04.01.2008 Recent Ninth Circuit Decision Casts Doubt on Water Quality Trading Programs in Impaired Waters NC Bar Association Energy & Natural Resources Law Section Newsletter; Vol. 19, No. 3
Reproduced with the express and limited permission of the North Carolina Bar Association. All rights reserved.

A recent decision by the United States Court of Appeals for the Ninth Circuit could have a significant impact on the trading of pollutant credits in connection with obtaining CWA discharge permits. The permit at issue in the case would have allowed a proposed copper mine to discharge wastewater into a creek that did not meet applicable water quality standards (otherwise known as an “impaired water”). EPA had granted the permit because the mine operator had obtained pollutant offsets for the pollutants it wished to discharge. The Court, however, held that EPA cannot authorize a new discharge into an impaired waterbody on the basis of pollutant offsets unless the owner or operator of the new discharge satisfies two regulatory criteria in 40 C.F.R. § 122.4(i) prior to close of the public comment period on the draft permit. Specifically, the permittee must establish:

  1. There are sufficient remaining pollutant load allocations to allow for the discharge; and
  2. The existing discharges into the relevant segment of the waterbody are “subject to compliance schedules designed to bring the segment into compliance with applicable water quality standards.”

Because EPA had not created a “plan or compliance schedule” to bring Pinto Creek into compliance with the water quality standards, the Court concluded that EPA could not issue a NPDES permit for the proposed discharge. The Court said that “[t]he objective of [Section 122.4(i)] is not simply to show a lessening of pollution, but to show how the water quality standard will be met if the [permit applicant] is allowed to discharge pollutants into the impaired waters.”

Importantly, the Court’s analysis did not end with the need to establish the two requirements of Section 122.4(i). The decision went on to hold that in order for EPA to be able to issue a NPDES permit for new discharges to an impaired water, permit applicants must be able to demonstrate that all point source – and, if necessary, non-point source – discharges to the waterbody are subject to schedules of compliance. Even though EPA lacks jurisdiction over non-point source discharges, the Court held that states can – and must – assume control over those discharges and implement compliance schedules in order for EPA to be able to grant a NPDES permit for discharges into an impaired water. The Court also held that all point-source discharges must be subject to a plan of compliance to satisfy Section 122.4(i), as opposed to all permitted point-source discharges. In other words, if there are unpermitted, point-source discharges into an impaired water, EPA cannot issue a permit authorizing an additional, new discharge into that water until the agency brings the existing dischargers into compliance with the Clean Water Act.

The decision may represent a substantial impediment to the use of EPA’s Water Quality Trading Policy (the “Policy”) in impaired waters. Under the Policy, EPA allows the owner or operator of a discharge to receive credit for reductions in the total amount of pollutants discharged from another source through a credit trading program. The agency permits such credit trading on the theory that it may be more cost effective to achieve pollutant reductions at one facility than it is at another. In the context of new discharges into an impaired water, credit trading allows a permit applicant to secure reductions in pollutant discharges from other facilities that are sufficient to allow a new facility to discharge into the impaired water without increasing the total pollutant load. As a consequence, overall water quality remains about the same, but it does not necessarily improve.

As noted above, the Ninth Circuit rejected this approach in Pinto Creek because it concluded that Section 122.4(i) requires more than simply showing a reduction in pollution within an impaired water. Rather, the permit applicant must demonstrate how the waterbody will still be able to achieve compliance with the water quality standards. Given that EPA and the states have not implemented such far reaching controls and compliance schedules for many impaired waters, the Ninth Circuit’s approach raises substantial barriers to obtaining a new NPDES permit for an impaired water.


While the Fourth Circuit has not adopted a similar interpretation of Section 122.4(i), the decision is troubling given the state of implementation for the Total Maximum Daily Load Program throughout the country. New facilities may find it substantially more difficult, if not impossible, to obtain NPDES permits in industrialized areas. An unintended consequence may be that industries must locate new facilities in previously undeveloped locations to be able to discharge to a receiving water. That outcome would seem to turn the regulatory scheme on its head.

Friends of Pinto Creek v. EPA, 504 F.3d 1007 (9th Cir. 2007).