstream of the waterbody of concern. 

These ratios account for the distance and unique watershed features between a 

pollutant source and the downstream waterbody (e.g., bay, estuary, lake, reservoir) 

that the trading program is trying to address (e.g., a hypoxic zone in a waterbody). 

The location ratio allows credits to be traded between unique sources by converting their loadings or reductions into credits needed or available at the waterbody 

of concern. Each source has a unique location ratio that reflects a source’s relative impact of pollutant loading or reduction on the waterbody of concern. There 

will likely be differences in the water quality impacts of a discharge of a pound 

of a pollutant near the area or waterbody of concern versus a pound of pollutant 

discharged farther upstream. Using Figure 12 to illustrate, sources in closer proximity to the downstream waterbody of concern will have lower location ratios than 

sources farther upstream. The lower location ratio indicates that the mass of a 

pollutant load (e.g., one pound of nitrogen) from a source nearer the waterbody 

of concern has a greater impact on the waterbody. If the two sources in Figure 12 

wanted to trade, the location ratios of 

both sources would have to be figured into 

the trading ratio between the sources. For 

example, suppose the location ratio of the 

point source were 2:1 and the location ratio 

of the nonpoint source were 3:1. Then the 

trading ratio for the two sources would 

include a location component of 3:2. Note 

that while in this example consideration of 

location ratios leads to a > 1:1 trading ratio, 

this is not necessarily always the case. If 

the seller were closer to the waterbody of 

concern than the buyer, this could lead to a 

trading ratio of < 1:1.

Equivalency ratios adjust for trading different forms of the same pollutant. One pollutant 

can exist in different forms. While two sources may discharge the same pollutant, the 

composition of their discharges may differ with respect to the forms of the pollutant. 

Pollutants from different sources can be traded if they have the same effect on the 

waterbody of concern or if their effects can be related by some factor. This factor is known 

as an equivalency ratio. To calculate this ratio, the water quality impacts from each pollutant 

source need to be estimated. For nutrients, the effect on water quality is related to the 

percent of the nutrient that is biologically available in the source’s discharge. Biologically 

available nutrients are readily available for uptake by the biota. Nutrients can be present in 

forms that are immediately biologically available and in forms that are less accessible to the 

biota. Excess biologically available nutrients contribute to eutrophication and degradation 

of water quality. Those forms of nutrients that are not immediately biologically available 

can become accessible to the biota (biologically available) through different biological and 

chemical cycling mechanisms. Hence, nutrients can be present as readily biologically available 

or bound to sediment, and depending on environmental factors, such as climate, apparent 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Figure 12. Location ratio.
Water Quality Trading Toolkit for Permit Writers

32

geology, residence time, and so on, have different effects on the waterbody of concern. 

The relative biological availability of nutrients in the trading sources’ discharges should be 

incorporated into the equivalency ratio. For example, consider a point and nonpoint source 

trading phosphorous. Generally, a point source’s discharge will have a higher proportion of 

biologically available phosphorous than a nonpoint source’s discharge. While some of the 

nonpoint source’s bound phosphorous will convert into biologically available phosphorous, 

it will generally still have a lower percentage of biologically available phosphorous than the 

point source during the time frame the point source must account for the reductions. It is 

important that the buyer offset its load with reductions that will have similar impacts on the 

waterbody at the time the offset is needed. The number of pounds of the nonpoint source’s 

reduction that the point source will have to buy to have a similar impact on the biota in the 

waterbody is the equivalency ratio.

An equivalency ratio can also be used in cross-pollutant trading. While the general idea that 

the water quality effects of the two pollutants should be equivalent or related by a factor 

still holds, determination of the ratio may involve a more detailed study for cross-pollutant 

trading than for single-pollutant trading. As with consideration of location ratios, consideration of equivalency ratios may lead to either a greater or less than 1:1 trading ratio.

Uncertainty ratios account for multiple types of uncertainty that normally occur in point 

source–nonpoint source trades. Most point source–point source trades should not require 

an uncertainty ratio because measurement is relatively straightforward and both sources 

are required to perform discharge monitoring in accordance with the terms of their permits. 

However, challenges exist in accurately measuring nonpoint source credit generation because 

of complexities and cost associated with assessing and monitoring of pollutant load reductions 

from BMPs (see Figure 13). Measurement uncertainty addresses the level of confidence in the 

field testing of a nonpoint source BMP. Implementation uncertainty is also accounted for in 

this type of ratio, addressing the level of confidence that a nonpoint source BMP is properly 

designed, installed, maintained, and operated (Moffett 2005). Together, these factors contribute to performance uncertainty (the risk of a BMP failing to produce the expected results). All 

trading programs involving nonpoint sources should 

address nonpoint source BMP performance uncertainty through ratios, use of conservative assumptions in calculating credits, or some other approach. 

Where uncertainty ratios are used, they will generally be greater than 1:1, because there is greater 

uncertainty associated with nonpoint sources (sellers) than with point sources (buyers). The method of 

reducing the uncertainty ratio is typically to improve 

the certainty of nonpoint source load reductions 

though monitoring, modeling, and estimating 

effectiveness.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Uncertainty

Ratio

P

P

P

P P P

P

How

effective

is this?

Figure 13. Uncertainty ratio.
Water Quality Trading Toolkit for Permit Writers

33F u n d a m e n t a l s

Retirement ratios can be applied if a goal of the trading program is to accelerate achievement of water quality standards. These ratios retire a percentage of all credits generated, 

and these credits cannot be sold. Therefore, the overall loading to the waterbody is reduced 

with each trade that yields net water quality improvement. This form of ratio can be particularly useful in impaired waterbodies for which a TMDL has not yet been developed because 

the exact reductions required of individual sources to achieve water quality standards might 

not yet be known. For waterbodies where a TMDL has already been established, if each 

source meets its LA or WLA, either through adopting control technologies or through credit 

purchases, this should be sufficient to attain water quality standards. Where retirement ratios 

are used, they should always be greater than 1:1 because their purpose is to accelerate water 

quality improvements.

The trading ratio established for a particular trade might include one or more of these ratios 

depending on the scenario. Some of these ratios might be uniform for an entire trading program, while others might be specific to particular pairs of trading sources. EPA recommends 

that trading programs be as specific as possible about which underlying ratios are to be used 

and exactly how they are to be calculated when developing a trading ratio for a group of 

sources. The trading program design may also allow for adjustments to the trading ratios 

should uncertainties be greater or less than expected, means of control more or less effective, or if changes in watershed conditions occur. Being clear about how trading ratios are 

calculated will also foster transparency and public acceptance of the program.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Long Island Sound, Connecticut

The Connecticut Department of Environmental Protection (CTDEP) gained information on 

nitrogen attenuation factors in Long Island Sound and during riverine transport by using the LIS

3.0 Model and U.S. Geological Survey monitoring data for major tributaries. Attenuation factors 

were developed into location ratios, which are important for quantifying relationships between 

discharge points and actual delivery of nitrogen to Long Island Sound. These ratios combine to 

account for relative nitrogen impact on dissolved oxygen depletion in Long Island Sound from 

geographically distributed sources. They are used as trading ratios to put the 79 POTWs involved 

in trading on an equal basis, which is a critical component of the Nitrogen Credit Exchange. To 

calculate the overall trade ratios, CTDEP multiplied the river location ratios 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. Figure 14 illustrates the 

combined trading ratios for the management zones. CTDEP expresses the ratios as the decimal 

fraction of the nitrogen load delivered. 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) and assigned the value of 1 as the ratio.
Water Quality Trading Toolkit for Permit Writers

34

Timing of Credit Generation and the Duration of Credits

The timing of credit generation and the duration of credits is tied to the credit reconciliation 

period. A credit reconciliation period is the period of time during which a seller generates 

water quality credits and a buyer may use those credits to offset a pollutant load that it discharges during that same period of time. Permitting authorities should be aware of how the 

trading program defines a reconciliation period through both the timing of credit generation 

and the duration of credits.

Timing of Credit Generation

The timing of trades is critical. A basic premise of water quality trading is that credits should 

not be used before the time frame in which they are generated. In general, a permitting 

authority should not allow for a pollutant reduction credit in a NPDES permit on the basis 

of the proposed treatment by another point source or an unverified commitment to install a 

BMP by a nonpoint source and their anticipated pollutant reduction.

Even after a practice is in place to achieve a reduction, the regulatory authority would need 

to decide at what point a credit is actually available to be used in a trade. For example, if 

point source requirements are based on a total annual load, the permitting authority might 

determine that credits from a point source that is over controlling its discharge would not be 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

Figure 14. Long Island Sound, Connecticut, nitrogen planning zones.
Water Quality Trading Toolkit for Permit Writers

35F u n d a m e n t a l s

available until the discharger has installed controls and has one year of monitoring data to 

demonstrate total annual loadings and reductions. This could be appropriate if there were 

uncertainty regarding the total amount of credits that would be generated, although this 

could also be addressed through an uncertainty ratio, which might be relaxed after the first 

year’s worth of monitoring data were available. Credits that are based on shorter time periods may also require a period of time to demonstrate reductions or provide an understanding of how loadings and reductions may vary over time. Also, credits generated by nonpoint 

sources through installation of BMPs may not be available immediately because of a time 

lag between installation of the BMP and its effectiveness in reducing loadings or otherwise 

improving water quality. In some cases, the credit generation could be prorated on the basis 

of the pollutant reduction the BMP is achieving during the current reconciliation period, 

even where the BMP has not reached its maximum expected pollutant reduction efficiency. 

This could be reflected in the trading ratio. The decisions as to when credits are available for 

use may have already been made in the program design. The permitting authority should be 

aware of these decisions.

Also, as noted previously, EPA’s Water Quality Trading Assessment Handbook indicates that 

trades should be consistent with the time periods that are used to determine compliance with 

effluent limitations. For example, a point source that has effluent limitations with monthly 

averaging periods should trade with sources that can generate credits on a monthly basis, 

and credits should be created in the same month they are expected to be used (e.g., a credit 

created in August 2006 should be used to compensate only for a discharge in August 2006). 

The permitting authority may have discretion to determine the appropriate averaging period 

for WQBELs, depending on the pollutants of concern and other watershed specific factors 

(see below).

Expiration of Credits

The permitting authority should decide whether and when a credit expires. Point sources 

generating credits should be able to continue to do so as long as they properly operate and 

maintain the appropriate controls and are able to demonstrate reductions below WQBELs. 

Credits generated by nonpoint sources, on the other hand, may decrease or expire if the BMP 

installed to generate the credit gradually becomes less effective over time and is not maintained or replaced.

Also, because of temperature differentials, there may be seasonal fluctuation in the amount 

of credits generated by either a point source or a nonpoint source and the amount of credits needed by a point source, particularly for pollutants such as nutrients. In many parts of 

the country, for point sources, nitrogen removal is much more effective in the summer than 

in the winter because of increased biological activity. Therefore, a point source might need 

more credits (or only need credits) to compensate for discharges in the wintertime. For nonpoint sources, the effectiveness of some land management BMPs fluctuates seasonally as well. 

Because it might be difficult to coordinate the timing of nutrient discharges, some permitting 

authorities have considered using annual mass-based discharge limits for nutrients, which facilitates trading these pollutants. Annual limits are appropriate only in certain circumstances (see 

discussion below, Effluent Limits with Longer-Term (e.g., Annual) Compliance Periods).

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant 

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

36

Often, point sources interested in purchasing credits express a desire to enter into contracts 

that include long-term commitments from sources generating credits to ensure the future 

availability of credits needed to compensate for their pollutant loads. Where possible, trading programs should attempt to identify credit generators that are willing and able to reliably generate credits over an extended period of time (e.g., 5 to 10 years) to reduce the risk 

and uncertainty of trading for permitted point sources.

In all cases, permitting authorities should ensure that NPDES permits incorporating water 

quality trading provide for periodic evaluation of pollutant reduction credits to ensure that 

the credits are still available and consistent with established trading program rules.

Determining Maximum Feasible Nonpoint Source Load 

Reductions

It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a waterbody. Therefore, it is important that some analysis be done to estimate the maximum amount 

of pollutant runoff that can be controlled from the nonpoint sources in a watershed. The difference between this estimate and the nonpoint source’s baseline equals the maximum nonpoint source load reductions available for trading.12 This is a way to ensure that credits being 

purchased result in actual reductions. This increases the surety that the trading program can 

meet its goal of achieving water quality standards.

The trading program might want to include a mechanism for ensuring that this maximum 

tradable nonpoint source load reductions is not exceeded. This could be done, for example, 

by specifying the maximum tradable nonpoint source load reductions in the program documentation and then tracking credit sales, and therefore load reductions, by nonpoint sources 

to ensure that this maximum is not exceeded.

A more in-depth discussion of determining the maximum feasible nonpoint source load 

reductions is provided in the nonpoint source scenario sections of the Toolkit.

What Types of Effluent Limitations Could Be Met 

Through Trading?

In general, WQBELs for nutrients, sediments and other parameters that do not have localized toxic effects are amenable to control via a trading system. WQBELs are most commonly 

expressed as maximum daily limits and average monthly limits (AMLs). EPA’s Water Quality 

Trading Assessment Handbook notes that trades should be consistent with the time periods 

that are used to determine compliance with effluent limitations. Trading to meet monthly 

average limits is more manageable for phosphorous and sediments than for nitrogen. Facilities trading phosphorous or sediments would potentially conduct only 12 trades during the 

12 The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available 

for trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on 

many factors (as described in the Developing Trade Ratios section), determining the maximum number of credits 

is not as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring 

that every trade results in a reduction of total load to the waterbody.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

37F u n d a m e n t a l s

course of the year. At the end of each month, each buyer and each seller would account for 

credits bought and sold through credit tracking and certification. For facilities trading nitrogen, the permitting authority might want to consider setting annual limits due to the seasonal fluctuation in treatment effectiveness.

Effluent Limits With Longer-Term (e.g., Annual) Compliance 

Periods

The NPDES regulations at 40 CFR 122.45(d) require that all effluent limits be expressed, unless 

impracticable, as both AMLs and maximum daily limits (MDLs) for all dischargers other than 

POTWs, and as average weekly limits (AWLs) and AMLs for POTWs. EPA has identified some 

circumstances where limits expressed with these averaging periods are impracticable.

For nutrients, the concern generally is whether it is appropriate to establish effluent limitations with longer, rather than shorter, averaging periods. This issue is particularly important 

when considering trading, because nutrients are a frequent subject of trading programs. 

Permitting authorities have some discretion on the use of nutrient effluent limitations with 

longer averaging periods. EPA indicated its support for using annual limits, rather than MDLs, 

AWLs, and AMLs, to meet criteria for nutrients in the Chesapeake Bay and its tidal tributaries 

in a memorandum from James Hanlon, Director of the EPA Office of Wastewater Management to EPA Region 3 and the Chesapeake Bay Program Office, dated March 3, 2004 (Annual 

Permit Limits for Nitrogen and Phosphorus for Permits Designed to Protect Chesapeake Bay 

and its tidal tributaries from Excess Nutrient Loading under the National Pollutant Discharge 

Elimination System). In this memorandum, EPA affirmed that it is impracticable to express 

permit effluent limits for nitrogen and phosphorus discharges in the Bay watershed on the 

basis of nutrient criteria for the Chesapeake Bay and its tidal tributaries in terms of monthly 

average, weekly average, or maximum daily limitations because of a number of factors, such 

as (1) the long residence time for nutrient loadings to the Chesapeake Bay and its tidal tributaries, (2) the focus on the far-field effects of such nutrients (rather than in the immediate 

vicinity of the discharge), and (3) the need to reduce average pollutant loads globally rather 

than maximum loads from any one source.13

The circumstances in the Chesapeake Bay that make annual limits appropriate are not necessarily unique. For other areas of the country, the memorandum states that “The establishment of an annual limit with a similar finding of ‘impracticability’ pursuant to 40 CFR 

122.45(d) may be appropriate for the implementation of nutrient criteria in other watersheds 

when: attainment of the criteria is dependent on long-term average loadings rather than 

short-term maximum loadings; the circumstances match those [in the Chesapeake Bay and its 

tidal tributaries]; annual limits are technically supportable with robust data and modeling...

and appropriate safeguards to protect applicable water quality standards are employed.” 

Annual effluent limitations should be used only in these limited circumstances. Other than 

13 The applicable water quality criteria for the Chesapeake Bay are expressed as an annual average, so the underlying 

analysis of the memo is also applicable to implementation of other nutrient criteria where attainment of the 

criteria is dependent on long-term average loadings rather than short-term maximum loadings. Examples of such 

criteria include EPA’s recommended CWA section 304(a) ecoregional nutrient criteria, which are expressed as an 

annual average.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

38

nutrients, most pollutants would not have annual limits. In addition, when considering 

annual limits or other longer-term limits, the permitting authority should be certain that its 

state regulations do not prohibit setting such limits.

Even for nutrients, the behavior of the pollutant and the type of criteria will affect whether 

longer-term limits are appropriate or necessary. For example, in free-flowing streams where 

there are no impoundments, annual limits for phosphorus might not be needed. Phosphorus 

removal is not temperature dependent and AMLs may be most appropriate to protect water 

quality. Furthermore, in cases where nutrient water quality criteria and WLAs to protect 

those criteria are expressed on a shorter-term basis (generally to protect against local nutrient impacts in rivers or streams), effluent limitations derived from those criteria or allocations 

also should be expressed on a shorter-term basis, such as AMLs.14

What Are the Roles of Stakeholders?

Permitting authorities should consider the roles of permittees, other trading partners, and 

key stakeholders when incorporating water quality trading in NPDES permits.

Permittees

The permittee can be either a buyer or a seller of pollutant credits. The permittee’s primary responsibility is compliance with the provisions of the NPDES permit. Beyond basic 

compliance, however, permitting authorities should consider the additional roles of the 

permittee(s). For example, the permittee is likely to play a primary role in developing the 

specific trade agreement to be included or referenced in the NPDES permit. The permittee 

may be a good resource for information useful to developing trade agreement provisions 

and appropriate permit conditions. The permitting authority should consider the permittee’s 

responsibilities under any trading provisions and should establish conditional requirements in 

the permit that apply if the permittee does not meet these trading responsibilities.

In some circumstances, the permittee may be the manager of a trading program (i.e., pretreatment trading), or the sole trading participant (i.e., intraplant trading).

Unregulated Trading Partners

Often a permit will not place requirements on all of the partners involved in a trade, such as 

nonpoint sources or pollutant credit brokers. In those circumstances, the permitting authority should consider how default by the unregulated partners could affect the permittee(s)’ 

compliance with the effluent limitations and conditions in the permit. To the extent possible, 

the permitting authority should incorporate appropriate, enforceable actions into the NPDES 

permit to address nonperformance by an unpermitted trading partner. For example, the 

trade agreement could provide that unregulated credit generators notify regulated credit 

14 EPA Memorandum dated November 15, 2006, Establishing TMDL ‘Daily’ Loads in Light of the Decision by the U.S. 

Court of Appeals for the D.C. Circuit in Friends of The Earth, Inc. v. EPA, et al., No 05-5015, (April 25, 2006) and 

Implications for NPDES Permits states, “EPA does not believe that the Friends of the Earth decision requires any 

changes to EPA’s existing policy and guidance describing how a TMDL’s wasteload allocations are implemented in 

NPDES permits.”

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

39F u n d a m e n t a l s

purchasers of any anticipated circumstance when the credits would not be available. In this 

instance, the permit could require the regulated credit purchaser to provide notice to the 

permitting authority, seek other credit sources, and implement alternate controls to reduce 

pollutant loads in the permitted discharge.

Federal and State Agencies

Permitting authorities should not overlook the role of federal agencies such as the Natural Resources Conservation Service; Forest Service; Agricultural Research Service; and the 

Cooperative State, Research, Education, and Extension Service, as well as similar state agencies, when developing permits incorporating trades with forestry and agriculture nonpoint 

sources. While NPDES permits cannot require nonpoint sources to implement pollutant reduction BMPs or management practices, research conducted by these agencies can help develop 

and evaluate trading ratios and monitoring requirements. These agencies may also have 

independent statutory and regulatory authorities that could be used to facilitate adoption 

or implementation of trading provisions. The role of state agencies that serve as the NPDES 

permitting authority is discussed in the Overview of the Toolkit.

Local Governments

Local governments can also play a major role in the administration of trading programs. In 

addition to being a stakeholder that may provide comments on TMDLs or permits or being 

a point source discharger within a watershed, local governments can manage and facilitate 

trading.

Citizens

Permitting authorities should take advantage of the potential contributions of interested citizens to water quality trading efforts under the NPDES program. Permitting authorities should 

develop permits and fact sheets that clearly describe the calculations and assumptions used 

to determine baselines and trade ratios. Particularly where nonpoint sources are involved in 

the trade, the permit should clearly articulate the uncertainties associated with BMPs, their 

implementation, maintenance and operation, and how these uncertainties will be addressed, 

to allow interested citizens the opportunity to provide information relative to the trade that 

otherwise might not be accessible to the permitting authority (e.g., citizen monitoring). 

Additionally, the permitting authority should require reporting of sufficient information to 

evaluate compliance with trade agreements and permit conditions and should make that 

information easily accessible to the public. Finally, EPA’s Trading Policy encourages states and 

tribes to make electronically available to the public information on the trading partners, the 

Red Cedar River, Wisconsin

The Barron County Land Conservation Department served as a third-party facilitator for the Red 

Cedar River Nutrient Trading Pilot Program, negotiating with farmers and establishing contracts 

between participating nonpoint sources and the city of Cumberland.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

40

quantity of credits generated and used, market prices where available, and delineations of 

watershed or trading boundaries. Permitting authorities can consider including reporting 

requirements associated with this information to allow interested citizens the opportunity 

to identify potential trades and to help establish public credibility for NPDES permits that 

include water quality trades. Interested citizens also have opportunities to participate in the 

development of a trading program. The public can comment on any applicable TMDL as well 

as the proposed permit before the permit takes effect. If the state establishes a statewide 

trading program, the state should issue a draft for public comment before finalizing the 

program.

How to Know if the Trading Program is Working

In this document, so far, we have covered five of the seven common elements of credible 

trading programs outlined in the Trading Policy. We have discussed (1) legal authority, 

(2) units of trade, (3) creation and duration of credits, (4) quantifying credits and addressing 

uncertainty, and (5) public participation and access to information. Compliance and enforcement mechanisms are covered in each of the scenarios under monitoring and reporting 

requirements and not covered here. This section focuses on the seventh element—program 

evaluation.

EPA’s Trading Policy suggests that trading programs conduct periodic assessments of environmental and economic effectiveness and make revisions as needed. “Environmental evaluations should include ambient monitoring to ensure impairments of designated uses (including 

existing uses) do not occur and to document water quality conditions. Studies should be 

performed to quantify nonpoint source load reductions, validate nonpoint source pollutant 

removal efficiencies and determine whether the anticipated water quality objectives have 

been achieved.”

To ensure that the trading program is meeting its goals, it is important that program evaluations be included in both the design and implementation of the trading program. This allows 

for adaptive management. Data and information collected can be used to assess whether the 

water quality goals of the program are being met and can be used to make program modifications where necessary. The results of these program evaluations and any changes that 

result should be made available for public comment.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios

“However beautiful the strategy, you should occasionally look at the results.”

—Winston Churchill, 1874-1965
Water Quality Trading Toolkit for Permit Writers

41

Developing NPDES Permits for Specific Trading 

F u n d a m e n t a l s

Scenarios

Once a NPDES permit writer has a clear understanding of the fundamentals of water quality trading in general and how the specific characteristics of the trading program involving 

regulated point sources will affect development of the NPDES permit, he or she should then 

begin to develop a NPDES permit that incorporates trading. To do this, the permit writer 

should determine the appropriate type of permit for the trading scenario and decide how the 

trading scenario can be incorporated into a NPDES permit.

What Type of Permit Best Suits the Trading Scenario?

The rest of this toolkit is arranged by type of trading scenario. There are some trading scenarios that are more conducive to watershed or general permits and some scenarios where 

individual permits are the best mechanism. For more on permitting, see EPA’s series of guides 

on watershed-based permitting including the Watershed-based National Pollutant Discharge 

Elimination System (NPDES) Permitting Implementation Guidance (USEPA 2003b). Before 

a permitting authority can begin including water quality trading requirements in a NPDES 

permit, it should first determine the type of permit that is most appropriate for the parties 

involved in the trade or trades and the manner in which trading is conducted. There are two 

basic types of permits—a permit that covers a single point source and a permit that covers 

a group of point sources. A single point source permit is a permit specifically tailored to an 

individual facility and is commonly referred to as an individual NPDES permit. The permittee 

applies for a permit, and the permitting authority develops a permit for that particular facility on the basis of information contained in the permit application and other data submitted 

by the permittee or assembled from other sources. A permit also may be issued to a group of 

point sources. Some permitting authorities have issued permits that cover multiple sources 

but address only the particular pollutant or pollutants for which credits may be traded. This 

type of permit is issued in addition to the existing permits for the facilities involved and, 

hence, often is referred to as an overlay permit.

How Can the Trading Scenario Be Incorporated Into a NPDES 

Permit?

Trading may be incorporated into NPDES permits in a number of ways depending on the 

specifics of the trade. In some situations, the trade provisions may be reflected in the permit limits or other permit conditions imposed on the trading partners through the permit. 

Regardless of how water quality trades are included in NPDES permits, it is imperative that 

NPDES permitting authorities ensure the trades meet specific criteria such as enforceability, 

accountability, transparency, and consistency with water quality standards.

The permit should clarify what constitutes compliance with permit conditions, explain the 

measurement and timing of compliance, address compliance issues related to meeting permit limits using water quality trading, and address compliance schedules. Most state water 

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Toolkit for Permit Writers

42

quality standards or implementing regulations authorize using compliance schedules. If that 

authority is available, the permit writer may place a compliance schedule in the permit special 

conditions.

Where Can I Get More Information?

This concludes the key sections of the Toolkit that apply to all users. The remaining sections 

of the Toolkit focus on specific trading scenarios. To determine which trading scenario is 

appropriate to read next, use the Toolkit Navigation decision tree below (see Figure 15.) Note 

that EPA developed the Toolkit with the expectation that users would read only the sections 

applicable to their unique circumstances and interests; therefore, the trading scenario sections do repeat essential information to ensure that users get comprehensive information in 

the trading scenario that best applies.

Yes No

Will a 

Credit Exchange 

be used?

More than two

point sources?

Point Source 

Credit Exchange

 used?

Yes No Yes No

No Yes

Toolkit Navigation

Are nonpoint sources 

participating in 

the trading program?

Go to

Nonpoint Source 

Credit Exchange

Section

Go to

Point SourcePoint Source

Trading

Section

Go to

Multiple Facility

Point Source

Trading

Section

Go to

Point Source

Credit Exchange

Section

Start

here

Go to

Point SourceNonpoint Source

Trading

Section

Figure 15. Toolkit navigation.

Fundamentals of Water Quality Trading

Introduction Overview of 

Water Quality 

Trading

Essential Trading 

Information for 

Permit Writers Tradeable 

Pollutants

Geographic 

Scope

Possible 

Trading 

Scenarios

Circumstances 

for Trading

Factors for 

Determining 

Pollutant

Reduction Credits

Effl uent Limit 

Types

Stakeholder 

Roles

Is the Trading 

Program 

Working?

NPDES Permits 

for Trading 

Scenarios
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 



Water Quality Trading Scenario:

Single Point Source–Single Point Source Trading

Contents

Water Quality Trading Scenario: 

Single Point Source–Single Point Source Trading . . . . . . . . . . . . . . . . . 1

Trade Agreements 1

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Permit Cover Page 5

Effluent Limitations 5

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Reporting Requirements 14

Special Conditions 17
Water Quality Trading Toolkit for Permit Writers

ii
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Water Quality Trading Scenario:

Single Point Source–Single Point Source 

Trading

This water quality trading scenario focuses on technical and programmatic issues related to 

single point source–single point source trading, illustrated in Figure 1. Issues addressed under 

this scenario include the following:

• Trade agreements

• Components of a National Pollutant 

Discharge Elimination System (NPDES) 

permit

− Permit cover page

− Effluent limitations

− Monitoring

− Reporting requirements

− Special conditions

A hypothetical example (shown in highlighted boxes) is presented throughout this scenario 

to illustrate how NPDES permit writers might work with credit buyers and sellers to assist 

in trading and ensure each facility’s NPDES permit contains the appropriate limits, requirements, and other conditions. Keep in mind that there are a range of options for incorporating trading provisions into a NPDES permit. The hypothetical example discussed throughout 

this scenario illustrates just one of the many options a NPDES permit writer might use.

Trade Agreements

Typically, the terms that govern a trading program will be developed outside the NPDES permit process and can be incorporated or reflected in the permit (see Appendix C). The U.S. Environmental Protection Agency’s (EPA) Water Quality Trading Policy (Trading Policy) describes 

several mechanisms for implementing trading through NPDES permits (see Appendix B).

NPDES permits authorizing water quality trading should reference any existing trade agreement in the permit or fact sheet. The permit writer may also incorporate specific provisions of 

the agreement as appropriate (e.g., shared responsibilities for conducting ambient monitoring) into the permit. All trade agreements referenced in NPDES fact sheets and permits should 

meet certain minimum standards to help ensure the trades authorized by the permit are consistent with water quality standards. At a minimum, the trade agreement should be a written 

agreement and signed and dated by authorized representatives of all trading partners. Verbal 

trade agreements should not be referenced in NPDES permits. The written trade agreement 

should contain sufficient detail to allow the permitting authority to determine with some 

degree of certainty that the terms of the agreement will result in loading reductions and 

generate sufficient credits to satisfy water quality requirements. If there is no formal, outside trade agreement, trading can still occur; however, the permit writer will need to more 

Figure 1. Point source–point source trade.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



Mystic River Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDLa for Total Phosphorus for the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Current Load: 80 lbs/day (average monthly)

New WQBELb

 (based on WLAc): 57 lbs/day (average monthly)

Existing TBEL: 35 mg/L (average monthly) at an average flow of 

300,000 gpde

 = 82 lbs/day

Existing Treatment: None

Proposed New Treatment Capabilities: Treatment to 40 lbs/day 

(average monthly)

Credit Buyer: Auburn Carpet Manufacturers

Current Load: 40 lbs/day (average monthly)

New WQBEL (based on WLA): 29 lbs/day (average monthly)

Existing TBEL: 1 mg/L (average monthly) at an average flow of 5 mgdf

 = 42 lbs/day

Existing Treatment Capabilities: Treatment to 40 lbs/day

Proposed New Treatment Capabilities: None

Notes: a TMDL = Total maximum daily load; b WQBEL = water quality-based effluent limitation; c

 WLA = wasteload allocation; d TBEL = technology-based effluent limitations; e

 gpd = gallons per day; f mgd = million gallons per day

Location: Meadeville Fertilizer Producers (credit seller) is approximately one mile upstream from 

Auburn Carpet Manufacturers (credit buyer) along the Mystic River.

Applicable Trade Ratios: None. In this case, it is not necessary to apply a delivery ratio because of 

the close proximity of the sources to each other, nor an equivalency ratio because the same pollutant 

form is being traded, nor an uncertainty ratio because both parties can accurately monitor end-ofpipe loads.

The minimum control level for Auburn Carpet Manufacturers is 40 lbs/day (existing discharge), 

because this level is more stringent than the TBEL (42 lbs/day) at the current level of discharge. 

Therefore, Auburn Carpet Manufacturers (buyer) needs to purchase credits equivalent to 11 lbs/day 

of total phosphorus (TP) to meet its WLA (baseline) under the TMDL. Auburn Carpet Manufacturers 

has arranged to purchase equivalent credits from Meadeville Fertilizer Producers. Meadeville Fertilizer Producers (seller) has a baseline of 57 lbs/day (WLA) and new treatment will treat to 40 lbs/day 

of TP loading. With this surplus of 17 lbs/day, Meadeville Fertilizer Producers can sell 11 TP credits 

to Auburn Carpet Manufacturers (with no applicable ratios) and will still have 6 lbs/day of surplus TP 

credits potentially available for sale to other permittees.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

The NPDES permit writer worked with the facilities and other key stakeholders to craft the provisions of the trade agreement and provided the necessary information (e.g., baseline, minimum control 

levels) to facilitate the trade. As required, the permitting authority receives a written copy of the trade 

agreement that is signed and dated by authorized representatives of each facility. The permit writer 

reviews the written trade agreement to verify that the information is accurate and consistent with 

water quality standards. The permit writer develops permit requirements that are consistent with the 

provisions in the trade agreement, and incorporates those requirements in specific sections of the 

permit on effluent limitations (i.e., baseline, the minimum control level for the buyer and the trading 

limit for the seller), reporting and monitoring provisions.

The permit writer incorporates the Phosphorus Analysis Report provision of the trade agreement into 

the permit to require the facilities to submit trade information to the permitting authority. This will 

allow the permitting authority to determine whether the buyer and seller maintain compliance with 

WQBELs and applicable TBELs.

In addition to developing permit requirements coordinated with the provisions of the trade agreement, the permit writer will reference the written trade agreement in the fact sheets of each facility’s 

NPDES permit and include copies of the signed trade agreement as an attachment. Each NPDES 

permit fact sheet will state that the facility’s effluent limitation requirements are based on the WLA

for the facility under the approved TMDL developed to achieve water quality standards; the permit 

authorizes the use of trading as a tool to comply with the required WQBELs, and the permit contains 

provisions that reflect the relevant terms of the written trade agreement signed by both parties.

The basic terms of the trade agreement are as follows:

n Trading partners more than one mile apart must apply a delivery ratio to all trades. Trading 

partners that discharge different forms of phosphorus must apply an equivalency ratio to all 

trades. (In the case of the trade between Meadeville Fertilizer Producers and Auburn Carpet 

Manufacturers, a delivery ratio is not necessary because they are only one mile from each other 

on the Mystic River. An equivalency ratio is not necessary because the facilities discharge the 

same form of phosphorus, and an uncertainty ratio is not necessary because each party is able to 

accurately monitor end-of-pipe loads.)

n A credit seller must first meet its baseline before generating credits eligible for trading. (Meadeville Fertilizer Producers will install control technologies that will treat to a phosphorus loading 

of 40 lbs/day and must meet its WLA (baseline) of 57 lbs/day, which will result in 17 lbs/day of 

surplus (monthly average) load reduction eligible for trading.)

n A credit seller is subject to trading limits. A trading limit is calculated by subtracting the 

quantity of credits sold from the baseline. 

(Meadeville Fertilizer Producers has a trading limit = 57 lbs/day – Quantity of Credits Sold.)

n A credit buyer can purchase credits to meet its facility’s baseline. However, the credit buyer 

must first meet the facility’s minimum control level before purchasing credits to meet the 

required baseline. (Auburn Carpet Manufacturers must meet its WLA (baseline) of 29 lbs/day. 

The facility’s minimum control level equals the facility’s current discharge of 40 lbs/day. This 

Mystic River Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



current discharge meets the existing TBEL of 1 mg/L (average monthly) of TP at the current 

level of discharge (5 mgd), which is equivalent to 42 lbs/day at the current level of discharge. The 

facility must continue to meet the minimum control level of 40 lbs/day before purchasing credits 

to meet its baseline. When Meadeville Fertilizer Producers’ new control technologies are fully 

implemented, Auburn Carpet Manufacturers will purchase credits equivalent to 11 lbs/day of TP.) 

n	Credit buyers and sellers must conduct TP monitoring that complies with regulatory agency 

requirements. In addition, credit buyers and sellers must complete and exchange monthly Phosphorus Analysis Reports to track the amount of TP discharged and the total amount of TP load 

bought and sold between the facilities. (Each facility will continue to monitor TP as required 

under each facility’s respective individual NPDES permit. Each facility will continue to complete 

and submit Discharge Monitoring Report (DMR) forms to the NPDES permitting authority, as 

required under each facility’s respective NPDES permit. In addition, each facility will complete 

and exchange the monthly Phosphorus Analysis Reports.)

n	Trades occur monthly, and credits may not be applied in any month other than the one in which 

the credits are generated.

In a separate contract, Meadeville Fertilizer Producers and Auburn Carpet Manufacturers articulate 

the financial and liability conditions that the two facilities have agreed upon.

Mystic River Example: Trade Agreements (continued)

explicitly describe the trading program in the fact sheet and authorize specific aspects of the 

trading program as permit conditions. Trading partners can specify the details pertaining 

to the negotiated terms of the trade (e.g., credit price, payment schedule, consequences for 

failure to fulfill negotiated terms) in a separate, written and signed contract.

Components of a NPDES Permit

NPDES permits that authorize water quality trading are no different than typical NPDES permits in many respects—they require the same structure, analyses, and justification. All permits 

have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and reporting requirements; (4) special conditions; and (5) standard conditions. Standard conditions are 

the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent 

with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject 

to public notice and comment. This process provides all interested parties an opportunity to 

comment on the trading provisions in the permit.

Each NPDES permit is accompanied by a permit fact sheet. The information in these fact 

sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the 

permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions 

in the permit. There is a wide variety of options for including trading information in the fact 

sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller) 

to including the entire trading program.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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There are a variety of issues, however, that may require special consideration when developing 

a permit incorporating water quality trading. Appendix E provides the permit writer with a list 

of fundamental questions that should be addressed during the permit development process.

Permit Cover Page

The cover page of a NPDES permit typically contains the name and location of the permittee, 

a statement authorizing the discharge, the specific locations for which a discharge is authorized (including the name of the receiving water), and the effective period of the permit (not 

to exceed 5 years). A permit incorporating or referencing provisions of a trade agreement 

can refer to water quality trading on the cover page, but this is not necessary. If the state has 

issued regulations or policy documents authorizing water quality trading, the permit writer 

should consider referencing the regulations in the Authority section of the cover page. For 

example, if trading is considered a water-quality management tool in a state’s Water Quality 

Management Plan, this establishes clear authority for integrating trading into NPDES permits 

and can be referenced on the cover page (Jones 2005).

Effluent Limitations

Effluent limitations are the primary mechanism for controlling the discharge of pollutants 

from point sources into receiving waters. When developing a permit, the permitting authority focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES 

permits, permits that include trading must include any applicable TBELs, or the equivalent 

and, where necessary, WQBELs, that are derived from and comply with all applicable technology and water quality standards. Furthermore, limits must be enforceable, and the process 

for deriving the limits should be scientifically valid and transparent.

EPA’s Trading Policy does not support trading to meet TBELs unless trading is specifically 

authorized in the categorical effluent limitation guidelines on which the TBELs are based. 

Applicable TBELs thus serve as the minimum control level below which the buyer’s treatment 

levels cannot fall. This section discusses the overarching principles of how to express all applicable effluent limitations in permits for dischargers participating in water quality trades.

Credit Buyers

Permits for credit buyers should include both the baseline, which is the WQBEL that defines 

the level of discharge the buyer would have to meet through treatment when not trading and 

a minimum control level that must be achieved through treatment when trading. The permit 

should also include the amount of pollutant load to be offset (minimum control level – baseline) through credit purchases when trading. Most often, the applicable TBEL will serve as the 

minimum control level. A permitting authority can choose to impose a more stringent minimum control level than the TBEL to prevent localized exceedances of water quality standards 

Clean Water Services, Oregon

The Oregon Department of Environmental Quality addresses water quality trading on 

the cover page of the permit issued to Clean Water Services. For more information about 

this trading program, see Appendix A.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Mystic River Example: Effluent Limitations

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDL for Total Phosphorus for the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Current Load: 80 lbs/day (average monthly)

New WQBEL (based on WLA): 57 lbs/day (average monthly)

Existing TBEL: 35 mg/L (average monthly) at an average flow of 

300,000 gpd = 82 lbs/day

Existing Treatment: None

Proposed New Treatment Capabilities: Treatment to 40 lbs/day 

(average monthly)

Credit Buyer: Auburn Carpet Manufacturers

Current Load: 40 lbs/day (average monthly)

New WQBEL (based on WLA): 29 lbs/day (average monthly)

Existing TBEL: 1 mg/L (average monthly) at an average flow of 5 mgd = 42 lbs/day

Existing Treatment Capabilities: Treatment to 40 lbs/day

Proposed New Treatment Capabilities: None

Location: Meadeville Fertilizer Producers (credit seller) is approximately one mile upstream from 

Auburn Carpet Manufacturers (credit buyer) along the Mystic River.

Applicable Trade Ratios: None.

Auburn Carpet Manufacturers’ existing permit includes a TBEL based on state treatment standards 

for TP, which the facility currently meets. Meadeville Fertilizer Producers is also subject to a TBEL

based on existing federal effluent limitation guidelines. Existing effluent limitations for each facility 

are less stringent than the limitations needed to meet the new WLAs established in the Mystic River 

TMDL.

Meadeville Fertilizer Producers has recently been upgraded and has the potential to treat its discharge 

to a phosphorus loading of 40 lbs/day. The facility’s baseline requirement for trading is 57 lbs/day 

(i.e., most stringent effluent limitation). Treating to the maximum capacity of the publicly owned 

treatment works (POTW) would result in an excess phosphorus reduction of 17 lbs/day (baseline 

– treatment capacity).

Auburn Carpet Manufacturers has no funds to upgrade to meet the facility’s new WLA. The permitting authority is allowing the facility to trade to meet its new WQBEL (baseline based on WLA). The 

facility’s current discharge of 40 lbs/day meets the existing TBEL of 42 lbs/day at the current level of 

discharge. To participate in trading, the facility must continue to treat to the current level of loading 
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

(minimum control level) before purchasing credits to meet its baseline. Auburn Carpet Manufacturers 

would then be allowed to purchase credits equivalent to the difference between the minimum control 

level and the baseline (40 lbs/day – 29 lbs/day = 11 lbs/day).

On the basis of the provisions of the trade agreement, the permitting authority has verified that no 

trade ratios are necessary: fate and transport is not a significant issue because of the proximity of the 

facilities; they are discharging the same form of phosphorus; and there is no uncertainty because of 

direct measurement of TP loads.

If Meadeville Fertilizer Producers chooses to sell 11 lbs/day of the credits generated by the over treatment of its discharge, a trading limit will apply as follows:

Baseline – Credits Traded = Trading Limitation

57 lbs/day – 11 lbs/day = 46 lbs/day

Meadeville Fertilizer Producers will be required to demonstrate that its discharge has an actual loading of no more than 46 lbs/day during any period it is selling 11 lbs/day of credits to Auburn Carpet 

Manufacturers.

New permits are being developed to implement the new WLAs and authorize trading between the two 

facilities. The permits contain both interim and final effluent limitations. Interim effluent limitations 

are equal to current discharge, which is less than the existing TBEL for each facility. The new WQBELs 

and, therefore, trading provisions apply 2 years after the effective date of the permit. The permits will 

include effluent limitations equal to baselines, minimum control levels, and trading limits.

Permit Language:

Meadeville Fertilizer Producers

A. Meadeville Fertilizer Producers (permittee) is subject to interim and final effluent limitations 

for the discharge of total phosphorus from Outfall 001. As of <insert permit effective date>, 

the permittee must meet an interim mass-based effluent limitation for total phosphorus of 

80 lbs/day as a monthly average at Outfall 001. Through treatment or other pollutant reductions at the facility, the permittee must meet a final mass-based effluent limitation for total 

phosphorus of 57 lbs/day as a monthly average at Outfall 001. Compliance with the final 

effluent limitations is required on <insert date 24 months after permit effective date>.

B. The permittee is authorized to generate and sell credits to an authorized credit Buyer or 

Buyers by further treating or otherwise reducing the discharge of phosphorus at Outfall 001. 

If the permittee sells such credits, the average monthly effluent limitation of 57 lbs/day no 

longer applies and the trading limit for total phosphorus at Outfall 001 shall apply instead as 

follows:

Monthly Average Trading Limitation = 57 lbs/day – Quantity of Credits Sold.

C. Credits sold and purchased may be applied only to the calendar month(s) in which they were 

generated.

Mystic River Example: Effluent Limitations (continued)
Water Quality Trading Toolkit for Permit Writers



near the point of discharge but not one that is less stringent the TBEL. In a NPDES permit fact 

sheet, the effluent limitations for a credit buyer could be described as follows:

• The Discharger must meet, through treatment or trading, a mass-based effluent limitation for Pollutant A of <insert baseline>. If this effluent limitation is met through 

trading, the Discharger must purchase credits from authorized Sellers in an amount 

sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess 

of <insert baseline>, but at no time shall the maximum mass discharge of Pollutant A 

during <insert averaging period> exceed the minimum control level of <insert minimum control level>. Thus, the maximum mass discharge of Pollutant A to be offset 

through credit purchases is <insert minimum control level – baseline>.

Credit Sellers

When a potential credit seller is able to reduce its discharge below its most stringent applicable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of 

credits that any given seller actually will be able to sell depends on the market for credits, 

agreements made with buyers, and any treatment requirements placed on potential buyers 

(i.e., the buyers’ minimum control levels). Because of these factors, it is possible that a discharger will not be able to sell all the credits it generates.

A credit seller’s permit will include both the most stringent effluent limitation that would 

apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level 

it will control its pollutant discharge (using technology or best management practices (BMPs) 

Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Auburn Carpet Manufacturers

A. Auburn Carpet Manufacturers (permittee) is subject to interim and final effluent limitations 

for the discharge of total phosphorus from Outfall 001. As of <insert permit effective date>, 

the permittee must meet an interim mass-based effluent limitation for total phosphorus of 

40 lbs/day as a monthly average at Outfall 001. Through treatment or other pollutant reductions at the facility, the permittee must meet a final mass-based effluent limitation for total 

phosphorus of 29 lbs/day as a monthly average at Outfall 001. Compliance with the final 

effluent limitations is required on <insert date 24 months after permit effective date>.

B. If the final effluent limitation is met through trading, the permittee must purchase credits 

from authorized Sellers in an amount sufficient to compensate for the discharge of total 

phosphorus from Outfall 001 that is in excess of 29 lbs/day as a monthly average, but at no 

time shall the maximum mass discharge of total phosphorus from Outfall 001 exceed 40 lbs/

day. Thus, the maximum mass discharge to be offset through credit purchases is 11 lbs/day as 

a monthly average.

C. Credits sold and purchased may be applied only to the calendar month(s) in which they were 

generated.

Mystic River Example: Effluent Limitations (continued)

Permit Language (continued):
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

it will implement), and this level becomes its trading limit. The baseline and trading limit 

could be described in the permit fact sheet as follows:

• Through treatment, the Discharger must meet a mass-based effluent limitation for 

Pollutant A of <insert baseline>. The Discharger is authorized to further treat its 

discharge, remove additional loading of Pollutant A, and generate and sell credits to 

an authorized credit Buyer or Buyers. If the Discharger sells such credits, the <insert 

averaging period, e.g., average monthly> effluent limitation <insert baseline> no 

longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead 

as follows: Trading Limitation = <insert baseline> – Quantity of Pounds Sold.

The permit must include monitoring and reporting requirements for Pollutant A sufficient to 

demonstrate that the Seller actually has generated the credits it sells and, therefore, is meeting its trading limit.

Pollutant Form, Units of Measure, and Timing Considerations

The permit should explicitly identify the pollutant or pollutants being traded. The permitting 

authority should ensure that the trading program or agreement and the calculated WQBELs 

are consistent in terms of the form of the pollutant, units of measure, and timing.

For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated 

under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen 

(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers 

and sellers should trade TN credits. In this case, a discharger may be required to measure TN. 

If there are concerns about localized impacts, and WQBELs are also specified for a particular form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and 

nitrate (all expressed as N) and then calculate its TN discharge.

Also an equivalency ratio may be needed when two sources are trading pollutants such as 

TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one 

discharger’s phosphorus discharge is made up primarily of biologically available phosphorus, 

while its trading partner’s discharge is primarily composed of bound phosphorus). An equivalency ratio may also be needed in cross-pollutant trading of oxygen-demanding pollutants 

(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio 

would equal the ratio between the two pollutants’ impacts on oxygen demand. The trading 

program should account for any necessary equivalency ratios with regard to pollutant form 

or type; the permit writer needs to be aware of the pollutant form or type addressed in the 

trade agreement to ensure that the permit is consistent.

In addition, consistent reconciliation periods are essential in trading between point sources. 

The credit purchaser’s permit limits for the traded pollutant and the credit seller’s permit limits should have the same units and averaging period. Because both sets of limits are designed 

to address the same water quality problem, both should use the averaging period and units 

that make the most sense to address that problem. Consistent units and averaging periods 

will also simplify reconciliation of credit sales and purchases.

Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

10

Anti-backsliding, Antidegradation, and New Discharges Special 

Considerations

The Trading Policy discusses anti-backsliding and antidegradation and how these provisions 

can be met through trading.

Mystic River Example: Pollutant Form, Units of Measure, 

and Timing

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDL for Total Phosphorus for the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Credit Buyer: Auburn Carpet Manufacturers

Pollutant Form

Both trading partners discharge phosphorus year round. The TMDL indicates a need to control TP 

discharges. Each facility discharges the same form of phosphorus at the same percentage of solubility; 

therefore, no provisions are necessary in the permit to address the issue of pollutant form.

Units of Measure

The TP WQBELs based on the TMDL WLA are expressed in lbs/day as a monthly average to correspond 

with the units and averaging period in the TMDL. The TP limits in Meadeville Fertilizer Producers’ 

existing permit are also expressed in lbs/day as a monthly average. Monthly trades will be based on 

average monthly reductions demonstrated through monitoring.

Timing of Credits

Consistent with the state water quality standards, the permits include a 2-year compliance schedule 

for the new WQBELs derived from the TMDL requirements. These compliance schedules are included 

in the Special Conditions section of the permits for Meadeville Fertilizer Producers and Auburn Carpet Manufacturers. According to these compliance schedules, Auburn Carpet Manufacturers would 

not have a need to purchase credits until 24 months after permit issuance. This allows 12 months 

for Meadeville Fertilizer Producers to get its control technology fully operational and 12 months for 

the facility to gather monitoring data to verify that the technology is achieving the expected treatment efficiency and will generate credits as expected. These data are necessary to better understand 

how loading and reduction may vary over time and to develop monthly credit generation data to 

correspond with monthly average effluent limitations. Trades will occur monthly to correspond with 

monthly average effluent limitations. Meadeville Fertilizer Producers will be able to continue to 

generate credits as long as the controls are properly operated and maintained, the facility is able to 

demonstrate reductions, and the facility does not become subject to more stringent requirements (i.e., 

newly promulgated effluent guidelines or other more stringent technology-based controls, additional 

WQBELs to avoid localized exceedances of water quality standards) that would reduce or eliminate the 

credits. The ability of Meadeville Fertilizer Producers to continue to generate credits will be assessed 

during the renewal of the permit every 5 years.

Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

11Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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Anti-backsliding

The term anti-backsliding refers to a statutory provision (Clean Water Act (CWA) section 

402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing 

NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent 

than those established in the previous permit (USEPA 1996b). The CWA establishes exceptions to this general anti-backsliding prohibition. EPA has consistently interpreted section 

402(o)(1) to allow for less stringent effluent limitations if either an exception under section 

402(o)(2) or, for WQBELs, the requirements of section 303(d)(4) are met (USEPA 1996b). 

Section 402(o)(2) and 40 CFR 122.44(l) provide exceptions for circumstances such as material 

and substantial alterations to the facility, new information, events beyond the permittee’s 

control, and permit modifications under other sections of the CWA. Section 303(d)(4), which 

applies only to WQBELs, allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a waterbody attaining water quality standards as long as the waterbody 

continues to attain water quality standards even after the WQBEL is relaxed. In addition, 

revising the limitation must be consistent with the state’s antidegradation policy. If the 

discharge is to a waterbody that is not attaining water quality standards, a less stringent 

WQBEL is allowed only when the cumulative effect of all revised effluent limitations results in 

progress toward attainment of water quality standards. (For a detailed discussion of the antibacksliding exceptions, see EPA’s NPDES Permit Writers’ Manual (EPA-833-B-96-003) ). EPA’s 

Trading Policy states:

EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the 

CWA will generally be satisfied where a point source increases its discharge 

through the use of credits in accordance with alternate or variable water quality 

based effluent limitations contained in an NPDES permit, in a manner consistent 

with provisions for trading under a TMDL, or consistent with the provisions for 

pre-TMDL trading included in a watershed plan.

A permit writer should simply explain in the fact sheet of the permit how the limitations in the 

permit, after accounting for any trading provisions, are at least as stringent as the limits in the 

previous permit or, alternatively, how anti-backsliding provisions of the CWA are satisfied.

Antidegradation

As repeated throughout this document, NPDES permits may not facilitate trades that would 

result in nonattainment of an applicable water quality standard, including the applicable 

antidegradation provisions of water quality standards. Permitting authorities should ensure 

that WQBELs developed to facilitate trade agreements accord with antidegradation provisions and that antidegradation reviews are performed when required. Nothing in the Trading Policy per se changes how states apply their antidegradation policies, though states may 

modify their antidegradation policies to recognize trading.

The Trading Policy states:

EPA does not believe that trades and trading programs will result in “lower 

water quality”...or that antidegradation review would be required under EPA’s 

regulations when the trades or trading programs achieve a no net increase of 

the pollutant traded and do not result in any impairment of designated uses.

Water Quality Trading Scenarioss

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

12

Special considerations for antidegradation relative to water quality trading depend on the 

tier of protection applied to the waterbody as described below.

Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters, 

the antidegradation policy mandates protection of existing instream uses. Because EPA neither supports trading activities nor allows issuance of permits that violate applicable water 

quality standards, which should protect existing uses at a minimum, any supported trading 

activities incorporated into a NPDES permit should not violate antidegradation policies applicable to Tier 1 waters.

Tier 2 protects waters where the existing water quality is higher than required to support 

aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the 

level that would continue to support existing and designated uses), but only if an antidegradation review finds that (1) it is necessary to lower water quality to accommodate important 

social or economic development, (2) all intergovernmental and public participation provisions 

have been satisfied, and (3) the highest statutory and regulatory requirements for point sources and BMPs for nonpoint sources have been achieved. The Trading Policy supports trading 

to maintain high water quality when trading is used to compensate for new or increased discharges. Thus, the Trading Policy supports reductions of existing pollutant loadings to compensate for the new or increased load so that the result is no lowering of water quality. A state, 

in applying its antidegradation policy, may decide to authorize a new or increased discharge 

to high-quality water and may decide to use trading to completely or partially compensate 

for that increased load. If the increased load to Tier 2 waters is only partially compensated for 

by trading, an antidegradation review would be required to address the increased load.

Tier 3 protects the quality of outstanding national resource waters and waters of exceptional 

recreational or ecological significance. In general, antidegradation policies do not allow any 

increase in loading to Tier 3 waters that would result in lower water quality. EPA supports 

trading in Tier 3 waters to maintain water quality.

Monitoring

Permitting authorities may want to consider developing monitoring and reporting requirements to characterize waste streams and receiving waters, evaluate wastewater treatment 

efficiency, and determine compliance with permit conditions in the trade agreement. Monitoring and reporting conditions of a NPDES permit may contain specific requirements for 

sampling location, sample collection method, monitoring frequencies, analytical methods, 

recordkeeping, and reporting. If the permit conditions include compliance with provisions in 

a trade agreement, the permitting authority should include monitoring, recordkeeping and 

reporting requirements that facilitate compliance evaluations and, where necessary, enforcement actions related to the trading requirements. Discharge monitoring requirements should 

be consistent with the provisions of the trade agreement in terms of pollutants and forms of 

pollutants monitored, reporting units, and timing. The permit provisions should ensure that 

the results of discharge monitoring will be useful to the permittees, the permitting authority, and the general public in determining whether the provisions of the trade agreement are 

being met.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

13Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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Sample Collection and Analysis

If appropriate, the sampling locations should be consistent with the sampling location in each 

facility’s existing individual NPDES permit. For example, the same location used to sample for 

compliance with effluent limitations in the existing permit should be used for determining 

compliance with new effluent limitations developed for traded parameters. Samples collected 

as part of a self-monitoring program required by a NPDES permit must be performed in accordance with EPA-approved analytical methods specified in 40 CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants Under the Clean Water Act) where Part 

136 contains methods for the pollutant of concern. Where no Part 136 methods are available, 

the permit writer should specify which method should be used for compliance monitoring.

Ambient Monitoring

Ambient monitoring is one way to show whether a trade agreement meets or improves water 

quality. In addition to traditional discharge monitoring requirements, ambient water quality 

monitoring may be appropriate at strategic locations to ensure that the trade is not creating 

localized exceedances of water quality standards and to document the performance of the 

overall trading program. Permits with mixing zones may include monitoring requirements as 

appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable mixing zone.

Mystic River Example: Monitoring

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus on the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Credit Buyer: Auburn Carpet Manufacturers

Each facility is covered under an existing permit that includes a TBEL; therefore, each facility is currently required to monitor its effluent monthly for TP to determine compliance. New permits have 

been developed for both facilities that incorporate new effluent limits based on the approved TMDL, 

as well as the necessary provisions and effluent limits to authorize trading.

In the new permits, each discharger will be required to monitor for TP weekly. Ambient receiving 

water monitoring requirements are included in the existing NPDES permits and are adequate to 

ensure that localized exceedances of water quality standards do not develop as a result of trades.

Permit Language:

Both facilities

The permittee shall monitor effluent total phosphorus a minimum of one time per week. The permittee shall determine the average monthly mass loading based on actual monthly average flow. 

Flow monitoring shall be continuous.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

14

Reporting Requirements

Reporting requirements should be established to support the permitting authority’s evaluation of water quality trading programs. For example, in addition to reporting discharge 

monitoring results, permitting authorities might require a permittee to report the number 

of credits purchased. Permitting authorities might also require an annual monitoring report 

specific to the pollutants involved in the trade to provide information on annual loading in 

accordance with the requirements of the trading program. Permits incorporating water 

quality trades should require reporting at a frequency appropriate to determine compliance 

with the trading provisions. Permitting authorities should consider any requirements of the 

trading programs related to monitoring and reporting and ensure the permits are consistent 

with these requirements. Permits may require reporting of monitoring results at a frequency 

established through the permit on a case-by-case basis, but in no case may that frequency be 

less than once per year.

Trading programs may establish other reporting and tracking requirements as well. For 

example, it is essential to have a mechanism for tracking trades. An additional form may be 

used such as a credit certificate form (see Appendix C). The permitting authority can hold 

point sources liable if they violate any trading provision included in the permit or any trade 

agreement incorporated by reference into the permit, and point sources are also liable if they 

do not meet their permit limits.

Data Reporting to EPA

EPA administers two systems to store NPDES permit data and track compliance, the Permit 

Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). 

PCS is the old computerized management information system that contains data on NPDES 

permit-holding facilities to track the permit, compliance, and enforcement status of these 

facilities.

The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains 

integrated enforcement and compliance information across most of EPA’s programs including 

all federal administrative and judicial enforcement actions. In addition, ICIS has the capability 

to track other activities occurring in an EPA Region that support enforcement and compliance 

programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitoring. In the future, ICIS will be deployed to all states, and PCS will no longer be used.

Neither PCS nor ICIS is structured to actually track trades.

PCS is designed to compare actual discharge monitoring data against required effluent limitations to determine a facility’s compliance with its NPDES permit. To determine compliance 

under a trading scenario, it is necessary for the NPDES permitting authority to compare actual 

discharge monitoring data and the quantity of credits purchased or pounds sold against 

required effluent limitations. For credit sellers, compliance is tracked against the WQBEL, 

which serves as the facility’s baseline. For credit buyers, compliance is actually tracked against 

two effluent limitations—the minimum control level and the baseline. The challenge in using 

PCS to determine compliance under a trading scenario is that the system does not automatically make adjustments to the reported actual discharge—it will not add or subtract the load 

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

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traded. Therefore, this type of adjustment must be done before entering information into PCS 

so that the system has only one reported number to compare against an effluent limitation.

To determine compliance for a credit seller, the NPDES permitting authority will need to know 

that the sum of a credit seller’s actual discharge and the number of pounds sold is less than 

or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point source 

credit sellers could report the sum of the facility’s actual discharge and the number of pounds 

sold and that amount would be entered into PCS. PCS would then compare the sum of the 

actual discharge and the number of pounds sold against the facility’s baseline; the sum should 

be less than or equal to the facility’s baseline to indicate that the facility is in compliance.

Point source credit buyers not only have a baseline, but also a minimum control level (the 

facility’s TBEL or current discharge, whichever is more stringent). To determine compliance for 

a credit buyer, the NPDES permitting authority will need to know that (1) the facility’s actual 

discharge is less than or equal to its minimum control level, and (2) that the number of credits 

purchased result in the facility achieving its baseline. Therefore, point source credit buyers 

could report two types of information: (1) the facility’s actual discharge, and (2) the difference between the actual discharge and the quantity of credits purchased. Both numbers 

would be entered into PCS to determine compliance. PCS would compare the actual discharge 

against the minimum control level to determine permit compliance and eligibility as a credit 

buyer. PCS would also compare the difference between the actual discharge and the quantity 

of credits purchased against the facility’s baseline; the difference should be less than or equal 

to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline 

and remain in compliance with its WQBEL. PCS can accommodate two different effluent 

limits for the same parameter; therefore, it has the capability to determine compliance with 

both the minimum control level and the baseline for a credit buyer.

ICIS also allows the NPDES permitting authority to report two limits; therefore, this system 

can also accommodate both the baseline and the minimum control level for credit buyers. 

New DMR forms will also have two lines to report both the baseline and the minimum control 

level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the 

current design, ICIS will allow a facility with an existing NPDES permit to also have a trading partner entered into the system. Once a trading partner is entered for a facility, ICIS will 

allow the entry of an adjusted value—this is the reported actual discharge adjusted by the 

number of credits bought or sold. If an adjusted value is entered, this value is used to determine permit violations and percent exceedances (USEPA 2006).

In addition to challenges related to limits and the type of information to report, NPDES permits with trading provisions might also raise issues related to reporting periods and automated compliance tracking. PCS will not support a reporting extension beyond 30 days. This 

type of reporting extension might be necessary in some instances to allow adequate time for 

the administrative activities necessary for trading partners to coordinate and reconcile trades. 

ICIS, however, will support a 45-day reporting period. In rare instances when a permitting 

authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one 

to be annual. However, the permitting authority will have to manually flag annual limit effluent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to 

track compliance.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

16

Mystic River Example: Reporting

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus on the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Credit Buyer: Auburn Carpet Manufacturers

Trades must be completed by a credit transfer deadline specified in the permit, and credits must be 

used in the same month they are generated; however, the permit allows the facilities 30 days to report 

the trades to account for administrative time and processing of notification forms. For the permitting authority to gauge compliance, the permit writer develops permit language that requires each 

discharger to submit monthly DMRs to the permitting authority by the 15th of the month following 

monitoring. In conjunction with DMR reporting, the permit writer requires each facility to complete 

monthly Phosphorus Analysis Reports to track the amount of TP discharged and the total amount of 

TP load bought and sold between the facilities. Each discharger must submit the monthly Phosphorus 

Analysis Reports to the permitting authority and to the other facility.

Permit Language:

Meadeville Fertilizer Producers

The Permittee must submit monthly discharge monitoring reports (DMRs) by the 15th day of the 

month following monitoring to the [Permitting Authority] for determining compliance with the 

effluent limitations provided in Section X of this permit. If the Permittee sells credits, as authorized under Section X of this permit, the Permittee must also complete and submit a monthly 

Phosphorus Analysis Report to both the permitting authority and all authorized credit buyers. The 

Phosphorus Analysis Report must contain the information provided on the monthly DMR and the 

amount of credits sold to all authorized credit buyers.

Auburn Carpet Manufacturers

The Permittee must submit monthly discharge monitoring reports (DMRs) by the 15th day of the 

month following monitoring to the [Permitting Authority] for determining compliance with the 

effluent limitation provided in Section X of this permit. If this effluent limitation is met through 

trading, the Permittee must complete and submit a monthly Phosphorus Analysis Report to both 

the permitting authority and all authorized credit sellers. The Phosphorus Analysis Report must 

contain the information provided on the monthly DMR and the amount of credits purchased from 

all authorized credit sellers to compensate for the discharge of total phosphorus from Outfall 001.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

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Special Conditions

Special conditions are developed to supplement effluent limitations and may include requirements such as BMPs, additional monitoring activities, ambient stream surveys, and toxicity 

reduction evaluations (TREs). Special conditions also include permit modification and reopener conditions, and can be used to address water quality trading or incorporate compliance 

schedules (if authorized by the permitting authority). Special conditions of a NPDES permit 

will be very important in incorporating the terms of a trade agreement. Even where the specific terms of the agreement are not directly incorporated into the permit, the special conditions can be used to refer to, and require compliance with, the trade agreement housed in a 

separate document.

The special conditions included in a NPDES permit that incorporates trading will depend on 

provisions of the trade agreement and the effluent limitations and monitoring and reporting 

requirements established in the permit. However, the permitting authority should consider 

incorporating special conditions that support the trading conditions.

Special conditions may also be used to establish provisional requirements that apply if the 

credits on which the trading limits are based are unavailable. Special conditions addressing 

group and individual liability, provisional requirements that apply when credits are unavailable or when an individual or collective limit is exceeded, and outlining the specific requirements for establishing trade agreements among permittees can be important in issuing 

acceptable permits that will not require modification each time circumstances change for one 

of the dischargers covered under the permit.

In addition, the special conditions section of the permit could include a compliance schedule. Compliance schedules for WQBELs are allowed only when state water quality standards 

or state regulations implementing such standards provide authority for using compliance 

schedules as well as when those limits are derived from water quality standards that were 

newly adopted or substantially revised after July 1, 1977. Most state water quality standards 

or implementing regulations authorize using compliance schedules. If compliance schedule 

authority is available, the permit writer could place a compliance schedule in the permit 

special conditions that would give the discharger time to comply with provisions related to 

WQBELs and trading when those provisions are intended to be phased in over time.

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

18

Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Mystic River Example: Special Conditions

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus on the Mystic River

Credit Seller: Meadeville Fertilizer Producers

Credit Buyer: Auburn Carpet Manufacturers

The permit writer has developed the appropriate effluent limitations, monitoring, and reporting 

requirements for each facility. The special conditions for each facility’s permit focus on general authority, credit definition, permit reopeners and modification provisions, compliance schedule, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in trading for the purposes of complying with the total 

phosphorus effluent limitations in Section X of this permit. The authority to use trading for compliance with these limits is derived from: <insert state law if applicable> and section 402 of the 

federal Clean Water Act 33 United States Code (U.S.C.) section 1342. EPA’s policies on Water Quality Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit 

trading. Additionally the Mystic River TMDL authorizes water quality trading as a means of achieving the allocations established by the TMDL.

Credit Definition

One credit will be equal to one in pound of total phosphorous per day on a monthly average basis. 

No trade ratios apply to the permittee’s trades; therefore, each credit purchased by an authorized 

buyer shall correspond to a one pound per day reduction by an authorized seller.

Permit Reopeners, Modification Provisions

The permitting authority may, for any reason provided by law, by summary proceedings or otherwise, revoke or suspend this permit or reopen and modify it to establish any appropriate conditions, schedules of compliance, or other provisions which may be necessary to protect human 

health or the environment or to implement the Mystic River TMDL. The permitting authority may 

also reopen and modify the permit to suspend the ability to trade credits to comply with the total 

phosphorus effluent limitations in Section X of this permit.

Compliance Schedule

This permit includes both interim and final effluent limitations for the discharge of total phosphorus from Outfall 001. Compliance with the final effluent limitations is required on <insert date 24 

months after permit effective date>.
Water Quality Trading Scenario: Single Point Source–Single Point Source Trading 

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Water Quality Trading Scenarios

Point Source–Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

By March 1 of each year, the permittee shall submit a Compliance Plan Annual Report to describe 

the progress of actions undertaken to reduce total phosphorus discharges in the effluent discharged from Outfall 001 or to purchase equivalent credits and achieve compliance with the final 

effluent limitations for the discharge of total phosphorus from Outfall 001 by <insert date 24 

months after permit effective date>.

Enforcement Liability

The permittee is liable for meeting its most stringent effluent limitation. 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.

Mystic River Example: Special Conditions (continued)

Permit Language (continued):
Water Quality Trading Toolkit for Permit Writers

20


Water Quality Trading Scenario: Multiple Facility Point Source Trading 

Water Quality Trading Scenario:

Multiple Facility Point Source Trading

Contents

Water Quality Trading Scenario: Multiple Facility Point Source Trading 1

Trade Agreements 1

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Permit Cover Page 5

Effluent Limitations 6

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Reporting Requirements 15

Special Conditions 19
Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Multiple Facility Point Source Trading 

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Water Quality Trading Scenario:

Multiple Facility Point Source Trading

This water quality trading scenario focuses on technical and 

programmatic issues related to multiple facility point source 

trading, illustrated in Figure 1. Multiple facility point 

source trading is distinguished from single point 

source–single point source trading by the fact that a 

group of point sources operate under a single trade 

agreement. All trades will be limited by the overall 

limit or cap set by the permit. Issues addressed 

under this scenario include the following:

• Trade agreements

• Components of a National Pollutant 

Discharge Elimination System (NPDES) 

permit

− Permit cover page

− Effluent limitations

− Monitoring

− Reporting requirements

− Special conditions

A hypothetical example (shown in highlighted boxes) is presented throughout this scenario 

to illustrate how NPDES permit writers might work with credit buyers and sellers to assist in 

trading and ensure each facility’s NPDES permit contains the appropriate limits, requirements, 

and other conditions.Keep in mind that there are a range of options for incorporating 

trading provisions into a NPDES permit. The hypothetical example discussed throughout this 

scenario illustrates just one of the many options a NPDES permit writer might use.

Trade Agreements

Under multiple facility point source trading, trade agreements can specify the individual trades 

between specific point sources or can establish ground rules for trading to allow point sources 

to trade among themselves as needed. Typically, the terms that govern a trading program will 

be developed outside of the NPDES permit process and can be incorporated or reflected in 

the permit (see Appendix C). The U.S. Environmental Protection Agency’s (EPA) Water Quality 

Trading Policy (Trading Policy) describes several mechanisms for implementing trading through 

NPDES permits (see Appendix B). NPDES permits authorizing water quality trading should reference any existing trade agreement in the permit and fact sheet. The permit writer may also 

incorporate specific provisions of the agreement as appropriate (e.g., shared responsibilities for 

conducting ambient monitoring) into the permit. All trade agreements referenced in NPDES 

fact sheets and permits should meet certain minimum standards to help ensure the trades 

authorized by the permit are consistent with water quality standards. At a minimum, the trade 

TRADE AGREEMENT

Multiple

Point Source

Trading

Figure 1. Multiple point source trading.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



agreement should be a written agreement, signed and dated by authorized representatives of 

all trading partners. Verbal trade agreements should not be referenced in NPDES permits. The 

written trade agreement should contain sufficient detail to allow the permitting authority to 

determine with some degree of certainty that the terms of the agreement will result in loading 

reductions and generation of sufficient credits to satisfy water quality requirements. If there 

is no formal, outside trade agreement, trading can still occur; however, the permit writer will 

need to more explicitly describe the trading program in the fact sheet and authorize specific 

aspects of the trading program as permit conditions. Trading partners can specify the details 

pertaining to the negotiated terms of the trade (e.g., credit price, payment schedule, consequences for failure to fulfill negotiated terms) in a separate written and signed contract.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

St. Martin River Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDLa for Total Phosphorus for the St. Martin River Watershed

Credit Seller: Shepherd County POTWb

Existing TBELc: 120 lbs/day (average monthly)

Current Loading: 120 lbs/day (average monthly)

New WQBELd (based on WLAe

): 110 lbs/day (average monthly)

POTW Treatment Capabilities: Treatment to 20 lbs/day (average monthly)

Credit Buyer #1: City of Oakdale WWTPf

Existing TBEL: 50 lbs/day (average monthly)

Current Loading: 50 lbs/day (average monthly)

New WQBEL (based on WLA): 35 lbs/day (average monthly)

WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)

Credit Buyer #2: Town of Barkley WWTP

Existing TBEL: 50 lbs/day (average monthly)

Current Loading: 50 lbs/day (average monthly)

New WQBEL (based on WLA): 35 lbs/day (average monthly)

WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)

Notes: a TMDL = Total maximum daily load; b POTW = publicly owned treatment works; c TBEL = technology-based effluent limitations; d

 WQBEL = water quality-based effluent 

limitations; e

 WLA = wasteload allocation; f WWTP = wastewater treatment plant

Watershed: Shepherd County POTW (credit seller) is approximately 9 miles upstream from the city 

of Oakdale WWTP (credit buyer 1) and 10 miles upstream from the town of Barkley WWTP (credit 
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

Wa t e r Q u a l i t y 

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buyer 2) along the St. Martin River. All three facilities discharge into a segment of the river that has 

been listed as impaired for nutrients, and a phosphorus TMDL has just been approved.

Applicable Trading Ratios:

n Delivery: On the basis of best available science, a delivery ratio of 3:1 ratio is needed for trades 

between Shepherd County POTW and either of the two credit buyers to account for the fate and 

transport of total phosphorus (TP) over the distance between the facilities. It is not necessary to 

apply an equivalency ratio because the same pollutant form is being traded, nor an uncertainty 

ratio because all parties can accurately monitor end-of-pipe loads.

The facilities’ existing individual permits include TBELs based on state treatment standards for TP. 

The permittees currently meet these TBELs. These existing effluent limitations are less stringent than 

the limitations needed to meet the new WLAs established in the St. Martin River TMDL. To facilitate meeting the TMDL, the permitting authority has issued a watershed-based overlay permit that 

addresses phosphorus discharges from each of the three facilities. This permit also authorizes trading 

between Shepherd County and each of the two WWTPs downstream.

Shepherd County POTW is a large, new facility and has the potential to treat its discharge to a phosphorus loading of 20 lbs/day. The facility’s baseline requirement for trading is 110 lbs/day (i.e., most 

stringent effluent limitation). Treating to the maximum capacity of the POTW would result in an 

excess phosphorus reduction of 90 lbs/day (baseline – treatment capacity = excess reduction).

The city of Oakdale and the town of Barkley WWTPs have not been upgraded and have no funds to 

upgrade to meet the new WLA. Both are small, rural localities and are not projecting substantial 

growth. The permitting authority is allowing both facilities to trade to meet their new WLAs (i.e., 

baselines). However, to trade, both WWTPs would need continue to treat their discharges to meet the 

existing TBELs (i.e., the minimum control level). Both facilities would then be allowed to purchase 

credits equivalent to the difference between the minimum control level and the baseline (50 lbs/day 

– 35 lbs/day = 15 lbs/day).

According to best available science, the permitting authority has determined that the application of 

a 3:1 delivery ratio is necessary to account for the fate and transport of phosphorus over the distance 

between the seller (Shepherd County POTW) and the buyers. Therefore, for the buyers to account for 

the 15 lbs/day of phosphorus loading necessary to compensate for each WWTP’s discharge and meet 

their baselines, each must purchase 45 lbs/day (monthly average) from the Shepherd County POTW 

(15 lbs/day offset needed × 3:1 delivery ratio = 45 lbs/day needed). The POTW seller can generate 90 

lbs/day and, therefore, has an adequate supply of phosphorus credits to sell.

The facilities have decided to enter into a trade agreement with each other. The basic terms of the 

trade agreement are as follows:

n A trade ratio of 3:1 applies to trades between the buyer and sellers because of the distance 

between them.

n Shepherd County POTW (seller) will install control technologies that will result in a 90 lbs/day 

of surplus load reduction eligible for trading.

St. Martin River Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



n Shepherd County POTW has a trading limit = 110 lbs/day – Quantity of Pounds Sold.

n City of Oakdale WWTP (credit buyer 1) has a WQBEL (baseline) of 35 lbs/day that must be met 

through trading, treatment, or pollution prevention. The facility’s minimum control level is the 

existing TBEL of 50 lbs/day (average monthly) based on the TBEL for TP. The facility’s current 

discharge of 50 lbs/day meets the existing TBEL.

n City of Oakdale WWTP (credit buyer 1) needs to purchase credits equivalent to 15 lbs/day of TP 

(baseline–minimum control level).

n Town of Barkley (credit buyer 2) has a WQBEL (baseline) of 35 lbs/day that must be met through 

trading, treatment or pollution prevention. The facility’s minimum control level is its existing 

TBEL, which is a loading limit of 50 lbs/day of TP. The facility’s current discharge of 50 lbs/day 

meets the existing TBEL.

n Town of Barkley WWTP (credit buyer 2) needs to purchase credits equivalent to 15 lbs/day of TP 

(baseline–minimum control level).

n Each facility will continue to monitor TP as required under each facility’s respective individual 

NPDES permits.

n Trades occur monthly and credits may not be applied in any month other than the one in which 

the credits are generated.

n Each facility will continue to complete and submit Discharge Monitoring Report (DMR) forms to 

the NPDES permitting authority, as required under each facility’s NPDES permit. In addition to 

DMR reporting, each facility will complete and exchange monthly Phosphorus Analysis Reports 

to track the amount of TP discharged and the total amount of TP load bought and sold between 

the facilities.

n Separate contracts between the seller and two buyers articulate the financial and liability conditions that each pair of facilities has agreed upon.

The NPDES permit writer for the facilities receives a written copy of the trade agreement that is signed 

and dated by authorized representatives of each facility. The permit writer reviews the written trade 

agreement to identify information that is pertinent to each facility’s NPDES permit. The permit writer 

incorporates provisions that outline trade-specific effluent limitations (i.e., baselines, the minimum control levels for the buyers, and the trading limit for the seller) and reporting and monitoring provisions.

The permit writer incorporates the Phosphorus Analysis Report provision of the trade agreement into 

the permit to require the facilities to submit trade information to the permitting authority. This will 

allow the permitting authority to determine whether the buyers and seller maintain compliance with 

WQBELs and applicable TBELs. Other components of the trade agreement, such as issues of liability 

and penalty payment, are not enforceable through the NPDES permit and, therefore, would not be 

incorporated into the compliance provisions of each NPDES permit.

The permit writer, with input from the permittees, will develop an overlay NPDES permit that 

addresses only TP requirements for the three facilities. The permit writer will reference the written 

trade agreement in the fact sheet of the group’s overlay NPDES permit.

St. Martin River Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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Components of a NPDES Permit

NPDES permits that authorize water quality trading are no different than typical NPDES permits in many respects—they require the same structure, analyses, and justification. All permits 

have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and reporting requirements; (4) special conditions; and (5) standard conditions. Standard conditions are 

the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent 

with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject 

to public notice and comment. This process provides all interested parties an opportunity to 

comment on the trading provisions in the permit.

Each NPDES permit is accompanied by a permit fact sheet. The information in these fact 

sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the 

permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions 

in the permit. There is a wide variety of options for including trading information in the fact 

sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller) 

to including the entire trading program.

There are a variety of issues, however, that may require special consideration when developing 

a permit incorporating water quality trading. Appendix E provides the permit writer with a list 

of fundamental questions that should be addressed during the permit development process.

Permit Cover Page

The cover page of a NPDES permit typically contains the name and location of the 

permittee(s), a statement authorizing the discharge, the specific locations for which a discharge is authorized (including the name of the receiving water), and the effective period of 

the permit (not to exceed 5 years). A permit incorporating or referencing a trade agreement 

can refer to water quality trading on the cover page, but this is not necessary. If the state has 

issued regulations or policy documents authorizing water quality trading, the permit writer 

should consider referencing the regulations in the Authority section of the cover page. For 

example, if trading is considered a water-quality management tool in a state’s Water Quality 

Management Plan, this establishes clear authority for integrating trading into NPDES permits 

and can be referenced on the cover page (Jones 2005).

The cover page may also address the specific pollutants regulated by the permit. For instance, 

the cover page of an overlay permit for TP may state that the overlay permit addresses only TP 

and that other parameters are addressed in each facility’s individual permit.

Effluent Limitations

Effluent limitations are the primary mechanism for controlling the discharge of pollutants 

from point sources into receiving waters. When developing a permit, the permitting authority focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES 

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Clean Water Services, Oregon

The Oregon Department of Environmental Quality addresses water quality trading on 

the cover page of the permit issued to Clean Water Services. For more information about 

this trading program, see Appendix A.
Water Quality Trading Toolkit for Permit Writers



permits, permits that include trading must include any applicable TBELs, or the equivalent, 

and where necessary, WQBELs that are derived from and comply with all applicable technology and water quality standards. Furthermore, limits must be enforceable, and the process 

for deriving the limits should be scientifically valid and transparent.

EPA’s Trading Policy does not support trading to meet TBELs unless trading is specifically 

authorized in the categorical effluent limitation guidelines on which the TBELs are based. 

Applicable TBELs thus serve as the minimum control level below which the buyer’s treatment 

levels cannot fall. This section discusses the overarching principles of how to express all applicable effluent limitations in permits for dischargers participating in water quality trades. 

Credit Buyers

Permits for credit buyers should include both the baseline, which is the WQBEL that defines 

the level of discharge the buyer would have to meet through treatment when not trading, 

and a minimum control level that must be achieved through treatment when trading. The 

permit should also include the amount of pollutant load to be offset (minimum control level 

– baseline) through credit purchases when trading. Most often, the applicable TBEL will serve 

as the minimum control level. A permitting authority can choose to impose a more stringent 

minimum control level than the TBEL to prevent localized exceedances of water quality standards near the point of discharge but not one that is less stringent than the TBEL. In a NPDES 

permit fact sheet, the effluent limitations for a credit buyer could be described as follows:

• The Discharger must meet, through treatment or trading, a mass-based effluent limitation for Pollutant A of <insert baseline>. If this effluent limitation is met through 

trading, the Discharger must purchase credits from authorized Sellers in an amount 

sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess 

of <insert baseline>, but at no time shall the maximum mass discharge of Pollutant A 

during <insert averaging period> exceed the minimum control level of <insert minimum control level>. Thus, the maximum mass discharge of Pollutant A to be offset 

through credit purchases is <insert minimum control level – baseline>.

Credit Sellers

When a potential credit seller is able to reduce its discharge below its most stringent applicable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of 

credits that any given seller actually will be able to sell depends on the market for credits, 

agreements made with buyers, and any treatment requirements placed on potential buyers 

(i.e., the buyers’ minimum control levels). Because of these factors, it is possible that a discharger will not be able to sell all the credits it generates.

A credit seller’s permit will include both the most stringent effluent limitation that would 

apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level 

it will control its pollutant discharge (using technology or best management practices (BMPs) 

it will implement), and this level becomes its trading limit. The baseline and trading limit 

could be described in the permit fact sheet as follows:

• Through treatment, the Discharger must meet a mass-based effluent limitation for 

Pollutant A of <insert baseline>. The Discharger is authorized to further treat its 

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

Wa t e r Q u a l i t y 

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discharge, remove additional loading of Pollutant A, and generate and sell credits to 

an authorized credit Buyer or Buyers. If the Discharger sells such credits, the <insert 

averaging period, e.g., average monthly> effluent limitation <insert baseline> no 

longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead 

as follows: Trading Limitation = <insert baseline> – Quantity of Pounds Sold.

The permit must include monitoring and reporting requirements for Pollutant A sufficient to 

demonstrate that the seller actually has generated the credits it sells and, therefore, is meeting its trading limit.

Aggregate or Individual Limitations

It may be appropriate for permit writers to include aggregate WQBELs that apply to the 

group of point sources covered under a general or watershed permit. An aggregate effluent 

limitation typically represents the sum of the pollutant WLAs for all permittees covered by 

the permit. This allows maximum flexibility for trades among dischargers within the watershed but should be considered only if localized exceedances of water quality standards are 

not a concern. An aggregate limitation allows individual dischargers to discharge or trade 

among themselves to any degree as long as the aggregate limitation is met and each discharger complies with any applicable TBELs. An aggregate effluent limit may be most appropriate in a trading scenario involving many individual dischargers within a watershed having 

a large-scale load reduction driver such as a TMDL for the entire waterbody or a percent load 

reduction requirements for the watershed as a whole. This is functionally equivalent to having a series of individual WQBELs and no trading limits.

EPA does not endorse setting a multisource aggregate limit without also including in the 

permit individual limits for each source covered. If the group of facilities does not meet 

its aggregate limit and an individual source does not meet its limit on its own and does 

not trade to meet it, enforcement action may be taken against this individual source. This 

approach keeps co-permittees under the general or watershed permit that have met their 

requirements free from liability when other co-permittees are responsible for the group 

discharging above the aggregate limit.

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Truckee Meadows Water Reclamation Facility, Nevada

The Nevada Division of Environmental Protection authorized individual and aggregate 

effluent limitations in a permit issued to Truckee Meadows Water Reclamation Facility. 

For more information about this trading program, see Appendix A.

Neuse River Basin, North Carolina

The Neuse River Compliance Association (NRCA) general permit has an aggregate TN allocation 

and each member of the association has an individual allocation. If the NRCA meets the aggregate limit for the year, the NRCA and each permittee are in compliance. If the aggregate limit is 

exceeded, then the NRCA is out of compliance and any member that exceeds its individual TN

limit is also out of compliance and subject to enforcement action. For more information about 

this trading program, see Appendix A.
Water Quality Trading Toolkit for Permit Writers



St. Martin River Example: Effluent Limitations

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDL for Total Phosphorus for the St. Martin River Watershed

Credit Seller: Shepherd County POTW

Existing TBEL: 120 lbs/day (average monthly)

Current Loading: 120 lbs/day (average monthly)

New WQBEL (based on WLA): 110 lbs/day (average monthly)

POTW Treatment Capabilities: Treatment to 20 lbs/day (average monthly)

Credit Buyer #1: City of Oakdale WWTP

Existing TBEL: 50 lbs/day (average monthly)

Current Loading: 50 lbs/day (average monthly)

New WQBEL (based on WLA): 35 lbs/day (average monthly)

WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)

Credit Buyer #2: Town of Barkley WWTP

Existing TBEL: 50 lbs/day (average monthly)

Current Loading: 50 lbs/day (average monthly)

New WQBEL (based on WLA): 35 lbs/day (average monthly)

WWTP Treatment Capabilities: Treatment to 50 lbs/day (average monthly)

Watershed: Shepherd County POTW (credit seller) is approximately 9 miles upstream from the city 

of Oakdale WWTP (credit buyer 1) and 10 miles upstream from the town of Barkley WWTP (credit 

buyer 2) along the St. Martin River. The segment of river to which all three facilities discharge has 

been listed as impaired for nutrients, and a phosphorus TMDL has just been approved.

Applicable Ratios:

n Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County 

POTW and either of the two credit buyers to account for the distance between the facilities.

The facilities’ existing individual permits include TBELs based on state treatment standards for TP. 

The permittees currently meet these TBELs. These existing effluent limitations are less stringent than 

the limitations needed to meet the new WLAs established in the St. Martin River TMDL. To facilitate meeting the TMDL, the permitting authority has issued a watershed-based overlay permit that 

addresses phosphorus discharges from each of the three facilities. This permit also authorizes trading 

between Shepherd County POTW and each of the two WWTPs downstream.

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

Wa t e r Q u a l i t y 

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If the Shepherd County POTW chooses to sell 90 lbs/day of the credits generated by the over control of 

its discharge, a trading limit will apply as follows:

Baseline – Pounds Sold = Trading Limitation

110 lbs/day – 90 lbs/day = 20 lbs/day

The POTW will be required to demonstrate that its discharge has an actual loading of no more than 

20 lbs/day during any period it is trading with the buyer WWTPs.

A new overlay permit is being developed, which implements the new phosphorus WQBELs and authorizes trading between the facilities. Upon issuance of the permits, the new WQBELs and trading provisions will apply. The permits will include effluent limitations equal to baselines, minimum control 

levels, and trading limits.

Table 1. Monthly average mass-based effluent limitations for TP

Facility Units

Effluent limitation 

without trading

Effluent limitation 

with trading

Shepherd County POTW lbs/day 110 (Baseline/WQBEL) 20a

City of Oakdale WWTP lbs/day 35 (Baseline/WQBEL)

50 (Minimum Control 

Level/TBEL)

Town of Barkley WWTP lbs/day 35 (Baseline/WQBEL)

50 (Minimum Control 

Level/TBEL)

a

Trading limit = (WQBEL – pollutant loading necessary to generate quantity of credits sold)

Permit Language:

Shepherd County POTW

A. The permittee shall be in compliance with the monthly average effluent limitations for total 

phosphorus in this permit if:

a. The permittee has not sold any credits and the permittee’s average monthly mass loading 

of total phosphorus is less than or equal to the Baseline (Effluent Limitation Without Trading) set forth in Table 1; or,

b. The permittee has sold total phosphorus credits such that the effluent loading does not 

exceed the Trading Limit (Effluent Limitation with Trading) established in Table 1.

B. Credits sold and purchased may be applied only to the calendar month(s) in which they were 

generated.

City of Oakdale WWTP and Town of Barkley WWTP

A. The permittee shall be in compliance with the monthly average effluent limitations for total 

phosphorus in this permit if:

a. The permittee has not purchased any credits and the permittee’s average monthly mass 

loading of total phosphorus is less than or equal to the Baseline (Effluent Limitation Without Trading) set forth in Table 1; or,

St. Martin River Example: Effluent Limitations (continued)

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

10

Pollutant Form, Units of Measure, and Timing Considerations

The permit should explicitly identify the pollutant or pollutants being traded. The permitting 

authority should ensure that the trading program or agreement and the calculated WQBELs 

are consistent in terms of the form of the pollutant, units of measure, and timing.

For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated 

under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen 

(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers 

and sellers should trade TN credits. In this case, a discharger may be required to measure TN. 

If there are concerns about localized impacts, and WQBELs are also specified for a particular form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and 

nitrate (all expressed as N) and then calculate its TN discharge.

Also, an equivalency ratio may be needed when two sources are trading pollutants such as 

TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one 

discharger’s phosphorus discharge is made up primarily of biologically available phosphorus, 

while its trading partner’s discharge is primarily composed of bound phosphorus). An equivalency ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants 

(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio 

would equal the ratio between the two pollutants’ impacts on oxygen demand. The trading 

program should account for any necessary equivalency ratios with regard to pollutant form 

or type; the permit writer needs to be aware of the pollutant form or type addressed in the 

trade agreement to ensure that the permit is consistent.

In addition, consistent reconciliation periods are essential in trading between point sources. 

The credit purchaser’s permit limits for the traded pollutant and the credit seller’s permit limits should have the same units and averaging period. Because both sets of limits are designed 

to address the same water quality problem, both should use the averaging period and units 

that make the most sense to address that problem. Consistent units and averaging periods 

will also simplify reconciliation of credit sales and purchases.

b. The permittee’s effluent loading does not exceed the Minimum Control Level (Effluent 

Limitation With Trading) established in Table 1 and the permittee has purchased credits 

equivalent or greater than the difference between the baseline and the minimum control 

level.

B. Credits sold and purchased may be applied only to the calendar month(s) in which they were 

generated.

St. Martin River Example: Effluent Limitations (continued)

Permit Language (continued):

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

11Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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Anti-backsliding, Antidegradation, and New Discharges Special 

Considerations

The Trading Policy discusses anti-backsliding and antidegradation and how these provisions 

can be met through trading.

Anti-backsliding

The term anti-backsliding refers to a statutory provision (Clean Water Act (CWA) section 

402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing 

NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent 

than those established in the previous permit (USEPA 1996b). The CWA establishes exceptions 

to this general anti-backsliding prohibition. EPA has consistently interpreted section 402(o)(1) 

St. Martin River Example: Pollutant Form, Units of Measure, 

and Timing

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus on the St. Martin River

Credit Seller: Shepherd County POTW

Credit Buyers: City of Oakdale and Town of Barkley WWTPs

Pollutant Form

All trading partners discharge phosphorus year round. The TMDL indicates a need to control TP 

discharges. Each facility discharges the same form of phosphorus at the same percentage of solubility; 

therefore, no provisions are necessary in the permit to address the issue of pollutant form.

Units of Measure

The TP WQBELs based on the TMDL WLAs are expressed in lbs/day as a monthly average to correspond with the units and averaging period in the TMDL. The limits in the trading partners’ permits 

are also expressed in lbs/day as a monthly average. Monthly trades will be based on average monthly 

reductions demonstrated through monitoring.

Timing of Credits

Credits will be available immediately upon permit issuance. Trades will occur monthly to correspond 

with monthly average effluent limitations. The purchased credits must be applied by the buyers during 

the same month that the seller generates them. The POTW will be able to continue to generate credits 

as long as the controls are properly operated and maintained, the facility is able to demonstrate reductions, and the facility does not become subject to more stringent requirements (i.e., newly promulgated effluent guidelines or other more stringent technology-based controls or additional WQBELs 

to avoid localized exceedances of water quality standards) that would reduce or eliminate the credits 

generated. The ability of the seller to continue to generate credits will be assessed during the renewal 

of the individual permits every 5 years.

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

12

to allow for less-stringent effluent limitations if either an exception under section 402(o)(2) or, 

for WQBELs, the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) 

and 40 CFR 122.44(l) provide exceptions for circumstances such as material and substantial 

alterations to the facility, new information, events beyond the permittee’s control, and permit modifications under other sections of the CWA. Section 303(d)(4), which applies only to 

WQBELs, allows a less-stringent WQBEL in a reissued permit when the facility is discharging to 

a waterbody attaining water quality standards as long as the waterbody continues to attain 

water quality standards even after the WQBEL is relaxed. In addition, revising the limitation 

must be consistent with the state’s antidegradation policy. If the discharge is to a waterbody 

that is not attaining water quality standards, a less-stringent WQBEL is allowed only when 

the cumulative effect of all revised effluent limitations results in progress towards attainment 

of water quality standards. For a detailed discussion of the anti-backsliding exceptions, see 

EPA’s NPDES Permit Writers’ Manual (EPA-833-B-96-003). EPA’s Trading Policy states:

EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the 

CWA will generally be satisfied where a point source increases its discharge 

through the use of credits in accordance with alternate or variable water quality 

based effluent limitations contained in an NPDES permit, in a manner consistent 

with provisions for trading under a TMDL, or consistent with the provisions for 

pre-TMDL trading included in a watershed plan.

A permit writer should simply explain in the fact sheet of the permit how the limitations in 

the permit, after accounting for any trading provisions, are at least as stringent as the limits 

in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are 

satisfied. 

Antidegradation

As repeated throughout this document, NPDES permits may not facilitate trades that would 

result in nonattainment of an applicable water quality standard, including the applicable 

antidegradation provisions of water quality standards. Permitting authorities should ensure 

that WQBELs developed to facilitate trade agreements accord with antidegradation provisions and that antidegradation reviews are performed when required. Nothing in the Trading Policy per se changes how states apply their antidegradation policies, though states may 

modify their antidegradation policies to recognize trading.

The Trading Policy states:

EPA does not believe that trades and trading programs will result in “lower 

water quality”

 . . . or that antidegradation review would be required under EPA’s regulations 

when the trades or trading programs achieve a no net increase of the pollutant traded and do not result in any impairment of designated uses.

Special considerations for antidegradation relative to water quality trading depend on the 

tier of protection applied to the waterbody as described below.

Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters, 

the antidegradation policy mandates protection of existing instream uses. Because EPA 

Water Quality Trading Scenarioss

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

13Wa t e r Q u a l i t y 

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neither supports trading activities nor allows issuance of permits that violate applicable water 

quality standards, which should protect existing uses at a minimum, any supported trading 

activities incorporated into a NPDES permit should not violate antidegradation policies 

applicable to Tier 1 waters.

Tier 2 protects waters where the existing water quality is higher than required to support 

aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the 

level that would continue to support existing and designated uses) but only if an antidegradation review finds that (1) it is necessary to lower water quality to accommodate important social 

or economic development, (2) all intergovernmental and public participation provisions have 

been satisfied, and (3) the highest statutory and regulatory requirements for point sources and 

BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to maintain high water quality when trading is used to compensate for new or increased discharges. 

Thus, the Trading Policy supports reductions of existing pollutant loadings to compensate for 

the new or increased load so that the result is no lowering of water quality. A state, in applying its antidegradation policy, may decide to authorize a new or increased discharge to high 

quality water, and may decide to use trading to completely or partially compensate for that 

increased load. If the increased load to Tier 2 waters is only partially compensated for by trading, an antidegradation review would be required to address the increased load.

Tier 3 protects the quality of outstanding national resource waters and waters of exceptional 

recreational or ecological significance. In general, antidegradation policies do not allow any 

increase in loading to Tier 3 waters that would result in lower water quality. EPA supports 

trading in Tier 3 waters to maintain water quality.

Monitoring

Permitting authorities may want to consider developing monitoring and reporting requirements to characterize waste streams and receiving waters, evaluate wastewater treatment 

efficiency, and determine compliance with permit conditions in trade agreements. Monitoring and reporting conditions of a NPDES permit may contain specific requirements for 

sampling location, sample collection method, monitoring frequencies, analytical methods, 

recordkeeping, and reporting. If the permit conditions include compliance with provisions in 

a trade agreement, the permitting authority should include monitoring, record-keeping, and 

reporting requirements that facilitate compliance evaluations and, where necessary, enforcement actions related to the trading requirements. Discharge monitoring requirements should 

be consistent with the provisions of the trade agreement in terms of pollutants and forms of 

pollutants monitored, reporting units, and timing. The permit provisions should ensure that 

the results of discharge monitoring will be useful to the permittees, the permitting authority, and the general public in determining whether the provisions of the trade agreement are 

being met.

Sample Collection and Analysis

The same discharge sampling location used for compliance in any existing NPDES permits 

should be used for determining compliance with effluent limitations developed for traded 

parameters. Samples collected as part of a self-monitoring program required by a NPDES 

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

14

permit must be performed in accordance with EPA-approved analytical methods specified 

in 40 CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants 

Under the Clean Water Act) where Part 136 contains methods for the pollutant of concern. 

Where no Part 136 methods are available, the permit writer should specify which method 

should be used for compliance monitoring.

Parties Responsible for Monitoring

The trade agreement specifies the types and frequency of monitoring needed as well as 

the parties responsible for monitoring. The individual facilities are ultimately responsible to 

ensure that effluent monitoring is completed and reported to the permitting authority. Any 

enforcement actions for failure to monitor and report will be against the individual facilities. The permitting authority should ensure that sufficient monitoring is required to allow 

permittees, agency compliance personnel, and the public to gauge whether dischargers are 

meeting their individual effluent limitations and requirements under the trade agreement.

The permitting authority might use a different approach for specifying monitoring requirements, depending on the type of permit. For example, discharge monitoring under a multiple 

facility permit would be required of all individual dischargers and should be listed in the permit. If the permit is an overlay permit used to incorporate water quality trading for specific 

pollutants, the permitting authority may establish certain monitoring requirements, such as 

monitoring location, by reference to the facility’s individual NPDES permit for consistency. 

Alternatively, the overlay permit could specifically list the monitoring location and requirements for each permittee or co-permittee.

The permitting authority may consider establishing more frequent monitoring for facilities with higher design flows than those with lower design flows. Monitoring and reporting 

requirements in a multiple facility permit, such as a watershed-based permit, may be a combination of individual and watershed-wide requirements as described below.

Ambient Monitoring

Ambient monitoring is one way to show whether a trade agreement meets or improves water 

quality. In addition to traditional discharge monitoring requirements, ambient water quality 

monitoring may be appropriate at strategic locations to ensure that the trade is not creating 

localized exceedances of water quality standards and to document the performance of the 

overall trading program. Permits with mixing zones may include monitoring requirements as 

appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable 

mixing zone.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Neuse River Basin, North Carolina

The state of North Carolina Department of Environment and Natural Resources included 

monitoring provisions in a permit issued to the NRCA and its co-permittee members to 

control nitrogen discharges. These provisions require members of the NRCA to monitor 

their discharge as specified in their individual permits. In addition, the NRCA compiles 

and submits members’ nitrogen monitoring results. Each member also has individual 

ambient monitoring requirements, but the NRCA is not required to conduct ambient 

monitoring. For more information about this trading program, see Appendix A.
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

15Wa t e r Q u a l i t y 

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General or watershed-based permits may establish a comprehensive watershed monitoring program. For example, to fulfill monitoring requirements that are applied to multiple 

dischargers, permittees could establish a monitoring consortium to collect ambient water 

quality data that supplements end-of-pipe monitoring data required by the permit. Through 

this group-wide monitoring consortium, permittees could generate data to use in watershed 

assessments.

Reporting Requirements

Reporting requirements should be established to support the permitting authority’s evaluation of water quality trading programs. For example, in addition to reporting discharge 

monitoring results, permitting authorities might require a permittee to report the number 

of credits purchased. Permitting authorities might also require an annual monitoring report 

specific to the pollutants involved in the trade, to provide information on annual loading 

in accordance with the requirements of the trading program. Permits incorporating water 

quality trades should require reporting at a frequency appropriate to determine compliance 

with the trading provisions. Permitting authorities should consider any requirements of the 

trading programs related to monitoring and reporting and ensure the permits are consistent 

with these requirements. Permits may require reporting of monitoring results at a frequency 

St. Martin River Example: Monitoring

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus on the St. Martin River

Credit Seller: Shepherd County POTW

Credit Buyers: City of Oakdale and Town of Barkley WWTPs

Location: The dischargers are in the St. Martin River watershed.

The facilities have existing TP monitoring requirements. The overlay permit will require monitoring 

at the same locations as established in the existing permits. In addition, the existing permit requires 

monthly monitoring for TP. Each discharger will be required to monitor for phosphorus weekly. For 

the permitting authority to gauge compliance, the permit writer will develop permit language that 

requires each discharger to submit monthly DMRs to the permitting authority by the 15th of the 

month following monitoring. Ambient receiving water monitoring requirements are included in the 

existing NPDES permits and are adequate to ensure that localized exceedances of water quality standards do not develop as a result of trades.

Permit Language:

Each permittee shall monitor effluent total phosphorus a minimum of one time per week at existing discharge monitoring locations established in each facility’s existing NPDES permit. Each permittee shall determine the average monthly mass loading based on actual monthly average flow. 

Flow monitoring shall be continuous.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

16

established through the permit on a case-by-case basis but in no case may that frequency be 

less than once per year.

Trading programs may establish other reporting and tracking requirements as well. For 

example, it is essential to have a mechanism for tracking trades. An additional form could be 

required such as a credit certificate form (see Appendix C). The permitting authority can hold 

point sources liable if they violate any trading provision included in the permit or any trade 

agreement incorporated by reference into the permit, and point sources are also liable if they 

do not meet their permit limits.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

St. Martin River Example: Reporting

n What You Need to Know...

Pollutant: Total Phosphorus

Credit Seller: Shepherd County POTW

Credit Buyers: City of Oakdale and Town of Barkley WWTPs

Location: The dischargers are located in the St. Martin River watershed.

Applicable Ratios:

n Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County 

POTW and either of the two credit buyers to account for the distance between the facilities.

An overlay permit is being developed for permittees in the St. Martin River watershed to facilitate 

trading. In addition to their existing, individual NPDES permits, each of the trading partners has 

applied for coverage under the overlay permit. The permit requires, in addition to monitoring reports, 

regular reporting of any changes to the trade agreement and reports for tracking trades. Because 

the facilities’ individual permits contain monthly average effluent limitations for TP, monthly trade 

transactions will be necessary to maintain compliance. The trade agreement between the dischargers indicates that trades will be tracked by individual dischargers. Also, trading notification forms 

for trades between trading partners and monthly trading summaries for the entire program will be 

submitted by each discharger. Credits must be used in the same month they are generated and trading 

notification forms must be submitted to the regulatory agency by the 15th of the month following the 

trade. The permit gives the facilities 15 days to report the trades to account for administrative time 

and processing notification forms.

In addition, the permit requires biannual reporting to summarize year-to-date transactions and 

actual reductions and loading reflected by monitoring.

Permit Language:

No trade is valid unless it is recorded by both the credit buyer and the credit seller and trading 

notification forms and a monthly summary of all trades for each calendar month are submitted to 

the permitting authority. The record-keeping system employed by the permittee must be capable 

of ensuring that a particular credit is not sold to more than one trading participant. Trading notification forms for each monthly trade must be submitted to <the Permitting Authority> by the 15th 

day of the month following the trade.
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

17Wa t e r Q u a l i t y 

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Data Reporting to EPA

EPA administers two systems to store NPDES permit data and track compliance, the Permit 

Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). 

PCS is the old computerized management information system that contains data on NPDES 

permit-holding facilities to track the permit, compliance, and enforcement status of these 

facilities. 

The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains 

integrated enforcement and compliance information across most of EPA’s programs including 

all federal administrative and judicial enforcement actions. In addition, ICIS has the capability 

to track other activities occurring in an EPA Region that support enforcement and compliance 

programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitoring. In the future, ICIS will be deployed to all states, and PCS will no longer be used.

Neither PCS nor ICIS is structured to actually track trades.

PCS is designed to compare actual discharge monitoring data against required effluent limitations to determine a facility’s compliance with its NPDES permit. To determine compliance 

under a trading scenario, it is necessary for the NPDES permitting authority to compare actual 

discharge monitoring data and the quantity of credits purchased or pounds sold against 

required effluent limitations. For credit sellers, compliance is tracked against the WQBEL that 

serves as the facility’s baseline. For credit buyers, compliance is actually tracked against two 

effluent limitations—the minimum control level and the baseline. The challenge in using PCS 

to determine compliance under a trading scenario is that the system does not automatically 

make adjustments to the reported actual discharge—it will not add or subtract the load traded. Therefore, this type of adjustment must be done before entering information into PCS so 

that the system has only one reported number to compare against an effluent limitation.

To determine compliance for a credit seller, the NPDES permitting authority will need to 

know that the sum of a credit seller’s actual discharge and the number of pounds sold is less 

than or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point 

source credit sellers could report the sum of the facility’s actual discharge and the number 

of pounds sold, and that amount would be entered into PCS. PCS would then compare the 

sum of the actual discharge and the number of pounds sold against the facility’s baseline; 

the sum should be less than or equal to the facility’s baseline to indicate that the facility is in 

compliance.

Point source credit buyers not only have a baseline, but also a minimum control level (the 

facility’s TBEL or current discharge, whichever is more stringent). To determine compliance for 

a credit buyer, the NPDES permitting authority will need to know that (1) the facility’s actual 

discharge is less than or equal to its minimum control level, and (2) that the number of credits 

purchased result in the facility achieving its baseline. Therefore, point source credit buyers 

could report two types of information: (1) the facility’s actual discharge, and (2) the difference between the actual discharge, and the quantity of credits purchased. Both numbers 

would be entered into PCS to determine compliance. PCS would compare the actual discharge 

against the minimum control level to determine permit compliance and eligibility as a credit 

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

18

buyer. PCS would also compare the difference between the actual discharge and the quantity 

of credits purchased against the facility’s baseline; the difference should be less than or equal 

to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline 

and remain in compliance with its WQBEL. PCS can accommodate two different effluent 

limits for the same parameter; therefore, it has the capability to determine compliance with 

both the minimum control level and the baseline for a credit buyer.

ICIS also allows the NPDES permitting authority to report two limits; therefore, this system 

can also accommodate both the baseline and the minimum control level for credit buyers. 

New DMR forms will also have two lines to report both the baseline and the minimum control 

level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the 

current design, ICIS will allow a facility with an existing NPDES permit to also have a trading partner entered into the system. Once a trading partner is entered for a facility, ICIS will 

allow the entry of an adjusted value—this is the reported actual discharge adjusted by the 

number of credits bought or sold. If an adjusted value is entered, this value is used to determine permit violations and percent exceedances (USEPA 2006).

In addition to challenges related to limits and the type of information to report, NPDES permits with trading provisions might also raise issues related to reporting periods and automated compliance tracking. PCS will not support a reporting extension beyond 30 days. This 

type of reporting extension might be necessary in some instances to allow adequate time for 

the administrative activities necessary for trading partners to coordinate and reconcile trades. 

ICIS, however, will support a 45-day reporting period. In rare instances when a permitting 

authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one 

to be annual. However, the permitting authority will have to manually flag annual limit effluent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to 

track compliance.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Multiple Facility Point Source Trading 

19Wa t e r Q u a l i t y 

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Special Conditions

Special conditions are developed to supplement effluent limitations and may include requirements such as BMPs, additional monitoring activities, ambient stream surveys, and toxicity 

reduction evaluations (TREs). Special conditions also include permit modification and reopener conditions and can be used to address water quality trading or incorporate compliance 

schedules (if authorized by the permitting authority). Special conditions of a NPDES permit 

will be very important in incorporating the terms of a trade agreement. Even where the specific terms of the agreement are not directly incorporated into the permit, the special conditions will be used to refer to, and require compliance with, the trade agreement housed in a 

separate document.

The special conditions included in a NPDES permit that implements trading will depend on 

provisions of the trade agreement and the effluent limitations and monitoring and reporting 

requirements established in the permit. However, the permitting authority should consider 

incorporating special conditions that support the trading conditions. For example, the special 

conditions of the permit may specify how and when trades may be conducted among permittees or how an exceedance of an aggregate loading cap will be enforced among the permittees responsible for exceeding their individual loading limits.

Special conditions may also be used to establish provisional requirements that apply if the 

credits on which the trading limits are based are unavailable. Special conditions addressing 

group and individual liability, provisional requirements that apply when credits are unavailable or when an individual or collective limit is exceeded, and outlining the specific requirements for establishing trade agreements among permittees can be important in issuing 

acceptable permits that will not require modification each time circumstances change for one 

of the dischargers covered under the permit.

In addition, the special conditions section of the permit could include a compliance schedule. Compliance schedules for WQBELs are allowed only when state water quality standards 

or state regulations implementing such standards provide authority for using compliance 

schedules as well as when those limits are derived from water quality standards that were 

newly adopted or substantively revised after July 1, 1977. Most state water quality standards 

or implementing regulations authorize using compliance schedules. If compliance schedule 

authority is available, the permit writer could place a compliance schedule in the permit 

special conditions that would give the discharger time to comply with provisions related to 

WQBELs and trading when those provisions are intended to be phased in over time.

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

20

Water Quality Trading Scenarios

Multiple Point Source

Trade Agreements Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

St. Martin River Example: Special Conditions

n What You Need to Know...

Pollutant: Total Phosphorus

Credit Seller: Shepherd County POTW

Credit Buyers: City of Oakdale and Town of Barkley WWTPs

Location: The dischargers are in the St. Martin River watershed.

Applicable Ratios:

n Delivery: The trading program has established a 3:1 ratio for trades between Shepherd County 

POTW and either of the two credit buyers to account for the distance between the facilities.

The permit writer has developed the appropriate effluent limitations, monitoring, and reporting 

requirements for each facility. The special conditions for each facility’s permit focus on general authority, credit definition, permit reopeners and modification provisions, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in trading for the purposes of complying with the total 

phosphorus effluent limitations in Section X of this permit. The authority to use trading for compliance with these limits is derived from: <insert state law if applicable>; section 402 of the federal 

Clean Water Act 33 United States Code (U.S.C.) section 1342; and EPA’s policies on Water Quality 

Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit trading. Additionally the St. Martin River TMDL authorizes water quality trading as a means of achieving 

the allocations established by the TMDL.

Credit Definition

One credit purchased by the buyers will be equal to three pounds of total phosphorous per day on 

a monthly average basis generated by the seller.

Permit Reopeners, Modification Provisions

The permitting authority may, for any reason provided by law, summary proceedings or otherwise, 

revoke or suspend this permit or reopen and modify it to establish any appropriate conditions, 

schedules of compliance, or other provisions which may be necessary to protect human health or 

the environment or to implement the St. Martin River TMDL. The permitting authority may also 

reopen and modify the permit to suspend the ability to trade credits to comply with the total 

phosphorus effluent limitations in Section X of this permit.

Enforcement Liability

The permittee is liable for meeting its most stringent effluent limitation. No liability clauses contained in other legal documents (e.g., contracts) established between the permittee and other 

authorized buyers and sellers are enforceable under this permit.
Water Quality Trading Scenario: Point Source Credit Exchange



Water Quality Trading Scenario:

Point Source Credit Exchange

Contents

Water Quality Trading Scenario: 

Point Source Credit Exchange 1

Credit Exchange Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Permit Cover Page 4

Effluent Limitations 5

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Reporting Requirements 16

Special Conditions 19
Water Quality Trading Toolkit for Permit Writers

ii
Water Quality Trading Scenario: Point Source Credit Exchange

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Water Quality Trading Scenario:

Point Source Credit Exchange

This water quality trading scenario focuses on technical and programmatic issues related to water quality trading through a point 

source credit exchange, illustrated in Figure 1. Point sources 

that over control their discharges generate the credits in 

the exchange, and a separate entity maintains the credit 

exchange. The credit exchange would likely have to be 

either operated by or approved and overseen 

by a state regulatory agency. Issues addressed 

under this scenario include the following:

• Credit exchange administration

• Trade agreements

• Components of a National Pollutant 

Discharge Elimination System (NPDES) permit

− Permit cover page

− Effluent limits

− Monitoring

− Reporting requirements

− Special conditions

A hypothetical example (shown in highlighted boxes) is presented throughout this scenario 

to illustrate how NPDES permit writers might work with credit buyers and sellers to assist 

in trading and ensure each facility’s NPDES permit contains the appropriate limits, requirements, and other conditions. Keep in mind that there are a range of options for incorporating trading provisions into a NPDES permit. The hypothetical example discussed throughout 

this scenario illustrates just one of the many options a NPDES permit writer might use.

Credit Exchange Administration

A variety of entities can establish and administer credit exchanges, including state agencies, 

local governments, nonprofit nongovernmental entities, soil and water conservation districts, 

private entities or other third parties. Management responsibilities for a credit exchange will 

vary according to the watershed and needs of the trading partners. To address the potential 

inadequacy of generated credits (i.e., treatment control failure), credit exchanges should 

consider reserving credits that would be available to credit purchasers if the primary credit 

source is insufficient. Entities administering credit exchanges can reserve credits in a number 

of ways. One option is for the credit exchange to overbuy available credits from point sources 

approved to generate credits. Another option is to require point source dischargers that want 

the ability to purchase credits from the credit exchange—now or in the future—to pay a user 

fee to the credit exchange that will in turn finance additional point source treatment controls 

approved to generate credits.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit 

Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Point Source

Credit Exchange

$$$

$$$

$$$

$$$

Figure 1. Point source credit exchange.
Water Quality Trading Toolkit for Permit Writers



Trade Agreements

Typically, the terms that govern a trading program will be developed outside the NPDES permit process and can be incorporated or reflected in the permit (see Appendix C). The U.S. Environmental Protection Agency’s (EPA) Water Quality Trading Policy (Trading Policy) describes 

several mechanisms for implementing trading through NPDES permits (see Appendix B).

NPDES permits authorizing water quality trading should reference any existing trade agreement in the permit and fact sheet. The permit writer may also incorporate specific provisions 

of the agreement as appropriate (e.g., shared responsibilities for conducting ambient monitoring) into the permit. All trade agreements referenced in NPDES fact sheets and permits 

should meet certain minimum standards to help ensure the trades authorized by the permit 

are consistent with water quality standards. At a minimum, the trade agreement should be a 

written agreement and signed and dated by authorized representatives of all trading partners. Verbal trade agreements should not be referenced in NPDES permits. The written trade 

agreement should contain sufficient detail to allow the permitting authority to determine 

with some degree of certainty that the terms of the agreement will result in loading reductions and generation of sufficient credits to satisfy water quality requirements. If there is no 

formal, outside trade agreement, trading can still occur; however, the permit writer will need 

to more explicitly describe the trading program in the fact sheet and authorize specific aspects 

of the trading program as permit conditions. Trading partners can specify the details pertaining to the negotiated terms of the trade (e.g., credit price, payment schedule, consequences 

for failure to fulfill negotiated terms) in a separate, written and signed contract.

For a credit exchange to succeed, adequate credits should be available to meet the demand 

of the purchasers; therefore, a trade agreement could contractually obligate the credit generators to create a certain number of credits to participate in the program. Likewise, the administrator of the credit exchange might want to ensure that point sources purchase a certain 

number of credits and include this obligation in an agreement, as well. The obligations could 

be for a defined period, such as one permit term. Penalties for not meeting the terms of the 

trade agreement should be clearly specified in the agreement and incorporated by reference 

into a NPDES permit.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Flowing River Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDLa for Total Phosphorus for the Flowing River Watershed

Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered 

by the state)

Participating Facilities: Chuck’s Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville 

POTWb

, Alpha Limited

Notes: a TMDL = Total maximum daily load; b POTW = publicly owned treatment works 

Location: All facilities are less than a mile apart from each other along the Flowing River.
Water Quality Trading Scenario: Point Source Credit Exchange

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Applicable Trade Ratios: None. In this case, it is not necessary to apply a delivery ratio because of the 

close proximity of the sources to each other, nor an equivalency ratio because the same pollutant form 

is being traded, nor an uncertainty ratio because both parties can accurately monitor end-of-pipe loads.

The state and stakeholders in the Flowing River watershed have cooperatively participated in the 

development of the Flowing River Watershed Phosphorus Credit Exchange to meet the point source 

facilities’ wasteload allocation (WLA) under the approved phosphorus TMDL. To facilitate trading, the 

Flowing River Watershed Phosphorus Credit Exchange drafted a trade agreement that buyers and sellers must sign to participate. The basic terms of the trade agreement are as follows:

n The trade agreement establishes a contractual obligation between the credit buyers and sellers to 

participate for a period of 5 years.

n Participants that sign the trade agreement acknowledge that the facility’s phosphorus discharges will be covered under a separate phosphorus overlay permit for all participants in the Flowing River Watershed Phosphorus Credit Exchange, as opposed to the facility’s existing NPDES 

permit. The overlay permit is scheduled to be completed and become effective in one year.

n Trades occur annually at the end of the TMDL season (June 1–September 30) on the basis of the 

seasonal mass loading of total phosphorus (TP) compared to seasonal phosphorus discharge 

limits for each facility.

n Monitoring and flow data is to be submitted to the Exchange quarterly by the end of the month 

following the quarter (April, July, October, and January).

n Before reconciling trade requirements, the Flowing River Watershed Phosphorus Credit 

Exchange will determine the value of a phosphorus credit on the basis of capital costs of TP 

removal, as well as operation and maintenance costs of pollutant controls.

n Each year, the Flowing River Watershed Phosphorus Credit Exchange will reconcile credit sales 

and purchases by March of the following calendar year.

n Each participant in the Flowing River Watershed Phosphorus Credit Exchange will have a 

baseline. Buyers will also have minimum control levels, and sellers will also have trading limits 

(baseline – credits sold) included in an appendix to the trade agreement. Facilities performing 

better than their baselines will receive payment from the Flowing River Watershed Phosphorus 

Credit Exchange for phosphorus credits generated, on the basis of annual price. Facilities that 

do not achieve their baseline, while meeting their minimum control levels, will owe payment to 

the Flowing River Watershed Phosphorus Credit Exchange for phosphorus credits equal to the 

amount discharged above their baseline.

n Each facility will be responsible for conducting weekly monitoring and monthly reporting to the 

permitting authority as required under the overlay permit.

The Flowing River Watershed Phosphorus Credit Exchange will purchase excess phosphorus credits 

to ensure that sellers receive compensation for their phosphorus credits. However, the Flowing River 

Watershed Phosphorus Credit Exchange will not hold excess credits or make these credits available for 

future purchase.

Flowing River Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



Components of a NPDES Permit

NPDES permits that authorize water quality trading are no different than typical NPDES permits in many respects—they require the same structure, analyses, and justification. All permits 

have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and reporting requirements; (4) special conditions; and (5) standard conditions. Standard conditions are 

the same for all NPDES permits and will not be addressed in this Toolkit. In addition, consistent 

with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are subject to 

public notice and comment. This provides all interested parties an opportunity to comment 

on the trading provisions in the permit.

Each NPDES permit is accompanied by a permit fact sheet. The information in these fact 

sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the 

permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions 

in the permit. There is a wide variety of options for including trading information in the fact 

sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller) 

to including the entire trading program.

There are a variety of issues, however, that may require special consideration when developing 

a permit incorporating water quality trading. Appendix E provides the permit writer with a list 

of fundamental questions that should be addressed during the permit development process.

Permit Cover Page

The cover page of a NPDES permit typically contains the name and location of the 

permittee(s), a statement authorizing the discharge, the specific locations for which a discharge is authorized (including the name of the receiving water), and the effective period of 

the permit (not to exceed 5 years). If numerous permittees are covered, they can be listed in 

an appendix or attachment that is referenced on the cover page. A permit incorporating or 

The NPDES permit writer for the facilities participating in the Flowing River Watershed Phosphorus 

Credit Exchange receives a written copy of the trade agreement that is signed and dated by authorized 

representatives of each participating facility. Although the NPDES permit writer is already familiar 

with the terms of the trade agreement because of participating in the development of the Flowing 

River Watershed Phosphorus Credit Exchange, the written and signed trade agreement indicates 

which facilities are planning to participate and should have coverage under the overlay permit.

The permit writer will incorporate monitoring and reporting requirements necessary to determine 

compliance with the annual phosphorus discharge limits for each facility and facilitate trading 

through the Flowing River Watershed Phosphorus Credit Exchange. The NPDES permit writer will 

also specify compliance conditions, including the need to purchase phosphorus credits in a specified 

amount at a specified time to achieve the baseline, that are consistent with the terms of the trade 

agreement. However, the permit would not specify the cost for phosphorus credits or have the ability 

to name buyers and sellers.

Flowing River Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

referencing a trade agreement can refer to water quality trading on the cover page, but this 

is not necessary. If the state has issued regulations or policy documents authorizing water 

quality trading, the permit writer should consider referencing the regulations in the Authority 

section of the cover page. For example, if trading is considered a water-quality management 

tool in a state’s Water Quality Management Plan, this may establish authority for integrating 

trading into NPDES permits and can be referenced on the cover page (Jones 2005).

The cover page may also address the specific pollutants regulated by the permit. For instance, 

the cover page of an overlay permit for TP may state that the overlay permit addresses only TP 

and that other parameters are addressed in each facility’s individual permit.

Effluent Limitations

Effluent limitations are the primary mechanism for controlling the discharge of pollutants 

from point sources into receiving waters. When developing a permit, the permitting authority focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES 

permits, permits that include trading must include any applicable technology-based effluent 

limitations (TBELs), or the equivalent and, where necessary, water quality-based effluent limitations (WQBELs), that are derived from and comply with all applicable technology and water 

quality standards. Furthermore, limits must be enforceable, and the process for deriving the 

limits should be scientifically valid and transparent.

EPA’s Trading Policy does not support trading to meet TBELs unless trading is specifically 

authorized in the categorical effluent limitation guidelines on which the TBELs are based. 

Applicable TBELs thus serve as the minimum control level below which the buyer’s treatment 

levels cannot fall. This section discusses the overarching principles of how to express all applicable effluent limitations in permits for dischargers participating in water quality trades.

Credit Buyers

Permits for credit buyers should include both the baseline, which is the WQBEL that defines 

the level of discharge the buyer would have to meet through treatment when not trading, 

and a minimum control level that must be achieved through treatment when trading. The 

Long Island Sound, Connecticut

Connecticut’s General Permit for Nitrogen Discharges establishes the authority to 

discharge nitrogen as follows:

(a) Eligible Activities or Discharges

This general permit authorizes the discharge of total nitrogen (TN) from the POTWs 

listed in Appendix 1 (of the original permit), provided the activities are conducted in 

accordance with this general permit.

This general permit does not authorize any discharge of water, substance or material into 

the waters of the state other than the one specified in this section. Any person or municipality that initiates, creates, originates or maintains such a discharge must first apply 

for and obtain authorization under Section 22a-430 of the General Statutes.

For more information about this trading program, see Appendix A.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



permit should also include the amount of pollutant load to be offset (minimum control level 

– baseline) through credit purchases when trading. Most often, the applicable TBEL will serve 

as the minimum control level. A permitting authority can choose to impose a more stringent 

minimum control level than the TBEL to prevent localized exceedances of water quality standards near the point of discharge but not one that is less stringent than the TBEL. In a NPDES 

permit fact sheet, the effluent limitations for a credit buyer could be described as follows:

• The Discharger must meet, through treatment or trading, a mass-based effluent limitation for Pollutant A of <insert baseline>. If this effluent limitation is met through 

trading, the Discharger must purchase credits from authorized Sellers in an amount 

sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess 

of <insert baseline>, but at no time shall the maximum mass discharge of Pollutant A 

during <insert averaging period> exceed the minimum control level of <insert minimum control level>. Thus, the maximum mass discharge of Pollutant A to be offset 

through credit purchases is <insert minimum control level – baseline>.

Credit Sellers

When a potential credit seller is able to reduce its discharge below its most stringent applicable effluent limitation (i.e., its baseline), it may generate credits to sell. The quantity of 

credits that any given seller actually will be able to sell depends on the market for credits, 

agreements made with buyers, and any treatment requirements placed on potential buyers 

(i.e., the buyers’ minimum control levels). Because of these factors, it is possible that a discharger will not be able to sell all the credits it generates.

A credit seller’s permit will include both the most stringent effluent limitation that would 

apply without trading (e.g., baseline) and a trading limit. The seller can choose to what level 

it will control its pollutant discharge (using technology or best management practices (BMPs) 

it will implement) and this level becomes its trading limit. The baseline and trading limit 

could be described in the permit fact sheet as follows:

• Through treatment, the Discharger must meet a mass-based effluent limitation for 

Pollutant A of <insert baseline>. The Discharger is authorized to further treat its 

discharge, remove additional loading of Pollutant A, and generate and sell credits to 

an authorized credit Buyer or Buyers. If the Discharger sells such credits, the <insert 

averaging period, e.g., average monthly> effluent limitation <insert baseline> no 

longer applies and the trading limit for Pollutant A at Outfall 001 shall apply instead 

as follows: Trading Limitation = <insert baseline> – Quantity of Pounds Sold.

The permit must include monitoring and reporting requirements for Pollutant A sufficient to 

demonstrate that the seller actually has generated the credits it sells and, therefore, is meeting its trading limit.

Aggregate or Individual Limitations

It may be appropriate for permit writers to include aggregate WQBELs that apply to the 

group of point sources covered under a general or watershed permit. An aggregate effluent limitation typically represents the sum of the pollutant WLAs for all permittees covered 

by the permit. This allows maximum flexibility for trades among dischargers within the 

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Flowing River Example: Effluent Limitations

n	 What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly approved TMDL for Total Phosphorus for Flowing River

Exchange Participants:

Chuck’s Potash Company

Current Load: 2,000 lbs (total per season)

New WQBEL (based on WLA): 8,000 lbs (total per season)

New Treatment Capabilities: Treatment to 4,000 lbs (total per season)

Excess Pounds Reduced: 4,000 lbs (total per season)

Green and Go Fertilizers

Existing Discharge: 2,500 lbs (total per season)

New WQBEL (based on WLA): 2,000 lbs (total per season)

Treatment Capabilities: Treatment to 2,500 lbs (total per season)

Pounds Needed: 500 lbs (total per season)

Shag Rug, Inc.

TBEL: 1,800 lbs (total per season)

New WQBEL (based on WLA): 1,000 lbs (total per season)

Treatment Capabilities: Treatment to 1,800 lbs (total per season)

Pounds Needed: 800 lbs (total per season)

Troyville POTW

TBEL: 10,000 lbs (total per season)

New WQBEL (based on WLA): 8,000 lbs (total per season)

New Treatment Capabilities: Treatment to 4,000 lbs (total per season)

Excess Pounds Reduced: 4,000 lbs (total per season)

Alpha Limited

Existing Discharge: 1,200 lbs (total per season)

New WQBEL (based on WLA): 500 lbs (total per season)

Treatment Capabilities: Treatment to 1,200 lbs (total per season)

Pounds Needed: 700 lbs (total per season)

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers



Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Location: All facilities are less than a mile apart from each other along the Flowing River.

Applicable Trade Ratios: None.

To facilitate trading amongst the dischargers, the Flowing River Phosphorus Credit Exchange 

(Exchange) is designed to facilitate the exchange of credits between point source credit generators and 

purchasers. The Exchange has developed a trade agreement that outlines how point sources can generate and purchase credits, how to calculate trade ratios, as well as individual responsibilities for meeting 

effluent limitations. Trades occur once per year at the end of the TMDL season (June 1–September 30).

Of the potential participants in the Exchange, only the municipal wastewater treatment facility’s 

(Troyville POTW) and carpet manufacturer’s (Shag Rug, Inc.) existing permits include TBELs. Both 

are meeting the TBELs. The state has developed a general watershed-based permit for phosphorus 

point source dischargers along the Flowing River. The permit authorizes trading and includes the seasonal mass loading WQBELs that are based directly on the WLA requirements of the TMDL.

To comply with its seasonal WQBEL, a permittee may either meet the limitation at the point of discharge through treatment or other pollutant reductions at the facility or, after meeting its minimum 

control level (i.e., current discharge before the TMDL or applicable TBEL), pay into the Exchange to 

purchase necessary credits. The facility must treat its discharge to meet its minimum control level to 

purchase credits from the Exchange.

To be eligible to sell credits to the Exchange, a facility must first treat the discharge to meet its most 

stringent effluent limitation, which, in this case, is the WQBEL that implements the WLA. In addition, 

the state has established trading limits for all dischargers entering the Exchange as sellers, and these 

limitations must be met for the duration of the permit cycle.

Permit Language:

a. Effluent Limitations

1. Seasonal total mass loading effluent limitations applicable to each permittee covered under 

this permit are set forth in Table 1, which is incorporated herein in its entirety, as part of this 

general permit.

2. If the permittee participates in the Flowing River Phosphorus Credit Exchange, the permittee’s total annual mass discharge of total phosphorus shall not exceed the Seasonal Mass 

Loading Limitation (With Trading) outlined in Table 1.

3. If the permittee does not participate in the Flowing River Phosphorus Credit Exchange, the 

permittee’s total annual mass discharge of total phosphorus shall not exceed the Seasonal 

Mass Loading WQBEL (Without Trading).

4. A permittee shall be out of compliance with the seasonal discharge limitations of the general 

permit and subject to enforcement provisions if the facility’s seasonal mass loading of total 

phosphorus exceeds the applicable discharge limitations outlined in (a) (1) and (2) above.

5. Credits may be generated and used only between June 1–September 30.

Flowing River Example: Effluent Limitations (continued)
Water Quality Trading Scenario: Point Source Credit Exchange

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Mystic River Example: Trade Agreements (continued)

watershed but should be considered only if localized exceedances of water quality standards 

are not a concern. An aggregate limitation allows individual dischargers to discharge or 

trade among themselves to any degree as long as the aggregate limitation is met. An aggregate effluent limit may be most appropriate in a trading scenario involving many individual 

dischargers within a watershed having a large-scale load reduction driver such as a TMDL for 

the entire waterbody or a percent load reduction requirements for the watershed as a whole. 

This is functionally equivalent to having a series of individual WQBELs and no trading limits.

EPA does not endorse setting a multisource aggregate limit without also including in the permit individual limits for each source covered. If the group of facilities does not meet its aggregate limit and an individual source does not meet its limit on its own and does not trade to 

meet it, enforcement action may be taken against this individual source. This approach keeps 

co-permittees under the general or watershed permit that have met their requirements free 

from liability when other co-permittees are responsible for the group discharging above the 

aggregate limit.

Table 1. Seasonal mass loading effluent limitations for TP

Discharger Units

June 1–September 30

Seasonal mass loading 

WQBEL

(without trading)

Seasonal mass loading 

limitation

(with trading)

Chuck’s Potash 

Company

lbs 8,000

(Baseline/WQBEL)

1

Green and Go 

Fertilizers

lbs 2,000

(Baseline/WQBEL)

2,500 (Minimum Control Level/

Existing Discharge)

Shag Rug, Inc. lbs 1,000

(Baseline/WQBEL)

1,800 (Minimum Control 

Level/TBEL)

Troyville POTW lbs 8,000

(Baseline/WQBEL)

1

Alpha Limited lbs 500

(Baseline/WQBEL)

1,200 (Minimum Control Level/

Existing Discharge)

1 Trading limit = (WQBEL – pollutant loading reduction necessary to generate quantity of credits sold)

Flowing River Example: Effluent Limitations (continued)

Neuse River Basin, North Carolina

The Neuse River Compliance Association (NRCA) general permit has an aggregate total 

nitrogen (TN) allocation, and each member of the association has an individual allocation. If the NRCA meets the aggregate limit for the year, the NRCA and each permittee 

are in compliance. If the aggregate limit is exceeded, the NRCA is out of compliance, and 

any member that exceeds its individual TN limit is also out of compliance and subject to 

enforcement action. For more information about this trading program, see Appendix A.
Water Quality Trading Toolkit for Permit Writers

10

Pollutant Form, Units of Measure, and Timing Considerations

The permit should explicitly identify the pollutant or pollutants being traded. The permitting 

authority should ensure that the trading program or agreement and the calculated WQBELs 

are consistent in terms of the form of the pollutant, units of measure, and timing.

For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, then credits generated under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen (TKN) or some other form. If, on the other hand, the WQBEL is for TN, buyers and sellers 

should trade TN credits. In this case, a discharger may be required to measure TN. If there are 

concerns about localized impacts and WQBELs are also specified for a particular form or forms 

of nitrogen, the discharger may be required to monitor TKN, nitrite, and nitrate (all expressed 

as N) and then calculate its TN discharge.

Also an equivalency ratio may be needed when two sources are trading pollutants such as 

TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one 

discharger’s phosphorus discharge is made up primarily of biologically available phosphorus, 

while its trading partner’s discharge is primarily composed of bound phosphorus). An equivalency ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants 

(e.g., phosphorus and biochemical oxygen demand (BOD)). In this case, the equivalency ratio 

would equal the ratio between the two pollutants’ impacts on oxygen demand. The trading 

program should account for any necessary equivalency ratios with regard to pollutant form 

or type; the permit writer needs to be aware of the pollutant form or type addressed in the 

trade agreement to ensure that the permit is consistent.

In addition, consistent reconciliation periods are essential in trading between point sources. 

The credit purchaser’s permit limits for the traded pollutant and the credit seller’s permit limits should have the same units and averaging period. Because both sets of limits are designed 

to address the same water quality problem, both should use the averaging period and units 

that make the most sense to address that problem. Consistent units and averaging periods 

will also simplify reconciliation of credit sales and purchases.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Flowing River Example: Pollutant Form, Units of Measure, 

and Timing

n	 What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed

Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered 

by the state)

Participating Facilities: Chuck’s Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville 

POTW, Alpha Limited

Location: All facilities are less than a mile apart from each other along the Flowing River.

Applicable Trade Ratios: None.
Water Quality Trading Scenario: Point Source Credit Exchange

11Wa t e r Q u a l i t y 

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Anti-backsliding, Antidegradation, and New Discharges Special 

Considerations

The Trading Policy discusses anti-backsliding and antidegradation and how these provisions 

can be met through trading.

Anti-backsliding

The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in general, 

prohibits the renewal, reissuance, or modification of an existing NPDES permit that contains 

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Pollutant Form

The TMDL indicates a need for all trading partners to control phosphorus discharges. To meet the new 

WQBELs for phosphorus, several members of the Exchange will install new treatment technology to 

reduce loads beyond the 30 percent required by the TMDL and wish to sell the excess reductions in 

the form of credits to the Exchange. Other members are unable to meet the new WQBELs that will be 

in the overlay permit and are choosing to purchase phosphorus credits from the Exchange. However, 

the solubility of the phosphorus impacts the amount available biologically in the waterbody. The more 

soluble the phosphorus form, the more readily it can impact the waterbody. Therefore, trades between 

partners must account for the different solubility of various facilities’ discharges.

All members of the Exchange have monitored their effluent to determine the solubility of the phosphorus discharged. The monitoring data showed that the solubility of phosphorus discharges were 

equitable among the dischargers in the Exchange; therefore, no equivalency ratio is necessary.

Units of Measure

The phosphorus WQBELs based on the TMDL WLA are expressed in lbs as seasonal mass loadings to 

correspond with the units and averaging period in the TMDL. The phosphorus limits in most of the 

Exchange facilities’ existing permits are also expressed in lbs as seasonal mass loadings. The trade 

agreement also specifies lbs as a seasonal mass loading. Annual trades will be based on seasonal mass 

loading reductions demonstrated through monitoring.

Timing of Credits

Credits are available beginning at the time of permit issuance. This allows 12 months before permit issuance for the Exchange to gather monitoring data to verify that the seller’s technologies are 

achieving the expected treatment efficiency and will generate credits as expected after accounting 

for established ratios. These data are necessary to better understand how loading and reduction may 

vary over time. The general permit reflects these conditions. Trades will occur annually to correspond 

with seasonal mass-loading effluent limitations. The sellers will be able to continue to generate credits 

as long as the controls are properly operated and maintained, the facilities are able to demonstrate 

reductions, and the facilities do not become subject to more stringent requirements that would reduce 

or eliminate the credits (i.e., newly promulgated effluent guidelines or other more stringent technology-based controls, additional WQBELs to avoid localized exceedances of water quality standards). 

The ability of the sellers to continue to generate credits will be assessed during the renewal of the 

individual permits every 5 years.

Flowing River Example: Pollutant Form, Units of Measure, 

and Timing (continued)
Water Quality Trading Toolkit for Permit Writers

12

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

WQBELs, permit conditions, or standards that are less stringent than those established in the 

previous permit (USEPA 1996b). The CWA establishes exceptions to this general anti-backsliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for less-stringent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs, the 

requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR 

122.44(l) provide exceptions for circumstances such as material and substantial alterations 

to the facility, new information, events beyond the permittee’s control, and permit modifications under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs, 

allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a waterbody attaining water quality standards as long as the waterbody continues to attain water 

quality standards even after the WQBEL is relaxed. In addition, revising the limitation must 

be consistent with the state’s antidegradation policy. If the discharge is to a waterbody that 

is not attaining water quality standards, a less-stringent WQBEL is allowed only when the 

cumulative effect of all revised effluent limitations results in progress towards attainment of 

water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA’s 

NPDES Permit Writers’ Manual (EPA-833-B-96-003). EPA’s Trading Policy states:

EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the

CWA will generally be satisfied where a point source increases its discharge

through the use of credits in accordance with alternate or variable water quality

based effluent limitations contained in an NPDES permit, in a manner consistent

with provisions for trading under a TMDL, or consistent with the provisions for

pre-TMDL trading included in a watershed plan.

A permit writer should simply explain in the fact sheet of the permit how the limitations in 

the permit, after accounting for any trading provisions, are at least as stringent as the limits 

in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are 

satisfied.

Antidegradation

As repeated throughout this document, NPDES permits may not facilitate trades that would 

result in nonattainment of an applicable water quality standard, including the applicable 

antidegradation provisions of water quality standards. Permitting authorities should ensure 

that WQBELs developed to facilitate trade agreements accord with antidegradation provisions and that antidegradation reviews are performed when required. Nothing in the Trading Policy per se changes how states apply their antidegradation policies, though states may 

modify their antidegradation policies to recognize trading.

The Trading Policy states:

EPA does not believe that trades and trading programs will result in “lower

water quality”

. . . or that antidegradation review would be required under EPA’s regulations

when the trades or trading programs achieve a no net increase of the pollutant

traded and do not result in any impairment of designated uses.
Water Quality Trading Scenario: Point Source Credit Exchange

13Wa t e r Q u a l i t y 

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Special considerations for antidegradation relative to water quality trading depend on the 

tier of protection applied to the waterbody as described below.

Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters, 

the antidegradation policy mandates protection of existing instream uses. Because EPA neither supports trading activities nor allows issuance of permits that violate applicable water 

quality standards, which should protect existing uses at a minimum, any supported trading 

activities incorporated into a NPDES permit should not violate antidegradation policies applicable to Tier 1 waters.

Tier 2 protects waters where the existing water quality is higher than required to support 

aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the 

level that would continue to support existing and designated uses) but only if an antidegradation review finds that (1) it is necessary to lower water quality to accommodate important 

social or economic development, (2) all intergovernmental and public participation provisions have been satisfied, and (3) the highest statutory and regulatory requirements for point 

sources and BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to maintain high water quality when trading is used to compensate for new or increased 

discharges. Thus, the Trading Policy supports reductions of existing pollutant loadings to 

compensate for the new or increased load so that the result is no lowering of water quality. 

A state, in applying its antidegradation policy, may decide to authorize a new or increased 

discharge to high-quality water and may decide to use trading to completely or partially 

compensate for that increased load. If the increased load to Tier 2 waters is only partially 

compensated for by trading, an antidegradation review would be required to address the 

increased load.

Tier 3 protects the quality of outstanding national resource waters and waters of exceptional 

recreational or ecological significance. In general, antidegradation policies do not allow any 

increase in loading to Tier 3 waters that would result in lower water quality. EPA supports 

trading in Tier 3 waters to maintain water quality.

Monitoring

Permitting authorities may want to consider developing monitoring and reporting requirements to characterize waste streams and receiving waters, evaluate wastewater treatment 

efficiency, and determine compliance with permit conditions in trade agreements. Monitoring and reporting conditions of a NPDES permit may contain specific requirements for 

sampling location, sample collection method, monitoring frequencies, analytical methods, 

recordkeeping, and reporting. If the permit conditions include compliance with provisions in 

a trade agreement, then the permitting authority should include monitoring, record-keeping and reporting requirements that facilitate compliance evaluations and, where necessary, 

enforcement actions related to the trading requirements. Discharge monitoring requirements 

should be consistent with the provisions of the trade agreement in terms of pollutants and 

forms of pollutants monitored, reporting units, and timing. The permit provisions should 

ensure that the results of discharge monitoring will be useful to the permittees, the permitting authority, and the general public in determining whether the provisions of the trade 

agreement are being met.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

14

Sample Collection and Analysis

The same discharge sampling location used for compliance in any existing NPDES permits 

should be used for determining compliance with effluent limitations developed for traded 

parameters. Samples collected as part of a self-monitoring program required by a NPDES 

permit must be performed in accordance with EPA-approved analytical methods specified 

in 40 CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants

Under the Clean Water Act) where Part 136 contains methods for the pollutant of concern. 

Where no Part 136 methods are available, the permit writer should specify which method 

should be used for compliance monitoring.

Parties Responsible for Monitoring

The trade agreement specifies the types and frequency of monitoring needed as well as the 

parties responsible for monitoring. The individual facilities are ultimately responsible to ensure 

that effluent monitoring is completed and reported to the permitting authority. Any enforcement actions for failure to monitor and report will be against the individual facilities. The 

permitting authority should ensure that sufficient monitoring is required to allow permittees, 

agency compliance personnel, and the public to gauge whether dischargers are meeting their 

individual effluent limitations and requirements under the trade agreement.

Discharge monitoring under a multiple facility permit would be required of all individual dischargers and should be listed in the permit. If the permit is an overlay permit used to incorporate water quality trading for specific pollutants, the permitting authority may establish 

certain monitoring requirements, such as monitoring location, by reference to the facility’s 

individual NPDES permit for consistency. Alternatively, the permit could specifically list the 

monitoring location and requirements for each permittee or co-permittee.

The permitting authority may consider establishing more frequent monitoring for facilities with higher design flows than those with lower design flows. Monitoring and reporting 

requirements in a multiple facility permit, such as a watershed-based permit, would be a 

combination of individual and watershed-wide requirements as described below.

Ambient Monitoring

Ambient monitoring is one way to show whether a trade agreement meets or improves water 

quality. In addition to traditional discharge monitoring requirements, ambient water quality 

monitoring may be appropriate at strategic locations to ensure that the trade is not creating 

localized exceedances of water quality standards and to document the performance of the 

overall trading program. Permits with mixing zones may include monitoring requirements as 

appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable mixing zone.

General or watershed-based permits may establish a comprehensive, watershed monitoring program. For example, to fulfill monitoring requirements that are applied to multiple 

dischargers, permittees could establish a monitoring consortium to collect ambient water 

quality data that supplements end-of-pipe monitoring data required by the permit. Through 

this group-wide monitoring consortium, permittees could generate data to use in watershed 

assessments.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

15Wa t e r Q u a l i t y 

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Monitoring to Document Trades

The permitting authority should be aware of any monitoring responsibilities established in 

the trading program or through the credit exchange and should ensure that the permit conditions do not contradict these requirements. Where the trading program provides that the 

point source conduct additional monitoring to document trades, the permit should incorporate or reference those requirements. Where the trading program provides that a third-party 

conduct monitoring, the permit should also reference those requirements and clarify the 

permittee’s responsibilities, if any, for reporting or conducting these activities itself should 

the third-party fail to fulfill its responsibilities.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Flowing River Example: Monitoring

n	 What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed

Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered 

by the state)

Participating Facilities: Chuck’s Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville 

POTW, Alpha Limited

Location: All facilities are less than a mile apart from each other along the Flowing River.

The facilities discharging to Flowing River have existing TP monitoring requirements. The existing 

permits require monthly monitoring for TP. The overlay permit will require monitoring at the same 

locations as established in the existing permits. In addition, each discharger will be required to monitor for phosphorus weekly during June through September. For the permitting authority to gauge 

compliance, the permit writer will develop permit language that requires each discharger to submit 

monthly discharge monitoring reports (DMRs) to the permitting authority by the 15th of the month 

following monitoring. Ambient receiving water monitoring requirements are included in the existing 

NPDES permits and are adequate to ensure that localized exceedances of water quality standards do 

not develop as a result of trades.

Permit Language:

1. Each permittee shall monitor effluent total phosphorus a minimum of one time per week at 

existing discharge monitoring locations established in each facility’s existing NPDES permit 

during the months of June through September. Each permittee shall determine the average monthly mass loading based on actual monthly average flow. Flow monitoring shall be 

continuous.

2. During the remaining, off-season months, each permittee must monitor effluent total 

phosphorus at least one time per month in compliance with existing individual NPDES permit 

requirements and determine mass loading based on actual effluent flow. Each permittee 

shall monitor flow continuously.
Water Quality Trading Toolkit for Permit Writers

16

Reporting Requirements

Reporting requirements should be established to support the permitting authority’s evaluation of water quality trading programs. For example, in addition to reporting discharge 

monitoring results, permitting authorities might require a permittee to report the number 

of credits purchased. Permitting authorities might also require an annual monitoring report 

specific to the pollutants involved in the trade, to provide information on annual loading in 

accordance with the requirements of the trading program. Permits incorporating water quality trades should require reporting at a frequency appropriate to determine compliance with 

the trading provisions. Permitting authorities should consider any requirements of the trading 

programs related to reporting and ensure the permits are consistent with these requirements. 

Permits may require reporting of monitoring results at a frequency established through the 

permit on a case-by-case basis, but in no case may that frequency be less than once per year.

Trading programs may establish other reporting and tracking requirements as well. For 

example, it is essential to have a mechanism for tracking trades. An additional form could be 

required such as a credit certificate form (see Appendix C). The permitting authority can hold 

point sources liable if they violate any trading provision included in the permit or any trade 

agreement incorporated by reference into the permit, and point sources are also liable if they 

do not meet their permit limits.

Permitting authorities should consider establishing discharger trade reporting requirements 

to monitor trading activities and any alternative compliance activities implemented if a facility fails to generate credits as expected (see Special Conditions). In addition, credit exchanges 

should consider holding surplus credits in reserve to be used to compensate for point source 

pollutant loads if a failed trade and the permitting authority may want the credit exchange 

to report the generation of these reserve credits as well.

Data Reporting to EPA

EPA administers two systems to store NPDES permit data and track compliance, the Permit 

Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). 

PCS is the old, computerized management information system that contains data on NPDES 

permit-holding facilities to track the permit, compliance, and enforcement status of these 

facilities.

The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains 

integrated enforcement and compliance information across most of EPA’s programs including 

all federal administrative and judicial enforcement actions. In addition, ICIS has the capability 

to track other activities occurring in an EPA Region that support enforcement and compliance 

programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitoring. In the future, ICIS will be deployed to all states, and PCS will no longer be used.

Neither PCS nor ICIS is structured to actually track trades.

PCS is designed to compare actual discharge monitoring data against required effluent 

limitations to determine a facility’s compliance with its NPDES permit. To determine compliance under a trading scenario, it is necessary for the NPDES permitting authority to compare 

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

17Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

actual discharge monitoring data and the quantity of credits purchased or pounds sold against 

required effluent limitations. For credit sellers, compliance is tracked against the WQBEL that 

serves as the facility’s baseline. For credit buyers, compliance is actually tracked against two 

effluent limitations—the minimum control level and the baseline. The challenge in using 

PCS to determine compliance under a trading scenario is that the system does not automatically make adjustments to the reported actual discharge—it will not add or subtract the load 

traded. Therefore, this type of adjustment must be done before entering information into PCS 

so that the system has only one reported number to compare against an effluent limitation.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions

Flowing River Example: Reporting

n	 What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed

Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered 

by the state)

Participating Facilities: Chuck’s Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville 

POTW, Alpha Limited

Location: All facilities are less than a mile apart from each other along the Flowing River.

An overlay permit is being developed for permittees in the Flowing River watershed to facilitate 

trading for permittees that wish to trade through the Flowing River Phosphorus Credit Exchange 

(Exchange). In addition to their existing, individual NPDES permits, each of the trading partners have 

applied for coverage under the overlay permit. The overlay permit requires, in addition to monitoring 

reports to the permitting authority, regular reporting of any changes to the Exchange’s trade agreement and reports for tracking trades. This information can be compiled by each individual permittee 

or by the Exchange but must be reported to the permitting authority.

Because the overlay permit will contain seasonal, mass-loading effluent limitations for phosphorus for 

one particular season of the year, annual trade transactions will be necessary to maintain compliance. 

The trade agreement between the permittees and the Exchange indicates that trades will be tracked in 

an electronic trade tracking system. Credits must be used in the same period they are generated, and 

trading notification forms must be submitted to the regulatory agency by October 15.

Permit Language:

No trade is valid unless it is recorded in the Flowing River Phosphorus Credit Exchange electronic 

trade tracking system or equivalent system that records all trades and generates trading notification forms and a summary of all trades valid between June 1 and September 30 of each year, in 

substantially the same format as forms approved by the state. The record-keeping system must 

be capable of ensuring that a particular credit is not sold to more than one trading participant. 

The trading notification forms and trading summary may be compiled by the Exchange, but each 

permittee is responsible for the submittal of all documentation and reports. Trading notification 

forms for each trade must be submitted to the <Permitting Authority> by October 15.
Water Quality Trading Toolkit for Permit Writers

18

To determine compliance for a credit seller, the NPDES permitting authority will need to 

know that the sum of a credit seller’s actual discharge and the number of pounds sold is less 

than or equal to the most stringent effluent limitation (i.e., the baseline). Therefore, point 

source credit sellers could report the sum of the facility’s actual discharge and the number 

of pounds sold, and that amount would be entered into PCS. PCS would then compare the 

sum of the actual discharge and the number of pounds sold against the facility’s baseline; 

the sum should be less than or equal to the facility’s baseline to indicate that the facility is in 

compliance.

Point source credit buyers not only have a baseline, but also a minimum control level (the 

facility’s TBEL or current discharge, whichever is more stringent). To determine compliance for 

a credit buyer, the NPDES permitting authority will need to know that (1) the facility’s actual 

discharge is less than or equal to its minimum control level, and (2) that the number of credits 

purchased result in the facility achieving its baseline. Therefore, point source credit buyers 

could report two types of information: (1) the facility’s actual discharge, and (2) the difference between the actual discharge and the quantity of credits purchased. Both numbers 

would be entered into PCS to determine compliance. PCS would compare the actual discharge 

against the minimum control level to determine permit compliance and eligibility as a credit 

buyer. PCS would also compare the difference between the actual discharge and the quantity 

of credits purchased against the facility’s baseline; the difference should be less than or equal 

to the WQBEL to indicate that the facility has purchased enough credits to meet its baseline 

and remain in compliance with its WQBEL. PCS can accommodate two different effluent 

limits for the same parameter; therefore, it has the capability to determine compliance with 

both the minimum control level and the baseline for a credit buyer.

ICIS also allows the NPDES permitting authority to report two limits; therefore, this system 

can also accommodate both the baseline and the minimum control level for credit buyers. 

New DMR forms will also have two lines to report both the baseline and the minimum control 

level. Like PCS, ICIS does not actually adjust actual discharges with the load traded. Under the 

current design, ICIS will allow a facility with an existing NPDES permit to also have a trading partner entered into the system. Once a trading partner is entered for a facility, ICIS will 

allow the entry of an adjusted value—this is the reported actual discharge adjusted by the 

number of credits bought or sold. If an adjusted value is entered, this value is used to determine permit violations and percent exceedances (USEPA 2006).

In addition to challenges related to limits and the type of information to report, NPDES permits with trading provisions might also raise issues related to reporting periods and automated compliance tracking. PCS will not support a reporting extension beyond 30 days. This 

type of reporting extension might be necessary in some instances to allow adequate time for 

the administrative activities necessary for trading partners to coordinate and reconcile trades. 

ICIS, however, will support a 45-day reporting period. In rare instances when a permitting 

authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one 

to be annual. However, the permitting authority will have to manually flag annual limit effluent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to 

track compliance.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

19Wa t e r Q u a l i t y 

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Special Conditions

Special conditions are developed to supplement effluent limitations guidelines and may 

include requirements such as BMPs, additional monitoring activities, ambient stream surveys, 

and toxicity reduction evaluations (TREs). Special conditions also include permit modification 

and reopener conditions and can be used to address water quality trading or incorporate 

compliance schedules (if authorized by the permitting authority). Special conditions of a 

NPDES permit will be very important in incorporating the terms of a trade agreement. Even 

where the specific terms of the agreement are not directly incorporated into the permit, the 

special conditions will be used to refer to, and require compliance with, the trade agreement 

housed in a separate document.

The special conditions included in a NPDES permit that incorporates trading will depend on 

provisions of the trade agreement and the effluent limitations and monitoring and reporting 

requirements established in the permit. However, the permitting authority should consider 

incorporating special conditions that support the trading conditions. For example, the special 

conditions of the permit may specify how and when trades may be conducted among permittees or how an exceedance of an aggregate loading cap will be enforced among the permittees responsible for exceeding their individual loading limits.

Special conditions may also be used to establish provisional requirements that apply if the 

credits on which the trading limits are based are unavailable. Special conditions addressing 

group and individual liability, provisional requirements that apply when credits are unavailable or when an individual or collective limit is exceeded, and outlining the specific requirements for establishing trade agreements among permittees can be important in issuing 

acceptable permits that will not require modification each time circumstances change for one 

of the dischargers covered under the permit.

In addition, the special conditions section of the permit could include a compliance schedule. Permit compliance schedules for WQBELs are allowed only when state water quality 

standards or state regulations implementing such standards provide authority for using 

compliance schedules as well as when those limits are derived from water quality standards 

that were newly adopted or substantively revised after July 1, 1977. Most state water quality 

standards or implementing regulations authorize using compliance schedules. If compliance 

schedule authority is available, the permit writer could place a compliance schedule in the 

permit special conditions that would give the discharger time to comply with provisions related to WQBELs and trading when those provisions are intended to be phased in over time.

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

20

Flowing River Example: Special Conditions

n	 What You Need to Know...

Pollutant: Total Phosphorus

Driver: Newly Approved TMDL for Total Phosphorus for the Flowing River Watershed

Point Source Credit Exchange: Flowing River Watershed Phosphorus Credit Exchange (administered 

by the state)

Participating Facilities: Chuck’s Potash Company, Green and Go Fertilizers, Shag Rug, Inc., Troyville 

POTW, Alpha Limited

Location: All facilities are less than a mile apart from each other along the Flowing River.

The NPDES permit writer has reviewed the signed trade agreement for TP trading between the point 

sources and the Flowing River Watershed Phosphorus Credit Exchange. The agreement describes how 

each discharger will meet its new WQBEL through trading with the Exchange. The NPDES permit 

writer has developed the appropriate effluent limitations, monitoring, and reporting requirements 

for the each discharger. 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, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in water quality trading with the Flowing River Watershed Phosphorus Credit Exchange, as specified in the trade agreement, for the purposes of complying with the phosphorus effluent limitations and the TMDL-related requirements of this permit 

(Table 1). 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 United States 

Code (U.S.C.) section 1342. EPA’s policies on Water Quality Trading (1/13/03) and Watershed-Based 

NPDES Permitting (1/7/03) endorse water quality credit trading. Additionally the Flowing River 

Phosphorus TMDL authorizes water quality trading as a means of achieving the allocations established by the TMDL.

Credit Definition

All credits used to comply with the effluent limitations of this permit will be measured in pounds 

of total phosphorous per day on a monthly average basis. One trading credit will be defined as one 

(1) unit of pollutant reduction (pound of total phosphorus) to Flowing River. All valid credits are 

tradable. The permittee may purchase credits from or sell credits to the Exchange so long as the 

treatment technologies used to generate credits are documented as providing pollutant reductions 

beyond the wasteload allocations established for the credit exchange members in the Flowing 

River Phosphorus TMDL.

Notification of Amendment to the Trade Agreement

The permittee is required to notify the permitting authority in writing within 7 days of the Flowing River Watershed Phosphorus Credit Exchange Trade Agreement being amended, modified, or 

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Scenario: Point Source Credit Exchange

21Wa t e r Q u a l i t y 

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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 WQBELs established in this permit, either 

through implementation of on-site controls or by conducting an approved emergency phosphorus 

offset project approved by the NPDES permit writer.

Permit Reopeners, 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 which may be necessary to protect human health or the environment or to implement the Flowing River phosphorus TMDL. The permitting authority may also 

reopen and modify the permit to suspend the ability to trade credits to comply with the total 

phosphorus effluent limitations in Table 1-1.

Enforcement Liability

The permittee is liable for meeting its most stringent effluent limitation. 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.

Flowing River Example: Special Conditions (continued)

Water Quality Trading Scenarios

Point Source 

Credit Exchange Credit Exchange 

Administration

Trade 

Agreements

Components of a NPDES Permit

Permit Cover Page Effl uent Limitations Monitoring Reporting Requirements Special Conditions
Water Quality Trading Toolkit for Permit Writers

22
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 



Water Quality Trading Scenario:

Point Source–Nonpoint Source Trading

Contents

Water Quality Trading Scenario: Point Source–Nonpoint Source Trading . . . . 1

Quantifying Nonpoint Source Loads and Credits . . . . . . . . . . . . . . . . . . . . . 2

Potential Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Establishing Baselines for Nonpoint Source Sellers . . . . . . . . . . . . . . . . . . . 6

Nonpoint Source Baseline Derived from TMDL Load Allocations . . . . . . . . . . . . . . . 7

Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation . . . . . . . . . 8

Determining Maximum Feasible Nonpoint Source Load Reductions . . . . . . . . . . . . . 9

Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Mechanisms Under the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Mechanisms Outside of the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . . 11

Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Permit Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Effluent Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario:

Point Source–Nonpoint Source Trading

Significant water quality impacts may come from sources other 

than regulated point sources. The permitting authority, along with other stakeholders, may agree that 

the best way to meet water quality standards would 

be to involve the nonpoint sources in the watershed. Because nonpoint sources are not regulated by 

the Clean Water Act (CWA), a trading program that 

allows nonpoint sources to generate and sell credits 

may provide an economic incentive for these sources 

to implement new or additional best management 

practices (BMPs) that reduce pollutant loadings to 

receiving waters.

Point source–nonpoint source trades necessitate a trade agreement between one or more 

point sources and one or more nonpoint sources (see Figure 1). The nonpoint source(s) 

reduce pollutant loads below an established baseline to generate credits, which the point 

source may purchase. Point source–nonpoint source trades would be reflected in an individual National Pollutant Discharge Elimination System (NPDES) permit for the point source 

either by referencing or incorporating the terms of the trade agreement. Through trading, 

the point source can meet water quality-based effluent limitations (WQBELs) at a lower cost 

and, provided there is adequate accountability and verification, the nonpoint source will be 

compensated for contributing to the point source’s WQBELs.

A point source may purchase nonpoint source credits in one of two ways: (1) directly from 

nonpoint source(s) by coordinating with a nonpoint source or a program administered by an 

entity responsible for a group of nonpoint sources dischargers; or (2) from a nonpoint source 

credit exchange that contains pollutant reduction credits contributed by numerous nonpoint 

sources through implementation of approved BMPs. A permitting authority should be aware 

of technical challenges and uncertainty associated with nonpoint source credit generation, 

including how the trading program accounts for uncertainty in measuring nonpoint source 

pollutant loads and how equitable baselines are set for nonpoint source credit sellers.

This water quality trading scenario presents the challenges related to nonpoint source credit 

generation and then addresses issues specific to developing and issuing NPDES permits that 

implement point source–nonpoint source trades where the point source, or an entity representing a group of point sources, purchases credits directly from one or more nonpoint 

sources. Issues covered under this scenario include the following:

• Quantifying nonpoint source loads and credits

• Establishing baselines for nonpoint source sellers

• Accountability

• Trade agreements

Figure 1. Point source–nonpoint source trade.

Water Quality Trading Scenarios

Point Source–

Nonpoint Source Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page

Effl uent 

Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers



• Components of a NPDES permit

− Permit cover page

− Effluent limitations

− Monitoring

− Reporting requirements

− Special conditions

A hypothetical example (shown in highlighted boxes) is presented throughout this scenario 

to illustrate how NPDES permit writers might work with credit buyers and sellers to assist 

in trading and ensure each facility’s NPDES permit contains the appropriate limits, requirements, and other conditions. Keep in mind that there are a range of options for incorporating trading provisions into a NPDES permit. The hypothetical example discussed throughout 

this scenario illustrates just one of the many options a NPDES permit writer might use.

Quantifying Nonpoint Source Loads and Credits

For most continuous point source discharges, measuring pollutant loads and the effectiveness 

of controls is simply a matter of measuring pollutant concentrations in effluent and converting concentration-based limits to mass-based limits using flow. Conversely, as noted in the 

U.S. Environmental Protection Agency’s (EPA) Water Quality Trading Policy (Trading Policy), 

the diffuse nature of nonpoint source pollutants along with variability in precipitation; land 

management practices; and the effect of soil type, slope, and cover on pollutant loadings to 

receiving waters creates a great degree of uncertainty in determining loading from nonpoint 

sources and measuring the effectiveness of BMPs. For example, pollutant loads in runoff from 

a crop field are dependent on crop type, soil type, slope, fertilizer use patterns, weather and 

the amount of time it takes for runoff to reach the receiving water. These factors could vary 

by season and from year to year; therefore, the pollutant load is highly variable and may be 

difficult to measure. The same factors contribute to difficulties in measuring the effectiveness 

of BMPs used to reduce nonpoint source pollutant loads.

Nonpoint sources typically employ BMPs to reduce pollutant loading to a receiving water. 

BMPs are schedules of activities, technologies, structural controls, changes in or prohibitions 

of practices, maintenance procedures, and other measures to prevent or mitigate pollutant runoff to waters. Examples of nonpoint source BMPs include riparian buffer plantings, 

wetland creation or restoration, sediment basins, filter strips, crop sequencing, and nutrient management. Nonpoint source pollutant load reductions can sometimes be measured 

directly, but trading programs typically use the best available performance information to 

estimate load reductions for a particular BMP and then discount these estimated values using 

uncertainty ratios to account for the technical challenges in determining BMP effectiveness.

Potential Issues

Lag Time

Permitting authorities should be aware of potential time lags between BMP installation and 

full pollutant reduction efficiency. BMPs that are not yet fully functional cannot generate 
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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the full number of expected credits. Credits generated by nonpoint sources through installation of BMPs may not be available immediately because of a time lag between installation 

of the BMP and its effectiveness in reducing loadings or otherwise improving water quality. 

In some cases, the credit generation could be prorated on the basis of the pollutant reduction the BMP is achieving during the current reconciliation period, even where the BMP has 

not reached its maximum expected pollutant reduction efficiency. The decisions required to 

determine when credits have been generated may have already been made in the program 

design. The permitting authority should be aware of these decisions made in trading program design.

If the trade agreement or other document external to the permit does not dictate how and 

when credits become available for purchase, the NPDES permit should address the time lag 

between BMP installation and full treatment efficiency (see Reporting Requirements).

Period of BMP Performance

The permitting authority should also determine whether and when a BMP’s credit-generating capacity expires. Credit generation 

by nonpoint sources might decrease or stop 

if the BMP becomes less effective due to 

a natural degeneration, a lack of maintenance, or changing conditions on-site. A 

BMP’s life expectancy depends on proper 

design, placement, and maintenance. Some 

BMPs have a discrete or short life or must 

be renewed. For example, nonpoint sources 

must renew crop sequencing each season. 

Other BMPs have a longer life span but 

require ongoing maintenance and repair to maintain effectiveness. For example, a sediment 

catch basin requires periodic inspection to ensure structural integrity and regular cleaning to 

remove and properly dispose of collected sediments. In addition, activities or conditions may 

change on-site affecting the efficiency of installed BMPs. For example, a vegetated buffer 

strip designed to filter sediment from a 5-acre crop field may be overwhelmed and become 

ineffective if the operator decided to increase the field size to 8 acres.

The permitting authority should specify in the permit the approved BMPs and associated 

expected life spans established by the trading program. Continued credit generation may 

require periodic certification that a nonpoint source continues to implement a practice, that 

the nonpoint source is taking specified operation and maintenance actions, and that the 

BMP design and specification are still appropriate for the site. The trading program should 

account for the life span of a credit source and determine when credits are deemed permanently expired and thus unavailable for any future allocation. Permits implementing nonpoint 

source trading can contain or reference provisions to require certification of BMP performance 

and define when a BMP generating credits expires (see Reporting Requirements and Special 

Conditions).

Proper operation and maintenance are critical to ensuring the ongoing performance 

and attaining the expected life span of 

a BMP. Trading programs should include 

mechanisms to ensure that BMPs installed 

to generate credits are being operated and 

maintained according to procedures and 

guidelines established by Natural Resources 

Conservation Service (NRCS), EPA, or other 

agencies or product manufacturers.
Water Quality Trading Toolkit for Permit Writers



Uncertainty 

EPA’s Trading Policy recommends that states and tribes establish methods to account for 

greater uncertainties in estimates of nonpoint source loads and reductions (see Appendix B). 

There are three types of uncertainty related to nonpoint source BMPs:

• Measurement uncertainty, which addresses the level of confidence in the field testing 

of a nonpoint source BMP

• Implementation uncertainty, which addresses the level of confidence that a nonpoint 

source BMP is properly designed, installed, maintained, and operated

• Performance uncertainty, which addresses the risk of a BMP failing to produce the 

expected results

Options for Addressing Uncertainty

Uncertainty Ratios

The application of an uncertainty ratio helps ensure that actual loads resulting from a trade 

do not violate the water quality standards despite the inability to accurately measure them 

(Jones 2005). An uncertainty ratio should be applied to estimated nonpoint source load 

reductions to account for any potential inaccuracies in the methodology or assumptions used 

in the estimation. Uncertainty ratios are particularly important to account for potential inaccuracies in the estimation methodology when credits from nonpoint source BMPs are estimated or calculated.

Uncertainty, and therefore the uncertainty ratio, can be reduced by enhancing the level of 

confidence in BMP effectiveness values through employing one or more of the following 

three practices.

Monitoring BMP Effectiveness

Monitoring BMPs installed for generating credits is the most effective method for reducing 

uncertainty. Two types of monitoring are possible. In some instances, it is possible to conduct 

edge-of-field monitoring to determine BMP performance. Another type of monitoring is ambient monitoring. Placing monitoring gauges in the stream at strategic locations between the 

buyer and the seller would allow for gauging water quality impacts of BMPs. EPA’s Monitoring Guidance for Determining Effectiveness of Nonpoint Source Controls (EPA/841-B-96-004) 

provides guidance on the design of water quality monitoring programs to assess both impacts 

from nonpoint sources and effectiveness of control practices and management measures.

Lower Boise River, Idaho

The Lower Boise trading framework addresses the issue of certifying BMP performance by having 

the NPDES point sources purchasing credits sign a Reduction Credit Certificate at the end of each 

month certifying that the BMP is still in place and that it produced a specific reduction amount 

during the month that just occurred. The NPDES buyer certifies that they are aware of the penalties for false certification by signing the Reduction Credit Certificate, which then establishes the 

credit that they can then transfer into their own account and use to cover their discharge. EPA and 

Idaho Department of Environmental Quality (Idaho DEQ) conduct random audits of some BMPs to 

determine if the certification was valid. For more information on trading in Idaho, see Appendix A.
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Modeling BMP Effectiveness

Modeling that uses local data to calculate nonpoint source pollutant loadings and BMP 

effectiveness is also an important tool. For instance, estimates of pollutant reductions (e.g., 

total phosphorus (TP) and sediment) might be based on soil erosion reductions using the 

standardized or revised Universal Soil Loss Equation (USLE). This method incorporates soil 

type, plant cover, rainfall, slope, and agricultural conservation practice factors to calculate 

the soil loss from an area. The soil loss information may then be translated to estimate loadings of sediment-bound phosphorus. An uncertainty ratio should be applied to modeled 

estimates. All modeling should be ground truthed by local monitoring data, which could 

lead to a reduction in uncertainty.

Estimating BMP Effectiveness

Where monitoring and modeling are impracticable, BMP effectiveness can be estimated 

through other means. For example, it might be possible to identify a set of tested BMPs with 

performance data that have been well established through field testing or under controlled 

conditions. These data may be used to estimate the reductions achieved at a nonpoint source 

that installs one or more of the tested BMPs. The trading program, with input from local 

soil and conservation experts, might identify a list of local BMPs that meet minimum design, 

construction, maintenance, and monitoring requirements. Preestablished performance data 

can be used to estimate loading reductions for local nonpoint sources. Potential uncertainty 

ratio reduction is an advantage of implementing local BMPs with high levels of measurement 

precision and accuracy.

South Nation River Watershed, Ontario, Canada

The trading program established formulae that are used to calculate the amount of phosphorus 

that is controlled annually from various agricultural practices. For example, the formula used to 

calculate the amount of phosphorus (P) controlled through proper manure storage is as follows:

Kg of P per year controlled = # of animals × animal phosphorus factor × days × 0.04

where:

• # of animals = the number of animals contributing manure to the area,

• Animal phosphorus factor = U.S. Department of Agriculture’s (USDA) estimates of the 

amount of phosphorus excreted per animal,

• Days = the number of days that the animals are contributing manure to the area, and

• 0.04 represents the assumption that approximately 4 percent of the total amount of manure 

excreted would have been transported in runoff from improperly stored manure.

In addition to manure storage, formulae have also been established to calculate the amount of 

phosphorus controlled through use of clean water diversions, proper storage and handling of 

milkhouse washwater, preventing livestock access to watercourses, various cropping practices, 

and buffer strips (O’Grady and Wilson, no date).
Water Quality Trading Toolkit for Permit Writers



Table 1. Selected BMPs approved for trading in the Lower Boise River watershed

BMP Life span Effectiveness Uncertainty

Sediment basins (farm scale) 20 years 75% 10%

Constructed wetland 15 years 90% 5%

Microirrigation 10 years 100% 2%

Crop sequencing 1 season 90% 10%

Filter strips 1 season 55% 15%

Establishing Baselines for Nonpoint Source Sellers

As stated in the Essential Trading Information for Permit Writers section, a nonpoint source 

should meet the specified baseline before entering the trading market as a credit seller. 

Baseline is defined as the pollutant control requirements that apply to a buyer and seller in 

the absence of trading. After a seller meets its baseline, it can generate credits.1 A baseline for 

a nonpoint source can be derived from a load allocation (LA) established under a total maximum daily load (TMDL). Where an LA does not exist, EPA’s Trading Policy states that state and 

local requirements and/or existing practices should determine a nonpoint source’s baseline 

(see Figure 2). The trading program provisions could also specify some additional minimum 

level of control that nonpoint sources would have to achieve before they could generate 

credits. The baseline level of control should never be less than existing practice. There are difficulties associated with establishing baselines for nonpoint sources and, although permitting 

authorities may not have direct involvement in establishing these baselines, a permit writer 

should be aware of these issues and how they might affect the trading provisions in permits.

To be reliable, trading programs establishing baselines for nonpoint source sellers should use 

the maximum amount of verifiable information on loadings in a watershed, such as a TMDL or 

other watershed loading analysis. Where a TMDL establishes a reliable LA for nonpoint sources, an individual nonpoint source’s portion of the LA can be used to set its trading baseline. 

1 Some trading programs may require a seller to implement controls beyond the baseline before generating credits.

The Idaho Department of Environmental Quality’s Draft Pollutant Trading 

Guidance

Idaho DEQ’s November 2003 draft Pollutant Trading Guidance provides a list of approved agricultural BMPs that can be used to generate TP reduction credits for trading in the Lower Boise River 

watershed. The draft guidance document includes estimates of BMP effectiveness and uncertainty discounts for specific watersheds (the uncertainty discount is subtracted from the effectiveness estimate). The guidance also lists the procedures for determining the amount of credits and 

associated monitoring and maintenance requirements for each BMP. Table 1 lists selected BMPs 

approved by Idaho DEQ for use in nutrient trading in the Lower Boise River watershed. A separate list of watershed-specific BMPs, along with effectiveness estimates and uncertainty ratios, 

will be generated for each watershed that would like to develop a trading program consistent with 

the Idaho Pollutant Trading Guidance. See Appendix A for more information on trading in Idaho.
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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Where a TMDL or similar analysis is not available or does not represent the most accurate information on nonpoint source loading 

in the watershed, the trading program or state policy can establish 

a set of minimum BMPs that a nonpoint source must install to be 

eligible for trading. The pollutant load from the nonpoint source 

after installing these BMPs would be considered the baseline for 

estimating further reductions that could then be counted as credits. The permit should reference any state trading program or other document that contains the model used for estimating credits. 

It is important to note that nonpoint source baselines established 

using less-verifiable information on pollutant loading are likely to 

have less public support and, more relevant to permit writers, may 

be challenged as inconsistent with water quality standards.

Nonpoint Source Baseline Derived from TMDL Load Allocations

An LA established under a TMDL defines the nonpoint source load reductions necessary to 

achieve water quality standards. EPA would not support a trading program that allows nonpoint sources to sell credits if the discharge is contributing to water quality impairment; therefore, nonpoint sources should meet their portion of the LA before generating credits to sell on 

the trading market.

TMDLs might specify an LA for an individual nonpoint 

source or for a category of nonpoint source dischargers 

in a watershed. If established for an individual nonpoint 

source (e.g., a single farm), the individual nonpoint source 

should use the LA as its baseline for generating credits. 

However, if the TMDL establishes an aggregate LA for a 

category of nonpoint sources (e.g., all farms in a watershed) or all nonpoint sources on a particular tributary, 

the watershed stakeholders, including the permitting 

authority or trading program, need to decide how to 

equitably distribute that aggregate LA among the individual nonpoint source dischargers in a scientifically valid 

manner. For example, if the LA is expressed as an overall 

load reduction percentage (e.g., 25 percent reduction in 

TN loading watershed-wide), the trading program might 

require each nonpoint source discharger to reduce its 

individual loading by that percentage before generating 

credits. Alternatively, where the LA is expressed as a total 

aggregate loading reduction (i.e., total pounds per day), 

the trading program would distribute the LA among the 

individual nonpoint sources to define the baseline for each nonpoint source. The trading program might use land cover, total production, proximity to the waterbody of concern, or some 

other variable to determine the appropriate distribution of the aggregate LA among individual nonpoint sources. The best method of distributing an aggregate LA among nonpoint 

EPA’s Trading Policy states that where 

a TMDL is in place, the LA or other 

appropriate baseline serves as the threshold 

for nonpoint sources to generate credits. 

This does not mean that EPA requires all 

nonpoint sources in a watershed to meet 

an aggregate LA for a single nonpoint 

source to participate in trading. The Trading 

Policy’s intent is that each nonpoint source 

participating in trading under a TMDL 

make reductions consistent with the LA 

before they can generate credits (additional 

reductions) for sale. This approach ensures 

that progress is made toward water quality 

standards with each trade. States have 

flexibility to set other appropriate baselines 

and can, in fact, decide to require all 

nonpoint sources to meet the baseline 

before participating in trading.

Nonpoint Source Seller 

Baseline for Trading

NPS Seller

With TMDL

NPS Seller

Without TMDL

Load allocation

State and local 

requirements 

and/or existing 

practice

Figure 2. Nonpoint source seller 

baseline for trading.
Water Quality Trading Toolkit for Permit Writers



source dischargers will vary; watershed stakeholders should work together to determine the 

most appropriate method for establishing the nonpoint source baseline.

Once the LA is equitably distributed among nonpoint sources in the watershed, an individual 

nonpoint source should reduce its load by its portion of the LA before it generates credits. 

To verify the required load reduction and quantify the credits generated after the baseline is 

met requires quantification of the nonpoint source load, either through direct monitoring or 

estimation. For more information, see the section on Quantifying Nonpoint Source Loads and 

Credits, above.

Nonpoint Source Baseline Set at a Minimum Level of BMP 

Implementation

In watersheds where a TMDL has not been developed, the nonpoint source baseline is 

derived from state, tribal, and local requirements. The nonpoint source should meet this 

baseline before generating credits. A trading program can choose to require a more stringent level of BMP control before credits can be generated. In any case, the level of control 

required to generate credits should never be less than existing practice.

In any particular watershed, it is likely that different nonpoint sources will be at different levels or stages of BMP implementation. For example, in a watershed where animal feeding operations (AFOs) are the primary nonpoint source pollutant contributors, some AFOs might be 

actively working with the NRCS to implement comprehensive nutrient management plans that 

minimize nutrient and sediment runoff. Other AFOs might not have installed any BMPs either 

because they do not participate in any NRCS programs or because they are in the early stages 

of planning and implementation. These nonpoint source facilities might contribute a much 

greater pollutant load than those who have proactively reduced nonpoint source pollutants. 

A trading program can choose to require nonpoint sources to implement a minimum level of 

BMPs before trading to provide some level of equity among nonpoint source credit generators 

in the watershed. In addition, implementing a minimum level of BMPs demonstrates a commitment on the part of the credit generators participating in the trading program.

Trading programs should consider baseline equity issues among nonpoint source participants. 

EPA encourages states or trading programs to set a minimum level of BMP requirements for 

nonpoint sources before they can generate credits.

Lower Boise River, Idaho

In Idaho, DEQ designates the nonpoint source baseline year (currently 1996 for the Lower Boise, 

but this may be amended on the basis of technical outcome of a pending TMDL) for each trading 

marketplace in the state. Each nonpoint source then calculates the baseline load for the baseline 

year and uses it to determine the eligibility of reductions to serve as credits for trading. In other 

words, in the Lower Boise River watershed, if a nonpoint source installed a BMP in 1999, the farm 

would have already created eligible credits. However, pollutant reductions from a BMP installed in 

1994 would not be eligible. Nonpoint sources in Idaho are required to use the BMP List’s estimating 

equation for particular BMPs (which incorporates the USDA Surface Irrigation Soil Loss (SISL) equation) to calculate baseline loads. For more information about this trading program, see Appendix A.
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Where the nonpoint source baseline is set at a minimum level of BMP implementation, credits 

can be generated after meeting the minimum level of control. Quantifying the credits generated will generally require quantification of the nonpoint source load after implementing the 

minimum required BMPs, either through direct monitoring or estimation. For more information, see the section on Quantifying Nonpoint Source Loads and Credits, above. In certain 

instances, it is impossible or impracticable to quantify a baseline by measuring or estimating 

the nonpoint source pollutant load. In these cases, a trading program could allow nonpoint 

sources to generate credits for estimated reductions from BMPs. For example, if sufficient 

data are available to establish that a particular BMP, installed under specified conditions, will 

achieve a loading reduction of X lbs/day, the nonpoint source might be allowed to generate 

credits equivalent to X lbs/day without actually having quantified the pollutant load before 

installing the BMP. Trading programs should use this approach only where sufficient data on 

the efficacy of the BMPs are available to develop a reliable estimate of the expected reductions. The baseline pollutant load should always be quantified where possible.

Determining Maximum Feasible Nonpoint Source Load 

Reductions

It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a 

waterbody. Therefore, it is important that some analysis be done to estimate the maximum 

amount of pollutant runoff that can be controlled from the nonpoint sources in a watershed. The difference between this estimate and the nonpoint source’s baseline equals the 

maximum nonpoint source load reductions available for trading.2 This is a way to ensure that 

credits being purchased result in actual reductions. This increases the surety that the trading 

program can meet its goal of achieving water quality standards.

A trading program can directly calculate the maximum tradable nonpoint source load reduction for a watershed. A watershed’s maximum tradable nonpoint source load reduction can 

be calculated by first determining the maximum feasible implementation of BMPs; second, 

estimating the reduction from that level of BMP implementation on the basis of watershed 

modeling, published BMP efficiency information, or best professional judgment (BPJ); and 

finally, taking the difference between the maximum loadings reduction and the aggregate 

baseline for all sellers. In addition, this calculation could be done for an individual farm.

Red Cedar River, Wisconsin

TP reduction credits associated with a BMP were estimated using TP loading models to estimate reductions from well-established and well-understood practices. Soil 

testing of each field was done to calculate the TP delivery to the stream from the field 

where the BMP was used (Breetz et al. 2004). For more information about this trading 

program, see Appendix A.

2 The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available for 

trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on many 

factors (as described in the Developing Trade Ratios section), determining the maximum number of credits is not 

as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring that 

every trade results in a reduction of total load to the waterbody.
Water Quality Trading Toolkit for Permit Writers

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The trading program may want to include a mechanism for ensuring that this maximum tradable nonpoint source load reduction is not exceeded. This could be done, for example, by 

specifying the maximum tradable nonpoint source load reductions in the program documentation and then tracking credit sales, and therefore load reductions, by nonpoint sources to 

ensure that this maximum is not exceeded.

Pennsylvania’s Tradable Loads for Addressing the Chesapeake Bay’s 

Tributary Strategies

In 2003, EPA developed a document titled The Technical Support Document for the Identification 

of Chesapeake Bay Designated Uses and Attainability to help states develop and adopt refined 

water quality standards to address nutrient- and sediment-based pollution in the Chesapeake 

Bay and its tidal tributaries. As part of this analysis, the Chesapeake Bay Program developed 

four nutrient reduction scenarios based on different levels of BMP and control technology 

implementation by 2010. The levels ranged from current implementation to “everything, 

everywhere, by everybody” (E3) which approximates the maximum nutrient and sediment 

load reductions available in the watershed. To create the most objective and uniform maximum implementation level possible, the E3 scenario was developed without considering sitespecific constraints and program participation levels. If these factors were considered, certain 

aspects of the E3 scenario may not be feasible. Nutrient and sediment loads resulting from 

each nutrient reduction scenario were estimated using the Chesapeake Bay Program’s Phase 

4.3 Watershed Model. For example, the estimated loadings for the E3 scenario for Pennsylvania agriculture were 21,153,000 lbs TN/yr and 1,896,000 lbs TP/yr. (More information on the 

development of the E3 scenario is available in Appendix A of the Technical Support Document

available at: www.chesapeakebay.net/uaasupport.htm)

Recognizing that model estimates based on the E3 scenario likely overestimated the maximum 

feasible nutrient and sediment load reductions, Pennsylvania made adjustments to the estimates 

to better represent a feasible effort. One adjustment was reducing by 10 percent the level of 

nonpoint source reductions estimated in the E3 scenario. The selection of a 10 percent reduction 

is subjective, since estimates of the feasible level of implementation for nonpoint source BMP 

implementation vary widely. Additionally, Pennsylvania estimated the reductions for those BMPs 

in Pennsylvania’s Tributary Strategy that were not included in the E3 scenario. These additional 

reductions were included in the revised E3 scenario. The estimated loadings for the revised 

scenario for agriculture were 21,819,000 lbs TN/yr and 1,726,000 lbs TP/yr. After adjusting the 

E3 scenario estimates, Pennsylvania estimated the maximum allowable credits as the difference 

between the load estimates from the revised E3 scenario and the Pennsylvania Tributary Strategy loadings goal. The Tributary Strategy loads for agriculture were 27,580,000 lbs TN/yr and 

2,123,000 lbs TP/yr yielding final tradable loads of 5,760,000 lbs TN/yr and 397,000 lbs TP/yr. 

The scenario values and the tradable load values will change as new BMPs are developed or the 

efficiencies of existing BMPs are revised.
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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Accountability

Mechanisms Under the NPDES Program

EPA’s Trading Policy notes that “States and tribes should establish clear enforceable mechanisms consistent with NPDES regulations that ensure legal accountability for the generation 

of credits that are traded.”

Such enforceable mechanisms might include, among other things, requirements for water 

quality or effluent monitoring, credit purchase and sale accounting, and assessment of BMP 

effectiveness. These mechanisms might be contained in state regulations, the project trade 

agreement, or both. By incorporating such accountability provisions of the trade agreement 

(or the entire trade agreement) into a NPDES permit, the state or tribe makes the point 

source legally responsible for their performance.

EPA’s Trading Policy also states that “In the event of default by another source generating 

credits, an NPDES permittee using those credits is responsible for complying with the effluent 

limitations that would apply if the trade had not occurred.”

To account for the possibility of a failed trade (e.g., insufficient generation of necessary credits by the seller), EPA recommends that the permit (and any accompanying trade agreement) 

clearly describe the respective responsibilities and legal liability (if any) of the buyer and the 

seller (see Special Conditions).

Mechanisms Outside the NPDES Program

To further clarify and protect their interests, the trading parties may choose to enter into a 

contract or other agreement separate from any applicable NPDES permit. Such a contract or 

agreement could, where appropriate, address a variety of financial or legal considerations 

and contingencies among the trading parties, including what happens in the case of default 

by any party. For example, the point source buyer might use such a contract to memorialize 

an agreement that the credits it needs are available, and the nonpoint source seller might use 

such a contract to guarantee payment for its services.

Great Miami River Watershed, Ohio

After a soil and water conservation district’s proposal is approved, the Miami Conservancy District (MCD, the broker of the program) 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 nonpoint source responsible 

for implementing the BMPs. MCD tracks the credits generated and allocates them to the 

buyers. A separate Load Reduction Workgroup will evaluate the accuracy of reduction 

estimates every two years. For more information on this program, see Appendix A.
Water Quality Trading Toolkit for Permit Writers

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Trade Agreements

Typically, the terms that govern a trading program will be developed outside the NPDES permit process and can be incorporated or reflected in the permit (see Appendix C). The Trading 

Policy describes several mechanisms for implementing trading through NPDES permits (see 

Appendix B). NPDES permits authorizing water quality trading should reference any existing 

trade agreement in the permit fact sheet. The permit writer may also incorporate specific 

provisions of the agreement as appropriate (e.g., shared responsibilities for conducting ambient monitoring) into the permit.

All trade agreements referenced in NPDES fact sheets and permits should meet certain 

minimum standards to help ensure the trades authorized by the permit are consistent with 

water quality standards. At a minimum, the trade agreement should be a written agreement, signed and dated by authorized representatives of all trading partners. Verbal trade 

agreements should not be referenced in NPDES permits. The written trade agreement should 

contain sufficient detail to allow the permitting authority to determine with some degree of 

certainty that the terms of the agreement will result in loading reductions and generation 

of sufficient credits to satisfy water quality requirements. If there is no formal, outside trade 

agreement, trading can still occur; however, the permit writer will need to more explicitly 

describe the trading program in the fact sheet and authorize specific aspects of the trading program as permit conditions. Trading partners can specify the details pertaining to the 

negotiated terms of the trade (e.g., credit price, payment schedule, consequences for failure 

to fulfill negotiated terms) in a separate, written and signed contract.

Wells River Example: Trade Agreements

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

n Estimated Phosphorus Load from Farm with No BMPs:

6,000 lbs/yr (2 lbs/ac/yr of TP × 3,000 acres)

n Estimated Phosphorus Load Reduction from Current BMPs (500 Acres under 

Conservation Tillage): 850 lbs/yr (assumes 85 percent removal rate, or 1.7 lbs/ac removed 

for every 2 lbs/ac of loading; 1.7 lbs/ac × 500 acres = 850 lbs of TP/yr)

n Current TP Load: 5,150 lbs/yr (6,000 lbs/yr – 850 lbs/yr = 5,150 lbs/yr)

Load Allocation (baseline): 15 percent load reduction from current TP load or load reduction of 

772.5 lbs/yr (0.15 × 5,150 lbs/yr = 772.5 lbs/yr reduction).

n Estimated Total Load Reduction from Planned BMPs: 3703.5 lbs/yr

– Nutrient Management Planning (assumed effectiveness of 35 percent reduction from 

current load = 1,802.5 lbs/yr)
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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– 90 foot riparian buffer zone along 20 stream miles (assumed 80 percent load reduction from treated area of 1,188 acres with a loading of 2 lbs/ac; treated area is equal 

to riparian buffer length and width, plus 400 ft of land adjacent to buffer = 20 stream 

miles of 90 ft riparian buffer, in addition to 400 ft of adjacent land = 1,188 acres; 

1,188 acres × 2 lbs/ac of TP = 2,376 lbs/yr of TP loading; 0.80 × 2,376 lbs/yr = 1,901 

lbs/yr of TP load reduction from riparian buffer treated area)

n Load Eligible for Trading after Meeting Load Allocation as Baseline: 2,931 lbs/yr 

(3,703.5 lbs/yr – 772.5 lbs/yr = 2,931 lbs/yr; 2,931 lbs/yr average monthly = 8 lbs/day)

Credit Buyer: Springtown POTWa

n Existing TBELb: 500 lbs/day (average monthly)

n Current Loading: 500 lbs/day (average monthly)

n New WQBEL (based on WLAc

): 475 lbs/day (average monthly)

n WWTPd Treatment Capabilities: Treatment to 500 lbs/day (average monthly)

n Load Reduction necessary to remain in compliance with WQBEL: 25 lbs/day (average 

monthly)

Notes: a POTW = publicly owned treatment works; b TBEL = technology-based effluent limitations; c

 WLA = wasteload allocation; d WWTP = wastewater treatment plant

Location: Patterson Soybean and Corn Farm (credit seller) is located approximately one mile 

upstream from Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Location Ratio: Unnecessary because both sources discharge directly into Wells River

n Delivery Ratio: Unnecessary because of close proximity of facilities

n Equivalency Ratio: 2:1 because of the different solubility of phosphorus between the point 

and nonpoint sources

The Springtown POTW is scheduled to renew its permit in 2 years. Its new permit will contain a new, 

more stringent WQBEL for TP that reflects its TMDL WLA. To meet the necessary load reduction, 

the Springtown POTW will have to purchase TP credits from a number of local nonpoint sources and 

enter into several trade agreements. The trade agreement with the Patterson Soybean and Corn Farm 

is one of four trade agreements that the Springtown POTW has with local nonpoint sources (other 

farms trading are Maybelle’s Farm, U-Pick’Em Vegetable Farm, and Larry’s Vegetable Coop.)

The basic terms of the trade agreement as they pertain to Patterson Soybean and Corn Farm are as follows:

n Patterson Soybean and Corn Farm will implement BMPs that will result in an estimated TP load 

reduction of 3,703.5 lbs/year; approximately 2,931 lbs/yr will be available for trading after meeting the 15 percent load reduction baseline.

Wells River Example: Trade Agreements (continued)
Water Quality Trading Toolkit for Permit Writers

14

n Patterson Soybean and Corn Farm guarantees this TP load reduction for a period of 5 years to 

coincide with Springtown POTW’s NPDES permit term.

n Springtown POTW will require 25 lbs/day of TP reduction to meet its WQBEL (its WLA).

n Springtown POTW will purchase all of Patterson Soybean and Corn Farm’s load reduction eligible 

for trading of 8 lbs/day (average monthly). However, on the basis of the 2:1 uncertainty ratio 

applied to all nonpoint source TP credits and the 2:1 equivalency ratio to account for differences 

in solubility, Springtown POTW’s purchase of 8 lbs/day from Patterson Soybean and Corn Farm is 

equal to only 2 TP credits toward its required load reduction of 25 credits/day to meet its WQBEL.

n Patterson Soybean and Corn Farm will begin BMP implementation 12 months before the effective date of Springtown POTW’s renewed NPDES permit to ensure that BMPs are achieving 

estimated pollutant load reductions and are generating full credits.

n Springtown POTW will enter into a memorandum of understanding with the Wells County Soil 

and Water Conservation District (SWCD) to perform monthly monitoring and inspections at 

Patterson Soybean and Corn Farm to ensure that estimated TP load reductions are achieved 

through BMP implementation. If the Wells County SWCD fails to perform this function, Springtown POTW will conduct the monthly monitoring and inspections and submit the necessary 

monitoring and inspection reports.

n Failure to fulfill the terms of this trade agreement will result in Patterson Soybean and Corn 

Farm’s ineligibility to participate in future trading activities with any permitted point sources in 

the state for a period of 5 years from the time of the breach of the trade agreement terms.

The NPDES permit writer for the facilities receives a written copy of the trade agreement that is 

signed and dated by authorized representatives of Springtown POTW and Patterson Soybean and 

Corn Farm. The permit writer reviews the written trade agreement to verify that the information 

related to baselines and estimated pollutant load reductions are accurate and do not conflict with any 

of Springtown POTW’s existing NPDES permit requirements. During the permit renewal process, the 

NPDES permit writer will incorporate provisions authorizing the purchase of TP credits from nonpoint sources that enter into trade agreements with approved terms. At that time the permit writer 

will also modify Springtown POTW’s effluent limitations, monitoring, reporting, and special conditions requirements to authorize the purchase of nonpoint source TP credits to achieve compliance 

with the facility’s WQBEL. The permit writer will reference each written and signed trade agreement 

in the Springtown POTW NPDES permit fact sheet and attach a copy of each trade agreement as part 

of the permit’s administrative record.

In a separate contract, Springtown POTW and Patterson Soybean and Corn Farm articulate the financial and liability conditions that they have agreed upon. Springtown will develop contracts with each 

farm it trades with. The terms of the separate contracts, which the permit writer does not ask to see 

because it has no bearing on the NPDES permit requirements for the Springtown POTW, are as follows:

n Springtown POTW will pay Patterson Soybean and Corn Farm $16 per credit of TP reduced on a 

monthly basis, after the Wells County SWCD has verified the TP load reductions.

Springtown POTW will follow the same process with the other farms to generate a total of 25 credits.

Wells River Example: Trade Agreements (continued)
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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Components of a NPDES Permit

NPDES permits that authorize water quality trading are no different than typical NPDES permits in many respects—they require the same structure, analyses, and justification. All permits have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and 

reporting requirements; (4) special conditions; and 5) standard conditions. Standard conditions are the same for all NPDES permits and will not be addressed in this Toolkit. In addition, 

consistent with title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are 

subject to public notice and comment. This process provides all interested parties an opportunity to comment on the trading provisions in the permit.

Each NPDES permit is accompanied by a permit fact sheet. The information in these fact 

sheets is not enforceable. The purpose of the fact sheet is to explain the requirements in the 

permit to the public. Thus, at a minimum, the fact sheet should explain any trading provisions 

in the permit. There is a wide variety of options for including trading information in the fact 

sheet that ranges from explaining the minimum control level (buyer) or trading limit (seller) 

to including the entire trading program.

There are a variety of issues, however, that might require special consideration when developing a permit incorporating water quality trading with nonpoint sources. Appendix E provides the permit writer with a list of fundamental questions that should be addressed during 

the permit development process.

Permit Cover Page

The cover page of a NPDES permit typically contains the name and location of the 

permittee(s), a statement authorizing the discharge, the specific locations for which a discharge is authorized (including the name of the receiving water), and the effective period of 

the permit (not to exceed 5 years). In addition, the cover page may list the pollutants regulated by the permit. For instance, the cover page of an overlay permit for TP may state that the 

overlay permit addresses only TP and that other parameters are addressed in each facility’s 

individual permit.

The cover page also could specifically authorize trading between the permitted point source 

and the nonpoint source(s) generating credits. However, whereas the cover page for a permit 

that includes trading between point sources would include the specific authorized discharge 

locations for each point source, because a nonpoint source is a diffuse pollutant source (e.g., 

farms, ski areas, golf courses), a permit that implements a trade with a nonpoint source trading partner might not reference a specific discharge location for the nonpoint source involved 

in the trade. The cover page could, however, simply name the nonpoint source either by 

category (e.g., farms, golf courses) or by the name of the specific nonpoint source (e.g., Rock 

Creek Dairy, Rolling Hills Country Club) and provide a general description of nonpoint source 

location (e.g., Hudson River at West Point).

The cover page also should address the regulation, legal authority, policy statements, planning documents and the trade agreement that support trading between point and nonpoint 
Water Quality Trading Toolkit for Permit Writers

16

sources in the Authority section of the cover page. If the state has issued regulations or policy 

documents authorizing water quality trading, the permit writer should reference these. For 

example, if trading is considered a water-quality management tool in the state’s Water Quality Management Plan, this may establish authority for integrating trading into NPDES permits 

and can be referenced on the cover page (Jones 2005).

Effluent Limitations

Effluent limitations are the primary mechanism for controlling the discharge of pollutants 

from point sources into receiving waters. When developing a permit, the permitting authority focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES 

permits, permits that include trading must include any applicable TBELs, or the equivalent 

and, where necessary, WQBELs, that are derived from and comply with all applicable technology and water quality standards. Furthermore, limits must be enforceable, and the process 

for deriving the limits should be scientifically valid and transparent.

EPA’s 2003 Trading Policy does not support trading to meet TBELs unless trading is specifically 

authorized in the categorical effluent limitation guidelines on which the TBELs are based. 

Applicable TBELs thus serve as the minimum control level below which the buyer’s treatment 

levels cannot fall. This section discusses the overarching principles of how to express all applicable effluent limitations in permits for dischargers participating in water quality trades.

Credit Buyers

Permits for credit buyers should include both the baseline, which is the WQBEL that defines 

the level of discharge the buyer would have to meet through treatment when not trading, 

and a minimum control level that must be achieved through treatment when trading. The 

permit should also include the amount of pollutant load to be offset (minimum control level 

– baseline) through credit purchases when trading. Most often, the applicable TBEL will serve 

as the minimum control level. A permitting authority can choose to impose a more stringent 

minimum control level than the TBEL to prevent localized exceedances of water quality standards near the point of discharge, but not one that is less stringent than the TBEL. In a NPDES 

permit or fact sheet, the effluent limitations for a credit buyer could be described as follows:

• The Discharger must meet, through treatment or trading, a mass-based effluent limitation for Pollutant A of <insert baseline>. If this effluent limitation is met through 

trading, the Discharger must purchase credits from authorized Sellers in an amount 

sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess 

of <insert baseline>, but at no time shall the maximum mass discharge of Pollutant A 

during <insert averaging period> exceed the minimum control level of <insert minimum control level>. Thus, the maximum mass discharge of Pollutant A to be offset 

through credit purchases is <insert minimum control level – baseline>.
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

17Wa t e r Q u a l i t y 

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Wells River Example: Effluent Limitations

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

n Estimated Phosphorus Load from Farm with No BMPs:

6,000 lbs/yr (2 lbs/ac/yr of TP × 3,000 acres)

n Estimated Phosphorus Load Reduction from Current BMPs (500 Acres Under Conservation Tillage): 850 lbs/yr (assumes 85 percent removal rate, or 1.7 lbs/ac removed for every 

2 lbs/ac of loading; 1.7 lbs/ac × 500 acres = 850 lbs of TP/yr)

n Current TP Load: 5,150 lbs/yr (6,000 lbs/yr – 850 lbs/yr = 5,150 lbs/yr)

n Load Allocation (baseline): 15 percent load reduction from current TP load or load reduction 

of 772.5 lbs/yr (0.15 × 5,150 lbs/yr = 772.5 lbs/yr reduction)

n Estimated Total Load Reduction from Planned BMPs: 3703.5 lbs/yr

n Load Eligible for Trading after Meeting Load Allocation as Baseline: 2,931 lbs/yr 

(3,703.5 lbs/yr – 772.5 lbs/yr = 2,931 lbs/yr; 2,931 lbs/yr = 8 lbs/day average monthly)

Credit Buyer: Springtown POTW

n Existing TBEL: 500 lbs/day (average monthly)

n Current Loading: 500 lbs/day (average monthly)

n New WQBEL (based on WLA): 475 lbs/day (average monthly)

n WWTP Treatment Capabilities: Treatment to 500 lbs/day (average monthly)

n Load reduction necessary to remain in compliance with WQBEL: 25 lbs/day (average monthly)

Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from 

Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Equivalency: 2 :1

Springtown POTW needs to purchase credits from four different nonpoint sources to account for 

a reduction of 25 lbs/day (average monthly) to meet the new WLA. The permit will be renewed in 2 

years, which allows time for the nonpoint source BMPs at Patterson’s Corn and Soybean Farm (and 

others) to be fully operational. Until that time, the existing TBEL continues to apply.

The permit writer for Springtown POTW will include limitations that will apply in the event of trading and limitations that will apply if no trading occurs—the WQBEL (baseline) and the minimum 

control level if trading occurs (existing TBEL).
Water Quality Trading Toolkit for Permit Writers

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Pollutant Form, Units of Measure, and Timing Considerations

The permit should explicitly identify the pollutant or pollutants being traded for which trading is permitted. The permitting authority should ensure that the trading program or agreement and the calculated WQBELs are consistent in terms of the form of the pollutant, units of 

measure, and timing.

For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated 

under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen 

(TKN) or some other form. If, on the other hand, the WQBEL is for total nitrogen (TN), buyers 

and sellers should trade TN credits. In this case, a discharger may be required to measure TN. 

Permit Language:

Table 2. Monthly average mass loading effluent limitations for TP

Facility Units Existing TBEL WQBEL

Effluent limitation 

with trading

Springtown POTW lbs/day 500 475 (Baseline) 500 (Minimum 

Control Level/TBEL)

A. Springtown POTW is authorized to discharge total phosphorus from Outfall 001 to the Wells 

River 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 phosphorus from 

nonpoint sources within the Wells River watershed that meet baseline requirements before 

trading.

B. The discharge from Outfall 001 shall comply with the monthly mass loading of total phosphorus established by either a. or b.:

a. The WQBEL set forth in Table 2; or,

b. The Effluent Limitation with Trading set forth in Table 2 provided the permittee has 

secured total phosphorus credits from Patterson’s Corn and Soybean Farm and other nonpoint sources sufficient to offset any discharge in excess of the WQBEL set forth in Table 

2. The number of total phosphorus credits required to be purchased shall be calculated as 

follows:

Credits required = (Actual Discharge – WQBEL) x Trade ratio

Where:

Actual discharge = the total phosphorus load, expressed in lbs/day as a monthly average,

Trade ratios = 4:1 (uncertainty and equivalency)

C. Credits purchased by the permittee may be applied only for the calendar month(s) during 

which they were generated by Patterson’s Corn and Soybean Farm or other nonpoint sources.

Wells River Example: Effluent Limitations (continued)
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

19Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

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If there are concerns about localized impacts, and WQBELs are also specified for a particular form or forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and 

nitrate (all expressed as N) and then calculate its TN discharge.

Also an equivalency ratio may be needed when two sources are trading pollutants such as 

TN or TP but are actually discharging different forms of nitrogen or phosphorus (e.g., one 

discharger’s phosphorus discharge is made up primarily of soluble phosphorus while its 

trading partner’s discharger is primarily non-soluble phosphorus). An equivalency ratio may 

also be needed in cross-pollutant trading of oxygen demanding pollutants (e.g., phosphorus 

and biochemical oxygen demand (BOD)). In this case, the equivalency ratio would equal the 

ratio between the two pollutants’ impacts on oxygen demand. The trading program should 

account for any necessary equivalency ratios with regard to pollutant form or type; the 

permit writer simply needs to be aware of the pollutant form or type addressed in the trade 

agreement to ensure that the permit is consistent.

Wells River Example: Pollutant Form, Units of Measure, 

and Timing

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

Credit Buyer: Springtown POTW

Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from 

Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Equivalency Ratio: 2:1

Pollutant Form

The TMDL indicates a need for Springtown POTW, the credit buyer, to control TP discharges. The 

facility will not be able to meet the new limit with current treatment capabilities. Springtown POTW 

has entered into a trading agreement with several upstream nonpoint sources (farms) that will be able 

to generate the credits it needs to meet its WQBEL based on the TMDL WLA. The TMDL includes LAs 

for the farms (credit sellers). Each seller operation will implement BMPs necessary to reduce phosphorus loads beyond the baseline requirements. With assistance from the permitting authority, an 

equivalency ratio of 2:1 was developed to account for the difference in solubility between the point 

source and the farms.

Units of Measure

The WQBELs based on the TMDL WLA are expressed in lbs/day as a monthly average to correspond 

with the units and averaging period in the TMDL. The limits in the POTW’s existing permit are also 

expressed in lbs/day as a monthly average. The TP load reductions assumed in the trading agreements 
Water Quality Trading Toolkit for Permit Writers

20

Anti-backsliding, Antidegradation, and New Discharges Special 

Considerations

EPA’s Trading Policy discusses anti-backsliding and antidegradation and how these provisions 

can be met through trading.

Anti-backsliding

The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent than those established 

in the previous permit (USEPA 1996b). The CWA establishes exceptions to this general antibacksliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for lessstringent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs, 

the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR 

122.44(l) provide exceptions for circumstances such as material and substantial alterations 

to the facility, new information, events beyond the permittee’s control, and permit modifications under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs, 

allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a waterbody attaining water quality standards as long as the waterbody continues to attain water 

quality standards even after the WQBEL is relaxed. In addition, revising the limitation must 

be consistent with the state’s antidegradation policy. If the discharge is to a waterbody that 

is not attaining water quality standards, a less-stringent WQBEL is allowed only when the 

cumulative effect of all revised effluent limitations results in progress toward attainment of 

water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA’s 

NPDES Permit Writers’ Manual (EPA-833-B-96-003). EPA’s Trading Policy states:

EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the 

CWA will generally be satisfied where a point source increases its discharge 

for the agricultural BMPs will be calculated and expressed in lbs/day as a monthly average to determine the number of credits they can generate to sell to the POTW.

Timing of Credits

Credits are available beginning at the time of permit renewal. This allows 12 months for the farms’ 

BMPs to be fully implemented and 12 months to gather monitoring data to verify that the BMPs are 

achieving the expected phosphorus control efficiency and will generate credits as expected. These 

data are necessary to better understand how loading and reduction may vary over time and to develop 

monthly credit generation data to correspond with monthly average effluent limitations. Trades will 

occur monthly to correspond with monthly average effluent limitations. The farms will be able to 

continue to generate credits as long as the nutrient management plans are properly implemented and 

updated as necessary, they are able to demonstrate reductions, and the nonpoint source baseline does 

not change in a way that would reduce or eliminate the credits. The ability of the farms to continue to 

generate credits will be assessed during the renewal of the POTW’s permit every 5 years.

Wells River Example: Pollutant Form, Units of Measure, 

and Timing (continued)
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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through the use of credits in accordance with alternate or variable water quality 

based effluent limitations contained in an NPDES permit, in a manner consistent 

with provisions for trading under a TMDL, or consistent with the provisions for 

pre-TMDL trading included in a watershed plan.

A permit writer should simply explain in the fact sheet of the permit how the limitations in 

the permit, after accounting for any trading provisions, are at least as stringent as the limits 

in the previous permit or, alternatively, how anti-backsliding provisions of the CWA are 

satisfied.

Antidegradation

As repeated throughout this document, NPDES permits may not facilitate trades that would 

result in nonattainment of an applicable water quality standard, including the applicable 

antidegradation provisions of water quality standards. Permitting authorities should ensure 

that WQBELs developed to facilitate trade agreements accord with antidegradation provisions and that antidegradation reviews are performed when required. Nothing in the Trading Policy per se changes how states apply their antidegradation policies, though states may 

modify their antidegradation policies to recognize trading.

The Trading Policy states:

EPA does not believe that trades and trading programs will result in “lower 

water quality”

 . . . or that antidegradation review would be required under EPA’s regulations 

when the trades or trading programs achieve a no net increase of the pollutant traded and do not result in any impairment of designated uses.

Special considerations for antidegradation relative to water quality trading depend on the 

tier of protection applied to the waterbody as described below.

Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters, 

the antidegradation policy mandates protection of existing instream uses. Because EPA neither supports trading activities nor allows issuance of permits that violate applicable water 

quality standards, which should protect existing uses at a minimum, any supported trading 

activities incorporated into a NPDES permit should not violate antidegradation policies applicable to Tier 1 waters.

Tier 2 protects waters where the existing water quality is higher than required to support 

aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the 

level that would continue to support existing and designated uses) but only if an antidegradation review finds that (1) it is necessary to lower water quality to accommodate important 

social or economic development, (2) all intergovernmental and public participation provisions have been satisfied, and (3) the highest statutory and regulatory requirements for point 

sources and BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to maintain high water quality when trading is used to compensate for new or increased 

discharges. Thus, the Trading Policy supports reductions of existing pollutant loadings to 

compensate for the new or increased load so that the result is no lowering of water quality. 
Water Quality Trading Toolkit for Permit Writers

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A state, in applying its antidegradation policy, may decide to authorize a new or increased 

discharge to high-quality water, and may decide to use trading to completely or partially 

compensate for that increased load. If the increased load to Tier 2 waters is only partially 

compensated for by trading, an antidegradation review would be required to address the 

increased load.

Tier 3 protects the quality of outstanding national resource waters and waters of exceptional 

recreational or ecological significance. In general, antidegradation policies do not allow any 

increase in loading to Tier 3 waters that would result in lower water quality. EPA supports 

trading in Tier 3 waters to maintain water quality.

Monitoring

Permitting authorities may want to consider developing monitoring and reporting requirements to characterize waste streams and receiving waters, evaluate wastewater treatment 

efficiency, and determine compliance with permit conditions in the trade agreement. Monitoring and reporting conditions of a NPDES permit may contain specific requirements for 

sampling location, sample collection method, monitoring frequencies, analytical methods, 

recordkeeping, and reporting. If the permit conditions include compliance with provisions in 

a trade agreement, then the permitting authority should include monitoring, record-keeping and reporting requirements that facilitate compliance evaluations and, where necessary, 

enforcement actions related to the trading requirements. Discharge monitoring requirements 

should be consistent with the provisions of the trade agreement in terms of pollutants and 

forms of pollutants monitored, reporting units, and timing. The permit provisions should 

ensure that the results of discharge monitoring will be useful to the permittee, the permitting authority, and the general public in determining whether the provisions of the trade 

agreement are being met. Permits that authorize point source–nonpoint source trades also 

should address the unique considerations for monitoring and reporting that will facilitate 

evaluating the effectiveness of BMPs used to generate pollutant reduction credits.

Sample Collection and Analysis

The same discharge sampling location used for compliance in any existing NPDES permits 

should be used for determining compliance with effluent limitations developed for traded 

parameters. Samples collected as part of a self-monitoring program required by a NPDES permit must be performed in accordance with EPA-approved analytical methods specified in 40 

CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants Under 

the Clean Water Act) where Part 136 contains methods for the pollutant of concern. Where 

no Part 136 methods are available, the permit writer should specify which method the point 

source should use for compliance monitoring.

Parties Responsible for Monitoring

In a permit that authorizes trading between a point source(s) and one or more nonpoint 

sources, the permittee(s) will be responsible for all of the monitoring activities that would 

normally be required in any NPDES permit. If the permit is an overlay permit covering multiple point sources and is used to incorporate water quality trading for specific pollutants, 

the permitting authority may establish monitoring requirements by reference to the facility’s 
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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individual NPDES permit for consistency. Alternatively, the overlay permit could specifically 

list the monitoring location and requirements.

Ambient Monitoring

Ambient monitoring is one way to show whether a trade agreement meets or improves water 

quality. In addition to traditional discharge monitoring requirements, ambient water quality 

monitoring may be appropriate at strategic locations to ensure that the trade is not creating 

localized exceedances of water quality standards and to document the performance of the 

overall trading program. Permits with mixing zones may include monitoring requirements as 

appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable mixing zone.

BMP Monitoring and Trade Tracking

To assure that nonpoint source BMPs are performing properly, the permitting authority 

should add permit conditions specifying that a BMP be monitored and inspected on a regular basis. The trading program itself might establish these responsibilities. In some cases, 

monitoring and inspections are conducted by point sources. In other cases, a third party may 

assume responsibility for BMP monitoring.

Under any of these scenarios, the permitting authority should be aware of the monitoring 

and reporting responsibilities established in the trading program and should ensure that 

permit conditions do not contradict these requirements. Where the trading program provides 

that the point source conduct nonpoint source BMP inspections and monitoring, the permit 

should incorporate or reference those requirements. Where the trading program provides 

that a third party conduct inspections and monitoring, the permit should also reference those 

requirements and clarify the permittee’s responsibilities, if any, for reporting or using the 

information and data gathered through the inspections and monitoring activities or conducting these activities itself should the third party fail to fulfill its responsibilities.

Where the trading program does not establish clear mechanisms and responsibilities for BMP 

monitoring, the permitting authority should require them of the permittee. In addition, the 

permitting authority might include a special condition in the permit that requires either the 

discharger or someone contracted by the dischargers to conduct routine inspections to verify 

that BMPs are being maintained and operated as required to retain pollutant reduction 

efficiency.

Permitting authorities should consider developing trade tracking forms and establishing discharger trade reporting requirements to monitor trading activities and any alternative compliance activities implemented if a BMP fails to perform as expected (see Special Conditions).
Water Quality Trading Toolkit for Permit Writers

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Reporting Requirements

The permitting authority should establish reporting requirements to support the evaluation 

of water quality trading programs. For example, in addition to reporting discharge monitoring results, permitting authorities might require a permittee to report the number of credits 

purchased. Permitting authorities might also require an annual monitoring report specific to 

the pollutants involved in the trade, to provide information on annual loading in accordance 

with the requirements of the trading program. Permits incorporating water quality trades 

should require reporting at a frequency appropriate to determine compliance with the trading provisions. Permitting authorities should consider any requirements of the trading programs related to monitoring and reporting and ensure the permits are consistent with these 

requirements. Permits may require reporting of monitoring results at a frequency established 

through the permit on a case-by-case basis but in no case may that frequency be less than 

once per year.

Wells River Example: Monitoring

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

Credit Buyer: Springtown POTW

Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from 

Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Equivalency Ratio: 2:1

The facility’s existing permit includes TBELs that are based on state treatment standards for TP and 

monitoring requirements for sampling the effluent monthly for TP to determine compliance. A new 

permit has been developed for the POTW, which incorporates the new effluent limits (based on the 

approved TMDL) as well as the necessary provisions and effluent limits to authorize trading.

In the new permit, the POTW will be required to monitor for TP weekly and must submit monthly discharge monitoring reports (DMRs) year-round by the 15th of the second month following monitoring 

to the permitting authority to gauge compliance. Ambient receiving water monitoring requirements 

are included in the existing NPDES permits and are adequate to ensure that localized exceedances of 

water quality standards do not develop as a result of trades.

Permit Language:

n The permittee shall monitor effluent total phosphorus a minimum of one time per week. The 

permittee shall determine the average monthly mass loading based on actual monthly average flow. Flow monitoring shall be continuous.
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Trading programs may establish other reporting and tracking requirements as well. For 

example, it is essential to have a mechanism for tracking trades. An additional form could be 

required such as a credit certificate form (see Appendix C). The permitting authority can hold 

point sources liable if they violate any trading provision included in the permit or any trade 

agreement incorporated by reference into the permit, and point sources are certainly liable if 

they do not meet their permit limits.

Permit writers also might want to require verification of project installation and performance 

specifications before the credits may be used, as in the example above. The permit could 

include provisions requiring the point source purchaser to provide the required verification.

Data Reporting to EPA

EPA administers two systems to store NPDES permit data and track compliance, the Permit 

Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). 

PCS is the old, computerized management information system that contains data on NPDES 

permit-holding facilities to track the permit, compliance, and enforcement status of these 

facilities. 

The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains 

integrated enforcement and compliance information across most of EPA’s programs including 

all federal administrative and judicial enforcement actions. In addition, ICIS has the capability 

to track other activities occurring in an EPA Region that support enforcement and compliance 

programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitoring. In the future, ICIS will be deployed to all states and PCS will no longer be used.

Neither PCS nor ICIS is structured to actually track trades.

PCS is designed to compare actual discharge monitoring data against required effluent 

limitations to determine a facility’s compliance with its NPDES permit. To determine compliance under a trading scenario, it is necessary for the NPDES permitting authority to compare 

actual discharge monitoring data and the quantity of credits purchased against required 

effluent limitations. For credit buyers, compliance is actually tracked against two effluent 

limitations—the minimum control level and the baseline. The challenge in using PCS to determine compliance under a trading scenario is that the system does not automatically make 

adjustments to the reported actual discharge—it will not subtract the quantity of credits 

purchased. Therefore, this type of adjustment must be done before entering information 

into PCS so that the system has only one reported number to compare against an effluent 

limitation.

Point source credit buyers have a baseline and a minimum control level (the facility’s TBEL or 

current discharge, whichever is most stringent). To determine compliance for a credit buyer, 

the NPDES permitting authority will need to know that (1) the facility’s actual discharge is 

less than or equal to its minimum control level, and (2) that the number of credits purchased 

results in the facility achieving its baseline. Therefore, point source credit buyers could report 

two types of information: (1) the facility’s actual discharge, and (2) the difference between 

the actual discharge and the quantity of credits purchased. Both numbers would be entered 
Water Quality Trading Toolkit for Permit Writers

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into PCS to determine compliance. PCS would compare the actual discharge against the 

minimum control level to determine permit compliance and eligibility as a credit buyer. PCS 

would also compare the difference between the actual discharge and the quantity of credits 

purchased against the facility’s baseline; the difference should be less than or equal to the 

WQBEL to indicate that the facility has purchased enough credits to meet its baseline and 

remain in compliance with its WQBEL. PCS can accommodate two different effluent limits for 

the same parameter; therefore, it has the capability to determine compliance with both the 

minimum control level and the baseline for a credit buyer.

ICIS also allows the NPDES permitting authority to report two limits; therefore, this system 

can also accommodate both the baseline and the minimum control level for credit buyers. 

New DMR forms will also have two lines to report both the baseline and the minimum control 

level. Like PCS, ICIS does not actually adjust actual discharges with the number of credits 

Wells River Example: Reporting

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

Credit Buyer: Springtown POTW

Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from 

Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Equivalency Ratio: 2:1

The renewed permit will require, in addition to monitoring reports, regular reporting of any changes 

to the trade agreement, and reports for tracking trades. The facility’s individual permit will contain 

monthly average effluent limitations for TP; therefore, monthly trade transactions will be necessary 

to maintain compliance. The trade agreement between the dischargers indicates that trades will be 

tracked by the POTW. The trade tracking system will generate trading notification forms and monthly 

trading summaries for the entire program. Credits must be used in the same month they are generated, and trading notification forms must be submitted to the regulatory agency by the 15th of the 

month following the trade.

Permit Language:

n No trade is valid unless it is recorded in the permittee’s electronic trade tracking system or 

equivalent system that records all trades and generates trading notification forms and a 

monthly summary of all trades valid for each calendar month, in substantially the same format as forms approved by the state. Trading notification forms for each monthly trade must 

be submitted to <the Permitting Authority> by the 15th day of the month following the trade.
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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bought. Under the current design, ICIS will allow a facility with an existing NPDES permit to 

also have a trading partner entered into the system. Once a trading partner is entered for 

a facility, ICIS will allow the entry of an adjusted value for the buyer—this is the reported 

actual discharge adjusted by the number of credits bought. If an adjusted value is entered, 

this value is used to determine permit violations and percent exceedances (USEPA 2006).

In addition to challenges related to limits and the type of information to report, NPDES permits with trading provisions might also raise issues related to reporting periods and automated 

compliance tracking. PCS will not support a reporting extension beyond 30 days. This type 

of reporting extension might be necessary in some instances to allow adequate time for the 

administrative activities necessary for trading partners to coordinate and reconcile trades. ICIS, 

however, will support a 45-day reporting period. In rare instances when a permitting authority 

uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one to be annual. However, the permitting authority will have to manually flag annual limit effluent violations 

for reportable noncompliance (RNC) and significant noncompliance (SNC) to track compliance.

Special Conditions

Special conditions are developed to supplement effluent limitations and may include additional monitoring activities, management practices, pollution prevention requirements, ambient stream surveys, compliance schedules (if authorized by the permitting authority), and 

toxicity reduction evaluations (TREs). Special conditions also include permit modification and 

reopener conditions, and can be used to address water quality trading. Special conditions of 

a NPDES permit will be very important in incorporating the terms of a trade agreement. Even 

where the specific terms of the agreement are not directly incorporated into the permit, the 

special conditions will be used to refer to, and require compliance with, the trade agreement 

housed in a separate document.

The special conditions included in a NPDES permit that incorporates trading will depend on 

provisions of the trade agreement and the effluent limitations and monitoring and reporting 

requirements established in the permit. However, the permitting authority should consider 

incorporating special conditions that support the trading conditions. For example, the special 

conditions of the permit may specify conditions for purchasing credits, additional monitoring 

and special reporting requirements, and special conditions for failed trades.

Specifying Conditions for Purchasing Credits

As discussed above, because of the uncertainty associated with credits generated on the basis 

of BMPs, permits that implement trades between point sources and nonpoint sources should 

clearly reference acceptable practices and approaches to credit generation. The permitting 

authority or the entity managing the trade might determine the appropriate BMPs outside 

of the permit development process; however, the suite of approved BMPs or other approved 

pollutant reduction approaches should be identified in the permit. The permitting authority might choose to include these conditions as part of the effluent limitations section of the 

permit, or as a special condition. While the permit cannot require a nonpoint source to use a 

particular BMP to generate credits, it can prohibit a point source from purchasing credits that 

were not generated through use of approved BMPs.
Water Quality Trading Toolkit for Permit Writers

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The special conditions that address point source–nonpoint source trading also should address 

the timing of when credits are available and when the credit source expires. As discussed 

above, continued credit generation will require periodic certification that a practice is still 

in place and that specified operation and maintenance actions are being taken. Permitting 

authorities might consider establishing monitoring and reporting requirements to ensure 

that BMPs generating credits are properly installed and maintained to continue generating 

credits. Such requirements are especially important if available credits are calculated and 

monitoring data are not required or available to verify pollutant reductions.

Special conditions also could be used to specify the reconciliation period for credits or when 

credits may be used relative to when they are generated. Effluent limitations will dictate the 

reconciliation period, as discussed above, but special conditions can clarify the reconciliation 

period and ensure that credits are not based on future reductions that cannot be verified, 

thus reducing the risk of noncompliance.

Special conditions addressing liability, provisional requirements that apply when credits are 

unavailable or when a limit is exceeded, and outlining the specific requirements for establishing trade agreements among dischargers can be important in issuing an acceptable permit 

that will not require modification each time circumstances change for one of the dischargers 

participating in the trading program covered under the permit.

Additional Monitoring and Special Reporting

The permitting authority might articulate special monitoring requirements as special conditions, as described above. Additional monitoring might be required to assess the effectiveness of BMPs or to verify BMP installation, implementation, and maintenance. Any special 

conditions established to determine BMP effectiveness should specify who is responsible 

for conducting monitoring and inspections to verify BMP effectiveness and the accuracy of 

the trade ratios assumed in the permit. It is important for a permitting authority to track 

permit trading activities especially for point source–nonpoint source trades, and permitting 

authorities should consider establishing special conditions that facilitate tracking. For point 

source–nonpoint source trades, the permitting authority might require the point source to 

provide additional information on the nonpoint source(s) generating the credits reported in 

Lower Boise River, Idaho

The Lower Boise model uses pounds of TP as its unit of measurement and reconciles 

trade account balances monthly against the reported discharge amounts. The point 

source must sign and submit new Reduction Credit Certificates at the end of each month 

to establish the credit for that month that they can transfer to their own account using 

the Trade Notification Form. The credits can be used only to compensate for pollutant 

discharge for the same month in which they were created. The trades are monitored 

through the automated Trade Tracking System. For more information about this trading 

program, see Appendix A.
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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the tracking report. For instance, the permit might require the permittee to provide tracking 

information, if not already specified in the permit, such as the following:

• Identification of nonpoint source (name, address, phone number)

• Type and location of BMP

• Monitoring method and frequency

• Monitoring results (actual measured quantities, or observations regarding installation 

and maintenance, at nonpoint source)

• Subtraction of a portion of the reported reduction amount (in pounds) to meet any 

retirement ratio requirement as specified in the trade agreement

• Conversion of reduction quantity to normalized measure of loading (multiply by 

trade ratio, including location or delivery ratio, equivalency ratio, and uncertainty 

ratio, where applicable)

• Time period for which credit is verified, per monitoring requirements for that BMP

• Certifying statement signed by the point source that the information provided is true, 

accurate and complete, and that the installation, maintenance, and monitoring of the 

BMP meets the requirements for that BMP as specified in the trade agreement (Idaho 

DEQ 2000)

This information could be provided to the permittee by another entity, such as a soil and 

water conservation district, through a mechanism such as a memorandum of understanding.

Special Conditions for Failed Trades

The success of a trade depends on credit sellers fulfilling trade obligations. Special conditions might be used to establish provisional requirements that apply if the credits needed 

are unavailable and a point source is unable to comply with its calculated WQBELs on it own. 

These special conditions would be included in a permit in addition to any enforcement provisions. The trading program should address what degree of risk the permittee bears from purchasing credits that are not delivered or are later proven invalid. The trade agreement may 

describe the respective responsibilities of the buyer and the seller in the case of a failed trade. 

In any case, the burden of compliance falls on the permittee. The permittee can address the 

risk of trade failure in a private contract with the seller. The permit might require the permittee to notify the permitting authority when a trade fails and how and when it will either 

secure credits from an alternate source or comply with the calculated WQBELs established in 

the permit. Monthly reconciliation minimizes risk by requiring certification from buyers and 

sellers on a monthly basis.

Finally, the permitting authority may establish a mechanism for holding surplus credits in 

reserve as a means of managing the uncertainty of nonpoint source trading. All such reserved 

credits would be generated in the same time period they are used or traded. Special conditions could establish the availability of credits held in reserve to the permittee and any conditions placed on the permittee if it desires to use reserved credits.
Water Quality Trading Toolkit for Permit Writers

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Accountability

Permits that cover one or more point sources buying credits from one or more nonpoint sources generating and selling credits should explicitly state that the permitted point sources are 

responsible for meeting effluent limitations derived from water quality standards regardless 

of whether the nonpoint source trading partners comply with the terms of a trade agreement.

Wells River Example: Special Conditions

n What You Need to Know...

Pollutant: Total Phosphorus

Driver: Approved TMDL for Total Phosphorus for Wells River

Credit Seller: Patterson Soybean and Corn Farm (3,000 acres)

Credit Buyer: Springtown POTW

Location: Patterson Soybean and Corn Farm (credit seller) is approximately one mile upstream from 

Springtown POTW (credit buyer) along the Wells River.

Applicable Trade Ratios:

n Uncertainty Ratio: 2:1

n Equivalency Ratio: 2:1

The NPDES permit writer has reviewed the signed trade agreement for TP trading between the POTW 

and the farms. The agreement describes how the POTW will meet its new WQBEL through trading 

with Patterson Soybean and Corn Farm and three other farms in the watershed. The NPDES permit 

writer has developed the appropriate effluent limitations, monitoring, and reporting requirements for 

the POTW. 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, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in water quality trading with Patterson Soybean and 

Corn Farm, Maybelle’s Farm, U-Pick’Em Vegetable Farm, and Larry’s Vegetable Coop as specified in 

the written signed trade agreements, for the purposes of complying with the phosphorus effluent 

limitations and the TMDL-related requirements of this permit (Table 2). 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 United States Code (U.S.C.) section 1342. EPA’s 

policies on Water Quality Trading (1/13/03) and Watershed-Based NPDES Permitting (1/7/03) 

endorse water quality credit trading. Additionally the Wells River Phosphorus 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 phosphorous per day on a monthly average basis. One 

trading credit shall be defined as one (1) unit of pollutant reduction (pound of TP) to Wells River. 
Water Quality Trading Scenario: Point Source–Nonpoint Source Trading 

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All pollutant load reductions purchased by the permittee will be in the form of equivalent TP credits that represent pollutant load reductions with the appropriate uncertainty and equivalency trading ratios applied as detailed in the trade agreement between the permittee and nonpoint source 

trading partners. All valid credits are tradable. The permittee may purchase credits from the farms 

so long as the BMPs utilized to generate credits are documented as providing pollutant reductions 

beyond the load allocation, established in the Wells River Phosphorus TMDL.

Permit Language (continued):

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 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 WQBELs established in this permit, either 

through implementation of on-site controls or by conducting an approved emergency phosphorus 

offset project approved by the NPDES permit writer.

Permit Reopeners, 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 which may be necessary to protect human health or the environment or to implement the Wells River Phosphorus TMDL. The permitting authority may also 

reopen and modify the permit to suspend the ability to trade credits to comply with the TP effluent limitations in Table 2.

Enforcement Liability

The permittee is liable for meeting its most stringent effluent limitation. 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.

Wells River Example: Special Conditions (continued)
Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange 



Water Quality Trading Scenario:

Nonpoint Source Credit Exchange

Contents

Water Quality Trading Scenario: Nonpoint Source Credit Exchange 1

The Function of a Nonpoint Source Credit Exchange 2

Accounting for Delivery and Location Ratios in a Nonpoint Source Credit Exchange 3

Quantifying Nonpoint Source Loads and Credits . . . . . . . . . . . . . . . . . . . . .4

Potential Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Establishing Baselines for Nonpoint Source Sellers 8

Nonpoint Source Baseline Derived from TMDL Load Allocations . . . . . . . . . . . . . . .9

Nonpoint Source Baseline Set at a Minimum Level of BMP Implementation . . . . . . . .10

Determining Maximum Feasible Nonpoint Source Load Reductions 11

Accountability 13

Mechanisms Under the NPDES Program 13

Mechanisms Outside of the NPDES Program . . . . . . . . . . . . . . . . . . . . . . . . .13

Trade Agreements 14

Trade Agreements with Nonpoint Source Credit Exchanges 14

Components of a NPDES Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Permit Cover Page 18

Effluent Limitations 19

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Reporting Requirements 27

Special Conditions 30
Water Quality Trading Toolkit for Permit Writers

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Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

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Water Quality Trading Scenario:

Nonpoint Source Credit Exchange

Significant water quality impacts may come from sources other than regulated point sources.

The permitting authority, along with other stakeholders, may agree that the best way to 

meet water quality standards would be to involve the nonpoint sources in the watershed.

Because nonpoint sources are not regulated by the Clean Water Act (CWA), a trading program that allows nonpoint sources to generate and sell credits may provide an economic 

incentive for these sources to implement new or additional best management practices 

(BMPs) that reduce pollutant loadings to receiving waters.

Single point source–nonpoint source trades necessitate a trade agreement between a point 

source and one or more nonpoint sources. The nonpoint source(s) reduce pollutant loads below 

an established baseline to generate credits, which the point source may purchase. Single point 

source–nonpoint source trades would be reflected in an individual National Pollutant Discharge 

Elimination System (NPDES) permit for the point source either by referencing or incorporating 

the terms of the trade agreement. Through trading, the point source can meet water qualitybased requirements at a lower cost and, provided there is adequate accountability and verification, the nonpoint source will be compensated for contributing to the point source’s water 

quality-based requirements. A point source may purchase nonpoint source credits in one of two 

ways: (1) directly from nonpoint source(s) by coordinating with a nonpoint source or a program 

administered by an entity responsible for a group of nonpoint source dischargers; or (2) from 

a nonpoint source credit exchange that contains pollutant reduction credits contributed by 

approved nonpoint source BMPs. There are two general types of exchanges: (1) a brokerfacilitated exchange where the broker brings parties together for trades and (2) a central 

exchange where the point sources are not required to deal directly with nonpoint sources.

This water quality trading scenario focuses specifically on the second type of exchange and 

presents the challenges related to nonpoint source credit generation and then addresses issues 

specific to developing and issuing NPDES permits that implement point source–nonpoint 

source trades where the point source, or an entity representing a group of point sources, 

purchases credits from a nonpoint source credit exchange. Issues covered under this scenario 

include the following:

• The function of a nonpoint source credit exchange

• Quantifying nonpoint source loads and credits

• Establishing baselines for nonpoint source sellers

• Accountability

• Trade agreements

• Components of a NPDES permit

− Permit cover page

− Effluent limits

− Monitoring

− Reporting requirements

− Special conditions

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers



Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit Cover PageEffl uent 

Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

A hypothetical example (shown in highlighted boxes) is presented throughout this scenario 

to illustrate how NPDES permit writers might work with credit buyers and sellers to assist 

in trading and ensure each facility’s NPDES permit contains the appropriate limits, requirements, and other conditions. Keep in mind that there are a range of options for incorporating trading provisions into a NPDES permit. The hypothetical example discussed throughout 

this scenario illustrates just one of the many options a NPDES permit writer might use.

The Function of a Nonpoint Source Credit Exchange

A nonpoint source credit exchange is a centralized pool of credits established by a thirdparty who buys credits from nonpoint sources to sell to point sources (Figure 1). The 

purpose of a nonpoint source credit exchange is to allow point sources to purchase nonpoint 

source pollutant reduction credits through a credit 

exchange managed by a third party, whether 

government, private, or nonprofit. This is 

different than point source–nonpoint 

source trading, however, in that the 

point sources are not directly trading 

with nonpoint sources. Rather, 

nonpoint sources generate 

pollutant load reductions and 

sell these pollutant load 

reductions as credits to the 

credit exchange. Point 

sources may then 

purchase credits 

from the credit 

exchange rather 

than independently 

identifying and 

purchasing credits 

directly from 

nonpoint sources.

A variety of entities can establish and administer credit exchanges, including state agencies, 

local governments, nonprofit nongovernmental entities, soil and water conservation districts, 

private entities or other third parties. Management responsibilities for the credit exchange 

will vary according to the watershed and needs of the trading partners. Nonpoint source 

credit exchanges perform many of the functions that a point source and nonpoint source 

would otherwise have to perform (e.g., trade negotiations) as potential trading partners. In 

addition to negotiating the trades, the credit exchange can provide continuity by establishing standards for trading, defining credits eligible for trading, setting credit prices, verifying the operation and maintenance of BMPs, and tracking important trade information 

for all participants. A nonpoint source credit exchange might perform some or all of these 

functions, thereby influencing the roles of the trading partners accordingly. The more responsibility that rests with the exchange, the more streamlined the process of negotiating a trade 

NPS Credit 

Exchange

$$$

$$$

$$$

Riparian

buffers

Nutrient reduction

Figure 1. Nonpoint source credit exchange.
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

Wa t e r Q u a l i t y 

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agreement may be for the point source and the permitting authority. The role the exchange 

takes on could greatly reduce the transaction costs of trading. Given that the nonpoint source 

credit exchange might perform some of these functions, the responsibilities of the permitting authority and the point source trading partner pertaining to trade negotiation might be 

streamlined during the permit development process.

Accounting for Delivery and Location Ratios in a Nonpoint 

Source Credit Exchange

Because the nonpoint source credit exchange is an intermediary between the credit generators and the credit users, delivery and location ratios must be accounted for by the nonpoint 

source credit exchange. If the credit exchange is tracking individual credits, in other words, 

if it knows which nonpoint source generated the credits that are being sold to a particular point source, a delivery ratio could be established that applies to that trade. Where all 

dischargers are discharging directly to the waterbody of concern, this method of equalizing 

water quality impacts of pollutant loads from various sources might be necessary.

Where the dischargers are upstream of the waterbody of concern, it might be more efficient 

for the credit exchange to apply location ratios to all the credit purchases and sales that it 

makes. Because the amount of reduction produced at the source is greater than the amount 

of reduction that reaches the downstream waterbody of concern, a location ratio specific 

to that source is applied to convert the source’s reduction to credits available at the waterbody of concern. After location ratios are applied, the credit exchange will be purchasing 

and selling standardized credits for the waterbody of concern. For example, if a nonpoint 

source credit generator has a 5:1 location ratio with a downstream waterbody of concern 

(i.e., for every 5 units of pollutant discharged from the nonpoint source, one unit of pollutant 

reaches the waterbody of concern), the credit exchange would purchase 5 units of pollutant 

reduction from that nonpoint source for every credit that becomes available for sale from 

the exchange. Likewise, if a point source credit user has a 3:1 ratio with the waterbody of 

concern, each credit purchased by that point source would count for 3 units of end of pipe

pollutant reduction.

A permitting authority should be aware of technical challenges associated with nonpoint 

source credit generation, including how the trading program accounts for uncertainty in 

measuring nonpoint source pollutant loads and how equitable baselines are set for nonpoint 

source credit sellers, when developing NPDES permits that implement point source–nonpoint 

source trades. One benefit of using a nonpoint source credit exchange is that the entity 

administering the credit exchange will have the primary responsibility for resolving these 

nonpoint source, credit-generation issues. This section presents the technical challenges 

related to nonpoint source credit generation and then addresses issues specific to developing and issuing NPDES permits that implement point source–nonpoint source trades where 

the point source, or an entity representing a group of point sources, purchases credits from a 

nonpoint source credit exchange.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers



Quantifying Nonpoint Source Loads and Credits

For most continuous point source discharges, measuring pollutant loads and the effectiveness of controls is simply a matter of measuring pollutant concentrations in effluent and 

converting concentration-based limits to mass-based limits using flow. Conversely, as noted in 

U.S. Environmental Protection Agency’s (EPA) Water Quality Trading Policy (Trading Policy), 

the diffuse nature of nonpoint source pollutants along with variability in precipitation, land 

management practices, and the effect of soil type, slope, and cover on pollutant loadings to 

receiving waters, creates a great degree of uncertainty in determining loading from nonpoint 

sources and measuring the effectiveness of BMPs. For example, pollutant loads in runoff from 

a crop field are dependent on crop type, soil type, slope, fertilizer use patterns, weather and 

the amount of time it takes for runoff to reach the receiving water. These factors could vary 

by season and from year to year; therefore, the pollutant load is highly variable and may be 

difficult to measure. The same factors contribute to difficulties in measuring the effectiveness 

of BMPs used to reduce nonpoint source pollutant loads.

Nonpoint sources typically employ BMPs to reduce pollutant loading to a receiving water.

BMPs are schedules of activities, technologies, structural controls, changes in or prohibitions 

of practices, maintenance procedures, and other measures to prevent or mitigate pollutant runoff to waters. Examples of nonpoint source BMPs include riparian buffer plantings, 

wetland creation or restoration, sediment basins, filter strips, crop sequencing, and nutrient management. Nonpoint source pollutant load reductions can sometimes be measured 

directly, but trading programs typically use the best available performance information to 

estimate load reductions for a particular BMP and then discount these estimated values using 

uncertainty ratios to account for the technical challenges in determining BMP effectiveness.

Potential Issues

Lag Time

Permitting authorities should be aware of potential time lags between BMP installation and 

full pollutant reduction efficiency. BMPs that are not yet fully functional cannot generate the 

full number of expected credits. Credits generated by nonpoint sources through installation 

of BMPs may not be available immediately because of a time lag between installation of the 

BMP and its effectiveness in reducing loadings or otherwise improving water quality. In some 

cases, the credit generation could be prorated on the basis of pollutant reduction the BMP 

is achieving during the current reconciliation period, even where the BMP has not reached 

its maximum expected pollutant reduction efficiency. The decisions required to determine 

when credits have been generated may have already been made in the program design. The 

permitting authority should be aware of these decisions made in trading program design.

Clean Water Services, Oregon

Clean Water Services can compensate for the heat load from publicly owned treatment 

works (POTWs) with nonpoint sources generating credits through increased shade provided 

by riparian planting. Because trees provide more shading as they grow, a component of 

Oregon Department of Environmental Quality’s (DEQ) Heat Source model is used to determine effective shade for each project based on the year of initiation.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

If the trade agreement or other document external to the permit does not dictate how and 

when credits become available for purchase, the NPDES permit should address the time lag 

between BMP installation and full treatment efficiency (see Reporting Requirements).

Period of BMP Performance

The permitting authority should also determine whether 

and when a BMP’s credit generating capacity expires.

Credit generation by nonpoint sources might decrease or 

stop if the BMP becomes less effective due to a natural 

degeneration, a lack of maintenance, or changing conditions on-site. A BMP’s life expectancy depends on proper 

design, placement, and maintenance. Some BMPs have a 

discrete or short life or must be renewed. For example, 

nonpoint sources must renew crop sequencing each season. Other BMPs have a longer life span but require ongoing maintenance and repair to maintain effectiveness.

For example, a sediment catch basin requires periodic 

inspection to ensure structural integrity and regular cleaning to remove and properly dispose 

of collected sediments. In addition, activities or conditions may change on-site affecting the 

efficiency of installed BMPs. For example, a vegetated buffer strip designed to filter sediment 

from a 5-acre crop field may be overwhelmed and become ineffective if the operator decided 

to increase the field size to 8 acres.

The permitting authority should specify in the permit the approved BMPs and associated 

expected life spans established by the trading program. Continued credit generation may 

require periodic certification that a nonpoint source continues to implement a practice, that 

the nonpoint source is taking specified operation and maintenance actions, and that the BMP 

design and specification are still appropriate for the site. The trading program should account 

for the life span of a credit source and determine when credits are deemed permanently 

expired and thus unavailable for any future allocation. Permits implementing nonpoint 

source trading can contain or reference provisions to require certification of BMP performance and define when a BMP generating credits expires (see Reporting Requirements and 

Special Conditions).

Lower Boise River, Idaho

The Lower Boise trading framework addresses the issue of certifying BMP performance 

by having the NPDES point sources purchasing credits sign a Reduction Credit Certificate at the end of each month, certifying that the BMP is still in place and that it 

produced a specific reduction amount during the month that just occurred. The NPDES 

buyer certifies that they are aware of the penalties for false certification by signing that 

Reduction Credit Certificate, which then establishes the credit that they can then transfer into their own account and use to cover their discharge. EPA and Idaho Department 

of Environmental Quality (Idaho DEQ) conduct random audits of some BMPs to determine if the certification was valid.

Proper operation and maintenance are critical to ensuring the ongoing performance 

and attaining the expected life span of 

a BMP. Trading programs should include 

mechanisms to ensure that BMPs installed 

to generate credits are being operated and 

maintained according to procedures and 

guidelines established by Natural Resources 

Conservation Service (NRCS), EPA, or other 

agencies or product manufacturers.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers



BMP Failure

To address the potential inadequacy of generated credits (i.e., treatment control failure), 

credit exchanges should consider reserving credits that would be available to credit purchasers if the primary credit source is insufficient. Entities administering credit exchanges can 

reserve credits in a number of ways. One option is for the credit exchange to overbuy available credits from nonpoint source BMPs approved to generate credits. Another option is to 

require point source dischargers that want the ability to purchase credits from the credit 

exchange—now or in the future—to pay a user fee to the credit exchange that will in turn 

finance additional nonpoint source BMPs approved to generate credits.

Uncertainty

EPA’s Trading Policy recommends that states and tribes establish methods to account for 

greater uncertainties in estimates of nonpoint source loads and reductions (see Appendix B).

There are three types of uncertainty related to nonpoint source BMPs:

• Measurement uncertainty, which addresses the level of confidence in the field testing 

of a nonpoint source BMP

• Implementation uncertainty, which addresses the level of confidence that a nonpoint 

source BMP is properly designed, installed, maintained, and operated

• Performance uncertainty, which addresses the risk of a BMP failing to produce the 

expected results

Options for Addressing Uncertainty

Uncertainty Ratios

The application of an uncertainty ratio helps ensure that actual loads resulting from a trade 

do not violate the water quality standards despite the inability to accurately measure them 

(Jones et al. 2005). An uncertainty ratio should be applied to estimated nonpoint source load 

reductions to account for any potential inaccuracies in the methodology or assumptions used 

in the estimation. Uncertainty ratios are particularly important to account for potential inaccuracies in the estimation methodology when credits from nonpoint source BMPs are estimated or calculated.

Uncertainty, and therefore the uncertainty ratio, can be reduced by enhancing the level of 

confidence in BMP effectiveness values through employing one or more of the following 

three practices.

Monitoring BMP Effectiveness

Monitoring BMPs installed for generating credits is the most effective method for reducing 

uncertainty. Two types of monitoring are possible. In some instances it is possible to conduct 

edge-of-field monitoring to determine BMP performance. Another type of monitoring is 

ambient monitoring. Placing monitoring gauges in the stream at strategic locations between 

the buyer and the seller would allow for gauging water quality impacts of BMPs. EPA’s Monitoring Guidance for Determining Effectiveness of Nonpoint Source Controls (EPA/841-B-96-004) 

provides guidance on the design of water quality monitoring programs to assess both impacts 

from nonpoint sources and effectiveness of control practices and management measures.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Modeling BMP Effectiveness

Modeling that uses local data to calculate nonpoint source pollutant loadings and BMP effectiveness is also an important tool. For instance, estimates of pollutant reductions (e.g., total 

phosphorus (TP) and sediment) might be based on soil erosion reductions using the standardized or revised Universal Soil Loss Equation (USLE). This method incorporates soil type, plant 

cover, rainfall, slope, and agricultural conservation practice factors to calculate the soil loss 

from an area. The soil loss information may then be translated to estimate loadings of sediment-bound phosphorus. An uncertainty ratio should be applied to modeled estimates. All 

modeling should be ground truthed by local monitoring data, which could lead to a reduction in uncertainty.

Estimating BMP Effectiveness

Where monitoring and modeling are impracticable, BMP effectiveness can be estimated 

through other means. For example, it might be possible to identify a set of tested BMPs with 

performance data that have been well established through field testing or under controlled 

conditions. These data may be used to estimate the reductions achieved at a nonpoint source 

that installs one or more of the tested BMPs. The trading program, with input from local 

soil and conservation experts, might identify a list of local BMPs that meet minimum design, 

construction, maintenance, and monitoring requirements. Preestablished performance data 

can be used to estimate loading reductions for local nonpoint sources. Potential uncertainty 

ratio reduction is an advantage of implementing local BMPs with high levels of measurement 

precision and accuracy.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

South Nation River Watershed, Ontario, Canada

The trading program established formulae that are used to calculate the amount of phosphorus 

that is controlled annually from various agricultural practices. For example, the formula used to 

calculate the amount of phosphorus controlled through proper manure storage is:

Kg of P per year controlled = # of animals × animal phosphorus factor × days × 0.04

where:

• # of animals = the number of animals contributing manure to the area,

• Animal phosphorus factor = U.S. Department of Agriculture’s (USDA) estimates of the 

amount of phosphorus excreted per animal,

• Days = the number of days that the animals are contributing manure to the area, and

• 0.04 represents the assumption that approximately 4 percent of the total amount of manure 

excreted would have been transported in runoff from improperly stored manure.

In addition to manure storage, formulae have also been established to calculate the amount of 

phosphorus controlled through use of clean water diversions, proper storage and handling of 

milkhouse washwater, preventing livestock access to watercourses, various cropping practices, 

and buffer strips (O’Grady and Wilson No date).
Water Quality Trading Toolkit for Permit Writers



Table 1. Selected BMPs approved for trading in the Lower Boise River watershed

BMP Life span Effectiveness Uncertainty

Sediment Basins (farm scale) 20 years 75% 10%

Constructed Wetland 15 years 90% 5%

Microirrigation 10 years 100% 2%

Crop Sequencing 1 season 90% 10%

Filter Strips 1 season 55% 15%

Establishing Baselines for Nonpoint Source Sellers

As stated in the Essential Trading Information for Permit Writers section, a nonpoint source 

should meet the specified baseline before entering the trading market as a credit seller.

Baseline is defined as the pollutant control requirements that apply to a buyer and seller in 

the absence of trading. After a seller meets its baseline, it can generate credits.

1 A baseline 

for a nonpoint can be derived from a load allocation (LA) established under a total maximum 

daily load (TMDL). Where an LA does not exist, EPA’s Trading Policy states that state and 

local requirements or existing practices should determine a nonpoint source’s baseline (see 

Figure 2). The trading program provisions could also specify some additional minimum level 

of control that nonpoint sources would have to achieve before they could generate credits.

The baseline level of control should never be less than existing practice. There are difficulties 

associated with establishing baselines for nonpoint sources and, although permitting authorities may not have direct involvement in establishing these baselines, a permit writer should 

be aware of these issues and how they might affect the trading provisions in permits.

To be reliable, trading programs establishing baselines for nonpoint source sellers should use 

the maximum amount of verifiable information on loadings in a watershed, such as a TMDL 

1 Some trading programs may require a seller to implement controls beyond the baseline before generating credits.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

The Idaho Department of Environmental Quality’s draft Pollutant 

Trading Guidance

Idaho DEQ’s November 2003 draft Pollutant Trading Guidance provides a list of approved 

agricultural BMPs that can be used to generate TP reduction credits for trading in the 

Lower Boise River watershed. The draft guidance document includes estimates of BMP 

effectiveness and uncertainty discounts for specific watersheds (the uncertainty discount 

is subtracted from the effectiveness estimate). The guidance also lists the procedures for 

determining the amount of credits and associated monitoring and maintenance requirements for each BMP. Table 1 lists selected BMPs approved by Idaho DEQ for use in 

nutrient trading in the Lower Boise River watershed. A separate list of watershed-specific 

BMPs, along with effectiveness estimates and uncertainty ratios, will be generated for 

each watershed that would like to develop a trading program consistent with the Idaho 

Pollutant Trading Guidance. For more information on trading in Idaho, see Appendix A.
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

or other watershed loading analysis. Where a TMDL establishes a 

reliable LA for nonpoint sources, an individual nonpoint source’s 

portion of the LA can be used to set its trading baseline. Where 

a TMDL or similar analysis is not available or does not represent 

the most accurate information on nonpoint source loading in the 

watershed, the trading program or state policy can establish a 

set of minimum BMPs that a nonpoint source must install to be 

eligible for trading. The pollutant load from the nonpoint source 

after installing these BMPs would be considered the baseline 

for estimating further reductions that could then be counted as 

credits. The permit should reference any state trading program 

or other document that contains the model used for estimating 

credits. It is important to note that nonpoint source baselines 

established using less-verifiable information on pollutant loading 

are likely to have less public support and, more relevant to permit writers, may be challenged 

as inconsistent with water quality standards.

Nonpoint Source Baseline Derived from 

TMDL Load Allocations

An LA established under a TMDL defines the nonpoint 

source load reductions necessary to achieve water quality 

standards. EPA would not support a trading program that 

allows nonpoint sources to sell credits if the discharge 

is contributing to water quality impairment; therefore, 

nonpoint sources should meet their portion of the LA 

before generating credits to sell on the trading market.

TMDLs might specify an LA for an individual nonpoint 

source or for a category of nonpoint source dischargers 

in a watershed. If established for an individual nonpoint 

source (e.g., a single farm), the individual nonpoint 

source should use the LA as its baseline for generating 

credits. However, if the TMDL establishes an aggregate 

LA for a category of nonpoint sources (e.g., all farms 

in a watershed) or all nonpoint sources on a particular 

tributary, the watershed stakeholders, including the 

permitting authority or trading program, need to decide 

how to equitably distribute that aggregate LA among the 

individual nonpoint source dischargers in a scientifically 

valid manner. For example, if the LA is expressed as an 

overall load reduction percentage (e.g., 25 percent reduction in total nitrogen (TN) loading 

watershed-wide), the trading program might require each nonpoint source discharger to 

reduce its individual loading by that percentage before generating credits. Alternatively, 

where the LA is expressed as a total aggregate loading reduction (i.e., total pounds per 

day), the trading program would distribute the LA among the individual nonpoint sources 

Nonpoint Source Seller 

Baseline for Trading

NPS Seller

With TMDL

NPS Seller

Without TMDL

Load allocation

State and local 

requirements 

and/or existing 

practice

Figure 2. Nonpoint source seller 

baseline for trading.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

EPA’s Trading Policy states that where 

a TMDL is in place, the LA or other 

appropriate baseline serves as the threshold 

for nonpoint sources to generate credits. 

This does not mean that EPA requires all 

nonpoint sources in a watershed to meet 

an aggregate LA for a single nonpoint 

source to participate in trading. The Trading 

Policy’s intent is that each nonpoint source 

participating in trading under a TMDL 

make reductions consistent with the LA 

before they can generate credits (additional 

reductions) for sale. This approach ensures 

that progress is made toward water quality 

standards with each trade. States have 

flexibility to set other appropriate baselines 

and can, in fact, decide to require all 

nonpoint sources to meet the baseline 

before participating in trading.
Water Quality Trading Toolkit for Permit Writers

10

to define the baseline for each nonpoint source. The trading program might use land cover, 

total production, proximity to the waterbody of concern, or some other variable to determine 

the appropriate distribution of the aggregate LA among individual nonpoint sources. The 

best method of distributing an aggregate LA among nonpoint source dischargers will vary; 

watershed stakeholders should work together to determine the most appropriate method for 

establishing the nonpoint source baseline.

Once the LA is equitably distributed among nonpoint sources in the watershed, an individual 

nonpoint source should reduce its load by its portion of the LA before it generates credits.

To verify the required load reduction and quantify the credits generated after the baseline 

is met requires quantification of the nonpoint source load, either through direct monitoring 

or estimation. For more information, see the Quantifying Nonpoint Source Loads and Credits 

section above.

Nonpoint Source Baseline Set at a Minimum Level of BMP 

Implementation

In watersheds where a TMDL has not been developed, the nonpoint source baseline is 

derived from state, tribal, and local requirements. The nonpoint source should meet this 

baseline before generating credits. A trading program can choose to require a more stringent level of BMP control before credits can be generated. In any case, the level of control 

required to generate credits should never be less than existing practice.

In any watershed, it is likely that different nonpoint sources will be at different levels or 

stages of BMP implementation. For example, in a watershed where animal feeding operations (AFOs) are the primary nonpoint source pollutant contributors, some AFOs might be 

actively working with the Natural Resources Conservation Service (NRCS) to implement 

comprehensive nutrient management plans that minimize nutrient and sediment runoff.

Other AFOs might not have installed any BMPs either because they do not participate in any 

NRCS programs or because they are in the early stages of planning and implementation.

These nonpoint source facilities might contribute a much greater pollutant load than those 

who have proactively reduced nonpoint source pollutants. A trading program can choose to 

require nonpoint sources to implement a minimum level of BMPs before trading to provide 

some level of equity among nonpoint source credit generators in the watershed. In addition, implementing a minimum level of BMPs demonstrates a commitment on the part of the 

credit generators participating in the trading program.

Trading programs should consider baseline equity issues among nonpoint source participants.

EPA encourages states or trading programs to set a minimum level of BMP requirements for 

nonpoint sources before they can generate credits.

Where the nonpoint source baseline is set at a minimum level of BMP implementation, 

credits can be generated after meeting the minimum level of control. Quantifying the credits 

generated will generally require quantification of the nonpoint source load after implementing the minimum required BMPs, either through direct monitoring or estimation. For more 

information, see the Quantifying Nonpoint Source Loads and Credits section above. In certain 

instances, it is impossible or impracticable to quantify a baseline by measuring or estimating 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

11Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

the nonpoint source pollutant load. In these cases, a trading program could allow nonpoint 

sources to generate credits for estimated reductions from BMPs. For example, if sufficient 

data are available to establish that a particular BMP, installed under specified conditions, will 

achieve a loading reduction of X lbs/day, the nonpoint source might be allowed to generate 

credits equivalent to X lbs/day without actually having quantified the pollutant load before 

installing the BMP. Trading programs should use this approach only where sufficient data on 

the efficacy of the BMPs are available to develop a reliable estimate of the expected reductions. The baseline pollutant load should always be quantified where possible.

Determining Maximum Feasible Nonpoint Source Load 

Reductions

It is not feasible for a nonpoint source to control 100 percent of its pollutant runoff to a 

waterbody. Therefore, it is important that some analysis be done to estimate the maximum 

amount of pollutant runoff that can be controlled from the nonpoint sources in a watershed.

The difference between this estimate and the nonpoint source’s baseline equals the maximum nonpoint source load reductions available for trading.

2 This is a way to ensure that 

credits being purchased result in actual reductions. This increases the surety that the trading 

program can meet its goal of achieving water quality standards.

Lower Boise River, Idaho

In Idaho, DEQ designates the nonpoint source baseline year (currently 1996 for the Lower Boise, but 

this may be amended based on the technical outcome of a pending TMDL) for each trading marketplace in the state. Each nonpoint source then calculates the baseline load for the baseline year and 

uses it to determine the eligibility of reductions to serve as credits for trading. In other words, in 

the Lower Boise River watershed, if a nonpoint source installed a BMP in 1999, the farm would have 

already created eligible credits. However, pollutant reductions from a BMP installed in 1994 would 

not be eligible. Nonpoint sources in Idaho are required to use the BMP List’s estimating equation 

for particular BMPs (which incorporates the USDA Surface Irrigation Soil Loss (SISL) equation) to 

calculate baseline loads. For more information about this trading program, see Appendix A.

Red Cedar River, Wisconsin

TP reduction credits associated with a BMP were estimated using TP loading models to 

estimate reductions from well-established and well-understood practices. Soil testing of 

each field was done to calculate the TP delivery to the stream from the field where the 

BMP was used (Breetz et al. 2004). For more information about this trading program, 

see Appendix A.

2 The maximum tradable nonpoint source load reduction is not equal to the maximum number of credits available 

for trading in a watershed because of the impact of trading ratios. Because trading ratios can vary depending on 

many factors (as described in the Developing Trade Ratios section), determining the maximum number of credits 

is not as useful as determining the maximum tradable nonpoint source load reduction for the purpose of ensuring 

that every trade results in a reduction of total load to the waterbody.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

12

A trading program can directly calculate the maximum tradable nonpoint source load reduction for a watershed. A watershed’s maximum tradable nonpoint source load reduction can 

be calculated by first determining the maximum feasible implementation of BMPs; second, 

estimating the reduction from that level of BMP implementation based on watershed modeling, published BMP efficiency information, or best professional judgment; and finally, taking 

the difference between the maximum loadings reduction and the aggregate baseline for all 

sellers. In addition, this calculation could be done for an individual farm.

The trading program may want to include a mechanism for ensuring that this maximum tradable nonpoint source load reductions is not exceeded. This could be done, for example, by 

specifying the maximum tradable nonpoint source load reductions in the program documentation and then tracking credit sales, and therefore load reductions, by nonpoint sources to 

ensure that this maximum is not exceeded.

Pennsylvania’s Tradable Loads for Addressing the Chesapeake Bay’s Tributary 

Strategies

In 2003 EPA developed a document titled, The Technical Support Document for the Identification of Chesapeake Bay Designated Uses and Attainability to help states develop and adopt refined water quality standards to address nutrient- and sediment-based pollution in the Chesapeake Bay and its tidal tributaries. 

As part of this analysis, the Chesapeake Bay Program developed four nutrient reduction scenarios on the 

basis of different levels of BMP and control technology implementation by 2010. The levels ranged from 

current implementation to “everything, everywhere, by everybody” (E3), which approximates the maximum nutrient and sediment load reductions available in the watershed. To create the most objective 

and uniform maximum implementation level possible, the E3 scenario was developed without considering site-specific constraints and program participation levels. If these factors were considered, certain 

aspects of the E3 scenario may not be feasible. Nutrient and sediment loads resulting from each nutrient 

reduction scenario were estimated using the Chesapeake Bay Program’s Phase 4.3 Watershed Model. For 

example, the estimated loadings for the E3 scenario for Pennsylvania agriculture were 21,153,000 lbs 

TN/yr and 1,896,000 lbs TP/yr. (More information on the development of the E3 scenario is available in 

Appendix A of the Technical Support Document at www.chesapeakebay.net/uaasupport.htm)

Recognizing that model estimates based on the E3 scenario likely overestimated the maximum feasible 

nutrient and sediment load reductions, Pennsylvania made adjustments to the estimates to better represent a feasible effort. One adjustment was reducing by 10 percent the level of nonpoint source reductions 

estimated in the E3 scenario. The selection of a 10 percent reduction is subjective, because estimates of 

the feasible level of implementation for nonpoint source BMP implementation vary widely. Additionally, 

Pennsylvania estimated the reductions for those BMPs in Pennsylvania’s Tributary Strategy that were not 

included in the E3 scenario. These additional reductions were included in the revised E3 scenario. The 

estimated loadings for the revised scenario for agriculture were 21,819,000 lbs TN/yr and 1,726,000 

lbs TP/yr. After adjusting the E3 scenario estimates, Pennsylvania estimated the maximum allowable 

credits as the difference between the load estimates from the revised E3 scenario and the Pennsylvania 

Tributary Strategy loadings goal. The Tributary Strategy loads for agriculture were 27,580,000 lbs TN/yr 

and 2,123,000 lbs TP/yr yielding final tradable loads of 5,760,000 lbs TN/yr and 397,000 lbs TP/yr. The 

scenario values and the tradable load values will change as new BMPs are developed or the efficiencies of 

existing BMPs are revised.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

13Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Accountability

Mechanisms Under the NPDES Program

EPA’s Trading Policy notes that “States and tribes should establish clear enforceable mechanisms consistent with NPDES regulations that ensure legal accountability for the generation 

of credits that are traded.”

Such enforceable mechanisms might include, among other things, requirements for water 

quality or effluent monitoring, credit purchase and sale accounting, and assessment of BMP 

effectiveness. These mechanisms might be contained in state regulations, the project trade 

agreement, or both. By incorporating such accountability provisions of the trade agreement 

(or the entire trade agreement) into a NPDES permit, the state or tribe makes the point 

source legally responsible for their performance.

EPA’s Trading Policy also states that “In the event of default by another source generating 

credits, an NPDES permittee using those credits is responsible for complying with the effluent 

limitations that would apply if the trade had not occurred.”

To account for the possibility of a failed trade (e.g., insufficient generation of necessary credits by the seller), EPA recommends that the permit (and any accompanying trade agreement) 

clearly describe the respective responsibilities and legal liability (if any) of the buyer and the 

seller (see Special Conditions).

Mechanisms Outside of the NPDES Program

To further clarify and protect their interests, the trading parties may choose to enter into a 

contract or other agreement separate from any applicable NPDES permit. Such a contract or 

agreement could, where appropriate, address a variety of financial or legal considerations 

and contingencies among the trading parties, including what happens in the case of default 

by any party. For example, the point source buyer might use such a contract to memorialize 

an agreement that the credits it needs are available; the nonpoint source seller might use 

such a contract to guarantee payment for its services; a credit exchange might use such a 

contract for both of these reasons. Where a credit exchange is involved, the exchange might 

enter into separate contracts with the buyer and seller, all parties could enter into one contract, or the buyer and seller could enter into a contract without the exchange.

Great Miami River Watershed, Ohio

After a soil and water conservation district’s proposal is approved, the Miami Conservancy District (MCD, the broker of the program) 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 nonpoint 

source responsible for implementing the BMPs. MCD tracks the credits generated and 

allocates them to the buyers. A separate Load Reduction Workgroup will evaluate the 

accuracy of reduction estimates every two years. For more information on this program, 

see Appendix A.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

14

Trade Agreements

Typically, the terms that govern a trading program will be developed outside the NPDES permit process and can be incorporated or reflected in the permit (see Appendix C). The Trading 

Policy describes several mechanisms for implementing trading through NPDES permits (see 

Appendix B). NPDES permits authorizing water quality trading should reference any existing 

trade agreement in the permit and fact sheet.

All trade agreements referenced in NPDES fact sheets and permits should meet certain 

minimum standards to help ensure the trades authorized by the permit are consistent with 

water quality standards. At a minimum, the trade agreement should be a written agreement 

that is signed and dated by authorized representatives of all trading partners. Verbal trade 

agreements should not be referenced in NPDES permits. The written trade agreement should 

contain sufficient detail to allow the permitting authority to determine with some degree of 

certainty that the terms of the agreement will result in loading reductions and generation 

of sufficient credits to satisfy water quality requirements. If there is no formal, outside trade 

agreement, trading can still occur; however, the permit writer will need to more explicitly 

describe the trading program in the fact sheet and authorize specific aspects of the trading program as permit conditions. Trading partners can specify the details pertaining to the 

negotiated terms of the trade (e.g., credit price, payment schedule, consequences for failure 

to fulfill negotiated terms) in a separate, written and signed contract.

Trade Agreements with Nonpoint Source Credit Exchanges

A nonpoint source credit exchange is a pool of nonpoint source credits managed by a third 

party that facilitates trades. As a result, point sources purchasing credits from a nonpoint 

source credit exchange do not trade directly with nonpoint sources. The nonpoint source 

generates pollutant load reductions and sells the pollutant load reductions as credits to the 

entity administering the nonpoint source credit exchange. Point sources may then purchase 

credits from the credit exchange rather than directly from the nonpoint sources. Point source 

purchasers, therefore, will enter into trade agreements with the nonpoint source credit 

exchange.

As described above, the entity administering the nonpoint source credit exchange can establish standards for trading, set credit prices, determine eligible credits, verify the operation 

and maintenance of BMPs, account for delivery, location, and uncertainty ratios and track 

important trade information for all participants. A trade agreement established between 

a point source and the nonpoint source credit exchange should outline all these issues, and 

the permitting authority should consider the information contained in the trade agreement 

when developing permits for participating point sources.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

15Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Maize Creek Example: Trade Agreements

n What You Need to Know...

Pollutant: Biochemical Oxygen Demand

Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for 

point and nonpoint sources

Nonpoint Source Credit Exchange: Maize Creek Producers’ Nutrient Exchange (MCPN Exchange)—

Nitrogen and Phosphorus

n Credit Sellers: Ten farms in the Maize Creek Watershed

n Agricultural Nutrient Reduction Goals (baseline): 10 percent reduction in TP and TN loading from current estimated loads to reduce in-stream biochemical oxygen demand (BOD).

n Estimated Load Reduction: The Niblet County Soil and Water Conservation District established the MCPN Exchange to facilitate trading between local farms and point source dischargers in the Maize Creek Watershed. The MCPN Exchange has developed a list of BMPs eligible for 

trading along with estimated loading reductions. The BMP loading reductions estimates, as well 

as applicable ratios, have been reviewed and approved by the state NPDES permitting authority. 

Ten farms implemented conservation tillage to achieve the baseline of a 10 percent reduction in 

TP and TN loads from current estimated loads. These 10 farms are eligible to participate in the 

MCPN Exchange and have signed the required trade agreement. The farms have agreed to install 

and maintain additional BMPs to reduce in-stream BOD by reducing TP and TN loads. Collectively, participants in the MCPN Exchange will meet the BOD load reduction needs of the point 

sources in the watershed. The loading reductions are based on an average loading reduction per 

month over a typical 12-month period for the watershed. The MCPN Exchange will monitor 

BMP installation and maintenance to verify availability and continued generation of credits, as 

well as track and report all trades to all participants.

Credit Buyer: City of Earington POTWa

n Existing TBELb: 1,000 lbs/day (average monthly) of BOD

n Current Loading: 1,000 lbs/day (average monthly) of BOD

n Approved Watershed Management Plan Total BOD Reduction Goal: 15 percent reduction 

from current BOD loading (reduction of 150 lbs/day (average monthly) to 850 lbs/day)

n WWTPc Treatment Capabilities: Treatment to 1,000 lbs/day of BOD (average monthly)

Location: All the farms participating in the MCPN Exchange are upstream of potential point source 

buyers, including the Earington POTW. All point and nonpoint sources discharge directly to Maize 

Creek.

Notes: a POTW = publicly owned treatment works; b TBEL = technology-based effluent limitations; c

 WWTP = wastewater treatment plant

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

16

Applicable Trade Ratios:

n Delivery: The MCPN Exchange has developed a set of ratios that account for the location of the 

farms in relation to each potential buyer.

n Uncertainty: The MCPN Exchange developed a set of uncertainty ratios to account for uncertainties associated with BMP efficiencies, implementation, maintenance and monitoring.

n Equivalency: The MCPN Exchange has worked with the NPDES permitting authority to develop 

a ratio to relate the in-stream effects of nitrogen and phosphorus loading reductions by the 

farms to required BOD reductions by point source buyers.

The NPDES permitting authority has reviewed and approves of all ratios developed by the MCPN

Exchange. These ratios will be applied to the loading reductions achieved by the member farms to 

determine the number of credits generated.

Multiple point sources within the Maize Creek Watershed, including the city of Earington POTW, 

wish to participate in the MCPN Exchange and have asked the permitting authority to authorize 

them to trade to meet the BOD load-reduction goals in the approved Maize Creek Watershed Management Plan. The NPDES permitting authority worked with the MCPN Exchange, potential point source 

buyers, and other key stakeholders to craft the provisions of the trade agreement and provided the 

necessary information (e.g., baseline, minimum control levels) to facilitate the trade between the city 

of Earington POTW and the MCPN Exchange. The city of Earington POTW’s permit is scheduled for 

renewal in 3 years, and at that time, the NPDES permit writer will incorporate provisions to allow 

the city of Earington POTW to purchase from the MCPN Exchange the equivalent of 150 lbs/day of 

total BOD necessary to achieve the 15 percent load reduction required under the approved watershed 

management plan.

As required, the permitting authority receives a copy of the trade agreement that is signed and 

dated by authorized representatives of the city of Earington POTW and the MCPN Exchange. The 

permit writer reviews the trade agreement to verify that the information is accurate and consistent with water quality standards. The permit writer develops permit requirements for the city of 

Earington POTW that are consistent with the provisions in the trade agreement and incorporates 

those requirements in the effluent limitations (i.e., baseline and minimum control level), reporting, 

and monitoring provisions of the permit.

The basic terms of the trade agreement between the city of Earington POTW and the MCPN Exchange 

are as follows:

n The city of Earington POTW will purchase the necessary amount of equivalent total BOD credits 

to compensate for a discharge of 150 lbs/day of BOD (average monthly) for a period of 5 years to 

correspond with the NPDES permit term.

n The delivery, uncertainty, and equivalency ratios approved by the NPDES permitting authority will be applied to the nitrogen- and phosphorus-loading reductions achieved by the member 

farms to determine the number of BOD credits generated. Nutrient load reductions will be converted to BOD credits by the exchange using the applicable ratios.

Maize Creek Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

17Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

n Member farms must continue to meet their baseline requirement of 10 percent nutrient reduction (either through continuation of conservation tillage, or through alternate approved BMPs) 

to maintain eligibility to participate in the MCPN Exchange.

n Credit buyers must meet applicable minimum control levels before purchasing credits to meet 

the baseline established in the Maize Creek Watershed Management Plan.

n The MCPN Exchange will conduct the necessary BMP monitoring and inspections to verify and 

certify credit generation.

n The MCPN exchange will provide the city of Earington POTW with the necessary BOD Analysis 

Reports to submit to the NPDES permitting authority to verify and certify the generation of 

credits by agricultural operations participating in the exchange.

n Trades occur monthly and credits may not be applied in any month other than the one in which 

the credits are generated.

In a separate contract, the city of Earington POTW and the MCPN Exchange articulate the financial 

and liability conditions for the trade. The terms of the separate contract, which the permit writer does 

not ask to see because it has no bearing on the NPDES permit requirements for the city of Earington 

POTW, are as follows:

n The city of Earington POTW will pay the MCPN Exchange $22.50 per credit of BOD on a 

monthly basis. All payments for a calendar month are due to the MCPN Exchange by the 15th of 

the following calendar month.

n The city of Earington POTW will pay the MCPN Exchange an administration fee of $15 per 

month during the 5-year permit term. This fee will help defray the cost of BMP inspection, 

monitoring, reporting, and other administrative functions of the exchange.

n Failure to fulfill the terms of this agreement on behalf of the city of Earington POTW will result 

in a breach of the trade agreement and terminate participation in the purchase of TP credits 

through the MCPN Exchange.

The city of Earington POTW’s renewed NPDES permit will not include any provisions of the city of 

Earington POTW’s contract with the MCPN Exchange; however, the NPDES permit writer receives a 

copy of the trade agreement that is signed and dated by authorized representatives of the city of Earington POTW and the MCPN Exchange. The permit writer reviews the trade agreement to verify that 

the information related to baselines and estimated pollutant load reductions is accurate and does not 

conflict with any of the city of Earington POTW’s existing NPDES permit requirements. At the time 

of permit renewal, the NPDES permit writer will incorporate provisions to authorize the purchase 

of BOD credits from the MCPN Exchange and ensure that the permit effluent limitations, monitoring, reporting, and special conditions requirements reflect the purchase of BOD credits to achieve 

compliance with the facility’s water quality-based effluent limitation (WQBEL). The permit writer 

will incorporate provisions as necessary from the signed trade agreement in the permit and reference 

the agreement in the fact sheet. A copy of the trade agreement is also attached as part of the permit’s 

administrative record.

Maize Creek Example: Trade Agreements (continued)

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

18

Components of a NPDES Permit

NPDES permits that authorize water quality trading are no different than typical NPDES permits in many respects—they require the same structure, analyses, and justification. All permits have five basic components: (1) cover page; (2) effluent limitations; (3) monitoring and 

reporting requirements; (4) special conditions; and (5) standard conditions. Standard conditions are the same for all NPDES permits and will not be addressed in this Toolkit. In addition, 

consistent with Title 40 of the Code of Federal Regulations (CFR) section 124.6, all permits are 

subject to public notice and comment. This process provides all interested parties an opportunity to comment on the trading provisions in the permit.

Each NPDES permit is accompanied by a permit fact sheet. The information in these fact 

sheets is not enforceable. The purpose of the fact sheet is to explain to the public the requirements in the permit. Thus, at a minimum, the fact sheet should explain to the public any 

trading provisions in the permit. There is a wide variety of options for including trading 

information in the fact sheet that ranges from explaining the minimum control level (buyer) 

or trading limit (seller) to including the entire trading program.

There are a variety of issues, however, that may require special consideration when developing a permit to implement water quality trading with a nonpoint source credit exchange.

Appendix E provides the permit writer with a list of fundamental questions that should be 

addressed during the permit development process.

Permit Cover Page

The cover page of a NPDES permit typically contains the name and location of the 

permittee(s), a statement authorizing the discharge, the specific locations for which a discharge is authorized (including the name of the receiving water), and the effective period 

of the permit (not to exceed 5 years). In addition, the cover page may list the pollutants 

regulated by the permit. For instance, the cover page of an overlay permit for TP may state 

that the overlay permit addresses only TP and that other parameters are addressed in each 

facility’s individual permit.

The cover page also could specifically authorize trading between the permitted point source 

and the nonpoint source(s) generating credits. However, whereas the cover page for a permit 

that includes trading between point sources would include the specific authorized discharge 

locations for each point source, because a nonpoint source is a diffuse pollutant source (e.g., 

farms, ski areas, golf courses), a permit that implements a trade with a nonpoint source trading partner might not reference a specific discharge location for the nonpoint source involved 

in the trade. The cover page could, however, simply name the nonpoint source either by 

category (e.g., farms, golf courses) or by the name of the specific nonpoint source (e.g., Rock 

Creek Dairy, Rolling Hills Country Club) and provide a general description of nonpoint source 

location (e.g., Hudson River at West Point). Further, if the point source purchased credits 

from a nonpoint source credit exchange, the cover page should name the nonpoint source 

credit exchange or managing party.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

19Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

The cover page also should address the regulation, legal authority, policy statements, planning documents and the trade agreement that support trading between point and nonpoint 

sources in the Authority section of the cover page. If the state has issued regulations or policy 

documents authorizing water quality trading, the permit writer should reference these. For 

example, if trading is considered a water-quality management tool in the state’s Water Quality Management Plan, this may establish authority for integrating trading into NPDES permits 

and can be referenced on the cover page (Jones et al. 2005).

Effluent Limitations

Effluent limitations are the primary mechanism for controlling the discharge of pollutants 

from point sources into receiving waters. When developing a permit, the permitting authority focuses much of its effort on deriving appropriate effluent limitations. As in all NPDES 

permits, permits that include trading must include any applicable TBELs and, where necessary, WQBELs, that are derived from and comply with all applicable technology and water 

quality standards. Furthermore, limits must be enforceable, and the process for deriving the 

limits should be scientifically valid and transparent.

EPA’s Trading Policy does not support trading to meet TBELs unless trading is specifically 

authorized in the categorical effluent limitation guidelines on which the TBELs are based.

Applicable TBELs thus serve as the minimum control level below which the buyer’s treatment 

levels cannot fall. This section discusses the overarching principles of how to express all applicable effluent limitations in permits for dischargers participating in water quality trades.

Credit Buyers

Permits for credit buyers should include both the baseline, which is the WQBEL that defines 

the level of discharge the buyer would have to meet through treatment when not trading, 

and a minimum control level that must be achieved through treatment when trading. The 

permit should also include the amount of pollutant load to be offset (minimum control level 

– baseline) through credit purchases when trading. Most often, the applicable TBEL will serve 

as the minimum control level. A permitting authority can choose to impose a more-stringent minimum control level than the TBEL to prevent localized exceedances of water quality 

standards near the point of discharge but not one that is less stringent the TBEL. In a NPDES 

permit or fact sheet, the effluent limitations for a credit buyer could be described as follows:

• The Discharger must meet, through treatment or trading, a mass-based effluent limitation for Pollutant A of <insert baseline>. If this effluent limitation is met through 

trading, the Discharger must purchase credits from authorized Sellers in an amount 

sufficient to compensate for the discharge of Pollutant A from Outfall 001 in excess 

of <insert baseline>, but at no time shall the maximum mass discharge of Pollutant A 

during <insert averaging period> exceed the minimum control level of <insert minimum control level>. Thus, the maximum mass discharge of Pollutant A to be offset 

through credit purchases is <insert minimum control level – baseline>.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

20

Maize Creek Example: Effluent Limitations

Applicable Trade Ratios:

n Delivery: The MCPN Exchange has developed a set of ratios that account for the location of the 

farms in relation to each potential buyer.

n Uncertainty: The MCPN Exchange developed a set of uncertainty ratios to account for uncertainties associated with BMP efficiencies, implementation, maintenance and monitoring.

n Equivalency: The MCPN Exchange has worked with the NPDES permitting authority to develop 

a ratio to relate the in-stream effects of nitrogen- and phosphorus-loading reductions by the 

farms to required BOD reductions by point source buyers.

Multiple point sources within the watershed, including the city of Earington POTW, wish to participate in the exchange and have asked the permitting authority to authorize them to trade to meet the 

BOD loading reduction requirements in the approved watershed management plan. The permitting 

authority has chosen to modify individual permits to authorize trading with the exchange.

The POTW’s existing permit includes state required TBELs the permittee currently meets.

The permit writer will include the calculated WQBELs and trading provisions in the renewed permit 

for the city of Earington POTW. The permit will also include the minimum control level (i.e., TBEL or 

existing discharge) that chooses to trade with the exchange.

Permit Language:

Table 2. Monthly average mass loading effluent limitations for BOD

Facility Units Existing TBEL WQBEL

Effluent limitation 

with trading

City of Earington POTW lbs/day 1,000 850 (Baseline)

1,000 (Minimum Control 

Level/TBEL)

A. The permittee is authorized to discharge BOD from permitted outfalls to Maize Creek 

provided the discharge meets the limitations set forth herein. Provision X of this permit 

authorizes the permittee to purchase BOD credits generated by nonpoint source phosphorus 

load reductions from Maize Creek Producers Nutrient Exchange (MCPN Exchange).

B. The discharge from Outfall 001 shall comply with the monthly mass loading of BOD 

established by either a or b:

a. The WQBEL set forth in Table 2; or,

b. The Effluent Limitation With Trading set forth in Table 2 provided the permittee has 

secured BOD credits generated by nonpoint source phosphorus load reductions from the 

Exchange sufficient to compensate for any discharge in excess of the WQBEL set forth in 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

21Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Table 2. The number of pounds of nonpoint source phosphorus load reductions required 

to be purchased shall be calculated as follows:

Pounds phosphorus required = (Actual Discharge – WQBEL) × Trade ratio

Where:

Actual discharge = the BOD load, expressed in lbs/day as a monthly average,

Trade ratio = Ratios established in the trade agreement between the permittee and the 

MCPN Exchange and incorporated by reference herein

C. Credits purchased by the permittee may be applied only for the calendar month(s) during 

which they were generated by the exchange.

Maize Creek Example: Effluent Limitations (continued)

Pollutant Form, Units of Measure, and Timing Considerations

The permit should explicitly identify the pollutant or pollutants being traded. The permitting 

authority should ensure that the trading program or agreement and the calculated WQBELs 

are consistent in terms of the form of the pollutant, units of measure, and timing.

For example, if the pollutant specified in the WQBEL is nitrate-nitrogen, credits generated 

under the trade agreement should be for nitrate-nitrogen and not for total Kjeldahl nitrogen (TKN) or some other form. If, on the other hand, the WQBEL is for TN, buyers and sellers 

should trade TN credits. In this case, a discharger may be required to measure TN. If there 

are concerns about localized impacts, and WQBELs are also specified for a particular form or 

forms of nitrogen, the discharger may be required to monitor TKN, nitrite, and nitrate (all 

expressed as N) and then calculate its TN discharge.

Also an equivalency ratio may be needed when two sources are trading pollutants such as 

TN or TP, but are actually discharging different forms of nitrogen or phosphorus (e.g., one 

discharger’s phosphorus discharge is made up primarily of biologically available phosphorus while its trading partner’s discharger is primarily bound phosphorus). An equivalency 

ratio may also be needed in cross-pollutant trading of oxygen demanding pollutants (e.g., 

phosphorus and BOD). In this case, the equivalency ratio would equal the ratio between 

the two pollutants impacts on oxygen demand. Where possible, the nonpoint source credit 

exchange or trading program should account for any necessary equivalency ratios with 

regard to pollutant form or type; the permit writer simply needs to be aware of the pollutant form or type addressed in the trade agreement to ensure that the permit is consistent.

Note, however, that under most circumstances it will be difficult to account for equivalency ratios in a nonpoint source credit exchange model. The equivalency ratio is calculated on the basis of the ratios of different forms or types of a pollutant in the discharges 

of both the credit generator and the credit purchaser. Therefore, unless all the nonpoint 

source credit generators are discharging pollutant forms or types with the same ratio, the 

credit exchange would have to track individual transactions from generators to sellers to 

determine how much each credit would be worth.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

22

For example, a point source purchaser needs to purchase credits from the credit exchange 

equivalent to 100 lbs/day for the ratio of pollutant forms being discharged at the point 

source. The credit exchange has credits deposited by 5 different nonpoint sources (Source A, 

Source B, Source C, Source D, and Source E), each discharging the pollutant forms at a different ratio. The credit exchange may have to sell credits to the point source from one, two, 

three, four, or all five of the nonpoint sources. The credit exchange would have to make sure 

that the correct equivalency ratio is applied to the credits deposited by Source A, based on 

which point source is buying the credits that Source A deposited. The exchange has to apply a 

different set of ratios for the credits from Sources B, C, D, and E. The situation becomes more 

complicated if the credits from one or more of the nonpoint sources are split between multiple point source buyers. Finally, it is possible that, depending on the ratios, there may not 

be enough credits to meet all of the buyers’ needs, but that would not be known until the 

credit exchange determines how many credits each nonpoint source deposits and how many 

credits each point source needs and begins to optimize the distribution of credits based on 

all of the possible combinations of buyers, sellers, and ratios. In complicated credit exchange 

situations like this, an extended period of monitoring before trading may be necessary to 

better determine the expected BMP performance from each potential nonpoint source credit 

seller and, thus, whether the exchange will have enough credits to satisfy the needs of all the 

potential buyers.

Maize Creek Example: Pollutant Form, Units of Measure, 

and Timing

n What You Need to Know...

Pollutant: Biochemical Oxygen Demand

Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for 

point and nonpoint sources

Nonpoint Source Credit Exchange: Maize Creek Producers’ Nutrient Exchange—Nitrogen and 

Phosphorus

Credit Sellers: Ten farms in the Maize Creek Watershed

Credit Buyer: City of Earington POTW

Location: All the farms participating in the MCPN Exchange are upstream of all potential point 

source buyers. All point and nonpoint sources discharge directly to Maize Creek.

Pollutant Form

The watershed management plan indicates a need for the city of Earington POTW, the credit buyer, 

to control BOD discharges. The plan includes loading reduction recommendations for the members 

of MCPN Exchange (credit seller) as well. Each member farm will install one or more BMPs from an 

approved list established in the trade agreement to reduce phosphorus and nitrogen loads 10 percent as indicated in the watershed management plan. Because controlling nutrients reduces oxygen 

demand, the credit exchange was able to work with the permitting authority to establish an equivalency ratio that accounts for the relationship between nutrients and BOD load reductions. This will 

enable the MCPN Exchange to sell the nutrient reductions in the form of BOD credits to the POTW.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

23Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Units of Measure

The BOD WQBELs based on the reduction recommendations in the watershed management plan are 

expressed in lbs/day as a monthly average to correspond with the units and averaging period in the 

plan. The BOD limits in the POTW’s existing permit are also expressed in lbs/day as a monthly average. The trade agreement also specifies these units for trading. The nutrient load reductions for the 

credit exchange will be calculated and expressed in lbs/day as a monthly average over a typical 12-

month period to determine the number of credits they can generate to sell the POTW.

Timing of Credits

Credits are available beginning at the time of permit issuance. This allows 24 months for the MCPN

Exchange member farms’ BMPs to be fully implemented and 12 months for the credit exchange to 

gather monitoring data to verify that the BMPs are achieving the expected nutrient removal efficiency 

and will generate credits as expected. These data are necessary to better understand how loading 

and reduction may vary over time and to develop monthly credit generation data to correspond with 

monthly average effluent limitations. Trades will occur monthly to correspond with monthly average 

effluent limitations. The MCPN Exchange member farms will be able to continue to generate credits 

as long as the controls are properly operated and maintained, the credit exchange is able to demonstrate reductions, and the nonpoint source baseline does not change in a way that would reduce or 

eliminate the credits (e.g., based on a new TMDL that includes WLAs for the permittee or LAs for the 

MCPN Exchange member farms). The ability of MCPN Exchange to continue to generate credits will be 

assessed during the renewal of the city of Earington’s POTW NPDES permit every 5 years.

Maize Creek Example: Pollutant Form, Units of Measure, 

and Timing (continued)

Anti-backsliding, Antidegradation, and New Discharges Special 

Considerations

EPA’s Trading Policy discusses anti-backsliding and antidegradation and how these provisions 

can be met through trading.

Anti-backsliding

The term anti-backsliding refers to a statutory provision (CWA section 402(o)) that, in general, prohibits the renewal, reissuance, or modification of an existing NPDES permit that contains WQBELs, permit conditions, or standards that are less stringent than those established 

in the previous permit (USEPA 1996b). The CWA establishes exceptions to this general antibacksliding prohibition. EPA has consistently interpreted section 402(o)(1) to allow for less 

stringent effluent limitations if either an exception under section 402(o)(2) or, for WQBELs, 

the requirements of section 303(d)(4) are met (USEPA 1996b). Section 402(o)(2) and 40 CFR 

122.44(l) provide exceptions for circumstances such as material and substantial alterations 

to the facility, new information, events beyond the permittee’s control, and permit modifications under other sections of the CWA. Section 303(d)(4), which applies only to WQBELs, 

allows a less-stringent WQBEL in a reissued permit when the facility is discharging to a waterbody attaining water quality standards as long as the waterbody continues to attain water 

quality standards even after the WQBEL is relaxed. In addition, revising the limitation must 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

24

be consistent with the state’s antidegradation policy. If the discharge is to a waterbody that 

is not attaining water quality standards, a less-stringent WQBEL is allowed only when the 

cumulative effect of all revised effluent limitations results in progress towards attainment of 

water quality standards. For a detailed discussion of the anti-backsliding exceptions, see EPA’s 

NPDES Permit Writers’ Manual (EPA-833-B-96-003). EPA’s Trading Policy states:

EPA believes that the anti-backsliding provisions of Section 303(d)(4) of the 

CWA will generally be satisfied where a point source increases its discharge 

through the use of credits in accordance with alternate or variable water quality 

based effluent limitations contained in an NPDES permit, in a manner consistent 

with provisions for trading under a TMDL, or consistent with the provisions for 

pre-TMDL trading included in a watershed plan.

A permit writer should simply explain in the fact sheet of the permit how the limitations in the 

permit, after accounting for any trading provisions, are at least as stringent as the limits in 

the previous permit or, alternatively, how anti-backsliding provisions of the CWA are satisfied.

Antidegradation

As repeated throughout this document, NPDES permits may not facilitate trades that would 

result in nonattainment of an applicable water quality standard, including the applicable 

antidegradation provisions of water quality standards. Permitting authorities should ensure 

that WQBELs developed to facilitate trade agreements accord with antidegradation provisions and that antidegradation reviews are performed when required. Nothing in the Trading Policy per se changes how states apply their antidegradation policies, though states may 

modify their antidegradation policies to recognize trading.

The Trading Policy states:

EPA does not believe that trades and trading programs will result in “lower 

water quality”...or that antidegradation review would be required under EPA’s 

regulations when the trades or trading programs achieve a no net increase of 

the pollutant traded and do not result in any impairment of designated uses.

Special considerations for antidegradation relative to water quality trading depend on the 

tier of protection applied to the waterbody as described below.

Tier 1 is the minimum level of protection under antidegradation policies. For Tier 1 waters, 

the antidegradation policy mandates protection of existing in-stream uses. Because EPA 

neither supports trading activities nor allows issuance of permits that violate applicable water 

quality standards, which should protect existing uses at a minimum, any supported trading 

activities incorporated into a NPDES permit should not violate antidegradation policies applicable to Tier 1 waters.

Tier 2 protects waters where the existing water quality is higher than required to support 

aquatic life and recreational uses. Water quality in Tier 2 waters may be lowered (only to the 

level that would continue to support existing and designated uses), but only if an antidegradation review finds that (1) it is necessary to lower water quality to accommodate important social 

or economic development, (2) all intergovernmental and public participation provisions have 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

25Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

been satisfied, and (3) the highest statutory and regulatory requirements for point sources and 

BMPs for nonpoint sources have been achieved. The Trading Policy supports trading to maintain high water quality when trading is used to compensate for new or increased discharges.

Thus, the Trading Policy supports reductions of existing pollutant loadings to compensate for 

the new or increased load so that the result is no lowering of water quality. A state, in applying 

its antidegradation policy, may decide to authorize a new or increased discharge to highquality water and may decide to use trading to completely or partially compensate for that 

increased load. If the increased load to Tier 2 waters is only partially compensated for by trading, an antidegradation review would be required to address the increased load.

Tier 3 protects the quality of outstanding national resource waters and waters of exceptional 

recreational or ecological significance. In general, antidegradation policies do not allow any 

increase in loading to Tier 3 waters that would result in lower water quality. EPA supports 

trading in Tier 3 waters to maintain water quality.

Monitoring

Permitting authorities may want to consider developing monitoring and reporting requirements to characterize waste streams and receiving waters, evaluate wastewater treatment 

efficiency, and determine compliance with permit conditions in the trade agreement. Monitoring and reporting conditions of a NPDES permit may contain specific requirements for 

sampling location, sample collection method, monitoring frequencies, analytical methods, 

recordkeeping, and reporting. If the permit conditions include compliance with provisions in 

a trade agreement, the permitting authority should include monitoring, record-keeping, and 

reporting requirements that facilitate compliance evaluations and, where necessary, enforcement actions related to the trading requirements. Discharge monitoring requirements should 

be consistent with the provisions of the trade agreement in terms of pollutants and forms of 

pollutants monitored, reporting units, and timing. The permit provisions should ensure that 

the results of discharge monitoring will be useful to the permittee, the permitting authority, and the general public in determining whether the provisions of the trade agreement 

are being met. Permits that authorize point source–nonpoint sources trades via a nonpoint 

source credit exchange should also address the unique considerations for monitoring and 

reporting that will facilitate evaluating the effectiveness of BMPs used to generate pollutant 

reduction credits.

Sample Collection and Analysis

The same discharge sampling location used for compliance in any existing NPDES permits 

should be used for determining compliance with effluent limitations developed for traded 

parameters. Samples collected as part of a self-monitoring program required by a NPDES permit must be performed in accordance with EPA-approved analytical methods specified in 40 

CFR Part 136 (Guidelines for Establishing Test Procedures for the Analysis of Pollutants Under 

the Clean Water Act) where Part 136 contains methods for the pollutant of concern. Where 

no Part 136 methods are available, the permit writer should specify which method the point 

source should use for compliance monitoring.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

26

Parties Responsible for Monitoring

In a permit that authorizes trading between a point source(s) and a nonpoint source credit 

exchange, the permittee(s) will be responsible for all the monitoring activities that would 

normally be required in any NPDES permit. If the permit is an overlay permit covering multiple point sources and is used to incorporate water quality trading for specific pollutants, 

the permitting authority may establish monitoring requirements by reference to the facility’s 

individual NPDES permit for consistency. Alternatively, the overlay permit could specifically 

list the monitoring location and requirements.

Ambient Monitoring

Ambient monitoring is one way to show whether a trade agreement meets or improves water 

quality. In addition to traditional discharge monitoring requirements, ambient water quality 

monitoring may be appropriate at strategic locations to ensure that the trade is not creating 

localized exceedances of water quality standards and to document the performance of the 

overall trading program. Permits with mixing zones may include monitoring requirements as 

appropriate to ensure that water quality criteria are not exceeded at the edge of the applicable mixing zone.

BMP Monitoring and Trade Tracking

To assure that nonpoint source BMPs are performing properly, the permitting authority 

should add permit conditions specifying that a BMP be monitored and inspected on a regular 

basis. For permits that authorize trading with a nonpoint source credit exchange, however, 

such provisions may not be necessary. In general, the credit exchange will likely have the 

responsibility for monitoring BMPs and verifying pollutant reductions. In some cases, the 

trading program itself might establish these responsibilities. The permit writer should determine whether and how the nonpoint source credit exchange verifies pollutant reductions.

In some cases, monitoring and inspections might be required of point sources if the credit 

exchange does not adequately monitor BMPs. In other cases, a third party assumes responsibility for BMP monitoring.

Under any of these scenarios, the permitting authority should be aware of the monitoring and reporting responsibilities established in the trading program or through the credit 

exchange and should ensure that the permit conditions do not contradict these requirements.

Where the trading program provides that the point source conduct inspections and monitoring of nonpoint source BMPs, the permit should incorporate or reference those requirements.

Where the trading program provides that a third party conduct inspections and monitoring, 

the permit should also reference those requirements and clarify the permittee’s responsibilities, if any, for reporting or using the information and data gathered through the inspections 

and monitoring activities or conducting these activities itself should the third party fail to 

fulfill its responsibilities.

Permitting authorities should consider developing trade tracking forms and establishing discharger trade reporting requirements to monitor trading activities and any alternative compliance activities implemented if a BMP fails to perform as expected (see Special Conditions).

In addition, credit exchanges should consider holding surplus credits in reserve to be used to 

compensate for point source pollutant loads in the event of a failed trade.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

27Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Reporting Requirements

The permitting authority should establish reporting requirements to support the evaluation 

of water quality trading programs. For example, in addition to reporting discharge monitoring results, permitting authorities might require a permittee to report the number of credits 

purchased. Permitting authorities might also require an annual monitoring report specific to 

the pollutants involved in the trade, to provide information on annual loading in accordance 

with the requirements of the trading program. Permits incorporating water quality trades 

should require reporting at a frequency appropriate to determine compliance with the trading 

provisions. Permitting authorities should consider any requirements of the trading programs 

related to monitoring and reporting and ensure that the permits are consistent with these 

requirements. Permits may require reporting of monitoring results at a frequency established 

through the permit on a case-by-case basis but in no case may that frequency be less than 

once per year.

Maize Creek Example: Monitoring

n What You Need to Know...

Pollutant: Biochemical Oxygen Demand

Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for 

point and nonpoint sources

Nonpoint Source Credit Exchange: Maize Creek Producers’ Nutrient Exchange—Nitrogen and 

Phosphorus

Credit Sellers: Ten farms in the Maize Creek Watershed

Credit Buyer: City of Earington POTW

Location: All the farms participating in the MCPN Exchange are upstream of potential point source 

buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to 

Maize Creek.

The facility’s existing permit includes TBELs based on state treatment standards for BOD and monitoring requirements to sample the effluent monthly for BOD to determine compliance. The renewed 

permit will incorporate new effluent limits (based on the approved watershed management plan) as 

well as the necessary provisions and effluent limits to authorize trading.

In the renewed permit, the POTW will be required to monitor for BOD weekly. The discharger will 

be required to submit monthly discharge monitoring reports (DMRs) year-round by the 15th of the 

month following monitoring to the permitting authority to gauge compliance. Ambient receiving 

water monitoring requirements are included in the existing NPDES permits and are adequate to 

ensure that localized exceedances of water quality standards do not develop as a result of trades.

Permit Language:

n The permittee shall monitor effluent BOD a minimum of one time per week. The permittee 

shall determine the average monthly mass loading based on actual monthly average flow.

Flow monitoring shall be continuous.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

28

In addition to reporting of discharge monitoring results, trading programs may establish 

other reporting and tracking requirements. It is essential that there is a mechanism for tracking trades. The nonpoint source credit exchange should conduct trade tracking and reporting 

for credit generation. If the credit exchange does not report trades to the permitting authority, the permitting authority might require the permittee to submit an additional form such 

as a reduction credit certificate form (see Appendix C). The permitting authority can hold 

point sources liable if they violate any trading provision included in the permit or any trade 

agreement incorporated by reference into the permit, and point sources are certainly liable if 

they do not meet their permit limits.

If not provided by the nonpoint source credit exchange, the permitting authority might also 

want to require verification of project installation and performance specifications before 

allowing the permittee to use credits. The permit could include provisions requiring the point 

source purchaser to provide the required verification.

Data Reporting to EPA

EPA administers two systems to store NPDES permit data and track compliance, the Permit 

Compliance System (PCS) and the new Integrated Compliance Information System (ICIS). PCS is 

the old, computerized management information system that contains data on NPDES permitholding facilities to track the permit, compliance, and enforcement status of these facilities.

The new system, ICIS, was deployed in June 2006 to approximately 20 states. ICIS contains 

integrated enforcement and compliance information across most of EPA’s programs including 

all federal administrative and judicial enforcement actions. In addition, ICIS has the capability 

to track other activities occurring in an EPA Region that support enforcement and compliance 

programs. These include Incident Tracking, Compliance Assistance, and Compliance Monitoring. In the future, ICIS will be deployed to all states, and PCS will no longer be used.

Neither PCS nor ICIS is structured to actually track trades.

PCS is designed to compare actual discharge monitoring data against required effluent limitations to determine a facility’s compliance with its NPDES permit. To determine compliance 

under a trading scenario, it is necessary for the NPDES permitting authority to compare actual 

discharge monitoring data and the quantity of credits purchased against required effluent limitations. For credit buyers, compliance is actually tracked against two effluent limitations—the 

minimum control level and the baseline. The challenge in using PCS to determine compliance 

under a trading scenario is that the system does not automatically make adjustments to the 

reported actual discharge—it will not subtract the quantity of credits purchased. Therefore, 

this type of adjustment must be done before entering information into PCS so that the system has only one reported number to compare against an effluent limitation.

Point source credit buyers have a baseline and a minimum control level (the facility’s TBEL or 

current discharge, whichever is most stringent). To determine compliance for a credit buyer, 

the NPDES permitting authority will need to know that (1) the facility’s actual discharge is 

less than or equal to its minimum control level, and (2) that the number of credits purchased 

results in the facility achieving its baseline. Therefore, point source credit buyers could report 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

29Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

two types of information: (1) the facility’s actual discharge, and (2) the difference between 

the actual discharge and the quantity of credits purchased. Both numbers would be entered 

into PCS to determine compliance. PCS would compare the actual discharge against the 

minimum control level to determine permit compliance and eligibility as a credit buyer. PCS 

would also compare the difference between the actual discharge and the quantity of credits 

Maize Creek Example: Reporting

n What You Need to Know...

Pollutant: Biochemical Oxygen Demand

Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for 

point and nonpoint sources

Nonpoint Source Credit Exchange: Maize Creek Producers’ Nutrient Exchange—Nitrogen and 

Phosphorus

Credit Sellers: Ten farms located in the Maize Creek Watershed

Credit Buyer: City of Earington POTW

Location: All the farms participating in the MCPN Exchange are upstream of potential point source 

buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to 

Maize Creek.

The city of Earington POTW’s renewed permit authorizes trading for BOD with the MCPN Exchange. 

The permit requires, in addition to monitoring reports, regular reporting of any changes to the trade 

agreement and reports for tracking trades. The facility’s permit will contain monthly average effluent 

limitations for BOD; therefore, monthly trade transactions will be necessary to maintain compliance. 

The trade agreement between the permittee and the MCPN Exchange indicates that trades will be 

tracked by the exchange. The trade tracking system generates trading notification forms and monthly 

trading summaries for the entire program. Credits must be used in the same month they are generated and trading notification forms must be submitted to the regulatory agency by the 15th of the 

month following the trade.

In addition, the permit requires biannual reporting to summarize year-to-date transactions and 

actual reductions and loading reflected by monitoring. According to the trade agreement, this is to be 

compiled by the MCPN Exchange but must be reported on a facility-specific basis to the permitting 

authority.

Permit Language:

No trade is valid unless it is recorded in the Maize Creek Producers Nutrient Exchange electronic 

trade tracking system or equivalent system that records all trades and generates trading notification forms and a monthly summary of all trades valid for each calendar month. The recordkeeping 

system must be capable of ensuring that a particular credit is not sold to more than one trading 

participant. The trading notification forms and trading summary may be compiled by the MCPN 

Exchange, but each permittee is responsible for the submittal of all documentation and reports.

Trading notification forms for each monthly trade must be submitted to <the Permitting Authority> by the 15th day of the month following the trade.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Toolkit for Permit Writers

30

purchased against the facility’s baseline; the difference should be less than or equal to the 

WQBEL to indicate that the facility has purchased enough credits to meet its baseline and 

remain in compliance with its WQBEL. PCS can accommodate two different effluent limits for 

the same parameter; therefore, it has the capability to determine compliance with both the 

minimum control level and the baseline for a credit buyer.

ICIS also allows the NPDES permitting authority to report two limits; therefore, this system 

can also accommodate both the baseline and the minimum control level for credit buyers.

New DMR forms will also have two lines to report both the baseline and the minimum control 

level. Like PCS, ICIS does not actually adjust actual discharges with the number of credits 

bought. Under the current design, ICIS will allow a facility with an existing NPDES permit to 

also have a trading partner entered into the system. Once a trading partner is entered for 

a facility, ICIS will allow the entry of an adjusted value for the buyer—this is the reported 

actual discharge adjusted by the number of credits bought. If an adjusted value is entered, 

this value is used to determine permit violations and percent exceedances (USEPA 2006).

In addition to challenges related to limits and the type of information to report, NPDES permits with trading provisions might also raise issues related to reporting periods and automated compliance tracking. PCS will not support a reporting extension beyond 30 days. This 

type of reporting extension might be necessary in some instances to allow adequate time for 

the administrative activities necessary for trading partners to coordinate and reconcile trades.

ICIS, however, will support a 45-day reporting period. In rare instances when a permitting 

authority uses annual limits, both PCS and ICIS will allow for one limit to be monthly and one 

to be annual. However, the permitting authority will have to manually flag annual limit effluent violations for reportable noncompliance (RNC) and significant noncompliance (SNC) to 

track compliance.

Special Conditions

Special conditions are developed to supplement effluent limitations and may include additional monitoring activities, management practices, pollution prevention requirements, ambient stream surveys, compliance schedules (if authorized by the permitting authority), and 

toxicity reduction evaluations (TREs). Special conditions also include permit modification and 

reopener conditions and can be used to address water quality trading. Special conditions of 

a NPDES permit will be very important in incorporating the terms of a trade agreement. Even 

where the specific terms of the agreement are not directly incorporated into the permit, the 

special conditions will be used to refer to, and require compliance with, the trade agreement 

housed in a separate document.

The special conditions included in a NPDES permit to implement trading will depend on 

provisions of the trade agreement and the effluent limitations and monitoring and reporting 

requirements established in the permit. However, the permitting authority should consider 

incorporating special conditions that support the trading conditions. For example, the special 

conditions of the permit may specify conditions for purchasing credits, additional monitoring 

and special reporting requirements, and special conditions for failed trades.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

31Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Specifying Conditions for Purchasing Credits

Permits that implement trades between point sources and a nonpoint source credit exchange 

should specify the practices or approaches used to generate credits, if possible. The permitting 

authority might choose to include these conditions as part of the effluent limitations section of 

the permit, or as a special condition. While the permit cannot require a nonpoint source to use 

a particular BMP to generate credits, it can prohibit a point source from purchasing credits that 

were not generated through use of approved BMPs. Specificity in the permit will depend on the 

nonpoint source credit exchange’s mechanisms for tracking the nonpoint source practices and 

approaches used to generate credits and distributing credits to point sources. A nonpoint source 

credit exchange might obtain credits from a nonpoint source and, in some instances, will have 

no mechanism in place to link the exact origin of specific credits purchased by a point source.

Depending on the structure of the nonpoint source credit exchange, the permitting authority 

or entity managing the trade might determine the appropriate BMPs external to the permit.

The special conditions specific to point source–nonpoint source trading via a nonpoint source 

credit exchange should also address the timing of when credits are available and when the 

practice or approach generating credits expires as an eligible source of credits. If not adequately addressed through the nonpoint source credit exchange, the permit might stipulate 

that continued credit generation requires periodic certification that a practice is still in place 

and that the nonpoint source is taking specified operation and maintenance actions. As 

discussed above, permitting authorities may consider establishing monitoring and reporting 

requirements to ensure that nonpoint sources generating credits are properly installing and 

maintaining BMPs to continue generating credits. This is especially important if a trade relies 

on calculated credits and neither the permit nor the nonpoint source credit exchange requires 

monitoring data to verify pollutant reductions.

Special conditions also could be used to specify the reconciliation period for credits or when 

credits may be used relative to when they are generated. Effluent limitations will dictate the 

reconciliation period, as discussed above, but special conditions can clarify the reconciliation 

period and ensure that credits are not based on future reductions that cannot be verified, 

thus reducing the risk of noncompliance.

Special conditions addressing liability, provisional requirements that apply when credits are 

unavailable or when a limit is exceeded, and outlining the specific requirements for establishing trade agreements among permittees can be important in issuing acceptable permits 

that will not require modification each time circumstances change for one of the dischargers 

covered under the permit.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

Lower Boise River, Idaho

The Lower Boise model uses pounds of TP as its unit of measurement and reconciles trade 

account balances monthly against the reported discharge amounts. The point source must sign 

and submit new Reduction Credit Certificates at the end of each month to establish the credit for 

that month that they can transfer to their own account using the Trade Notification Form. The 

credits can be used to offset only pollutant discharge for the same month in which they were created. The trades are monitored through the automated Trade Tracking System. For more information about this trading program, see Appendix A.
Water Quality Trading Toolkit for Permit Writers

32

Additional Monitoring and Special Reporting

The permitting authority might articulate special monitoring requirements as special conditions, as described above. If not adequately addressed through the nonpoint source credit 

exchange, the permitting authority might require additional monitoring to assess the effectiveness of BMPs or to verify BMP installation, implementation, and maintenance. Any special 

conditions established to determine BMP effectiveness should specify the party responsible 

for conducting monitoring and inspections to verify BMP effectiveness and accuracy of the 

trade ratios assumed in the permit.

Tracking trading activities is particularly important in point source–nonpoint source trades.

Because the permittee is the only trading partner regulated, the permitting authority generally will not be able to require tracking information to be reported by the credit exchange.

Where permitting authorities will not receive adequate credit tracking reports from the credit 

exchange, they should consider establishing special conditions in the permit that facilitate 

tracking. For point source–nonpoint source trades via nonpoint source credit exchanges, the 

permitting authority might require the point source to provide additional information on the 

nonpoint source(s) generating the credits or the nonpoint source credit exchange selling the 

credits reported in the tracking report. For instance, the permit might require the permittee 

to provide or obtain tracking information via the nonpoint source credit exchange, such as

• Identification of nonpoint source (name, address, phone number)

• Type and location of BMP

• Monitoring method and frequency

• Monitoring results (actual measured quantities, or observations regarding installation 

and maintenance, at nonpoint source)

• Subtraction of a portion of the reported reduction amount (in pounds) to meet any 

retirement ratio requirement as specified in the trade agreement

• Conversion of reduction quantity to normalized measure of loading (multiply by 

trade ratio, including location or delivery ratio, equivalency ratio, and uncertainty 

ratio, where applicable)

• Time period for which credit is verified, per monitoring requirements for that BMP

• Certifying statement signed by the point source that the information provided is true, 

accurate, and complete, and that the installation, maintenance, and monitoring of 

the BMP meets the requirements for that BMP as specified in the trade agreement 

(Idaho DEQ 2000)

This information may be provided to the permittee by the nonpoint source credit exchange 

or another entity (e.g., a soil and water conservation district) through a mechanism such as a 

memorandum of understanding (MOU) or a trade agreement.

Special Conditions for Failed Trades

The success of a trade depends on credit sellers fulfilling trade obligations. Where a point 

source–nonpoint source trade involves a nonpoint source credit exchange, the nonpoint 

source credit exchange or trading program might include mechanisms to ensure that the 

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

33Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

trade obligations are met by participating nonpoint sources. In addition, credit exchanges 

should consider holding surplus credits in reserve to be used to compensate for point source 

pollutant loads in the event of a failed trade. The permitting authority might use special 

conditions to establish provisional requirements that apply if the credits a point source buyer 

needs are unavailable from either the credit exchange or surplus credits held in reserve and 

a point source is unable to comply with calculated WQBELs. The permitting authority would 

include these special conditions in addition to any enforcement provisions. The trading program should address what degree of risk the permittee bears from purchasing credits that 

nonpoint sources do not deliver or are proven invalid at a later point in time. The trading 

program or trade agreement might also describe the respective responsibilities of the buyer 

and the seller in the case of a failed trade. In any case, the burden of compliance falls on the 

permittee. The permittee can address the risk of trade failure in a private contract with the 

seller. The permit might require the permittee notify the permitting authority when a trade 

fails or how and when it will either secure credits from an alternate source or comply with the 

calculated WQBELs established in the permit. Monthly reconciliation minimizes risk by requiring certification from buyers and sellers on a monthly basis.

Finally, the permitting authority may reference a reserve of surplus credits held by the 

nonpoint source credit exchange as a means of managing uncertainty of nonpoint source 

trading. All such reserved credits would be generated in the same time period they are used 

or traded. Special conditions could establish the availability of credits held in reserve to the 

permittee and any conditions placed on the permittee if it desires to use reserved credits.

Accountability

Permits that cover one or more point sources buying credits from a nonpoint source credit 

exchange should state that the permitted point sources are responsible for meeting effluent 

limitations derived from water quality standards regardless of whether the nonpoint source 

trading partners or credit exchange comply with the terms of a trade agreement.

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

Maize Creek Example: Special Conditions

n What You Need to Know...

Pollutant: Biochemical Oxygen Demand

Driver: Maize Creek Watershed Management Plan nutrient reduction goals (pre-TMDL) for 

point and nonpoint sources

Nonpoint Source Credit Exchange: Maize Creek Producers’ Nutrient Exchange—Nitrogen and 

Phosphorus

Credit Sellers: Ten farms in the Maize Creek Watershed

Credit Buyer: City of Earington POTW

Location: All the farms participating in the MCPN Exchange are upstream of potential point source 

buyers, including the city of Earington POTW. All point and nonpoint sources discharge directly to 

Maize Creek.
Water Quality Trading Toolkit for Permit Writers

34

The NPDES permit writer has reviewed the signed trade agreement for trading between Earington 

POTW and the MCPN Exchange. The agreement describes how the POTW will meet its new WQBEL

through trading with the MCPN Exchange. The NPDES permit writer has developed the appropriate 

effluent limitations, monitoring, and reporting requirements for the POTW. The special conditions in 

the POTW NPDES permit focus on general authority, credit definition, notification of amendment to 

the trade agreement, notification of unavailability of credits, BMP certification, permit reopeners and 

modification provisions, and enforcement liability.

Permit Language:

General Authority

The permittee is authorized to participate in water quality trading with the Maize Creek Producers 

Nutrient Exchange, as specified in the Maize Creek Producers Nutrient Exchange Trade agreement, 

for the purposes of complying with the BOD effluent limitations and the watershed management 

plan goals required in this permit (Table 2). 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 United States Code (U.S.C.) section 1342. EPA’s policies on Water Quality Trading 

(1/13/03) and Watershed-Based NPDES Permitting (1/7/03) endorse water quality credit trading.

Additionally the Maize Creek Watershed Management Plan authorizes water quality trading as a 

means of achieving the allocations established.

Credit Definition

Credits will be measured in pounds of BOD per day on a monthly average basis. One trading credit 

shall be defined as one (1) unit of pollutant reduction (pound of BOD) to Maize Creek. All pollutant load reductions purchased and sold by the Maize Creek Nutrient Exchange as equivalent 

BOD credits represent pollutant load reductions with the appropriate delivery, uncertainty, and 

equivalency trading ratios applied as detailed in the Maize Creek Producers Nutrient Exchange 

Trade agreement. All valid credits are tradable. The permittee may purchase credits from the Maize 

Creek Producers Nutrient Exchange so long as the BMPs utilized to generate credits are documented as providing pollutant reductions beyond the load reduction indicated in the Maize Creek 

Watershed Management Plan.

Notification of Amendment to the Trade Agreement

The permittee is required to notify the permitting authority in writing within 7 days of the Maize 

Creek Producers Nutrient Exchange Trade Agreement 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 WQBELs established in this permit, either 

Maize Creek Example: Special Conditions (continued)

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions
Water Quality Trading Scenario: Nonpoint Source Credit Exchange 

35Wa t e r Q u a l i t y 

T r a d i n g S c e n a r i o

s

Water Quality Trading Scenarios

Nonpoint Source 

Credit Exchange The Function of a 

Nonpoint Source 

Credit Exchange

Quantifying 

Nonpoint 

Source Loads 

and Credits

Establishing 

Baselines 

for Nonpoint 

Source Sellers

Accountability Trade 

Agreements

Components 

of a NPDES 

Permit Permit 

Cover Page Effl uent Limitations Monitoring

Reporting 

Requirements

Special 

Conditions

through implementation of on-site controls or by conducting an approved emergency phosphorus 

offset project approved by the NPDES permit writer.

BMP Certification

The Maize Creek Producers Nutrient Exchange Trade Agreement specifies that each member will 

install BMPs beginning in January 2008. The Trade Agreement also includes a requirement that the 

BMPs be maintained in accordance with NRCS Conservation Practice Standard 350 for sediment basins 

and NRCS Conservation Practice Standard 656 for constructed wetlands. The permittee is required 

to inspect BMPs to verify the BMPs have been installed and are being maintained as required under 

the trade agreement. This permit authorizes the Niblet County SWCD to conduct these inspections 

on behalf of the permittee, per the terms of the signed MOU with the permittee. The permittee is 

required to submit a certification each year with the annual report, required by section X of this 

permit, that the permittee or the Niblet County SWCD has performed these inspections.

Permit Reopeners, 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 which may be necessary to protect human health or the environment or to implement a new Maize Creek BOD TMDL should one be developed. The permitting 

authority may also reopen and modify the permit to suspend the ability to trade credits to comply 

with the total BOD waste discharge limitations in Table 2.

Enforcement Liability

The permittee is liable for meeting its most stringent effluent limitation. 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.

Maize Creek Example: Special Conditions (continued)

Permit Language (continued):
Water Quality Trading Toolkit for Permit Writers

36
Water Quality Trading Toolkit for Permit Writers

Glossary-G L O S S A R Y

Glossary

The sources for these definitions vary. Some are unique to water quality trading and are 

defined here by EPA for purposes of this Toolkit. Other definitions are based on federal 

regulations, as well as EPA policy and guidance. If the definition has a source, it is noted by 

number (1-6). For the list of sources, see the bottom of this section.

Average Monthly Effluent Limitation: The highest allowable average of daily discharges 

over a calendar month, calculated as the sum of all daily discharges measured during that 

month divided by the number of daily discharges measured during that month. 40 CFR 122.2.

Animal Feeding Operation (AFO): Lot or facility (other than an aquatic animal production 

facility) where the following conditions are met:

• Animals (other than aquatic animals) have been, are, or will be stabled or confined 

and fed or maintained for a total of 45 days or more in any 12-month period, and

• Crops, vegetation, forage growth, or post-harvest residues are not sustained in the 

normal growing season over any portion of the lot or facility. 40 CFR 122.23(b)(1).

Anti-backsliding: A provision in the Clean Water Act (CWA) and NPDES regulations (CWA 

section 303(d)(4); CWA section 402(c); 40 CFR 122.44(l)) that requires a reissued permit to be 

as stringent as the previous permit with some exceptions. (1)

Antidegradation: Policies that ensure protection of existing uses and of water quality for 

a particular waterbody where the water quality exceeds levels necessary to protect fish and 

wildlife propagation and recreation on and in the water. Antidegradation also includes special protection of waters designated as outstanding national resource waters. Antidegradation plans are adopted by each state to minimize adverse effects on water. 40 CFR 131.12. (1)

Baseline: 1.) The pollutant control requirements that apply to buyers and sellers in the 

absence of trading. Sellers must first achieve their applicable baselines before they can enter 

the trading market and sell credits. Buyers can purchase credits to achieve their applicable 

baselines once they have met their minimum control levels. 2.) Some programs use baseline 

to define loads in a specific year, which usually represents the starting point of the program.

Best Available Technology Economically Achievable (BAT): Technology-based standard 

established by the Clean Water Act as the most appropriate means available on a national 

basis for controlling the direct discharge of toxic and nonconventional pollutants to 

navigable waters. BAT effluent limitations guidelines, in general, represent the best existing 
Water Quality Trading Toolkit for Permit Writers

Glossary-

performance of treatment technologies that are economically achievable within an industrial 

point source category or subcategory. (6)

Best Conventional Pollutant Control Technology (BCT): Technology-based standard 

for the discharge from existing industrial point sources of conventional pollutants including 

biochemical oxygen demand, total suspended solids, fecal coliform, pH, oil and grease. The 

BCT is established in light of a two-part cost reasonableness test, which compares the cost 

for an industry to reduce its pollutant discharge with the cost to a POTW for similar levels 

of reduction of a pollutant loading. The second test examines the cost-effectiveness of 

additional industrial treatment beyond BPT. EPA must find limits that are reasonable under 

both tests before establishing them as BCT. (6)

Best Management Practice (BMP): For point sources, 40 CFR 122.2 defines BMPs as schedules of activities, prohibitions of practices, maintenance procedures, and other treatment 

controls and pollutant removal devices (structural and nonstructural) to prevent or reduce 

the discharge of pollutants to waters of the United States. BMPs also include treatment 

requirements, operating procedures, and activities to control plant site runoff, spillage or 

leaks, sludge or waste disposal, or drainage from raw material storage. For nonpoint sources, 

BMPs are defined in 40 CFR 130.2 as methods, measures or practices selected by an agency 

to meet its nonpoint source control needs. BMPs include, but are not limited to, structural 

and nonstructural controls and operation and maintenance procedures. BMPs can be applied 

before, during, and after pollution-producing activities to reduce or eliminate the introduction of pollutants into receiving waters.

Best Practicable Control Technology Currently Available (BPT): The first level of technology-based standards established by the Clean Water Act to control pollutants discharged 

to waters of the United States. BPT effluent limitations guidelines are generally based on the 

average of the best existing performance by plants within an industrial category or subcategory. (6)

Compliance Schedule: A schedule of remedial measures included in a permit or an enforcement order, including a sequence of interim requirements (e.g., actions, operations, or milestone events) that lead to compliance with the Clean Water Act and regulations. (1)

Contract: Written agreement between the trading parties, separate from any applicable 

NPDES permit, in which the parties may address a variety of financial or legal considerations 

and contingencies, including what happens in the case of default by any party.

Credit, or Pollutant Reduction Credit: A measured or estimated unit of pollutant reduction per unit of time at the discharge location of the buyer or user of the credit. A seller generates excess load reductions by controlling its discharge beyond what is needed to meet its 

baseline. A buyer compensates a seller for creating the excess load reductions that are then 

converted into credits by using trade ratios. Where appropriate, the buyer can use the credits 

to meet a regulatory obligation.
Water Quality Trading Toolkit for Permit Writers

Glossary-G L O S S A R Y

Credit Exchange: A centralized reserve of pollutant reduction credits administered by a 

third party who buys credits from point or nonpoint sources to sell to point sources in need of 

credits to comply with calculated WQBELs.

Cross-Pollutant Trading: Trading across two different pollutant parameters when equivalent mass loads of the different parameters can be calculated and the water quality effects of 

those equivalent mass loads are similar (e.g., meeting an effluent limitation for biochemical 

oxygen demand by purchasing credits generated for reduction of a phosphorus load).

Daily Discharge: The discharge of a pollutant measured during a calendar day or any 

24-hour period that reasonably represents the calendar day for purposes of sampling. For 

pollutants with limitations expressed in units of mass, the daily discharge is calculated as the 

total mass of the pollutant discharged over the day. For pollutants with limitations expressed 

in other units of measurement, the daily discharge is calculated as the average measurement 

of the pollutant over the day.

Delivery Ratio: Factor applied to pollutant reduction credits when sources are directly 

discharging to a waterbody of concern that accounts for the distance and unique watershed 

features (e.g., hydrologic conditions) that will affect pollutant fate and transport between 

trading partners.

Designated Uses: Those uses specified in water quality standards for each waterbody or 

segment whether or not they are being attained. 40 CFR 131.3. Examples of designated uses 

include cold and warm water fisheries, public water supply, and irrigation. (1, 4)

Effluent Limitation: Any restriction imposed on quantities, discharge rates, and concentrations of pollutants that are discharged from point sources into waters of the United States, 

the waters of the contiguous zone, or the ocean. 40 CFR 122.2.

Effluent Limitation Guidelines and Standards (ELGs): A regulation published by EPA 

under section 304(b) of the Clean Water Act that establishes national technology-based 

effluent requirements for a specific industrial category.

Equivalency Ratio: Factor applied to pollutant reduction credits to adjust for trading different pollutants or different forms of the same pollutant.

Load Allocation (LA): The portion of a receiving water’s loading capacity that is attributed 

either to one of its existing or future nonpoint sources of pollution or to natural background 

sources. LAs are best estimates of the loading, which may range from reasonably accurate 

estimates to gross allotments, depending on the availability of data and appropriate techniques for predicting the loading. Wherever possible, natural and nonpoint source loads 

should be distinguished. 40 CFR 130.2.

Location Ratio: Factor applied to pollutant reduction credits when sources are upstream 

of a waterbody of concern that accounts for the distance and unique watershed features 

between a pollutant source and the downstream waterbody (e.g., bay, estuary, lake, reservoir) or area of interest (e.g., a hypoxic zone in a waterbody).
Water Quality Trading Toolkit for Permit Writers

Glossary-

Maximum Daily Effluent Limitation: The highest allowable daily discharge of a pollutant. 

40 CFR 122.2.

Minimum Control Level: The pollutant load that a point source buyer must first meet 

before buying credits to meet the facility’s baseline. This pollutant load is either the TBEL 

specified in a permit or the current discharge level, depending on which is more stringent.

National Pollutant Discharge Elimination System (NPDES): The national program for 

issuing, modifying, revoking and reissuing, terminating, monitoring and enforcing permits, 

and imposing and enforcing pretreatment requirements, under sections 307, 402 , 318, and 

405 of the Clean Water Act. 40 CFR 122.2. NPDES permits regulate discharges of pollutants 

from point sources to waters of the United States. Such discharges are illegal unless authorized by a NPDES permit. (1)

Nonpoint Sources (NPS): Diffuse pollution sources (i.e., without a single point of origin or 

not introduced into a receiving stream from a specific outlet). The pollutants are generally 

carried off the land by stormwater. Common nonpoint sources include runoff from agriculture, forestry, urban environments, land disposal, and saltwater intrusion. (2, 4)

Offset: 1.) n. Offsite treatment implemented by a regulated point source on upstream land 

not owned by the point source for the purposes of meeting its permit limit. 2.) n. Load reductions that are purchased by a new or expanding point source to offset its increased discharge 

to an impaired waterbody. (Note: EPA considers both types of offsets to be trading programs)

3.) v. to compensate for.

Overlay Permit: A NPDES permit issued to a group of point source dischargers that supplements individual permits by establishing permit limits and other requirements for one or 

more pollutant of concern that are not addressed in the existing individual permits.

Permitting Authority: EPA (an EPA Regional Administrator) or an authorized state, territory, or tribe. Under the Clean Water Act, most states are authorized to implement the NPDES 

permit program. (1)

Point Source: Any discernible, confined, and discrete conveyance, including but not limited 

to, any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, 

concentrated animal feeding operation, landfill leachate collection system, vessel or other 

floating craft from which pollutants are or may be discharged. This term does not include 

return flows from irrigated agriculture or agricultural stormwater runoff. 40 CFR 122.2.

Publicly Owned Treatment Works (POTW): A treatment works as defined by section 212 

of the Clean Water Act (CWA), which is owned by a state or municipality (as defined by section 502(4) of the CWA). This definition includes any devices and systems used in the storage, 

treatment, recycling and reclamation of municipal sewage or industrial wastes of a liquid 

nature. It also includes sewers, pipes and other conveyances only if they convey wastewater 

to a POTW. The term also means the municipality as defined in section 502(4) of the CWA, 

which has jurisdiction over the Indirect Discharges to and the discharges from such a treatment works. 40 CFR 403.3.
Water Quality Trading Toolkit for Permit Writers

Glossary-G L O S S A R Y

Reconciliation Period: The period of time during which a seller generates water quality 

credits and a buyer purchases and uses those credits to compensate for a pollutant load that 

it discharges during that same time period.

Retirement Ratio: Factor applied to pollutant reduction credits to accelerate water quality 

improvement. The ratio indicates the proportion of credits that must be purchased in addition to the credits needed to meet regulatory obligations. These excess credits are taken out 

of circulation (retired) to accelerate water quality improvement.

Single-Pollutant Trading: Trading a single pollutant parameter or different forms of the 

same pollutant parameter when equivalent mass loads of the different forms can be calculated and the water quality effects of those equivalent mass loads are similar (i.e., meeting 

an effluent limitation for total nitrogen by purchasing credits generated for reduction of 

another source’s total nitrogen load or by purchasing credits generated for reduction of 

another source’s nitrate load).

Technology-Based Effluent Limitation (TBEL): A permit limit for a pollutant that is based 

on the capability of a treatment method to reduce the pollutant to a certain concentration. 

TBELs for POTWs are derived from the secondary treatment regulations (40 CFR Part 133) or 

state treatment standards. TBELs for non-POTWs are derived from national ELGs, state treatment standards, or on a case-by-case basis from the best professional judgment of the permit 

writer. (1)

Third party: Any entity that is not a buyer or seller in the trade. A third party can be a state 

agency, conservation district, private entity, or other organization or person. Third parties 

could assist in facilitating credit exchanges and verifying BMPs.

Total Maximum Daily Load (TMDL): A calculation of the maximum amount of a pollutant 

a waterbody can receive and still meet applicable water quality standards (accounting for 

seasonal variations and a margin of safety), including an allocation of pollutant loadings to 

point sources (wasteload allocations) and nonpoint sources (load allocations).

Trade Agreement: Document that specifies the overall trading policies that trading parties 

must follow to participate in trading. The NPDES permitting authority would approve the 

trade agreement and could either reference the terms of the trade agreement in the NPDES 

permit or include the trade agreement as part of the permit for each point source participating in a trade.

Trading Limit: Level of control on the pollutant discharge the point source seller chooses to 

achieve, through technology or BMPs, beyond that facility’s baseline.

Trading: A market-based approach to achieving water quality standards in which a point 

source purchases pollutant reduction credits from another point source or a nonpoint source 

in the same watershed that are then used to meet the point source’s pollutant discharge 

obligations. To be creditable to the point source purchaser, the credits must reflect actual, 

achieved pollutant reductions in excess of the credit seller’s baseline. Under certain circumstances, a point source buyer may have to purchase more than one pound of upstream pollutant reduction to equal a pound discharged at its outfall.
Water Quality Trading Toolkit for Permit Writers

Glossary-

Uncertainty Ratio: Factor applied to pollutant reduction credits generated by nonpoint 

sources that accounts for lack of information and risk associated with best management practice measurement, implementation and performance.

Waste Load Allocation (WLA): The portion of a receiving water’s loading capacity (TMDL) 

that is allocated to one of its existing or future point sources of pollution. 40 CFR 130.2.

Water Quality Criteria (WQC): Elements of state water quality standards, expressed as 

constituent concentrations, levels, or narrative statements, representing a quality of water 

that supports a particular use. When criteria are met, water quality will generally protect the 

designated use. 40 CFR 131.3.

Water Quality Standard (WQS): Provisions of state or federal law that consist of a designated use or uses for the waters of the United States, water quality criteria for such waters 

based on such uses, and an antidegradation policy. Water quality standards are to protect the 

public health or welfare, enhance the quality of water, and serve the purposes of the Clean 

Water Act. 40 CFR 131.3.

Water Quality Based-Effluent Limitation (WQBEL): An effluent limitation determined by 

selecting the most stringent of the effluent limits calculated using all applicable water quality 

criteria (e.g., aquatic life, human health, wildlife, translation of narrative criteria) for a specific point source to a specific receiving water for a given pollutant or based on the facility’s 

wasteload allocation from a TMDL. (1)

EPA sources of definitions

1. EPA. 1996. NPDES Permit Writers’ Manual. EPA 833-B-96-003. U.S. Environmental 

Protection Agency, Office of Water. December. 

2. EPA. 2004. Water Quality Trading Assessment Handbook: Can Water Quality Trading 

Advance Your Watershed’s Goals? EPA 841-B-04-001. U.S. Environmental Protection 

Agency, Office of Water. November.

3. EPA Region 10. 2003. Water Quality Trading Assessment Handbook: EPA Region 10’s 

Guide to Analyzing your Watershed. EPA 910-B-03-003. U.S. Environmental Protection 

Agency, Region 10, Seattle, Washington. July.

4. EPA. Terms of Environment: Glossary, Abbreviations, Acronyms.

<www.epa.gov/OCEPAterms/cterms.html>.

5. EPA. National Water Quality Trading Policy, January 13, 2003.

6. EPA. NPDES Glossary. <http://cfpub.epa.gov/npdes/glossary.cfm?program_id=0>.
Water Quality Trading Toolkit for Permit Writers

References-R e f e

r e n c e s

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. <www.dartmouth.edu/~kfv/waterqualitytradingdatabase.pdf>. 

Accessed July 11, 2007.

Chesapeake Bay Commission. 2004. Cost-Effective Strategies for the Bay. Chesapeake Bay 

Commission <www.chesbay.state.va.us/Publications/cost%20effective.pdf>. Accessed 

July 11, 2007.

Idaho Division of Environmental Quality (Idaho DEQ). 2000. Lower Boise River Effluent 

Trading Demonstration Project: Summary of Participant Recommendations For a Trading 

Framework. Available online <www.deq.state.id.us/water/data_reports/surface_water/

tmdls/boise_river_lower/boise_river_l ower_effluent_report.pdf>. Accessed July 11, 2007.

Jones, C., L. Bacon, M.S. Kieser, and D. Sheridan. 2005. Water Quality Trading: A Guide for the 

Wastewater Community. Water Environment Federation Press, Alexandria, VA.

Moffett, L. 2005. Water Quality Trading: Approaches to Deal with Scientific and Institutional 

Uncertainty. Senior Thesis. Dartmouth College, Hanover, NH.

O’Grady, D., and M.A. Wilson. No date. Phosphorus Trading in the South Nation River 

Wastershed, Ontario, Canada. <www.envtn.org/wqt/programs/ontario.PDF>. Accessed 

March 31, 2006.

USEPA (U.S. Environmental Protection Agency). 1996a. Draft Framework for Watershed Based 

Trading. EPA-800-R-96-001. U.S. Environmental Protection Agency, Office of Water, 

Washington, DC. Available online <http://envstudies.brown.edu/Thesis/2002/caton/files/

EPA%20documents/framwork.pdf>. Accessed July 11, 2007.

USEPA (U.S. Environmental Protection Agency). 1996b. U.S. EPA NPDES Permit Writers’ 

Manual. EPA-833-B-96-003. U.S. Environmental Protection Agency, Office of Water, 

Washington, DC.

USEPA (U.S. Environmental Protection Agency). 1997. Monitoring Guidance for Determining 

Effectiveness of Nonpoint Source Controls. EPA 841-B-96-004. U.S. Environmental 

Protection Agency, Office of Water, Washington, DC.
Water Quality Trading Toolkit for Permit Writers

References-

USEPA (U.S. Environmental Protection Agency). 2001. Chesapeake Bay Program Nutrient 

Trading Fundamental Principles and Guidelines. EPA-903-B-01-001. U.S. Environmental 

Protection Agency, Chesapeake Bay Program, Annapolis, MD. 

<www.chesapeakebay.net/pubs/subcommittee/nsc/final15guidancedoc.pdf>. Accessed 

July 11, 2007.

USEPA (U.S. Environmental Protection Agency). 2003a. Water Quality Trading Policy. U.S. 

Environmental Protection Agency, Office of Water. Washington, DC. 

<www.epa.gov/owow/watershed/trading/finalpolicy2003.pdf>. Accessed July 11, 2007.

USEPA (U.S. Environmental Protection Agency). 2003b. Watershed-Based National Pollutant 

Discharge Elimination System (NPDES) Permitting Implementation Guidance. EPA-833-B03-004. U.S. Environmental Protection Agency, Office of Water, Washington, DC. 

<www.epa.gov/npdes/pubs/watershedpermitting_finalguidance.pdf>. Accessed 

July 11, 2007.

USEPA (U.S. Environmental Protection Agency). 2004. Water Quality Trading Assessment 

Handbook. EPA-841-B-4-001. U.S. Environmental Protection Agency, Office of Water, 

Washington, DC. <www.epa.gov/owow/watershed/trading/handbook/>. Accessed 

July 11, 2007.

USEPA (U.S. Environmental Protection Agency). 2006. Integrated Compliance Information 

System Users’ Guide. U.S. Environmental Protection Agency, Office of Enforcement and 

Compliance Assurance, Washington, DC.

Vermont Department of Environmental Conservation (VTDEC). 2005. Chapter 18: Stormwater 

Management Rule in Environmental Protection Rules. <www.vtwaterquality.org/

stormwater/docs/sw_rule-unimpaired.pdf>. Accessed July 11, 2007.

World Resources Institute. 2004. NutrientNet. <www.nutrientnet.org>. Accessed July 11, 2007.