&EPA
United States
Environmental Protection
Agency
EPA/600/R-15/092 | March 2015
www.epa.gov/ord
ECOSYSTEM SERVICES APPROACHES TO
RESTORING A SUSTAINABLE CHESAPEAKE BAY
AND ITS TRIBUTARY WATERSHEDS
Background
Many of the nation's watersheds and estuaries
are suffering from water quality impairments
that limit their ability to support recreation,
shellfisheries, and aquatic ecosystem diversity.
Under the Clean Water Act (CWA), one of the
main mechanisms for addressing impairment is
through the establishment of total maximum
daily loads (TMDLs), which limit the allowable
amount of pollutant loads to a water body.
Despite significant progress in Chesapeake Bay
and its tributary watersheds over the past two
decades, meeting TMDL limits often presents
challenging tradeoffs regarding where and how
to control sources of pollution. In recognition of
past unsuccessful restoration strategies for the
Chesapeake Bay, President Obama signed
Executive Order (EO) 13508 "Strategy for
Protecting and Restoring the Chesapeake Bay
Watershed" in 2009. This order requires federal
agencies to work together to bring new
resources and tools to the Bay restoration effort,
including new approaches to implementing the
CWA and new funding to promote voluntary
efforts by farmers. The first test of the strategy
involves implementing plans to achieve the Bay-
wide TMDLs, which set maximum nitrogen,
phosphorus and sediment target loads for the
major tributaries of the Bay. The goals are
ambitious and long-term success requires that all
new sources be offset in order to maintain target
loads in the face of population growth. While
there is expansive public support for the Bay
restoration goals, the substantial costs create
barriers to success.
Under the framework of the EO, EPA's Office of
Research and Development undertook a project
to explore the cost-effectiveness and the legal
and social feasibility of innovative policies and
institutional arrangements to reduce the costs of
meeting the TMDLs for nitrogen, phosphorus and
sediment required under the EO, while at the
same time promoting the creation or restoration
of bonus ecosystem services (co-benefits) not
related to water quality in the Bay. The project
involved linking ecosystem services benefits into
the Chesapeake Bay Program's modeling
framework, refining ecosystem services
quantification and valuation, and evaluating
market-based mechanisms and scenarios.
Overall, results have shown that:
1) Including monetized ecosystem services in
optimization shifts the optimal solution to
more non-point controls and lowers net costs;
2) Managers must creatively navigate existing
regulations and programs to find the flexibility
needed to promote effective strategies and
to coordinate actions to reduce costs;
3) Policies that inhibit nutrient trading or offsets
between point and nonpoint sources increase
compliance costs and reduce ecosystem
service co-benefits relative to a least-cost
solution;
4) The TMDL can provide at least six additional
benefits that cannot be monetized but can
be linked to human welfare;
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5) Providing additional incentives for delivered
load reductions that originate farther
upstream may improve the overall efficiency
of meeting TMDL goals;
6) Nutrient trading provided only limited
incentives for the agricultural sector to meet
its TMDL goals; and
7) Simplified crediting (based on average regional
load reductions rather than on site-specific
conditions) would increase TMDL costs and
may encourage placement of nutrient
controls in less effective areas. The results are
reported in a series of online documents,
described below:
U.S. Environmental Protection Agency. 2011.
An Optimization Approach to Evaluate the
Role of Ecosystem Services in Chesapeake Bay
Restoration Strategies. U.S. EPA Final Report,
EPA/600/R-11-001.
http://www.epa.gov/ordntrnt/ORD/docs/chesa
peake-bay-pilot-report.pdf
This report describes the development and
application of an analytic framework to assist
policymakers in evaluating TMDL-related
tradeoffs between project costs, load reductions,
and bonus ecosystem services. The framework is
designed to incorporate measures of both the
cost-effectiveness and ecosystem service effects
of individual pollution-control projects. The
inclusion of ecosystem services is a unique
feature of this framework. It accounts for not
only the targeted pollutant reductions but also
the societal co-benefits—i.e., bonus ecosystem
services (carbon sequestration, recreation/
hunting, air quality)—provided by certain
pollution-control projects. When these social
benefits are expressed in monetary terms, they
can be evaluated in terms of their ability to offset
some of the costs of the pollution-control
projects.
The analysis showed that including monetized
ecosystem services as cost offsets in the
optimization model shifts the optimal
management solution towards the inclusion of
more nonpoint-source controls; in particular,
natural re-vegetation of cropland and
pastureland adjacent to streams. This strategy
results in substantially lower costs and greater
bonus ecosystem services than a strategy that
emphasizes traditional gray infrastructure.
Because the lowest cost model solutions usually
involve taking substantial amounts of agricultural
land out of production, the model highlights the
tradeoffs between low-cost nutrient and
sediment reductions and retaining farmland. The
model results are not intended to be prescriptive
but to show the relative cost-effectiveness of
alternative management scenarios. As expected,
the total costs of control increase and bonus
ecosystem services decrease significantly when
(1) transaction costs of trading are increased, (2)
the pollutant removal effectiveness of BMPs is
reduced (to account for uncertainty), (3)
agricultural land rental rates increase (to reflect
increased profits in agriculture), and (4) WWTPs
are required to implement the most advanced
removal technologies.
Wainger, L.A., J.J. Messer, M.C. Barber, R.M.
Wolcott and A.L. Almeter. 2012. Lowering
Barriers to Achieving Multiple Environmental
Goals in the Chesapeake Bay. U.S.
Environmental Protection Agency (US EPA)
Ecosystem Services Research Program.
http://www2.epa.gov/eco-research/ lowering-
barriers-achieving-multiple-environmental-
goals-chesapeake-bay
This report addresses the broad question, "What
policies promote Chesapeake Bay restoration
goals by removing barriers to innovation and
cost-efficiency?" This white paper includes five
chapters that address this question from
different perspectives:
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Chapter 1
Lowering Barriers to Achieving Multiple
Environmental Goals in the Chesapeake Bay:
Innovations Suggested by Case Studies
(L. Wainger and M. Barber) compares five
innovative case studies as models for restoration
approaches throughout the watershed. The
reviewed case studies include a water quality
trading program that was successful at reducing
costs and a payment for ecosystem service
program that stressed paying for performance
outcomes rather than practice implementation.
The chapter assesses whether the case studies'
success could be replicated broadly in the Bay
watershed by considering the topics of securing
funding, engaging landowners and managers,
and developing effective methods for ensuring
environmental outcomes. This work was used to
inform the following publication: Wainger, LA.,
and J.S. Shortle. 2013. Local Innovations in
Water Protection: Experiments with Economic
Incentives. Choices: The Magazine of Food, Farm
& Resource Issues 28.
http://www.choicesmagazine.org/choices-
magazine/theme-articles/innovations-in-
nonpoint-source-pollution-policy/local-
innovations-in-water-protection-experiments-
with-economic-incentives.
Chapter 2
Ecosystem Services and the Clean Water Act:
Strategies for Fitting new Science into Old Law
(J.B. Ruhl) looks broadly at the flexibility offered
by the Clean Water Act (CWA) for policy
innovation to address multiple ecosystem
services in the context of TMDLs, and highlights
some of the opportunities for working within the
"policy space" of CWA regulation. Although
statutory language in the CWA offers constraints,
this analysis suggests government officials should
not underestimate the flexibility to adjust
programs solely through changes in program
administration. This work was later published as:
Ruhl, J.B. 2010. Ecosystem Services and the Clean
Water Act: Strategies for Fitting New Science into
Old Laws. Environmental Law 40:1381.
Chapter 3
Opportunities for Reducing TMDL Compliance
Costs: Lessons from the Chesapeake Bay (L.
Wainger) discusses opportunities for enhancing
cost-effectiveness of TMDLs, by examining how
program design and implementation can be
made consistent with market-based approaches
and efficient targeting of effort. Some key
challenges discussed are using regulatory
authority so as to promote, rather than hinder
the ability to innovate, trade, or use the most
cost-effective offsets. Other considerations
include ensuring the environmental performance
of programs and rectifying diverse goals. The
challenges of establishing water quality credit
markets suggests that alternative approaches
may be needed to successfully engage the
agricultural sector and lower costs of achieving
TMDLs. Later published as: Wainger, L.A. 2012.
Opportunities for reducing total maximum daily
load (TMDL) compliance costs: Lessons from the
Chesapeake Bay. Environmental Science &
Technology 46:9256-9265.
Chapter 4
Environmental Services Programs for the
Chesapeake Bay (L. Shabman et al.) discusses an
innovative approach for engaging communities in
collective action, called Reward for
Environmental Services (RES) Programs. The RES
idea recognizes that community groups may
offer unique advantages and approaches to
collectively managing resources, and may
therefore be effective at reducing loads to
the Bay while also promoting outcomes that
resonate strongly with the local community.
Chapter 5
The Use of Nutrient Assimilation Services in
Water Quality Credit Trading Program
(K. Stephenson and L. Shabman) considers the
potential for using a new set of technologies -
nutrient assimilation - within a water quality
trading program. Nutrient assimilation
technologies enhance natural processes that
remove nutrients directly from ambient waters
such as uptake by plants or animals, sediment
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burial, or dispersal to the atmosphere. The
chapter reviews the potential for generating
nutrient assimilation credits, describes what is
known about their efficacy and capacity to
remove nutrients, and how their equivalence
to other nutrient removal approaches can be
measured given the larger context of emission
market requirements and concerns. Such
practices are similar to using non-point source
practices to reduce nutrients, but appear to offer
increased certainty that offsets are equivalent to
point source emissions.
Achieving the Bay restoration goals requires a
suite of tools and innovative approaches at
multiple scales, including the approaches
presented in this report. These approaches use
strategies that promote innovation and use
available funds efficiently, which include: (1)
Allowing regulated parties and local stakeholders
to decide how best to achieve goals; (2) Ensuring
outcomes through monitoring, adaptive
management, and robust testing of technologies;
and (3) Targeting public money to actions with
high cost-effectiveness and seeking economies
of scale by enlarging promising pilot programs.
Managers must navigate existing regulations and
programs creatively to find the flexibility needed
to promote effective strategies and to coordinate
actions to reduce costs.
Wainger, L.A., G. Van Houtven, R. Loomis,
J. Messer, R. Beach, and M. Deerhake. 2013.
Tradeoffs among Ecosystem Services,
Performance Certainty, and Cost-efficiency in
Implementation of the Chesapeake Bay Total
Maximum Daily Load. Agricultural and
Resources Economics Review 42(10): 196-224.
The cost-effectiveness of total maximum daily
load (TMDL) programs depends heavily on
program design. This paper describes an
optimization framework developed to evaluate
design choices for the TMDL for the Potomac
River, a Chesapeake Bay sub-basin. Scenario
results suggest that policies inhibiting nutrient
trading or offsets between point and nonpoint
sources increase compliance costs markedly and
reduce ecosystem service co-benefits relative
to a least-cost solution. Key decision tradeoffs
highlighted by the analysis include whether
agricultural production should be exchanged
for low-cost pollution abatement and other
environmental benefits and whether lower
compliance costs and higher co-benefits provide
adequate compensation for lower certainty of
water-quality outcomes.
Wainger, L, J. Richkus, and M. Barber 2015.
Additional beneficial outcomes of
implementing the Chesapeake Bay TMDL:
Quantification and description of ecosystem
services not monetized. EPA/600/R-15/052.
The report provides quantification and
description of the magnitude of improvements
to conditions in the Bay that cannot be
monetized but can be linked to human welfare.
The authors evaluate benefit indicators (e.g.,
reductions in disease-causing organisms), rather
than benefits in the strict sense because they
have not evaluated what people would have
been willing to pay to achieve these benefits.
Yet, non-monetary benefit indices are used
routinely to establish cost-effectiveness of
management actions and can enrich the context
in which the benefit-cost results are considered.
The authors analyzed and synthesized existing
scientific literature and data to quantify and
describe how the practices that the Bay states
have proposed to meet the TMDL could
positively affect selected ecosystem services
produced by the Chesapeake Bay system. The
authors estimate that in support of public health,
food supply, and recreation, the TMDL practices
collectively have the estimated potential to
decrease disease-causing pathogen loads to the
Bay by at least 19-27%, reduce human exposure
to West Nile Virus, and reduce incidence of
harmful algal blooms. Perhaps most significantly,
the authors found that implementing the
practices to meet the TMDL would also promote
benefits derived from enhancing or maintaining
Bay ecosystem resilience. The report describes
how resilience to multiple stresses, including
climate change effects, is fostered by the
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regrowth of submerged aquatic vegetation,
increased fish diversity, and reduced hypoxia.
These changes would be expected to promote
a system that recovers more readily from
disturbance and avoids tipping points that could
shift the system to a less desirable state.
Van Houtven, G., R. Loomis, and J. Baker.
2015. Ecosystem Services and Environmental
Markets in Chesapeake Bay Restoration.
EPA/600/R-15/061.
The first analysis in this report considers how
including benefits from water quality
improvement in freshwater rivers and streams
expands alters the optimal distribution of
nutrient reductions in the watershed. The
analysis uses the optimization framework
developed by EPA (2011). The results show that
these non-tidal water quality co-benefits are
larger than the other co-benefits combined and
would result in greater nutrient control efforts in
upstream portions of the watershed. Compared
to cost-minimization results that do not account
for co-benefits, the optimized solution while
including all co-benefits would increase annual
nutrient control costs by $16 million in the
Susquehanna River Basin in Pennsylvania but also
increase the co-benefits by $31 million, for a net
gain of $15 million per year. In the James River
Basin in Virginia, including monetized co-benefits
results in an estimated increase in nutrient
control costs of $17 million but an increase in
co-benefits of $42 million for a net gain of $25
million per year. Based on these findings,
providing these additional incentives for
delivered load reductions that originate farther
upstream may improve the overall efficiency
(in a net-cost sense) of meeting TMDL goals.
The second analysis evaluates the ability of
nutrient trading to provide an incentive for
agricultural entities to meet their load allocation
under the TMDL. This analysis expands on pre-
vious applications of the optimization framework
that have focused on the potential cost savings
from allowing nutrient trading in the Chesapeake
Bay watershed (Van Houtven et al., 2012,
http://www.chesbay.us/nutrienttrading.htm).
These applications do not include the co-benefit
estimates. Unlike previous applications, this
analysis does not assume that the agricultural
sector would fully meet its load allocation, but
examines how the requirement of a trading
"baseline" (that is consistent with TMDL) would
affect farmers' incentives to meet their load
allocation as a precondition for generating
credits. The results suggest that nutrient trading
alone (without additional incentives) would only
support achieving 11% and 4% of the required
agricultural load reductions for nitrogen and
phosphorus respectively in the Susquehanna
River Basin in Pennsylvania. In the James River
Basin in Virginia, nutrient trading would be a
somewhat more effective incentive, with 35%
of the nitrogen reduction and 41% of the
phosphorus reduction achieved through nutrient
trading. Overall, they concluded that nutrient
trading by itself would not be a particularly
effective mechanism for encouraging the
agricultural sector to meet its TMDL goals, as it
supports only a portion of the required load
reductions.
As an additional part of this trading analysis, the
authors also examined how "simplified" crediting
of nutrient reductions-where credits are
assigned to BMPs based on average regional load
reductions rather than on site-specific conditions
-would influence the nutrient control costs and
load reductions. The estimates showed that
simplified crediting would result in higher costs
(by 8% across the watershed) for achieving
significant wastewater and industrial discharge
nutrient reductions, because it discourages
placement of nutrient controls where they would
be most effective. In addition, simplified
crediting is estimated to result in failure to meet
the load reduction requirements in most parts of
the Bay watershed, as it would assign average
load reduction credit to practices that would
actually generate below average reductions.
Wainger, L1, G. Van Houtven2, B. Rashleigh,
N. Detenbeck, S. Jordan, J. Messer, A. Rea3.
^neida Total Integrated Enterprises, 2RTI
International, 3US Environmental Protection Agency
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