Maryland’s Nutrient Trading Maryland’s Nutrient Trading Program Program

How Trading WorksHow Trading Works

John RhoderickJohn Rhoderick

Maryland Department of AgricultureMaryland Department of Agriculture

Maryland Nutrient Maryland Nutrient Trading Program Trading Program

OverviewOverview Currently provides separate programs for PS-Currently provides separate programs for PS-

PS and PS-Agricultural NPS tradingPS and PS-Agricultural NPS trading Phase I addresses Point Source-Point Source Phase I addresses Point Source-Point Source

tradingtrading Final issued March, 2008Final issued March, 2008

Phase II addresses Point Source-Non Point Phase II addresses Point Source-Non Point Source tradingSource trading

Agricultural Trading Program June 1, 2010Agricultural Trading Program June 1, 2010 Phase III to address NPS to NPSPhase III to address NPS to NPS

Urban NPS trading to be developedUrban NPS trading to be developed

Maryland Nutrient Trading Maryland Nutrient Trading ProgramProgram

Phase I PolicyPhase I Policy

Point Source---Point Source Point Source---Point Source

TradingTrading

Purpose of Point Source Purpose of Point Source TradingTrading

To offset new or increased To offset new or increased dischargesdischarges

To establish economic incentives for To establish economic incentives for reductions from all sources within a reductions from all sources within a watershedwatershed

To achieve greater environmental To achieve greater environmental benefits than through the existing benefits than through the existing regulatory programsregulatory programs

Key PrinciplesKey Principles

All new and expanded point source All new and expanded point source nutrient loads must be fully offsetnutrient loads must be fully offset

Trades must be consistent with County Trades must be consistent with County Water and Sewerage PlansWater and Sewerage Plans

Trading will not be available in lieu of Trading will not be available in lieu of required Enhanced Nutrient Removal required Enhanced Nutrient Removal upgradesupgrades

Point source trades will be Point source trades will be implemented and enforced via NPDES implemented and enforced via NPDES permitspermits

Key PrinciplesKey Principles

Trades must be consistent with Trades must be consistent with TMDLsTMDLs

Trades must protect local water Trades must protect local water qualityquality

Adequate public Adequate public outreach/stakeholder participationoutreach/stakeholder participation

Generating CreditsGenerating Credits

ENR facilities may generate point ENR facilities may generate point source discharge credits by:source discharge credits by: Reducing effluent concentrationReducing effluent concentration Maintaining flow at less than the design Maintaining flow at less than the design

flow basis of wasteload allocationflow basis of wasteload allocation Land application of wastewater with Land application of wastewater with

pretreatment and nutrient pretreatment and nutrient management controlsmanagement controls

Generating CreditsGenerating Credits

Upgrading an existing minor WWTP Upgrading an existing minor WWTP to BNR or ENRto BNR or ENR

Retiring an existing minor WWTP and Retiring an existing minor WWTP and sending its flow to a BNR or ENR sending its flow to a BNR or ENR facilityfacility

Retiring an existing Onsite Sewage Retiring an existing Onsite Sewage Disposal System by connection to Disposal System by connection to public sewer or cluster treatmentpublic sewer or cluster treatment

Buyer

Seller

NutrientCredits

Compensation ($)

Phase II – Agricultural Nutrient Trading

in Maryland

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.

““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

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

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