November 3, 2014 –
Update on water quality credit trading rulemaking

Water quality credit trading is taking shape in Florida. While previously started as a pilot program, DEP started rulemaking to bring water quality credit trading to the rest of the state. To date, DEP has held two workshops and sought public comment on its proposed rule. Comments are still being accepted, and DEP is working on draft rule language, which it aims to release before the end of the year. More workshops will be held once the draft rule is released. The rule will be Chapter 62-306, Florida Administrative Code.

Conceptually, a water quality credit trading rule is a tool to help a watershed reach its restoration goals under the Total Maximum Daily Load (“TMDL”) program. Within a watershed, some sources of a pollutant can reduce more quickly and more cheaply than other sources. A source can generate credits to sell, if it can reduce pollutant loading below the amount required by law. A buyer can buy credits to achieve its required reductions.

DEP has framed up the basic concepts for trading. One key concept DEP determined is where the rule will allow trading. A trade can occur within a watershed. These will be the same watershed boundaries established by DEP for a TMDL.

Credits are generated when a seller reduces loading surpassing its load reduction baseline. Load reduction baselines will be identified by source in a Basin Management Action Plan (“BMAP”) or in a point source permit. BMAPs are the state’s plan to implement and achieve the TMDL.

BMAPs contain pollutant loading reduction strategies and load allocations based on the TMDL. DEP proposes to allow a seller to generate credits only after it has reduced loading to its baseline in the BMAP and continued to reduce beyond its legal obligation. Point source dischargers that have a load allocation in a permit can generate credits by reducing beyond that allocation.

DEP will set the value of credits. This means DEP will have a regulatory role in reviewing the amount of credits a seller can generate. Credits may be based on measured data or modeled data, depending on the watershed. DEP will also review each trade and will apply “factors” to the Seller’s credits that account for uncertainty in calculating estimated credits (based on modeled data) and the location in the watershed of the buyer and seller. The buyer’s credit need will not change, but the factors reduce the value of the seller’s credits. The price of credits will be determined between the parties, without DEP’s input.

Credits will only last as long as the reductions are achieved. A buyer will have certain obligations under a permit or a BMAP and will need to build in assurances that the seller will continue to achieve its reductions.

DEP is accepting comments now. Some commenters have already requested that DEP allow trading during the iterations of the BMAP, when the baseline TMDL reductions are not yet achieved, but reductions surpassing the obligation in the BMAP may have been achieved. Additional comments may be needed on DEP’s calculation of the value of credits, including the uncertainty and location factors, and DEP’s plans for compliance procedures under the rule. If you are interested in submitting comments or learning more about this rule effort, please contact Luna Phillips or Debbie Tyson at 954-712-1478.

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