Water Quality Trading Case Study
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Virginia's Chesapeake Bay Watershed Nutrient Credit
Exchange
Overview
In 2005, Virginia adopted legislation (Article
4.02 of the Code of Virginia) that authorized
the creation of the Chesapeake Bay
Watershed Nutrient Credit Exchange Program
to help point and nonpoint sources meet
nutrient load reduction goals in Virginia's
Chesapeake Bay Tributary Strategy. The
exchange program is implemented through
the watershed based Virginia Pollutant
Discharge Elimination System (VPDES) general
permit for discharges of total nitrogen (TN)
and total phosphorus (TP) to the Chesapeake
Bay and its tributaries. Section 62.1-44.19:14
of the statute requires the State Water Control
Board to issue this general permit. The
general permit has been updated several
times to reflect new requirements. Virginia
DEQ first issued the general permit in 2007 to
implement wasteload allocations developed
from the Tributary Strategy. Then, EPA's 2010
Chesapeake Bay TMDL established load and
wasteload allocations for nitrogen, phosphorus, and sediment, including nutrient wasteload
allocations that were more stringent than those in the Tributary Strategy for the York and James River
basins. Now in its third term, the general permit includes wasteload allocations for wastewater
treatment facilities based on the Tributary Strategy and the Watershed Implementation Plans
outlining Virginia's phased implementation strategy for the TMDL The current general permit became
effective on January 1, 2022, and expires on December 31, 2026.
VPDES-permitted facilities meeting specific discharge criteria and discharging nutrients to the
Chesapeake Bay or its tributaries, as well as new and expanding facilities, must register for coverage
under the general permit. The general permit establishes facility-specific individual waste load
allocations based on the Chesapeake Bay total maximum daily load (TMDL) aggregate pollutant loads,
watershed implementation plans, and Virginia's Chesapeake Bay Tributary Strategy. The general
permit provides separate requirements for existing facilities and for new and expanding facilities
Type of Trading
Point Source-Point Source
Point Source-Non-point Source (through the Nutrient
Offset Fund)
Pollutant(s) Traded
Total nitrogen (TN)
Total phosphorus (TP)
Basis for Trading
TN and TP wasteload allocations in Virginia Tributary
Strategy, Chesapeake Bay TMDL, and Watershed
Implementation Plans
Participants
VPDES-permitted dischargers to the Chesapeake Bay
and its tributaries and the Virginia Nutrient Credit
Exchange Association
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(including those which post-date the Chesapeake Bay TMDL and were not accounted for in the TMDL
wasteioad allocations and watershed implementation plans). Permittees may achieve nutrient load
reductions to meet the wasteioad allocations in the general permit through facility upgrades, nutrient
credit exchanges or transfer of wasteioad allocations between point sources or, in some cases,
payment into the Nutrient Offset Fund to acquire credits to offset nutrient loads discharged in excess
of the facility's wasteioad allocation. Trades can be facilitated by the Virginia Nutrient Credit Exchange
Association or occur directly between trading partners. New or expanded facilities may also have
additional options to offset their increased mass loads on a case-by-case basis.
Permittees must submit compliance plans, to be updated annually, detailing implementation
schedules for activities to reduce TN and TP to meet their individual wasteioad allocations in the
permit. Compliance plans may be submitted individually or through the Exchange Association.
Benefits
The Exchange Program was adopted, in part, to assist permittees in Virginia's Chesapeake Bay
watersheds in meeting the nitrogen and phosphorus reduction goals established pursuant to the
Chesapeake 2000 Agreement and subsequent tributary strategies and the Chesapeake Bay TMDL.
According to the Exchange Association, its members have achieved 100 percent compliance with their
nutrient wasteioad allocations during each year of trading (Exchange Association, no date). The
compliance "backstop" provided by the Exchange Program is a key benefit for permittees
(Brockenbrough, 2023). Facilities that are planning to expand may either upgrade treatment
processes to avoid an increase in TN and TP loads or purchase credits under the Exchange Program.
Permittees in financially challenged jurisdictions may benefit from this flexibility as it allows those
permittees to delay upgrading treatment processes until those upgrades are financially feasible,
resulting in considerable cost savings (Brockenbrough, 2023).
The Virginia Department of Environmental Quality (Virginia DEQ) benefits from program efficiencies
inherent in implementing the general permit in coordination with the Exchange Program. Maintaining
the general permit with all permittees subject to the same permit conditions, schedules, and reporting
requirements and with most of the permittees coordinating through the Exchange Association to
ensure compliance, is more efficient than issuing and enforcing the nutrient load reduction
requirements through more than 100 individual permits (Brockenbrough, 2023).
Summary of Trading Activity
Virginia DEQ publishes an annual notice of all nitrogen and phosphorus credit exchanges. According
to the 2020 Nutrient Trades Report, all 20 facilities that exceeded their TN and TP wasteioad
allocations acquired enough credits to comply with the general permit requirements. In 2020, credits
equating to 316,330 pounds of delivered TN and 27,803 pounds of delivered TP were sold through
the Virginia Nutrient Credit Exchange Association and from permitted point sources (Virginia DEQ,
2020b). In 2019, TN credit exchanges were similar to 2020 levels (317,258 delivered pounds) and
about three times as many TP credits were exchanged (87,664 delivered pounds) (Virginia DEQ
2019b).
As of 2023, most permittees, including those with new and expanding discharges, have been able to
comply with their wasteioad allocations through acquisition of point source credits. Only one
permittee has used nonpoint source credits to offset a new or expanding discharge (Brockenbrough,
2023). (Refer to Trading Mechanisms Section for additional explanation).
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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Eligible Trading Partners
Every discharger in the Chesapeake Bay watershed that is authorized by a VPDES permit and meets
specific discharge criteria is required to register for coverage under the General Permit for Total
Nitrogen and Total Phosphorus Discharges and Nutrient Trading in the Chesapeake Bay Watershed in
Virginia (General Permit No. VAN000000). All permittees are eligible to participate in trading. The
criteria for registration under the general permit include any of the following:
• An existing facility that discharges 100,000 gallons or more per day from a sewage treatment
works, or an equivalent load from an industrial facility, directly into tidal waters, or 500,000
gallons or more per day from a sewage treatment works, or an equivalent load from an industrial
facility, directly into nontidal waters.
• A facility that discharges 40,000 gallons or more per day from a sewage treatment works, or an
equivalent load from an industrial facility, directly into tidal or nontidal waters and that is
applying for a new or expanded discharge and subject to an offset requirement in the general
permit or to a technology-based requirement.
• A domestic sewage treatment facility discharging greater than 1,000 gallons per day up to and
including 39,999 gallons per day, that commenced discharging on or after January 1, 2011 and is
subject to an offset requirement in the general permit.
Nonpoint sources and regulated dischargers not eligible for coverage under the general permit may
generate credits for sale to the Nutrient Offset Fund, subject to baseline requirements described in
the Credit Generation section below.
Market Driver
The Chesapeake 2000 Agreement created the impetus to create the trading program and this
program has been revised to implement the Chesapeake Bay TMDL. As one of the signatories to the
Agreement, Virginia agreed to develop nitrogen and phosphorus load reductions and implement a
revised Tributary Strategy to achieve them. The Nutrient Credit Exchange Association estimated it
would cost the discharging facilities $1.5 billion to upgrade members' wastewater treatment
technology to meet the resulting nutrient wasteload allocations (Commonwealth of Virginia, 2010).
Dischargers were concerned about the availability of funding, contractors, and construction resources
to make the necessary upgrades, as well as their ability to meet the new load limits while still allowing
for economic growth in the region. The Exchange Program was developed to ease the demands and
costs of construction while ensuring compliance with the VPDES regulations and the Chesapeake 2000
Agreement.
Subsequent adoption of the Chesapeake Bay total maximum daily load (TMDL) in 2010 resulted in
additional nutrient wasteload allocations. Under the general permit, permittees may exchange
nutrient credits to meet wasteload allocations derived from both the TMDL and the Tributary Strategy.
Virginia DEQ adjusts the wasteload allocations using a delivery factor that reflects the portion of a
permittee's TN or TP load that reaches the Chesapeake Bay. The adjusted allocation is called the
delivered wasteload allocation. Delivery factors are calculated using the Chesapeake Bay Program
watershed model and are based on the permittee's location in one of five Chesapeake Bay basins:
Eastern Shore, James River, Potomac River, Rappahannock River, and York River. VA DEQ maintains
registration lists that include individual wasteload allocations for all general permittees. Table 1
presents the total TN and TP wasteload allocations and delivered wasteload allocations for all
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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permittees in each basin from the 2017 registration lists.1
Table 1. Basin Total"
N and TP Wasteload Allocations (WLA) and Delivered WLAs*
Watershed
Total Nitrogen
Total Phosphorus
WLA
Delivered WLA
WLA
Delivered WLA
Rappahannock
597,007
465,329
45,273
41,730
York
1,099,096
985,106
128,059
127,200
James**
13,270,971
12,225,921
913,312
840,791
Potomac
4,785,846
2,765,192
250,515
176,196
Eastern Shore
37,461
37,461
2,237
2,237
* WLA and delivered WLA amounts are from 2017 registration lists.
** Certain facilities in the James River Basin are subject to reduced wasteload allocations to meet dissolved oxygen water quality criteria in the
James River as outlined in the Phase I Watershed Implementation Plan. Facilities with reduced allocations are listed in Title 9 of the Virginia
Administrative Code (9VAC) section 25-820-80.
Permittees may choose to meet their applicable wasteioad allocations by purchasing credits
generated by point sources. The number of credits needed to be purchased in a given year to meet a
permittee's wasteload allocation must equal the amount by which the delivered load (actual load
multiplied by the delivery factor) exceeds the delivered wasteload allocation (wasteload allocation
multiplied by the delivery factor), adjusted by any applicable trading ratios. If insufficient point source
credits are available, a permittee may make a payment to the Nutrient Offset Fund to offset its
nutrient load in excess of its wasteload allocation. The payment amount is specified in the general
permit regulation (9VAC section 820-70) and is adjusted with each permit renewal. The current
regulation, which became effective in 2017, establishes Nutrient Offset Fund payment amounts at
$5.08 per pound for nitrogen and $11.15 per pound for phosphorus.
Additional legislation requires the establishment of a Phase III Watershed Implementation Plan
Enhanced Nutrient Removal Certainty Program beginning in 2023 consisting of lower TN and TP
waste load allocations assigned to priority water treatment facilities with schedules for compliance.
Reduced wasteload allocations for those projects likely will create additional demand for nutrient
credits under the Exchange Program, which may encourage facilities to upgrade treatment to
generate credits.
Trading Mechanisms
The Exchange Program is implemented though the general permit. The current general permit
became effective on January 1, 2022, and expires on December 31, 2026. The general permit includes
the TN and TP annual wasteload allocations, compliance schedules, compliance plans, and monitoring
and reporting requirements. The general permit supersedes the requirements of the facilities'
individual VPDES permits pertaining to TN and TP, except where site-specific conditions (e.g., local
water quality standards, TMDLs, federal effluent guidelines) necessitate more restrictive limits.
Permittees must comply with applicable wasteload allocations specified for each facility in registration
lists maintained by Virginia DEQ. As described in the overview section permittees have several options
to comply with their wasteload allocations depending on whether the general permit classifies them
as existing or new and expanding facilities. In either case the permittee may choose to purchase water
quality credits, or trade.
Owners of multiple facilities have the option of combining the nutrient wasteload allocations of those
1 The 2022 General Permit established new TN and TP delivery factors that will be phased in in 2026.
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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facilities to create an aggregate nutrient cap. Combining allocations allows the owner to meet the
overall aggregate cap by collectively managing the nutrient loads of each individual facility.
The permit establishes the conditions by which credits may be exchanged or offsets may be acquired.
In general, credits must be applied in the same tributary and in the same calendar year that they are
generated. In all cases, Nutrient Offset Fund payments may only be used to comply with a wasteload
allocation if sufficient credits are not available in the Exchange or through direct trades between
permittees to meet a facility's requirement.
Permittees can trade with one another directly or can voluntarily participate in the Exchange
Association, which coordinates and facilitates nutrient credit trading among its members. The
Exchange Association also maintains and annually submits an updated compliance plan on behalf of
its members. Membership in the Exchange Association is open to all permittees, including new and
expanding facilities with applicable wasteload allocations. Currently, 73 owners of 105 treatment
facilities participate in the Exchange Association (Exchange Association, n.d.).
Credit Generation
When a permittee discharges less than its annual TP or TN wasteload allocation, the difference (in
pounds) between the wasteload allocation and the actual discharged load is available for conversion
to saleable credits using an applicable delivery factor. Delivery factors are calculated using the
Chesapeake Bay Watershed Model. Credits are expressed as pounds per year of delivered TN or TP
load.
The State Water Control Law (Code of Virginia section 62.1-44.19:20) establishes criteria for baselines
that must be met before generation of nonpoint source credits that would be exchanged through the
Nutrient Offset Fund. This law states that for agricultural practices, applicable baselines are the
"actions necessary to achieve a level of reduction assigned in the Virginia Chesapeake Bay TMDL
Watershed Implementation Plan or approved TMDLs." For land use conversion, the baseline for credit
generation is also based on the TMDL-assigned load reduction for the pre-conversion land use.
Baselines for other nonpoint source credit-generating practices are established based on the TMDL
and the best available scientific and technical information.
Pollutant Trading Ratios
The Exchange Program uses delivery factors to calculate the number of credits that must be
exchanged between individual point sources. The delivery factors account for discharge location
within the watershed and nutrient attenuation during riverine transport. These facility-specific delivery
factors are calculated using the Chesapeake Bay Watershed Model, with the maximum ratio capped by
Virginia DEQ at 1.00.
In general, credits must be exchanged in the same basin where they are generated; however, Eastern
Shore facilities may also acquire credits from Potomac Basin facilities at a trading ratio of 1:1 or from
Rappahannock River basin facilities at a trading ratio of 1.3:1.
In addition to using the delivery factor described above, offsets purchased from nonpoint source best
management practices are traded at the ratio of 2 pounds reduced by the best management practice
for every 1 pound the new or expanding facility proposes to discharge (i.e., a 2:1 uncertainty ratio).
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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Monitoring and Assessment
Permittees are required to monitor their discharges for TN, TP, and effluent flow. Each permittee is
required to submit an annual discharge monitoring report. Due by February 1 of each year, these
reports indicate the facility's annual mass load of TN and TP discharged during the previous calendar
year. Permittees that meet their wasteload allocation through purchase of point source credits or
payments to the Nutrient Offset Fund must complete an annual credit exchange notification form
stating that sufficient credits were acquired to satisfy the permittee's compliance obligations.
Virginia DEQ's annual Nutrient Trades reports include the previous year's annual mass loads of TN and
TP, the delivered total loads of nitrogen and phosphorus, and the number of nitrogen and
phosphorus credits acquired or exchanged for all facilities exchanging credits.
Challenges
Although permittees actively participate in trading through the Exchange Program, the structure of
the program can incentivize bilateral trading outside the exchange if demand for credits is low. Within
the exchange, credit buyers purchase credits at the price set by the exchange and the proceeds from
credit sales are shared among all participants that generate credits. Therefore, if credit generation far
exceeds the demand for credits, the price received by credit sellers through the exchange is low. In
this case, a bilateral trade outside of the exchange might result in a lower price for buyers and higher
proceeds for sellers (Brockenbrough, 2023).
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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Resources
Brockenbrough, Allan. Personal Communication. May 2023.
Chesapeake Bay Program. Chesapeake 2000 Agreement.
https://www.chesapeakebav.net/what/publications/chesapeake 2000 agreement
Chesapeake Progress. Clean Water. Official website, https://www.chesapeakeprogress.com/clean-
water#water-qualitv
Commonwealth of Virginia. 2010. Chesapeake Bay TMDL Phase I Watershed Implementation Plan:
Revision of the Chesapeake Bay Nutrient and Sediment Reduction Tributary Strategy.
https://www.epa.gov/system/files/documents/2021-07/virginia-ches-bay-phase-i-wip-112910 O.pdf
Corbin, Jeff. 2018. Virginia's Nutrient Trading Program. September 6, 2018, presentation to the
Citizen's Advisory Committee to the Chesapeake Executive Council. Restoration Systems, LLC.
https://www.chesapeakebav.net/channel files/25844/cac presentation -
va nutrient trading program sept 6 2018.pptx
Exchange Association (The Virginia Nutrient Credit Exchange Association). 2022. Exchange Compliance
Plan 2022 Annual Update.
https://www.deq.virginia.gov/home/showpublisheddocument/6987/637517441812970000
Exchange Association (The Virginia Nutrient Credit Exchange Association). No date.
. Accessed May 22, 2023.
Pomeroy, C.D., D.E. Evans, and S.T. Leeth. 2005. Nutrient Credit Trading: The New Bay Cleanup Tool.
Virginia Lawyer SA(i)3%-A0.
Virginia Administrative Code Title 9 Chapter 820. 2022. General Virginia Pollutant Discharge
Elimination System (VPDES) Watershed Permit Regulation for Total Nitrogen and Total Phosphorus
Discharges and Nutrient Trading in the Chesapeake Bay Watershed in Virginia.
https://law.lis.virginia.gov/admincodefull/title9/agency25/chapter820
Virginia Code Title 61.1 Article 4.02. Chesapeake Bay Watershed Nutrient Credit Exchange Program.
2012. https://law.lis.virginia.goV/vacodefull/title62.1/chapter3.1/article4.02/
Virginia DEQ. 2010. Chesapeake Bay TMDL Phase I Watershed Implementation Plan Revision of the
Chesapeake Bay Nutrient and Sediment Reduction Tributary Strategy.
Virginia DEQ. 2020a. 2020 Nutrient Load Analysis.
https://www.deq.virginia.gov/home/showpublisheddocument/8193/63756884066783000Q
Virginia DEQ. 2020b. 2020 Nutrient Trades Report.
https://www.deq.virginia.gov/home/showpublisheddocument/9329/637587618917130000
Virginia DEQ. 2019a. 2019 Nutrient Load Analysis.
https://www.deq.virginia.gov/home/showpublisheddocument/7036/637521152488230000
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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Virginia DEQ. 2019 Nutrient Trades Report.
Virginia DEQ. 2019c. Virginia Nonpoint Source Pollution Management Program Plan, 2019 Update.
https://www.deq.virginia.gov/home/showpubiisheddocument/4334/63746233496440000Q
Virginia State Water Control Board. 2022. Fact Sheet: Reissuance of a General VPDES Permit to
Discharge to State Waters and State Certification Under the Water Control Law. Permit Number
VAN 000000.
Permitting Authority Contact:
Virginia Department of Environmental Quality
Virginia Department of Conservation and Recreation
Joseph Bryan
Jack E. Frye
Office of VPDES Permits
Director, Soil and Water Conservation Division
(804) 659-2659
(804) 786-6523
joseph.bryan@deq.virginia.gov
Jack.Frye@dcr.virginia.gov
Allan Brockenbrough, II, P.E.
The Virginia Nutrient Credit Exchange Association
Office of VPDES Permits
(804) 836-2321
Chris Pomeroy
abrockenbrough@deq.virginia.gov
(804) 716-9021 x202
chris@aqualaw.com
Tina Kierzek
(804) 716-9021 x221
tina@aqualaw.com
EPA Watershed-Based Permitting Study — Virginia's Chesapeake Bay Watershed Nutrient Credit Exchange Program
EPA-833-F-23-009 August 2023
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