[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                 THE ROLE OF WATER QUALITY TRADING IN
                   ACHIEVING CLEAN WATER OBJECTIVES

=======================================================================

                                (113-60)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                    WATER RESOURCES AND ENVIRONMENT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 25, 2014

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                  BILL SHUSTER, Pennsylvania, Chairman

DON YOUNG, Alaska                    NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         ELEANOR HOLMES NORTON, District of 
JOHN J. DUNCAN, Jr., Tennessee,      Columbia
  Vice Chair                         JERROLD NADLER, New York
JOHN L. MICA, Florida                CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey        EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California           ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri                 RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan          TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California            MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas  GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas              TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana               STEVE COHEN, Tennessee
BOB GIBBS, Ohio                      ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania         DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York           JOHN GARAMENDI, California
DANIEL WEBSTER, Florida              ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida       JANICE HAHN, California
JEFF DENHAM, California              RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin            ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky              DINA TITUS, Nevada
STEVE DAINES, Montana                SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina             ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma           LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas                CHERI BUSTOS, Illinois
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
DAVID W. JOLLY, Florida

                                  (ii)

  


            Subcommittee on Water Resources and Environment

                       BOB GIBBS, Ohio, Chairman

DON YOUNG, Alaska                    TIMOTHY H. BISHOP, New York
GARY G. MILLER, California           DONNA F. EDWARDS, Maryland
SHELLEY MOORE CAPITO, West Virginia  JOHN GARAMENDI, California
CANDICE S. MILLER, Michigan          LOIS FRANKEL, Florida
ERIC A. ``RICK'' CRAWFORD,           ELEANOR HOLMES NORTON, District of 
Arkansas,                            Columbia
  Vice Chair                         EDDIE BERNICE JOHNSON, Texas
DANIEL WEBSTER, Florida              GRACE F. NAPOLITANO, California
JEFF DENHAM, California              STEVE COHEN, Tennessee
REID J. RIBBLE, Wisconsin            JANICE HAHN, California
THOMAS MASSIE, Kentucky              RICHARD M. NOLAN, Minnesota
STEVE DAINES, Montana                ANN KIRKPATRICK, Arizona
TOM RICE, South Carolina             DINA TITUS, Nevada
MARKWAYNE MULLIN, Oklahoma           SEAN PATRICK MALONEY, New York
MARK MEADOWS, North Carolina         NICK J. RAHALL, II, West Virginia
RODNEY DAVIS, Illinois                 (Ex Officio)
MARK SANFORD, South Carolina
DAVID W. JOLLY, Florida
BILL SHUSTER, Pennsylvania (Ex 
Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Peter A. Tennant, P.E., executive director, Ohio River Valley 
  Water Sanitation Commission, on behalf of the Ohio River Basin 
  Trading Project and the Association of Clean Water 
  Administrators.................................................     8
James J. Pletl, Ph.D., director of water quality, Hampton Roads 
  Sanitation District, on behalf of the National Association of 
  Clean Water Agencies...........................................     8
Richard H. Moore, Ph.D., executive director of the Environmental 
  Sciences Network, associate director of academics for the 
  Office of Energy and the Environment, and professor in the 
  School of Environment and Natural Resources, The Ohio State 
  University.....................................................     8
Carl Shaffer, president, Pennsylvania Farm Bureau, on behalf of 
  the American Farm Bureau Federation............................     8
Brent Fewell, Esq., Partner, Troutman Sanders LLP, on behalf of 
  the National Water Quality Trading Alliance....................     8
Ann Pesiri Swanson, executive director, Chesapeake Bay Commission     8

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Peter A. Tennant, P.E............................................    32
James J. Pletl, Ph.D.............................................    37
Richard H. Moore, Ph.D...........................................    44
Carl Shaffer.....................................................    52
Brent Fewell, Esq................................................    60
Ann Pesiri Swanson...............................................    69

                       SUBMISSIONS FOR THE RECORD

Hon. Bob Gibbs, a Representative in Congress from the State of 
  Ohio, request to include written testimony from the Association 
  of Clean Water Administrators..................................     6

                        ADDITIONS TO THE RECORD

Jessica Fox, technical executive, Electric Power Research 
  Institute, written statement...................................    71
Dr. A. Ann Sorensen, assistant vice president for programs and 
  research director, American Farmland Trust, written statement..    86
  
[GRAPHIC] [TIFF OMITTED] 

 
 THE ROLE OF WATER QUALITY TRADING IN ACHIEVING CLEAN WATER OBJECTIVES

                              ----------                              


                        TUESDAY, MARCH 25, 2014

                  House of Representatives,
   Subcommittee on Water Resources and Environment,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 3:17 p.m., in 
Room 2167, Rayburn House Office Building, Hon. Bob Gibbs 
(Chairman of the subcommittee) presiding.
    Mr. Gibbs. The Subcommittee on Water Resources and 
Environment of the Committee on Transportation and 
Infrastructure will come to order.
    The first order of business, I would like to welcome our 
witnesses and thank them for being here today. I ask unanimous 
consent that our witnesses' full statements be included in the 
record. Without any objection, so ordered.
    At this time, before we start, first of all, I want to 
apologize for votes and getting started about an hour and 20 
minutes late. So I thank you for your indulgence.
    I want to turn it over to Chairman Shuster for a comment.
    Mr. Shuster. I thank the chairman and want to welcome Mr. 
Shaffer from the Pennsylvania Farm Bureau. Thanks for being 
here today, and all of you for coming and testifying. I have a 
statement that I want to give related to, but different than, 
the topic here today.
    Today the Obama administration released a proposed rule 
that would dramatically expand the Federal jurisdiction over 
waters and wet areas in the United States, and I am sure the 
Pennsylvania Farm Bureau's going to be very interested in 
seeing how this progresses. This is another example of a 
disturbing pattern of the imperial Presidency that seeks to use 
brute force and executive action while ignoring Congress.
    Our concern is that this is going to unilaterally broaden 
the scope of the Clean Water Act and the Federal Government's 
reach into everyday lives that will have adverse effects on 
farmers, on contractors, on people's backyards, for that 
matter. It will impact the Nation's economy, threaten jobs, 
invite costly litigation, and restrict the rights of 
landowners, States, and local governments to make decisions 
about their lands.
    This massive Federal jurisdiction grab was the subject of 
failed legislation in the 110th and the 111th Congress. Strong 
bipartisan opposition, I repeat, strong bipartisan opposition, 
prevented those bills from moving forward. Defeated in 
Congress, now the Obama administration is trying to achieve 
this Federal power expansion through a rulemaking.
    This proposed rule supposedly aims to clarify which water 
bodies are subject to Federal jurisdiction under the Clean 
Water Act, which this committee has jurisdiction over, but I am 
extremely concerned that there are serious flaws with this 
process. Twice the Supreme Court has told the agencies that 
there are limits to the Federal jurisdiction under the Clean 
Water Act and that they had gone too far in asserting their 
authority.
    Now the administration has taken those Supreme Court 
rulings and cherry-picked discrete language from them in an 
attempt to gain expanded authority over new waters rather than 
heeding the directive of the Court. It is the responsibility of 
Congress, not the administration, to define the scope of the 
jurisdiction under the Clean Water Act.
    Regulations of this Nation's water must be done in a manner 
that responsibly protects the environment without unnecessary 
and costly expansion of the Federal Government. We can continue 
to protect our waters without unreasonable and burdensome 
regulations on our small businesses, farmers, and families.
    I intend to hold oversight hearings on this issue in the 
coming weeks and to make sure that they are not able to move 
forward in expanded power, because, again, I think that, as 
Chairman Gibbs and I were talking about before, we are not 
certain what this means, but we have got a sick feeling in our 
stomachs that we know what is coming and it is going to affect 
all Americans in a negative way, so we are going to be vigilant 
and make sure that this committee and the Congress keeps its 
jurisdiction and its constitutional authority as we move 
forward.
    Mr. Chairman, thank you very much for yielding.
    Mr. Gibbs. Thank you, Mr. Chairman.
    I would just like to make kind of a brief statement on that 
same issue. I haven't had a chance to delve through the rule, 
because it came out this afternoon, but I think it is nearly 
400 pages long, I heard, and very concerned about the possible 
jurisdiction overstretch of the United States Environmental 
Protection Agency onto farmers, landowners, county road 
ditches, anything you can imagine, and what that impact could 
have on our economy and ability to grow our economy and job 
creation.
    So, as Chairman Shuster said, we will be looking at that, 
and I am sure we will have some hearings in the near future 
where we can delve through and see what the rule, all says, but 
we are concerned about the possible redefining the 
jurisdictions of the waters of the United States versus the 
evaporable waters of the United States.
    I will start, by the reason we are here today, here to talk 
about the role of water quality trading and achieving clean 
water objectives. And I would like to again welcome everybody 
for coming. Today we will hear from several public and private 
sector stakeholders on the potential use of water quality 
trading as an innovative market-based mechanism to cost-
effectively achieve local water quality improvements.
    The quality of our Nation's waters has improved 
dramatically in the United States since the enactment of the 
Clean Water Act in 1972, however, water quality challenges 
remain and achieving the next step in water quality improvement 
is becoming more difficult.
    Many of today's remaining water quality problems are more 
dispersed and removing additional pollutants from private, 
industrial and public wastewater facilities is becoming 
extremely expensive and difficult to achieve. Addressing these 
remaining water quality problems will require new tools and new 
and innovative forms of implementation.
    Water quality trading is increasingly being looked into as 
an innovative market-based mechanism to cost-effectively 
achieve water quality improvements in some watersheds. The 
basic theory behind trading is that certain pollutant sources 
in the watershed may be able to achieve the same degree of 
control as others in the same area but at a lower cost. Trading 
programs allow sources at relatively low cost to generate 
credits by reducing loads in amounts greater than what is 
required of them. These credits can then be sold to others for 
improving the cost to achieve the same reductions are 
ultimately much higher, thus achieving the same or better water 
quality improvement at lower overall cost.
    Water quality trading gained my attention several years ago 
when I was a member of the Ohio House of Representatives and 
assisted in the creation of a successful water quality trading 
program in Holmes County, Ohio, my home county.
    A local cheese producer in Holmes County was facing a 
regulatory dilemma with its plans to expand its operations and 
create new jobs. To do so would cause the company to exceed its 
nutrient allowances under their NPDES permit unless it 
installed prohibitively expensive wastewater treatment.
    To solve the problem, the company partnered with the Holmes 
Soil and Water Conservation District, The Ohio State 
University, the Ohio EPA and local farmers in the watershed to 
manage nutrient runoff, all of them resolving in a trading 
program that enabled the company to grow and the watershed's 
health to improve. This was a win-win for both the economy and 
the environment. One of our witnesses today is Dr. Richard 
Moore, who was a direct participant in creating the program.
    At today's hearing, we will hear from a variety of 
witnesses about other trading programs around the Nation and 
the issues surrounding water quality trading as a means of 
improving the environment and reaching compliance under the 
Clean Water Act.
    And I would just to kind of summarize that, when I said we 
came from 1972 the Clean Water Act, we have come a long ways in 
this country in cleaning up our rivers and our lakes and our 
streams, and especially point source, and I think that the kind 
of tale goes--the first 90 percent is cleaned up, it is that 
last 10 percent, it is hard to clean up, hard to identify and 
very expensive, maybe as expensive as cleaning up the first 90 
percent, and that is why we need to look at these innovative 
programs how we can get there and recognize the source, 
especially in the nonpoint, and look at innovative methods and 
cost-effective methods and get to the ultimate goal.
    So, I want to thank the witnesses for being here. And I 
will turn my time over to Mr. Bishop, the ranking member of the 
committee.
    Mr. Bishop. Thank you very much, Mr. Chairman. And thank 
you for holding this hearing on water quality trading and its 
potential use in aiding efforts to improve water quality 
throughout the Nation.
    In October of this year, we will celebrate the 42nd 
anniversary of the Clean Water Act. This landmark environmental 
statute is the reason the Nation's waterways have shown 
dramatic improvement even as the population has dramatically 
increased over the last 4 decades.
    The successes and failures of the Clean Water Act are both 
expressed in two simple statements of fact. In 1972, only one-
third of the Nation's waters met water quality goals. Today, 
approximately two-thirds of those waters meet water quality 
goals, but at the same time, we are only halfway there.
    The challenges to addressing these remaining and 
chronically impaired waters are great. It is without question 
that the Clean Water Act is responsible for a tremendous 
reduction in the amounts of pollutants entering our waters from 
point sources, the commercial, industrial and wastewater 
treatment plants. Where the act has been less successful, 
however, is in addressing pollution associated with runoff from 
urban streets, agricultural sources and other similar sources. 
Addressing these nonpoint source of pollution would 
significantly advance the goals of fishable and swimmable 
waters established over 4 decades ago.
    One concept that has been discussed for addressing 
chronically impaired water bodies is water quality trading, 
especially when addressing impairment by nutrients or sediment. 
Proponents of nutrient trading laud its ability to function as 
a tool in helping reduce continuing pollution challenges in our 
Nation's waters. In my own area of the country, the potential 
usefulness of nutrient trading is being tested to reduce the 
excessive nitrogen and resulting dissolved oxygen concerns of 
the Long Island Sound.
    In the Long Island Sound, the neighboring States of New 
York, Connecticut, Massachusetts, Vermont, and New Hampshire, 
are exploring how nutrient trading can play a role in reducing 
the nitrogen discharges to the sound and its tributaries. The 
Long Island Sound States both individually and through the New 
England Interstate Water Pollution Control Commission have been 
evaluating the effectiveness and potential benefits of both 
point-to-point trades among the various Clean Water Act permit 
holders and point-to-nonpoint trades among the various 
regulated and unregulated discharges of nitrogen throughout the 
watershed.
    What seems apparent from the first few years of 
implementation is that nutrient trading still holds the promise 
of achieving potentially greater water quality benefits at a 
reduced cost, but a significant number of questions must be 
resolved first. For example, pollution trading proposals must 
conform to the current regulatory requirements of the Clean 
Water Act and must not be viewed as a way of avoiding or 
lessening existing pollution control authorities. In addition, 
care must be taken to ensure that the use of trading does not 
in fact make matters worse for localized areas through the 
creation of pollution hot spots or disproportionately affected 
certain populations.
    Also, for a market-based trading program to be most 
effective, there must be an economic driver to add value to 
both the credits and the trades. Under the Clean Water Act, 
that driver is typically created through a rigorous regulatory 
process that requires local water quality standards be 
achieved. In the absence of such a driver, the market for 
trading would be more difficult to establish and less likely to 
succeed.
    Finally, Mr. Chairman, because water quality trading 
involves the potential lessening of existing permit obligations 
of regulated discharges, legal questions of water quality 
trading, credit verification, equivalence and enforceability, 
must be resolved before the effectiveness and potential benefit 
of trading can be properly evaluated.
    I look forward to working with you, Mr. Chairman, and this 
subcommittee to ensure that more is done to improve the quality 
of our Nation's waters.
    I yield back the balance of my time.
    Mr. Gibbs. Thank you. At this time, if other Members have a 
statement, they can submit it in the written record since we 
already made our witnesses wait around for 90 minutes.
    Before we get started, I will ask unanimous consent that 
written testimony submitted on behalf of the Association of 
Clean Water Administrators be included in this hearing's 
record. Hearing no objection, that is so ordered.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T7287.007
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Gibbs. And then also our panelists, since you have 
written testimony, if you could, keep your opening statements 
to within 5 minutes or so, that way we will have time for some 
question and answer and give everybody a chance to summarize 
it, appreciate that.
    And today we have six witnesses. And our first witness is 
Mr. Peter Tennant. He is the executive director of the Ohio 
River Valley Water Sanitation Commission and on behalf of the 
Ohio River Basin Trading Project and Association of Clean Water 
Administrators.
    Welcome Mr. Tennant. The floor is yours.

 TESTIMONY OF PETER A. TENNANT, P.E., EXECUTIVE DIRECTOR, OHIO 
RIVER VALLEY WATER SANITATION COMMISSION, ON BEHALF OF THE OHIO 
RIVER BASIN TRADING PROJECT AND THE ASSOCIATION OF CLEAN WATER 
   ADMINISTRATORS; JAMES J. PLETL, Ph.D., DIRECTOR OF WATER 
 QUALITY, HAMPTON ROADS SANITATION DISTRICT, ON BEHALF OF THE 
NATIONAL ASSOCIATION OF CLEAN WATER AGENCIES; RICHARD H. MOORE, 
    Ph.D., EXECUTIVE DIRECTOR OF THE ENVIRONMENTAL SCIENCES 
  NETWORK, ASSOCIATE DIRECTOR OF ACADEMICS FOR THE OFFICE OF 
  ENERGY AND THE ENVIRONMENT, AND PROFESSOR IN THE SCHOOL OF 
 ENVIRONMENT AND NATURAL RESOURCES, THE OHIO STATE UNIVERSITY; 
CARL SHAFFER, PRESIDENT, PENNSYLVANIA FARM BUREAU, ON BEHALF OF 
   THE AMERICAN FARM BUREAU FEDERATION; BRENT FEWELL, ESQ., 
PARTNER, TROUTMAN SANDERS LLP, ON BEHALF OF THE NATIONAL WATER 
  QUALITY TRADING ALLIANCE; AND ANN PESIRI SWANSON, EXECUTIVE 
              DIRECTOR, CHESAPEAKE BAY COMMISSION

    Mr. Tennant. Thank you, Mr. Chairman.
    Mr. Gibbs. You might want to pull that mic up to you a 
little bit.
    Mr. Tennant. Thank you, Mr. Chairman.
    Thank you, Ranking Member Bishop.
    Both of you in your opening comments successfully reduced 
my remarks by several minutes with some of the points you made.
    I believe most people are probably aware that our Ohio 
River basin program reached an important milestone just a 
couple of weeks ago with the completion of the first three 
actual trades. These are point-to-nonpoint trades of nutrients, 
and an event that was several years in the making.
    I would emphasize that at this point, it is a pilot 
program. There are many programs represented here today and 
represented through the membership of ACWA, that have been in 
the business longer than we have, and you hit on several of 
them, the cheese factory in your district, which is certainly 
one of the poster childs for successful trading to solve a 
regional problem, and the Long Island Sound program.
    As you pointed out, as we reach a certain milestone of 
overall achievement of the Clean Water Act goals, the remaining 
problems are extremely challenging. Innovation is called for 
and new approaches just need to be considered and entered into.
    I would be remiss if I didn't begin by acknowledging the 
collaborative leadership and membership of our project. While 
ORSANCO has been a key member bringing State agencies and our 
other stakeholders together, we wouldn't be where we are today 
without the leadership of the Electric Power Research Institute 
and specifically Jessica Fox, the project director. They have 
been working on development of this program for about 7 years.
    Some of the other partners, American Farmland Trust, which 
has brought their excellent ties to the agricultural 
communities to the table; Troutman Sanders law firm has been a 
key part; Market Environmental Registry, which runs the actual 
program that allows you to consummate a trade online; the Ohio 
Farm Bureau; and the University of California at Santa Barbara, 
which has provided water quality modeling to verify the 
projected impacts of the trades, all key components. What is 
important is a project this massive requires that level and 
more of collaboration.
    We have chosen to attack nutrients. Nutrients are hard. 
There are two things about nutrients that I typically point 
out. Whereas in controlling toxic pollution, toxics are things 
that we can say, well, they shouldn't be there. Nutrients are 
something that we can't say that. Without nutrients, there is 
no life. It is finding the balance, it is finding the right 
levels, and that has been one of the challenges that State 
agencies and interstates such as ourselves have faced for a 
number of years trying to figure out what is the right dose.
    Also, there are multiple sources. You can't say that, well, 
if this one facility or this one sector would control their 
problem, every activity can generate nutrients to some degree, 
but what we have found through the trading program is that some 
nutrients are more readily removed than others, and if we work 
together, we could actually find solutions that are 
collaborative, that represent cost savings and are in the long 
run, are effective.
    Again, our project right now is in a pilot phase. We do not 
have regulatory drivers. The companies, the electric utilities 
that have bought the credits are doing so on a stewardship 
basis. We anticipate somewhere down the road perhaps we will 
have the regulatory structure, the requirements that drive more 
people to look into the program.
    What I am optimistic about is the fact that we have laid 
the groundwork. A number of the things that Mr. Bishop 
mentioned, the challenges, we have wrestled with those, we have 
figured out what we think are pretty good approaches to verify 
the effects of the trades, to set up the equivalency and so 
forth, and we feel that we have a program that can hit the 
ground--that can expand greatly when there are wider drivers.
    So we look forward to it. And, again, thank you for this 
opportunity to speak to you today.
    Mr. Gibbs. OK. Thank you.
    Our next witness is Mr. James Pletl. I don't know if I said 
that right or not.
    He is the director of Water Quality Hampton Roads 
Sanitation District. He is also here on behalf of the National 
Association of Clean Water Agencies.
    Welcome. The floor is yours.
    Mr. Pletl. Thank you, Chairman Gibbs, Ranking Member Bishop 
and members the subcommittee.
    Thank you for the opportunity to appear before you today.
    As Chairman Gibbs mentioned, my name is Jim Pletl. I am the 
director of the water quality department for the Hampton Roads 
Sanitation District, or HRSD, in Virginia Beach, Virginia. I 
also serve as the Water Quality Committee vice chair for the 
National Association of Clean Water Agencies, otherwise known 
as NACWA. It is my pleasure to be testifying on NACWA's behalf 
today as well as the 17 cities and counties in southeast 
Virginia which HRSD serves.
    If there is one thing I would like to leave you with today 
is the understanding that water quality trading has worked for 
HRSD and it has allowed us to meet our nutrient permit limits 
while saving our rate payers millions of dollars. Our success 
is something I hope we can replicate nationally.
    Here in the Chesapeake Bay watershed, where excessive 
amounts of nutrients in rivers and streams are contributing to 
low dissolved oxygen conditions, the reduction of nutrient 
loading to the bay has been a high priority. Traditionally 
utilities have relied on technology controls and upgrades to 
reduce the nutrient loadings at the end of a pipe. Though the 
technology approach can be effective, it is often extremely 
expensive. HRSD will spend over $375 million to meet the Bay 
TMDL requirements through 2017, and even more upgrades may be 
required when the TMDL is revisited in 2017.
    Compliance with nutrient permit limits was accomplished by 
HRSD with expensive plan upgrades, but upgrades were not 
required at every HRSD facility, because nutrient trading 
between facilities was supported through regulation in 
Virginia. In 2005, the Virginia General Assembly authorized the 
concept of nutrient trading, spurring creation of the Virginia 
Nutrient Credit Exchange Association, which in turn created the 
framework for nutrient credit trading between watershed 
facilities, both public and private.
    Trading in Virginia was based on the concept of the 
nutrient credit. One nutrient credit represents 1 pound of 
nutrients removed from a wastewater discharge beyond that 
required by permit. These credits can be applied to other 
facilities with nitrogen load limits within the same water 
segment or downstream of that segment, allowing those other 
facilities to comply with their respective limits, without 
expending millions of dollars to fund technology upgrades. This 
approach provides the same environmental result obtained by 
upgrading a facility and has allowed HRSD to select and upgrade 
the facilities that will provide the greatest amount of 
nutrient removal at the lowest cost.
    HRSD currently trades nitrogen and phosphorous credits on 
an annual load basis amongst its 13 facilities across 3 
watersheds of the Chesapeake Bay. One of the most significant 
cost saving trades for HRSD occurs on the Rappahannock River, 
where its Urbana plant obtains credits from other permitted 
facilities on this river in order to comply with its permit 
limits. The inability to trade nutrient credits on the 
Rappahannock River would have cost HRSD customers millions of 
dollars, but there would have been very little nutrient 
benefit.
    Despite the availability of nutrient trading, over $2 
billion of public and utility customer funds are being invested 
in Virginia to upgrade many of the public municipal waste water 
treatment plants. This investment would have been significantly 
higher without trading, because every facility did not require 
a treatment technology upgrade with trading available. I 
estimate the cost to HRSD's customers would have been twice to 
three times the cost so far realized without the ability to 
trade nutrient credits between our facilities.
    HRSD's experience with trading has been limited to 
activities with other permitted discharges. Trades with 
nonpermitted sectors have not yet been realized in Virginia. 
Trading with the nonpermitted sectors like crop agriculture has 
been found to be somewhat problematic due primarily to the 
uncertainty in estimating, measuring and controlling the 
discharges from these sectors.
    Forty years after the passage of the Clean Water Act, 
wastewater facilities like HRSD around the country are 
transforming the way they deliver clean water services. They 
are becoming utilities of the future, focused on doing more 
with less and bringing maximum value to the rate payers and 
communities.
    At the heart of this transformation are innovative, market-
based approaches, like water quality trading, that can stretch 
rate payer dollars while meeting environmental improvement 
goals; however, utilities cannot master this transformation 
alone. They need the support of Congress, which should promote 
greater adoption of watershed-based solutions. Similarly, EPA 
should work with delegate States to promote viable and flexible 
trading programs. Doing so will give utilities the green light 
to engage in more nutrient transactions that can yield tangible 
water quality improvements while addressing the affordability 
concerns of wastewater utilities around the country.
    Thank you for the opportunity to appear before you today. I 
look forward to addressing any questions that the committee may 
have regarding my testimony.
    Mr. Gibbs. Thank you. It is always good to hear how you are 
saving rate payers money.
    Our next witness is Dr. Richard Moore. He is professor of 
the School of Environmental and Natural Sciences at The Ohio 
State University and he is also the executive director of The 
Ohio State University Environmental Science Network and 
associate director of academics at OSU Office of Energy and 
Environment.
    And it is good to see you again, Dr. Moore. We go way back. 
And we started the trading project there in my home county in 
Holmes County, and it has been a great relationship, so 
welcome.
    The floor is yours.
    Mr. Moore. Thank you, Chairman Gibbs, Ranking Member 
Bishop. It is great to be here to talk about this topic. And I 
am also very grateful to my fellow panelists, who we have all 
come a long way in the topic of water quality trading.
    The Alpine Cheese nutrient trading plan is Ohio's only 
program based on a fully functioning NPDES permit. It is a 
minor permit of 0.14 million gallons per day. Prior to the 
trading program, the company was out of compliance for its 
phosphorous limits, and Ohio EPA put a hold on their permit, 
which included plans for a new plant expansion. Alpine did a 
partial facility upgrade to 3.2 milligrams per liter and used 
water quality trading to reduce its concentration to the permit 
goal of 1 milligram of phosphorous per liter of water. Costs 
were reduced by having the majority of the credits earned 
through 15- to 20-year conservation measures so that these were 
paid for during the first 5 years and subsequent permits were 
in the second year of the second permit, were relatively 
inexpensive, because they only needed to be maintained.
    The program has documented benefits to water quality. Just 
downstream from the cheese factory, the middle fork of Sugar 
Creek is now in full biological attainment by Ohio EPA 
standards. It is also a program that has not received any 
Federal funding, and paid its own way for staff at the local 
soil and water conservation district office. It grew out of a 
community-based Sugar Creek project centered at The Ohio State 
University, which teamed up with local agencies, such as the 
soil and water conversation districts, the Ohio Environmental 
Protection Agency, the Alpine Cheese Company, county 
commissioners, the Ohio Department of Natural Resources, the 
Ohio Farm Bureau, Ohio Department of Agriculture, USDA, NRCS, 
and our local representative, Bob Gibbs.
    Prior to the Alpine Cheese trading program, our research 
team had several small grants from USDA, NSF and EPA to study 
headwater streams and implement conservation measures. It is 
also part of Ohio State University's extension outreach funded 
by the Smith-Lever Act.
    The success of the Alpine Cheese nutrient trading plan 
served as a springboard for the creation of the Muskingum River 
watershed water quality trading plan in 2012. We started very 
small, but it spread then to these 21 counties, who all wanted 
to be part of it.
    I have four specific recommendations for the future of 
water quality trading. One, water quality trading programs in 
Ohio should focus on minor NPDES permit holders. In Ohio, there 
are 3,341 active NPDES permits, according to Ohio EPA. About 
half the amount of water treated by NPDES permits comes from 
minor permits which, like Alpine Cheese, have a design flow of 
less than 1 million gallons per day. Major permit holders tend 
to have more monitoring and more limits. One of the strongest 
arguments for focusing on water quality trading on the minor 
permit holders is, the higher cost per gallon of treatment.
    According to Hartman and Cleland, the cost for facility 
upgrades for minor permits is anywhere between two and seven 
times as great as the majors, depending on the phosphorous and 
nitrogen regulatory limits. Because of the high cost of 
treatment per gallon, minor permit holders are able to offer 
higher prices for nutrient credits if transaction costs can be 
kept low. This is why the Alpine plan was so effective even 
though the cost per credit was relatively high.
    At the same time, when trading programs are started to 
solely benefit major permit holders, there is a drive to keep 
the cost per credit low, such as through reverse auctions, in 
order to match the low cost per gallon associated with the 
mayor permit facility upgrades; however, major and minor permit 
holders can team up in very creative ways. For example, a 
downstream point source could cost share with an upstream point 
source to conduct their facility upgrade upstream, so that they 
could get below their permit level and recoup the cost through 
a negotiated sale of those credits, and there are other ways, 
too.
    The second point, community-based water quality trading 
programs at either the HUC 8 level, or county level, provide 
benefits over larger scale programs. We found that the idea of 
a trusted broker is very important, and we think that the soil 
and water districts are such an entity. Also, there could be 
trades within the same county jurisdiction between--if county 
commissioners are overseeing both the soil and water 
conservation district budget and the county wastewater 
treatment plan, then it makes sense to combine those two 
functions.
    A third point is that trading should focus on areas of most 
impact: headwaters and critical source areas. Studies have 
shown that about half the nitrogen in headwater streams makes 
it down to the fourth order streams. A long-term study in 
Illinois revealed that most of the--during rain events, we have 
most of the export of the nutrients.
    I will stop there. Thank you.
    Mr. Gibbs. Sorry. Did you finish your fourth point, Mr. 
Moore?
    Mr. Moore. No. Can I----
    Mr. Gibbs. Go ahead.
    Mr. Moore. I have one more point. Thank you.
    My fourth point is that locally based programs are more 
likely to have creative solutions to achieve water quality 
objectives. In addition to the NRCS approved conservation 
measures, we could utilize use of our State's experiment 
stations more effectively if we allow the use of, quote, 
scientifically proven innovative conservation measures, 
unquote, and focus more on appropriate suites of conservation 
measures that fit the local ecological zone and local farming 
practices. We have done this both in--the statement of 
scientifically proven innovative conservation measures was put 
both in the Alpine as well as the Muskingum plans that were 
approved by the Ohio EPA.
    Thank you.
    Mr. Gibbs. Thank you.
    Our next witness is Mr. Carl Shaffer. He is president of 
the Pennsylvania Farm Bureau, I believe a farmer, too. And he 
is here today also on behalf of the American Farm Bureau.
    Welcome.
    Mr. Shaffer. Chairman Gibbs, Ranking Member Bishop, members 
of the subcommittee, I want to thank you for the invitation to 
testify here today.
    My name is Carl Shaffer. I am president of Pennsylvania 
Farm Bureau. I raise corn, soy beans and wheat in Columbia 
County, Pennsylvania. I serve on the board of directors and the 
Executive Committee of the American Farm Bureau Federation.
    While Farm Bureau supports the concept of water quality 
trading, managing nutrients is complicated and any trading 
system must consider this. Farm Bureau has a long history of 
supporting market-based approaches to improving the 
environment. We encourage States to consider trading to help 
implement State water quality programs, because trading and 
offsets can reduce costs associated with environmental 
improvements.
    Pennsylvania has a nutrient trading program in place, but 
as we can discuss further, there is a lack of demand even 
though farmers are generating credits. However, even with that 
history of support, farmers remain cautious of trading 
programs. The very nature of farming is growing a plant or 
animal for use in the food chain. The abstract idea of 
invisible credits is difficult for many farmers to embrace.
    Trading and offset programs are and should remain creatures 
of State law. And effective trading programs will not occur if 
EPA or States impose too many barriers. There are major 
scientific, market, regulatory challenges to water quality 
trading. The Clean Water Act leaves the task of controlling 
water pollution largely to the States, but EPA has pressured 
States to adopt standards and criteria based on nutrient levels 
found in perfect waters. This is unrealistic. Even worse, EPA 
now wants to change the baseline for Pennsylvania's existing 
trading programs, making it more difficult to generate credits.
    If properly designed and implemented, trading can help make 
reaching nutrient water quality standards more affordable. 
Trading assumes market participants have full information about 
the cost and effectiveness of their nutrient reduction options 
and can instantly, at little or no cost, get information on 
nutrient credit prices and quantities. However, people are 
faced with limited time, resources, skills and market 
knowledge. Complex rules and procedures can result in poor 
buyer or seller participation and defeat the purpose of trading 
in the first place.
    Lastly, it is often assumed that agriculture can supply 
credits less expensively than other sources. Whether or not 
this is true depends heavily on the trading rules and 
procedures described previously.
    Farmers are deeply concerned about the environment. We 
constantly take advantage of new technology and new practices 
and programs as they become available, to grow quality food 
products while protecting our natural resources.
    As I hope my remarks illustrate, the concept of trading has 
the potential to be a useful tool. As a concept, trading can 
make reaching nutrient water quality standards more affordable 
and attainable. However, in practice, trading is not always so 
simple, as regulatory and cost barriers can hinder the 
implementation of successful trading.
    Again, I want to thank you for the opportunity to provide 
testimony today. I would be happy to answer any questions. 
Thank you.
    Mr. Gibbs. Thank you, Mr. Shaffer.
    Our next witness is Mr. Brent Fewell. He is a partner of 
Troutman Sanders law firm, or LLP. I guess it is a law firm, 
right?
    Mr. Fewell. Right.
    Mr. Gibbs. And on behalf of the National Water Quality 
Trading Alliance. Welcome.
    Mr. Fewell. Thank you. Chairman Gibbs, Ranking Member 
Bishop and members of the subcommittee, thank you for this 
opportunity to talk about such an important topic.
    My name is Brent Fewell and I am a partner with the law 
firm of Troutman Sanders. I am here today representing the 
members of the new National Water Quality Trading Alliance, 
which is a consortium of leaders with an enduring interest in 
environmental protection.
    I personally have been involved in trading for the better 
part of 2 decades, both as an environmental lawyer and also as 
a former EPA water official. And those who know me know how 
passionate I am about this issue, because when done correctly, 
trading can accelerate the pace of environmental protection.
    We are beginning to see the positive and exciting results 
of trading in various locations around the U.S., including, Mr. 
Chairman, those affecting your district. And this hearing is 
about meeting the goals of the Clean Water Act, and to that 
end, I offer a few comments.
    First, we cannot expect 20th century tools to fix 21st 
century environmental problems. As you mentioned, Mr. Chair, 
the act has been critical to reducing point-to-point source--or 
point source pollution from end of pipe discharges. As we have 
heard today from the panelists, the success of point-to-point 
source trading has enabled us to do that in a more cost-
effective manner. However, the low hanging fruit of pollution 
reduction has already been harvested and the remaining fruit is 
high in the branches and beyond reach unless we develop a new, 
more effective tool.
    According to EPA, 50 percent of our waters are still 
impaired, and of those, 60 percent comes from nonpoint source 
pollution, those sources that are beyond the reach of the Clean 
Water Act. One option would be to continue to squeeze point 
sources for more pollution reduction or we could approach this 
problem in a very different manner by taking a landscape-based 
approach and offering incentives for sustainable and lasting 
solutions.
    Mr. Chair, for over 200 years, we have altered, developed, 
paved over and re-plumbed the hydrology of our watersheds, and 
we are witnessing the consequences of those actions. Solving 
this problem, as we have discussed today, is not going to be 
easy, it is not going to be cheap, and poses significant 
challenges to communities, cities and agriculture as they 
continue to expand.
    Mother Nature is incredibly resilient and can withstand 
many insults, but the cumulative impacts of the myriad and 
diffuse sources and inputs in these watersheds will continue to 
degrade water quality and our ecosystems in ways that 
Government alone cannot resolve, which leads me to my second 
point.
    If we are to accelerate the pace of restoration, we must do 
so with tools like credit trading. It makes little sense to 
require a factory or sewage treatment plant to install 
expensive treatment equipment if we can accomplish the same 
goal at a fraction of the cost through trading. Some have 
criticized trading as a scheme to rearrange the deck chairs or 
simply kick the can down the road, and I say absolutely not. 
Trading is no panacea and it will not work everywhere, but it 
is a tool that enables EPA and the States to continue to apply 
the pressure and insist upon moving us all one watershed, by 
one watershed, toward the ultimate goal of cleaner water. And 
if we are to achieve this goal, EPA and the States, using all 
their regulatory authorities and tools, must continue to hold 
us all accountable to meet that end goal.
    Over the last few decades, we have moved from a handful of 
pilot projects financially supported by EPA and USDA to ones 
that are now self-sustaining, credible and making a difference 
in cleaning up our waters. As Joe Whitworth, president of Fresh 
Water Trust is fond of saying, we fix rivers, and indeed they 
are. He and his team are fixing rivers through trading, but not 
only are they restoring the waters required by the requirements 
of the act, they are doing even more by restoring riparian 
habitats that provide important wildlife habitat that filter 
nonpoint source pollution and restore the beauty of these 
systems. These are additional environmental benefits and social 
benefits that would not occur through traditional approaches.
    My third and final point, Mr. Chair. Today's trading 
programs are smarter and better. Our investment in these 
markets are beginning to pay off, but there is still room for 
improvement. As we have heard today, we must continue to insist 
that these programs use best science, are transparent, and that 
the trades are verifiable, credible and enforceable. And that 
is the important role of groups like the new Water Quality 
Trading Network, not to be confused with the alliance, who is 
helping to clarify the science and promote best practices and 
better approaches. Regulators, too, have an important role in 
ensuring that these markets are working effectively to meet the 
end goal.
    In closing, if we are to meet the goals of the Clean Water 
Act, Mr. Chair, we must resolve to embrace new and innovative 
approaches such as water quality trading. I thank you for this 
opportunity.
    Mr. Gibbs. Thank you.
    And next up, and last witness, is Ms. Ann Swanson. She is 
the executive director of the Chesapeake Bay Commission.
    Welcome.
    Ms. Swanson. Thank you very much. Chairman Gibbs--thank 
you.
    Chairman Gibbs and Ranking Member Bishop and the other 
members of this committee, I really appreciate this time to 
come before you to testify about the economic potential of the 
nutrient trading program, and very specifically to give some 
testimony related to our work on the Chesapeake Bay.
    By way of background, because I always think it is 
important to put a speaker into context, the Chesapeake Bay 
Commission is a tristate legislative commission. We are 
policymakers who operate in the general assemblies of Maryland, 
Pennsylvania and Virginia, three of the six States and the 
lion's share of the watershed of the Chesapeake Bay. Our 
members are 15 house and senate members, as well as 3 of the 
members representing the Governors of the 3 States, and 3 
citizen members. In total, there are 21 members spanning those 
3 States of Maryland, Pennsylvania and Virginia.
    The commission, in addition to pursuing legislation in all 
of those three States, frequently conducts indepth research to 
look at emerging policy issues. We tackle everything from blue 
crabs, to land use, to biofuels, and in 2012, the commission 
turned its attention to nutrient trading.
    I should be clear at this point about the commission. The 
commission remains neutral on whether it supports or doesn't 
support trading programs, in that the trading programs ended up 
becoming either law or regulation in the States before we 
actually had a position on the subject. So instead, we decided 
to ask two extremely fundamental questions about trading.
    The first is, ``what is the potential of nutrient trading 
to lower costs of TMDL compliance?'' because, remember, in the 
Chesapeake region, we are operating under the largest TMDL in 
the country. So that was one question. Are these cost savings 
touted real?
    The second question that we wanted to ask was, ``what are 
the critical elements that must be included in the trading 
program and what are some of the constraints that have to be 
put in place to make a trading program acceptable to the people 
and the living resources in the region?''
    To do this work, we turned to RTI International, an 
international independent nonprofit institute that provides 
research, development and technical services to governments and 
commercial clients as well. They are one of the largest 
economics firms in the country.
    The second thing that we did that was pivotal, though, was 
to put together a panel of trading experts who then would guide 
and work with RTI. So it wasn't just an abstract economic 
study. It was grounded by the experts in the region.
    The third thing that we did was, because we are a signatory 
to all the bay agreements and the commission is one of the 
partners of the Chesapeake Bay program, to access the huge 
watershed models that are a part of our region. So the land use 
data that we would use and couple with the economics model was 
very real since that data comes directly from the States.
    Well, we asked and answered those two questions. The 
first--and I should also comment, remember, we were not 
advocates for trading. Half our members were actually very 
skeptical on the subject, the others were strong supporters. 
Half were Democrats, half were Republicans. Half come from 
rural areas, half come from urban areas.
    In the end, for the first question about the potential, the 
answer was unequivocably, yes, even with the constraints we put 
onto our question. We saw that there were very significant cost 
savings, particularly if you included the urban sector, 
particularly the stormwater sector, and the cost savings could 
be anywhere from 49 to 79 percent.
    We also tried to identify the critical elements, and there 
were four. They are in our testimony and in this report. Bottom 
line: you need a measurable, enforceable pollution cap to drive 
the trading programs forward. You heard about it from other 
people on this panel.
    The second is be sure to include stormwater. Stormwater 
management is the most expensive thing to pay for. It is also 
where the greatest cost advantage can be in terms of trading.
    The third is protect and never abandon local water quality. 
We prohibited the degradation of local water quality in favor 
of a distant trade, and even with those constraints, there was 
anywhere from a 49- to a 70-percent cost savings.
    The fourth is we had a 2-to-1 trading ratio and even 
included a 38-percent transaction cost, 38 percent. It was one 
of the highest transaction costs we could find anywhere in the 
country. And we did that because we wanted to see if we could 
require significant transparency and verification. Would it 
still be advantageous or did you have to throw things like 
transparency, verification, local water quality to the wind to 
make the markets work?
    And our study said you don't have to, that you can require 
robust verification and transparency, you can protect local 
water quality, you can address urban areas, and it can be 
potentially advantageous, but the devil is in the details, and 
Carl Shaffer has warned of that. And the specifics of those 
rules are very different. We have three States with exceedingly 
different trading programs, all of which have significant 
advantages.
    So in closing, I would just like to say that this report 
has all of these details along with 56 additional pages of 
information that I could never summarize in 5 minutes.
    I will say that for a commission that was skeptical, we 
remain hopeful that there is great promise.
    Thank you very much.
    Mr. Gibbs. Thank you all.
    And I will start with a few questions here. The first 
question is a common theme here, I think everybody is in 
agreement that this could work if it is set up right.
    Ms. Swanson. Yes.
    Mr. Gibbs. I think a couple points. The voluntary aspect, 
instead of having a regulatory agency coming in and just, you 
know, with a club and a hammer, it is probably not going to 
work, but when we talk about credits and figuring out how much 
credit, you know, compared to, like, a baseline concept, I will 
just throw this out to anybody that wants to try to start 
answering, but, you know, how do you develop what the credit 
would be and then?
    For example, you have got one farmer doing no till 
technology, maybe doing cover crops, and another farmer isn't 
and you start the program, would that farm that has been 
already implementing measures to protect water quality, would 
he get any credit, or, you know, how are we--do we establish a 
baseline or do we kind of figure out what has been the 
experience of how you start developing the program when you 
have got some participation, people doing the right thing or 
doing the thing that was more environmentally friendly than 
other people? You know, how do we kind of move forward to 
start? What has been your experience? Anybody want to tackle 
that?
    Go ahead, Mr. Shaffer.
    Mr. Shaffer. You are absolutely right on the baseline, and 
this is what became one of the problems. You had a baseline and 
then you added on, say, no tilling would add up credits, cover 
cropping would add up credits, but if you have somebody that is 
a good steward of the land and already voluntarily doing these 
things, now EPA wants to try to come in and say, OK, this is 
the baseline after you are doing all this, therefore, to go 
beyond that, the only thing left is to idle ground.
    Mr. Gibbs. Yeah.
    Mr. Shaffer. And that is really not acceptable to 
agriculture. I mean, EPA itself said in its TMDLs probably 20 
percent of the watershed in the Chesapeake Bay watershed is 
going to have to be idled to meet these numbers. That is a 
tough pill to swallow. It really is.
    Mr. Gibbs. But Ms. Swanson, you talked about the several 
different States that totally different----
    Ms. Swanson. We do.
    Mr. Gibbs [continuing]. Rules.
    Ms. Swanson. We do. In the Chesapeake region, first of all, 
for example, let's look at Virginia. Virginia sets its baseline 
based on practices. There are five practices, for example, that 
the farmer needs to have in place if they are appropriate to 
that farm, and then above and beyond those practices, if a 
farmer can do more, then the ``more'' is tradable.
    In Maryland, they set a performance baseline. Based on the 
TMDL, Maryland has done the math to figure out the per farm 
allocation, and if the farm is meeting that allocation, through 
best management practices, then if the farm reduces its 
pollutant load still further, that delta is tradable.
    And so what you are doing is you are setting a baseline. 
Let us say I am a farmer that has already done a lot, a huge 
amount, well, then I will be at baseline. If I do more--say, I 
install a manure-to-energy facility or something like that, 
that is really getting a lot load more, then I can trade those 
extra credits. If I am a farmer that hasn't done a lot, well, 
then I have to get to baseline before I can avail myself of 
trading. And that is how it works, because remember, trading is 
about additionality. It is intended to do more and then be able 
to trade that ``more.'' That is how it works in our region.
    Mr. Gibbs. OK. How do you factor in what the value of the 
credit will be? Is there a model, or how is it--how do you--you 
know, anybody can--you want to take that? Go ahead.
    Ms. Swanson. Sure. In our region, we have an enormous suite 
of practices. Each one of those practices is then assigned an 
efficiency. OK? The way that we have negotiated that efficiency 
is all of the States and EPA work together, we consult with 
experts, we consult with all the scientific literature as well 
as edge-of-field monitoring, and we come up with an efficiency, 
a pound per acre, pound per practice, you know, something like 
that, and then we determine what that practice is worth.
    So, for example, if you put a cover crop on an acre of 
land, there is a per acre efficiency. In our case, we must have 
20 different variations on cover crops, maybe more, you know, 
so let us say you have a rye cover crop, and we know how far it 
is from the closest tributary, because there are all kinds of 
delivery discounters, but then you actually have a number and 
then you can add up the numbers. So if you have 27 acres of 
cover crops in a certain location, then you know exactly what 
that is worth.
    Mr. Gibbs. OK. Before I yield to Mr. Bishop, I just have 
another quick question for you, I guess, Ms. Swanson.
    Ms. Swanson. Yes.
    Mr. Gibbs. Since you are, as you said, operating on the 
largest TMDL watershed----
    Ms. Swanson. Yes.
    Mr. Gibbs [continuing]. In the country and there is a lot 
more enforcement mechanisms in there, I guess----
    Ms. Swanson. Yes.
    Mr. Gibbs [continuing]. In these others, you know, you hear 
about soil and water maybe being the lead agency working on the 
trading credits, so I am assuming that in the Chesapeake, that 
the EPA has been the lead agency, or who has been the lead 
agency or lead entity?
    Ms. Swanson. EPA has helped coordinate the Chesapeake Bay 
program, but the Chesapeake Bay program is made up of the six 
States, the Chesapeake Bay Commission and the mayor of the 
District of Columbia as well.
    Mr. Gibbs. First of all, agriculture ground that is--who is 
doing the verification that these practices are being 
implemented on----
    Ms. Swanson. We are actually working on that right now.
    Mr. Gibbs. OK.
    Ms. Swanson. In the past, we didn't have the kind of 
verification that is now required with the TMDL, but in 
general, we tend to be reaching towards our districts, for 
example, our soil conservation districts, the USDA, or the 
State department of agriculture. They have to be working 
closely with their water quality agency, because their water 
quality agency ultimately has to sign on the dotted line.
    So one of the things we are doing right now is developing 
what is called the verification protocols, and it is a set of 
rules for stormwater and for agriculture and for anything 
basically that wants to be credited in that model, and a 
similar kind of verification will be required of trading. Now, 
I will say this: when a trade is involved, the level of 
verification goes up----
    Mr. Gibbs. OK.
    Ms. Swanson [continuing]. A notch higher than if you are 
just getting credit in the model, and rightly so, because 
usually the purchasers are going to be permits--permitted 
groups like waste treatment plants or MS-4s are the buyers, 
so----
    Mr. Gibbs. OK. That is helpful.
    Mr. Bishop, I yield.
    Mr. Bishop. Thank you, Mr. Chairman. And thanks to all of 
you for your testimony.
    One theme that sort of runs through the testimony of many 
of you, if not all of you, is the need for there to be a driver 
in order for a water quality trading market to actually 
function at an appropriate level, and so I have two questions 
and I will put it to each of you to take a crack at it.
    One, is it possible to have a successful trading program in 
the absence of a driver? And then the second is, if the driver 
is not a regulatory driver, which appears to be the most common 
or the most likely driver, what other drivers might possibly 
work? So whoever wants to start.
    Mr. Moore.
    Mr. Moore. Yes.
    A good case would be the city of Columbus, Ohio, which has 
problems for its drinking water of high nitrates and treating 
atrazine, enormous expense involved. They don't--as far as 
their NPDES permit, it is not such a big issue, but it is the 
drinking water issue that really brings them to the table to be 
able to want to fund upstream activities. So that might be one 
example.
    Mr. Bishop. OK. Mr. Shaffer, and then Mr. Fewell, we will 
go to you.
    Mr. Shaffer. Yeah. The idea of a driver is a little 
deceiving. We have a driver in Pennsylvania. It is the TMDL's 
put on municipal treatment plants, but most of those municipal 
treatment plants were able to attain those numbers, so they 
don't need to do any trading. There is very few of them that 
really--there are some small ones now that are trading, and I 
have examples of farmers that are doing trading with them, but 
the majority of them, one, the constituents, the rate payers, 
they would rather see their money go towards bricks and mortar, 
so they want the treatment plants upgraded rather than some 
abstract trading.
    Mr. Bishop. But in your case, the TMDL is in fact the 
regulatory driver, correct?
    Mr. Shaffer. Correct.
    Mr. Bishop. OK.
    Mr. Shaffer. In my opinion.
    Mr. Bishop. Yes, yes.
    OK. Mr. Fewell.
    Mr. Fewell. Yeah, Mr. Bishop, I would argue that some 
driver needs to be there, it could be regulatory, but it also 
can be a threat of a regulatory driver. And EPA under the Clean 
Water Act does allow watersheds and regions to do pre-TMDL 
strategies if there is an implementation plan.
    We understand the challenge with a TMDL is EPA cannot 
force, there is no teeth in the TMDL for EPA. It is really at 
the State level for them to figure out how to achieve the goal 
of the TMDL.
    But with the concerns and anxiety that comes along with 
TMDL's, if you can promise a watershed that we will hold off on 
a TMDL if you put in place an implementation plan for your 
watershed, then we will hold off on a TMDL, and so a pre-TMDL 
and threat of a TMDL may be enough to actually create these 
markets.
    Mr. Bishop. OK.
    And Mr. Tennant.
    Mr. Tennant. Just need to again mention that we have 
reached the point that we have on the Ohio River through--
without the regulatory driver. Brent might say there is some 
sense of an impending threat of one, but the credits that have 
been involved so far are based on stewardship concerns and can 
probably continue to some certain point, but his mention of the 
possibility of a pre-TMDL type of approach is very intriguing 
and certainly something that I think our project partners would 
like to think about.
    Mr. Bishop. Ms. Swanson.
    Ms. Swanson. So we worked with a very conservative 
economics firm, RTI International, and I want to quote, it 
says, ``for a nutrient credit trading system to work, the first 
and most critical requirement is to define a measurable and 
enforceable cap.'' And in our region, of course, I have 
mentioned that that is the TMDL.
    What we have seen is in some situations, for example with 
waste treatment plants, in Pennsylvania, most of the waste 
treatment plants have decided to just do it on their own and 
not trade. They don't want to trade for agricultural credits or 
other credits, and that is very clear. It goes back to market 
preference. They prefer a more predictable situation. However, 
what we have seen in the region is that the MS-4s are much more 
interested. There is a much stronger regulatory driver there 
than ever before, and we are seeing that the expense of 
controlling a pound of urban stormwater is so prohibitively 
expensive, that they are reaching for trades. And if you look, 
for example, in Virginia, a huge number of the trades, more 
than 75 of the trades, have come from Department of 
Transportation or stormwater demands to buy credits.
    The other thing that we have seen, and my colleague from 
the southern bay talks about this, is that waste treatment 
plants are trading among themselves located within a bubble 
permit.
    Mr. Bishop. Thank you all very much.
    My time has expired.
    Just at the risk of being argumentative, it seems to me 
that a regulation or a threat of a regulation is essentially a 
distinction without a difference, and it is basically the same 
driver.
    But, Mr. Chairman, I will yield. Thank you.
    Mr. Gibbs. Ms. Edwards.
    Ms. Edwards. Thank you very much, Mr. Chairman, and thank 
you to the witnesses.
    I have a particular question, because I have been 
interested in the idea, and NACWA's been very supportive of 
using green infrastructure techniques around stormwater 
management, and I am looking at the requirements and I hear 
Director Swanson talking about the importance of, you know, 
sort of where the market gets segregated when it comes to urban 
stormwater, and so I am trying to figure out how it is that 
water systems can be encouraged to use green technologies but 
still have the ability potentially to trade in a marketplace 
that is actually going to make a difference when it comes to 
the nutrient loads. So help me out.
    Ms. Swanson. Well, your own sewage treatment plan comes 
immediately to mind with Blue Plains, and Blue Plains is 
absolutely cutting edge when it comes to this.
    They are asking, particularly in your northwestern 
quadrant, ``How do we use green infrastructure in place of 
very, very substantial, for example, CSO tunnels?'' They are 
doing that work right now.
    And what they need to do is, of course, they need to find 
the locations where there is a very real green infrastructure 
advantage and then they need to be applying those efficiencies. 
They need to verify, then, that the load reductions are really 
happening.
    The other thing I would caution is, for the District of 
Columbia to be a winner, they would always have to be looking 
for upstream advantage so that the river water, when it comes 
tumbling down, is cleaner coming into the city.
    If you were putting in green infrastructure south of the 
city, then the citizens of the District would be a loser. And 
so that is really important to consider geography.
    Ms. Edwards. And so, when you would think about creating a 
marketplace in which the significant point source----
    Ms. Swanson. Right.
    Ms. Edwards [continuing]. Elements would not then--I mean, 
there is a part of their requirement that they can't get 
around.
    Ms. Swanson. Yeah.
    Ms. Edwards. So what would then be the incentive to develop 
these other techniques?
    Ms. Swanson. Well, in my mind, that goes back to an 
enforceable cap. Because if you didn't have the District of 
Columbia being forced to do these kinds of upgrades, you 
wouldn't have the market response and you wouldn't have these 
conversations going on at the level of earnest that they are 
going on.
    Ms. Edwards. So you don't think a trading market--and I 
think, Mr. Fewell, if you want to comment, you don't think a 
trading market would disincentivize the significant point 
sources from participating in the marketplace and developing 
new technologies----
    Ms. Swanson. No.
    Ms. Edwards [continuing]. Or quite the opposite?
    Ms. Swanson. No.
    Mr. Fewell. Yeah. Ms. Edwards, I think there is a great 
opportunity and I have had some great discussions with George 
Hawkins about ways that DC could save money--taxpayer money.
    And instead of requiring Blue Plains to put in additional 
treatment costs at tens, if not hundreds, of millions of 
dollars, give them the opportunity to use a fraction of that to 
go up into the watershed, to put some of these practices on 
farms, to reduce some of the nonpoint source pollution.
    And not only will you reduce nutrients and perhaps achieve 
their compliance obligations much more cost-effectively, you 
are also going to be reducing other things, like, perhaps, you 
know, other, you know, contaminants that flow off of 
agricultural properties.
    Ms. Edwards. Thanks.
    And just a, you know, totally random question: But is there 
a way that you look at things like--you know, within, say, the 
Potomac region--if we are making greater investments in things 
like transit and other areas that actually then help to, you 
know, lower the nutrient contribution, do those things factor 
into the trading market?
    Ms. Swanson. In my mind, they should. And----
    Ms. Edwards. But they don't cover----
    Ms. Swanson. Well, but they can. Remember, if you are 
calculating nutrients--and the chairman asked the question 
earlier--how do you know? How do you know what something is 
worth?
    Well, if you think that you are doing something, say, 
related to transit that is reducing, say, nitrogen deposition 
from the atmosphere, then you need to convene a panel that can 
determine scientifically what that action is worth per pound of 
effort.
    And then, once you know, it can enter into the trading 
market. But you have to have some scientific basis for the 
worth of the calculation. It can't just be made up, you know.
    Ms. Edwards. Thanks.
    And thank you, Mr. Chairman.
    I mean, I would really love it if we were able to, from, 
you know, a study standpoint, actually take a look at 
connecting the way that we are thinking about water quality and 
some of our other responsibilities when it comes to developing 
our transportation infrastructure to see ways in which we can 
think of these things as related and that we could--I don't 
know whether it is a study or something else, but figure out 
what that calculation is, because it could provide a great 
incentive for this committee, but, also, a real incentive for 
some of our heavily polluting urban areas to think differently 
about their investments and infrastructure.
    Mr. Gibbs. Mr. Davis, do you have any questions?
    Mr. Davis. Thank you, Mr. Chairman.
    Sorry. I got caught looking at my phone. I apologize.
    Thank you very much, everyone, for your testimony. Thank 
you for being here today. Very important issue.
    And I want to thank Chairman Gibbs for holding this 
hearing.
    And I want to thank Ranking Member Bishop for being here. 
And I am still mad at him for throwing me out in the 
congressional baseball game last year; so, I can't be nice to 
him here. I will get you back this year, buddy.
    Hey, you know, nobody thought we could have fun at these 
hearings. Right? You guys can smile. It is OK.
    Mr. Shaffer, I have got a question for you. In your 
testimony, you note that the EPA often focuses more on 
assigning blame than finding solutions. I sense a real 
disconnect between the EPA and the ag community.
    And in the Farm Bill, one of my top priorities was to give 
farmers a place at the table when it came to EPA regulations, 
and we were successful. Ag now has a voice on EPA Science 
Advisory Committee.
    I want to know from you, sir, what else can be done to 
bridge the gap between the ag community and the EPA especially 
on the issue of water quality trading?
    Mr. Shaffer. I think, you know, I would like to turn one of 
Mr. Bishop's comments around. And Mr. Fewell said it, too.
    Why not implement the threat of more regulation? Why not 
implement reducing the regulation in return for more nutrient 
trading, reverse that?
    I think that would be a better way to go and more--
definitely, from agriculture's point of view, they would have a 
lot more interest in that. And so that is one way to do it, 
that I think.
    But, you know, I know a farmer who does trading with a 
small municipal treatment center, and he gets $40 per acre. 
Now, $20 is for no tilling, and $20 is for cover crop. And that 
barely--that doesn't cover the cost of those two practices.
    But then you add on $3,000 for third-party verification. It 
really--it is not that lucrative of a deal. So some way we have 
to get better numbers in there because what they are probably 
saving, that small municipal treatment center, is a lot more 
than what they are putting out for a trading thing.
    So we need to have more demand. And maybe a way to do that 
demand, instead of threaten more regulation, is threaten to 
reduce some regulation in return for more practices.
    Mr. Davis. Well, I mean, that actually goes into my next 
question, that you would consider one of the barriers to the 
operation of the marketplace when it comes to our ag community 
not wanting to take advantage because the cost-benefit ratio is 
not working out for them, as you just said.
    Do you have any examples of some other potential barriers? 
Or does anybody else on the panel want to address this 
question?
    Mr. Shaffer. Well, one other barrier, as I said, is the 
fact that EPA keeps moving the goalpost. And every time you 
think you are in a position that you could go out and do some 
trading, if your numbers get changed, you throw up your hands 
pretty quick. And that is counterproductive, very 
counterproductive.
    Mr. Davis. Does anybody want to--you know what? We will go 
left to right.
    Mr. Fewell.
    Mr. Fewell. ``Fewell.''
    Mr. Davis. ``Fewell.''
    Mr. Fewell. Thank you.
    Mr. Davis, we talked about it briefly, a little bit about 
baseline. Baseline can encourage trading or it can kill 
trading.
    And if your baseline is too high and you expect your ag 
producers to reduce 80 percent of their runoff before they can 
even begin to trade, they are not going to trade. There is 
absolutely no incentive whatsoever.
    So there does have to be a look at the baseline. That is 
number one.
    Mr. Davis. OK. Thanks.
    Mr. Moore.
    Mr. Moore. Yes. I would like to build on Mr. Shaffer's 
point, and that was how to reverse the incentive.
    In Alpine Cheese, one of the conservation measures we use 
is called milk house waste. This is what comes out of a dairy 
parlor when they milk the cows, and it is a mixture of a number 
of things. But it goes through a pipe, usually, into a ditch or 
a stream directly.
    EPA, when we informed them about that, wanted to fine all 
the farmers immediately. And we were able then to make the 
argument that, if it comes out of a pipe and if they are going 
to fine the farmers, why not be proactive and then give a 
better credit ratio to those same farmers.
    So we actually got a 1-to-1 ratio on that. It was actually 
adopted by other trading plans as well, and it has been a very 
successful plan. So it makes your point.
    Mr. Davis. Great. Thank you. Thank you.
    Mister----
    Mr. Pletl. One point I wanted to make was in regards to the 
concept of the trading ratio. The trading ratio, if, for 
example, in Virginia, is applied to the point source and 
nonpoint source trades--I will give you an example: If a point 
source like a wastewater facility needed to come up with a 
thousand credits or pounds of nitrogen, they would have to go 
to--if they wanted to go to a nonpoint source, the nonpoint 
source would have to remove 2,000 pounds of nutrients to be 
able to make that trade.
    You have instantly devalued the nutrient credits that are 
being generated by agriculture by putting that ratio into 
place. And the reason that ratio is into place is because there 
is concerns and fears over uncertainty and measurement and 
verification of the credits that are generated by agriculture.
    I would hold that we should go after that uncertainty, find 
out what it is, measure it, and stop putting these kind of 
arbitrary trading ratios and interfering with these trades 
because, when you do things like the baseline effect and then 
you add the trading ratio on top of that, you will not have 
trading between point source and nonpoint source in Virginia.
    Mr. Davis. Great. Thank you all very, very much for being 
here and for your testimony and for your educating us on a very 
important program.
    I yield back.
    Mr. Gibbs. I want to have a little discussion here. We talk 
about point source and nonpoint source trading and the 
concern--I think you just said it--the verification especially 
on ag. And maybe, Dr. Moore, with experience there in the 
Alpine Cheese project, in your working with about--I don't 
know--100 or so Amish farmers, I believe, how did the 
verification program work? Kind of go through the process a 
little bit.
    Mr. Moore. Sure. That was one of our roles in the program, 
actually, to bring different parties together to try to lower 
the transaction cost on the verification.
    We held a meeting between Ohio EPA, Ohio Department of 
Natural Resources, and the Holmes County Soil and Water 
Conservation District.
    I can remember it very vividly. It was in the Entomology 
Building at Ohio--at OARDC, Ohio Agricultural Research and 
Development Center.
    What we did is we created an MOU between the Ohio EPA and 
the Ohio Department of Natural Resources because they already 
conduct a verification process for--at the soil and water 
conservation districts.
    So there is a certain percentage of those that they go back 
and then resample after somebody, you know, has put in a 
conservation major just to verify it.
    So we said, you know, ``Why reinvent the wheel when you 
have already got a system like that?'' So we were able then to 
get people together and create an MOU. That MOU was also used 
in other trading systems.
    Mr. Gibbs. Yes.
    Ms. Swanson. One thing I would just caution is, at the end 
of the day, the nutrient credit trading program is about 
improving water quality. And when we did our study, what we saw 
is that, even with transaction costs high, the market can be 
robust--but you need some kind of a driver that really pushes 
it to that robust place--then you can require verification and 
still have a robust market.
    In terms of the trading ratios, in our region, none of our 
States operate on a 1-to-1 ratio. None of them do. Not one of 
them.
    In Virginia, we have a 2-to-1 ratio for point to nonpoint. 
But even in the other States, there is a 10-percent set-aside 
or a 10-percent retirement. So they are operating at least 
doing a 1.1 to 1.
    And the reason is because, with nonpoint sources, there 
never is that same level of assuredness and, at the end of the 
day, it is about water quality and making sure that you are 
improving water quality, however incremental that may be. So 
just keep that in mind.
    Mr. Gibbs. Yes.
    Mr. Fewell. Mr. Chair, can I also emphasize? I think, as 
Ms. Swanson has talked about, this is all about improving water 
quality, but I think the benefits that I have seen and many of 
us have seen with these trading programs is you are getting 
folks to actually work together to resolve big, complicated 
problems.
    So when you have the agriculture community talking with 
watershed groups, environmental groups and municipal leaders, 
it is a good thing, because people are actually trying to solve 
big problems, they feel good about it, and it is working in 
many cases.
    I think Peter can attest to that in the ORB.
    Mr. Tennant. Yeah. The statement I made in our project 
video that, once you get people sitting around the table 
talking about our problem instead of pointing fingers, you make 
progress, when we all claim ownership and say, ``How can we 
work together to solve it?''
    Mr. Gibbs. I guess, in that realm--I know, of course, Dr. 
Moore--you know, that Alpine Cheese project started back in the 
early 2000s. And I know Mr. Tennant has a project that is going 
off and others that have been mentioned.
    Is there any policy initiatives that should be--at the 
Federal level that should be addressed or, you know, what 
hurdles have there been that we could look at, that we should 
look at?
    Because, you know, personally--I think Mr. Bishop is, too--
we want a program like this to work because we have all got the 
end goal as cleaner water for our water bodies across the 
country. And we don't want the Federal Government to be an 
impediment to that. But go ahead. You got the gist of my 
question, I guess.
    Mr. Fewell. Yeah. Mr. Chair, first of all, you know, having 
the lead at EPA, EPA is definitely committed to doing this, but 
they realize it is going to happen at the State and local 
level.
    I think one of the biggest threats right now is perhaps 
zealous litigants, those that are opposed to trading that see 
it as an antithesis to the Clean Water Act. That is a big 
threat.
    Now, there may be some disagreement on this panel or even 
in this room on whether or not we need some type of authorizing 
rule.
    I think that that actually--in my personal view, I think 
that would be helpful to have that in place to protect these 
trading programs for doing the things that they need to do.
    Mr. Gibbs. I guess, just to follow up on that, I want to 
ask Dr. Moore: Has Ohio set up any rules on trading rules? Has 
that had anything----
    Mr. Moore. We have formal trading rules in Ohio now. Uh-
huh.
    Mr. Gibbs. And, of course, obviously, the three States over 
here. Ms. Swanson does.
    Pennsylvania?
    Mr. Shaffer. Yeah. We have formal trading rules. And, like 
I said, I still get back to everybody has to be treated fairly 
or it is not going to work. It has to be a win for both sides.
    And if you let the States put that together without EPA 
interfering in it and setting guidelines and holding their gun 
at somebody's head, I think things are just going to work 
better and that is going to be----
    Mr. Gibbs. This goes back to my old premise of a one-size-
fits-all policy out of Washington, DC, is probably not too 
workable.
    Virginia, The Hamptons?
    Mr. Pletl. Yes. We have got rules for trading in Virginia, 
quite extensive. We have got statute as well as regulation and 
guidance.
    Mr. Gibbs. OK. So my final thought on this--did I see a 
hand go up?
    Ms. Swanson. Yes.
    Mr. Gibbs. Go ahead.
    Ms. Swanson. Just something for your own benefit, Mr. 
Chairman, is, in the Chesapeake--because we have three such 
different State programs--the EPA is now issuing a series of 
trading memoranda--technical memoranda--on different aspects of 
trading in which they are issuing guidance to try to get some 
level of uniformity amongst the different States.
    Certain things related to baseline, offsets, and other 
issues are covered that that EPA is considering when evaluating 
trading in the context of the TMDL. So you may want to look at 
the suite--there is about 12 of them--of technical memoranda 
dealing with trading-related issues.
    Mr. Gibbs. Yes, Mr. Shaffer.
    Mr. Shaffer. You hit the nail on the head when you said one 
size doesn't fit all. The topography in Pennsylvania is 
entirely different than the topography in Maryland or Virginia 
or Ohio. So that is why you have to have the States have the 
affordability of designing their own programs.
    Mr. Gibbs. And I am in agreement. I think the challenge is 
when you have watersheds that go across State lines. And, you 
know, we had some of that with acid rain, I think, years ago, 
you know, that discussion.
    So a broad set of parameters might make some sense as long 
as it doesn't get too much into details unless States give much 
flexibility.
    We have been trying to do some of that in some other areas 
in this committee, you know, the relationship between the U.S. 
EPA and State EPAs and how they implement the Clean Water Act, 
in general.
    And it is a challenge that, you know, needs worked on, but, 
you know, I just think that, you know, the States can adopt 
policies.
    And the other final thought, you know, for this thing to 
work the way it really needs to work, especially when you are 
trying to address the nonpoint sources, you know, the voluntary 
aspect, you have got a real unique situation, I think, in the--
with your TMDL issue.
    But a lot of watersheds aren't at that point yet where they 
can do some things like what was commented earlier, that they 
head off a regulatory hammer and address that and--because, you 
know, the people in the agricultural sector and other sectors, 
you know, want to do the right thing.
    And, you know, our Alpine Cheese is a great example where 
we had a plant that wanted to expand. You know, without doing 
this, they were going to have to leave, close it down. And we 
cleaned up the watershed and we kept the milk producers, dairy 
farmers, with a market. And so it was a win-win.
    So this can be done in a way that it is a win-win 
situation, but you have got to have some common sense and make 
some sense.
    But it has been great hearing from all of you today.
    And I don't know if Mr. Bishop----
    Mr. Bishop. If I could, Mr. Chairman.
    Mr. Gibbs. Yeah. Go ahead.
    Mr. Bishop. Just real quick, I think a very important point 
that has been made is the goal here is the net improvement in 
the overall quality of the water body.
    And that suggests that two pieces of this process require 
very careful attention. One is verification, that is to say, 
that the credit that is being purchased actually exists. And 
then the second is the issue of ratios, as to whether or not a 
quantity, if you will, of a nutrient at point source is the 
same as the quality of a nutrient--or quantity--pardon me--
further away from the body of water that you are trying to 
protect.
    And so I guess my question--and I would ask that whoever 
answers it to be exceedingly brief--is: Are the mechanisms that 
we currently have in place to deal with verification and 
ratios--and I know they differ from State to State--but are 
those mechanisms adequate or is there some improvement that can 
be undertaken either by the States or with some incentive from 
the Feds?
    Yeah, Mr. Shaffer.
    Mr. Shaffer. One idea I think would be good is to involve 
the soil and water conservation districts and have them as part 
of the verification process, because they already work with the 
components and it could be where you could pay them a nominal 
fee to have them do the verification instead of a third party 
that is charging an exorbitant fee. So that is just an idea.
    Thank you.
    Mr. Gibbs. That is exactly what happened in the Alpine 
Cheese example. Some water got involved because of the 
culture--the Amish culture.
    Having people from Chicago or Washington, DC, come out to 
the farms probably wasn't too amenable and they didn't have the 
working relationship and that there was a trust factor there.
    So I think for this to really work, the local, certainly, 
water people need to be really the facilitators in the 
agricultural sector.
    Mr. Moore. Exactly. And just to follow up on that, 
initially, the Ohio EPA had asked if they could do the 
verifying, and that is when we had the MOU.
    But, in addition to that, Soil and Water does go out to the 
farms, and that is acceptable to the farming community because 
of that high level of trust.
    Mr. Bishop. Dr. Pletl.
    Mr. Pletl. One thing to consider is, when we do TMDLs--and 
that, you know, tends to be the regulatory driver--there is a 
lot of focus on the front end of doing all the calculations and 
coming up with, ``OK. The point sources are going to get this 
load, and the nonpoint sources are going to get these loads.''
    But, at that point, the discussion that includes all the 
parties kind of stops. All of a sudden the point sources know 
what they are supposed to do, and the nonpoint sources now are 
under the gun to do things that they, you know, are not 
prepared to do.
    I would argue that that process of working together on what 
the TMDLs should look like should continue. There should be an 
open discussion of all the members on a watershed of how the 
best--what is the best approach to removing nutrients from that 
watershed and what is the best way to do it, but at the lowest 
cost.
    So I think the way that we go about addressing TMDLs is a 
bit outdated and we need to start thinking about more of a 
community-based approach to addressing these problems instead 
of ``we,'' ``they,'' and all it does is cause a lot of this 
between the parties.
    Mr. Tennant. I am in total agreement with what has been 
said about the verification aspect. I wanted to just say 
something about the ratios.
    In our Ohio River Basin project, we are relying on a water 
quality model that allows us to equate what is a pound of 
nitrogen removed in Columbus on the Scioto River, how does that 
relate to a pound of nitrogen removal required at Cincinnati 
downstream on the Ohio River.
    We have that model up and running for about 50 percent of 
the watershed, including pretty much all of the State of Ohio. 
Where we have that in place gives us some degree of certainty 
about the equivalency of the two sides of the trade. We need to 
extend that model to the rest of our watershed in order to be 
able to go basin-wide to include all of our Ohio River 
watershed.
    Mr. Bishop. Ms. Swanson.
    Ms. Swanson. At the expense of bringing up something that 
might be a little bit uncomfortable, you need to consider 
transparency. All of our States have had to do this since 
confidentiality has traditionally been extended to farmers.
    However, in the situation of a trade, we have had to 
rethink that to determine whether, in cases where a point 
source of some type is buying credits from a farm, did those 
practices need to be more fully disclosed.
    And so, as you pursue trading programs in other areas, keep 
that in mind, because the general public is going to want to 
know how those trades occurred and what are they trading for. 
Issues of farm confidentiality do come up.
    Mr. Bishop. OK. All right.
    I am sorry. Dr. Moore.
    Mr. Moore. Yes. I have one thing I would just like you to 
consider, and that is the TMDLs are normally calculated based 
on normal summer flows, is typical.
    I mean, they bring other things into consideration, but one 
thing that seems to be quite missing in the analysis are rain 
events.
    Mr. Bishop. I am sorry. Are----
    Mr. Moore. Rain events or, you know, big storms.
    And most of the phosphorous and nitrogen is actually 
exported during those really big rain events, as any farmer 
knows, as they have seen their soil wash away.
    So, you know, that is something that needs to be addressed, 
and I don't think we have addressed it enough.
    Mr. Bishop. OK. All right. Thank you all very, very much. 
It has been a very helpful hearing. Thank you.
    Mr. Gibbs. Thank you, too.
    And I want to thank you all for coming in. It has been 
helpful.
    And before we close here, I would ask unanimous consent 
that the hearing record be kept open for 30 days after this 
hearing in order to accept other submissions of written 
testimony for the hearing record.
    Without objection, so ordered.
    And, again, thank you. And that concludes today's hearing.
    
    [Whereupon, at 4:46 p.m. The subcommittee was adjourned.]