Harness private sector resources to clean the bay

Advanced technology, nutrient trading programs can stretch dollars

March 03, 2011|By David Delasanta

Is there enough money to clean up the Chesapeake Bay?

That is the question that many municipalities, industries and agribusinesses are asking after the U.S. Environmental Protection Agency's tightening of nutrient limits for Chesapeake Bay — the so-called Total Maximum Daily Load — in December. Certainly, current nutrient regulations have already cost states and municipalities billions of dollars. Maryland's "flush tax" fund is depleted and will take a long time to be replenished. Other states must stretch the timing of their wastewater plant upgrades over many years because of insufficient capital delaying the cleanup.

In spite of all this, the answer to the above question is: Yes, there is enough money. And much of it can come from most efficient source of capital and innovation: the private sector.

Efforts to clean up the Chesapeake have spawned 20 years of vigorous discussion on issues of policy, technological innovation and financing of this massive interstate restoration project. From this debate have flowed innovative technologies to remove nutrients more efficiently and cost effectively and new mechanisms for financing.

The most exciting new technologies are those that recover the nutrients in the wastewater and recycle them as valuable fertilizers. These technologies are influencing the debate on technology choices in nutrient reduction.

Expensive conventional, biologically based treatments that capture the nutrients and create greenhouse gases are no longer the only option available. My company and others recover nitrogen and phosphorus nutrients from wastewater while generating a completely new revenue stream, reducing capital and operating costs for wastewater treatment, and, in aggregate, lowering the cost of cleaning up the bay.

Nutrient credit trading programs are the other piece of the puzzle. These programs allow more-efficient treatment plants to sell credits to plants that allow more pollution; most of the funds resulting from such sales would go toward improving nutrient-removal technology, with a portion going to the state in taxes. The credits would be phased out after a number of years. Maryland's program went into effect last year.

In Maryland, Pennsylvania and Virginia, such programs have opened the possibility of alternative financing of nutrient-reduction projects as a viable substitute for traditional financing through municipal bond markets and state revolving funds. Nutrient trading is a proven and effective mechanism to accelerate and lower the cost of compliance. Connecticut has used nutrient trading for more than 10 years as an important part of its very successful cleanup of Long Island Sound.

Nutrient trading programs tend to focus on either wastewater-to-wastewater treatment plants or from agribusiness-to-wastewater treatment plant trades. However, by allowing the private sector to develop nutrient-reduction projects using credits to secure financing, these programs can harness private sector capital and accelerate the amount of low-cost innovative technology brought into the marketplace. To work, these programs must have the following conditions:

•Credits must accrue for the project developer in order to secure private financing for the project.

•The credits should have a minimum term of five years.

•Credits should be freely traded and sold between the developer and potential buyers.

•Pricing for credits should be sufficient to generate a rate of return for the developer to attract financing.

How would this system work to bring private sector money into Chesapeake Bay restoration? Maryland currently discharges 49.4 million pounds of nitrogen a year into streams and rivers that feed into the Chesapeake Bay. Based on its Total Maximum Daily Load, Maryland needs to reduce its nitrogen load by 10 million pounds per year to meet its allowed levels of nitrogen. Using new resource recovery technology, this nitrogen can be recycled and reused as fertilizer. Current wholesale prices for nitrogen-based fertilizers are $0.70 per pound of nitrogen. Approximately $7 million each year can be generated from the sale of nitrogen as a fertilizer, and over 10 years, more than $70 million can be funneled into nutrient-reduction projects.

Coupled with Maryland's nutrient trading program, the costs of compliance can be further reduced. Recent trades of nitrogen credits under other state nutrient trading programs have ranged from $3 to $10 per pound of nitrogen removed. Estimates of nitrogen removal using conventional, biological treatments range from $10 to more than $50 per pound of nitrogen removed, substantially more than the price of nutrient credits.

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