The Joint Legislative Budget and Finance Committee released a report Tuesday took a very general look at how competition might help reduce the cost of eliminating pollution from Pennsylvania going to the Chesapeake Bay without looking at many of the logistical and legal details involved or the potential impact on individual farmers.

The report also only covered nutrient reductions and not sediment reductions.

The report said DEP estimated in 2004 its Chesapeake Bay Tributary Strategy the capital cost to meet the Chesapeake Bay TMDL at $8.2 billion for all sectors, with an additional $665 million in annual costs for operations and maintenance. 

Agricultural BMPs account for 75 percent of the nitrogen reductions, but only about 7.2 percent of the capital costs ($592 million).  Publicly owned treatment works (POTWs) and industrial dischargers are estimated to generate about 11 percent of the nitrogen reductions and account for about 4.6 percent of the estimated capital costs ($376 million). 

Urban BMPs account for about 9 percent of the nitrogen reductions, but 68.5 percent of the capital costs ($5.6 billion).  Finally, septic system denitrification accounts for 2.6 percent of the nitrogen reductions and 19.5 percent of the capital costs ($1.6 billion).

To help lower these costs, the Joint Committee was directed by a provision added to the Fiscal Code last year-- Act 87 of 2012- to determine if a competitive bidding process would lead to a more cost-effective approach to paying for the nutrient reduction required to protect the Chesapeake Bay.

The concept evaluated in the Committee’s report had a state agency-- possibly the PA Infrastructure Investment Authority-- issue a Request for Proposal to buy nutrient credits across the Pennsylvania portion of the Bay watershed and across all sectors-- agricultural, wastewater, stormwater, etc.

The primary source of the credits, the report concluded, would probably be from the agricultural sector because it has the opportunity to install more cost-effective best management practices to reduce nutrient and sediment runoff.

The Committee found using a competitive RFP program would lower overall compliance costs to the state by 80 percent or more for the agriculture and urban stormwater sectors based on a very broad-brush analysis.

The report did not look at the logistics or scope of an RFP-type process.  For example, would the RFP be county-based or by smaller watersheds or for the entire Chesapeake Bay watershed in Pennsylvania. 

With millions of pounds of reductions required, any county-wide or larger RFP would mean only large-scale, capital intensive solutions could deliver the needed reductions.  Individual farmers could be left out of the initiative altogether.

The report said, “We estimate achieving the required nitrogen reductions for nonpoint source agricultural and urban runoff through best management practices (BMPs) will cost about $628 million in 2015 and about $1.77 billion in 2025.  We estimate a competitive RFP program could achieve these same levels of reductions at a cost of about $110 million in 2015 and $255 million in 2025.”

However, the reported noted a source of funding would need to be found for the competitive RFP program.  In 2010, only about $187 million was spent statewide (federal and state dollars) on nonpoint source pollution management.  While the report said some of these funds could be diverted to fund an RFP program, it does not deal with the issue of how this potential diversion of funds would leave individual farmers without funding to install best management practices.

The PA Infrastructure Investment Authority and DEP already hold competitive Nutrient Credit Auctions as a vehicle for purchasing credits towards Pennsylvania’s Chesapeake Bay cleanup commitments.

A new “flush tax” imposed on individual homeowners such as Maryland imposes ($60 annually) would be another possible source of funds the report said.

In addition to needing a major source of funding, the report did not mention major changes were needed to DEP’s existing nutrient credit trading program based on concerns expressed by the U.S. Environmental Protection Agency and other groups.

The significant limitations of the report make it of limited value in guiding state policy decisions.

The full report and an executive summary are available online.

1/28/2013