Nature of Activity: North Carolina established a nutrient management strategy for the Neuse River Basin to reduce the total nitrogen load to the Neuse estuary from all sources. The strategy sets annual nitrogen allocations for existing point source dischargers over 0.5 MGD, and also provides the option of joining a basin-wide association of point sources. The association’s allocation will equal the sum of its members’ allocations. If the association or any non-association discharger exceeds its allocation in any year, it must make an offset payment to the State’s Wetlands Restoration Fund. The association’s members may also trade among themselves. Any new or expanding discharger must either purchase its allocation from an existing discharger at a negotiated price, or make a payment to the Wetlands Restoration Fund. The Fund restores wetlands and riparian areas.

Environmental Problem: Nutrient enrichment-driven eutrophication, fish kills in the Neuse estuary.

Pollutant(s) / Pollution Type(s): Nitrogen and phosphorus (though only N will be traded).

Trade Types: Point/point, point/nonpoint.

Stage of Implementation: The State classified the upper portion of the basin as Nutrient Sensitive Waters in 1983 and declared the entire basin Nutrient Sensitive in 1988. The State began developing basin-wide nutrient rules in 1995, and most rules were effective in August, 1998. Dischargers will have to meet their allocations by 2003 or pay for offsets. The point source association has not yet been established and no trades have occurred.

Relation to TMDL: Several waters in the basin are on the 303(d) list. A TMDL for total nitrogen in the Neuse estuary was approved by EPA in July, 1999. The basis for the TMDL was the study used to implement the trading program.

Number of Potential Participants: Forty point sources submitted letters of interest in joining the association before a March, 1998 deadline, when enrollment was closed for 5 years.

Trading Ratios: There is no ratio established by the rule for trading among the point sources, nor is the offset rate -- the amount per pound to be paid to the Wetland’s Restoration Fund by a discharger exceeding its allocation -- formally a trading ratio. However, the amount of the payment -- $11/lb/year -- is based on calculations done by the State for the Tar-Pamlico Basin trading program and represents roughly twice the cost of the least cost-effective nutrient BMPs that the State has been supporting farmers in implementing throughout the State. The State’s charge of $11/lb/yr when a point source exceeds its allocation is two or more times higher than the cost at which the State has been obtaining reductions from nonpoint sources. Thus, if we were to assume that a payment into the Wetlands Fund has the effect of increasing the State’s spending on nonpoint source BMPs by a similar amount, the offset rate would have a 2:1 trading ratio embedded in it. Moreover, new or expanding point sources that do not purchase allocations from the association must buy offsets from the Wetlands Fund at price 200% of the base offset rate.

Estimated Cost Savings: The offset rate is $11/lb nitrogen for each pound over the association’s allocation. For comparison, costs for at-the-plant controls elsewhere in North Carolina (in the Tar-Pamlico Basin) were estimated at roughly $25 - 30/lb.

Available Written Information: Two North Carolina Department of Environment, Health and Natural Resources (now DENR) reports from 1997, several fact sheets.

Innovative Aspects: By instigating nonpoint source controls and collecting payments from point sources that do not meet their allocations, the State assumes much of the transactions burden of trading. Under the strategy’s rules for agriculture, farmers can participate in their county plans or implement BMPs individually, however, they will not trade directly with point sources.

Obstacles: Trading between point sources and agriculture was not authorized, in part over concern that farmers would be challenged to meet their own 30% loading reduction goals and thus might have difficulty generating tradeable "excess" reductions.

Web Sites: Upper Neuse: http://www.epa.gov/surf2/hucs/03020201/

Middle Neuse: http://www.epa.gov/surf2/hucs/03020202/

Lower Neuse: http://www.epa.gov/surf2/hucs/03020204/

Contact: Dave Goodrich or Mike Templeton, North Carolina DENR, (919) 733-5083, dave.goodrich@ncmail.net or