Senators Vance, Brubaker, White, Musto

Members of the Pennsylvania Fair Share for Clean Water Coalition testified at a state Senate hearing this week that action is needed quickly on legislation to improve the state’s Nutrient Credit Trading Program in order to reduce the cost of complying with federal and state clean water mandates, provide farmers with the help they need to install conservation practices and allow for future growth.

Video Blog: See the Opening Comments At The Hearing + Video Of Hearing

The Coalition members presenting testimony included the Pennsylvania Municipal Authorities Association, Pennsylvania Farm Bureau, Pennsylvania Builders Association and the Chesapeake Bay Foundation.

The hearing was held by the Senate Environmental Resources and Energy and Agriculture and Rural Affairs Committees on legislation introduced by Sen. Pat Vance (R-Cumberland) as Senate Bill 1493 and in the House by Rep. Eugene DePasquale (D-York) as House Bill 2717.

Both bills would create a Nutrient Credit Trading Board that would function as a bank to which farmers who install conservation practices could sell credits certified by the Department of Environmental Protection as valid for projects that reduce nutrient pollution.

Wastewater plants and builders who need to reduce nutrient pollution could then buy these credits from the bank without the risk of the credits disappearing or becoming invalid. Coalition members explained how the addition of a nutrient credit bank option would improve the viability of the trading program.

“Federal and state clean water mandates require a significant reduction in nutrient pollution flowing into Pennsylvania’s rivers and streams from wastewater plants and farms,” said Matthew Ehrhart, Pennsylvania Executive Director of the Chesapeake Bay Foundation. “Because installing conservation practices on farms is many times more cost-effective than building whole new treatment systems at wastewater plants, an innovative nutrient credit trading program was developed by the Department of Environmental Protection to allow farmers to take credit for nutrient reductions on their farms and sell them to wastewater plants and builders who need to make similar reductions.” (Full testimony)

“The current nutrient credit trading program, however, has a fundamental problem: farmers don’t want to invest in conservation practices if they don’t have a buyer, and buyers don’t want to use credits if they have to deal with dozens of farmers over 10 or 15 years,” said Ehrhart. “A trading bank solves that problem by allowing farmers to sell credits to the bank at any time and buyers can buy credits guaranteed by the bank. It reduces the risk for everyone, reduces costs for ratepayers and farmers and allows for future growth.”

"Pennsylvania stakeholders have resolved many issues as the Nutrient Trading Program has evolved. We need to nail down these remaining issues so we can put this new tool to work." said Ehrhart.

It would cost over $1 billion to upgrade wastewater plants to meet the clean water mandates in the Chesapeake Bay watershed without using nutrient credit trading. These kinds of costs will double or triple current sewage rates.

“The cost to ratepayers to comply with nutrient pollution reduction mandates for the 184 wastewater plants in the Chesapeake Bay watershed alone is over $1 billion, and while we are grateful for the infrastructure funding passed as part of the state budget in July, we need to look at all the tools we have available to reduce costs,” said John Brosious, Deputy Director of the Pennsylvania Municipal Authorities Association. “Nutrient credit trading offers a significant opportunity to reduce those costs by investing in farm conservation practices that can, in many cases, reduce nutrient pollution much less expensively than we can.” (Full testimony)

“The current credit trading system does not provide the certainty and reliability wastewater plant operators need in specific amounts and at specific times to meet their DEP permit limits,” said Brosious. “Having a bank guaranteeing that the credits will be there at the time they are needed would significantly reduce the risk of using the credit option and would be a real benefit to our ratepayers.”

The Department of Environmental Protection estimates federal and state clean water mandates in the Chesapeake Bay Watershed will cost farmers over $600 million to implement. Unfortunately, no additional funding was provided in the state budget adopted in July to help farmers install those conservation practices or to county conservation districts which help design them.

“We see nutrient credit trading as one of several ways farmers could finance the costs to improve the management of their farms beyond minimum environmental compliance levels, but it’s not a magic bullet and it does not eliminate the need for other sources of funding,” said Joel Rotz, State Governmental Relations Director for the Pennsylvania Farm Bureau. “The current credit trading system has a ‘chicken and egg’ problem: farmers will not invest in conservation practices without knowing if they can sell the credits and potential purchases fear they will be held accountable for permit violations if conservation practices are not implemented.” (Full testimony)

“For any nutrient trading program to be viable, it must provide absolute assurance that permit holders who purchase nutrient credits in good faith to meet permit requirements will not be subject to sanctions,” said Rotz. “And farmers that generate credits must be assured they have a market. A nutrient credit trading bank will provide both assurances.”

Federal and state clean water mandates reduce and cap the amount of nutrient pollution going into rivers and streams. As a result, any future growth depends on farm conservation and wastewater projects that reduce pollution enough to offset any new nutrient discharges.

“We fully support cleaning up the Chesapeake Bay and a key to achieving that goal is a functioning, robust nutrient credit trading program,” said Robert J. Fisher, President of R.J. Fisher and Associates, representing the Pennsylvania Builders Association. “The current trading program creates an unacceptable level of risk and uncertainty for both generators of credits and potential users, including builders.” (Full testimony)

“A nutrient credit trading bank would help solve these problems by guaranteeing the long-term price and availability of credits for potential buyers and it will provide an additional market for farmers with credits to sell,” said Fisher. “These credits are vital to the building industry because without them there can be no growth-- residential or commercial—beyond the nutrient reduction caps imposed by the clean water mandates.”

The Pennsylvania Infrastructure Investment Authority last year approved investing $50 million in EPA revolving fund loan monies to purchase nutrient credits, but those funds have not been spent. Coalition members believe investing those funds through the proposed nutrient credit bank would make significant improvements in water quality and ensure future growth opportunities.

Alexandra Chiaruttini, an attorney with Stock and Leader, said one of the reasons the current nutrient credit trading program does not work is the length of time it takes for DEP to validate credits, nine months or more in many cases. No business, she said, can wait nine months for an answer and expect to make money in the nutrient credit market. (Full testimony)

Based on her experience in several trades so far, Chiaruttini said DEP needs to develop reliable formulas for what each farm conservation practice will yield in nutrient credits, rather than make every attempt at validating a credit a months-long negotiation.

Cathy Curran Myers, DEP Deputy Secretary for Water Management provided the Committees with an overview of DEP’s Nutrient Trading Program.

"Pennsylvania's trading program is one the nation's most comprehensive, as it is one of the first of its kind to have nonpoint source and point source trading options," said Myers. "This innovative, market-based system is leading to cleaner water in Pennsylvania while helping the state to comply with increasingly stringent federal water quality standards. It is also paving the way for new investments in the state's communities—especially in Pennsylvania's rural areas where agriculture is strong and farmers are doing their part to reduce pollution to our waterways.

"It was created as an innovative and scientifically based option that was implemented as one of many alternatives for communities to reduce the amount of nitrogen, phosphorus and sediment that impairs and degrades our streams and rivers. The program has established itself as a viable option for farmers to generate new revenues, for communities to keep consumer fees and charges related to drinking water and wastewater low, and for treatment plants and developers to meet water quality standards."

"Dischargers and developers are beginning to consider credit purchases instead of traditional bricks and mortar solutions to meet their water quality obligations," said Myers, pointing to two examples where municipalities are using nutrient trading to reduce the cost of complying with federal water quality requirements while keeping rates down for citizens.

Fairview Township, York County, will purchase 20,000 nitrogen credits per year for the next 15 years from Red Barn Trading Co. of Lancaster. The municipality's estimated costs to upgrade its sewer plants and the sewage treated at the Lower Allen plant was $6.2 million, which would have required a rate increase of $22 per quarter for residents. Under the nutrient trading agreement, residents will only see a $9 increase per quarter.

In 2007, Mount Joy Borough, Lancaster County, became the first municipality to implement nutrient trading as part of its overall permit compliance plan. The borough invested $2.9 million in plant improvements and partnered with a local farmer who will generate credits by converting more than 900 acres to continuous no-till agriculture. Mount Joy reduced its annual projected cost for nutrient treatment using the trading option from $382,500 per year to $248,000 per year -- a 35 percent reduction.

"Pennsylvania's program is empowering local communities to use nutrient trading to solve local issues, while providing long-term benefits," said Myers. "Groups are learning firsthand how effective nutrient trading can be in meeting environmental goals at less expense than traditional command and control approaches. Similarly, they are also finding that credit trading can provide a means by which to improve their competitiveness.

"Innovations like water quality trading will further contribute to Pennsylvania's already successful efforts to restore vital natural resources and make crucial investments in our local communities."

The Fair Share for Clean Water Coalition supports these steps needed to help ratepayers, farm families and future homeowners and businesses comply with clean water mandates—

· Urges voter approval of the $400 million water infrastructure referendum on the November 4 election ballot;

· Reforms to the state’s nutrient credit trading program that will help to make it a viable alternative to provide for both environmental improvements to the Bay and sufficient future sewage capacity for new development;

· $50 million in direct cost share aid to farmers to install conservation practices ($35 million for REAP farm tax credits and $15 million in cost share grants);

· $10 million to county conservation district to expand technical assistance to farmers; and

· $10 million to restore cuts to the Department of Agriculture budget in farm programs.

Sen. Mary Jo White (R-Venango) serves as Majority Chair of the Environmental Committee and Sen. Ray Musto (D-Luzerne) serves as Minority Chair.

Sen. Mike Brubaker (R-Lancaster) serves as Majority Chair of the Agriculture Committee and Sen. Mike O’Pake (D-Berks) serves as Minority Chair.

The agenda, testimony and other comments received by the Committees on this topic are available on the Senate Environmental Resources and Energy Committee webpage.

For more information on credit trading, visit DEP’s Nutrient Trading webpage and the www.PaFairSharePlan.org website.

NewsClip: Nutrient Trading Program Helps Meet Water Quality Goals

Link: Fair Share Coalition: New Budget Supports Wastewater Plants, Farmers Left Out

DEP’s Nutrient Trading Webpage

9/19/2008