[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
Available online at: http://www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=transportation
______
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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
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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.]