Nutrient Trading: Principles and Issues April 7, 2006 presentation to Potomac Watershed Roundtable.
EPA National Forum on Water-Quality Trading July 22, 2003 Chicago, Illinois Nutrient Trading in...
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Transcript of EPA National Forum on Water-Quality Trading July 22, 2003 Chicago, Illinois Nutrient Trading in...
EPA National Forum on Water-Quality Trading
July 22, 2003Chicago, Illinois
Nutrient Trading in Maryland(and Its Neighbors?)
I say, the time has come...
Saving the Chesapeake Bay
Chesapeake Bay Watershed
Slide Courtesy of Lisa Bacon, CH2M Hill
The Chesapeake Bay Program
Historically a Voluntary, Cooperative Effort by:
Maryland
Virginia
Pennsylvania
District of Columbia
U. S. Environmental Proctection Agency
Chesapeake Bay Commission
1983 Chesapeake Bay Agreement
1987 Amendments
1992 Amendments
2000 Amendments
Chesapeake Bay Program Goals(Original)
Restore Living Resources Submerged Aquatic Vegetation, Shellfish, Fish
Nutrient LoadingsReduce “Controllable Nutrient Loads by 40% by 2000, and then Hold Them There
Dissolved OxygenReduce “Anoxic Volume Days” by Twenty Percent
Maryland Tributary Strategy Approach
Nutrient Goals for Ten Subwatersheds
For POTWs: Nitrogen Goal of 8 mg/l Annual AverageYear-Round Operation50 Percent Cost Share
For Agricultural & Urban NPS:Programmatic GoalsNo Jurisdictional Specificity
No Mass Load Limits
No “Cap” Strategy
2000 Progress
Baywide Nitrogen Reductions, 1985 - 2000
338
285
0
50
100
150
200
250
300
350
400
1985 2000
Mill
ion
Po
un
ds
pe
r Y
ea
r
2000 Progress
Baywide Phosphorus Reductions, 1985 - 2000
27
19
0
5
10
15
20
25
30
1985 2000
Mill
ion
Po
un
ds
pe
r Y
ea
r
2000 Progress
Maryland Nitrogen Reductions, 1985 - 2000
83
57
0
10
20
30
40
50
60
70
80
90
1985 2000
Mill
ion
Po
un
ds
pe
r Y
ea
r
2000 Progress
Maryland Phosphorus Reductions, 1985 - 2000
6.8
3.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1985 2000
2000 Progress
Maryland Nitrogen Reduction by Sector1985 - 2000
31 32
127
16
21
14
7
0
5
10
15
20
25
30
35
Point Ag NPS Urban NPS Other
Mill
ion
Po
un
ds
pe
r Y
ea
r
1985 2000
Meanwhile, the Scientists and Regulators Have Been Very Busy...
Model Improvements
New Water-Quality StandardsDissolved OxygenClarityChlorophyll a
New Goals
Baywide Nitrogen Goal
338
285
175
0
50
100
150
200
250
300
350
400
1985 2000 Goal
Mill
ion
Po
un
ds
pe
r Y
ea
r
Maryland Nitrogen Goal
83
57
37
0
10
20
30
40
50
60
70
80
90
1985 2000 Goal
Mill
ion
Po
un
ds
pe
r Y
ea
r
Baywide Phosphorus Goal
27
19
13
0
5
10
15
20
25
30
1985 2000 Goal
Mill
ion
Po
un
ds
pe
r Y
ea
r
Maryland Phosphorus Goal
6.8
3.8
2.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1985 2000 Goal
Allocation Methodology
Second, Allocation by Major Tributary
First, Selection of Baywide Load
Potomac & Above:
Susquehanna
Potomac
Western Shore - MD
Eastern Shore - MD
Patuxent
Lower Tributaries:
Rappahannock
York
James
Western Shore - VA
Eastern Shore - VA
Allocation Methodology
Second, Allocation by Major Tributary
Third, Allocation by Major Tributary and State
First, Selection of Baywide Load
The Maryland “Four”
Potomac
Patuxent
Maryland Western Shore
Maryland Eastern Shore
Allocation Methodology
Second, Allocation by Major Tributary
Third, Allocation by Major Tributary and State
First, Selection of Baywide Load
Fourth, Maryland Allocation by Sub-Watershed
The Maryland “Ten”
Upper Potomac
Middle Potomac
Lower Potomac
Patuxent
Patapsco/Back River Upper Western Shore
Lower Western Shore
Upper Eastern Shore
Lower Eastern Shore
Choptank
Allocation Methodology
Second, Allocation by Major Tributary
Third, Allocation by Major Tributary and State
First, Selection of Baywide Load
Fourth, Maryland Allocation by Sub-Watershed
Fifth, Develop Tributary Strategy
Well?
The Necessary Elements Are All in Place
DriversBenefits
Precedents
Tools
Drivers
Tradable Pollutants - Nitrogen and Phosphorus
Widespread Interest in Trading by POTWs and Others
Readily Measurable and Quantifiable
Mainly Far Field Effects
Drivers
Removal Cost Differentials Between Individual Point Sources
Removal Cost Differentials Between Point and Nonpoint Sources
A “Soft” Cap for Nonpoint Sources
A Defined Cap for Point Sources
(Enhanced Nutrient Reduction Strategy)
Enhanced Nutrient Reduction Strategy for Point Sources
Design Goals: “Limit of Technology”Nitrogen - 3 mg/lPhosphorus - 0.3 mg/l(Annual Average Concentration)
Enhanced Nutrient Reduction Strategy for Point Sources
Federal/State Grant FundingPlanning 87.5 %Design 75%Construction 50%
Calls for Nutrient Trading(In Some Unspecified Manner)
“Load Goal”
Annual “Load Goals” Defined for Each POTW
Statewide Aggregate Annual “Load Goal”
Nitrogen 10.5 Million PoundsPhosphorus 830,000 Pounds
Annual “Load Goals” Based on Design Capacity and 4 mg/l
“Load Goal” Based on 4 mg/l and Design Capacity
Maryland Allocation of Nitrogen Goal?Million pounds per Year
10.5
26.7
Point Other
28 Percent of State Load Allocated to Point Sources
“Load Goal” Based on 4 mg/l and Design Capacity
28 Percent of State Load Allocated to Point Sources
Maryland Allocation of Phosphorus Goal?Million Pounds per Year
0.8
2.1
Point Other
“Load Goal”
“Load Goal” Allocation
Allocation Cap Individual WWTPs Statewide PS Total
Cap Cap and Trade!
Benefits
Earlier Nutrient Reductions
Lower Annual Capital Funding Needs
Lower Overall Capital Cost
Demonstrated Beneficial Economics
Benefits
Nitrogen Credit Trading in Maryland: A Market Analysis for Establishing a Statewide Framework
by
Lisa Bacon and Norm PearsonCH2M Hill
Water Environment Research Foundation
Trading can save $9 - $12 million/yr vs. the base case
Slide: Lisa Bacon, CH2M Hill
Percent savings by tributary:Point-Point Only
Slide: Lisa Bacon, CH2M Hill
Percent savings by tributary:Point-Point & Point-Nonpoint
Slide: Lisa Bacon, CH2M Hill
Bottom line on trading in Maryland (for now):
Trading could offer savings between 8% and 60% at the tributary level, reducing total cap compliance costs by 19% to 27% for 65 POTWs
Slide: Lisa Bacon, CH2M Hill
Bottom line on trading in Maryland (for now):
Trading could offer savings between 8% and 60% at the tributary level, reducing total cap compliance costs by 19% to 27% for 65 POTWs
Most cost-effective solution does not involve all POTWs upgrading to the same treatment level
Slide: Lisa Bacon, CH2M Hill
Bottom line on trading in Maryland (for now):
Trading could offer savings between 8% and 60% at the tributary level, reducing total cap compliance costs by 19% to 27% for 65 POTWs
Most cost-effective solution does not involve all POTWs upgrading to the same treatment level
Capacity to generate a sufficient supply of credits from point and nonpoint sources appears sufficient for robust, successful market
Slide: Lisa Bacon, CH2M Hill
Bottom line on trading in Maryland (for now):
Trading could offer savings between 8% and 60% at the tributary level, reducing total cap compliance costs by 19% to 27% for 65 POTWs
Most cost-effective solution does not involve all POTWs upgrading to the same treatment level
Capacity to generate a sufficient supply of credits from point and nonpoint sources appears sufficient for robust, successful market
Results depend on willing buyers and sellers and their ability to find each other
Slide: Lisa Bacon, CH2M Hill
Benefits
Earlier Nutrient Reductions
Lower Annual Capital Funding Needs
Lower Overall Capital Cost
Demonstrated Beneficial Economics
Potential for Multiple Benefits from a Single Trade
Precedents
Similarities to Successful Trading Programs
Connecticut Long Island Sound Nitrogen Trading
Tar-Pamlico Trading Association
Neuse River Compliance Association
Tools
An Outstanding Water-Quality Analytical Framework
Chesapeake Bay Program Nutrient Trading Framework and Guidelines
Viable Trading Program Design Options
A Supportive EPA and a National Trading Policy
Fundamental Issues
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Fundamental Issues
State Control Versus Market Forces
Waste Control Flexibility*
Exchange Flexibility*
*Shabman and Stephenson, 2003
Fundamental Issues
How to Incorporate Point - Nonpoint Source Trading
The Nonpoint Dilemma
Initial Load = 7 + 8 = 15
The Nonpoint Dilemma
Point Sources Reduce by 4
The Nonpoint Dilemma
Point Sources Reduce by 4
The Nonpoint Dilemma
Nonpoint Sources Can Reduce by 5
The Nonpoint Dilemma
Point Sources Experience Rapid Growth and Hit Cap
The Nonpoint Dilemma
Point Sources Then Compete for NPS Credits with State Cost-Share Programs
The Nonpoint Dilemma
Final Load = 6 + 3 = 9
Fundamental Issues
How to Incorporate Trading
into
Tributary Strategies
General Conceptual Models
State-Directed “Trading”
POTWs Assigned Goals to Be Achieved over 15 Years
Connecticut Long Island Sound Nitrogen Trading
State Ranked POTWs for Priority BNR Funding
Grant Award Schedule Follows Priority List
Higher Ranked POTWs Install BNR
Other POTWs Must Buy Credits from BNR POTWs
State Sets Price for Credits
Some POTWs Will Never Receive Grants or Install BNR
General Conceptual Models
POTW “Freelancers”
Individual POTWs Given Permit Limits
Boise River Phosphorus (Rahr Malting?)
Individual POTWs Can Purchase Credits to Comply with Permit Limits
From Other POTWs
From Nonpoint Sources
Other POTWs Must Buy Credits from BNR POTWs
Trades Incorporated in Permits, Including BMP Requirements
General Conceptual Models
POTW Trading Association
Association Assigned a Cap To Be Met by Members as a Whole
Tar-Pamlico and Neuse River Basins
Waste Control and Exchange Flexibilities Among Members
Association Can Purchase Credits from State if Necessary
Best Fit?
Trading Associations
Based on Major Tributaries
Potomac No. WWTPs 28 Capacity 315, 0.5 - 170 Median 1.5
Patuxent No. WWTPs 9 Capacity 88, 2 - 30 Median 6
Maryland Western Shore No. WWTPs 17 Capacity 328, 0.6 - 180 Median 3.3
Maryland Eastern Shore No. WWTPs 19 Capacity 41, 0.5 - 8.5 Median 1.3
Potential Maryland Trading Associations
Size Distribution of Maryland Wastewater Treatment Plants71 WWTPs with Capacity of 0.5 MGD or Greater
Best Fit?
Trading Associations
Based on Major Tributaries
Start with Point - Point Trading
ENR Cost-Share Grants
Incrementally Add Point - Nonpoint Trading
Incrementally Add Interstate Trading?
Best Fit?
Trading Associations
Integrating Grants into the Trading Association Concept
Associations Need State Cost-Share Money
Associations Need Waste Control Flexibility
But...
Fundamental Issues
How to Incorporate Point - Nonpoint Source Trading
Start with Point Source - Point Source Trading and Incrementally Add Trading with Nonpoint Sources
Point Sources Buy Credits from State
Establish Firm Baselines for Nonpoint Sources
Trading Ratios
Point Sources Buy Directly from Nonpoint Sources
Solving the “Competition” Dilemma
Missing Driver:
A Deadline
Tar-Pamlico Basin Association
Mid-1980s
Pamlico River Estuary Water-Quality Problems
Algae Blooms
Low Dissolved Oxygen
Fish Kills
Declared “Nutrient Sensitive Water” in 1989
Tar-Pamlico Basin Association
Targeted Point Sources (13 percent of Nitrogen Load)
Technology-Based Nutrient Concentration Limits
Phase I
Point Sources Formed Association
Developed Trading Proposal
Annual Collective Load Cap (Decreases Annually)
If Cap Exceeded - Fund Agricultural BMPs
Optimize Existing Facilities
Upfront Funding for BMPs and State Staff
Fund Development of Estuary Model
Tar-Pamlico Basin Association
Phase I
Accomplishments
14 Point Source Dischargers Joined Association
Nutrient Loads Kept Below Cap Every Year
20 Percent Reduction in Nitrogen and Phosphorus Loads
Estuary Model Developed
$1 M in BMPs Funded (Aided by EPA Grant)
Tar-Pamlico Basin Association
New Goals
Nitrogen - 30 Percent Decrease From 1991 Level
Phase II
Phosporus - Hold at 1991 Level
Voluntary Nonpoint Source Program
1998 - Nonpoint Source Rules
Buffer Protection Rules
Nutrient Management Rules
Stormwater Rule
Agricultural Rules
Buffer Protection Rules
Requires Protection of Existing BuffersStreamsLakesPondsEstuarine Waters
Some Alteration Permitted with Mitigation
Nutrient Management Rules
Applies to Anyone Applying Fertilizer
(Except Residential Landowners)
Nutrient Management Plan
orState-Sponsored Nutrient-Management Training
Agricultural Rules
Established Goal of 30 Percent Reduction in Agricultural Nitrogen Loads
Basin Oversight Committees
Local Advisory Committee
GovernmentFarming CommunityScientific CommunityEnvironmental Organizations
Farmers and Local Ag Agency Representatives
Farmers Register with LAC
Develop Strategy, Submit Annual Report to BOC
Stormwater Rule
Requires Stormwater Programs in 11 Jurisdictions
New Development
Locate and Remove Illicit Discharges
Make Progress Toward Stormwater Retrofits
Nitrogen Loads Must Be 30 Percent Lower than in Existing Development
In Summary
What We Need in Maryland is...
Nitrogen! Get YerNitrogen!
I’ll Beat Any Price in Town!
Three Bucks a Pound?Who’s He Kidding?
$$$$
Shabman, Len and Kurt Stephenson. “Market-Like Systems for Achieving Water Quality Goals in the Chesapeake Bay” in Economics of Chesapeake Bay Workbook Series, Maryland Sea Grant Program, Working Paper, 2003
References
Bacon, Lisa and C. Norman Pearson. “Nitrogen Credit Trading in Maryland: A Market Analysis for Establishing a Statewide Framework. Water Environment Research Foundation Project 97-IRM-5E, 2002
Tar-Pamlico / Neuse Program Descriptions:
http://h2o.enr.state.nc.us/nps/tarpam.htm http://h2o.enr.state.nc.us/nps/pt-source.htm
Contact Information
Cy JonesRegulatory Planning & Compliance ManagerWashington Suburban Sanitary Commission14501 Sweitzer LaneLaurel, Maryland 20707(301) [email protected]