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Nutrient Trading in Virginia

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Stoking Demand For Nutrient Credits In Virginia: Good News For Farmers And For The Chesapeake Bay

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Agriculture Secretary Tom Vilsack spoke at a December 16, 2014 event in Fairfax, VA, announcing nutrient credit purchases by the Virginia Department of Transportation. USDA photo by David Kosling.

In early 2015, Virginia’s nutrient trading program found itself in a previously unthinkable position—demand for phosphorous credits exceeding the supply available in the Potomac River Basin. The Virginia Department of Transportation (VDOT) and the Metropolitan Washington Airports Authority (MWAA) are seeking to permanently offset the water quality impacts of their respective transportation construction projects, and both are looking to engage in nutrient trading for those offsets.

This news highlights the promise of water quality trading—the purchase of water quality improvements for the lowest price. In this case, instead of building expensive engineered solutions associated with transportation projects, VDOT and MWAA can purchase nutrient credits from farmers who generate water quality improvements on their land.

Virginia’s nutrient trading program, administered by the Department of Environmental Quality (DEQ), was initially established in 2005. In 2008, DEQ published guidance describing how farmers could generate nutrient credits and how buyers could purchase those credits.  Lack of credit demand hampered growth of Virginia’s trading program until the transportation sector discovered the benefits of trading to offset stormwater and construction impacts. NRCS’s Conservation Innovation Grants program has supported the development of the State’s nutrient trading efforts, most notably with a $600,000 grant in 2012.

The competition for phosphorous credits comes on the heels of the first-of-their-kind transactions celebrated on December 16, 2014, by USDA Secretary Tom Vilsack, Virginia Governor Terry McAuliffe and EPA Administrator Gina McCarthy. VDOT blazed a trail for state agencies interested in purchasing nutrient credits when it completed transactions for approximately $1 million in permanent phosphorous credits generated on Virginia farms. The offset credits facilitated the completion of more than 50 projects that improved traffic safety and flow with turn lanes, clover leafs, connectors to existing roads, and repairs of approaches to aging bridges.

At the time, Secretary Vilsack noted the many benefits of the credit sale.

 

“USDA applauds the State of Virginia for showing leadership in purchasing water quality credits,” said Agriculture Secretary Tom Vilsack. “Efforts like these provide new and additional income streams for farmers and ranchers, while improving water quality and meeting Virginia’s regulatory needs.”

 

A VDOT-funded report released in August 2014 shows that the use of farm generated offset credits provided equal or greater water quality benefits for up to half the installation costs of traditional engineered practices.

VDOT is following up its purchase of phosphorous credits in 2014 with additional transactions in 2015, anticipating that up to $2 million worth of phosphorous credits will be purchased by the end of the year. To maintain local water quality, nutrient trading in Virginia can only take place within prescribed river basins.

Nutrient banks—private entities that aggregate credits from multiple farmers—report a steady stream of trades in the James, Rappahannock and York River Basins. In the Potomac River Basin, in addition to the needs of VDOT and MWAA, there are also numerous small individual residential projects in need of phosphorus credits, straining supply. Because they are permanent nutrient reductions, the credits have significant value-- $10,800 to $24,000 per pound of phosphorous, depending on the river basin. Maximum credits can be generated on farms through the permanent conversion of sub-prime farmland to forest or agroforestry.

The interest in nutrient trading in Virginia indicates that state transportation agencies could be a significant source of demand for water quality credits across the Nation. The environmental benefits, cost-savings, and project streamlining has gotten the attention of the Federal Highway Administration (FHWA). FHWA is currently developing a water quality trading framework to help other State transportation departments take advantage of water quality trading opportunities.