[Senate Hearing 113-700]
[From the U.S. Government Publishing Office]
S. Hrg. 113-700
NUTRIENT TRADING AND WATER QUALITY
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HEARING
BEFORE THE
SUBCOMMITTEE ON WATER AND WILDLIFE
of the
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MAY 22, 2013
__________
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware JAMES M. INHOFE, Oklahoma
FRANK R. LAUTENBERG, New Jersey JOHN BARRASSO, Wyoming
BENJAMIN L. CARDIN, Maryland JEFF SESSIONS, Alabama
BERNARD SANDERS, Vermont MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island ROGER WICKER, Mississippi
TOM UDALL, New Mexico JOHN BOOZMAN, Arkansas
JEFF MERKLEY, Oregon DEB FISCHER, Nebraska
KIRSTEN GILLIBRAND, New York
Bettina Poirier, Majority Staff Director
Zak Baig, Republican Staff Director
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Subcommittee on Water and Wildlife
BENJAMIN L. CARDIN, Maryland, Chairman
THOMAS R. CARPER, Delaware JOHN BOOZMAN, Arkansas
FRANK R. LAUTENBERG, New Jersey JAMES M. INHOFE, Oklahoma
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
JEFF MERKLEY, Oregon JEFF SESSIONS, Alabama
KIRSTEN GILLIBRAND, New York DEB FISCHER, Nebraska
C O N T E N T S
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Page
MAY 22, 2013
OPENING STATEMENTS
Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland 1
Boozman, Hon. John, U.S. Senator from the State of Arkansas...... 4
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma,
prepared statement............................................. 5
Vitter, Hon. David, U.S. Senator from the State of Louisiana..... 6
WITNESSES
Shapiro, Michael H., Deputy Assistant Administrator, Office of
Water, U.S. Environmental Protection Agency.................... 7
Prepared statement........................................... 9
Responses to additional questions from:
Senator Cardin........................................... 19
Senator Vitter........................................... 21
Senator Boozman.......................................... 27
McGee, Beth, Senior Water Quality Scientist, Chesapeake Bay
Foundation..................................................... 37
Prepared statement........................................... 40
Responses to additional questions from:
Senator Cardin........................................... 46
Senator Vitter........................................... 47
Response to an additional question from Senator Boozman...... 48
Hawkins, George, General Manager, D.C. Water..................... 73
Prepared statement........................................... 75
Responses to additional questions from Senator Cardin........ 82
Response to an additional question from:
Senator Vitter........................................... 82
Senator Boozman.......................................... 83
Matlock, Marty, Professor, Department of Biological and
Agricultural Engineering, Area Director, Center for
Agricultural and Rural Sustainability, University of Arkansas.. 84
Prepared statement........................................... 85
Responses to additional questions from Senator Vitter........ 90
Response to an additional question from Senator Boozman...... 91
Bodine, Susan, Partner, Barnes & Thornburg, LLP.................. 92
Prepared statement........................................... 94
Responses to additional questions from Senator Vitter........ 108
Response to an additional question from Senator Boozman...... 111
NUTRIENT TRADING AND WATER QUALITY
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WEDNESDAY, MAY 22, 2013
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Water and Wildlife,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:30 p.m. in
room 406, Dirksen Senate Building, Hon. Benjamin Cardin
(chairman of the subcommittee) presiding.
Present: Senators Cardin, Vitter, and Boozman.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM THE STATE OF MARYLAND
Senator Cardin. Let me welcome you all to the Subcommittee
on Water and Wildlife. I particularly want to thank Senator
Boozman, the ranking Republican member of the Subcommittee, for
his help in putting together today's hearing. The two of us had
a conversation about how we thought it would be helpful to have
an open discussion about nutrient trading, to learn more as to
how it could be a useful tool to help clean up our waters, as
well as provide certain incentives, particularly to farmers, to
help us in meeting our environmental needs.
So with that in mind, we decided to have this hearing. We
have two panels, and I want to thank all the panelists for
their participation and being here. I am going to ask consent
to put my full statement into the record. I will just summarize
very briefly because I really want to get to the witnesses and
to the discussion on nutrient trading and how it can work.
Nutrient pollution is well documented, its harm on our
waters and our environment. We have had hearings in the
Subcommittee on nutrient pollution. It comes from nitrogen and
phosphorus and creates deadly algal blooms. We have dead zones
that we know about throughout the globe.
It was interesting, the staff gave me the numbers which I
find to be shocking. There are over 400 dead zones today,
globally. But if you go back to 1995, there were about 305. So
we have increased dramatically just in the last 15, 20 years.
If you go back to 1980, there were 162 dead zones. And back to
the 1960s, there were 49 dead zones. So we have seen an
alarming increase in the number of dead zones caused by too
much of the nitrogen and phosphorus pollutants going into our
waters.
I am particularly aware of this, since one of the dead
zones is the Chesapeake Bay, which I think the members of this
committee have heard me talk about on more than one occasion,
as to what we need to do to help the Chesapeake Bay. We have
been working on cleaning up the Chesapeake Bay in a formal way
with cooperation among the various States, including the
Federal Government, for now over 30 years. We have made
tremendous progress in cleaning up the Chesapeake Bay.
But we still have tremendous work ahead of us. And the
expansion of dead zones is one of the major problems that we
have to deal with from the nutrients that are going into the
Bay that are causing these dead zones. They come from farming,
they come from storm runoff, they come from the way we handle
our wastewater. All that produces nutrients that go into our
waters. So we need to deal with all of those issues.
The largest single source is from farming. And it is one of
the areas that has the greatest promise for reduction, because
the cost issues associated with reducing nutrient pollution
going into our waters from farming are manageable from the
point of view of cost with some of the things that can be done.
So what we are looking at is how we can make progress in
reducing the nutrient levels in the most cost-efficient way. If
farmers do more than is required, then they could have credits
that could be sold in a nutrient trading program which seems to
be a win-win situation. Less costly ways of dealing with
pollutants, a revenue source for farmers, and we are all
working together. Simple enough. I am sure there are more
complications than that.
And that is the reason for this hearing. The reason is to
learn from the experts how a nutrient trading program could be
organized. I know States do have nutrient trading programs. But
if you are talking about a multiple-State trading program, it
gets more complicated. And how would that be done, how would we
evaluate to make sure that indeed we are achieving the
reductions that we think are right?. How are we dealing with
the equity issues to make sure that we are not creating zones
of pollution at the cost of other areas? How do we make sure
that we have achieve our objectives in the most cost-effective
way, do it in a fair way, and make sure that at the end of the
day we really have served the public interest the way that we
should?
We need a national discussion, my last point on this.
States can do a limited amount, Maryland can be as aggressive
in the Bay as any entity could be. But the Bay involves six
States and the District of Columbia. You need to have the
Federal guidelines on how we can work together on these large
regional bodies of water, so that we can make the type of
progress that we need.
With that, let me turn it over to Senator Boozman, then we
will hear from our witnesses.
[The prepared statement of Senator Cardin follows:]
Statement of Hon. Benjamin L. Cardin,
U.S. Senator from the State of Maryland
Good afternoon. Thank you to my colleagues and to our
witnesses for your participation today. During the last
Congress, this subcommittee held a hearing concerning nutrient
pollution and the incredible harm it is inflicting upon our
Nation's waterways. The goal of today's hearing is to explore
the potential of market-based nutrient credit trading as a tool
for addressing that pollution.
Nutrient pollution from nitrogen and phosphorus has
consistently ranked as one of the top causes of degradation in
some U.S. waters for more than a decade. It results in
significant water quality problems including harmful algal
blooms, hypoxia (low oxygen levels), and declines in wildlife
and wildlife habitat. These, in turn, harm the fishing,
recreation, and service industries that are dependent on the
health of those waterways. Nutrient pollution is a notable
problem throughout the Nation, but it is particularly acute in
the Chesapeake Bay.
Excess runoff and discharges of nutrients from farms, paved
surfaces, wastewater treatment plants, and other sources are
responsible for creating the excess algal growth that degrades
water quality and harms the ecology of impacted water bodies.
Algal growth in turn fosters aquatic dead zones, destroying
fisheries and recreational waterways. There are more than 400
dead zones around the globe today, up from 305 in 1995, 162 in
the 1980s, and just 49 in the 1960s. The Chesapeake Bay
contains one of the most famous of these zones.
In the Bay, in the past two decades, the number of working
oystermen has decreased 92 percent. Oystering once supported
over 6,000 Maryland families. Today only 500 oystermen remain.
This is just one example of not only the environmental, but
also the economic devastation that nutrient pollution can
cause.
Agricultural runoff represents the largest proportion of
nutrient pollution and offers the greatest opportunity for
achieving meaningful nutrient reduction through trading.
Nutrient trading may provide a cost-effective market-based
mechanism for accelerating water quality improvements. As such,
it would also have the added benefit of incentivizing farmers
to contribute actively toward water clean-up efforts.
With nutrient trading, entities that are able to reduce
runoff of nutrients, such as nitrogen, below target levels are
able to sell their surplus reductions as credits to entities
facing higher nutrient reduction costs, reducing the overall
nutrient load in the watershed. Today's hearing will help us to
understand the extent to which ongoing nutrient trading
programs are effective, and to explore the possible outlines of
a Federal, interstate nutrient trading framework.
From our witnesses, we will seek information about what
standards of measurement and verification must be in place for
a nutrient trading scheme to be reliably effective and
environmentally sound. Further, we will seek to understand how
to build fairness into a nutrient trading system, and how to
avoid unfairly burdening some communities with added pollution.
To these ends, we have invited two panels of witnesses to
today's hearing. They will report on the functions of current
State level nutrient trading programs, the authorities of the
Government to create an interstate trading program, and the
challenges of ensuring transparency and verifiability in any
program of that sort.
On our first panel, Mr. Shapiro, Deputy Assistant
Administrator of the Environmental Protection Agency Office of
Water, will present the EPA's role in supporting current
trading programs. He will also discuss the role of nutrient
trading in an overall water quality improvement strategy. He
will address what authorities or resources the EPA has or needs
in order to create an interstate trading program or to expand
trading to other watersheds. Mr. Shapiro will be able to give
insight into what a federally managed interstate program might
entail.
In the second panel, we will hear from several experts in
the field about how an interstate nutrient trading program
might be beneficial, and the challenges inherent in
administering such a framework effectively. Our witnesses
represent the perspectives of those involved in current
nutrient trading programs, those who would be potential buyers
of credits if an interstate market were to develop, and those
who have concerns about the potential effectiveness of nutrient
trading. We will also hear from an academic who has extensively
studied market-based approaches to improving water quality.
The Water and Wildlife Subcommittee has a duty to ensure
that the Nation's water quality laws are actually working and
producing results. There is an ongoing debate about the
appropriateness of the Federal role in nutrient reduction. Some
argue that policing this runoff is an issue best left up to the
States. Well, in Maryland, the State has spent $100 million a
year over the past decade on nutrient reduction and improving
the Bay. In spite of the State's concentrated efforts, the
health of the Bay is still diminished.
The key to the Bay's restoration lies in recognizing that
the Bay is merely the most obvious part of a much larger
watershed. The Chesapeake Bay's watershed encompasses six
States and the District of Columbia. Maryland's efforts alone
cannot address runoff that originates across its borders. We
must address the pollution in the Chesapeake by dealing with
all the pollution in the entire watershed. This is a watershed-
wide problem and the only real remedy lies in watershed-wide
solutions. Thus, the State specific nutrient trading programs
currently in existence may not be sufficient. A coordinated
effort is necessary to restore this national treasure. The same
is true of other water bodies across the Country, ranging from
the Great Lakes to the Gulf of Mexico, and from Long Island
Sound to San Francisco Bay.
Today's hearing will explore whether nutrient pollution can
be mitigated by collaborative efforts and a coordinating role
for Federal agencies. I want to thank our witnesses for joining
us today to assist in our efforts to understand and assess the
possibilities of nutrient trading programs.
OPENING STATEMENT OF HON. JOHN BOOZMAN,
U.S. SENATOR FROM THE STATE OF ARKANSAS
Senator Boozman. Thank you, Mr. Chairman. It really is an
honor to serve with you on this Committee. We were visiting
earlier, this is not the most glamorous work in the world, but
it is so important. It really does affect so many of our
constituents throughout America.
I appreciate your holding the hearing today on nutrient
trading and water quality, and I do appreciate your efforts for
us to work together on a bipartisan effort to try and address
these very, very important problems. We were able to come
together and reintroduce legislation to reauthorize the Water
Resources Research Act last week. Our bill would continue
support for water resources research institutes located at land
grant universities in each State. The work at these institutes
continues to be critical for our States that seek to implement
nutrient trading and other innovative approaches to water
quality and quantity challenges.
The Water Resources Research Act is one of the most
effective Federal research programs when it comes to leveraging
investment. Each Federal dollar must be matched with 2 dollars
of non-Federal support. Back at home we have the Arkansas Water
Resources Center at the University of Arkansas. Dr. Brian
Haggard is the director, and he has performed a lot of work
with one of today's witnesses, Dr. Marty Matlock.
Today I am eager to hear from each of our witnesses, but I
very much look forward to Dr. Matlock's testimony. In our
State, people across the political spectrum and diverse
backgrounds know that Dr. Matlock is a go-to expert if you want
a fair and impartial assessment of water quality challenges. I
also want to thank Mr. Shapiro, Dr. McGee, Mr. Hawkins, and Ms.
Bodine for being here today. I have known Susan for 12 years.
When I served on the House and was on T&I, she was the staff
director of the Water Resources and Environment Subcommittee,
kept me straight. So again, we appreciate her being here, and I
appreciate her expertise. Her knowledge and professionalism
were well respected by members on both sides of the aisle.
Again, I very much look forward to your testimony.
The topic of today's hearing, nutrient trading, is
complicated, and it is interesting. Efforts over the last 20
years or so to promote nutrient trading have revealed both
significant potential and serious pitfalls. On the upside,
nutrient trading has the potential to help achieve reasonable
water quality goals at the lowest possible cost. On the
downside, landowners and point sources that have witnessed
various EPA actions may be skeptical about the long-term
benefits and costs of participating in nutrient trading
programs. The lack of cooperative federalism between EPA and
the States has created a spirit of distrust in many of our
communities. Today, I believe that these distinguished
witnesses may offer us insights on ways to promote cost-
effective solutions to legitimate water quality concerns.
Finally, I want to acknowledge that Senator Inhofe can't be
here today, but I know he has a very serious interest in this
subject. So I ask unanimous consent that Senator Inhofe's
statement be included in the record.
Senator Cardin. Without objection, it will be included.
[The prepared statement of Senator Inhofe follows:]
Statement of Hon. James M. Inhofe,
U.S. Senator from the State of Oklahoma
As an avid sportsman and water enthusiast, water quality is
of particular concern to me. And it is to Oklahoma as well.
Fortunately, Oklahoma is the leader in managing waterway
nutrient content levels. The Oklahoma Water Resources Board,
Oklahoma Department of Environmental Quality, and the Oklahoma
Conservation Commission all work well together to pair
conservation programs to reduce the number of impaired water
bodies around the State.
Knowing how successfully Oklahoma has managed its
waterways, I am always concerned that EPA is working to set a
national standard for nutrient levels across the country. While
no one will deny the fact that high nutrient levels can cause
problems, establishing a one-size-fits all policy does not make
any sense.
National standards may be appropriate for toxic substances,
but nitrogen and phosphorus are naturally occurring in widely
varied concentrations. They are necessary components of healthy
ecosystems, and different ecosystems will be healthy with
different water nutrient levels. A fair comparison is the
caloric intake of different people. My grandsons who play
football and tennis should have a higher caloric intake than I
do; it would be silly to set a caloric intake standard that is
the same for both of us. Similarly, a single number for
nitrogen or phosphorus levels is not often an accurate
indicator the health of the ecological or the water's quality.
A national standard for nutrient levels in water bodies
could be a disaster if applied in Oklahoma. States should be
making decisions about appropriate standards. In Oklahoma,
having this discretion is of utmost importance because our
State is so diverse. With so many lakes, we have more shoreline
than any other State in the country; but the western part of
our State is relatively dry, and the eastern part of our State
gets a lot of rainfall. The soil changes as you move across the
State, and the land uses do as well. All of these things impact
nutrient levels in Oklahoma's waterways. Knowing this, even
having a nationally mandated State-wide standard would be
inappropriate. Each waterway is unique, and the State of
Oklahoma has proven that it is well equipped to consider
different waterway factors like biology, sunlight, optimal
stream substrate, stream flow, temperature, and background
water chemistry to determine appropriate nutrient levels and
then use conservation programs to manage any pollution problems
that exist.
These efforts have resulted in nutrient loading reductions
of between 60 percent and 70 percent in Oklahoma's highest
priority watersheds. Many waters have been taken off of the
303(d) list of impaired waters, and we've been ranked as one of
the top five States in the Nation for estimated nutrient load
reductions due to the implementation of the Clean Water Act's
319 program. In addition, Oklahoma has established numeric
nutrient criteria for some waterbodies since it was the best
approach to address nutrient loading in those specific
instances. It is this combination of approaches that makes
Oklahoma successful in addressing nutrients.
EPA's decisions to reduce funding for programs that
actually work--like the 319 program and the SRF--in exchange
for increased funding for global warming activities, have put a
strain on Oklahoma's ability to expand on the good conservation
work that has already been done.
Nutrient reduction credit trading may be an innovative and
helpful program to help large metropolitan areas with
significant point source polluters address their problems;
while there has been some interest in this concept in Oklahoma,
again, one size does not fit all and it is not applicable or
workable in all instances. To my knowledge, there is nothing
preventing any State from setting up this kind of arrangement
should it so choose.
But to the extent that we are talking about expanding this
type of proposal, we need to take it one step at a time, not
rush to judgment, and certainly should not use it as an
opportunity to impose any national nutrient standards or even
force the States to establish and maintain State-wide
standards.
As I said before, I strongly believe that States should be
in the driver's seat when it comes to considering the nutrient
levels of their waterways. But States should not be forced to
impose certain standards, nor should they be required to
implement credit trading schemes if they will not serve the
interest of the State.
I thank the Chair for allowing the opportunity to make
opening statements, and I look forward to hearing from the
panel.
Senator Boozman. His schedule, as we all know, has been
severely interrupted by the devastation in Oklahoma. I know
that our thoughts and prayers are with those people that have
suffered such a tragedy.
On that somber note, again, I want to thank the Chairman
and say that I look forward to our witnesses' testimony today.
I yield back.
Senator Cardin. Senator Boozman, thank you very much. Our
prayers and thoughts are with the people of Oklahoma. As many
of us have already said, we are going to do everything we can
to help as a Federal partner in that regard.
Senator Vitter.
OPENING STATEMENT OF HON. DAVID VITTER,
U.S. SENATOR FROM THE STATE OF LOUISIANA
Senator Vitter. Thank you, Mr. Chairman. I thank you and
the Ranking Member of the Subcommittee for this important
hearing. I will submit my full opening statement for the record
as well as some questions.
I just want to underscore what the Ranking Member said.
This is a pretty new idea. It could offer some potential and
benefits. But I fully understand if the ag community in
particular is skeptical. There has been a real attack on ag
producers by the EPA in many regards. Most recently with the
Agency's release of personal and confidential business
information of certain operations, and a litany of regulations
in an effort to expand the Agency's jurisdiction.
So there is a high level of distrust. Given that, I think
we need to fully vet any ideas like this, because there is that
natural skepticism. But I want to learn more, and thank you for
the hearing.
Senator Cardin. Without objection, your statement will be
made part of the record.
[The prepared statement of Senator Vitter follows:]
Statement of Hon. David Vitter,
U.S. Senator from the State of Louisiana
Mr. Chairman, I would like to thank you for calling today's
hearing. I would also like to thank our witnesses for
testifying before us this afternoon.
Today, we are here to discuss whether nutrient trading can
be a cost-efficient mechanism to help meet water quality goals.
In theory, nutrient trading has the potential to provide
point sources with the flexibility needed to achieve water
quality goals in a more cost-efficient manner, while at the
same time providing incentives to nonpoint sources to reduce
their pollution loads. The emphasis on potential savings is
important.
While I support the overall goal of reducing costs
associated with meeting water quality goals, nutrient trading
is a relatively new idea and more information is needed to
assess the effectiveness of these programs. In practice,
programs tend to work differently than in theory and we need to
make sure that we fully understand the risks and rewards before
moving forward. This is why we are here today.
The potential benefits from nutrient trading programs can
only be realized if programs are appropriately structured and
implemented. Regulators should not impose rigorous standards at
the outset that would discourage or inhibit States and
communities from pursuing nutrient trading options. Rather than
a ``one-size-fits-all'' Federal approach, States should be
given sufficient time and flexibility to develop these programs
and to figure out what works best for local communities.
I can fully understand if the agricultural community is
skeptical. There has been a consistent attack on our
agricultural producers by the U.S. Environmental Protection
Agency (EPA), most recently with the Agency's release of
personal and confidential business information relating to
concentrated animal feeding operations (CAFOs). A litany of
regulations and an effort to expand the Agency's jurisdiction
under the Clean Water Act have all led to distrust of our
Federal agencies, and in particular the EPA.
I look forward to today's discussion and learning more
about how we might address the scientific and practical
obstacles involved in implementing successful nutrient trading
programs.
Senator Cardin. With that, let me turn to Michael Shapiro,
the Deputy Assistant Administrator for the Office of Water,
United States Environmental Protection Agency. Mr. Shapiro,
thank you very much for your public service, and thank you for
being here.
STATEMENT OF MICHAEL H. SHAPIRO, DEPUTY ASSISTANT
ADMINISTRATOR, OFFICE OF WATER, U.S. ENVIRONMENTAL PROTECTION
AGENCY
Mr. Shapiro. Thank you. Good afternoon, Chairman Cardin,
Ranking Member Boozman and Senator Vitter.
I am pleased to be here today to discuss water quality
challenges posed by nutrient pollution and the promise that
water quality trading tools hold for helping to reduce nutrient
pollution in a more flexible and cost-effective way.
I have submitted my full statement for the record, and I
will summarize it here.
As you noted, Senator Cardin, nutrient pollution caused by
elevated levels of nitrogen and phosphorus is a major threat to
clean water. It has been extensively documented in the
scientific literature and confirmed by monitoring data
collected at the Federal, State and local levels. States have
identified more than 15,000 waters nationwide that have been
degraded by excess levels of nutrients. An increasingly
troubling result of nutrient pollution is the proliferation of
harmful algal blooms, where waters are choked with algae that
produce toxins, that threaten public health, aquatic life, food
sources and drinking water quality.
In general, the primary sources of nitrogen and phosphorus
pollution in urban and suburban areas are stormwater runoff and
municipal wastewater treatment systems. In rural areas, in
towns and cities continue to be an important contributor, but
the predominant sources are waste from agricultural livestock
activities and excess fertilizer from row crops.
EPA recognizes the Nation's significant nutrient pollution
challenge and is committed to finding collaborative solutions
that protect and restore our waters and the health of the
communities that depend on them. To reaffirm EPA's commitment
to partner with States and collaborate with stakeholders to
reduce nitrogen and phosphorus loadings to the Nation's waters,
Acting Assistant Administrator Nancy Stoner sent a memorandum
to EPA's 10 regional offices in March 2011. The memo lays out a
framework for guiding EPA's work with States and stakeholders
to achieve nutrient reductions.
EPA recognizes that States need room to innovative and
respond to local water quality needs and that one-size-fits-all
solutions to nitrogen and phosphorus pollution are neither
desirable nor necessary.
An approach with significant potential to help reduce
nutrient pollution is water quality trading. EPA has promoted
and supported the concept of water quality trading as an
innovative approach for achieving water quality standards with
flexibility and economic efficiency. Water quality trading
allows one source to meet its regulatory obligations by using
pollutant reductions created by another source that has lower
pollution control costs.
In 2003, EPA published a water quality trading policy which
sets the stage for our State partners to include trading as a
flexible compliance pathway for Clean Water Act permitted
sources. As outlined in the policy, EPA believes that water
quality trading and other market-based programs should be
consistent with the Clean Water Act; that water quality trading
should occur within a watershed or a defined area for a total
maximum daily load, or TMDL, where such has been approved; that
nutrients and sediments are pollutants most amenable to
trading; and that the baselines for generating pollution
reduction credits should be derived from and consistent with
water quality standards established by the States or tribes
under the Clean Water Act.
The trading policy supports trading among point sources,
such as municipal wastewater treatment plants, industrial
facilities and municipalities covered by stormwater permits, as
well as between point sources and non-point sources, such as
farmers and other landowners. In the latter circumstances, EPA
believes that it is important that these non-point sources have
clear baselines for pollution contributions, such as what would
be allocated under a TMDL, and that the pollution reductions
that take place are clearly measured and documented.
In addition to the Agency's 2003 trading policy, the EPA
has developed a toolkit for water quality trading that can help
identify possible approaches that States, the regulated
community and other sources can use to encourage water quality
trading. In addition, the EPA has supported States' trading
efforts through grants. We have held workshops on water quality
trading and offer online training for States, tribes and other
interested parties. The EPA is also working closely with the
Department of Agriculture to help agricultural producers
participate in trading programs.
Water quality trading programs are in various stages of
implementation across the Country. There are a few very
noteworthy cases, such as the Connecticut example, where 79
municipal wastewater plants trade among themselves to meet
nitrogen reduction targets for the Long Island Sound. There are
other programs that have been developing within the Chesapeake
Bay. All of the States that contribute to the Bay and are
covered by the TMDL are planning to use offsets, which is a
form of trading, to deal with new growth. And several have
developed trading programs that are designed to assist point
sources and allow both point to point as well as point to non-
point source trades.
This concludes my statement. I will be happy to answer any
questions you might have.
[The prepared statement of Mr. Shapiro follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Cardin. Thank you very much for your testimony.
I take it from your testimony that it is the
Administration's position that nutrient trading is a tool that
is available, that can be used under the Clean Water Act?
Mr. Shapiro. That is correct.
Senator Cardin. So the legal authority for that, you
believe, is clear?
Mr. Shapiro. We believe that it is consistent with the
Clean Water Act. Obviously the type of trading and the
conditions under which it is done would affect its
acceptability under the Clean Water Act. But we believe
properly constructed trading is absolutely consistent with the
Clean Water Act.
Senator Cardin. And there are many States moving forward
with various types of trading programs that you have mentioned.
In the Chesapeake watershed, I believe Pennsylvania was the
first to proceed with non-point source, and dealing with
trading in that regard. What is the role for the Federal
Government in the strategy for a multi-jurisdictional body of
water, such as Chesapeake Bay? What do you see the role for the
EPA or the Federal Government in facilitating or coordinating
how nutrient trading is done or whether it should provide
further incentives for the effectiveness of nutrient trading?
Mr. Shapiro. Senator, as you know, EPA has had a very
active role in developing the Total Maximum Daily Load, the
TMDL framework, which is the kind of construct for achieving
water quality improvements in the Bay watershed. We did that
collaboratively with the seven Bay jurisdictions. The framework
in that TMDL document lays out trading as it is clearly
allowable and often a desirable component of State programs to
achieve the nutrient reductions that are needed.
We don't necessarily see that EPA would lead an effort to
develop an interstate trading program. But if the States that
are participating in the work on the Bay are interested in it
and believe that there are some opportunities to move forward,
we will be happy to work with them, provide technical support
as well as other forms of support to ensure that an interstate
trading program would be effective and would be able to meet
the requirements of the TMDL.
Senator Cardin. So today, if the States of the Chesapeake
watershed wanted to set up an interstate trading program, it
could do that, they have the authority to do that currently
under the Clean Water Act and the implementation of the plans?
They could do it without, they don't need additional guidance
from the Federal Government in order to set that up?
Mr. Shapiro. We would want to work with them very closely
to make sure that as they move forward the training program
they are developing continues to meet the requirements of the
Clean Water Act and the pollutant reduction goals of the TMDL.
But yes, we believe they have the authority to do that. The
TMDL as well as the Clean Water Act would allow them to proceed
in that direction.
I don't want to overstate the ease by which that could be
done. It would be a challenging institutional effort to work
across different State programs, try to align State programs in
a way that a purchaser in one State and a seller in another
State could do that effectively, meeting the requirements of
both States as well as continuing to stay within the scope of
the TMDL.
So it would be, I think, a challenge, but it is certainly
something that can be done.
Senator Cardin. I know there is concern by the individual
States that without some direct guidance from the Federal
Government that is a challenge to try to organize an interstate
trading program. There is also the concern as to how you do
this in a fair manner that, yes, we have TMDLs as the overall
goal, but how do we ensure that the different sectors are being
treated fairly?
This is the point that I think Senator Vitter and Senator
Boozman mentioned earlier about the concern of agriculture,
they want to make sure that this is not just a way of asking
the agriculture sector to do more than their fair share in
cleaning up Chesapeake Bay watershed.
How do the States move forward with that, without some
additional guidance from the Federal Government on interstate
trading programs?
Mr. Shapiro. I think the basic kind of fairness issues that
you referred to in terms of the allocations, they are called
load allocations in the TMDL, have already been decided upon by
the individual States. EPA did not dictate specific controls,
nor could we, for non-point sources, such as agricultural
communities. We, working with the States, established load
allocations and each State has developed its proposal, which we
have reviewed, for achieving those load allocations, including
contributions that they would be gaining from the agricultural
sector as well.
A trading program wouldn't change what I called earlier
baseline allocations. A trading program would merely set up
rules, either within a State, as has already been occurring, or
across States that would allow a farmer who wishes to reduce
pollution further than what is already allocated in the State's
implementation plan, that increment of reduction that would
provide them a vehicle for selling that increment to someone
who finds it more expensive to control their pollution.
So it does not change the basic equities of the allocation.
It merely creates some vehicles to harness the economy to work
more effectively for the environment.
Senator Cardin. Let me just mention one other concern that
has been brought to my attention from the agricultural
community, and the reason why they believe that Federal action
may be necessary for an interstate nutrient trading program.
They don't know what the market will bring. There is no
certainty as to what the values will be of the credits. You are
asking primarily farmers under nutrient trading to do more,
because that is usually the area where you look at where you
can get the most credits. Without the Federal Government
providing some assurance that there will be a market for the
credits, there is a concern as to whether this in fact will
work in the real world.
Do you share that concern and do you see a role for the
Federal Government in perhaps providing more certainty as to
the market parameters of a nutrient trading program?
Mr. Shapiro. Well, a couple of points in response. First,
it should be obvious but I want to make it clear, no one would
be forcing anyone to participate in a trading program. A farmer
could elect to wait to see what other people do. They could
just decide it is not worth their attention.
And so it is not that we are saying farmers or anyone else
has to make investments in producing what are referred to as
credits, nutrient reductions in excess of their requirements.
It is something they can elect to do. And as in any market,
someone who is making a market-based decision is facing some
degree of uncertainty. You don't know that there will be
guaranteed demand for your product, although some trading
programs can be set up in a way that allows the transaction to
occur before any investment is really made.
There are State programs, I think Virginia is an example,
that has encouraged the creation of pools of credits ahead of
the market, and therefore provided some facilitation to the
market. There are other kinds of strategies, I think, that we
could work with the States to identify that might lower the
degree of uncertainty and facilitate other aspects of trading
activities. But at the end of the day, it is a market and it is
going to be ultimately subject to some degree of uncertainty as
markets are. Someone comes up with a new whiz-bang wastewater
treatment plant technology that reduces the cost of removing
nutrients at wastewater treatment plants by a factor of 10,
nutrient reduction might be much easier to do than trading.
So those are uncertainties. But I think overall we believe
that the studies we have looked at indicate that there is a
substantial savings that can be achieved today by encouraging
trading, especially point to non-point source trading, and that
there will be a market. But the design of the institutions and
the structures around the trading program is an important
element that can help ameliorate some of the uncertainties that
farmers might face.
Senator Cardin. Senator Boozman.
Senator Boozman. Thank you, Senator Cardin.
I would like to follow up. I think the certainty issue
really is a major issue. Let's consider a small rural
wastewater treatment facility that faces a choice on the one
hand, participating in a nutrient trading program, and then on
the other, purchasing the technology, the control technology.
If they purchase the control technology they would have the
feeling that they have acquired something tangible, and as we
know, these are expensive propositions.
An EPA permit writer that comes back to review their permit
in 5 to 10 years will see the technology as a real asset,
making it quantifiable improvements. However, if they instead
choose to purchase an offset from a large municipal wastewater
treatment plant, the results may be quantifiable, but the
offset purchaser may not feel like they truly have something to
show for their investment. I think that this can be overcome
and can be addressed through a well-structured trading program
developed at the State level in cooperation with EPA.
Can you talk about that? What does EPA do in these kinds of
situations to provide assurances that the permit recipients,
that these cost-effective options will be recognized on an
ongoing basis?
Mr. Shapiro. Well, in the case you are talking about, it
would be a point source to point source trade, which means some
of the uncertainties that we deal with in a non-point situation
wouldn't be present. And the trade would be reflected in the
permits of the two facilities. As you know, and this is the
point I think you were making about uncertainty, under the
Clean Water Act, permits are on a 5-year cycle. They come up
for renewal. I think as long as the effluent limits are being
met and the load allocations under the TMDL are being met,
there would be no Federal basis for forcing a change in the
situation.
I think that some of the uncertainty that a small plant
might face at some point in time is that as, if population, for
example, grows, at some point a larger facility may feel like
it needs to use more of its capacity to meet its own population
demands, in which case at some point the smaller facility might
lose the opportunity to continue to purchase credits. That is
one of the uncertainties. There are certainly ways of, through
contractual arrangements, dealing with those uncertainties. It
is not something that the Federal Government necessarily could
commit to in terms of locking people into certain permit
conditions.
Senator Boozman. Regarding participation from agriculture,
would you support arrangements that would enable, for example,
USDA and State conservationists to take the lead in
verification of best management practices being implemented by
non-point sources?
Mr. Shapiro. We want to work very closely with the
Department of Agriculture. We are working very closely with
them. I can't speak to the details of the specific arrangement
you just mentioned, but certainly those are the kinds of
options we would want to look at. We realize that they have a
lot of expertise, they have field capacity to support it.
Again, though, these are largely programs that are going to be
implemented by the States, so the working relationships would
be, in our view, largely relationships between the Department
of Agriculture or the local or the State agricultural agencies
and the State regulatory agencies that have the implementation
responsibility for the TMDL. EPA would not routinely be doing
the direct verification and implementation in that kind of a
situation.
Senator Boozman. Good, thank you. These are things that
again, in talking to the farm community, come up.
Another thing, do you believe that onsite water quality
monitoring would discourage participation by non-point sources?
Just having, again, the onsite come out to your place?
Mr. Shapiro. Well, again, we talk about some of the
uncertainties that we are dealing with and trying to give
predictable, defined credits to non-point sources. And in order
to do it in an effective way, there has to be some ability to
verify that the activities that are committed to under the
trading arrangement are absolutely being implemented. One way
of doing that in some cases is not necessarily the right
approach in all cases. In some cases, it is to do onsite or
nearby water quality monitoring. Other types of verification
include making sure that if a certain buffer strip, for
example, has been committed to as part of the agreement, that
buffer strip is actually there, that it is being maintained
over time and so forth.
So there are a variety of arrangements that could be
developed to verify particular non-point source control
approaches. But onsite monitoring in some cases might be the
most effective in terms of actually demonstrating the ongoing
effectiveness of a particular type of technology.
Senator Boozman. Right. You mentioned in your testimony
that Virginia's program is phased, requiring point sources to
trade among themselves before they begin trading with
landowners. Do you have an opinion on that? Do you see any
merit one way or the other?
Mr. Shapiro. Well, EPA doesn't have a strong opinion. I
would say that Virginia is out ahead, but like a lot of States
they are still relatively new at implementing major trading
programs. As indicated earlier, trading between point sources
is a little bit easier because of the fact that everyone is
under a permit already, they have a monitoring history, they
have what is called a waste load allocation, which is a
particular requirement under the TMDL.
So the job of figuring out the trades and verifying them is
a little bit easier. It is a good way of getting a program
working and starting. And then adding non-point sources to the
program a little bit later gives you the chance to have the
basic machinery in place as you are dealing with some of the
more challenging issues.
But I think you will be hearing later about some of the
work that has been done in Virginia. It does look like people
have put a lot of thought into creating pools of credits from
non-point sources. Again in Virginia, even though that piece of
the program is a point to point, growth has to be handled
through offsets with non-point sources, or not has to, but it
can be handled through non-point sources. So there already is a
mechanism for doing some trading in Virginia for offsets.
Senator Boozman. And very quickly, final thing, what can
EPA do to help the States that are looking at this situation?
What kind of resources can you all offer a State that is
looking at the Virginia model or some other model? Are there
particular resources that EPA can help in that regard?
Mr. Shapiro. Well, some of the grant funding that has been
made available to States under our Section 106 Clean Water Act
funding, under Section 319, which is specifically for non-point
source planning and control, as well as some of the money that
has been made available specifically through the Chesapeake Bay
program and resources for implementation can be used by States
to develop some of these tools and processes. So there are
resources already available.
As I indicated, we are also willing and able to provide
technical assistance to States, especially in dealing with
novel issues that may come up. We feel that we have an
important stake in the TMDL, in the Chesapeake Bay TMDL
succeeding, and in it succeeding in a way that is as effective
and efficient and beneficial to the communities involved as
possible. So we want trading to work. We think it, as I
indicated earlier, we think it is an important tool, an
important element of successful undertaking in the Chesapeake
Bay. So we are willing to provide technical assistance as we
can.
Senator Boozman. Thank you.
Senator Cardin. Just for clarification, did you say
Virginia does permit non-point trading?
Mr. Shapiro. For offsets. It is my understanding that they
current allow that for offsets. That is the issue of dealing
with new growth. If you are a developer coming in or you are
expanding an existing development, the pollution associated
with that, if there is runoff caused by your site or other
activities that lead to increased nutrient pollution, that has
to be offset. One way of achieving those offsets is to, at
least in the tributaries to the Bay specifically, is by
purchasing offsets from non-point sources.
Senator Cardin. From non-points, they can purchase from
non-points?
Mr. Shapiro. Yes, sir.
Senator Cardin. Thank you very much for your testimony. We
appreciate it very much.
Mr. Shapiro. Thank you.
Senator Cardin. The second panel, let me introduce them and
invite them up. We have Dr. Beth McGee, who is the Senior Water
Quality Scientist for the Chesapeake Bay Foundation; Mr. George
Hawkins, the General Manager of D.C. Water; Dr. Marty Matlock,
Professor, Department of Biological and Agricultural
Engineering, Area Director, Center for Agricultural and Rural
Sustainability, University of Arkansas; and Ms. Susan Bodine,
Partner, Barnes & Thornburg. Welcome, all.
Senator Boozman has already acknowledged two members of our
panel. We appreciate all four of you being here. Your full
statements will be made part of the Committee record, and we
will start with Dr. McGee.
STATEMENT OF BETH McGEE, SENIOR WATER QUALITY SCIENTIST,
CHESAPEAKE BAY FOUNDATION
Ms. McGee. Good afternoon, Mr. Chairman, Ranking Member
Boozman. Thank you for inviting me on behalf of the Chesapeake
Bay Foundation to participate in today's hearing.
You have my written testimony, and what I would like to do
is build upon Mr. Shapiro's testimony and draw from our
experiences in the Chesapeake Bay watershed. You have heard
that we have a Bay-wide TMDL in the Chesapeake Bay for
nitrogen, phosphorus and sediment. The States and jurisdictions
are relying on nutrient trading to achieve and maintain the
pollution limits that are called for in the TMDL.
I want to emphasize this issue of maintain. It came up in
the last comments from Mr. Shapiro, which is that the trading
markets are likely going to involve not only trading among
existing sources, but the market will also probably come from
new sources that are going to need to offset these new loads.
So critics of nutrient trading will argue that trading
allows point sources to pay to pollute, that trading may lead
to localized water quality hot spots, that the reductions might
not be real or verifiable. CBF shares some of this skepticism.
But we actually believe that there is a way to design it and
implement trading programs in a way that ensures that they are
cost-effective and environmentally beneficial.
The key to success is to have the necessary safeguards in
place. These include things like a standardized process to
evaluate permits to ensure that they don't result in
degradation of local water quality, third party verification of
credit-generating practices, a transparent process so that the
public can have access to information about trades, and review
and provide comments on them.
The Bay States have actually worked on trading programs for
nearly 10 years now. Unfortunately, they evolved independently
and for that reason, there are very significant differences
among the State trading programs within the Chesapeake Bay. EPA
is developing technical memoranda that will help level the
playing field and provide some regulatory certainty. But we
think there are other reasons why a trading program hasn't
really taken off in the Chesapeake, and Congress might be able
to help here.
The most costly and challenging aspect of implementing the
Bay-wide TMDL will be reducing stormwater pollution. That is
the most expensive thing that we need to do. And because of
this high cost of compliance, the trading experts actually say
that is probably where the demand is going to come from. It is
going to be the local governments holding stormwater permits.
A recent study by a group called RTI International found
that local governments with stormwater permits could save, and
this is within the Chesapeake, could save millions of dollars
if they purchased credits to meet at least a portion of their
pollution reduction targets. However, they face several
challenges. For one thing, most local governments don't have
the resources or staff time to figure out how trading could
actually work for them. There are pretty significant legal,
technical and policy issues that need to be identified and
overcome.
Congress has provided some support for addressing these
issues through the Conservation Innovation Grant Program in the
Federal Farm Bill. In addition, I mentioned that EPA's
technical memoranda that they are developing for the Chesapeake
Bay should help provide some regulatory certainty. But in
particular, we think the technical memoranda dealing with urban
stormwater sources should specifically clarify that stormwater
permittees can trade. Right now, the policy that is governing
point source trading is the Permit Writers Water Quality
Trading Tool Kit. From our read of that, it is really geared
toward more traditional point sources and not stormwater
permittees.
As we have talked about, farmers are viewed as the likely
sellers in nutrient trading markets, because the cost of
reducing pollution from agriculture tends to be cheaper than
from other sources. That said, and we have heard a little bit
about this, there are a variety of reasons why agricultural
producers aren't stepping up to the plate on trading. Some of
it is, quite frankly, just a lack of knowledge about the
trading programs. Some of it is lack of knowledge about what
conservation measures they need to implement on their farm in
order to participate, and whether that might change over time.
There are concerns about third party verification, concerns
about data privacy. And we have also heard that farmers, quite
frankly, don't want to be viewed as allowing someone else to
pay to pollute.
Again, Congress has helped in this regard by providing
funding to the Conservation Innovation Grant Program that is
helping overcome some of these obstacles. So we urge Congress
to continue their support for this program and others like it.
We also encourage them to continue to encourage EPA and the
USDA to work together on nutrient trading.
Last, I want to highlight that Federal programs like the
Clean Water Act Section 319 program, the Clean Water State
Revolving Loan Funds, the conservation programs in the Federal
Farm Bill, are really important for trading. They are going to
help farmers get up to the compliance level they need to be in
order to participate in these markets.
So with that, I would encourage this Committee to increase
its support for these programs and extend thanks to Chairman
Cardin for his leadership on this issue. While trading is
developing throughout the Country, there are a lot of eyes on
the Chesapeake region. So we really need to do it right here.
With that, I will end and thank you and take questions at
the end.
[The prepared statement of Ms. McGee follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Cardin. Thank you, Dr. McGee.
Mr. Hawkins, welcome back to the Committee.
STATEMENT OF GEORGE HAWKINS, GENERAL MANAGER, D.C. WATER
Mr. Hawkins. Good afternoon, Chairman Cardin, Ranking
Member Boozman. My name is George Hawkins. It is a delight to
be back before you again to speak about nutrient trading.
I have the honor and pleasure of being the General Manager
of D.C. Water, which among other things, like responding to a
sinkhole at 14th and F this morning, runs the Blue Plains
Advanced Wastewater Treatment Plant, which is the largest
advanced wastewater treatment plant on Earth.
I sit before you fundamentally because of a remarkable
success. It is the success of the point source discharge
program under the 1972 Clean Water Act Amendments that has
generated the need for today's hearing. That success risks
failure today, or what I would say is grasping defeat from the
jaws of victory. Let me put the point in very clear terms. Take
nitrogen removal, what we are speaking of today. Blue Plains,
the largest facility in the Country doing this kind of work,
which serves both the District, 70 percent of Montgomery
County, Prince George's County in Maryland, Fairfax, Loudon and
Arlington County in Virginia, removed nutrients from 14
milligrams per liter to 7.5 milligrams per liter up to the year
2000. That is equivalent to 7.3 million pounds of nutrients for
a cost, remarkably small, of $16 million.
The next phase of our reductions was for 7.5 milligrams per
liter to 5 milligrams per liter. So now two and a half
additional milligrams per liter, for $130 million. So one-third
the level of protection for 10 times the price.
What we are currently undertaking at Blue Plains is
reducing nutrients one more milligram per liter, 1.1 actually,
from 5 milligrams per liter to 3.9. That is equivalent to 1.2
million pounds of nutrients in a year, at the cost of $1
billion. Let me say that again, $1 billion. The price of
removing a pound of nutrients at Blue Plains has risen 600
times since we started this work originally. That by itself
should justify a look at what is most economically efficient.
If you compare the sources for nutrients to the Chesapeake
Bay by State, the District of Columbia is 1 percent of the
nutrient load to the Chesapeake Bay. If you do it by source,
agriculture, runoff from land and air deposition is 80 percent
of the nutrient load to the Bay. Blue Plains, the largest
single point source, is 2 percent.
Put these numbers in comparison, the billion dollars we are
spending currently at Blue Plains is allocated between the
District of Columbia, Maryland and Virginia. In fact, because
of flows coming to the plant, 60 percent is borne by
constituents in Maryland and Virginia, including some of yours,
Senator, perhaps yourself, and 40 percent is borne by District
residents, which together is just about 2 percent of the
nutrient source for the Bay.
So that means $400 million is being spent by D.C.
ratepayers today, now, to reduce less than 1 percent of the
nutrients to the Bay, and $600 million, because a larger
percentage of the flow comes from our suburban customers, are
paying for slightly more than 1 percent, totaling 2 percent.
And I don't have the facts in front of me, but you compare the
expenditure of our ratepayers, hundreds of millions of dollars,
to reduce less than 1 percent in each case of the nutrients to
the Bay, and it raises three fundamental questions.
First in equity, I just finished the eight rate hearings I
do in the District regarding our rate increases. I had to have
police officers go with me to a number of them. Because the
rates have gone so high for our ratepayers, many of whom are
fixed income, low income, unemployed from throughout the city.
Costs to urban ratepayers are not conjecture, they are not
perhaps in the future, they are not requirements that might
come to a farm someday, they are right now, and they are
enormous. Our rates have doubled over the last 4 years.
Second is economic. The rate curve that we are on and the
cost of reducing at Blue Plains is so great that we are
spending a billion dollars of public funds for such a small
outcome. On a straight economic basis is that a rational
expenditure of public funds?
And third, is it a sound investment fundamentally on an
environmental basis? Blue Plains is 2 percent of the source to
the Chesapeake Bay. We are spending a billion dollars to remove
a fraction of that 2 percent. Our engineers do not know how we
would get to zero discharge, but they tell me with enough money
they could do it. But the question of whether or not, if we did
get to zero, 98 percent of the source of nutrients to the
Chesapeake Bay would still exist despite that enormous
expenditure.
So the notion, would Blue Plains and D.C. Water be
interested in a trading program where we could get better
reductions at lower costs? Absolutely yes. Every question here
that has been asked is a legitimate one. We would want
certainty to know that we are not going to have ratcheted down
in the future what we paid in the short run.
And the second is that we want to know everybody has skin
in the game. If D.C. ratepayers have spent hundreds of millions
of dollars in reductions, even if it is less expensive than the
next treatment increment at D.C. Water, spending money to
reduce someone else's pollutants on top of it if they don't
also have skin in the game would be a challenge to sell to our
ratepayers here at home.
Nonetheless, I think the economic, environmental and
equitable potential of trading I think requires that it be on
the agenda and why this hearing is exactly the right step
today. Thanks very much.
[The prepared statement of Mr. Hawkins follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Cardin. Thank you, Mr. Hawkins, for your testimony.
You are the person who can make a wastewater treatment plant
sound very exciting. We very much appreciate that.
[Laughter.]
Senator Cardin. Dr. Matlock.
STATEMENT OF MARTY MATLOCK, PROFESSOR, DEPARTMENT OF BIOLOGICAL
AND AGRICULTURAL ENGINEERING, AREA DIRECTOR, CENTER FOR
AGRICULTURAL AND RURAL SUSTAINABILITY, UNIVERSITY OF ARKANSAS
Mr. Matlock. Thank you, Honorable Chairman Cardin, Ranking
Member Boozman, distinguished members of the Committee,
Subcommittee and diligent staff for this great opportunity to
testify on this very important issue.
I have been chasing nutrients around watersheds for 20
years, trying to identify sources, trying to find solutions,
trying to measure their impacts. It is a very difficult and
complex process. I have worked with ag producers, with
industries, with municipalities, with our regional EPA, State
and local agencies, to try to understand and find a better way.
Mr. Hawkins was very eloquent in defining our opportunities and
our challenges economically.
Through this process I have come to believe that if we are
to achieve increased productivity from the land and prosperity
from the land, and improve water quality for future prosperity,
we have to find a better way to manage our nutrients. We all
live in watersheds. We all contribute to the problem. The
nutrient problem belongs to all of us. So should the solutions.
We all should have skin in the game, as Mr. Hawkins said.
So in the past, our approach to reducing undesirable
outcomes has been focused on top-down management, finding the
polluters and making the polluters pay. It has been very
effective, history shows that. But it is not going to work
here, it hasn't worked here. EPA has been trying for 20 years
to find a better way to define nutrient trading strategies.
Many of those strategies have been effective at some level. But
we have not been able to replicate them well, because they are
all context-specific.
So I believe that our challenge today is largely associated
with uncertainty in the trading process. The fact is that the
participants, especially land-based producers, agricultural
producers, have high uncertainty about engaging in trading
processes, high uncertainty associated with the regulatory
risks that are associated with participating, and then our
point source discharges, the permitted discharges, have equal
uncertainty, or maybe even greater, because they are the ones
with the regulatory sword over their heads, as it were.
Those uncertainties dramatically inhibit our ability to
innovate our strategies. So again, I will close fairly quickly,
because much of what I have in my written statement has already
been covered. But it is my judgment the primary barriers to
uncertainty can be reduced through collaborative and innovative
and flexible strategies. But it is going to require
collaboration at the Federal level, not just State and local
level.
Thank you.
[The prepared statement of Mr. Matlock follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Cardin. Thank you very much for your testimony. We
appreciate it very much.
Ms. Bodine.
STATEMENT OF SUSAN BODINE, PARTNER, BARNES & THORNBURG, LLP
Ms. Bodine. Thank you, Chairman Cardin, Ranking Member
Boozman. Thank you for inviting me. And thank you for holding
this hearing.
You have heard the testimony from all the witnesses.
Everyone here, I think, supports trading. And that is a good
thing.
In my written testimony, I did spend a section talking
about the legal authority for trading under the Clean Water
Act. I am not going to repeat that here. But I do want to say
that that authority has been challenged in a pending lawsuit,
and I am sure you are aware of that. On that issue, I am not
going to go into the legal details, but I do want to talk a
little bit about the policy issue behind a challenge to
trading. I think Mr. Hawkins was most eloquent about the
potential for trading in terms of cost savings and some of the
numbers involved. And they are enormous, and the potential for
savings is enormous as well. There are studies, in the context
of the Chesapeake Bay, there are studies that the Chesapeake
Bay Commission has done on cost and cost savings as well as the
University of Maryland School of Public Policy has done and I
have cited those in my written testimony.
But for the people who oppose trading, I can only imagine
that they believe that they will get greater water quality
improvements without trading. That is just a fundamentally
misconceived notion. Because of the cost that Mr. Hawkins spoke
about, and the cost of implementing something like the
Chesapeake Bay TMDL. If you can't make this more affordable, it
will be unachievable. And if water quality standards are
unachievable, the Clean Water Act provides a mechanism for
changing them.
So if people manage to get a court to agree that trading
isn't allowed, the ultimate result won't be increased water
quality, it will be a lowering of standards through use
attainability analyses. So that policy issue I think is
important to bear in mind when people are talking about whether
trading is viable or not. I think all your witnesses here agree
that it is viable. So that is important.
In my testimony I do address some of the issues, some of
the barriers I think you have raised. And there are concerns
about issues like what is the baseline, what are the
verification practices. And also what the expectations are in
terms of instant results. I want to talk a little bit about
that. Senator Cardin and Senator Boozman, I think you both
talked a little bit about certainty. Mr. Matlock talked about
certainty. There is a concern I have heard actually in the
context of Maryland about shifting baselines, moving the
goalpost, more regulatory programs coming on board that change
the baseline. And that is a concern.
There is a question about how programs establish baselines
and whether they can be flexible so that there is at least a
certainty that, for example, an agricultural producer that
undertakes conservation measures will in fact generate a credit
that they can later sell. But if the baseline keeps changing
because the regulations keep changing, that may not be the
case.
We have heard concerns about privacy. Senator Vitter
alluded to a concern that has arisen recently about EPA
releasing personal identifiable information about farmers. That
type of activity only raises the distrust. There is a distrust
from the agricultural community of regulators.
On the issue of verification, it is certainly better to
have ag community people deal with ag community people, whether
it is an NRCS, or whether it is the soil and water conservation
districts, those organizations are involved in trading programs
at various levels. That certainly gives a level of comfort.
Monitoring I think was raised. Mr. Matlock talked about
onsite water quality monitoring. One issue I wanted to raise
with monitoring is the privacy issue of whether somebody is
going to come onsite if it is a farm. But the other issue is
something that is even more important; water quality monitoring
is very expensive. When you are talking about non-point source
reduction, monitoring is best done at a watershed basis. There
has been a lot of good work done by Dr. Deanna Osmond down at
North Carolina State University. She has written a book on
this; she has given a lot of talks on this issue. Her point is
that the monitoring is best done on the watershed basis. They
have shown some really good, significant results down in North
Carolina.
Finally, I want to address the role of Congress. Having
this hearing today is important to show congressional support
for trading. That helps States with their programs and helps
EPA support the programs. I would caution against legislation
that would dictate any details of trading, because as you have
noted, there is an enormous variety. EPA's 2003 policy, as well
as the Permit Writer's Tool Kit, allow that and acknowledge
that there is room for a great deal of variety. So I want to
caution against any legislation that would tell States how to
do trading.
But as Dr. McGee pointed out, the 319 program funding is
very valuable. Senator Boozman, you talked about your land
grant college. The land grants have been tremendously helpful
in addressing nutrient issues. In fact, for Iowa's nutrient
reduction strategy, all the technical aspects of that strategy
were performed at no cost to the State; but it was performed by
the land grant college.
So funding the land grants, like in the legislation you are
introducing, as well as funding for what is called the CEAP
program, Conservation Effects Assessment Project, in NRCS, is
important. The CEAP program does watershed scale monitoring,
the kind of monitoring that can demonstrate the success of
conservation practices. To continue to support that also is
tremendously important. Thank you.
[The prepared statement of Ms. Bodine follows:]
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Senator Cardin. Ms. Bodine, I just want to underscore a
point that you made, and I think it is a very valid point. That
is, Mr. Hawkins' cost of getting that last percent down and how
much that is of the overall game plan on nutrient reduction. He
didn't talk about how difficult it was for him to get all the
financing, but it was not easy.
With cost benefit analysis becoming so much in the
spotlight, we will not be able to sustain those types of
investments for that type of growth in the future. But those
who believe that we are going to get that type of reduction in
the future, we are not.
I would point out to Mr. Hawkins, I am sure he agrees with
this, that storm runoff is our No. 1 growth area of problems.
We have to deal with storm runoff. And the investment being
made at Blue Plains is an incredible infrastructure improvement
to deal with storms, basically, so you have the flow that
doesn't overflow and cause the nutrients to go untreated into
our waters and streams and rivers. So the trade off is
important. But I think you are absolutely right, we are not
going to be able to sustain that kind of investment going
forward for that type of marginal gain. So we have to look at
other ways to be able to accomplish this.
I want to ask Dr. McGee and perhaps Ms. Bodine, you
specifically mentioned the evaluation process, third party
transparency, you mentioned doing it local and making sure that
there is credibility. Can you both elaborate a little bit more
how the evaluation process should be supported by EPA,
supported by us to make sure that in fact, the credits are
there, that the progress is being made? What do you mean by
independent third party? What do you mean by transparency?
Ms. McGee. Sure. I think EPA's role in this is to establish
what verification looks like, does it include photographs, how
often should that be done, what should the documentation look
like. I don't think right now they have a role in doing the
verification.
When we say third party verification, we are talking about
an independent person, not associated with the government.
Senator Boozman said something about conservation districts or
USDA employees. We would not support that, but the reality is
that third party verifiers who know farms are probably retired
from those organizations. So what we are looking for is an
independent third party to come in and verify on a farm that
yes, I did plant those trees and here is the documentation,
here are the photographs and that would all be set by EPA.
Another layer of verification would be that the State
regulating entity would be doing some spot checks on that
verification. So they wouldn't necessarily be going out to
every farm, but they might check 10 percent of them, or a
certain percent of the farms, sort of verifying the third party
verifier, if you will. So that is, when we talk about
verification, that is what our intention is.
Senator Cardin. Ms. Bodine, would the farmers think that is
a positive step?
Ms. Bodine. I would suggest that it is not really EPA's
role to get into that level of detail, to establish what is a
specific State verification process. And the States do have
different approaches. In Maryland, for example, the State
Department of Agriculture does go out and inspect 10 percent of
the trades. And the trades also do require an annual third
party inspection.
You have programs, for example, in Pennsylvania where you
have aggregators, like the Red Barn Trading Company that
testified before this Subcommittee a number of years ago. They
serve as a verifier. They aggregate credits. But they can also
be a verifier on the other side and interact.
My point is that there are different models out there and
that one model isn't necessarily better than the other. Yes,
the BMPs have to be in place, there is no dispute on that.
I know I am over your time. There is another kind of
verification, I just want to make sure you distinguish between
the two. One is that the conservation practices are taking
place. The other is the shift in water quality. That is a
programmatic verification; that is not an on-farm, onsite
verification. It is the ambient water quality that gets
monitored over time, whether it is through the CEAP program or
whether it is through the State's ambient water quality
monitoring. That is at a programmatic level and not on a trade
by trade level.
Senator Cardin. Mr. Hawkins, you can respond to that. I was
going to ask you.
Mr. Hawkins. Very quickly, and I certainly understand that
we want flexibility with States. But at an enterprise that
might be purchasing credits, I think a bottom line, uniform,
you at least must do these three steps. There might be
additions that States ask, so that when we are buying in the
market, we know that no matter where we are buying from, or
where the credits are coming from, there is going to be uniform
baseline of how we establish that we know we are getting the
credit we think we are buying, if we are purchasing them,
rather than needing to verify any particular place that there
is a baseline that we can count on across a multi-State Bay.
Senator Cardin. That is the question I was going to ask.
You have to deal in an interstate program, located in the
District.
Mr. Hawkins. Correct.
Senator Cardin. There is not enough in the District, you
are going to need to have multiple jurisdictions that you have
to deal with, which requires, I think, some degree of Federal
role.
Mr. Hawkins. To me, it is not one way or the other. The
advantage of some baseline uniform system is across the board
why many, in my judgment, environmental programs have succeeded
or failed. You get economies of scale, you get consistency of
purpose, you get a professional group that can go from one
place to another and know that there is a common set of steps
that can be taken. Nonetheless, in a particular State or with a
particular agricultural industry, it may be modified in
addition to that. But knowing there is a baseline, so if you
are buying on the market, you have confidence that where the
credits are coming from, you know that there is a core that you
can rely on, I think it would be important for the purchaser of
the credit.
Senator Cardin. I agree with that. Dr. Matlock, did you
want to add?
Mr. Matlock. What we are talking about here is watershed
level adaptive management, where we have the flexibility to
evaluate what works, implement it, change what doesn't work,
but do it without penalty, do it transparently, do it in the
open, eyes open. Ms. Bodine laid it out very effectively, I
think, you cannot manage practices, you have to manage
outcomes. The outcomes are water quality. If the water quality
is getting better, we are doing things right. Let's figure out
what is working best and keep doing it. Let's fix what is not
working so well.
If the water quality is not getting better, we have to
change something. So we have to have flexibility for that sort
of adaptation in our process. Monitoring should be focused at
the watershed level, not at the farm level. There are a number
of reasons for that; it is too expensive, it breeds
uncertainty, you are chasing ghosts all the time, because what
happened yesterday won't happen tomorrow. And trying to find
causality is just difficult, if not downright impossible. It is
better to manage process and measure outcomes.
Senator Cardin. Let me ask one final question. That deals
with hot spots. You have mentioned that. What can be done to
prevent those that are making the efforts, don't want to be
responsible for areas that are subpar, even though you may meet
the TMDL standard, you may meet the overall standard. But how
do you avoid the criticisms that you are letting polluters off
the hook and affecting some communities much more adversely
than we should?
Ms. McGee. I will take the first shot at that and others
can hop in. Under the Clean Water Act, there are provisions
both in the regulations and the law that says a permit cannot
be issued that will cause or contribute to the degradation of
water quality standards. Theoretically, it is there. How that
is done, I think is the challenge. How would a permit writer
who is going to issue permits, whether it is Mr. Hawkins' plant
or an urban stormwater area, when they see a credit in a
permit, how are they going to evaluate that, what does that
look like?
We are actually hopeful that EPA, they have provided some
guidance in their Tool Kit, but we think more clarity needs to
be given in that regard, there needs to be sort of a stepwise
process. You would look, for example, at local impairments,
local problems with waters and how that might affect your
ability to trade. So we think one way to do it is to lay out a
very methodical process, so that is transparent and then people
can evaluate it for themselves.
Senator Cardin. Ms. Bodine.
Ms. Bodine. I agree with Dr. McGee, a localized impairment
of water quality is not allowed under the statute. But I would
say that I think that this hot spot issue, when you are talking
about nutrients, is a bit of a red herring. Hot spots, when a
pollutant is a bioaccumulative toxic, yes, hot spots are an
issue. Nutrients, though, you have to remember, are already so
variable. The effect of nutrients in particular water bodies is
variable with respect to temperature, water velocity, habitat.
The issue that you would have a local hot spot as a result of a
trade I personally view as highly unlikely. And it would have
to be an extreme situation that a permit writer would be able
to identify. So I know it is being thrown out there as a
concern, but I would suggest it is not as big a concern as
perhaps it is being portrayed.
Senator Cardin. Thank you all very much. Senator.
Senator Boozman. Thank you, Mr. Chairman.
Mr. Hawkins, you mentioned that you are in a situation to
go from five to four and it is going to cost you a billion
dollars. And yet it has really become very, very questionable
that you are going to get a billion dollars' worth of bang for
the buck in that reduction. Is that correct?
Mr. Hawkins. Measuring the value of the pounds is a harder
question to answer. There is no question that the cost per
pound of removal has gone up.
Senator Boozman. But when you put that in relation to the
watershed, you mention the 1 percent, 2 percent affecting, when
you put that billion dollars in relation to what five to four
is actually going to do to the watershed, if you figure that
out, it is really pretty minimal, isn't it?
Mr. Hawkins. It is easy to argue that you could spend half
as much money and get twice as much reduction.
Senator Boozman. That is my point. A billion dollars is a
lot of money. And there is no assurance that they might not
come back a few years from now and say, you need to go from
four down to three or two or whatever. But to take that billion
dollars and then again put it with all kinds of other projects
that would directly relate to the watershed, working with Dr.
McGee or whoever, that to me makes no sense at all. And that is
the problem, I mentioned the uncertainty, Dr. Matlock mentioned
the uncertainty, and you live with this every day, Mr. Hawkins.
How do you, and you guys can chime in, Dr. Matlock and Mr.
Hawkins, if we talk about a wastewater plant doing some sort of
trading scheme or whatever, how do you get some certainty in
the system through maybe going to a new permitting system? How
do you get where they can do that?
The other thing is, I would say, in hearing your testimony,
I know you come from the perspective of the large district, and
you have a tremendous job to do, and you are doing a great job
with it. But the scenario that you are giving is going on all
over America. It might not be a billion dollars, but if you
live in a town of 1,500 and it is $10 million, it is a big
deal.
So we have to get a handle on this. There has to be some
sort of common sense and scientific backing as those decisions
are made. That is a whole different topic.
But talk to us about how, if we enter into this game, you
and Dr. Matlock, how do you come up with some new permitting
system so you can have some certainty, so you are not going to
come back and essentially not only perhaps do your trading
scheme, and then again the demand, it should go down to four to
three, with the trading scheme, and you have all this other
stuff in place, too?
Mr. Hawkins. It is a great question. In our judgment at
D.C. Water, by the way, you are exactly right, proportional to
the community, ours happens to be quite large, but the cost
relative to smaller towns may be just, per capita, the same
kind of extremely high cost for protections at the margin. That
is an issue, and I agree with Senator Cardin that at some point
the public rebels and all of a sudden does not support any
longer which is otherwise such a positive step, which is what
Blue Plains has done for the last 4 years. It is an enormous
success. We all should celebrate it.
As I have said, the best bass fishing in the Potomac River
is downstream from our plant.
[Laughter.]
Mr. Hawkins. That is amazing. But the question, and this is
what it goes back to, where I think we all agree that having a
system with rules set up that are understandable and clear, it
is why at least at the moment, absent having seen something
otherwise as a potential prejudicer, if there is a baseline
system, the Federal Government doesn't necessarily have to run
it. But that there are some baseline circumstances that we know
will be firm and certain across the watershed, even with
watershed monitoring, a well-run watershed association, I agree
with that approach, there could be flexibility in each State.
And that does call for some principles that are
established, that are very clear from the onset. I don't think
the market will work. We wouldn't want to put ratepayer money
into the market unless we are certain that we can count on
those reductions wherever they may be coming into the future.
That is going to be the market rules, as opposed to what we can
or can't do.
Senator Boozman. Dr. Matlock.
Mr. Matlock. So the common thread here is that there needs
to be some baseline ``thou shalt nots'' on the landscape. There
are standard practices that are acceptable for agricultural
producers, whether it is row crop, animal ag, specialty crop,
et cetera. We all understand those in the ag community very
well.
We also understand that the Pareto principle works.
Sometimes 90 percent of our problems come from 10 percent of
our landscape. So we have tools to evaluate where our problem
children are, as it were. That sounds paternalistic, it is not
intended that way. Probably a poor choice of phrase. But we
understand where the biggest possible impacts could be met
through implementation and intervention with the landowners'
and ag producers' participation.
So we need a set of baseline practices, the first three or
four tiers of activity that must be certain. You turn the
manure spreader off when you go across the creek. There are
some things you can do that just make sense. And all good
producers know that. We need some level of assurance that those
practices are being implemented.
But you can't do that through a command and control system.
Part of this is just helping each other become better neighbors
through more transparency and higher communication and
understanding. Frankly, the monitoring will tell ultimately
where the problems persist. Monitoring at the watershed level,
not at the edge of field level, because it is just too
expensive. But you can cascade up to the field level if you
have persistent problems in an area.
So you can have triggers for engagement. So simple
threshold triggering of response system, which is consistent
with adaptive management strategies, makes sense. That way you
start with a broad stroke, broad approach within the watershed
and then you focus where you need to, as you need to. Because
the other challenge we have, as you alluded to and Mr. Hawkins
responded to, is the targets may change. Because our watersheds
are always changing. And as our targets change, and today we
are trying to hit 37 parts per billion total phosphorus in the
Illinois River in Oklahoma and Arkansas, it might be 20 next
year. We have to have the tools to adapt there too.
Senator Boozman. Let me ask Dr. Matlock and Ms. Bodine
about a lot of our States have narrative nutrient criteria. Is
it possible to do a trading program to set it up in a State
like that and have the narrative nutrient criteria of water
quality?
Ms. Bodine. Definitely yes. Most States still have
narrative criteria. EPA has been pushing States to adopt
numeric and some are resisting that. So water quality based
effluent limitations are based on meeting water quality
standards. That is a determination that is made in the
receiving water, in the river or stream, in the ambient
condition of the river or stream. Even outside of trading
today, yes, water quality based effluent limitations are placed
in permits, where they interpret the narrative. EPA has models
that would support the interpretation of a narrative into a
number, and then it becomes simply a number that could be
traded.
The other way of looking at it, though, is in determining
whether or not you need a limitation on that plant, because you
only have a water quality based effluent limitation if the
discharge has a reasonable potential, and I am using all kinds
of Clean Water Act terminology here, but a reasonable potential
to contribute to a violation of a water quality standard. And
if that reasonable potential is removed because you have
trading, because the nutrients are being addressed elsewhere,
then that is another way you can address it in the context of a
narrative as opposed to a numeric water quality standard.
Senator Boozman. Dr. Matlock.
Mr. Matlock. Yes, echoing what Ms. Bodine said, yes,
narrative criteria can be effective in a nutrient trading
framework for establishing some end point. But ultimately you
have to have some end point and that ultimately goes to
something you can measure. So whether it is algal biomass
accumulation or whether it is turbidity or some other surrogate
for that narrative criteria, ultimately it goes to a number.
Because we manage for numbers. Otherwise it is too subjective.
Senator Boozman. Anybody that knows, what is the ratio of
States now that have narrative versus a numeric? Do we have any
idea? Half or two-thirds? Aha, I have stumped the panel.
Ms. Bodine. You have stumped us. But many more States have
narratives than have numeric standards. And you have seen the
controversy in Florida over numeric standards.
Senator Boozman. Thank you, Mr. Chairman.
Senator Cardin. Let me thank all of you. This has been an
extremely helpful panel in understanding the technical and the
practical problems. My local paper today had headlines
concerning water rates locally. It is becoming more and more a
political issue. One of my first introductions to the people of
Smith Island, which is about 350 people that live on the last
inhabitable island in the Chesapeake Bay was how we were going
to take care of their water needs. And we did. But Mr. Hawkins,
my guess is that the costs there are about the same per capita
as what you were dealing with to get that marginal progress
made.
So we have a responsibility to find the most efficient ways
to accomplish our objectives. I think that is what the public
is demanding. We are going through a lot of budget debates, but
they want us to do our job in the most cost-effective way.
I understand the suspicions that are out there, and that is
why I think the Federal Government does have a responsibility
to give the predictability that you all are talking about, so
that you know, A, that the results will be there and B, that
the market is fair and that people want to participate, because
it is the right thing and it is going to create a fairer system
and a more cost-effective system.
Our States are doing it, and I think EPA is cooperating and
it is working. But as has become apparent by the testimony
today, we can make this more effective. I think that is what
this hearing has helped us focus in on. I thank you all for
your participation. As I mentioned already, Senator Boozman and
I are working very closely together to try to see where we can
work in a non-partisan way to advance a good policy. This is
one area that we will certainly be looking at.
Before we adjourn, without objection, we will introduce
statements from the Virginia Conservation Network, Conservation
Pennsylvania, the National Association of Clean Water Agencies
and the Chesapeake Bay Nutrient Land Trust, LLC. We have
statements for the record from all those groups that will be
included in the record. Thank you.The Subcommittee is
adjourned.
[Whereupon, at 3:52 p.m., the Subcommittee was adjourned.]
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