Virginia’s Chesapeake Bay Watershed Nutrient Credit Exchange Program

1. Virginia’s Chesapeake Bay Watershed Nutrient Credit Exchange Program Presented to: ECOS - Water and Ecosystems Committee April 14, 2008

2. Virginia’s Chesapeake Bay Watershed River Basins

3. Nutrient Impaired Chesapeake Bay • Charts show typical low dissolved oxygen • levels during summer season as a result • of nutrient enrichment. • Other problems include poor water clarity and harmful algae blooms.

4. York River near Gloucester Point, VASeptember 9, 2005 Photo by Bill Portlock – Chesapeake Bay Foundation

5. Benefits of Restored Bay Good mixture of fish food at bottom of food chain Fewer algae blooms Fishing (recreation / commercial) Clearer waters more SAV Better habitat

6. Virginia PS nitrogen loads are less than 6% over loading cap All five river basins still over their caps Most of reduction to date in the Potomac basin Virginia PS phosphorus loads below total cap Two river basins have met their cap [York and James] and three still over Progress in Point Source Nutrient Reduction - 2007

7. Nutrient Credit Exchange Legislation(Adopted in 2005) • Authorizes Chesapeake Bay Watershed Nutrient Credit Exchange Program • Directs DEQ to issue a watershed general permit for point source discharges of nutrients (Nitrogen and Phosphorus) to the Chesapeake Bay and its tributaries • Authorizes the creation of the (non-profit) Virginia Nutrient Credit Exchange Association to assist the regulated community in complying with the watershed general permit • Allows for technology based concentration limits

8. Legislative Findings and Purposes Utilization of a watershed general permit and market-based point source nutrient credit trading program will assist in: • meeting the nutrient cap load allocations cost-effectively and as soon as possible in keeping with the 2010 timeline and objectives of the Chesapeake 2000 agreement, • accommodating continued growth and economic development in the Chesapeake Bay watershed, and • providing a foundation for establishing market-based incentives to help achieve the Chesapeake Bay Program's nonpoint source reduction goals

9. CB Watershed Nutrient General Permit Highlights • Effective January 1, 2007 • Covers 124 significant and 23 non-significant discharges • Includes calendar year annual TN and TP load limits – each discharger’s individual permit covers all other limits • Compliance date is January 1, 2011 • Initial compliance plans submitted by September 30, 2007 – must be updated by February 1 each year • Dischargers expect to meet compliance date for both phosphorus and nitrogen in each of the five river basins

10. CB Watershed Nutrient General Permit Highlights [cont.] • Modeled after a Cap & Trade Program • No watershed limitations – facilities responsible for meeting individual wasteload allocations • “Bubbling” or aggregating allocations allowed • Trade to reach load caps – no point source baseline requirement • Point Source-to-Point Source trading for existing facilities • Point Source-to-Nonpoint Source trading only allowed to accommodate new and expanding facilities

12. Example: York River Basin Summary Chart shows that basin facilities achieve load cap in 2011 and will remain under cap

13. Schedule of Projected Upgrades forYork River Basin Chart shows that only several facilities need to upgrade initially; a few later; and others may choose to purchase credits over long term

14. Trading Ledger for York River Basin Charts produced to forecast for each future year the expected loads and credit exchanges for all dischargers in basin

15. Summary Facility Chart : Seller Chart shows that this facility plans to upgrade by 2010 and projects credits available for sale

16. Summary Facility Chart : Buyer Chart shows that this facility does not plan to upgrade, but instead to purchase credits to comply with cap

17. Deposits to VA Water Quality Improvement Fund • WQIF established in 1997 to provide grants for nutrient removal and other water quality projects. • DEQ - point sources • DCR – non-point sources • Expect current funds for PS projects to be depleted in Sept. ‘09 • 2007 General Assembly authorized up to an additional $250 million in bonds for PS nutrient projects.

18. Status of WQIF Grant Agreements -------------------------------------------Million Dollars ----------------------------------------- Note: Projects for three significant dischargers in Potomac basin and one in York will be done in two phases. In the James basin, 2 significant dischargers are going off line and will not be upgrading. Project numbers include 6 non-significant plants. 4-03-08

19. WQ Trading - Lessons Learned • Watershed Permit greatly improves chances for a successful trading program • Formalized trading association can improve chances for a successful trading program • Outreach is key! • Other regulatory programs will impact (e.g. VA’s “Technology Reg”, WQIF Funding, WQMP allocation reg) • Shared risk • Every state/basin is different • PS – NPS trading is tough nut to crack • It will work but you have to work at it!

20. Contact for Further Information Alan Pollock, VA-DEQ, Office of Water Quality Programs 804-698-4002 aepollock@deq.virginia.gov Information on Watershed General Permit: http://www.deq.virginia.gov/vpdes/ Information on VA Water Quality Improvement Fund http://www.deq.virginia.gov/bay/wqif.html