Water Pollution:

Pollutant Trading Could Reduce Compliance Costs If Uncertainties Are Resolved

RCED-92-153: Published: Jun 15, 1992. Publicly Released: Jul 16, 1992.

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Pursuant to a congressional request, GAO provided information on the cost-effectiveness of pollutant trading, focusing on: (1) projects using pollutant trading to reduce pollution at specific locations; (2) potential barriers to wider use of pollutant trading; and (3) Environmental Protection Agency (EPA) efforts to implement a nationwide trading program.

GAO found that: (1) pollutant trading has been confined to four localized efforts to address water pollution; (2) three projects provide for trading between point and nonpoint sources, and the fourth project permits trading only between point sources; (3) in the one trade so far, a point source installed sewers to control nonpoint-source pollution and received a discharge credit; (4) impediments to wider use of pollutant trading include its ambiguous legal status under the Clean Water Act and complexities surrounding a workable trading systems; (5) institutional structures, adequate data, and enforcement mechanisms are needed to establish wider use of pollutant trading; and (6) EPA has begun to address barriers to trading and is considering drafting guidelines to encourage pollutant trading.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The House bill (H.R. 961) to reauthorize the Clean Water Act contains language that would grant states authority to use pollutant trading among point and nonpoint sources. However, the Clean Water Act has not been reauthorized for several years and there is little indication that it will be reauthorized in the immediate future.

    Matter: If Congress wishes to see trading employed on a wider basis, it may want to address the concerns that some have raised about trading's legal status under the Clean Water Act. This could be accomplished by amending the act to explicitly authorize trading.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In May 1996, EPA issued a draft handbook as a guide for those considering developing trading projects (EPA-800-R-96-001). The handbook is entitled "Draft Framework for Watershed Base Trading" and the policy statement is contained in appendix A to the handbook. In addition, under "Reinventing Environmental Regulation," issued in March 1995, effluent trading in watersheds is one of 25 high-priority initiatives. Under this initiative, EPA will establish a framework to promote different types of effluent trading, issue policy guidance to permit writers, and provide technical assistance.

    Recommendation: To help resolve some of the remaining questions and concerns surrounding pollutant trading, the Administrator, EPA, should assist others in initiating demonstration projects specifically designed to test alternative approaches to pollutant trading. EPA should then develop detailed and specific guidance--based in part on these demonstration projects--to help others considering trading projects.

    Agency Affected: Environmental Protection Agency


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