Lack of Water Quality Credit Markets

The EPA is actively encouraging states to set up water quality credit markets. Water quality credit markets have already been successfully set up in other states.

Under the Clean Water Act, any facility that discharges pollutants into U.S. waters needs a type of permit called a National Pollutant Discharge Elimination System (NPDES) permit. Permit holders must meet a certain water cleanliness standard that is set by the state and approved by the federal government. Facilities that hold permits include municipal wastewater, stormwater, and reclamation treatment plants, Concentrated Animal Feeding Operations, and public water supply treatment plants. The NPDES permit is good for five years and then the facility needs to reapply. Every few years, the standards are updated, and are in fact due for an update in the next six to nine months. So a facility that meets current standards will likely find itself needing to meet higher standards when its current permit expires. And it might not have the capacity to meet the new standard. What’s it going to do? The facility might pay a lot of money to upgrade its system. Or, it might purchase water quality credits. Or it might look to buy water quality credits. 

Water quality credits operate along the same principle as carbon trading. A carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. The carbon credit is one half of a "cap-and-trade" program. The companies that have extra carbon credits sell them to the companies that don’t have enough carbon credits.​