USDA Banks on Multistate Nutrient Trading

9/15/2012 7:00 AM
By Chris Torres Staff Writer

A slew of grants recently doled out by USDA signals its focus on establishing interstate trading of nutrient credits.

“We would like eventually to see if it makes sense for trades to occur across state lines,” said Ann Mills, deputy undersecretary for natural resources and environment at the USDA, which recently awarded $2.6 million in conservation innovation grants (CIG) to support nutrient trading projects in the Chesapeake Bay watershed.

A total of $26 million in CIG awards were made nationwide. But this is the first time the department devoted a specific chunk of money — $4.7 million total — to support water quality credit trading.

“The goal is to fund the best ideas, the most innovative ideas for protecting water quality, while ensuring working farms and ranches remain profitable,” Mills said.

The Chesapeake Bay Foundation, Alliance for the Chesapeake Inc., Virginia Department of Conservation and Recreation, Maryland Department of Agriculture and Borough of Chambersburg in Pennsylvania each received matching grants to support various nutrient trading projects and help farmers put in more best management practices (BMPs) on their land.

Chambersburg is getting $112,050 to pay farmers to put in cover crops in return for the nutrient credits that will be generated.

Lance Anderson, water and sewer superintendent with the borough, said the credits will help bring Chambersburg into compliance with its nutrient discharge mandate for the next two years while a $35 million upgrade to the local wastewater treatment facility is completed.

Scott Metzger of the Franklin County Conservation District said that between 12 and 15 of the county’s farmers, representing about 1,800 acres of farmland, will be signed up, along with the same number of farms and acreage in neighboring Cumberland County.

He said the plant needs to purchase at least 75,000 pounds of nitrogen and 35,000 pounds of phosphorus credits over the next two years to meet its nutrient discharge requirement.

Farmers will get around $30 an acre to buy cover crops such as rye, wheat, triticale and barley, but nothing extra to cover the costs of labor and equipment.

Still, Metzger doesn’t think that will be an issue.

“A lot of them are already planting cover crops and meeting their baseline requirements. We actually have a lot of cover crops planted in Franklin County,” he said.

Virginia’s Department of Conservation and Recreation is getting $600,000 to facilitate the development of new nutrient trading regulations in the state and to set up a nutrient credit registry.

Maryland is getting $500,000 to conduct an analysis of the demand for nutrient credits in the state, which is currently working on developing a nutrient trading protocol of its own.

The largest award went to the Chesapeake Bay Foundation, which is working with several partners, including Red Barn Consulting and World Resources Institute, which developed Pennsylvania’s nutrient trading platform, to assess 100 farms in both Pennsylvania and Virginia to see what farmers need to generate nutrient credits that could be sold on the nutrient credit trading market.

Matt Ehrhart, executive director of the Chesapeake Bay Foundation’s Pennsylvania office, said he hopes the project will provide a better snapshot of where farmers are in terms of being ready to sell nutrient credits and what sort of financial programs could help move them along.

Getting a clearer picture of where farmers are in terms of nutrient credit trading, he said, will provide more certainty to private ag consultants like Red Barn, which often facilitate trades but find it difficult to make investments without knowing if credits are ready to be traded or not.

“I think there are a lot of interesting implications, depending on what you find. Finding out what programs farmers need, this information will really provide a lot of useful information for the private consulting sector,” Ehrhart said.

“I think 100 farms gives us an opportunity to get a reasonable snapshot of ag,” he said.

The majority of the foundation’s grant will go to World Resources Institute, which is currently working on developing a multistate trading platform for Pennsylvania’s Department of Environmental Protection (DEP).

Nutrient credit trading in the state has struggled to get going, largely because of lack of demand from point-source polluters such as wastewater treatment plants, which have come under new, stricter guidelines for the amount of nutrients they are allowed to discharge into local waterways.

Charlie Abdalla, professor of ag economics at Penn State, said nutrient trading markets work when there is an enforceable cap to go by. The Total Maximum Daily Load (TMDL) or pollution diet set for the Chesapeake Bay, by default, acts as that cap, but Abdalla said that process is still being played out, with no real enforcement as of yet.

He said air quality trading, which the Environmental Protection Agency (EPA) implemented three decades ago, saved billions of dollars in upgrades to electrical generation facilities because there was a clear cap that created a market for point-source polluters to trade generated credits.

“You need a cap. That creates the demand for water quality credits,” Abdalla said.

Another factor is liability and whether point-source polluters or farmers would be on the hook if a credit-generating practice on a farm fails and the government takes an enforcement action.

“The enforcement of contracts and liabilities is another thing to work out,” Abdalla said.

Trading across state lines creates even more challenges, Mills said, because another state might not view credits generated by an entity in another state the same way as if it were generated in their own state.

She said she hopes the grants will at least get people talking and perhaps create a consensus on what will work and what won’t.

“Part of the beauty of the grants is it will help identify issues and how do you overcome those by working together,” Mills said. “We’re extremely pleased that we got a strong response. We think in the Chesapeake Bay, this is a unique opportunity.”

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