These standards establish an additional legal basis for controlling  pollution entering the waters of the United States from point sources,  such as wastewater treatment plants. Nutrient Credit Trading

EPA also encourages states to use nutrient credit trading to help address  nutrient pollution. Eleven States Had Nutrient Credit Trading Programs in 2014, and Trading Provided Flexibility for Some Point Sources to Meet Nutrient Discharge Limits in the 3 States We Reviewed

According to EPA data and interviews with EPA officials, in 2014, a total  of 19 nutrient credit trading programs existed in 11 states. Most Point Sources Participating in the Three State Programs We Reviewed Did Not Purchase Credits, but Trading Provided Flexibility, According to Officials

In the three states we reviewed, most point sources participating in the  trading programs did not purchase credits to meet nutrient discharge  limits, according to state data and officials. For the point sources that did purchase credits in 2014, state officials in  the three states we reviewed told us that the total amount (in pounds) of  nutrients that point sources purchased as credits to meet their individual  discharge limits was generally small relative to the aggregate discharge  limits (see table 3). According to officials and  stakeholders, this flexibility allowed point sources to manage risk, reduce  the cost of compliance, and better manage the timing of upgrades of point  sources’ nutrient removal technology. States Oversee Nutrient Credit Trading Programs by Approving and Verifying Credit Generation, and EPA Reviews Permits That Allow for Trading

States oversee nutrient credit trading programs by approving and  verifying credit generation to ensure that credits represent real nutrient  pollution reductions. A state’s approval and verification process varies  depending on whether the credit generator is a point or nonpoint source. For point sources, the states we reviewed followed a process for verifying  credits that is based on the existing oversight process for NPDES  permits. Because nonpoint sources do not have NPDES permits, states  use a separate process to approve and verify that nonpoint sources’  pollution reduction activities have generated credits for trading. EPA Reviews Permits and Conducts Periodic Evaluations of Point Source Facilities to Ensure That Trading Is Consistent with the Clean Water Act

EPA oversees trading programs as part of its oversight of NPDES to  ensure that they are fully consistent with the Clean Water Act and its  implementing regulations, in particular when questions or concerns arise,  according to EPA policy. EPA officials told us that they conduct oversight  primarily through the regional offices, which (1) review NPDES permits;  (2) review and comment on state regulatory frameworks for trading; and  (3) evaluate point source facilities by collecting discharge information and  conducting periodic on-site inspections to ensure, for example, that  sampling and record keeping practices are in order. Additionally, EPA  headquarters provides national-level guidance and training to state  programs and stakeholders. The Presence of Discharge Limits and the Challenges of Measuring Nonpoint Sources’ Nutrient Reductions Affect Participation in Trading Programs, According to Stakeholders

Stakeholders cited two key factors that have affected participation in  nutrient credit trading—the presence of discharge limits for nutrients and  the challenges of measuring nutrient reductions resulting from nonpoint  sources’ implementation of BMPs. First, officials from the three states we reviewed, and other stakeholders  we interviewed, cited the importance of discharge limits for nutrients as a  driver to create demand for nutrient credit trading. Without such a driver,  point sources have little incentive to purchase nutrient credits. State officials and stakeholders also told us that even if a program allows  nonpoint sources to trade, point sources often prefer to trade with other  point sources because they have similar permit and monitoring  requirements and are both legally liable for meeting discharge limits. Appendix I: Objectives, Scope, and Methodology

This report (1) examines the extent to which nutrient credit trading  programs have been used and what the outcomes of the programs have  been, (2) describes how states and the Environmental Protection Agency  (EPA) oversee nutrient credit programs, and (3) describes what key  factors stakeholders view as affecting participation in nutrient credit  trading. From this list, we then selected a nongeneralizable sample of the three  nutrient credit trading programs—Connecticut, Pennsylvania, and  Virginia—which appeared to have done the most trading and had the  most participating point sources in 2014 for a more detailed examination. We also interviewed state and program officials  and other stakeholders, such as point source and nonpoint source credit  generators and buyers, to gather information on the programs, including  structure, participants, number and type of trades, authorizing  mechanisms, and outcomes.
Why GAO Did This Study

Nutrient pollution—caused by excess nitrogen and phosphorus entering water bodies—poses significant risks to the nation's water quality. Nutrients can enter water bodies from point sources and nonpoint sources. The Clean Water Act establishes the basic structure for regulating discharges of pollutants, including excess nutrients. Under the act, authorized states—assisted and overseen by EPA—set limits on nutrients impairing a water body and limits on point source discharges. EPA encourages states to use nutrient credit trading to address nutrient pollution. According to EPA, trading allows a point source to meet nutrient discharge limits by buying pollutant credits from a source that has reduced its discharges more than required.
GAO was asked to examine nutrient credit trading programs. This report describes (1) the extent to which nutrient credit trading programs have been used and what the outcomes of the programs have been, (2) how states and EPA oversee nutrient credit trading programs, and (3) what key factors stakeholders view as affecting participation in nutrient credit trading. GAO reviewed EPA documents and interviewed EPA officials to gather information on trading programs. GAO then selected a nongeneralizable sample of three programs with the most trades in 2014 (based on the most recent available data); reviewed program documents; and interviewed EPA, state, and program officials and other stakeholders about the programs.

What GAO Found

In 2014, 11 states had 19 nutrient credit trading programs, and trading provided flexibility for some point sources, such as wastewater treatment plants, to meet nutrient discharge limits, according to Environmental Protection Agency (EPA) data and officials. The majority of nutrient credit trading during 2014 occurred in three state programs—programs in Connecticut, Pennsylvania, and Virginia. A review of trading data from these programs showed that most point sources participating in the three state programs did not purchase credits in 2014 to meet their discharge limits, which are established in National Pollutant Discharge Elimination System (NPDES) permits under the Clean Water Act. For the point sources that did purchase credits in 2014, state officials in the three states told GAO that the total amount in pounds of nutrients that point sources purchased as credits was generally small. Nevertheless, state officials explained that nutrient credit trading was useful because it allowed point sources to manage risk, reduce the cost of compliance, and better manage the timing of upgrades of nutrient removal technology.
States oversee nutrient credit trading programs, and EPA helps ensure that programs are consistent with the act. States oversee nutrient credit trading programs by approving and verifying the generation of credits to ensure that credits represent real reductions in nutrient pollution. A state's approval and verification process varies depending on whether the credit generator is a point or nonpoint source, such as runoff from agricultural and urban areas. For point sources, the states GAO reviewed followed a process for verifying credits that is based on the existing oversight process for NPDES permits. Because nonpoint sources do not have NPDES permits, states use a separate process to approve and verify that nonpoint sources' pollution reduction activities have generated credits for trading. When questions or concerns arise, EPA uses its oversight authority to ensure that trades and trading programs are fully consistent with the act. EPA officials told GAO that they conduct oversight primarily through the regional offices, which (1) review NPDES permits, (2) review and comment on state regulatory frameworks for trading, (3) conduct periodic on-site inspections, and (4) provide national-level guidance and training to state programs and stakeholders.
According to stakeholders, two key factors have affected participation in nutrient credit trading—the presence of discharge limits for nutrients and the challenges of measuring the results of nonpoint sources' nutrient reduction activities. Officials from the three states GAO reviewed and other stakeholders cited the importance of discharge limits for nutrients as a driver to create demand for trading. Without such a driver, point sources have little incentive to purchase nutrient credits. The challenges of measuring nutrient reductions by nonpoint sources create uncertainties about the value of credits generated by nonpoint sources. In part, because of these uncertainties, the states GAO reviewed either did not allow nonpoint sources to trade or created special rules for nonpoint sources. State officials and stakeholders also told GAO that even if a program allows nonpoint sources to trade, point sources often prefer to trade with other point sources because they have similar permit and monitoring requirements.