Bay Journal

Ready to trade: PA approves policy to exchange nutrients

Controversial plan to allow trades between point and nonpoint sources draws criticism from scientists, environmentalists

  • By Karl Blankenship on February 01, 2007
  • Comments are closed for this article.

Pennsylvania environmental officials are hoping to boost Bay cleanup efforts with a new program that allows people to buy and sell the right to pollute—in the hope that it will improve water quality.

The Department of Environmental Protection issued its final, but controversial, policy governing nutrient trading at the end of December. It will allow wastewater treatment plants to offset discharges that exceed their new permit limits by purchasing “credits” from other facilities, or farmers.

It is the first statewide program in the nation to allow swaps between “point source” dischargers such as treatment plants, where pollutants are released through the end of a pipe, and “nonpoint sources” such as farms, where pollution is typically more diffuse: It runs off the land during rain or soaks through the soil into the groundwater.

Advocates of market-based trading programs for years have touted the potential of trading to help rein in runoff from farms and other sources of nonpoint pollution, which are largely unregulated but account for most of the nutrient and sediment pollution that fouls the nation’s waterways.

Trading, they say, is a way to make pollution reduction profitable. By taking extra actions to control pollution, treatment plants or farmers can turn a profit by selling “credits” generated by those actions to dischargers who don’t comply with their permits. The buyer may also benefit by avoiding costly upgrades.

“One of the goals of this program is to give incentives to come up with new ideas to reduce nutrients and to give more reasons to go ahead and implement some nutrient reduction projects,” said Andrew Zemba, who oversees the DEP’s trading program.

Other states, such as Connecticut, have adopted large-scale programs for trades between point sources, but other efforts to trade between point and nonpoint sources have been limited.

Elsewhere in the Bay watershed, Virginia is also moving toward a trading program. The state approved regulations for trading between point sources last fall. Rules governing point to nonpoint trades are expected to be final this spring, although most expect trading to be confined to point sources for the foreseeable future.

Pennsylvania, in contrast, has nearly two dozen applications to sell nutrient credits, mostly from nonpoint sources, that have been submitted to the DEP for review. If the proposals are approved, credits from those actions will be ready to sell this summer when wastewater dischargers have to submit plans saying how they will meet new permit limits on nutrient discharges.

Already, the Mount Joy Borough Authority in Lancaster County has lined up nearly 6,000 nitrogen reduction credits from farmers who changed their operations to reduce pollution.

Another firm is generating credits by arranging to truck poultry litter out of the watershed. So far, Red Barn Trading has contracted to haul away enough chicken waste to reduce the amount of nitrogen entering the Bay by 8,246 pounds—all of which will be put up for sale to wastewater treatment plants.

“There is definitely interest in this approach,” Zemba said. “This definitely has potential to be another tool that can help.”

But the program has also drawn strong criticism.

The Bay Program’s Scientific and Technical Advisory Committee, in written comments on the program, said it was “unlikely to provide actual nutrient reductions comparable to what would be obtained through upgrades to point sources.”

And in comments that were nearly as long as the policy itself, the Chesapeake Bay Foundation said it supports the concept of nutrient trading but has “serious concerns” with several aspects of the policy.

Critics say the program lacks adequate safeguards to protect water quality and—rather than spurring new nutrient reduction efforts—allows trades from nutrient reduction actions that would take place without the trading program.

For instance, the Pennsylvania program allows farmers to use funds from the Farm Bill and other publicly financed conservation programs—which are in high demand by farmers—to install nutrient control practices, then sell credits to wastewater treatment plants.

Critics say those nutrient controls would take place regardless of the trading program. Allowing such credits to be traded means a wastewater treatment plant could meet permit requirements without any additional nutrient reductions. Further, critics say, it could depress the price of credits, discouraging farmers who do not get public funds from taking actions that generate credits.

“It doesn’t get us any closer to the goal,” said Harry Campbell, a scientist with the CBF’s Pennsylvania Office. “It shifts the burden from one entity to another, subsidizes it and leaves the Bay with a problem—how are we going to significantly reduce overall loads?”

Critics also said trades do not adequately account for uncertainty associated with nutrient reductions from nonpoint sources, which are hard to measure. The state policy treats credits generated by measured reductions at wastewater treatment plants as nearly equivalent to estimated reductions from nonpoint runoff.

State officials say the credits awarded for nonpoint source control practices, such as streamside buffers, planting fall cover crops of or switching to no-till farming, are based on standard assumptions used in Bay Program models. But critics say those assumptions are often overly optimistic, and that effectiveness of a practice varies widely from place to place. Also, unlike reductions from wastewater treatment plants—which quickly affect water quality—land-based actions often take years before they show up in waterways.

Because of such uncertainties, the state is subtracting 10 percent of the value of each credit that will be traded to create a “reserve” by installing backup nutrient controls as a safeguard.

Some believe the 10 percent reserve is inadequate.

STAC said in its comments that “nearly all scientists and most program managers in the Chesapeake watershed and throughout the country agree that uncertainty remains high” about the effectiveness of many runoff control practices. As a safeguard, it said offsetting a one pound increase at a wastewater treatment plant should require an estimated two pounds of reductions from nonpoint sources—a ratio common in other programs.

Farm Bureau officials, though, said farmer interest in participation could drop sharply if trading ratios were made more strict. “It would definitely cool farmer interest in participation if it were anything other than 1 to 1,” said Andrea Sharetts, natural resources director of Pennsylvania Farm Bureau.

Another problem cited by critics is that the policy could generate nutrient credits by replacing farms with sprawling developments. The policy prohibits the generation of credits by simply taking a farm out of production, but allows the generation of credits if a farm is converted to another land use if a nutrient reduction can be documented.

It’s conceivable, critics say, that a farm could be converted to low-density development and produce less direct nutrient runoff to streams. But, they say that fails to account for indirect nutrient pollution, such as increased emissions of nitrogen oxides from additional driving. STAC said a policy that allows marketable credits from such development “is not likely to provide actual nutrient reductions and encourages/rewards suburban sprawl.” The CBF’s Campbell said the provision was poor public policy and indefensible scientifically.

Homebuilders say nutrient credits are unlikely to play a big role in influencing development, but said it they can document improvements, they should be entitled to the same tradable credits as anyone else.

Because of a “whole host of concerns” with the policy, Campbell said the CBF would carefully review permits that rely on trading to meet nutrient limits.

It’s unclear how rapidly wastewater treatment plants will resort to trading. John Brosious, deputy director of the Pennsylvania Municipal Authorities Association, said wastewater treatment plant operators—who have enforceable permits—are concerned about their liability if purchased credits come from practices that fail, or do not perform as planned. He said the trading policy remains vague over who is responsible for inspecting practices to make sure they are maintained.

“I think until some actual point to nonpoint trades occur and some of that uncertainty goes away, there is going to be some wariness on the parts of point sources to jump in,” Brosious said. “I think the more we see some trades being successful, the more the comfort level will go up.”

Likewise, Farm Bureau officials said they would also like more clarity about the liabilities farmers would incur if they trade, including model contract language that would actually implement a transaction. They said it’s too early to predict how farmers will react.

“We hope it becomes a heavily relied upon tool in the toolbox,” said Gary Swan, director for government affairs and communication with Pennsylvania Farm Bureau. “But in the end, the agricultural community will make its judgement based upon its workability, and on the economics for the time they have to invest to learn and be involved with it.”

State officials emphasize that the trading program is voluntary and those who are not comfortable with the program are not required to participate.

But over time, treatment plants will be driven to trade to meet their permit limits. All large plants in the Bay watershed were recently given firm nitrogen and phosphorus limits they must meet and are required to tell the DEP by summer how they will attain those goals.

Right now, most plants could meet discharge requirements for nitrogen and phosphorus by upgrading their facilities rather than trading. But as areas grow, and more homes and businesses hook into sewage treatment systems, plants—or developers—will eventually have to find ways to offset increases through trading. Further, all new and expanding wastewater plants are required to offset their entire new discharges of nitrogen and phosphorus.

Keith Ashley, of the Pennsylvania Homebuilders Association, said he is concerned that many municipalities, faced with uncertainties about how the trading program works, will simply halt new development or force it into areas not served by sewers.

“DEP kind of anticipated that the plant operators would welcome the trading program with open arms, and that hasn’t been the case,” he said. “I don’t think the majority of those plants, and the people associated with running them, have faith in the trading system. I don’t think they understand it very well, and it hasn’t been marketed very well by the department.”

Much of how the policy is implemented may rest with the EPA, which has the authority to review any trades that take place to meet limits in discharge permits. Permits that rely on trades must contain language that is “supportable under the Clean Water Act and will result in enforceable limits and requirements,” said Jon Capacasa, water division director for EPA Region III.

He said the Pennsylvania program may prove to be an innovative way to engage nonpoint sources in additional nutrient reductions. If the program does not function as hoped, or if specific concerns about the program materialize, he said it could be adjusted over time.

“If folks want an acceleration of the Bay restoration, you have to try some different things in order to achieve that,” Capacasa said. “If we keep doing the same old thing, we are going to get the same result. I commend Pennsylvania for their efforts in crafting this trading program and they deserve our support. I am certain they will make adjustments along the way if needed to ensure the enforceability and integrity of the program. EPA and the state will be working to ensure that the nutrient cap loads to the Bay are met.”

About Karl Blankenship

Karl Blankenship is editor of the Bay Journal and executive director of Chesapeake Media Service. He has served as editor of the Bay Journal since its inception in 1991. .(JavaScript must be enabled to view this email address).

Read more articles by Karl Blankenship

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