Peter Hughes, figuratively speaking, is sitting on a pile of chicken waste. He’s locked up the rights to buy tons of poultry litter from several large producers and truck it away.
As soon as a wastewater treatment plant owner calls up and says, “Let’s make a deal,” he can give the signal for trucks to roll, scoop up excess manure and haul it out of the Chesapeake watershed, ensuring that it will never contribute to Bay algae blooms.
This will generate nutrient credits that the owner of a plant can use to offset discharges that exceed limits in its permit. That would bring the plant into compliance—for a year, anyway—with its permit requirements without resorting to a potentially costly upgrade.
Hughes runs Red Barn Trading Co., the first “aggregator” of nutrient credits in Pennsylvania. An aggregator is essentially the middleman in a nutrient trade: Hughes lines up credits created by nutrient reduction activities from multiple sellers—typically farmers—to sell large quantities.
Although aggregators are not necessary to make a deal happen, Hughes believes they’ll be critical to bridge the gap between municipal wastewater dischargers—who may need to line up huge amounts of credits to comply with their permits—and small farmers, each of whom may generate only a few hundred credits.
“When a municipal authority needs 250,000 credits, they are not going to want to go around to 80 farms and try to aggregate them,” Hughes said. “They are going to want to go to one stop to have them all.”
Further, he said, many farmers may not want to deal directly with treatment plant officials, whom they don’t know and may not trust.
Hughes and his partners, George Hazard, and Molly Hughes, started Red Barn Consulting to work with farmers five years ago. When Pennsylvania started promoting nutrient trading, they saw an opportunity because they were already working with more than 500 farmers on a one-on-one basis and thought the trading company would complement their consulting firm.
“When we first came into it, it was really a kind of value-added service for our existing clients,” he said. “A lot of them have three or four broiler poultry farms and not a lot of land, and nowhere to go with manure.”
Because poultry litter has high levels of phosphorus, state regulations prohibit its application on land that is already saturated with the nutrient, leaving poultry houses with stockpiles of waste.
Hughes pitched the idea of trucking it out of the watershed to the Department of Environmental Protection and estimated how many credits it could generate. The DEP gave the process approval by certifying the credits.
He plans to haul it to crop farms in western Pennsylvania, where it will replace chemical fertilizers, and to nutrient-poor mine reclamation projects as soon as someone buys the credits. That’s likely to happen this summer when treatment plants have to submit plans to the DEP stating how they will meet new nitrogen and phosphorus discharge limits in permits.
Right now, Hughes expects nitrogen credits—the main one sought by sewage plants—to sell between $9 and $10 per credit. That’s about enough to break even, Hughes said.
When demand picks up, he expects the price to drop—but his profits to increase. That’s because he’ll be operating more efficiently, with larger trucks.
But Hughes considers trucking waste to be the “low-hanging fruit” of trading. The program, he predicts, will drive new innovations and new technologies.
Hughes expects a limited market for many traditional land-based best management practices, such as planting cover crops, because the benefits are harder to quantify. There’s also greater potential for unforeseen events—such as floods or droughts—ruining the practice. Further, it is more difficult to monitor whether those practices are in place—and performing as anticipated.
That creates a liability risk that Hughes says neither he—nor nutrient credit purchasers—are willing to absorb. Rather, he foresees “steel and concrete” engineering solutions that will reliably yield measurable—and easily tracked—nutrient credits for years.
That could include such things as incinerating animal waste, or building small treatment facilities to treat manure from several farms—similar to the way treatment plants process human waste.
“Hopefully, what this will do is get a lot more people thinking and coming up with technologies that are going to be no-brainers in a few years,” Hughes said.
Credits from trading, he said, may also help make such technologies more economically viable.
John Brosious, deputy director of the Pennsylvania Municipal Authorities Association. agreed that such low-risk, high-accountability trading systems would be “a very attractive way to have the program go.” Because wastewater treatment operators hold legally enforceable permits, they can face substantial penalties if credits they buy to offset discharges don’t materialize.
But that doesn’t mean all trades will be through aggregators, or that wastewater treatment plants won’t buy credits from traditional best management practices.
“I don’t think small farmers will be knocked out of the picture,” said Ann Smith, who works on the DEP’s trading program. “I think it will be a variety of entities.” DEP, in fact, has also certified credits that will enable a trade between the Mount Joy treatment facility and a local farmer.
That’s fine with Hughes. “What we need more than anything is some competition,” Hughes said. “I think it makes everyone’s pencil sharper. It gets more people involved in the program. It doesn’t make somebody look suspect if they have a lot of nutrient credits to sell.”
If Pennsylvania’s trading program catches on, he’ll likely get his wish.