Water Quality Trading in New Jersey (USA): A Watershed-Scale Approach to Reduce

1. References Water Quality Trading in New Jersey (USA): A Watershed-Scale Approach to Reduce Aggregate Discharge of Total Phosphorus from Wastewater Treatment Plants Christopher Obropta, Ph.D., P.E., and Josef Kardos, Department of Environmental Sciences, Rutgers University www.water.rutgers.edu/Projects/trading/Passaic Trading and Water Quality “Hot Spots”: Concerns and Solutions Abstract The New Jersey Department of Environmental Protection (NJDEP) is developing a Total Maximum Daily Load (TMDL) which will set phosphorus load allocations for point and nonpoint sources in the Non-Tidal Passaic River Basin (area: 1733 km2). The most immediate impacts will fall on 24 of the largest wastewater treatment plants (WWTPs) in the basin. Most WWTPs will likely have to significantly reduce phosphorus effluent concentrations at great expense to meet anticipated TMDL waste load allocations. Water quality trading is a market-based mechanism to increase the cost-effectiveness of TMDL implementation. A multi-disciplinary team of Rutgers University and Cornell University faculty, with expertise in water quality modeling, wastewater treatment, environmental policy and environmental economics, are working together with USEPA, NJDEP, local municipalities and WWTPs, and environmental non-governmental organizations (NGOs) to design, implement, and evaluate a phosphorus trading program for the Non-Tidal Passaic River Basin. Results from the project design phase are presented. The development of a trading framework that addresses trading ratios, trading boundaries, and the avoidance of pollution “hot spots” are discussed. The results from economic modeling of simulated trades are also reviewed. • Trades that create “hot spots” – localized areas of unacceptably high pollutant levels – must be avoided. • In trading, because the buyer is exceeding its allocation, pollutant levels will increase downstream of the buyer. • How does the project ensure that hot spots will not develop downstream of buyers? • Trading ratios are applied to each transaction to account for fate and transport effects. Ratios are calculated by comparing TP attenuation from each point source relative to downstream locations. In Figure 1, TP summer attenuation coefficients at Dundee Lake (PA-11) are 60% and 50% from Upper Passaic Zone 1 and Troy Hill Zone, respectively. Therefore, the trading ratio is 0.5/0.6 = 0.83 (if seller is upstream). If the buyer needs 500 kg of credits, the seller must generate 600 kg of credits to satisfy the ratio. A table of trading ratios has been calculated for all WWTPs in the watershed. Figure 1: Phosphorus attenuation from two point source zones in the watershed • Trades are restricted and conducted within a framework that prevents the creation of trading hot spots. • Trading Framework Option 1: No trading across tributaries • Aims to protect all reaches; assumes excessive TP anywhere is a water quality concern • Trading boundaries: Seller must be upstream of buyer • Simple to implement; less opportunities to trade; most conservative water quality protection strategy • Trading Framework Option 2: Management Area approach • Aims to protect TMDL endpoints; assumes excessive TP is only a water quality concern at the endpoints (Dundee Lake and Wanaque Reservoir) • Trading boundaries: Group WWTPs into “management areas”. See Figure 2. • More opportunities to trade; slightly more complex to implement; sampling and modeling studies indicate this approach correctly identifies potential hot spots and would protect water quality. Figure 3: Wastewater treatment plants in the Non-Tidal Passaic River Basin Watershed figures: 1733 km2 area Approximately 2 million people Predominantly forest (42%), urban (40%) and wetlands (12%) land use / land cover 23 reservoirs including NJ’s largest – Wanaque Reservoir Introduction • The non-tidal portion of the Passaic River Basin encompasses 2080 km2, with 1733 km2 of the watershed in New Jersey (NJ) and the remainder in New York. • 23 reservoirs, which provide potable water to 25% of NJ residents (i.e., 2 million people), are located within the Non-Tidal Passaic River Basin. • Includes the Wanaque Reservoir, the largest potable water source in NJ (capacity: 138.5 billion liters) • Surface water quality standards for nutrients, dissolved oxygen, pH, temperature, pathogens, metals and pesticides are often exceeded in the watershed. • Over 320 stream km are impaired due to total phosphorus (TP) concentrations in exceedance of 0.1 mg/l (NJDEP, 2005a). • There are 19 wastewater treatment plants within the watershed that are each permitted to discharge more than 3.8 million liters per day of treated effluent. These treatment plants contribute the majority of the phosphorus load to the watershed (NJDEP, 2005b). Economic Modeling • Cornell University team developed economic model to identify trading scheme that can best minimize treatment costs (Sado, 2006). • Model uniquely includes marginal abatement costs and incremental capital costs • Considered multiple scenarios based on potential TMDL allocations and trading zones • Key Findings: • Sufficient incentives for limited but important multi-year bilateral or trilateral deals • A phased in TMDL cap will reduce costs of TMDL implementation because it allows flexibility in the timing of capital investments Trading Framework Option 2: Schematic Holmdel Park, 2003 Need for Water Quality Trading Legend Management Area boundary Endpoint River / tributary • Phosphorus loading from point and nonpoint sources within the Non-Tidal Passaic River Basin must be addressed to restore its water quality. Excess phosphorus in freshwater bodies can cause eutrophic conditions, e.g. algal blooms, depleted oxygen levels, and even fish kills. • A TMDL for phosphorus is being developed for the non-tidal Passaic River Basin due to exceedances of NJ’s water quality criteria for TP (0.1 mg/l in freshwater streams; 0.05 mg/l in lakes). • The TMDL will establish waste load allocations for phosphorus in the watershed. It is likely that all point sources will be required to reduce phosphorus loading to the Passaic River. Upgrading each WWTP to meet its TMDL allocation will be very costly. • Water quality trading is based on the premise that sources in a watershed can face very different costs to control the same pollutant.A trading program allots a certain number of pollution credits to each source in the watershed. The sources can either discharge under their limit and sell their credits, or discharge over their limit and purchase credits. The net effect will be to improve water quality in the watershed at a lower cost than making each individual pollutant source upgrade effluent treatment to meet its discharge limit. • The Passaic situation is ideal for a water quality trading program: • Presence of a market driver - stringent TP criteria • Presence of a TMDL - TMDL allocations provide a cap, and can be used to identify potential trading opportunities within the watershed • High quantity of point sources and potential program participants: 24 WWTPs and 89 municipal separate storm sewer systems (MS4s). Conclusions Wanaque Reservoir • Water quality trading has potential to reduce aggregate discharge of total phosphorus from wastewater treatment plants in the Non-Tidal Passaic River Basin, in turn decreasing the frequency and severity of algal blooms in the watershed. • Hot spot issues will be avoided through application of trading ratios; careful selection of a trading framework will ensure that trades protect and improve water quality • Economic modeling indicates that although market size is limited, important multi-year bilateral or trilateral deals can be achieved which will reduce costs of TMDL implementation for parties involved. A phased in TMDL cap will enhance trading through increased flexibility in timing of capital investments. • Upon release of official TMDL allocations, various trading scenarios will be simulated and evaluated from a water quality and economic standpoint. • A monitoring strategy is in development to study the effects of actual trades and facilitate adaptive management. Pompton M.A.: 3 WWTPs Dundee Lake endpoint Upper Passaic M.A.: 16 WWTPs Lower Passaic M.A.: 3 WWTPs Dundee Lake Wanaque South intake endpoint Figure 2: Schematic of management areas • Each management area (M.A.) is bounded by a TMDL endpoint. The endpoint is the only potential hot spot in the management area. • Within each management area, bidirectional trading is allowed; sellers can be downstream of buyers and vice versa. • Inter-management area trading: • Upper Passaic M.A. can sell to Lower Passaic M.A. • Pompton M.A. can sell to Upper and Lower Passaic M.A.’s Acknowledgments The authors wish to acknowledge Dr. Richard Boisvert, Dr. William Goldfarb, Dr. Greg Poe, Dr. Peter Strom, Dr. Christopher Uchrin, Mehran Niazi, Yukako Sado, USEPA, NJDEP, the Passaic River Basin Alliance, and TRC Omni Environmental Corp. for their involvement in this multidisciplinary research effort. The research was supported by a USEPA Targeted Watershed Grant. New Jersey Department of Environmental Protection (NJDEP) 2005a. New Jersey 2004 Integrated Water Quality Monitoring and Assessment Report (305(b) and 303(d)). Water Assessment Team, Trenton, New Jersey. New Jersey Department of Environmental Protection (NJDEP) 2005b. Amendment to the Northeast, Upper Raritan, Sussex County and Upper Delaware Water Quality Management Plans: Phase I Passaic River Study, Total Maximum Daily Load for Phosphorus in Wanaque Reservoir, Northeast Water Region. Division of Watershed Management, Trenton, New Jersey. Sado, Y., 2006. Potential Cost Savings from Discharge Permit Trading to Meet TMDLs for Phosphorus in the Passaic River Watershed. Master’s Thesis, Cornell University, Ithaca, New York. Ramanessin Brook, 2003