Nutrient Trading and the Chesapeake Bay

1. Nutrient Trading and the Chesapeake Bay Paul K. Marchetti PENNVEST February 18, 2008

2. New York Pennsylvania Maryland Delaware West Virginia District of Columbia Chesapeake Bay Watershed Boundary Virginia PA’s Chesapeake Bay Drainage: Over 50 % of the land in PA drains to the Chesapeake Bay. The Susquehanna River is the largest tributary of the Chesapeake Bay, providing 90% of the freshwater flow to the upper bay and ½ the total flow into the Bay. PA’s Potomac provides an additional 2% of the Bay’s freshwater flow.

3. 1983- Governor Thornburgh signed the 1st Chesapeake Bay Agreement 1987- Governor Casey signed the 2nd Chesapeake Bay Agreement 1988- Developed 1st Ch. Bay Nutrient Reduction Strategy 1996- Issued 2nd Ch. Bay Nutrient Reduction Strategy 2000- Governor Ridge signed the Chesapeake 2000 (C2K) Agreement 2002- Ch. Bay Nutrient Reduction Strategy Updated 2004- Issued revised Tributary Strategy PA’s Chesapeake Bay Timeline:

4. 2005 – Maryland finalized new water quality standards October - Interim Final Trading Policy Published for comment December - House Resolution 2006- Ch. Bay Tributary Strategy Steering Committee Meetings (January- November) January - Senate Resolution 2006- Strategy Related Activities July- PS Alternative Allocation Strategy published for comment November-draft trading policy, appendix and three attachments published for comment December- policy, appendix and three attachments published as final 2007- Continued implementation of PS and NPS Strategies 2008- Continue implementation PA’s Chesapeake Bay Timeline(cont.)

5. PA’s Tributary Strategy/ Compliance Plan: • Essentially a spreadsheet tabulating over 40 practices that are known to reduce nutrients and that can be credited by the Chesapeake Bay model. • Most of the practices will occur whether or not there is a tributary strategy; the strategy allows us to measure our progress and devote resources to target the cost effective practices. • Identifies efforts for agriculture, wastewater treatment plants and urban management of stormwater and septic systems.

6. PA’s Reduction Goals:

7. How will PA reach its goals? Two Main Elements: • Point source reductions: 14% N and 22% P • Sewage Treatment Plants and Industry. • Nonpoint source reductions: 86% N and 78% P • Agricultural and urban BMPs

8. Point Source Reductions: • Cap loads on Nitrogen and Phosphorous must be placed in NPDES permits that meet downstream Water Quality Standards. • All of the point source nutrient loads were distributed among the existing point sources. • All new development with proposed nutrient loading increases must be offset by reductions in the watershed.

9. New or Expanding Discharge: • New Point Source • Zero Net Load – Options: • Land Application of Effluent With Crop Uptake • Recycle and Reuse of Effluent • Load Offsets • Purchasing Credits (Trading) • New On-lot Systems • No New Requirements • Connection to Existing Point Source • No New Requirements • Point Source Decision Whether It Can Meet Its Cap Loads

10. Nonpoint Source Reductions: • Expand Best Management Practices: • Nutrient management • Soil Conservation & Water Quality Plans • Animal waste management • Runoff control • Forest & grass buffers • Stormwater management

11. What is Nutrient and Sediment Trading? • Nutrient and sediment trading is an approach to improve water quality using market mechanisms to produce nutrient reductions at lower costs. • The voluntary trading program is an option for point or non-point sources that exceed their environmental obligations to earn credits that may be sold to others who desire nutrient reduction credits. • Cost per pound ranges from $1 for some agricultural practices, to $8-30 for some treatment processes, to thousands for some storm water controls.

12. Who will Trading Work for: • Trading can work for everyone, but it’s value depends on the generator of credits and the facility or developer needing the credits. • Two main groups that we expect to purchase credits are developers and wastewater treatment facilities. • There are many options which are limited only by creativity, imagination and doing business as usual.

13. Is trading a long or short-term solution? • It can be either. Credit generating practices have a life span varying from 1 to 15 years. • Depending on individual needs, credits can be generated and purchased to meet requirements for both the long and short-term. • Model agreements will be available – like any agreement, for operation services or energy purchase, length of contracts, price and security are negotiated.

14. What else should be consider if one is interested in trading? • Infrastructure needs – in many cases, trading can reduce the need for plant upgrades. • Timing – if an upgrade may be needed, but not immediate, one may wish to consider trading initially to bridge the gap until an upgrade is really warranted. • Uncertainty – local nutrient impairments may require further reduction in the future; trading or phased upgrade plus trading lets one “wait and see”.

15. What is a credit? • Credit = Unit of Trade. • Expressed as mass/per unit time (lbs/yr). • Generated and traded in the same watershed. • Total phosphorous and/or total nitrogen reduction credits. • Nitrogen and phosphorous reductions TO THE BAY beyond baseline and threshold requirements. • All trading must involve comparable credits (nitrogen for nitrogen).

16. DEP is responsible for: • Oversight and management of the Pennsylvania nutrient and sediment reduction credit program. • Policy Decisions on issues such as: • Certification • Verification • Registration • May elect to delegate responsibility to Third Parties (audits and credit verification).

17. Recent Activities: • 37 proposals have been submitted and 27 have been certified: • HRG/Milton Regional Sewer Authority, PS Credits • Mount Joy Borough Sewer Authority, NPS Credits • Red Barn Trading Company, Aggregator of NPS Credits • Berks County Conservation District, Aggregator of NPS Credits • Chesapeake Nutrient Management, Aggregator of NPS Credits • Bion Environmental Technologies Inc, Aggregator of NPS Credits • Total Credits Certified: • 476,359 N • 57,996 P • 129 S

18. 3 Contracts have been entered into: 1 Local Project: Mount Joy Borough Authority will meet compliance through a combination of local activities and a partial upgrade. 2 Developer Projects: Red Barn Trading Company signed contracts with developers which will use the credits for NPDES permit compliance. Additional Projects: Antrim Township- looking at ways to generate credits locally to offset growth pressures. Digester’s- to process manure to generate credits and produce a number of bi-products (concrete ash, energy, biomass etc). Integrated Water Resources, Source Water Protection Recent Activities:

19. The Challenge • Point sources want a credit that is comparable in certainty, both in price and availability, to a physical plant upgrade. • In order to provide such a credit, we need to be able to guarantee that nutrient reductions will take place for 20 years at a certain cost. • In order to this, we need a portfolio of credits that can be drawn upon now and in the future. • To date, no entity has developed such a portfolio, but some are starting to move in that direction.

20. Where to go for more information: DEP’s Chesapeake Bay Website: http://www.dep.state.pa.us Keyword:”Chesapeake Bay” DEP’s Nutrient Trading Website: http://www.dep.state.pa.us Keyword:”Nutrient Trading”