Nutrient Trading Helps Protect A North Carolina Estuary

An association of NPDES permit holders uses nutrient trading to help achieve a major reduction in nitrogen contributions to the Lower Neuse River in North Carolina.
Nutrient Trading Helps Protect A North Carolina Estuary
The Neuse River watershed cuts across North Carolina from north to south.

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Trading schemes have a record of success in helping to reduce pollution. Air emissions trading, for example, gets credit for helping eliminate the problem of acid rain.

Today, nutrient trading programs are gaining favor as a way to reduce loadings of nitrogen and phosphorus that cause algae blooms and other water-quality problems in rivers and lakes. These programs use market-based incentives to encourage pollutant reduction.

One successful trading program is helping to reduce nitrogen loading to the Lower Neuse River and the Neuse Estuary in North Carolina. The Lower Neuse Basin Association (LNBA) and Neuse River Compliance Association (NRCA) include public and private operators of wastewater treatment facilities.

The LNBA, made up of NPDES permit holders (point sources of nutrients) focuses on water-quality monitoring from Falls Lake Dam to the Neuse Estuary (Figure 1). The NRCA, with nearly the same membership plus a few other smaller systems, is a nitrogen-trading organization formed under North Carolina’s Neuse Nutrient Management Strategy in 2003. Its focus is reducing nitrogen delivery to the Neuse Estuary through efficient and effective operation of treatment facilities.

Haywood Phthisic, executive director of the LNBA and the NRCA, talked about the nutrient trading program in an interview with Treatment Plant Operator.

TPO: What is the history of the nutrient trading program?

Phthisic: We formed the LNBA in 1994 to share information and collect monitoring data in response to water-quality problems developing in the Neuse Estuary. We hired a contractor to regularly collect and analyze water samples upstream and downstream from member facilities. We also met every other month to discuss how the facilities operated to meet their permit requirements in the basin.

Shortly after we formed the LNBA, there was a huge fish kill in the Neuse Estuary. The resulting public outcry led the state Department of Environment and Natural Resources to adopt the Neuse Nutrient Management Strategy, also called the Neuse Rules, in 1997. Those rules set a target for a 30 percent reduction in nitrogen loadings, the amount deemed necessary to stop algae blooms in the estuary.

Total phosphorus limits of 2.0 mg/L had been implemented on treatment facilities in the late 1980s. Under the Neuse Rules, each NPDES permit holder had until Jan. 1, 2003, to comply with its nitrogen allocation. As part of the rules, we negotiated a point source nitrogen trading association.

TPO: Why was nutrient trading considered necessary as part of this rulemaking?

Phthisic: The annual allocations were based on each plant’s permitted flow, times 3.5 mg/L total nitrogen concentration. That sounds reasonable, but it had its difficulties. For example, Town A, with a 2 mgd permit and operating at 1.5 mgd, or 75 percent of its capacity, was close to being out of compliance from the start. But Town B, with a 6 mgd permit but operating at 0.5 mgd, received an abundant allocation. This inequity was the argument for a trading association. So in 2002, the LNBA members formed the NRCA. They are sister 501(c)3 nonprofit corporations, made up of municipal governments, private industries and one federal agency, the Marine Corps Air Station at Cherry Point.

TPO: Broadly speaking, how does the nutrient trading program work?

Phthisic: We had to create the program ourselves — what would work and not work. There was no template. We took the umbrella concept of air emissions trading. The vision was that the sum of all the members’ nitrogen allocations would equal our group permit allocation. So if all the members’ allocations added up to a million pounds, then the NRCA’s NPDES permit would be for a million pounds. As long as the members collectively discharged less than that amount, our association would be in compliance. If we were to exceed that amount, then the association would be in violation and would have to pay fines or an assessment to the state.

TPO: So far, how successful has the association been?

Phthisic: Through the Neuse Rules, the LNBA received a grant of $2 million. We basically told the state legislators, “Give us some money and we’ll show you what we can accomplish.” So our members took the $2 million and began to optimize their treatment facilities. From 1995 through 2002, the LNBA reduced nitrogen delivery to the Neuse Estuary from 1,784,130 pounds to 797,991 pounds, mainly through treatment plant process optimization.

We are currently operating at about 45 percent of our nitrogen allocation cap. You’ve never seen a group of people come together the way our members have. While we may not have realized it at the time, the Neuse Rules basically put a moratorium on development in the basin. All the members took it upon themselves to invest in their plants and see what nitrogen reductions they could achieve. That’s why we’re operating at such a low level of nitrogen discharges.

We have plants producing what the textbook says can’t happen. Total investment in facility improvements to date has exceeded $300 million, and the work is not done. In 2011, members achieved a total nitrogen concentration delivery of 1.9 mg/L to the Neuse Estuary, despite a population increase of more than 50 percent.

TPO: If all the member facilities were investing in their plants to lower the total nitrogen, why was there a need for nutrient trading?

Phthisic: Because not everybody could make the investments at the same time. The Contentnea Metropolitan Sewerage District is a prime example. The Neuse Rules went into effect in 2003, and now, 12 years down the road, they are completing construction of their new treatment facility, which is projected to provide them capacity for the next 20 to 30 years. It took them that long to line up the financing and project logistics. But because of nutrient trading, between 2003 and today they were able to lease a nitrogen allocation from other members to remain compliant under our umbrella. If not for the association and the trading program, they would have been noncompliant for years.

TPO: How do nutrient trades work under the NRCA structure?

Phthisic: Members have different options. They can write a short-term lease with another member. So, for example, Member A who needs a nitrogen allocation can lease from Member B who has nitrogen available. A lease will cost anywhere from $2 to $10 per pound on an annual basis. The NRCA does not approve these leases. It is strictly a free market. It’s whatever the two parties can negotiate.

Then we have sales, which are permanent transactions. The value of a pound per year of nitrogen under a sale is currently $490. Another option in North Carolina is an Ecosystem Enhancement Program (EEP) credit. Here, if you are a new facility and you want to put a pipe in the river but you didn’t get an allocation under the original Neuse Rules, you can buy that from the state through an EEP credit. Or you can find someone in the basin who is willing to sell you the necessary pounds. That is extremely expensive.

TPO: Do the Neuse Rules account for nitrogen from nonpoint sources?

Phthisic: Nonpoint source trading is not permitted under the rules. We hope in the future that point/nonpoint trading can evolve into a good market, but at this time it isn’t part of the picture. The TMDL can only be enforced on somebody who has a pipe in the river — an NPDES permit. It can’t be enforced on farmers or on residential people putting fertilizer on the ground.

TPO: What impact do nonpoint sources have on nitrogen loadings to the Neuse Estuary?

Phthisic: A single graph (Figure 2) tells the story. The blue line represents, in millions of pounds per year, the amount of nitrogen the total maximum daily load allows into the estuary. The purple line represents the NRCA members’ total nitrogen inputs. The red line represents the loading of nitrogen passing Streets Ferry, just north of the City of New Bern, where the Neuse Estuary begins. The green line represents the rainfall in inches in the state’s Central Coastal Plain. The nitrogen loading tracks rainfall. What does that tell you? It’s a pretty simple picture.

TPO: Is anything planned for the future to address the nonpoint sources?

Phthisic: The tide is turning, and the U.S. EPA is starting to say that we’ve got to bring everybody to the table if we’re going to achieve our goals for nitrogen reduction. Some things have started to occur already. Falls Lake, a man-made reservoir that supplies water mainly to the City of Raleigh, has eutrophication problems. In 2010, a management strategy inside the Neuse Rules was developed for that lake. There will be point source and nonpoint source trading in Falls Lake as those nutrient credits develop. But the regulations haven’t caught up with the Lower Neuse yet.

TPO: How would point source and nonpoint source nitrogen trade work?

Phthisic: Suppose there is a management practice that a farmer could use to reduce nitrogen runoff but cannot afford. Someone with a point source discharge could assist that farmer in deploying that practice and earn the credit for the nutrient reduction. This is called adaptive management. That’s where we’re going. In 1997 that term didn’t exist.

TPO: Is adaptive management coming to the Lower Neuse as well?

Phthisic: It’s a slow process. Right now, the issue in the basin is a proliferation of large poultry producers. They came into the area around 2008 and set up in the lower part of the Neuse Basin. They are not well regulated. They have management plans, but to date there is no enforcement. One of the latest load reports I’ve received from the state has shown that nitrogen and phosphorus are on the rise in the lower part of the Neuse Basin, in spite of what has been accomplished by the point source dischargers.

TPO: Apart from reducing effluent nitrogen, what are LNBA and NRCA members doing to reduce nitrogen inputs to the estuary?

Phthisic: Wastewater reuse systems have expanded in the basin. Reclaimed water, with a higher treatment level than what is discharged, is going to irrigation. The Town of Cary, for example, has one of the largest reuse irrigation systems among our residential communities. Reuse has developed in the basin not as a way to save water but as a way to use the nitrogen resource that’s in the water instead of putting it into the river. It’s another tool in the toolbox. 


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