Opportunities for Trading in Missouri

David Carani

Geosyntec Consultants

Missouri Innovative NutrientTrading Project (2013)

� Evaluate Potential for Implementing a Trading Program in Missouri

� Develop Framework for a Statewide Trading Program (Permitting)

� Conduct Simulated Trading Exercise

What is Water Quality Trading?

� Market-Based Compliance System Where One Discharger Buys or Sells Pollution Credits from Another� Point-to-Point� Point-to-Nonpoint� Not Only Nutrients

$$$

Buyer (Wastewater

Treatment Plant)

Water Quality Credits

Point-to-Nonpoint

Source Trade

Seller (Farm)

Ancillary Benefits

$$$

Buyer (Wastewater

Treatment Plant)

Water Quality Credits

Point-to-Point

Source Trade

Seller (Wastewater

Treatment Plant)

Cost-Effective Reductions

Control Practice$/lb

Phosphorus$/lb

Nitrogen

WWTF Upgrades 5 to 106 6 to 11

MS4 Retrofits -- ≈ 200

Conservation Tillage ≈ 7 ≈ 1.50

Ag. Grass Buffer ≈ 20 ≈ 1

Animal Waste/Runoff Control ≈ 31 ≈ 4

Constructed Wetlands ≈ 2 ≈ 2Sources: Chesapeake Bay, EPA 2007; WERF 2005; WRI 2009

Looking for Examples…

Looking for Examples…

Trading Programs

Procedures, Frameworks, Rules

Trading Activity

NPDESPermits

National Trading ProgressStephenson and Shabman 2011

� Despite More than 10 Years of State and Federal Agency Promotion, Demonstration Projects, and Research Nutrient Reductions Through NPS Trading has been Trivial

� > 80% of All Trades are in Long Island Sound

� Great Miami Water Quality Trading Program (“Flagship” Point-Nonpoint) Has Not Produced a Single Trade� Sustained Through Grants� Not Incorporated into NPDES Permits

Critical Program Design Factors

1) Trading marginHow Much to Trade?

2) Trading areaWith Whom to Trade?

3) Trading ratioHow Many Extra Credits to Meet the Goal?

Trading Margin: How Much to Trade?

� Margin � What are we trading from?� What are we trading to?

� 3 Potential Margins� Defines Point Source Demand

Criterion

Technology-Based

A

B

C

Without Advanced Nutrient Removal

Target CategoryTP

(mg/L)TN

(mg/L)

Without Nutrient Removal

4 20

Technology-Based 1 10

Criterion 0.1 1

Trading Area:Where to Trade?

Facility Watershed Area

Minimum 17 Ac.

Maximum 215,000 Ac.

Average 14,000 Ac.

Salt HUC 776,000 Ac.

� Watershed-Wide: To Decrease Overall Loadings

� What Happens if We Restrict Trading to Upstream-Only?� To reduce hot spots

Hot Spots

BMP

Point Source Direction of stream flow

Hot Spot

Domestic Discharges to Streams and Rivers

CLASS C

4%CLASS P

9%

"UNCLASSIFIED"

87%

� Approximately 2000 C/U Facilities � 97% < 1.0 MGD = Most Incentive to Trade

Trading Ratio:How Many More Credits?

� Delivery Ratio� Instream attenuation

� Equivalency Ratio� Different forms of same

pollutant

� Uncertainty Ratio� Issues in estimating nonpoint

loadings

� Retirement Ratio� Net improvements 2:1 Trading Ratio

Purchased

Required in

the absence

of trading

Simulation Approach

� Evaluate PS-NPS and PS-PS trading feasibility in 2 Missouri basins

� How do three factors interact to affect� Potential supply� Potential demand� Overall costs

� Identify important principles for a MO WQT program

Estimating Existing Loads

� 46 Domestic WWTPs

� 90% of PS Loading from 1/4 of WWTPs

First-Cut Feasibility Evaluation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Filter Strip Cover Crop Tillage Wetlands Filter Strip Cover Crop Tillage Wetlands

RE

PO

RT

ED

RE

MO

VA

L E

FFIC

IEN

CY

TOTAL NITROGEN TOTAL PHOSPHORUS

Estimating Nonpoint Source Credit Supply

Potential Range of Nutrient Treatment Efficiencies for Cropland BMPs� BMP removal

efficiencies

� BMP implementation rates

� Producer participation

BMP Cost Estimates

� Implementation Cost Factors� Establishment & annual maintenance costs� Opportunity costs

� Useful life

Estimating Site -Specific Treatment Upgrade Costs

$0

$50

$100

$150

$200

$250

$300

0 2 4 6 8 10

$ P

ER

PO

UN

D T

OT

AL

PH

OS

PH

OR

US

RE

MO

VE

D

DESIGN AVERGE FLOW, IN MGD

Estimated WWTP Upgrade CostsActivated Sludge Facilities

BNR

ENR

RO

CategoryTP

(mg/L)TN

(mg/L)

≈ BNR 1 8

≈ ENR 0.5 5

RO < 0.02 < 1

� 46 Facilities

� 3 Baseline Categories

� Flows from < 0.05 to 5 MGD

$10-$20

$160

Interpreting Supply and Demand Estimates

Simulation Results: Impact of Trading Margin

� Impacts PS Credit Demand

� A stringent margin is not cost-effective, especially for small WWTPs with high upgrade costs� Meet TBEL and trade remainder

vs. trading entire marginCriterion

Technology-Based

A

B

C

Without Advanced Nutrient Removal

10,000

100,000

1,000,000

TN TP

PO

UN

DS

PE

R Y

EA

R

Total Credit Demand

Total Credit Supply

-6

-5

-4

-3

-2

-1

0

1

2

3

4

LOG

SC

ALE

DIF

FE

RE

NC

E O

F S

UP

PLY

& D

EM

AN

D,

IN P

OU

ND

S P

ER

YE

AR

TN TPBMP Supply Greater than Point Source Demand

Point Source Demand Greater than BMP Supply

South Fork Salt River Basin

Watershed-Wide

Upstream Only

Simulation Results: Impact of Trading Area

� Trading Area Impacts NPS Credit Supply

� “Upstream-Only” Limits Trading Opportunities, Many WWTPs Want to Trade but Can’t

Simulation Results: Impact of Trading Ratios

� Science-Based Reasons for Including Some Ratios� Delivery/Location� Uncertainty� Equivalency

� Others are Less-Clear� Retirement Ratio

� Ratios Increases Cost

of Trading

� Unjustified Ratios Affect

Efficiency and Equity

Simulation Results: Area + Ratio + Margin

$24

$56

$73

$76

24

20

7

4

0

2

4

6

8

10

12

14

16

18

20

22

24

26

$20

$30

$40

$50

$60

$70

$80

Watershed 1:1 Watershed 2:1 Upstream 1:1 Upstream 2:1

NU

MB

ER

OF FA

CILIT

IES

IN T

HE

WA

TE

RS

HE

D

PA

RT

ICIP

AT

ING

IN T

RA

DIN

G

TO

TAL

AN

NU

AL

WA

TE

RS

HE

D A

BA

TE

ME

NT

CO

ST

(TR

EA

TM

EN

T C

OS

T +

TR

AD

ING

CO

ST)

IN M

ILLI

ON

S

PHOSPHORUS TRADING IN THE SPRING RIVER BASIN

BNR to CRITERIA

For Any Given Margin, Large Trading Areas and Low Trading Ratios Allow the Highest Number of Facilities to Trade

Point to Point Trading ExampleMexico Sells Credits to Smaller WWTPs

� Trading Scenario� Pt-NPt trading ratio = 2:1

� Pt-Pt trading ratio = 1:1

� Trading area = watershed

� Trading margin = existing to BNR

� Mexico Treatment Costs� BNR = $5/lb TN

� ENR = $9/lb TN

� Marginal cost = $24/lb TN

Big River Trading

� Big River Trading Drivers May be Different than Small Streams

� Gulf of Mexico May be the Driver

� Up to 80% of Nutrients are from Agriculture

� Flexibilities to Address Downstream Impacts

Targeted NPS Trading

� Nine WWTPs contribute 80% of Load� Low Upgrade Costs

� PS Trading Opportunities

� NPS Trading: Large Pool of Low-Cost BMP Credits Needed

Creating a Workable Trading Program

1) Trading Areas Should be as Large as Possible

2) Only Scientifically-Based Ratios Should be Used

3) Point-to-Point Trading is Cost-Effective in Some Situations

4) Big River Trading Drivers are Different

5) WWTPs Should be Free to Set the Top of the Margin

6) Administrative and Transaction Costs May Limit Trading

7) Liability, Monitoring, and Enforcement Require Special Consideration

8) Baselines Increase Trading Costs

Neuse River

� Nitrogen TMDL driven

� 19 members in bubble permit� Voluntary participation

� Individual NPDES limit is waived

� Informal trading between partners

� Offset payments ($11/lb) ecological enhancement program � No violations to date/never used

� Internal enforcement policy� Fines (80% escrow)

� Funds monitoring and capital improvement grants

� Flexibility – free to choose control strategies

EPRI Ohio River Basin Trading Project

� Working with Ohio, Indiana, and Kentucky

� Testing to determine if trading is economically and socially viable

� “Stewardship” credits – not for NPDES compliance

Virginia Nutrient CreditExchange Program

� Authorized by Governor in 2005

� Existing - acquire credits from other point sources

� New or Expanding must offset from:

� One or more permitted facilities in the same tributary

� Acquisition of NPS load allocations through the use of BMPs (2:1 ratio)

� Water Quality Improvement Fund

� Water Quality Improvement Fund� Provides technical and financial

assistance made available through grants provided from the fund

� Project eligibility is limited to design and installation of nutrient reduction technology at Chesapeake Bay POTWs

Thank You

Download the Report : http://www.mocorn.org/wp-content/uploads/2012/09/CIG_Nutrient-Trading-in-Missouri_Feb2013.pdf

David Carani

Geosyntec Consultants

108 E. Green Meadows Rd., Suite 9

Columbia, Missouri 65203

Phone: 573.443.4100

dcarani@geosyntec.com