Pennsylvania’s Nutrient Trading Program

1. Pennsylvania’s Nutrient Trading Program Forestry Workgroup Meeting November 28, 2006

2. What is Nutrient and Sediment Trading? • Nutrient and sediment trading is an approach to improve water quality using market mechanisms to produce pollutant reductions at lower costs. • The voluntary trading program is an option for point or non-point sources that exceed their environmental obligations to earn credits that may be sold to others who desire nutrient reduction credits.

3. Nutrient Trading Policy and Appendix A • October 1, 2005 - A Nutrient and Sediment Reduction Credit Trading Interim Final Policy and Guidelines published in the Pennsylvania Bulletin. • This interim policy may be used to initiate trades and will be issued final after consideration of public comments. • Comments were collected until December 31st. • A revised final trading policy will be issued as an integrated package, to include the work of the Ch. Bay Tributary Strategy Steering Committee workgroups.

4. The program may be used by: • Point sources to comply with a new permitted nutrient limit; • Nonpoint sources to implement additional BMPs that help reduce nutrient loadings; or • Third parties that need to meet nutrient limits.

5. Trading and Usage of Credits Must be Consistent with: • Clean Water Act • Clean Streams Law • All Federal and State laws • Local Laws and Regulations

6. What May Be Traded? • Total phosphorous and/or total nitrogen reduction credits • All trading must involve comparable credits (nitrogen for nitrogen) • Credit = Unit of Trade • Expressed as (mass/per unit time) • Time must be consistent with compliance determined by NPDES permit or other applicable requirements • Shelf life of one year

7. Where Trading May Occur • Defined Watershed (e.g. Susquehanna or Potomac) • Defined area with TMDL approval • And / or other DEP-approved areas resulting from commitments such as the Chesapeake Bay Agreement

8. Thresholds of Eligibility For Credit Generation Point Source Discharge loading limit expressed in an NPDES Permit. Non-point Source Compliance with Act 38 Nutrient Management Regulations, Chapter 102 Erosion & Sedimentation Regulations, Chapter 91.36 (Agricultural Operations) when applicable, and Chapter 92 (CAFOs) when applicable.

9. Threshold Requirements 100 Foot mechanical setback is achieved when ONE of the following is performed: • Manure is not mechanically applied within 100 feet of a stream • There are no surface waters on or within 100 feet of the farm. • Farm uses no manure application and applies commercial fertilizer at or below the Penn State recommended agronomic rates. OR 35 Foot buffer is achieved when: • A minimum of 35 feet of permanent vegetation is established and maintained between the field and the stream. • Area can be grazed or cropped under a specific management plan, and permanent vegetation must be maintained at all times. (Permanent vegetative buffers 50’ or greater in width may qualify to generate nutrient reduction credits.) OR 20 % Reduction Option • A reduction of 20% in the farm’s overall nutrient balance beyond baseline compliance.

10. Quantification and Application of Credits Point Source • Credits calculated through: • Monitoring requirements in NPDES permit • If not listed in NPDES permit, contact DEP Nonpoint Source • Credits calculated through: • Mass balance methods (preferred) • Information from sources such as Chesapeake Bay Model • Other measurement methods acceptable to the DEP (e.g. monitoring)

11. Trading Ratios • When calculating credits, trading ratios must be considered and used as appropriate. • Ratios ensure trading is providing desired level of pollutant reduction and other water quality benefits. • Applicable trading ratios could include those created by the agriculture workgroup and approved by DEP, along with a reserve and delivery ratio.

12. Application of Credits • DEP will establish a reserve pool of credits that would be available to compensate for unanticipated shortfalls in quantity of credits that are actually maintained.

13. DEP will be responsible for: • Oversight and management of the Pennsylvania nutrient and sediment reduction credit program. • Policy Decisions on issues such as: • Eligibility • Credit certification • Verification • Compliance (monitoring and enforcement) • May elect to delegate responsibility to Third Parties (audits and credit verification).

14. Trading Grant Awards • Strawman Project Implementation - $225,000 • Local Trading Project Initiatives - $350,000 • Credit Generating BMP Implementation Revolving Fund Grants - $450,000 • ACRE Ag Compliance Projects - $775,000 • Legacy Sediment Research - $130,000 • “Priming the Pump” With Nutrient Credits Generated From Chesapeake Bay Stream Bank Fencing Projects These grants were awarded in April 2006.

15. Recent Activities • Proposals: • 24 proposals have been submitted to DEP looking to generate credits. • 8 proposals have been approved, the remaining are still currently being reviewed. • Trades: • It was announced on Nov. 2nd that Red Barn Trading Company signed a sales contract with a developer for N and P credits.