Buyer

Seller

NutrientCredits

Compensation ($)

Maryland’s Water Quality Trading Program

Phase II – Agricultural Nutrient Trading

in Maryland

John RhoderickMaryland Department of

Agriculture

Agricultural Nutrient TradingAgricultural Nutrient Trading

A program to provide to Maryland farmers A program to provide to Maryland farmers a payment for conservation practices. a payment for conservation practices.

A.A. The practices provide offsets to address The practices provide offsets to address new or increased loads associated with a new or increased loads associated with a growing population.growing population.

WWTP, Development, Industrial FacilitiesWWTP, Development, Industrial Facilities

B.B. Private purchase of nutrient reduction Private purchase of nutrient reduction projects and practices (retirement credits)projects and practices (retirement credits)

Chesapeake Bay FoundationChesapeake Bay Foundation

Ducks UnlimitedDucks Unlimited

Maryland’s Fundamental Maryland’s Fundamental Trading PrinciplesTrading Principles

A.A. Key Program PrinciplesKey Program Principles

B.B. How to Generate Agricultural CreditsHow to Generate Agricultural Credits Eligibility to participateEligibility to participate Baseline requirementsBaseline requirements What is tradeableWhat is tradeable Verification and certification requirementsVerification and certification requirements

C.C. How to Exchange Agricultural CreditsHow to Exchange Agricultural Credits Finding trading partnersFinding trading partners How to sell creditsHow to sell credits Developing Trade AgreementsDeveloping Trade Agreements Accountability/Administration/Accountability/Administration/

Establish the foundation of any trading program. They Establish the foundation of any trading program. They are are

essential for an equitable, environmentally protectable, essential for an equitable, environmentally protectable, yet yet

viable, trading program.viable, trading program.

Key Principle #1Key Principle #1 Any generator of agricultural non-point source credits Any generator of agricultural non-point source credits

must first demonstrate they have met the baseline must first demonstrate they have met the baseline water quality requirements for nitrogen and water quality requirements for nitrogen and phosphorus levels in their watershed. These include phosphorus levels in their watershed. These include the minimum level of nutrient reductions outlined in the minimum level of nutrient reductions outlined in the Tributary Strategies or the applicable TMDL the Tributary Strategies or the applicable TMDL requirements. Baselines provide assurance that requirements. Baselines provide assurance that participants are at a minimum level of conservation participants are at a minimum level of conservation stewardship and are not currently impacting local stewardship and are not currently impacting local water qualitywater quality

Key PrinciplesKey Principles

Key PrinciplesKey Principles (cont.) (cont.)

Key Principle #2Key Principle #2 Agricultural generators must be in compliance Agricultural generators must be in compliance

with all local, state, federal laws, regulations and with all local, state, federal laws, regulations and programs. The credit purchaser and generator programs. The credit purchaser and generator can not cause or contribute to water quality can not cause or contribute to water quality effects locally, downstream or, bay wide.effects locally, downstream or, bay wide.

Key Principle #3Key Principle #3 BMP’s funded by federal or state cost-share can BMP’s funded by federal or state cost-share can

not be used to generate credits during their not be used to generate credits during their contract life. However, these BMP’s can count contract life. However, these BMP’s can count toward baseline or after the funded lifespan has toward baseline or after the funded lifespan has expired, you can use the BMP to generate credits.expired, you can use the BMP to generate credits.

Key PrinciplesKey Principles (cont.) (cont.)

Key Principle #4Key Principle #4 The Agricultural Trading Program is not intended to accelerate The Agricultural Trading Program is not intended to accelerate

the loss of productive farmland. Therefore, credits will not be the loss of productive farmland. Therefore, credits will not be generated under this policy for the purchase and idling of whole generated under this policy for the purchase and idling of whole or substantial portions of farms to provide nutrient credits.or substantial portions of farms to provide nutrient credits.

Key Principle #5Key Principle #5 Trades must result in a net decrease in loads. A portion of the Trades must result in a net decrease in loads. A portion of the

agricultural credits generated in a trade will be retired 10% and agricultural credits generated in a trade will be retired 10% and used to achieve Tributary Strategies or TMDLs, the other used to achieve Tributary Strategies or TMDLs, the other portion becomes tradable credit.portion becomes tradable credit.

Key Principle #6Key Principle #6 An Agricultural practice can only generate credits once it is An Agricultural practice can only generate credits once it is

installed and verified, or placed in operation.installed and verified, or placed in operation.

Generation of Agricultural Generation of Agricultural CreditsCredits

Eligibility to participateEligibility to participate Baseline requirementsBaseline requirements What is tradeableWhat is tradeable Verification and Certification requirementsVerification and Certification requirements

EligibilityEligibility

Who May Sell Agricultural Credits?Who May Sell Agricultural Credits?●● Any generator of agricultural non-point Any generator of agricultural non-point source loads:source loads:

○○ Farm owners, landownersFarm owners, landowners○○ RRenter or lessee that can demonstrate enter or lessee that can demonstrate

permission by the owner to Sell creditspermission by the owner to Sell credits●● AggregatorsAggregators●● Maryland state entitiesMaryland state entities●● Parties who remove agricultural nutrients Parties who remove agricultural nutrients from the environmentfrom the environment

Eligibility of Generators to SellEligibility of Generators to Sell

Agricultural operations generating credits Agricultural operations generating credits must have a current nutrient management must have a current nutrient management plan, an updated Soil and Water Conservation plan, an updated Soil and Water Conservation Plan including, if applicable, a Waste Plan including, if applicable, a Waste Management System Plan for the entire farm Management System Plan for the entire farm operationoperation

In order to sell nutrient credits as part of In order to sell nutrient credits as part of this program, credit generators must meet this program, credit generators must meet the following requirements:the following requirements:

Eligibility of Generators to SellEligibility of Generators to Sell (cont.) (cont.)

Any entity wanting to acquire and resell Any entity wanting to acquire and resell credits, such as aggregator:credits, such as aggregator:

Must be in compliance with all applicable federal, Must be in compliance with all applicable federal, state and local requirements.state and local requirements.

Must demonstrate an intent and ability to acquire Must demonstrate an intent and ability to acquire and deliver sufficient offset from multiple projects and deliver sufficient offset from multiple projects or sites.or sites.

Must Must be able to demonstrate permission by the be able to demonstrate permission by the credit generator to sell credits. credit generator to sell credits.

Must Must be able to demonstrate that the credit owners be able to demonstrate that the credit owners meet all compliance and eligibility requirements.meet all compliance and eligibility requirements.

““Baseline” Requirements for Baseline” Requirements for Agricultural Non-point sourcesAgricultural Non-point sources

Maryland’s agricultural non-point nutrient trading program requires that Maryland’s agricultural non-point nutrient trading program requires that operators of agricultural operations or other landowners wishing to generate operators of agricultural operations or other landowners wishing to generate credits must have achieved a level of nutrient reduction known as baselinecredits must have achieved a level of nutrient reduction known as baseline

Baselines are applied to all the pasture/field/animal areas within a tract that Baselines are applied to all the pasture/field/animal areas within a tract that is being used to generate credits and must first achieve the stricter of:is being used to generate credits and must first achieve the stricter of:

a) the level of nutrient reduction called for in the tributary strategies; a) the level of nutrient reduction called for in the tributary strategies; oror

b) the level of nutrient reduction called for in an applicable TMDL for b) the level of nutrient reduction called for in an applicable TMDL for the watershed where the credits are generated from.the watershed where the credits are generated from.

The entire tract must meet the baseline to be eligible to generate creditsThe entire tract must meet the baseline to be eligible to generate credits

Current agronomic and structural practices can be utilized to meet baseline.Current agronomic and structural practices can be utilized to meet baseline.

Baseline requirements may require additional implementation of BMP’s.Baseline requirements may require additional implementation of BMP’s.

An agricultural operator or landowner may use federal, state or private cost-An agricultural operator or landowner may use federal, state or private cost-share assistance to implement BMP’s that are used to meet the baseline share assistance to implement BMP’s that are used to meet the baseline nutrient reductions.nutrient reductions.

58 Sub-Allocation (TMDL) 58 Sub-Allocation (TMDL) SegmentshedsSegmentsheds

Determining How To Meet Determining How To Meet BaselinesBaselines

Baseline and Credit Baseline and Credit Calculation ExampleCalculation Example

What is TradeableWhat is Tradeable

How to Generate CreditsHow to Generate Credits

Once a landowner or operator has determined Once a landowner or operator has determined the tract has achieved the baseline the tract has achieved the baseline requirements for the watershed additional requirements for the watershed additional implementation of water quality improvements implementation of water quality improvements can be considered as a tradable credit. No can be considered as a tradable credit. No partial credits for BMPs utilized to meet baseline.partial credits for BMPs utilized to meet baseline.

Tradable credits can be generated from any Tradable credits can be generated from any planned agronomic, land conversion, or planned agronomic, land conversion, or structural practicestructural practice

Agricultural Non Point Agricultural Non Point Source Credit PotentialSource Credit Potential

•• Three categories of credit-generating Three categories of credit-generating practicespractices

1. BMPs with “approved” load reductions1. BMPs with “approved” load reductions -- Bay Program peer review has been Bay Program peer review has been donedone -- Stipulated BMP efficiencies built into Stipulated BMP efficiencies built into watershed modelwatershed model -- Uncertainty built into efficiency Uncertainty built into efficiency -- No separate uncertainty ratio for the No separate uncertainty ratio for the tradetrade

Agricultural Non Point Source Agricultural Non Point Source Credit Potential (cont.)Credit Potential (cont.)

•• BMP’s with Approved Load ReductionsBMP’s with Approved Load Reductions – – Continuous No-TillContinuous No-Till –– Riparian Forest BuffersRiparian Forest Buffers –– Riparian Grass BuffersRiparian Grass Buffers –– Wetland RestorationWetland Restoration – – Tree PlantingTree Planting – – Cover Crops (Early – and Late – Planting)Cover Crops (Early – and Late – Planting) – – Off – Stream Watering w/FencingOff – Stream Watering w/Fencing –– Off – Stream Watering w/o FencingOff – Stream Watering w/o Fencing –– Off – Stream Watering, Fencing & RotationOff – Stream Watering, Fencing & Rotation GrazingGrazing –– Animal Waste Management Systems: Animal Waste Management Systems: LivestockLivestock – – Animal Waste Management Systems: Animal Waste Management Systems: PoultryPoultry – – Barnyard Runoff Control/Loafing Lot Barnyard Runoff Control/Loafing Lot ManagementManagement

Agricultural Non Point Agricultural Non Point Source Credit Potential Source Credit Potential

(cont.)(cont.)•• Three categories of credit-generating Three categories of credit-generating practicespractices

2. BMPs requiring technical review2. BMPs requiring technical review -- Practices currently in use Practices currently in use -- Require review and establishment of Require review and establishment of efficiencies by technical workgroupefficiencies by technical workgroup -- Credits can be traded but will be Credits can be traded but will be assigned an assigned an uncertainty ratiouncertainty ratio

Agricultural Non Point Source Agricultural Non Point Source Credit Potential (cont.)Credit Potential (cont.)

•• BMP’s Requiring Technical ReviewBMP’s Requiring Technical Review –– Dairy Precision FeedingDairy Precision Feeding –– Precision AgriculturePrecision Agriculture –– Conservation – Tillage Precision GrazingConservation – Tillage Precision Grazing – – Water Control StructuresWater Control Structures – – Stream RestorationStream Restoration –– Cropland ConversionCropland Conversion –– Enhanced Nutrient EfficiencyEnhanced Nutrient Efficiency –– Commodity Cover CropsCommodity Cover Crops – – Ammonia Emission ReductionAmmonia Emission Reduction

Agricultural Non Point Source Agricultural Non Point Source Credit Potential (cont.)Credit Potential (cont.)

•• Three categories of credit-generating practicesThree categories of credit-generating practices

3. Other BMPs, practices, or innovative approaches3. Other BMPs, practices, or innovative approaches •• Innovative practices not currently in Innovative practices not currently in widespread usewidespread use •• Will be reviewed on case-by-case basisWill be reviewed on case-by-case basis •• Will establish specifications forWill establish specifications for – – InstallationInstallation –– OperationOperation –– MaintenanceMaintenance –– MonitoringMonitoring •• Will establish uncertainty ratioWill establish uncertainty ratio •• Proposal will be reviewed by a technical Proposal will be reviewed by a technical workgroupworkgroup

Agricultural Non Point Agricultural Non Point Source Credit Potential Source Credit Potential

(cont.)(cont.)•• Other BMP’s, practices, or innovative Other BMP’s, practices, or innovative approachesapproaches –– Algal Turf ScrubberAlgal Turf Scrubber –– Oyster AquacultureOyster Aquaculture –– Alternative Crops / SwitchgrassAlternative Crops / Switchgrass –– Manure Incorporation (Dairy)Manure Incorporation (Dairy) –– Manure Incorporation (Poultry)Manure Incorporation (Poultry) –– Phosphorus-sorbing Materials (PSMs)Phosphorus-sorbing Materials (PSMs)

Agricultural Non Point Source Agricultural Non Point Source Verification, Certification, and Verification, Certification, and

ApprovalApproval

• • Submit credit registration and certificationSubmit credit registration and certification form to MDAform to MDA•• The program or representative may The program or representative may

conduct field visit to verify baselineconduct field visit to verify baseline

condition and credit generation proposal iscondition and credit generation proposal is

appropriateappropriate

Agricultural Non Point Source Agricultural Non Point Source Verification, Certification, and Verification, Certification, and

ApprovalApproval(cont.)(cont.)

•• Application review:Application review: –– Base line requirementBase line requirement –– Compliance metCompliance met –– Credit generation proposal is reasonableCredit generation proposal is reasonable – – Landowner/operator consentLandowner/operator consent –– Tract information correctTract information correct

•• Approved credits are given a unique Approved credits are given a unique

registration number and entered in theregistration number and entered in the

online Trading Registry.online Trading Registry.

••

Exchange of Agricultural Exchange of Agricultural CreditsCredits

Finding a trading partnerFinding a trading partner How to sell creditsHow to sell credits Developing trade agreementsDeveloping trade agreements Accountability/Verification/AdministrationAccountability/Verification/Administration

Finding a Trading PartnerFinding a Trading Partner

Exchange of Non Point CreditsExchange of Non Point Credits MarketplaceMarketplace

Program functions as a free market, Program functions as a free market, buyers and sellers are free to negotiate buyers and sellers are free to negotiate the terms of a tradethe terms of a trade

Trades are formalized through private Trades are formalized through private agreements, a contractual arrangementagreements, a contractual arrangement

Participants are free to utilize the web Participants are free to utilize the web base marketplace as a mechanism to base marketplace as a mechanism to assist with credit purchaseassist with credit purchase

Exchanging Non Point Source Exchanging Non Point Source CreditsCredits•• Credits may be sold directly to a regulated point Credits may be sold directly to a regulated point

source or to a conservation buyer (offset or retirement)source or to a conservation buyer (offset or retirement)•• Purchasing contracts between buyers and sellersPurchasing contracts between buyers and sellers•• May be brokers or aggregatorsMay be brokers or aggregators•• Requirements for contract elementsRequirements for contract elements•• Contracts for sales to regulated buyers, approved by Contracts for sales to regulated buyers, approved by MDEMDE•• Contracts for sales to non regulated buyers, approved Contracts for sales to non regulated buyers, approved by MDAby MDA•• A 10% retirement ration applies to all exchanges A 10% retirement ration applies to all exchanges •• Upon approval trade is recorded in the Trade Registry Upon approval trade is recorded in the Trade Registry

Trade Agreements Trade Agreements

Required elements of a Nutrient Trading Required elements of a Nutrient Trading ContractContract

Identification and contact information of parties Identification and contact information of parties including signatureincluding signature

Location of creditsLocation of credits Duration of contract in yearsDuration of contract in years Quantity of credits to be exchanged each year of Quantity of credits to be exchanged each year of

the contractthe contract Method of credit generation, certification and Method of credit generation, certification and

registry numberregistry number

Trade AgreementsTrade Agreements(cont.) (cont.)

Required elements of a Nutrient Trading ContractRequired elements of a Nutrient Trading Contract Obligation of the seller, including agreement to:Obligation of the seller, including agreement to:

− Property maintain BMP or other specified facilitiesProperty maintain BMP or other specified facilities− Allow regular inspections by independent third party and MDAAllow regular inspections by independent third party and MDA− Maintain compliance with all applicable federal, state, and local Maintain compliance with all applicable federal, state, and local

requirementsrequirements Obligation of the buyer:Obligation of the buyer:

− Provide independent third party inspection, minimal once yearlyProvide independent third party inspection, minimal once yearly− Prompt payment for all services and specified yearly dates Prompt payment for all services and specified yearly dates − Regulated buyer to provide provision for violation of contract Regulated buyer to provide provision for violation of contract

termsterms

Accountability/Verification/Accountability/Verification/AdministrationAdministration

•• A practice can only generate credits once it is A practice can only generate credits once it is installed and functioninginstalled and functioning•• An inspection to certify standards and spec An inspection to certify standards and spec were metwere met and the BMP is functional is requiredand the BMP is functional is required•• The full annual credit produced by the The full annual credit produced by the practice will practice will not be certified until the year following the not be certified until the year following the year of year of installationinstallation•• Credits are used in the year they are Credits are used in the year they are generatedgenerated•• Credits can not be banked for sale and used in Credits can not be banked for sale and used in future yearsfuture years•• The Maryland Department of Agriculture (or The Maryland Department of Agriculture (or its its designee) will perform annual spot checks on a designee) will perform annual spot checks on a minimum of 10% of all traded Agricultural minimum of 10% of all traded Agricultural creditscredits

Summary of Non Point Summary of Non Point Source Program StructureSource Program Structure•• Utilizing a web based nutrient trading application Utilizing a web based nutrient trading application with tools to calculate eligibility and credit with tools to calculate eligibility and credit potentialpotential•• Provides for nitrogen and phosphorus creditProvides for nitrogen and phosphorus credit calculation from agricultural sourcescalculation from agricultural sources•• Provides a separate market place for buyers and Provides a separate market place for buyers and sellers of approved credits to post and exchangesellers of approved credits to post and exchange information on credit quantity and priceinformation on credit quantity and price•• Provides a registry to track and register tradesProvides a registry to track and register trades•• User’s guide provides procedures to calculate User’s guide provides procedures to calculate credits and submit credit proposals with “non credits and submit credit proposals with “non approved” load reduction BMPsapproved” load reduction BMPs