Nutrient Trading: Principles and Issues April 7, 2006 presentation to Potomac Watershed Roundtable

1. Nutrient Trading: Principles and Issues April 7, 2006 presentation to Potomac Watershed Roundtable

2. Photo by Bill Portlock, CBF We’re united by our confrontation of a common problem!

3. The 2004 Virginia Water Quality Assessment 305(b)/303(d) Integrated Report indicates that 83% of the mainstem Bay does not fully support the aquatic life use support goal.

4. Dead Zone Consumes One-Third of Chesapeake Bay Updated: Tuesday, Jul. 26, 2005 - 2:05 PM ANNAPOLIS, Md. (AP) - More than a third of the Chesapeake Bay was a low-oxygen "dead zone" during monitoring in July, meaning the nation's largest estuary is on pace to have one of its most unhealthy summers on record, according to data released Monday.

5. A significant amount of Virginia drains to the Chesapeake Bay

6. Several nutrient-related regulatory amendments were approved by Virginia’s State Water Control Board in 2005 • Water quality standards (including chlorophyll and dissolved oxygen) (9 VAC 25-260) • Water Quality Management Plans (9 VAC 25-720) • Technology Based limits for dischargers (9 VAC 25-40)

7. The overall effect of these regulations is that nutrient loads from point source dischargers have been capped to fulfill the point source component of the Chesapeake Bay Tributary Strategy.

8. Existing significant dischargers (design flows >100,000 gpd downstream of the fall line or >500,000 gpd upstream of the fall line) will have to reduce their nutrient loads to below the waste load allocations listed in the Water Quality Management Plan Regulation.

9. New and expanding dischargers with proposed design flows >40,000 gallons per day will have to offset any additional nutrient loads resulting from the new construction or expansion.

10. However, for many expanding dischargers who are required to install improved nutrient removal technology, the reductions in effluent concentration will more than offset the increased flow from the facility and additional offsetting of nutrient loads may not be required.

11. Nutrient Trading Legislation (Senate Bill 1275) • Signed on March 24, 2005 by Gov. Warner • Authorized Chesapeake Bay Watershed Nutrient Credit Exchange Program • Directed DEQ to issue a watershed general permit for point source discharges of nutrients (Nitrogen and Phosphorus) to the Chesapeake Bay and its tributaries. • On March 15, 2006, State Water Control Board approved commencement of public notification process for proposed regulation.

12. Nutrient trading permit • The general permit will be issued to facilities in addition to the individual permit that the facilities are already required to hold. • Regulation will take effect in the fall of 2006; permit will take effect 1/1/07. • The general permit will supersede some conflicting or redundant conditions in the individual permits.

13. Public hearings • May 23rd, 2:00 PM, Preston Library (VMI) (Lexington) • May 24th, 2:00 PM, DEQ-NVRO (Woodbridge) • June 6th, 2:00 PM, DEQ-TRO (Virginia Beach) • June 12th, 3:00 PM, DEQ-PRO (Glen Allen)

14. What are the benefits of this permit? • Compliance schedule is reckoned on a tributary-wide basis; progress of individual facilities is subordinated to overall progress of all the facilities • Allows dischargers to upgrade in more cost-efficient manner • Allows trading as an alternative to upgrading in order to achieve compliance with permit

15. The benefits of this permit (continued) • Trading works when different facilities face significant unit cost differentials in treatment • For some facilities, trading would be substantially less expensive than installing upgraded nutrient removal technology • Savings from trading could be applied to future treatment upgrades or other system improvements (I/I repair, reclamation/reuse technology etc.)

16. The benefits of this permit (continued) • New and expanding facilities have multiple options regarding offsetting increased loads • Purchase of waste load allocation from existing significant dischargers • Purchase of pound reductions achieved by non-point BMPs (non-point trib strategy goals must be achieved at these sites before these reductions can be accounted for; in some cases “baselines” may be difficult to define) • Agricultural • Urban/Suburban • Non-conventional (waste-to-energy conversion?) • Aquaculture (oyster or other shellfish beds)

17. General Watershed Permit Regulation Contents • Permit eligibility requirements (unique in that all holders of individual VPDES permits are authorized to discharge under the permit, but significant dischargers and new/expanded facilities are REQUIRED to register for coverage, in addition to holding their existing permit) • Registration requirements • Load limits • Waste Load Allocations for existing significant dischargers, • Permitted design capacity for expanding non-significant dischargers, • Accounts for bubbling and regionalization • Also accounts for net (pass-through) and bioavailability issues

18. General Watershed Permit Regulation Contents (continued) • Schedule of compliance (the aggregate discharge of the significant dischargers in each tributary shall be reduced to the aggregate WLA from those facilities as soon as possible) • Current dates in permit are defaults • The Nutrient Credit Exchange Association is working with a consultant on an optimization model in order to determine the most cost-efficient facility upgrades • Information from this model will be provided to DEQ for consideration before final regulation is approved • Compliance plans • May be submitted individually or through the Association • May opt to construct upgraded facilities or acquire credits • May opt out and operate with limits immediately • Monitoring and reporting requirements

19. General Watershed Permit Regulation Contents (continued) • Methods of achieving compliance with annual load limits • Mass of discharged nutrients is less than mass load limit in permit • Sufficient credits are acquired from other permitted point source dischargers, to account for mass of discharged nutrients in excess of mass load limit

20. General Watershed Permit Regulation Contents (continued) • Payment to Water Quality Improvement Fund – last resort • Only if no point source credits available in tributary where facility is located, AND if WQIF has credits to sell in tributary where facility is located • Calculated from average unit reduction cost to POTWs in Virginia (prorated to 2011 estimate) • ~$11/lb for Nitrogen, ~$5/lb for Phosphorus • Price intended to not undercut the market and to encourage installation of upgraded nutrient removal technology

21. General Watershed Permit Regulation Contents (continued) • Requirements for new and expanded facilities • Construction of treatment facilities • Offset of net increases in nutrient loads discharged: • Acquisition of point source allocations • Acquisition of non-point BMP loads (2:1 ratio of pounds reduced to pounds discharged) • Payment to WQIF (unit cost = greater of unit cost of point source reduction or twice the unit cost of non-point BMP reduction in same tributary) • Other options as approved by DEQ • VPDES boilerplate.

22. Trading Restrictions • Credits or offsets purchased from other facilities must be: • acquired for the purpose of achieving compliance in the same year in which the credits were generated, • generated in the same tributary, • acquired and certified to DEQ by June 1 of the following year. Credit or offset purchases that would result in “hot spots” or exceedance of local water quality standards are not permitted!

23. Remaining Issues • Means by which new and expanded dischargers offset their nutrient loads • How are BMPs identified, authenticated and tracked? • Land owners may trade only those BMP reductions in excess of what is required or funded by current federal or state programs, as well as the nonpoint component of the Chesapeake Bay tributary strategy. How will this be verified? • The reductions must be obtained by new and expanding facilities through a public or private entity acting on behalf of the landowner. How are these entities defined? How are their actions regulated?

24. Remaining Issues • WQIF issues • Which agency administers non-point reductions of nutrients that are funded by payment to the WQIF? • WQIF cannot accept payment unless the nutrient reductions for which the payment is received have been achieved and documented • From whom does the WQIF administrator obtain these pounds? • How is this done without undercutting the market?

25. Thanks for your time! If you have any additional questions/comments after this meeting, contact: • Kyle Ivar Winter, P.E. (804) 698-4182 or e-mail at kiwinter@deq.virginia.gov External Web page link: http://www.deq.virginia.gov/vpdes/