Pretreatment Trading

Charles R. McElwee, II

The Jan. 13, 2003 Water Quality Trading Policy reaffirms EPA’s support for “municipalit[ies] or regional sewage authorit[ies] developing and implementing trading programs among industrial users.” The mechanisms and criteria for pretreatment trading were set forth in the May 1996 Draft Framework for Watershed-Based Trading (1996 Draft Framework). (Chapter 6; http://www.epa.gov/OWOW/watershed/ch6.pdf)

Trading programs for indirect dischargers (industrial users or IUs) to the same publicly owned treatment works (POTWs) are the least complex of all approved trading scenarios to implement. As with other types of trades, indirect dischargers may not engage in trades to meet EPA’s technology-based (categorical pretreatment) limits. Trades may be used to meet local limits that require reduction of pollutant discharges below the categorical limits. However, unlike other trades, pretreatment trades (1) do not raise anti-backsliding or anti-degradation issues; (2) should not require trading ratios greater than 1:1 (since they impact the watershed at the same discharge point and compliance monitoring should be relatively simple); and, (3) should arguably be permitted for all pollutants, not just nutrient and sediment loads (except where pretreatment trading may impact CSO discharges, none of EPA’s reasons for caution on non-nutrient/non-sediment trades applies in the pretreatment trading process, even with respect to “persistent bioaccumulative toxics” trades).

On the other hand, since the establishment of pretreatment trading programs may increase the administrative burdens upon often financially strapped local sewage agencies without any corresponding direct benefits to them, they may be harder to implement in practice. Administrative and legal hurdles will be easiest to clear for those POTWs that currently establish local pretreatment limits as mass loadings based on a Maximum Allowable Industrial Loading (MAIL) calculation. “POTWs currently using other approaches [i.e., limits expressed as concentrations] generally will be required to adopt mass-based limits to facilitate implementation of trading programs.” (1996 Draft Framework, 6-8). In order to develop a trading program, the POTW must adopt the MAIL in its legal authority as part of its local limits, as well as develop a procedure to allocate the MAIL-based mass loads to its IUs. Once the initial allocation is made, IUs can negotiate exchanges in pollutant reductions among themselves. In any situation other than a reallocation of MAIL-based mass limits, trading that results in less stringent local limits for one or more of a POTW’s industrial users may be a substantial program modification, and therefore require EPA or state approval.

The financial incentives to trade are probably the most compelling in the pretreatment context. The challenge for prospective traders will be to provide sufficient incentives to the local sewage agency to implement the regulatory changes that may be necessary to support these trades.