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INSIDER: Stormwater Trading Can Help the Chesapeake Bay Meet Vital Pollution Targets

Restoration of the Chesapeake Bay will require reducing pollution from all sources, including urban stormwater runoff, which is one of the most difficult and expensive kinds of pollution to control. While stormwater contributes only 16-17 percent of the bay’s nutrient pollution—the rest comes from the air, and runoff from farms and wastewater treatment plants—dealing with it comprises 67 percent of states’ Bay pollution management costs.

A new paper by WRI and the Chesapeake Bay Foundation (CBF) outlines a cost-effective solution. Implementing a nutrient trading system that includes the stormwater sector can reduce stormwater pollution removal costs by 10-50 percent, saving hundreds of millions of dollars per year while helping to restore the health of the Chesapeake Bay.

Nutrient Trading and Stormwater

Nutrient trading is a tool that states and nutrient dischargers can use to help meet Total Maximum Daily Loads (TMDLs), the pollution diet prescribed by the Environmental Protection Agency (EPA) to restore the bay. Trading allows dischargers that have reduced their nutrient discharges more than required to sell their excess reductions as credits to other dischargers. For example, a farmer who meets eligibility requirements and installs a grass buffer along a stream to filter out fertilizer run-off could sell credits to municipal wastewater treatment plants or stormwater management units for use in meeting their requirements.

Growing Potential for Nutrient Trading in the Stormwater Sector

Current stormwater Best Management Practices (BMPs) are generally not very efficient at nutrient removal, and can require a large number of projects; lengthy planning, design and construction periods; and high costs. This makes nutrient trading particularly attractive to jurisdictions facing regulatory requirements and deadlines for reducing nutrient discharges in stormwater.

Such jurisdictions can purchase nutrient credits as a permanent part of their compliance strategy, or as a temporary measure that helps close the gap between the required reductions and the progress that the stormwater sector is actually capable of in the short-term. While no stormwater jurisdiction has bought credits thus far, this strategy has tremendous potential.

3 Critical Factors for Success

WRI and CBF worked with Montgomery and Queen Anne’s Counties in Maryland and Arlington County in Virginia to explore the feasibility and potential benefits of using nutrient credits in their stormwater management programs. The results are detailed in the new paper, Nutrient Trading by Municipal Stormwater Programs in Maryland and Virginia—Three Case Studies.

The study identified three factors critical to successfully implementing nutrient trading in the stormwater sector:

1) Clear Legal Basis for Trading

Before successfully implementing nutrient trading in the stormwater sector, there must be a clear regulatory framework in place to guide it. Arlington County was able to make decisions about stormwater trading thanks to Virginia’s comprehensive, clear and transparent trading rules. Maryland has not yet developed regulations on stormwater trading, but did adopt an interim policy during this study. The policy will allow small, regulated stormwater jurisdictions (Phase II Municipal Separate Storm Sewer Systems, or MS4s) and non-regulated ones to purchase nutrient credits to meet up to 50 percent of their stormwater-related state Chesapeake Bay Watershed Implementation Plan (WIP) requirements.

2) Straightforward Targets and Regulatory Requirements

Large municipalities that have Clean Water Act permits for their stormwater discharges (Phase I MS4s) will not be willing to consider purchasing nutrient credits to help meet their Chesapeake Bay-related nutrient reduction targets without understanding how these credits could satisfy MS4 permit requirements. In some cases, there is a lack of a clear relationship between WIPs and MS4 permit requirements—like in Maryland, where there is no clear link between WIP nutrient targets and MS4 permit requirements. Hence, Maryland Phase I MS4s, like Montgomery County, are not likely to be willing to consider purchasing nutrient credits to help meet Chesapeake Bay-related nutrient-reduction targets without a clear regulatory basis for using the credits to help satisfy MS4 permit requirements. This barrier does not exist in Virginia, which has established a straightforward connection by incorporating numeric nutrient reduction requirements into MS4 permits.

3) Effectively Approaching the Agricultural Community

The stormwater sector cannot buy credits unless credits are available. The agriculture sector is the most promising potential source of credits in the long run. However, farmers have historically been skeptical toward trading, and wary of the onerous requirements that it might place on them. In addition, they sometimes suspect that it is a way for municipalities to evade their pollution control responsibilities by transferring them to the agricultural community.
WRI and CBF successfully reached out to farmers in this study and found that they would be willing to participate in nutrient trading programs under the right conditions.

Policy-makers who are developing trading programs can follow these methods, which we found to be essential in engaging the agricultural community:

  • Using an intermediary trusted by farmers. For example, in Montgomery County, the Montgomery County Soil Conservation District (MCSCD) facilitated a working relationship with County farmers. MCSCD consists of farmers supported by USDA employees, and has long been involved in the planning of Chesapeake Bay restoration efforts.
  • Listening. Policy-makers must have a willingness to elicit, listen to and carefully consider farmer concerns at the onset and throughout the process.
  • Having no political agenda or financial interest in trading. This minimized farmer suspicion of our motives and helped build trust. Those wishing to develop trading programs must approach this community without a political agenda.
  • Making the economic case for trading, without speculating about credit prices. Researchers in this study accomplished this by providing farmers with data on the demand for credits, and showing that they will be able to influence prices through bids or negotiations

Looking Forward

While no trades were actually completed, all three counties made it clear that they are interested in pursuing nutrient trading for stormwater in the future. Montgomery Country is waiting for regulatory guidance in Maryland, Queen Anne’s County is completing a procurement to buy credits, and Arlington County intends to buy credits during its next five year MS4 permit period, when they will be needed.

These three case studies and the lessons learned can help inform the development of water quality trading in the stormwater sector within and beyond the Chesapeake Bay. Watersheds throughout the United States could make use of stormwater trading to meet both short- or long-term pollution-reduction goals, with both environmental and economic benefits.

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