NUTRIENT CREDIT TRADING FOR ACHIEVING CHESAPEAKE BAY WATER QUALITY GOALS IN VIRGINIA

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: HATCH
• Reporting Frequency: Annual
• Accession No.: 0207969
• Project Start Date: Jul 1, 2006
• Project End Date: Jun 30, 2011
• Program Code: [(N/A)]- (N/A)

Recipient Organization
VIRGINIA POLYTECHNIC INSTITUTE
(N/A)
BLACKSBURG,VA 24061

Performing Department
Agricultural & Applied Economics

Non Technical Summary
Virginia aims to use nutrient credit trading as away to help achieve the water quality goals established for the Chesapeake Bay. Trading program design and implemenation will influence how effective trading will be in lowering costs and protecting water quality. This purpose of this project is investigate ways trading programs can be designed to offer trading parties more options to implement low cost nutrient control strategies while at the same time providing the public greater assurances that water quality goals will be attained.

Animal Health Component

(N/A)

Research Effort Categories

Basic

(N/A)

Applied

(N/A)

Developmental

(N/A)

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
605	0399	3010	100%

Knowledge Area
605 - Natural Resource and Environmental Economics;

Subject Of Investigation
0399 - Watersheds and river basins, general;

Field Of Science
3010 - Economics;

Keywords

nutrient trading

cheasapeake bay

water quality

cost effectiveness

pollution prevention

Goals / Objectives
Effective nutrient trading programs establish total aggregate limits on the quantity of nutrients (expressed in pounds) can be released into a given body of water. Such a nutrient cap has been established for public wastewater treatment plants and industrial (point) dischargers in the Chesapeake Bay watershed. Nutrient trading can lower the costs of meeting these pollution control obligations by offering dischargers choices on how to control nutrient pollution. For instance, a point source can decide between different nutrient management strategies at their particular plant. If nutrient controls are too expensive, the point source could pay for controls at another point source (a trade). Point sources might also be allowed to sponsor nutrient reductions at sources outside the cap (an offset), including nutrient runoff from farms and urban areas. Such flexibility gives point sources the ability to search and implement the low cost control options. The objectives of this project is to expand this flexibility (to lower costs) while at the same time providing the citizens of the Commonwealth greater assurance that this flexibility will not compromise achievement of Chesapeake Bay water quality goals. The specific objectives are described below. The project will evaluate ways point source dischargers can be granted additional decision-making flexibility under a point source cap. For example, all point sources are required to obtain discharge permits before releasing effluents into state waters. Some point sources also receive grants to help pay for pollution control costs. Some grants and permits are prescriptive, defining not only the quantity of pollutant that is allowed, but also defining how the source must limit the pollutant. This project will examine different ways permit and grant programs can be administered that allow dischargers more flexibility to decide how nutrients discharge will be controlled. Trading programs require that the total amount of nutrients coming from a particular source be quantified. Some types of nutrient sources are hard to measure (runoff from farms for example), but these same sources may be able to reduce nutrient loads at a low cost. In order to offer low cost nutrient control options without increasing the risk that an offset will increase total nutrient loads, this project aims to identify more effective ways to measure, monitor, and enforce nonpoint source offsets in a trading program. Many trading programs only allow agricultural offsets. Other low cost control options, however, may be available to point sources as an offset. For instance, there are multiple urban sources and many options to reduce nutrient runoff from urban sources. In addition, investment to enhance the natural removal of nutrients in the environment, through wetland construction or by enhancing nutrient filtering (oysters for example), could also be considered as a way to offset nutrient loads. The final objective of this project is to assess the cost and feasibility of using unconventional urban nonpoint source controls and oyster aquaculture as an offset option under the Virginia trading program.

Project Methods
A combination of cost, legal and case study analysis will be used to accomplish project objectives. Cost (math programming) models are formal computer algorithms that seek to minimize the nutrient control costs within a mass load cap. Cost modeling identifies low cost nutrient control options from a number of previously identified control options. For each control option the removal effectiveness and the cost to achieve that reduction is specified in the model by the analyst. Each pound reduced by each control strategy has an associated annual life cycle cost. Such modeling can be used to identify both the costs of imposing trading program restrictions as well as evaluate the financial feasibility of nonpoint source offset options. Legal analyses will be used to identify how desirable features of market-based trading programs can be implemented within existing state and federal law. First, critical features of a theoretically ideal market-based trading program will be defined. These include generally the presence of an enforced cap and the ability of those under the cap to have the flexibility to choose their own pollution control methods or their own trading partners. Then for each general issue the existing legal, regulatory and political barriers to market-based trading will be identified by an interpretive reading of the governing legislation, its legislative history, case law and regulatory rulings. In addition, a review of testimony and positions of advocacy organizations will be combined with discussions with dischargers and regulators to assist in determining the barriers to enhancing choice-making flexibility and identifying possible changes that would make such efforts possible. The third general procedure for this study will be to review cases where lessons might be learned for the implementation of nutrient trading in Virginia (an initial list of cases has been completed). First, relevant cases will be identified. Second, regulations and other rules that apply to the cases will be secured and reviewed. Third, the available interpretive papers on the cases will be summarized. Finally, discussions with program participants will be conducted as necessary to gain the insights from each case. Such case study analysis will be used to examine nonpoint source control options as well as insights into ways monitoring, measurement and enforcement can be enhanced and improved.

Progress 07/01/06 to 06/30/11

Outputs
OUTPUTS: During the project period, 25 presentations were given to industry, academic, public agency, and general public audiences. Invited presentations were given to EPA Long Island Sound Program, EPA Region 3, Rappahannock River Basin Commission, Chesapeake Bay Program's Scientific and Technical Advisory Committee, Virginia Seafood Council, Virginia Aquaculture conference, Virginia Department of Environmental Quality, Rural Virginia Water Association, Water Environment Federation, Virginia Soil and Water Conservation Society, and the Maryland Aquaculture Coordinating Council. Outreach activities included service on 2 public advisory committees. The Virginia Stormwater Regulatory Panel provided recommendations on the Department of Conservation and Recreation on comprehensive revisions to state regulations governing control of stormwater run-off from urban development. The PI served on a subcommittee investigating nutrient offset trading. Second, the PI served on a committee responsible for drafting a General Assembly commissioned study (Senate Joint Resolution 334, 2011 Session) to investigate the expansion of the Virginia Chesapeake Bay Credit Exchange. The study was led by the Virginia Department of Environmental Quality. A major research study was conducted that established field trials to investigate the water quality benefits of oyster aquaculture and determine how oyster aquaculture could be used in a water quality program such as nutrient trading. PARTICIPANTS: Bonnie Brown and Colleen Higgins, VCU, Department of Biology. Brown and Higgins performed water quality and chemical analysis for research that investigated the water quality benefits of oysters. Leonard Shabman, Resources for the Future. Co-authored several nutrient trading-related publications with the PI. Alex Miller, Stephen Aultman, and Todd Metcalf, Graduate Students, Department of Agricultural and Applied Economics at Virginia Tech. TARGET AUDIENCES: State and regional regulatory agencies. Regulated dischargers. Shellfish aquaculture industry, agriculture. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
The project had an impact on raising the awareness and policy consideration for using in-situ nutrient removal strategies, or nutrient assimilation, credits, in a nutrient trading program. Nutrient assimilation credits are documented nutrient reductions from ambient waters created by human investment to enhance water filtration through oyster aquaculture, algal/aquatic plant biomass harvest, and wetland restoration. Nutrient assimilation services can provide measured and verified reductions in nutrients from public waters. Regulated dischargers of nutrients could potentially use these credits to maintain compliance with stringent and costly effluent limitations. Project activities, output, and publications raised awareness of this trading option within EPA and state environmental agencies. Within 5 years, the possibility of using nutrient assimilation credits within a trading program has moved from a fringe issue to a serious policy consideration.

Publications

• Stephenson, S.K. and L.A. Shabman. 2011. Rhetoric and Reality of Water Quality Trading and the Potential for Market-like Reform. Journal of American Water Resources Association. 47 (February) 1: 15-28.
• Higgins, Colleen B, Kurt Stephenson, Bonnie L. Brown. 2011. Nutrient bio-assimilative Capacity of Aquacultured Oysters: Quantification of an Ecosystem Service. Journal of Environmental Quality 40: 271-77
• Shabman, L.A. and S. K. Stephenson. 2011. When are Trading Programs Really Market-like Regulation, 34(3): 5-6.
• Stephenson, S.K. and L.A. Shabman. 2011. The Use of Nutrient Assimilation Services in Water Quality Credit Trading Programs. Department of Agricultural and Applied Economics Working Paper No 2011-01, Blacksburg Virginia.

Progress 10/01/09 to 09/30/10

Outputs
OUTPUTS: During the reporting period, numerous presentations were made throughout the Chesapeake Bay region. These outreach activities included: K. Stephenson. The Economics of Nutrient Harvest: Overview of Alternatives and Challenges of Creating Incentives. Bioextractive Technologies for Nutrient Remediation International Workshop. EPA Long Island Sound Study, Stamford Connecticut, Dec 3-4, 2009; K. Stephenson, The Potential and Challenges of Water Quality Credits for Oyster Aquaculture. Virginia Aquaculture Conference, Williamsburg, VA Nov 13-14, 2009. K. Stephenson, Trading Program Overview. Presentation for the Rooftops the Chesapeake Bay: Implementing Stormwater Management Strategies in the Chesapeake Bay Watershed Workshop. Sponsored by the Center for Watershed Protection, Staunton VA March 9-11th, 2009; Alex Miller, Kurt Stephenson, Darrell Bosch, Dan Kaufman, and Bonnie Brown. An Evaluation of the Cost and Effectiveness of Commercial Oyster Aquaculture in the Chesapeake Bay as a Nutrient Control Strategy, Center for Natural Resource Economics and Policy 2010 Conference 2010 Conference, New Orleans, May 26, 2010; K. Stephenson, The Rappahannock Nutrient Cooperative Initiative - Could it Really Work Rappahannock Nutrient Cooperative Business Advisory Council, June 10th 2010, Fredericksburg VA. PARTICIPANTS: Alex Miller, Gulf States Marine Fisheries Commission Stephen Aultman, Dept of Applied Economics, University of Minnesota Todd Metcalf, Social Science Program, Syracuse University. Bonnie Brown, VCU, Richmond Colleen Higgins, VCU, Richmond. Leonard Shabman, Resoruces for the Future, Washington DC. TARGET AUDIENCES: State and regional water quality regulatory agencies; Chesapeake Bay shellfish industry PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Stephenson was appointed to the Department of Conservation and Recreation's stormwater regulatory advisory panel. This panel serves to provide DCR input into the development of a comprehensive revision to regulations governing urban stormwater runoff. The PI serves on the subcommittee investigating nutrient offset trading.

Publications

• Kurt Stephenson, Stephen Aultman, Todd Metcalfe, and Alex Miller. 2010. An Evaluation of Nutrient Nonpoint Offset Trading in Virginia: A Role for Agricultural Nonpoint Sources 46 Water Resources Research. W04519, doi:10.1029/2009WR008228
• Kurt Stephenson and Leonard Shabman. Plan for nutrient trading to pay for agricultural BMPs an illusion. Bay Journal 20 (Feb 2010) 11: 21.
• Stephenson and Shabman. Flawed bay cleanup plan: Idea of regulated polluters buying credits from farmers is unfair, impractical. Baltimore Sun. Sunday, Feb 22, 2010. Featured op-ed.

Progress 10/01/08 to 09/30/09

Outputs
OUTPUTS: During the reporting period, numerous presentations were made throughout the Chesapeake Bay region to state and federal regulatory staff, nongovernmental organizations, and regulated parties. These outreach activities included the following presentations:Alex Miller and Kurt Stephenson. "An Economic Evaluation of the Nutrient Assimilation Potential for Commercial Oyster Aquaculture in the Chesapeake Bay" Tidewater Oyster Growers Association, Williamsburg, VA. January 10, 2009; Kurt Stephenson, Charlie Abdalla, and Doug Parker. 2009. "Water Quality Credit Trading: Issues in Uncertainty, Evaluation, and Verification." Presentation to the Chesapeake Bay Program's Scientific and Technical Advisory Committee, Annapolis Maryland March 10th; K. Stephenson, "An Evaluation of Nutrient Trading Options in Virginia." Presentation to the Chesapeake Bay Program's Scientific and Technical Advisory Committee. Annapolis Maryland March 10th, 2009; Stephenson K. November 2008. "Environmental Markets: Rhetoric, Reality, and Potential of Water Quality Trading." 2008 Earth Talks Fall Colloquium Series, Penn State, Nov 4, 2008. PARTICIPANTS: D. Parker, University of Maryland; C. Abdalla, Penn State; L. Shabman, Resoruces for the Future; J. Shortle, Penn State; C. Jones, WRI; B. Angstadt; R. Rose,EPA; D. King, Univ of Maryland; D. Hansen; Alex Miller; TARGET AUDIENCES: state and federal regulators; regulated parties; Agricultural producers; academics PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
A technical document describing an approach to evaluating nutrient trading programs was developed and delivered to the Scientific and Technical Advisory Committee to the Chesapeake Bay Program. The goal of the report was to provide policy makers a way to evaluate and improve trading programs being implemented in VA, PA, and MD. In addition, findings about the efficacy and cost effectiveness of nutrient offsets in Virginia was reported to the Scientific and Technical Advisory Committee to the Chesapeake Bay Program.

Publications

• Stephenson, K. D. Parker, C. Abdalla, L. Shabman, J. Shortle, C. Jones, B. Angstadt, R. Rose, D. King, D. Hansen. 2009. Evaluation Framework for Water Quality Trading Programs in the Chesapeake Bay Watershed. 33pp. Report to the Scientific and Technical Advisory Committee, Chesapeake Bay Program, Annapolis Maryland

Progress 10/01/07 to 09/30/08

Outputs
OUTPUTS: During the reporting period, numerous presentations were made throughout the Chesapeake Bay region to state and federal regulatory staff, nongovernmental organizations, and regulated parties. These outreach activities included the following presentations: "Nutrient Assimilation Credits: Concept and Illustration to Oyster Aquaculture" Virginia/West Virginia Water Research Symposium, Blacksburg Virginia, November 28, 2007; "Nutrient Assimilation Credits: Opportunities for Enhanced Oyster Production." Chesapeake Bay Targeted Watersheds 2007 Project Round Table, Staunton, Virginia, November 29, 2007; "Nutrient Assimilation Credits: Opportunities to Expand Trading beyond Source Reductions" EPA Region 3 Trading Workshop, Rockville, MD, December 12, 2007; "Doing Well by Doing Good: Water Quality Credits for Oyster Aquaculture" Virginia Seafood Council Annual Conference, Richmond, February 13th, 2008; "Nutrient Trading in Virginia: Updates & Options" Virginia Rural Water Association Annual Meeting, Williamsburg, Virginia, March 18th 2008; "Environmental Markets: Rhetoric, Reality, and Potential of Water Quality Trading" 2008 EarthTalks Fall Colloquium Series, Penn State. Presentations at professional meetings included "Concept to Reality: Common Myths about Water Quality Trading" Canadian Agricultural Economics Society/Northeast, Agricultural and Resource Economics Association annual meeting, Quebec City, Canada June 29-July 1, 2008. PARTICIPANTS: Collaborators: Alex Miller (Virginia Tech), Darrell Bosch (Virginia Tech), Bonnie Brown (VCU), Doug Parker (Univ of Maryland), Charlie Abdalla (Penn State), Leonard Shabman (Resources for the Future) TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
In 2008 the Mid-Atlantic Water Quality Program provided a grant to University of Maryland, Virginia Tech, and Penn State to develop a framework for evaluating the performance of the nutrient trading programs being implemented in the Chesapeake Bay states (D. Parker, K. Stephenson, and C. Abdalla, PIs). The project leaders will report findings directly to the Cheaspeake Bay Program Scientific and Technical Advisory Committee (STAC) in Dec 2008. This effort has the potential to make a substantial contribution to the understanding and evaluation of nutrient trading programs in the region.

Publications

• No publications reported this period

Progress 10/01/06 to 09/30/07

Outputs
OUTPUTS: During the reporting period, numerous workshop presentations were made throughout the Chesapeake Bay region to state and federal regulatory staff, nongovernmental organizations, and regulated parties. These outreach activities included presentations to: Pure Water Forum Annual Meeting. Harrisonburg, May 8, 2007, "Virginia Nutrient Credit Trading: Review and Update of Nonpoint Trading Options" (meeting participants included regulated parties, scientists, nongovernmental organizations, and Virginia regulatory staff in the Shenandoah watershed); Nutrient Trading and Implications on Mid-Atlantic Waters Workshop, Frederick Maryland, March 22, 2007, "Alternative Point-Nonpoint Source Trading Partners" (workshop sponsored by Mid-Atlantic Regional Water Program and Chesapeake Bay Program Scientific and Technical Advisory Committee and was attended by nearly 100 people representing federal and state agency staff, nongovernmental organizations, academics, and the general public); Virginia Tech Chapter of the American Fisheries Society, Blacksburg, VA, December 6, 2006, "Eutrophication in the Chesapeake Bay: A Role for Oyster Aquaculture?"; Virginia Soil and Water Conservation Society Annual meeting, Richmond Virginia, October 19th, 2006, "Program Success in Point-Nonpoint Trading." A website was also constructed and posted for the purposes of expanding the trading options under nutrient trading programs. The website, "Nutrient Assimilation Credits" (http://oyster.agecon.vt.edu) was supported by an EPA Chesapeake Bay Targeted Watershed grant PARTICIPANTS: Collaborators: Stephen Aultman, Virginia Tech; Doug Parker, University of Maryland; Charlie Abdalla, Penn State

Impacts
The project is expected to expand the number of nutrient trading options under consideration by the Chesapeake Bay states. Expanded trading options have the potential to reduce the cost of point source compliance with Virginia's nutrient credit trading program and emerging trading programs in other Bay states. Information and knowledge about measurement of nutrient removal effectiveness of different nonpoint source nutrient reduction strategies can also reduce the risk that water quality will be adversely impacted by nutrient trading activity. One area of focus has been on expanding trading options beyond agricultural nonpoint sources. A range of options was introduced and explained during a Chesapeake Bay Nutrient Trading Workshop March 2007. The workshop was attended by nearly 100 people with the largest majority coming from government agencies. The presentation, "Alternative Nonpoint Source Trade Partners" was the highest rated presentation at the workshop with over three quarters of the respondents rating it as very good or excellent. The positive reaction prompted subsequent inquires and invitations to speak before other audiences and has broadened consideration of trading options in the Bay region.

Publications

• Shabman, Leonard and Kurt Stephenson. 2007. "Achieving Nutrient Water Quality Goals: Bringing Market-like Principles to Water Quality Management" Journal of American Water Resources Association 43(4): 1076-1089.
• Aultman, Stephen. 2007. Analyzing Cost Implications of Water Quality Trading Provisions: Lessons from the Virginia Nutrient Credit Exchange Act. M.S. Thesis, Department of Agricultural and Applied Economics, Virginia Polytechnic Institute and State University.
• Boyd, James, Leonard Shabman, and Kurt Stephenson. 2007. "Trading as a Water Quality Management Tool: Prospects for a Market Alternative" in Ecological Economics of Sustainable Watershed Management, pp. 385-407. Eds. J. Erickson, F. Messner, and I. Ring. Oxford: Elsevier.
• Kurt Stephenson. March 2007. "Status of Water Quality Credit Trading in Virginia." Factsheet, Mid-Atlantic Regional Water Program, 2pp.

Progress 10/01/05 to 09/30/06

Outputs
The goal of this project is to identify and evaluate ways in which nutrient trading can help achieve Chesapeake Bay water quality goals. Specifically, this project seeks to evaluate new and innovative options for point sources to implement low cost strategies under a point source cap (consistent with Virginia's new Nutrient Credit Trading legislation and the Clean Water Act). To complement and enhance the achievement of Hatch project objectives, two grants were received to implement specific nutrient projects in the Chesapeake Bay basin as well as provide for scientific knowledge into the cost and effectiveness of these activities. The first project, Nutrient Assimilation Credits: Opportunities for Enhanced Oyster Production (co-PI with Bonnie Brown at VCU) will explore to potential for oyster aquaculture facilities to remove nutrients from the waters of the Chesapeake Bay. Oysters naturally filter and clean the water and aquaculture facilities could be designed to enhance these water quality services. The project will measure nutrients removal from oyster aquaculture facilities in Virginia and Maryland and will explore the feasibility of using oyster aquaculture facilities in Virginia's Chesapeake Bay's restoration programs, including possible use in nutrient trading programs. The second project, Effective Strategies for Reducing Nutrient Loads from the Opequon Watershed of Virginia and West Virginia, will implement and evaluate a number of nutrient reducing practices in the Opequon watershed (Frederick County and City of Winchester) (Co-PI with Conrad Heatwole, Brian Benham, Mary Leigh Wolfe, and Cully Hussion). In addition to implementing several urban nonpoint source reduction projects, the project will investigate the feasibility of using urban nonpoint reduction practices to offset increased nutrient loads from municipally owned sewage treatment facilities. Both grants contained considerable cost-share requirements and Hatch funds were critical in securing these grants. The grants provide important new funding to more thoroughly meet the goals described in the Hatch project. In addition, the principal investigator is a participant in the Nonpoint Source Trading Workgroup being convened by the Virginia Department of Environmental Quality. In addition, a cost effectiveness analysis of certain features of the Virginia point-point source trading program was initiated.

Impacts
The project is expected to expand the number of nutrient trading options under consideration by the Virginia Department of Environmental Quality. Expanded trading options have the potential to reduce the cost of point source compliance with Virginia's nutrient credit trading program. Information and knowledge about measurement of nutrient removal effectiveness of different nonpoint source nutrient reduction strategies can also reduce the risk that water quality will be adversely impacted by nutrient trading activity.

Publications

• No publications reported this period