Nutrient Trading in Virginia: Lessons from a Mature (and Maturing) - - PowerPoint PPT Presentation

Nutrient Trading in Virginia:

Lessons from a Mature (and Maturing) Program

North Georgia Water Resources Partnership

May 1 | 2019

Brown and Caldwell

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• Maturity: The Chesapeake Bay forced early adoption of

trading.

• Success: The program has been a keystone of TMDL

progress.

• Sophistication: A lot of science and accountability

behind the trades.

• Flexibility: Trades can go a lot of directions.
• Lessons learned: Why are some types of trades not

happening?.

Why Look at the Virginia Trading Program?

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Chesapeake Bay Watershed

Chesapeake Bay Fast Facts

• Nation’s largest estuary
• 200 miles long
• Drains parts of 6 states + DC
• Relatively shallow (average

depth 21 feet)

• Depth of up to 174 feet in

deep channel

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Chesapeake Bay – Historical Issues

• Water quality
• Oxygen
• Water clarity
• Algal blooms
• Loss of SAV
• Overfishing
• Disease

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Dissolved Oxygen Impairment

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• Adopted in 2010
• Actually 92 TMDLs (!)
• Driven primarily by DO

criteria

• Reductions
• Nitrogen (25%)
• Phosphorus (24%)
• Sediment (20%)
• Goal of complete

implementation by 2025

Chesapeake Bay TMDL

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Modeling Framework Used to Model Management Scenarios

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Required reductions high in more “effective” parts of watershed

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Clean Air rules (CAIR) NPDES permits MS4 Permits State regs. on new development CAFO permits Agricultural cost share programs Etc.

Elements of Implementation

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Point Source Nutrient Controls in Virginia

• Tribut

utar ary y Strat ategies gies establish sh loading ng goals

• Legisl

slation ation requ quirin ring g wat water ersh shed d general al permit

• Authori
• rize

zed d the Nu Nutrien ent t Credi dit t Exchan ange ge

2005

• VPDES Water

ersh shed d General al Permit t becomes s effecti tive

• n January

y 1, 1, 2 2007

2007

• Bay TMDL issue

ued d by EPA on December r 29, 2010

2010

• Effluent

ent limits ts in 2007 VPDES Watersh shed ed General al Permit t become e effecti ctive

2011

14

• Water

r Quality ty Impr mproveme ment nt Fund d Esta tablish shed ed to fund d nutrient trient reducti uction

• n stra

trateg egies es in the Chesa sape peak ake Bay wat watershe hed

1997

• Timing
• Let the big guys go first…or those already planning an upgrade
• Don’t all compete for the same consultants and contractors at
• ne time
• Operational flexibility in living under a cap
• Cost savings ($0.8 billion on a $2.2 billion program)
• Accommodate economic & population growth
• Market-based incentives
• Go beyond compliance (regulated sources)
• Achieve reductions from non-regulated sources

Perceived Benefits of Trading in ~2005

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Virginia’s Trading Program at a Glance

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Source: Baxter, 2015

Watershed Nutrient General Permit Highlights

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• Cap & trade program
• General permit overlays individual NPDES permits and

addresses nutrient loads only

• >150 facilities covered
• Calendar year annual TN and TP load limits
• “Bubbling” or aggregate permits allowed
• Sets conditions for nutrient credit transactions
• Other permit components
• Compliance schedules and plans
• Monitoring and reporting

WLAs based on stringent treatment at design capacity (3-8 mg/L TN, 0.3 – 0.5 mg/L TP)

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Trading Only Allowed within Major Basins

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Potomac Rappahannock York James Eastern Shore

Trades based on loads delivered to tidal waters

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Three Pathways of Point Source Compliance

• 1. Meet your individual WLA
• 2. Acquire point source credits

through the Exchange or independently

• 3. Acquire credits through the

Nutrient Offset Fund if no other

• ption is available

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• Voluntary association
• 73 owners of 105 treatment facilities, municipal and

industrial

• Consultant members (to pay for the beer)
• What they do:
• Facilitate trades
• Sets credit prices among its members
• Acts as clearinghouse – buys all generated credits and offers

cost-sharing from sales

• Annual accounting and compliance planning
• Virginia DEQ certifies annual compliance plans

Virginia Nutrient Credit Exchange

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Nutrient Credit Exchange Association

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Nutrient Credit Exchange Association

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Different Prices for Class A and Class B Credits Provide Incentive for Up-Front Commitments

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$

Class A Buyer $4 P / $2 N Exchange Buyer $6 P / $3 N Outside Buyer $8 P / $4 N Disbursement of Funds Class A Supply Pool A Pool / Total A Credits Class B Supply Pool B Pool / Total B Credits 90% 10%

Point Source Compliance Trades

• 2017
• 21 buyers

306,174 lbs of TN 1.9 % of WLA

• 28,073 lbs of TP

2.4 % of WLA

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Poin int Source ce Nutri rien ent t Red educti ctions

• ns

Primary Factors in Success of the Point Source Trading Program

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• Watershed general permit
• Expedient – one negotiation
• Common schedule of compliance
• Consistent requirements
• Formation of the Virginia Nutrient

Credit Exchange Association with voluntary membership

• Permittees given ownership of the

market and have embraced the program

Nonpoint Source Trading in VA

Reserved for accommodating new and expanding point sources only Guidance adopted in January 2008 First bank approved in July 2008

Soil conservation plan Nutrient management plan Cover crops Livestock exclusion w/ 35’ buffer 35’ riparian buffer

To generate NPS credits, farms must first meet baseline requirements

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Soil conservation plan Nutrient management plan Cover crops Livestock exclusion w/ 35’ buffer 35’ riparian buffer

Credits are generated from enhanced versions

• f the baseline practice

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Increase size Increase size Early planting date 15% N reduction

• n corn

Continuous no-till Land conversion

Credits can also be generated by stormwater retrofits (enhancements)

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• 2:1 trading ratio for NPS:PS trades
• 5% of credits are permanently retired
• Requires public or private broker; e.g.
• Nutrient bank
• Land conservation trust
• Agricultural cooperative
• Credits certified/authenticated on an annual basis

Other aspects of nonpoint source credits

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~125 banks in operation across state

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• Intended to address greater uncertainty in NPS

practices.

• Reduces incentive for trading
• Nationally, trading ratios range from 1.1 to >3
• “The use of appropriate models and verification

practices may reduce or eliminate the need for trading ratios…” EPA Memo on Trading Policy (2019)

2:1 nonpoint : point trading ratio has been controversial

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Type of Trade de Trad ades es Occurring rring or Plann nned ed? WWTP ➔ WWTP Yes WWTP ➔ MS4 Yes Agriculture ➔ new development Yes Agriculture ➔ WWTP No

How has NPS:PS trading actually worked?

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• Lack of demand
• Not a lot of new WWTPs
• Adequate capacity in existing WWTPs
• Credits available from other point sources
• Lack of (cheap) supply
• It takes a lot of land – a problem of scale
• 2:1 trading ratio
• NPS credit pricing driven by new development market (e.g.,

$20,000/lb P)

Why no NPS-to-PS trades?

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2017 Nutrient Trades

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Point Source to Point Source under Watershed General Permit

• 25 facilities acquired approximately 28,000 lbs of TP and

306,000 lbs of TN credits

• Several minor WLA trades
• Approximately $1,800,000 market value

Non-Point Source Credits Sold (Permanent Offsets)

• Approximately 900 lbs of TP with 5,400 lbs of TN retired
• Approximately $18,000,000 market value

~$10,000 – 24,000/lb P ~$6+/lb P

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Cost per pound escalates as treatment level increases

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Data Source: RTI International, 2012, Nutrient Credit Trading for the Chesapeake Bay: An Economic Study. Report prepared for the Chesapeake Bay Commission

$7.22 $24.78 $31.34 $14.45 $148.66 $156.72 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 8 N/ 1 P 5 N/ 0.5 P 3 N/ 0.1 P Incremen menta tal Cost t per Lb Removed Nitrogen Phos.

If you want agriculture➔WWTP trades…

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• Look for highly economical ag practices
• Lots of land opportunity
• Avoid high trading ratios
• Streamlined trading mechanism
• Consider other market forces
• Buyers might have to make it happen

Extra Slides

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Commonwealth of Virginia’s Chesapeake Bay ay Wat ater ershed hed Gen eneral eral Pe Permi mit

Puge get t So Sound nd Nutrient ent So Source rce Reduct duction ion Project ject Ma March ch 6, 2019 19 Forum um Me Meet eting ing Lacey, ey, WA

Allan an Brocke ckenb nbro roug ugh, h, VA DEQ EQ

Lessons Learned in Virginia

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• Nutrient and sediment reductions necessary in all sectors
• Wastewater, Agriculture, Regulated and Unregulated Urban,

Septic, Forest

• State and local funding is critical
• VA’s Water Quality Improvement Fund (WQIF)
• Local stormwater fee programs
• Wastewater reductions have been the most dependable

reductions and have “carried the load” under the Chesapeake Bay TMDL

• Watershed General Permit/Technology Regulation combined

with WQIF funding was instrumental in achieving timely and lasting nutrient reductions

• Point Source – to – Nonpoint Source trading is very difficult
• Large scale environmental restoration is possible!

Background on Chesapeake Bay Watershed

• Portions of 5 states and the District of

Columbia in 2 EPA regions lie within the Basin:

• 64,000 square miles watershed
• 11,684 miles of shoreline
• 200 miles long and 21 ft. deep on

average

• Significant portions of Chesapeake

Bay and its tidal tributaries are listed as impaired because of nitrogen, phosphorus, and sediment

• Home to over 18 million people
• Agricultural land use grew by

>100,000 acres between 2004 and 2014

• Largest land area per unit volume of

water of any estuary in the world

Submerged Aquatic Vegetation (SAV)

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Source: Virginia Institute of Marine Science

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Water Quality Impairments

• Dissolved Oxygen
• Water Clarity
• Submerged Aquatic Vegetation

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Bernie Fowler Sneaker Index

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Bernie Fowler Sneaker Index

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Chesapeake Bay Program History

• Origin

iginal al Chesap sapeak eake Bay Agreemen eement t (1 page)

• MD,

, PA, VA, , DC, EPA and chair air of CB Comm mmiss issio ion

• Signat

ator

• ries

ies becam ame e Ches esap apeak eake e Bay Executiv ecutive e Council il

1983

• First

st numer eric ic goals ls to redu duce e N and P by 40% % by 2000

1987

• EPA is sued

d for fa faili iling to requir ire e VA to devel elop

• p a TMD

MDL for Chesap esapeak eake e Bay

• Consen

sent t decree e mandat dated ed EPA develop elop TMD MDL by 2011 if VA did not

• t do so by

2010

1999

• Comprehen

rehensiv ive e agreemen reement t set et a clear ear visio ion and strat rateg egy for restor

• rati

ation

• n

effor

• rts

ts thru ru 2010

• 102 goals

als addre dress ssing ing pollut lutio ion redu ducti tion,

• n, habi

bitat tat rest stor

• rat

atio ion, , livi ving resou sources s protec ection, tion, land d use policies icies, , public lic engagem agemen ent, t, ecosy

• syst

stem em- based sed fisheri heries es manag ageme ement, t, et etc.

• NY and

d WV subseq sequen ently tly joined ed CB Partn tner ersh ship ip

2000

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Chesapeake Bay Program History cont.

• Recognizin

izing that t the 2010 deadline adline establ ablished ished in the e Chesap esapeak eake e 2000 Agreemen eement t wo would ld not

• t be met

et, the Bay partn tner ersh ship ip begins ins wo work on a Bay- wide de TMDL DL

2007

• EPA again

in sued d with th plain inti tiffs fs asser erting ting that at EPA wa was s legally ally req equir ired ed to estab ablish lish a TMDL DL

• Presid

siden ent t Obama ama issues es Exec ecutiv tive e Order der req equir iring ing develo elopme ment t of a feder deral al strat ateg egy to restor

• re

e Chesa sapea eake e Bay.

• Chesap

esapea eake e Exec ecutiv tive e Council il requir ires es 2-yea ear milest estones

• nes

2009

• 2009 lawsu

wsuit it set ettled tled requir iring TDML ML and d accoun

• untabi

tabili lity ty frame amewor

• rk
• TMDL

L issued ued

2010

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Elements of Trading Success

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• Equitable WLAs
• Water quality improvement fund
• Watershed general permit
• Expedient – one negotiation
• Common schedule of compliance
• Consistent requirements
• Permittees given ownership of the market

through the Exchange

• WWTP➔MS4 trades may be a huge cost

savings

Point Source Nutrient Controls in Virginia

• Tribut

utar ary y Strat ategies gies establish sh loading ng goals

• Legisl

slation ation requ quirin ring g wat water ersh shed d general al permit

2005

• VPDES Water

ersh shed d General al Permit t becomes s effecti tive

• n January

y 1, 1, 2 2007

2007

• Bay TMDL issue

ued d by EPA on December r 29, 2010

2010

• Effluent

ent limits ts in 2007 VPDES Watersh shed ed General al Permit t become e effecti ctive

2011

• Virgini

ginia reiss ssues es the VPDES S Water ersh shed ed Genera ral Permit t on Januar ary 1, 1, 2012

2012 & 2017

57

• Water

r Quality ty Impr mproveme ment nt Fund d Esta tablish shed ed to fund d nutrient trient reducti uction

• n stra

trateg egies es in the Chesa sape peak ake Bay wat watershe hed

1997

Dual Approach to PS Nutrient Control

• Watershed General Permit for the control of annual TN

and TP loads under the Chesapeake Bay TMDL (9VAC25-820)

• Annual load limits
• Trading allowed
• Technology based regulation for nutrient enriched

waters and dischargers within the Chesapeake Bay watershed (9VAC25-40-70)

• Minimum technology requirements for new or expanding

facilities

• Annual concentration limits based on nutrient removal

technology installed at any plant in CB watershed

• No trading

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Chesapeake Bay Hydraulic Model

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Chesapeake Bay Modeling Today

• Watershed Model
• Estuary Model
• Airshed Model
• Land Change Model
• Chesapeake Assessment Scenario Tool (CAST)

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DO Criteria Tailored to Aquatic Life Use

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• 13% of surface light

(freshwater-olighaline)

• 22% of surface light

(mesohaline-polyhaline)

• …or attain grass coverage

(biocriteria)

Water clarity criteria set to protect submerged aquatic vegetation

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Bay Designated Uses Refined in early 2000s

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Virginia Watershed-based Permit Benefits

• Environmental Benefits
• Quicker nutrient reductions from point sources
• Manages additional loadings from growth through offsets of loads

from new or expanding facilities

• Creates incentives for NPSs to meet load allocations
• BMP secondary benefits (e.g., habitat restoration, carbon sink)
• Benefits to Permittees
• Provides several different tools for achieving compliance
• More cost-effective approach than treatment upgrades only
• Allows for future growth as it eases costs and resource demands
• Benefits to Virginia DEQ
• More streamlined and efficient permitting

process

• Increased stakeholder support

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Poin int Source ce Nutri rien ent t Red educti ctions

• ns

Wastewater sector leads progress in Chesapeake Bay Restoration

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All Major Source Sectors Included

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Most NPS trades are permanent stormwater offsets

• Many small P trades to provide permanent

stormwater offsets to meet Virginia’s post construction P loading requirements under the Virginia Stormwater Management Program (VSMP)

• ~125 NPS banks with 7,100 lbs of permanent TP
• ffsets and 47,800 lbs of permanent TN offsets on

state registry

• Many small P trades – approximately 4,000 lbs of P

sold with retirement of an associated 27,600 lbs of N reductions retired (P serves as a proxy for N reductions under VSMP

Options for New or Expanded Sources

• Compliance credits from one or more permitted

facilities

• Purchase of WLAs from other sources (either short

term or permanent)

• Credits from nonpoint source best management

practices

• Credits through payments to Nutrient Offset Fund if no
• ther option available
• Allocations through other means approved by Virginia

DEQ on a case-by-case basis

• Acquire 5 years of offsets prior to permitting

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