Introduction

The City of Roanoke appreciates the considerable effort that the Agency has put forth to further develop the nutrient markets in the Commonwealth, and the potential for cost-effective water quality management that this provides. The City’s Stormwater Utility has comments to several sections in the proposed rules with a list of references at the end of the comments.

Section:

9VAC25-900-60 D. The option to acquire nutrient credits for compliance purposes shall not eliminate any requirement to comply with local water quality requirements, including such requirements lawfully imposed by a locality or local MS4.

Comment:

Does a “local water quality requirement” include an approved local TMDL Waste Load Allocation for an MS4, and can an MS4 restrict the use of nutrient credits on the basis of an existing non-nutrient local WLA (e.g. sediment?). Can the Agency please clarify to provide more explicit provisions for local governments?

Section:

9VAC25-900-70. Documents and accessible resources

Comment:

In this section, credit applicants are directed to three internet resources to assist in developing credits:

1. DCR’s Agricultural BMP Cost Share Manual
2. DCR’s Invasive Plant Species List
3. USDA’s Field Office Technical Guide

First, the link provided for resource 3 returned a “404 – Resource Not Found” error. Second, is this a comprehensive list of technical guidance that credit developers can use? Or is it a non-exclusive list of recommended resources? Either way, it should be clarified in the section header to avoid confusion.

Section:

9VAC25-900-90. Nutrient credit release and registration

C. Registration of nutrient credits

2. Where necessary to ensure compliance with local water quality requirements, conditioned as follows:

Comment:

In this section, there are three scenarios where the exchange of nutrient credits are further conditioned. It is notable that these conditions restrict nutrient exchanges to upstream of the point of discharge only in the presence of a local nutrient TMDL or a local non-nutrient impairment with no approved TMDL. This allows downstream nutrient exchanges in areas with a non-nutrient local TMDL. This allowance creates a scenario where land developers in areas with local non-nutrient TMDLs can forego the construction of on-site water quality BMPs by purchasing credits downstream of the point of discharge. This is problematic for MS4 entities subject to local non-nutrient TMDLs for the following reasons:

1. When an on-site water quality BMP is not constructed because a developer chooses to purchase nutrient credits downstream, any additional water quality impacts beyond nutrient loading caused by the development site are no longer addressed at the site. The most salient example of this is that the Virginia DEQ-approved on-site water quality BMPs (9VAC25-870-65) were originally selected and credited based on both their ability to capture nutrients, and their ability to restore pre-development water balance (CWP, 2008). The nutrient capture service that these BMPs provide can reasonably be traded downstream but the hydrologic service cannot, as the developed water balance can cause downstream erosion at (and immediately downstream of) the outfall if not modulated by upland BMPs that provide some pre-development functions (e.g. Askarizadeh et al., 2015; McCuen and Moglen, 1988; Walsh et al., 2016). Consequently, continued land development without on-site water quality BMPs may lead to additional sediment loading, which is especially problematic in watersheds with existing local sediment TMDLs.
2. This uncontrolled additional non-nutrient loading creates a regulatory accounting problem for local TMDLs. As land cover changes over time to a more developed condition, TMDL sediment loading (for example) – which is frequently based on average land use yields such as those presented in Shaver et al. (2007) – will also increase. However, as on-site BMPs to control these additional loads are foregone, there will be a gap of uncontrolled loading that will remain unallocated and untreated in already impaired watersheds. As time passes, and estimated TMDL endpoints approach, how will DEQ and regulated entities with WLAs reconcile this gap? Will MS4s or other permitted entities be expected to provide additional water quality treatment for this uncontrolled loading caused by land development? If so, this seems to be an unequitable redistribution of regulatory impact from the land development and VSMP program to the MS4 and TMDL programs.
3. Finally, the City is concerned that if on-site water quality BMPs continue to be foregone for the purchase of credits downsteam, that this may lead to a future nutrient impairment caused by unmitigated land development.

The City recommends that nutrient exchanges not be allowed to leave or move downstream of an existing sediment impaired water or a waterway with an accepted TMDL for sediment.

Section:

9VAC25-900-100.D.4

Comments:

The City objects to the new baseline requirement for MS4s added to the proposed rule in 9 VAC 25-900-100.D.4 which states:

For a nutrient credit-generating project owned by an MS4 permittee, baseline shall only be achieved when the level of nutrient reduction required by the WIP or approved TMDL, whichever is more stringent, is achieved for the entire MS4 service area. MS4 permittees generating credits for exchange outside the MS4 service area shall have an accounting system demonstrating that the exchanged credits are not used to satisfy the MS4 permit requirements.

The City does not object to the second sentence in this new baseline requirement. It is reasonable for an MS4 permittee to demonstrate that any certified credits it generates are not simultaneously transferred to a third party and applied to the owner’s permit. However, the City objects to the requirement in the first sentence for MS4 permittees to achieve full compliance with an applicable WIP or TMDL before they may be eligible to generate credits. That prohibition will serve only to keep many MS4 permittees from being eligible to generate credits for years, even if they are fully in compliance with their respective MS4 permits. This is the only baseline requirement in the proposed rule that is based not on the nature of the credit-generating project, but on the status of the entity that owns the project. The applicable baseline requirement for a nutrient-generating project should be the same if the owner is an MS4 permittee, a locality that is not an MS4 permittee, or any other party.

Governmental entities that own and operate MS4s are rational actors that would not jeopardize their ability to comply with their permits, thereby inviting enforcement action, in order to generate nutrient credits for exchange with third parties. Instead, they will seek to generate certified nutrient credits when it facilitates compliance with their MS4 permit or furthers some other legitimate public purpose. Restricting their ability to generate nutrient credits is unnecessary and may prove counterproductive as it limits transactions that could provide flexible and cost-effective compliance – two key principles of water quality markets (Stephenson and Shabman, 2011). Two examples of the potential use of nutrient credits by MS4 permittees are presented as follows:

Sale of Credits to Fund Nutrient Reductions. MS4 permittees may be able to generate nutrient reductions at costs that are below the market value of nutrient credits. Selling nutrient credits can generate valuable funds that can be used to support the MS4 program and allow the permittee to make the best use of limited MS4 budgets. For example, a permittee may be able to increase the size of a stormwater detention basin or stream restoration project at minimal marginal cost. The permittee could then apply the desired portion of the nutrient reduction to its MS4 permit obligations and sell the remainder as certified credits. The funds from the credit sale could be used to offset a substantial portion of the costs the project. This strategy can be used by MS4 permittees to effectively manage and reduce the per-pound cost of nutrient reductions, thereby allowing greater total nutrient reductions to be achieved with the same budget. 

Use of Nutrient Credits to Attract Economic Development. Local governments have many priorities, including fostering economic development to benefit their citizens and increase their tax base. Providing nutrient credits can be an effective way to incentivize prospective new commercial and industrial development. This is especially valuable in more urban environments where onsite nutrient reduction options may be limited or inordinately expensive for new development and redevelopment projects. Many MS4 permittees rely on their general funds to support their stormwater programs and using nutrient credits to attract new development is an investment that ultimately will increase the pool of funds available for their stormwater programs.

There is no reason to believe that local governments and other governmental entities operating MS4s cannot responsibly participate in the credit market while also meeting their MS4 permit obligations. Indeed, as the examples above demonstrate, allowing MS4 permittees to generate credits can aid permittees in meeting their local TMDL reduction goals in a timely and efficient manner.

References

Askarizadeh, A., Rippy, M. A., Fletcher, T. D., Feldman, D. L., Peng, J., Bowler, P., Mehring, A. S., Winfrey, B. K., Vrugt, J. A., Aghakouchak, A., Jiang, S. C., Sanders, B. F., Levin, L. A., Taylor, S., and Grant, S. B. (2015). From Rain Tanks to Catchments: Use of Low-Impact Development To Address Hydrologic Symptoms of the Urban Stream Syndrome. Environmental Science and Technology, 49(19), 11264–11280. doi:10.1021/acs.est.5b01635.

CWP. (2008). Technical Memorandum: The Runoff Reduction Method. Ellicott City, Maryland: Center for Watershed Protection. Retrieved from http://www.vwrrc.vt.edu/swc/documents/pdf/CWP Technical Memo RRMethod_041808 w_Apps.pdf.

McCuen, R. H., and Moglen, G. E. (1988). Multicriterion Stormwater Management Methods. Journal of Water Resources Planning and Management, 114(4), 414–431.

Shaver, E., Horner, R., Skupien, J., May, C., and Ridley, G. (2007). Water Quality Impacts of Urbanization. In N. Rehnby (Ed.), Fundamentals of Urban Runoff Management (2nd ed., pp. 43–72). Madison, Wisconsin, USA: North American Lake Management Society.

Stephenson, K., and Shabman, L. (2011). Rhetoric and Reality of Water Quality Trading and the Potential for Market-Like Reform. JAWRA Journal of the American Water Resources Association, 47(1), 15–28. doi:10.1111/j.1752-1688.2010.00492.x.

Walsh, C. J., Booth, D. B., Burns, M. J., Fletcher, T. D., Hale, R. L., Hoang, L. N., Livingston, G., Rippy, M. A., Roy, A. H., and Scoggins, M. (2016). Principles for urban stormwater management to protect stream ecosystems. Journal of Freshwater Science, 35(March), 1–13. doi:10.1086/685284.