On Monday the House Environmental Resources and Energy Committee held a briefing on the state’s Nutrient Credit Trading Program featuring testimony by the PA Infrastructure Investment Authority and Red Barn Consulting, a company involved in developing credit-worthy projects.

Paul Marchetti, Executive Director of PennVEST, and Robert Boos, a Credit Trading Specialist with PennVEST, provided the Committee with an overview of their agency’s role in the credit trading process.

Boos explained the Chesapeake Bay Tributary Strategy requires Pennsylvania to reduce nitrogen by 37 million pounds a year, phosphorus by an additional 1.1 million pounds per year and sediment by an additional 116,000 tons per year from discharging into the Chesapeake Bay annually to meet the total daily maximum load (TDML) and remove the Chesapeake Bay from the Federal Impaired waters list.

Boos said PennVEST’s Nutrient Clearinghouse “can facilitate an increase in demand that makes undertaking credit-generating projects more viable and possibly create an additional revenue source” and that PennVEST holds “forward auctions” and “spot auctions” to facilitate the buying and selling of the credits. “There’s is no cost to register and participate in any of the auctions,” he stated. “PennVEST charges 2.5 cents for every credit bought and sold in the auction to cover administrative expenses for implementing the program which is due when credits are delivered.”

Boos also highlighted the benefits of a using an auction, including the following:

-- PennVEST guarantees purchase and delivery of credits to successful participants in auction;

-- Credits through the auction provide a potentially cost effective means to comply with discharge limits without having to implement a "bricks and mortar" infrastructure project;

-- Registration to participate in auctions can serve as documentation for Department of Environmental Protection permit applications as the means to comply with net zero nitrogen and zero phosphorus limits for new land development to get permits issued.

Peter Hughes, Red Barn Consulting, said his company is an aggregator of nutrient credits and since 2006 the company has held 27 nutrient credit trading contracts which resulted in 346,257 pounds of nutrients reduced to the Chesapeake Bay.

He explained agriculture contributes more than 50 percent of the phosphorus and nitrogen that enters the Chesapeake Bay and then walked through how the company determines if a farm meets “baseline compliance” for the program.

“It’s very important that we have assured additionally within our credit trading program; that we’re able to see a farm throughout the year that it is a done by a qualified professional to ensure that these credits that have been traded are there and they comply,” he said. “The fact of the matter is that not all farms are going to qualify, not all farms are meeting that baseline requirement.”

Hughes also offered recommendations for changing the program.

“Of the three stages of a credit, the certification stage is where a business would rely on a decision by DEP to go ahead and make an investment that would generate the credits,” he stated. “The business can challenge DEP’s calculation at the certification stage but it is not clear whether interested members of the public have standing to challenge those calculation and in fact the general understanding is that they do not have standing at this point. This leaves the credit calculation open to challenge at a later stage, when the credit is applied to an NPDES permit. By this point, investments have been made, but uncertainty not only undermines the confidence of the potential credit financers but also potential buyers, thus limiting the market. It would be very helpful to have any potential challenges come forward up front at the certification stage, so that both buyers and sellers have certainty in the number of credits generated. For this to happen, we need a clear understanding that interested members of the public have standing to challenge a certification decision by DEP. This may require legislation.”

Hughes added, “we really need to look at the cost associated with compliance; cap and trade is one component as a way to meet the regulatory requirements under the Clean Water Act and NPDES permit process.” He noted “we’ve seen a lot of the waste treatment plants decide that they are going to raise rates put in the capital upgrade and not trade but they are only 20 percent of the problem.”

DEP was not represented at the meeting, but for more information visit DEP’s Nutrient Credit Trading webpage.

Rep. Ron Miller (R-York) serves as Majority Chair of the Committee and Rep. Greg Vitali (D-Delaware) serves as Minority Chair.

3/18/2013