RTI International

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Nutrient Trading as an Incentive to Achieve

Agricultural Baseline Compliance for the

Chesapeake Bay TMDL

Ross Loomis, RTI International

ACES 2012

RTI International

Chesapeake Bay TMDL

41

14 12

0

20

40

60

80

100

120

Nit

rog

en

(m

illi

on

deli

ve

red

lb

s/y

ea

r)

Average Annual Nitrogen Delivered to the Chesapeake Bay

TMDL Allocation Required Reduction

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Nutrient Trading

One potential incentive is the ability to sell nutrient

credits for reductions beyond baseline requirements.

How much of agriculture’s baseline reduction could be

achieved through nutrient trading?

Parameters Baseline Practice Creditable Practice

Total Reductions 5 7

Baseline 5 5

Additional Reductions 0 2

Cost $10 $15

Price per Credit $10 $10

Profit -$10 $5

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Analytical Framework

Adapted

framework to

estimate potential

savings from

nutrient trading

2 million

agricultural, 4,000

wastewater, and

18,000 urban

stormwater

options

4

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Defining the Baseline Requirements

Baseline requirements most often discussed in the

context of sectors without required reductions

– E.g., Clean Development Mechanism carbon credits

For the Chesapeake Bay, agricultural reductions are part

of the TMDL.

Baseline Requirement = 2010 – TMDL

Credit = Total Reduction – Baseline Requirement

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Required Nutrient Reductions

37

3

15

23 2.0

0.1

0.8

1.5

0.0

1.0

2.0

0

10

20

30

N P N P N P

Agriculture Wastewater Regulated Urban

Ph

osp

ho

rus (

millio

n d

elivere

d l

bs/y

ear)

Nit

rog

en

(m

illio

n d

elivere

d l

bs/y

ear)

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Progress to Baseline Requirements

0% 20% 40% 60% 80% 100%

No participation by areas

with baseline requirements

Full participation by areas

with baseline requirements

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Scenarios

Sector Demand

– Wastewater (SigPS-AgrNPS)

– Wastewater + Regulated Urban Stormwater (SigPS-AgrNPS-Urban)

Wastewater Demand

– High - Same nutrient reductions as without trading

– Low - Excess allocations available for trading, lower reduction

Geographic Restrictions

– Within major river basins and states (Basin-State)

– Within major river basins (Basin)

Agricultural Trading Ratio

– 1.1 to 1

– 2 to 1

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Results for Basin, PS-Ag, 1.1 to 1, High

9% 4%

0

0.5

1

1.5

2

2.5

3

3.5

4

0

5

10

15

20

25

30

35

40

45

Agriculture Demand Sectors Agriculture Demand Sectors

N P

Ph

os

ph

oru

s (

milli

on

deli

vere

d l

bs/y

ear)

Nit

rog

en

(m

illi

on

deli

vere

d l

bs/y

ear)

Contribution to Required Reduction Remaining Baseline Requirement

Sold Credits Purchased Credits

Uncertainty Reserve

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Results Across Scenarios - Nitrogen

1% 2% 1% 1% 5% 7% 3%

5% 9% 10% 10% 8%

16% 18% 19% 23%

0

5

10

15

20

25

30

35

40

45

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

1.1 2.0 1.1 2.0 1.1 2.0 1.1 2.0

PS-Ag PS-Ag-Urban PS-Ag PS-Ag-Urban

Low High

Nit

rog

en

(m

illi

on

deli

vere

d l

bs/y

ear)

Contribution to Required Reduction Remaining Baseline Requirement

Sold Credits Uncertainty Reserve

RTI International

Results Across Scenarios - Phosphorus

1% 1% 1% 1% 2% 2% 1% 2% 4% 4% 6% 5% 7% 6% 7% 9%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

Basin

Basin

-Sta

te

1.1 2.0 1.1 2.0 1.1 2.0 1.1 2.0

PS-Ag PS-Ag-Urban PS-Ag PS-Ag-Urban

Low High

Ph

os

ph

oru

s (

milli

on

deli

vere

d l

bs/y

ear)

Contribution to Required Reduction Remaining Baseline Requirement

Sold Credits Uncertainty Reserve

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Summary

Findings

– Nutrient trading alone could provide sufficient incentive to

achieve between 1% and 23% of agriculture’s baseline N

requirements (1% and 9% of P) depending on trading rules.

– Increased demand for credits increases agriculture’s baseline

contribution from nutrient trading.

– No general predictions for the impact of geographic restrictions or

trading ratios on baseline contribution from nutrient trading.

Policy Implications

– Nutrient trading should support lower public regulatory costs or

greater compliance.

– Implications for incentive programs depend on program structure

– subject of future applications of model

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More Information

Ross Loomis

Senior Economist

919.541.6930

rloomis@rti.org

CBC Report

http://www.chesbay.us/Publications

/nutrient-trading-2012.pdf

EPA Report

http://www.epa.gov/research/docs/

chesapeake-bay-pilot-report.pdf

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Distribution of Delivered Nitrogen Relative to No Trading

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Distribution of Delivered Nitrogen Relative to No Trading

15

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Distribution of Delivered Phosphorus Relative to No Trading

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Distribution of Delivered Phosphorus Relative to No Trading

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