Monday, February 5, 2018

Joint Conservation Committee Hearing: Nutrient Credit Trading Needed To Accommodate Growth In Chesapeake Bay Watershed

The hearing provided a general overview of the Program and how it is affecting the sewage treatment industry, local governments and agricultural non-point source stakeholders.
The key takeaways from the hearing were--
-- DEP: If you have a nutrient and sediment reduction practice that costs $10/pound and one that does it for $2, we are going to fund the $2 option. Pennsylvania needs to incentivize the most cost-effective best management practices. [Note: The PA Chesapeake Bay Watershed Planning Committee recently identified 11 BMPs as the most cost-effective ranging from $1 per pound to $6 per pound.]
-- DEP: Growth is going to generate demand from wastewater and industrial sources and MS4 stormwater communities for credits in the future.  DEP said the only way to create more demand for credits would mean having DEP requiring further reductions than are needed now to meet Chesapeake Bay milestones; something many people would not support.
-- Chesapeake Bay Commission: The biggest single thing Pennsylvania could do to reduce nutrient and sediment pollution is develop a dedicated fund and funding to address nonpoint source pollution-- agriculture and stormwater runoff.
-- PennVEST: The agency’s Nutrient Credit Auction Program resulted in the sale of over 581,000 pounds of nutrient credits for between $0.47 to $4.00 per pound for nitrogen and $0.68 to $7.90 for phosphorus.  [Note: The last auctions resulted in prices at $3.50/Pound for phosphorus, $2.66 for nitrogen. These prices can serve as a benchmark for evaluating other competitive methods for selling and buying credits in the state.]
-- PennVEST: The agency’s auction platform has the capacity to include credit transactions from MS4 Stormwater Pollution Prevention communities and other credit sources in the future as demand expands.
Alexandra Chiaruttini, DEP Chief Counsel, providing an outline of Pennsylvania Nutrient Credit Trading Program, pointing out that credit programs in the Air Quality and wetlands banking programs have both worked to reduce air pollution reduction and wetlands mitigation costs.
Pennsylvania launched its Nutrient Credit Trading Program in the Chesapeake Bay Watershed in 2006-07 and between a dozen or two dozen entities trade credits every year.  [Click here for a description of one trade.]  She said Pennsylvania has executed more credit trades than any other Chesapeake Bay Watershed state, including some of the only agriculture to non-agricultural source trades.   
She noted DEP’s Nutrient Trading webpage has an inventory of nutrient credits now available and a list of all the trades that have been made.
Third parties and private entities can also buy and aggregate credits under Pennsylvania’s and re-sell them.
She noted the Program requires, at a minimum, a reduction of 4 pounds of a pollutant for every 1 pound of credit granted.
She said growth is going to generate demand from wastewater, industrial sources and MS4 stormwater communities in the future, along with specific enforcement actions that require offset credits for pollution that has occurred.
She said the bottom line at DEP is Pennsylvania must do more to incentivize the most cost-effective best management practices.  If you have a practice that costs $10/pound to reduce nutrients and sediments and one that does it for $2, she said, we are going to fund the $2 option.
Chiaruttini said the program does struggle with several aspects--
-- Limited Demand: Originally, wastewater plants choose not to use credits when the program first came out and decided to go on their own to reduce nutrients so that initial demand for credits is gone.   She said it is unrealistic to expect wastewater plants to further reduce their nutrient discharges because it would be prohibitively expensive.
-- Institutional Barriers: Baseline environmental compliance determines how much credit can be awarded because only nutrient reductions above the baseline count in the credit program.  She said DEP is working with the Department of Agriculture and State Conservation Commission to develop an ag-certainty program so farmers could be more assure of the credits generated after regulatory standards are met.
-- Cultural Disconnect: A lot of wastewater plants have been reluctant to pay for agricultural improvements and there are more difficulties in calculating and verifying credits from reductions from best management practices than point sources.  She said DEP has to do more to educate permittees about the credit program so they have confidence in buying credits.
With respect to the future, Chiaruttini said DEP believes this program is very important.  Without trading, she said, it forces point sources associated with growth and MS4 stormwater pollution prevention communities into installing “remarkably” high cost technology to get further reductions.
Chiaruttini said the Nutrient Credit Trading Program sets up a market with rules for private transactions.  She said the state has to have more confidence in reduction verification and trust more in the market system.
At the same time, she said trading is not a silver bullet, adding Pennsylvania needs to do a whole host of things to ensure water quality obligations are met.
Ann Swanson, Executive Director of the interstate Chesapeake Bay Commission, and Marel King, Pennsylvania Director, provided an overview of credit trading programs in the other states in the Chesapeake Bay Watershed.
Swanson pointed to a 2012 study done by the Commission that said nutrient credit trading between the agriculture and stormwater sector and across state lines within the Potomac watershed could result in potential savings.
“Note that I have been using the word “potential.” Our report makes clear that there are several factors that influence the effectiveness and feasibility of a trading program. These factors include establishing regulatory caps, requiring baseline performance for credit generators, covering transaction [and verification] costs, and protecting local water quality,” said Swanson.
She said credit trading has not be a primary tool for getting agricultural reductions in the other Bay states.  They have dedicated funds from several taxes and fees to pay for their agricultural reductions and the progress other states have had in reducing pollution from these sources is directly related to the actions the states have taken to target and provided dedicated funding.
In response to a question, Swanson said the biggest single thing Pennsylvania could do to reduce nutrient and sediment pollution is develop a dedicated fund and funding to address nonpoint source pollution-- agriculture and stormwater runoff.
Brion Johnson, Executive Director of the PA Infrastructure Investment Authority and  Robert Boos, PennVEST Credit Trading Specialist, provided an overview of the Nutrient Credit Trading Auctions for nitrogen and phosphorus run by PennVEST.
Between 2010 and 2017, PennVEST’s auctions resulted in the sale of over 581,000 nutrient credits-- 572,119 pounds of nitrogen and 9,699 pounds of phosphorus.
Boos said nitrogen credits have sold from $0.47 to $4.00 per pound and phosphorus credits for $0.68 to $7.90 over the program’s history. [The last two auctions sold nitrogen credits for $2.66 per pound and phosphorous credits for $3.50 per pound.]
Boos said the lower prices result from an oversupply of credits.  If more demand is generated for credits, Boos said PennVEST’s auction market is capable of handling more transactions.
Patricia Berger, Executive Director of the Legislative Budget and Finance Committee, and Philip Durgin, immediate past Executive Director, provided a summary of the Committee’s 2013 report looking at alternative methods of reducing the cost of compliance with Chesapeake Bay nutrient reductions.
[Note: The PA Chesapeake Bay Watershed Planning Committee just recently identified 11 BMPs as the most cost-effective ranging from $1 per pound to $6 per pound for nitrogen.]
Comments Invited
The Joint Conservation Committee will be accepting written comments on nutrient credit trading for next to 90 days.
Click Here for a video of the hearing.
Sen. Scott Hutchinson (R-Venango) serves as Chair of the Joint Conservation Committee.
For more information, visit the Joint Conservation Committee website, Like them on Facebook or Follow them on Twitter.  Click Here to sign up for regular updates from the Committee.
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