W ter Quality ter Qualit Credit Tr Credit T ading adin W rkshop Obj Ob ectives: Challenges:

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1 Water Quality Credit Trading Objectives: Workshop To initiate communication and collaboration among agricultural producers, agricultural advisors and point source dischargers as a first step toward PS-NPS water quality credit trading To educate these groups about the benefits of WQCT and how to begin a trading program in their communities Challenges: Engage all three groups, individually and jointly, in first steps and action items related to WQCT Retain interest of representatives from each group during the one- or two-day period of the WQCT workshop

2 DAY 1 Overview of WQCT A National Perspective Mark Kieser, ETN Review Workshop Agenda Trading overview national examples Trading for agriculture (CTIC Manual) Trading for WWTPs (WERF manual)

3 DAY 1 Benefits & Obstacles in WQT MD Perspective George Kelly, Environmental Banc & Exchange Cy Jones, World Resources Institute tute Opportunities and economic benefits for PS to NPS WQT in Maryland Benefits to interstate WQT in the Chesapeake Bay Watershed Common obstacles and risk in environmental trading

4 DAY 1 WQCT Program in Maryland PS to NPS Trading John Rhoderick, Maryland Dept. of Agriculture Steve e Luckman, Maryland a Dept. of Environment Introduction and overview of Maryland s Draft WaterQuality Trading Policy Principles and fundamentals of PS to NPS trading WQCT Implementation Current state of WQCT in MD

5 DAY 1 NutrientNet Maryland s Web-based Tool Mindy Selman, World Resources Institute Overview of NutrientNet - Maryland s web-based nutrient trading tool NutrientNet briefing and on-line demonstration ti of the trading tool

6 DAY 1 WWTP Breakout Session James Klang, PE, Kieser & Associates, LLC Cy Jones, World Resources Institute tute Steve Luckman, Maryland Dept. of Environment Considerations for why to engage in WQCT Where trading works with Minnesota trading examples Important issues in WQCT (planning, trade design, minimizing uncertainty and costs, trading partners, and more) Information on trading contracts and minimizing risk

7 DAY 1 Potential Producers Breakout Session Bob Ensor, Howard Soil Conservation District Gerald GeadTalbert, abet, Maryland aya Association ssocato of CDs Conservation planning and BMP implementation BMP options and technical assistance Farm Stewardship Certification and Assessment Program (FSCAS) Coordinating FSCAS with WQCT

8 DAY 1 Credit Aggregators & CCAs Breakout Session Brian Brandt, American Farmland Trust George Kelly, Environmental Banc & Exchange Incentives for farmers using WQCT Combining WQCT with other cost-share programs Important elements in aggregating credits (trading contracts, managing risk, insurance, and more) Integrating WQCT with other environmental markets

9 DAY 1 Question & Answer Session All Presenters Discussion with presenters on PS NPS WQCT dd ft li f M l d programs and draft policy for Maryland Get answers to WQCT questions

10 DAY 1 Are You Ready to Trade? Mark Kieser, ETN Ask the question, are you ready to trade? Discuss barriers to trading Explore and answer remaining Day 1 questions

11 DAY 2 Introduction to Maryland Water Quality Issues Cy Jones, WRI Overview of Chesapeake Bay Program and nutrient issues Components to Maryland s Tributary Strategy Local Maryland water quality issues

12 DAY 2 Trading Role Playing Exercise Mark Kieser, ETN Present 3 questions for each group to address Breakout into Producer, WWTP and Aggregator role playing groups Individual group interaction on trading questions and entire group discussioni on findings & conclusions

13 Trading Overview A market-based tool for water quality improvements One pollutant source with high treatment costs pays another to make a voluntary and surplus pollutant reduction for a lower cost. The Pollutants Traded The Trading Currency Phosphorus (Pollutant Reductions = Nitrogen Credits = Unit of Flows Exchange) Sediment Real Bacteria Surplus Temperature Quantifiable Heavy metals Watershed-based Pesticides Net improvement Legacy pollutants (trading ratio) The Market Buyers and Sellers of Pollutant Reductions

14 Terms of the Trade Effluent Trading Pollutant Trading Pollution-credit Trading Nutrient t Trading Offsets Watershed-Based Trading Water Quality Credit Trading Water Quality Trading (Explicit retirement of a portion of reductions with every trade for water quality benefits)

15 Watershed Scale WQT Programs

16 State-based Trading Programs

17 Notable Programs MN River, MN PS/NPS to PS/PS (P, N, other) - New trading rules, stacking credits, locally-driven Great Miami River, OH PS/NPS for N & P -Largest U.S. program; brokerage/clearinghouse scheme Lower James River, VA PS/PS for N & P - Legislatively mandated Trading Association Long Island Sound, CT PS/PS for N - Legislatively established for municipal WWTPs Tualatin River, OR PS/NPS for temperature (C) - Stream shading credits (35 miles); multiple credits

18 Ongoing Trading Program Struggles/Shortcomings Farm Bill subsidies and credit generation Definitional struggles (baselines, surpluses ) Changing budget/administrative priorities Lack of regulatory drivers No interstate programs for large watersheds (Chesapeake Bay, MS River, CO River) Not having everyone at the table (PA) MEP & Stormwater t trading (NC, Tahoe) Competing legislation undermining demand Narrowly defined legislation (VA, CT) Lack of trading infrastructure

19 Emerging g Market Information Buyer Ag Credit Average Trading Treatment Price Credit Program Costs Range Price Location ($/lb P) ($/lb P) ($/lb P) Michigan Ohio PA 30-3, Ontario

20 WQT at Scale Ohio River Basin 14 states >200,000 mi Power Plants 539 Industrial facilities 1911 POTWs Source: EPA BASINS

21 ORB Land Cover 9 % 25% 48 % 14%

22 Flow Combined Annual Annual Annual Reduction % Upgrade $/lb Credit Cost Savings Required Savings Cost ($) ($) ($) (lbs/yr) ,880 99% 0.01 MGD , ,460 98% 8 1,680 51,620 97% 2 4,140 60,360 94% 0.1 MGD 2,070 64, ,280 56,220 87% 8 16,560 47,940 74% 2 47, ,300 84% 1 MGD 23, , , ,800 68% 8 190, ,800 36% 2 475, ,700 47% 10 MGD 237, , Not Economically Viable

23 Time frame Cost Savings per NPS Combined N/P Credit (of 921 Plants; >25% WQT Savings; 2:1 Trading Ratio) $2/lb $4/lb $8/lb Annual $113M $50M $15M 20-year total # of Plants Trading $2.2B $994M $302M

24 Conservation Technology Information Center Published July 2006

25 INTRODUCTION Guide outlines concepts and basic elements of water quality trading targeted toward: Soil and water conservation districts Certified Crop Advisers (CCAs) Extension agents Farm bureaus US Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS) Farm Service Agency (FSA) Universities Producer associations

26 ELEMENTS FOR CONDUCTING WQCT Element 1: Assessing the potential for WQCT Element 2: Determining what a producer can trade Element 3: Determining how much a producer can trade Element 4: Determining when a producer can trade Element 5: Finding a trading partner Element 6: Develop trade agreements & address liability Element 7: Verify & certify BMP implementation Element 8: Track & report pollutant reductions & trades

27 Element 1: Assessing the potential for WQCT Need a watershed catalyst t or di driver: Total maximum daily loads (TMDLs) Specific pollutants of concern Regulated dischargers (NPDES permit- holders) Research possible pollutants for reduction to generate potential credits Determine the overall watershed goals and necessary reductions

28 Element 2: Determine what a producer can trade Determine commodities or services to trade: Commodity: Units of pollutants reduced (in pounds, credits, or acres) Service: Payments for implementation of conservation practices List commodities or conservation practices that are eligible for trading Crop advisors should work closely with producers to chose BMPs that are best suited to a producer

29 Element 3: Determine how much a producer can trade Use state trading policies or rules to determine baselines Use calculation l methods described d in policy or rule to determine load from farm and credits generated by a BMP Use trading ratios to convert pounds of pollutant reduction to credits

30 Element 4: Determining when a producer can trade Factors that affect the time frame for trading: Seasonal variability Time it takes to select, develop, and implement a particular BMP Lag time between when a practice is implemented and when the pollutant reduction is achieved Consider the life span and maintenance requirement for a particular BMP

31 Element 5: Finding a trading partner Several ways to facilitate t credit trading: Direct contracts Brokers: third parties that bring trading partners together Aggregators: third parties that collect trading credits and sell in bulk to buyers Central exchanges: involve a third party that purchases credits from producers and distributes them among buyers

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33 Element 6: Develop trade agreement & address liability Several issues to addressed when entering into WQT agreements: Technical issues: o Type & location of BMP generating credits o Procedures for O&M and the responsible party o Reconciliation period o Applicable baselines for both sellers and buyers o Applicable trade ratios o Expected pollutant load reductions from BMPs o Current water quality contribution for sellers and buyers

34 Element 7: Verify & certify BMP implementation The CTIC manual stresses that credit verification is necessary to ensure pollutant reduction Organizations involved in credit verification and certification will vary by state depending on trading rules and policies

35 Element 8: Track & report pollutant reductions & trades Most rules and policies require documentation of trades, water quality monitoring data, and records of BMP effectiveness Important questions to ask when entering into an agreement: Does the trade agreement specify how trades are tracked over time? Who is responsible for tracking trades and what information is necessary to report? Does the trade agreement specify the reporting frequency? When are trade tracking reports due and to whom is the information sent?

36 Water Environment Federation Point Source Tools Session A in Water Quality Credit Trading: PowerPoint Workbook for a Detailed Assessment of Opportunities and Options Introduction & User Guide (Word) A. Are We Ready for Trading B. Decision i Process C. Stakeholder Identification D. Stakeholder Readiness E. Information Management 1. Opportunities & Constraints 2. What to Trade, Where 3. Who Trades, Why 4. Trading Ratios 5. Credit Generation & Use 6. Market Elements, Part One 7. Market Elements, Part Two 8. Market Models and Framework 9. Tracking 10. Oversight 11. Evaluation

37 Key Themes An initial assessment along key factors for success shows where we are now Screen out extreme situations not appropriate, not ready to explore trading Identify strengths, weaknesses, opportunities, and barriers as basis for approaching process choices Key Tool Key Tool Six Question Benchmark Assessment

38 What are the water quality problem(s)/pollutant(s) ()/ ll t( ) Is there an imperative to make pollutant reductions and water quality improvements now, or can we see one on the horizon? What sources are contributing to the problem and what are their requirements, incentives, or general control options? What kind of data do we have water quality, watershed, cost, effectiveness? What is our past experience with stakeholder cooperation What is our past experience with stakeholder cooperation and collaboration? Should be start with a small scale project or a larger watershed-scale credit market?

39 Water Quality Credit Trading Workshop Hold us to meeting these Objectives:? Initiate communication and collaboration? Benefits of WQCT and how to start a trading program Challenges:? Engage all? Retain interest