Minnesota Pollution Control Agency Water Quality Trading Rule Development

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Minnesota Pollution Control Agency Water Quality
TradingRule Development
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Why Trading?

• The Minnesota Pollution Control Agency has
  developed some experience with water quality
  trading which has led us to believe that it can
  be a very useful water quality management tool
• Rahr Malting Company 1997
• Southern Minnesota Sugar Beet Cooperative 2000
• Minnesota River Basin Phosphorus General Permit
  2005
• Water quality trading can provide management
  options to achieve greater efficiencies and
  environmental benefits than those available based
  on conventional regulatory requirements

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Why Trading?Impaired Waters

• The Draft 2008 Impaired Waters list contains
  1,469 impairments including
• 500 lakes
• 25 listed for multiple pollutants
• 336 rivers streams
• 603 reaches listed for one or more pollutants

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Why Trading?The legal angle

• In 2004 the MPCA was sued over the issuance of a
  discharge permit to a new wastewater treatment
  facility planned for the cities of Annandale and
  Maple Lake
• At issue was whether the MPCAs issuance of a
  permit to a new source of pollutants to in the
  watershed of an impaired water, and prior to the
  completion of a TMDL, violated federal law
• MPCA argued that a recent phosphorus reduction of
  53,500 lbs/year achieved by the city of
  Litchfield more than offset the proposed 2,200
  lbs/year load from the Annandale/Maple Lake
  project
• No formal trade agreement was negotiated
  between the Litchfield and Annandale/Maple Lake
  facilities

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Court of Appeals Decision

• In August of 2005 the Minnesota Court of Appeals
  ruled that the MPCA had improperly issued the
  permit because the proposed discharge would
  contribute to the nutrient impairment in Lake
  Pepin and reversed the permit issuance
• The Cities (Annandale Maple Lake) and MPCA
  appealed the decision to the Minnesota Supreme
  Court which agreed to review the case

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And Then We Waited

• Turns out the Supreme Court is a rather busy
  place and turn around time doesnt appear to be
  their primary concern
• MPCA didnt issue any discharge permits for new
  and expanding facilities in the Lake Pepin
  watershed from August of 2005 to .
• We had a lot of time consider how the Annandale
  case changed the legal landscape given the
  numbers of new impairments we expect to see in
  the future
• MPCA decided that trading should be part of the
  mix for successful water quality management

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Supreme Court Decision

• In May of 2007 the Supreme Court ruled that the
  MPCAs approach in issuing the Annandale/Maple
  Lake permit had been reasonable and reinstated
  the permit
• By this time we had 69 proposals for new or
  expanded facilities waiting for MPCA discharge
  permits
• Although the court ruled that the MPCAs offset
  based approach had been reasonable, we are now
  moving towards a trading based approach for new
  and expanded facilities in impaired watersheds

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Water Quality Trading Goals

• Improve water quality
• Manage growth and development in impaired and
  unimpaired watersheds
• Flexible and cost effective water quality
  management
• Encourage ecosystem improvements based on the
  ancillary benefits derived from the
  implementation of ecological services
• Design a water quality trading system that
  provides a consistent framework for buyers and
  sellers

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EPA Water Quality Trading Policy (2003) Trading
Objectives

• EPA supports implementation of water quality
  trading by states, interstate agencies and tribes
  where trading
• A. Achieves early reductions and progress towards
  water quality standards pending development of
  TMDLs for impaired waters.
• B. Reduces the cost of implementing TMDLs through
  greater efficiency and flexible approaches.
• C. Establishes economic incentives for voluntary
  pollutant reductions from point and nonpoint
  sources within a watershed.
• D. Reduces the cost of compliance with water
  quality based requirements.

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US EPA Office of Water Water Quality Trading
Policy (2003) Trading Objectives (cont.)

• E. Offsets new or increased discharges resulting
  from growth in order to maintain levels of water
  quality that support all designated uses.
• F. Achieves greater environmental benefits than
  those under existing regulatory programs. EPA
  supports the creation of water quality trading
  credits in ways that achieve ancillary
  environmental benefits beyond the required
  reductions in specific pollutant loads, such as
  the creation and restoration of wetlands,
  floodplains and wildlife and/or waterfowl
  habitat.
• G. Secures long-term improvements in water
  quality through the purchase and retirement of
  credits by any entity.
• H. Combines ecological services to achieve
  multiple environmental and economic benefits,
  such as wetland restoration or the implementation
  of management practices that improve water
  quality and habitat.

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Water Quality Trading Rule Development

• MPCA is developing a Water Quality Trading rule
  with the assistance of an advisory committee
• The advisory committee process is intended to
  obtain guidance from the numerous interested
  sectors
• Our objective is to complete a draft rule by June
  2008

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Advisory Committee

• External Membership
• 70 people on email notification list
• Representing 52 different organizations
• MPCA Membership
• 19 agency staff on notification list
• Representing various areas of expertise

ADVISORY COMMITTEE MEETINGS ADVISORY COMMITTEE MEETINGS ADVISORY COMMITTEE MEETINGS ADVISORY COMMITTEE MEETINGS ADVISORY COMMITTEE MEETINGS ADVISORY COMMITTEE MEETINGS
Meeting Date Feb 27 Apr17 Jul 17 Sep13 Nov6
Number of Participants 33 47 33 34 32
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Progress So Far

• Developing a set of common goals and values
• Water quality protection and restoration is the
  top priority
• Accountability, additionality and equivalence
• Market driven and results oriented system
• Capture multiple ecological benefits
• Establish incentives for management that benefits
  water quality
• Efficient, equitable and sustainable
• Flexible to adapt to changing knowledge and
  technology
• Have evaluated various existing programs and
  regulations
• Have developed a draft outline and started to
  analyze its components

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Minnesota River Basin General Phosphorus Permit

• Watershed permit applies all point sources in the
  Minnesota River basin
• Pollutants of concern
• biochemical oxygen demand (BOD)
• phosphorus
• Authorizes point source/point source trades
• 41 point sources are currently authorized to trade

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Minnesota River Basin General Phosphorus Permit -
Map
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Minnesota River Basin Permit Drivers

• Lower Minnesota River Watershed Low Dissolved
  Oxygen TMDL
• Low flow dissolved oxygen depletion between
  Shakopee and the Twin Cities
• Upstream sources of phosphorus contribute to
  excess algal growth
• Algal decay causes in stream dissolved oxygen
  deficiency in the lower 22 miles of the Minnesota
  River
• TMDL established waste load allocations for
  phosphorus sources upstream of Jordan
• Individual waste load allocations for the 39
  largest continuous dischargers
• Collective wasteload allocations for everyone
  else
• Virtually no reserve capacity
• No phosphorus load allocated for new and
  expanding facilities

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Minnesota River Basin Trading PermitHow Does it
Work?

• The basin permit is part of the TMDLs
  implementation plan
• Establishes phosphorus reductions and authorizes
  trading between the 39 largest point sources
  upstream of Jordan
• Intended to achieve a cumulative phosphorus
  reduction of 35 in 5 years
• Trading baselines
• Existing facilities based on effluent loads from
  the 1999 2000 summer seasons
• New facilities have no allocation so their
  trading baseline is zero
• Credits
• Facilities operating below their permit baselines
  can generate credits for sale
• The permit establishes the Jordan Trading Unit as
  the medium of exchange (credit) based on each
  facilitys location in the watershed
• Trade Ratios
• 1.1 to 1 for existing facilities
• 1.2 to 1 for new facilities

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Minnesota River Basin Permit Trading Activity

• Effluent limits for existing facilities take
  effect an May 1, 2008
• Preliminary review shows that 13 of the 39
  facilities are not expected to meet effluent
  limits for the 2008 season
• Expect to see new trade agreements early next
  year
• Two new facilities are operating in the basin
• Granite Falls Energy is trading with the Mankato
  WWTP
• Poet Biorefining is trading with the Lake Crystal
  WWTP
• Two additional trade agreements have been
  executed in the basin but the companies are not
  yet in operation

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Potential Environmental Benefits of
Point/Non-Point Trading Programs
Point Source Upgrade Non-Point Source BMPs
Pollutant of Concern Yes Yes
Other pollutants Maybe Yes
Habitat creation No Yes
Canopy establishment No Yes
Stream bank stabilization No Yes
Velocity attenuation No Yes
Wetland creation No Yes
Floodplain management No Yes
Assimilative capacity No Yes
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Example of a Watershed Based Water Quality
Trading Program

• Great Miami River Watershed Water Quality Credit
  Trading Program
• Run by the Miami Conservancy District, Dayton,
  Ohio
• Excess nutrients and turbidity impairments in
  three sub-watersheds
• TMDL completed for the Stillwater River watershed

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Ohios Great MiamiRiver Watershed

• Great Miami River Watershed
• 4,000 mi²
• 1.5 million residents
• Dayton is largest city
• Agriculture is dominant land use
• Non-point source activities are considered major
  contributors to water quality impairments
• Water Quality Credit Trading Program established
  in 2005
• Total Phosphorus and Total Nitrogen trading
  between POTWs and agricultural producers

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Great Miami Economic Projections

• 2004 economic analysis trading opportunities in
  the watershed
• 20 year economic projection of the costs to meet
  water quality goals
• WWTP upgrades 422.5 million
• Total trading costs 46.5 million
• Agricultural BMPs 37.8 million
• Data and transaction costs 8.7 million
• Projected cost savings of 376 million

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Great Miami Trading Program Results
Miami Conservancy District 2006 Annual Report Miami Conservancy District 2006 Annual Report
Participating wastewater treatment facilities 5
BMP project proposals received 71
Cost estimate range (combined TP TN) 0.34 to 12.78/lb
Projects funded 15
Executed agreements with county SWCDs 5
Project terms 5 to 12 years
Payments to farmers 86,743.84
Payments to SWCDs 6,240.25
Estimated nutrient reductions gt36 tons
Types of BMPs funded No-till, pasture seeding/prescribed grazing, cover crops, hay land conservation crop rotation, filter strips Types of BMPs funded No-till, pasture seeding/prescribed grazing, cover crops, hay land conservation crop rotation, filter strips
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South Nation River Watershed

• Total Phosphorus Management Program
• Established by South Nation Conservation in 1993
• Agricultural BMP implementation to offset point
  source regulatory requirements
• Over 500 projects valued at 7.3 million

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Total Phosphorus ManagementEligible Practices
Eligible Projects Grant Rate Grant Maximum
Manure Storages Up to 50 Up to 5,000
Constructed Wetlands for Wastewater Treatment/Disposal Up to 50 Up to 5,000
Milkhouse Wastewater Treatment/Disposal Up to 50 Up to 2,500
Clean Water Diversion/Barnyard Runoff Control Up to 50 Up to 5,000
Livestock Access Restriction to Waterway labour contracted out labour by applicant   Up to 75 Up to 100   Up to 5,000 Up to 5,000
Buffer Strips Up to 50 Up to 5,000
Stream Bank Erosion Control Up to 50 Up to 5,000
Educational Initiatives Up to 50 Up to 5,000
Fertilizer, Chemical and Fuel Storage/Handling Up to 50 Up to 1,000
Septic System Upgrade/Replacement Up to 50 Up to 1,000
Nutrient Management Plans Up to 50 Up to 500
Plugging Abandoned Wells Up to 100 Up to 1000