Monday, January 5, 2015

In Praise of Nutrient Trading in Virginia

In mid-December Virginia Governor Terry McAuliffe, U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy and the Secretary of Agriculture all gathered in Fairfax County Virginia to applaud the expansion of the Virginia Nutrient Trading Program to meet the requirements of the U.S. EPA approved and mandated Watershed Implementation Plan. The nutrient trading program is an appealing, flexible and cost effective way to meet and maintain water quality goals. So, let’s back up and explain what is going on.
Volunteers in planting trees to reduce erosion along a stream

The Chesapeake Bay and its tidal waters have been impaired by the release of excess nitrogen, phosphorus and sediment. The EPA mandated a contamination limit called the TMDL (total maximum daily load for nutrient contamination and sediment) to restore the Chesapeake Bay and its tributaries. The TMDL sets a total Chesapeake Bay watershed limits for nitrogen, phosphorus and sediment that was about a 25% reduction from 2011 discharge levels for the six Chesapeake Bay watershed states and Washington DC. The pollution limits were then partitioned to the various states and river basins based on the Chesapeake Bay computer model and monitoring data. Each of the states and Washington DC were required to submit and have approved by the EPA a detailed plan of how they intend to achieve the pollution reduction goals assigned to them. These plans are called the Watershed Implementation Plans, WIPs. The Virginia WIP outlines a series of pollution control measures and strategies on how we are going to achieve and fund the pollution control necessary to meet the EPA mandate.

One of the key strategies was expansion of the Virginia’s successful nutrient trading program. Legislation passed in 2005 created the Chesapeake Bay Watershed Nutrient Credit Exchange Program and provides Virginia’s regulated pollution sources in the Bay watershed with the opportunity to meet required nutrient reductions through trading. The legislation also allows “point sources” like waste water treatment plants to purchase nutrient reductions from “nonpoint” sources like farms to offset new or increased nutrient discharges in excess of established load caps. Until recently the program had primarily been used by waste water treatment plants to offset the additional pollution loads from population growth. The Virginia nutrient trading program is based on the successful cap and trade program that was created to comply with the Clean Air Act’s Acid Rain Program limits for sulfur dioxide.

Virginia has managed to find other ways to utilize nutrient trading to reduce compliance costs for large point and non-point generators of nutrient contamination. The example cited by EPA Administrator McCarthy was the Virginia Department of Transportation (VDOT) who used banked pollution credits generated from farmers implementing Best Management Practices and riparian buffer stream bank plantings to off-set storm water pollution during road construction under increased Federal and State stormwater regulations that would have required building stormwater retention ponds and sediment filters for each construction section. VDOT did install permanent stormwater management infrastructure (using both traditional stormwater management and low impact strategies for the completed road, but using traded credits allowed them to avoid the wasteful building of temporary structures for the construction process yet reduce stormwater pollution on streams during construction.

Waste water treatment plants have predominately treaded among themselves. New expanded waste water treatment plans trade the excess credits that result for years after an expansion until the community “grows” into the plant, while those plants that have outgrown their facilities or need to meet more stringent standards by the credits. Some waste water treatment plants also created multi-year contracts with farmer to install nutrient reduction Best Management Practices during periods before expansion and improvement projects to meet tighter regulation or growth in the population served. There are critics of the program who oppose pollution trading because it allows polluters to buy their way out of controlling their pollution or restoring their degradation. The critics see only that entities are paying to pollute. However, with a growing population only a trading program can provide a framework to offset the inevitable additional pollution loads that come with more people.

Some critics are concerned about the potential for fraud or abuse. However, as you can see in the examples cited above this strategy allows for offsetting a short lived environmental impact without a huge and ultimately wasteful capital expenditure. There are limits to resources including capital, and a trading framework allows for cost effective temporary or longer term solutions. In the examples above in Virginia the permitted entity is required to verify and report the offset credits. Since most permitted facilities are VDOT, public waste water treatment plants and municipalities with storm water permits one hopes their veracity can be depended on to a greater extent and they have the ability to partner with Conservation Districts who have the expertise to evaluate the Best Management Practices in place.

Virginia’s Chesapeake Bay Watershed Nutrient Credit Exchange Program requires a level of Best Management Practice implementation called for in the nutrient tributary strategies to achieve nutrient reductions. You must achieve this level of nutrient reduction (known as the baseline) before you are allowed to generate and sell offsets to potential trading partners. Once the baseline level of nutrient reductions is achieved, additional reductions using approved Best Management Practices or land use conversions are eligible to generate offsets for trading. Cost share dollars can be used to implement the BMPs that achieve the baseline, which must be completed on the entire USDA Farm Services Agency tract before generating tradable credits. The program uses the incentive of earning additional dollars and cost share to further push all farmers to implement Best Management Practices on all their lands.

For a trading program to succeed there needs to be a regular and predictable demand for credits and a fairly straightforward and simple way to obtain the needed credits. Realistically the program will be limited to meeting the compliance needs of county and township stormwater permits, VDOT construction projects and if counties participate in facilitation and mandate the use then for construction projects large and small. The need for credits could be reasonably projected by county staff.

To allow for future population growth there might be a permanent demand for offsets by newer communities. The annual payments, maintenance of Best Management Practices or and use conversions and verifications could be funded by homeowner association fees. Every acre of development requires many more acres of supporting infrastructure development, schools, roads, shopping centers, churches, and public buildings. All this development increases runoff and additional nitrogen, phosphorus and sediment loads from sewer and septic systems and stormwater runoff from pavement and yards. Virginia has plans to “seed” the program to install some eligible credits in the Water Quality Improvement Fund for each watershed. In order for this to work the Conservation Districts in each watershed must have adequate funding, training and incentives. The dollars spent on these programs are the cheapest way to comply with the EPA mandate and cleanup our rivers and streams.

Full disclosure: In another part of my volunteer work I am a Director of the Prince William Soil and Water Conservation District. You should check out all that the Conservation District does at their web site.

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