Nutrient Trading and the Nutrient Trading and the Chesapeake Bay Chesapeake Bay

Paul K. MarchettiPaul K. MarchettiPENNVESTPENNVEST

February 18, 2008February 18, 2008

PA’s Chesapeake Bay PA’s Chesapeake Bay Drainage:Drainage:

Over 50 % of the land in PA Over 50 % of the land in PA drains to the Chesapeake drains to the Chesapeake Bay.Bay.

The Susquehanna River is the The Susquehanna River is the largest tributary of the largest tributary of the Chesapeake Bay, providing Chesapeake Bay, providing 90% of the freshwater flow 90% of the freshwater flow to the upper bay and ½ the to the upper bay and ½ the total flow into the Bay.total flow into the Bay.

PA’s Potomac provides an PA’s Potomac provides an additional 2% of the Bay’s additional 2% of the Bay’s freshwater flow.freshwater flow.

Maryland Delaware

New York

District of Columbia

Virginia

West Virginia

Pennsylvania

Chesapeake Bay Watershed Boundary

PA’s Chesapeake Bay PA’s Chesapeake Bay Timeline:Timeline:

1983- Governor 1983- Governor Thornburgh signed Thornburgh signed the 1st Chesapeake the 1st Chesapeake Bay AgreementBay Agreement

1987- Governor 1987- Governor Casey signed the Casey signed the 2nd Chesapeake 2nd Chesapeake Bay AgreementBay Agreement

1988- Developed 1st 1988- Developed 1st Ch. Bay Nutrient Ch. Bay Nutrient Reduction Strategy Reduction Strategy

1996- Issued 2nd Ch. 1996- Issued 2nd Ch. Bay Nutrient Bay Nutrient Reduction Strategy Reduction Strategy

2000- Governor 2000- Governor Ridge signed the Ridge signed the Chesapeake 2000 Chesapeake 2000 (C2K) Agreement(C2K) Agreement

2002- Ch. Bay 2002- Ch. Bay Nutrient Reduction Nutrient Reduction Strategy UpdatedStrategy Updated

2004- Issued revised 2004- Issued revised Tributary StrategyTributary Strategy

PA’s Chesapeake Bay PA’s Chesapeake Bay TimelineTimeline

(cont.)(cont.) 2005 – Maryland 2005 – Maryland

finalized new water finalized new water quality standards quality standards October - Interim Final October - Interim Final

Trading Policy Published Trading Policy Published for commentfor comment

December - House December - House ResolutionResolution

2006- Ch. Bay Tributary 2006- Ch. Bay Tributary Strategy Steering Strategy Steering Committee Meetings Committee Meetings (January- November)(January- November) January - Senate January - Senate

ResolutionResolution

2006- Strategy Related 2006- Strategy Related ActivitiesActivities July- PS Alternative July- PS Alternative

Allocation Strategy Allocation Strategy published for commentpublished for comment

November-draft trading November-draft trading policy, appendix and policy, appendix and three attachments three attachments published for commentpublished for comment

December- policy, December- policy, appendix and three appendix and three attachments published attachments published as finalas final

2007- Continued 2007- Continued implementation of PS implementation of PS and NPS Strategiesand NPS Strategies

2008- Continue 2008- Continue implementation implementation

PA’s Tributary Strategy/ PA’s Tributary Strategy/ Compliance Plan:Compliance Plan:

Essentially a spreadsheet tabulating over 40 Essentially a spreadsheet tabulating over 40 practices that are known to reduce nutrients practices that are known to reduce nutrients and that can be credited by the Chesapeake and that can be credited by the Chesapeake Bay model. Bay model.

Most of the practices will occur whether or not Most of the practices will occur whether or not there is a tributary strategy; the strategy there is a tributary strategy; the strategy allows us to measure our progress and devote allows us to measure our progress and devote resources to target the cost effective practices. resources to target the cost effective practices.

Identifies efforts for agriculture, wastewater Identifies efforts for agriculture, wastewater treatment plants and urban management of treatment plants and urban management of stormwater and septic systems.stormwater and septic systems.

PA’s Reduction Goals:PA’s Reduction Goals:

BaselinBaseline Loade Load

20102010

Cap Cap Goal Goal LoadLoad

Total Total ReductionReductions Neededs Needed

2005 2005 ProgresProgress Loads Load

2005 2005 ReductionReductions s AchievedAchieved

2005 % 2005 % ReductionReductions s AchievedAchieved

TNTN

(Mill. (Mill. Lbs.)Lbs.)

129.6129.6 71.971.9 57.757.7 105.6105.6 2424 42%42%

TP TP (Mill. (Mill. Lbs.)Lbs.)

5.325.32 2.462.46 2.862.86 3.593.59 1.731.73 60%60%

Sed. Sed.

(Mill. (Mill. Tons)Tons)

1.521.52 1.01.0 0.520.52 1.131.13 0.390.39 75%75%

How will PA reach its How will PA reach its goals?goals?

Two Main Elements: Two Main Elements:

Point source reductions: Point source reductions:

14% N and 22% P14% N and 22% P Sewage Treatment Plants Sewage Treatment Plants

and Industry.and Industry.

Nonpoint source Nonpoint source reductions: reductions:

86% N and 78% P86% N and 78% P Agricultural and urban Agricultural and urban

BMPsBMPs

Point Source Reductions:Point Source Reductions: Cap loads on Nitrogen Cap loads on Nitrogen

and Phosphorous must be and Phosphorous must be placed in NPDES permits placed in NPDES permits that meet downstream that meet downstream Water Quality Standards. Water Quality Standards.

All of the point source All of the point source nutrient loads were nutrient loads were distributed among the distributed among the existing point sources. existing point sources.

All new development All new development with proposed nutrient with proposed nutrient loading increases must loading increases must be offset by reductions in be offset by reductions in the watershed.the watershed.

New or Expanding New or Expanding Discharge:Discharge:

New Point SourceNew Point Source Zero Net Load – Options:Zero Net Load – Options:

Land Application of Effluent With Crop UptakeLand Application of Effluent With Crop Uptake Recycle and Reuse of EffluentRecycle and Reuse of Effluent Load OffsetsLoad Offsets Purchasing Credits (Trading)Purchasing Credits (Trading)

New On-lot Systems New On-lot Systems No New RequirementsNo New Requirements

Connection to Existing Point SourceConnection to Existing Point Source No New RequirementsNo New Requirements Point Source Decision Whether It Can Meet Its Cap Point Source Decision Whether It Can Meet Its Cap

LoadsLoads

Nonpoint Source Nonpoint Source Reductions:Reductions:

Expand Best Expand Best Management Management Practices:Practices: Nutrient managementNutrient management Soil Conservation & Soil Conservation &

Water Quality PlansWater Quality Plans Animal waste Animal waste

managementmanagement Runoff controlRunoff control Forest & grass buffersForest & grass buffers Stormwater Stormwater

managementmanagement

What is Nutrient and What is Nutrient and Sediment Trading?Sediment Trading?

Nutrient and sediment trading is an approach to Nutrient and sediment trading is an approach to improve water quality using market mechanisms improve water quality using market mechanisms to produce nutrient reductions at lower costs. to produce nutrient reductions at lower costs.

The voluntary trading program is an option for The voluntary trading program is an option for point or non-point sources that exceed their point or non-point sources that exceed their environmental obligations to earn credits that environmental obligations to earn credits that may be sold to others who desire nutrient may be sold to others who desire nutrient reduction credits. reduction credits.

Cost per pound ranges from $1 for some Cost per pound ranges from $1 for some agricultural practices, to $8-30 for some agricultural practices, to $8-30 for some treatment processes, to thousands for some treatment processes, to thousands for some storm water controls.storm water controls.

Who will Trading Work Who will Trading Work for:for:

Trading can work for everyone, but it’s value Trading can work for everyone, but it’s value depends on the generator of credits and the depends on the generator of credits and the facility or developer needing the credits. facility or developer needing the credits.

Two main groups that we expect to purchase Two main groups that we expect to purchase credits are developers and wastewater credits are developers and wastewater treatment facilities.treatment facilities.

There are many options which are limited only There are many options which are limited only by creativity, imagination and doing business by creativity, imagination and doing business as usual.as usual.

Is trading a long or Is trading a long or short-term solution?short-term solution?

It can be either. Credit generating practices It can be either. Credit generating practices have a life span varying from 1 to 15 years.have a life span varying from 1 to 15 years.

Depending on individual needs, credits can be Depending on individual needs, credits can be generated and purchased to meet requirements generated and purchased to meet requirements for both the long and short-term. for both the long and short-term.

Model agreements will be available – like any Model agreements will be available – like any agreement, for operation services or energy agreement, for operation services or energy purchase, length of contracts, price and security purchase, length of contracts, price and security are negotiated.are negotiated.

What else should be What else should be consider if one is consider if one is

interested in trading?interested in trading? Infrastructure needs – in many cases, trading can Infrastructure needs – in many cases, trading can

reduce the need for plant upgrades.reduce the need for plant upgrades.

Timing – if an upgrade may be needed, but not Timing – if an upgrade may be needed, but not immediate, one may wish to consider trading immediate, one may wish to consider trading initially to bridge the gap until an upgrade is really initially to bridge the gap until an upgrade is really warranted.warranted.

Uncertainty – local nutrient impairments may Uncertainty – local nutrient impairments may require further reduction in the future; trading or require further reduction in the future; trading or phased upgrade plus trading lets one “wait and phased upgrade plus trading lets one “wait and see”.see”.

What is a credit?What is a credit? Credit = Unit of Trade.Credit = Unit of Trade.

Expressed as mass/per unit time (lbs/yr).Expressed as mass/per unit time (lbs/yr). Generated and traded in the same watershed.Generated and traded in the same watershed.

Total phosphorous and/or total nitrogen reduction Total phosphorous and/or total nitrogen reduction credits.credits.

Nitrogen and phosphorous reductions TO THE Nitrogen and phosphorous reductions TO THE BAY beyond baseline and threshold requirements.BAY beyond baseline and threshold requirements.

All trading must involve comparable credits All trading must involve comparable credits (nitrogen for nitrogen).(nitrogen for nitrogen).

DEP is responsible for:DEP is responsible for:

Oversight and management of the Oversight and management of the Pennsylvania nutrient and sediment reduction Pennsylvania nutrient and sediment reduction credit program. credit program.

Policy Decisions on issues such as:Policy Decisions on issues such as: CertificationCertification VerificationVerification Registration Registration

May elect to delegate responsibility to Third May elect to delegate responsibility to Third Parties (audits and credit verification). Parties (audits and credit verification).

Recent Activities: Recent Activities: 37 proposals have been submitted and 27 have been 37 proposals have been submitted and 27 have been

certified:certified: HRG/Milton Regional Sewer Authority, PS Credits HRG/Milton Regional Sewer Authority, PS Credits Mount Joy Borough Sewer Authority, NPS Credits Mount Joy Borough Sewer Authority, NPS Credits Red Barn Trading Company, Aggregator of NPS CreditsRed Barn Trading Company, Aggregator of NPS Credits Berks County Conservation District, Aggregator of NPS CreditsBerks County Conservation District, Aggregator of NPS Credits Chesapeake Nutrient Management, Aggregator of NPS CreditsChesapeake Nutrient Management, Aggregator of NPS Credits Bion Environmental Technologies Inc, Aggregator of NPS Bion Environmental Technologies Inc, Aggregator of NPS

CreditsCredits

Total Credits Certified: Total Credits Certified: 476,359 N476,359 N 57,996 P57,996 P 129 S129 S

Recent Activities:Recent Activities: 3 Contracts have been 3 Contracts have been

entered into: entered into: 1 Local Project: Mount 1 Local Project: Mount

Joy Borough Authority Joy Borough Authority will meet compliance will meet compliance through a combination of through a combination of local activities and a local activities and a partial upgrade. partial upgrade.

2 Developer Projects: 2 Developer Projects: Red Barn Trading Red Barn Trading Company signed Company signed contracts with contracts with developers which will use developers which will use the credits for NPDES the credits for NPDES permit compliance. permit compliance.

Additional Projects:Additional Projects: Antrim Township- looking Antrim Township- looking

at ways to generate at ways to generate credits locally to offset credits locally to offset growth pressures. growth pressures.

Digester’s- to process Digester’s- to process manure to generate manure to generate credits and produce a credits and produce a number of bi-products number of bi-products (concrete ash, energy, (concrete ash, energy, biomass etc).biomass etc).

Integrated Water Integrated Water Resources, Source Water Resources, Source Water Protection Protection

The ChallengeThe Challenge Point sources want a credit that is Point sources want a credit that is

comparable in certainty, both in price and comparable in certainty, both in price and availability, to a physical plant upgrade.availability, to a physical plant upgrade.

In order to provide such a credit, we need to In order to provide such a credit, we need to be able to guarantee that nutrient reductions be able to guarantee that nutrient reductions will take place for 20 years at a certain cost.will take place for 20 years at a certain cost.

In order to this, we need a portfolio of In order to this, we need a portfolio of credits that can be drawn upon now and in credits that can be drawn upon now and in the future.the future.

To date, no entity has developed such a To date, no entity has developed such a portfolio, but some are starting to move in portfolio, but some are starting to move in that direction.that direction.

Where to go for more Where to go for more information:information:

DEP’s Chesapeake Bay Website: DEP’s Chesapeake Bay Website:

http://www.dep.state.pa.ushttp://www.dep.state.pa.us

Keyword:”Chesapeake Bay”Keyword:”Chesapeake Bay”

DEP’s Nutrient Trading Website: DEP’s Nutrient Trading Website:

http://www.dep.state.pa.ushttp://www.dep.state.pa.us

Keyword:”Nutrient Trading”Keyword:”Nutrient Trading”