PA’s Nutrient Credit Trading Program

Choose Clean Water 3rd Annual ConferenceJune 2012

• Pfizer Pharmaceuticals: Santo Domingo Creek restoration– Voluntary– 1,300-foot restoration project: $80,000– Modeling to determine reductions

• Credits: – 1,381 lbs N/year– 68 lbs P/year – 129 tons S/year

2

Origins of Trading in PA

• Credits transferred from Borough of Lititz (property owner) to Pfizer (project funder) to Lititz Watershed Association to retire

• Pennsylvania Environmental Council

3

Origins of Trading in PA

Program Timeline:

• 2003- Discussion on the Pfizer Voluntary Trade began

• 2004- Chesapeake Bay Tributary Strategy• 2005- Interim Final Policy published in

October• 2006- Stakeholder meetings. Final Policy,

Appendix and 3 Attachments published in December

4

Program Timeline:

October 9, 2010 - 25 Pa. Code §96.8 (Use of offsets and tradable credits from pollution reduction activities in the Chesapeake Bay Watershed) published as final.

October and November of 2010 – First PENNVEST Auctions.

5

Program Timeline:

• 96.8 (a) Definitions

• 96.8 (b) Chesapeake Bay water quality

• 96.8 (c) Methodology

• 96.8 (d) Eligibility Requirements for the Chesapeake Bay

• 96.8 (e) Certification Requirements for the Chesapeake Bay

• 96.8 (f) Verification Requirements for the Chesapeake Bay

• 96.8 (g) Registration Requirements for the Chesapeake Bay

• 96.8 (h) Use of credits and offsets to meet NPDES requirements related to the Chesapeake Bay

• 96.8 (i) Water Quality and TMDLs

• 96.8 (j) Public participation

• 96.8 (k) Use of credits and offsets generally

6

Provisions of 25 Pa. Code §96.8:

• Nitrogen, Phosphorous and Sediment

• Chesapeake Bay Watershed

• Credits and offsets, comparable pollutants

• May not be used for technology-based effluent limits

7

96.8 (b) Chesapeake Bay Water Quality

• Non-Point Sources: Consistent with Chesapeake Bay Watershed Model

• Edge of Segment, Delivery ratios

• Other published or peer-reviewed scientific sources

8

96.8 (c) Methodology

• Point Sources: Discharge Monitoring Reports (DMRs)

• Beyond baseline and, if applicable, threshold

• Baseline examples:– Chapter 102 Erosion and Sedimentation Control

Requirements– Chapter 83 Nutrient Management– Point Source: effluent limit in an NPDES permit

9

96.8 (d) Eligibility Requirements

• Threshold:– Manure not spread within 100 feet of a stream; or– Minimum of 35 feet of permanent vegetation

(buffer); or– Credits reduced (adjusted) by 20 percent

• Compliance status and history

10

96.8 (d) Eligibility Requirements

• Certification/Verification/Registration

• Certification– Project details– How risk will be managed– 10 percent set-aside for Department’s Reserve– Tradable Load– State or Federal Cost-Share– Farmland Conversion not eligible– 5 Years 11

96.8 (e) Certification Requirements

• Verification Plan (Section “e”)– Methods of documentation– Self-verification or third party

• Credits must be verified before registering and applying to a permit

12

96.8 (f) Verification Requirements

• Use is authorized through NPDES Permit Language

• Credits and offsets to be used in basin in which they were generated, unless otherwise authorized

• Must be certified, verified and registered

13

96.8 (h) Use of Credits and Offsets

• 60 Day Truing-Up Period• Permittee responsible for enforcing contract

– Uncontrollable or unforeseen circumstances– Replacement credits

14

96.8 (h) Use of Credits and Offsets

• No increase in discharge of pollutants to compliance point for determining compliance with water quality standards

• Consistent with assumptions of TMDL

• Comply with anti-degradation requirements

15

96.8 (i) Water Quality and TMDLs

• PA Bulletin Notices (Certifications)

16

96.8 (j) Public Participation

• Over 100 proposals have been approved–over 4 million nitrogen (N) credits and

250,000 phosphorous (P) credits, cumulative since 2006

• 31 trades– Definition of trade– 11 involving PennVEST– 19 involving NPS generated credits– 1 industrial discharger (purchaser)

17

Credits and Contracts

• Successful Auctions have been completed by PENNVEST since Year 2010– $2.98 to $4.00 per pound for Nitrogen– $4.73 per pound for Phosphorous

18

Credits and Contracts

19

• Mount Joy Borough Authority was the 1st wastewater treatment facility to adopt trading as a means of achieving compliance with nitrogen limits.

• Mount Joy investigated costs of upgrading its treatment facility and found that by installing the first level of nitrogen treatment they could reduce nitrogen by about fifty percent.

Brubaker Farms and Mount Joy BA

20

• The second level of nitrogen treatment would increase the price per pound per year of treating the remaining pounds of nitrogen from about $8 per pound to $12 per pound.

• Instead, Mount Joy contracted with a local farmer and invested in more than 900 acres of no-till agriculture to meet their permit cap at a cost of only $3.81 for every pound.

Brubaker Farms and Mount Joy BA

21

• Completed May 2012

• Report concludes that significant cost savings can be achieved by using nutrient credit trading as part of the Chesapeake Bay effort

• Available on the Commission’s website

Chesapeake Bay Commission Study

22

• On-going program implementation, with adaptive management

• EPA Trading Program Review

• Stakeholder meetings

Next Steps:

23

Andy ZembaDirector

Interstate Waters OfficeDepartment of Environmental

Protection 717-772-4785 azemba@pa.gov

PARKING LOT

24

• Applicable for the Chesapeake Bay Watershed

• Credit = Unit of Trade.• Expressed as mass/per unit

time (lbs/yr).• Shelf life of one year (October-

September).• Generated and traded in the

same watershed.• Must be certified, verified and

registered prior to use for permit compliance.

• Total phosphorous and/or total nitrogen reduction credits.• All trading must involve

comparable credits (nitrogen for nitrogen).

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

• Applicable trading ratios that are being used:• Edge of Segment;• Delivery; and • Reserve.

25

Certification•A person who wishes to generate credits shall submit to the Department a written request for certification of the pollutant reduction activity. A request for certification is typically submitted before a person conducts the pollutant reduction activity. The Department will publish notice of receipt of a certification request in the Pennsylvania Bulletin for an informal 30-day public comment period. During this 30-day period, a team will review the request for technical acceptability, and consistency with program requirements.•The Department may only certify the pollutant reduction activity that will generate credits for use to meet permit effluent limits for the compliance period(s) for which they are certified, verified and registered. And, the Department will certify a pollutant reduction activity contingent upon conditions to ensure that the program requirements will be satisfied.•Certification serves as the Department's final determination of the amount of credits that the pollutant reduction activity may generate. If the Department certifies a pollutant reduction activity, the Department will publish notice of the action in the Pennsylvania Bulletin, which begins a 30-day appeal period.

Verification

•A second important procedural requirement and a key component of the Department’s certification decision is a review of the ''verification'' plan included in the certification request. A verification plan explains how verification will occur. Verification can take a number of forms, but regardless of the form it must demonstrate that the pollutant reduction activity was implemented as described in the certification and that other requirements, such as baseline and threshold, are met. The Department is not typically the primary verifier. The Department, however, may conduct verification activities such as monitoring, inspecting sites and performing compliance audits.

Registration

•Verification is a condition of registration. Registration is the Department's accounting mechanism to track verified credits before they are used to comply with the NPDES permit effluent limits. Credits, however, must be addressed in a valid contract for their purchase prior to registration. The Department publishes notice of registration in the Pennsylvania Bulletin as an informational item.

26

• A permittee will only be authorized to use credits and offsets through the provisions of its NPDES permit. The permit conditions will require appropriate terms, such as recordkeeping, monitoring and tracking, and reporting in DMRs.

• Only credits and offsets generated from activities located within the Chesapeake Bay Watershed may be used to meet NPDES permit requirements related to the Chesapeake Bay. Credits generated in either the Susquehanna or Potomac basin may only be used in the basin in which they were generated, unless otherwise approved by the Department.

• A permittee shall ensure that the credits that the permittee applies to its permit for compliance purposes are certified, verified and registered, and that the offsets it applies to its permit for compliance purposes are approved, for the compliance period in which the credits or offsets are used.

• The Department may authorize a period of 60 days or less following the completion of the annual compliance period in an NPDES permit, for a permittee to come into compliance through the application of credits and offsets to the permit, provided that the credits were registered and offsets were approved for use during that compliance period.

• A permittee relying on credits to demonstrate compliance with its permit effluent limitations, conditions and stipulations under Chapter 92a shall attain and maintain compliance with its permit. A permittee is responsible for enforcing the terms of its trade contract, when needed to ensure compliance with its permit. The Department may waive this requirement where the pollutant reduction activity fails due to uncontrollable or unforeseeable circumstances such as extreme weather conditions, and timely notice is provided to the Department, if the following apply: • The failure is not due to negligence or willfulness on the part of the permittee. • The Department determines that replacement credits will be available. • The Department determines that the requirements for restoration, protection and maintenance of the water quality of the Chesapeake Bay

will be met due to the requirements of this section, which may include the type of methodologies used when certifying credits, the existence of an approved legal mechanism that is enforceable by the Department, and the use of a credit reserve.

• A permittee shall document the use of credits and offsets in DMR forms, which the permittee shall submit at the end of each compliance year or as otherwise provided or required in the permit. Credits may only be used to meet permit effluent limits for the compliance period for which they are certified, verified and registered by the Department, and offsets may only be used to meet permit effluent limits for the compliance period for which they are approved by the Department.

27

28

3 year- 21,000 N credits exchanged at $3.04

Buyer Seller Credits

Exchanged

PPL EnergyPlus LLC

County of Lycoming(AG generated )

9,153 lbs/yr

ElectroCell Technologies

(AG generated ) 12 lbs/yr

City of Lancaster

(PS generated) 11,835 lbs/yr

1 year- 41,000 N credits exchanged at $2.75

Buyer Seller Credits

Exchanged

PPL EnergyPlus LLC

County of Lycoming (AG generated)

3,722 lbs/yr

Elizabethtown Borough

(PS generated) 7,369 lbs/yr

City of Lancaster(PS generated ) 29,908 lbs/yr

• The Nutrient Credit Clearinghouse will: • Purchase nutrient credits as

needed to establish a portfolio of available nutrient reduction credits; and

• Sell nutrient reduction credits for a set price and time period.

• 2 Auctions were held in the Fall of 2010. As a result, PENNVEST will purchase 62,000 nitrogen credits for a total of $176,590.

29

• Credit—The tradable unit of compliance that corresponds with a unit of reduction of a pollutant as recognized by the Department which, when certified, verified and registered, may be used to comply with NPDES permit effluent limitations.

• Offset—The pollutant load reduction measured in pounds that is created by an action, activity or technology which when approved by the Department may be used to comply with NPDES permit effluent limitations, conditions and stipulations under Chapter 92a (relating to National Pollutant Discharge Elimination System permitting, monitoring and compliance). The offset may only be used by the NPDES permittee that the Department determines is associated with the load reduction achieved by the action, activity or technology.

30

Participation in the nutrient credit trading program is voluntary. Those that may be able to take advantage of the cost-savings of the program are:

• any facility subject to a nutrient or sediment load that is related to restoration and protection of the Bay, mostly wastewater treatment facilities;

• any farmer who may voluntarily choose to implement nutrient or sediment reduction measures and thereby earn revenue;

• any developer that seeks to create a new or expanding discharge that must meet the zero net load; and

• any aggregator that seeks to arrange for the sale of credits generated by another person, or arranges for the credits to be certified, verified and registered.

31

• It can be either. Although all credits are only good for 1 year and are only certified for 5 years, credit generating practices have a life span varying from 1 to 15 + years.

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

32