Nature of Activity: North Carolina established a basin-wide nutrient trading program to reduce nitrogen and phosphorus loads to the Tar-Pamlico basin. There are two main components: The Tar-Pamlico Basin Association (point sources) and a trading mechanism. The Association works cooperatively to meet nutrient caps set by the State. If the Association does not meet its goals it must purchase offsets by paying a pre-set price per pound to the State’s Agriculture Cost-share Program for Nonpoint Source Pollution Control. (This is a State-wide program that pays farmers up to 75 percent of the average cost of implementing approved BMPs.) Monies paid by the Association to the cost-share program are earmarked to finance nutrient offsets from nonpoint sources in the Tar-Pamlico basin. Since the State cost-share program contracts with the farmers, the State rather than the point sources is responsible for finding trading partners and ensuring the validity of the offsets.

Environmental Problem: Eutrophication of Pamlico River Estuary.

Pollutant(s) / Pollution Type(s): Nitrogen and phosphorus.

Trade Types: Point/point cooperation and point/nonpoint trading.

Stage of Implementation: The Basin was designated a Nutrient Sensitive Water in 1989. Program development began in 1990. In 1991 the Association hired an engineering firm to investigate measures and costs for nutrient reduction at the Association’s facilities. Trading rules were fully developed in 1992. The point sources have met their collective cap each year since 1990 via the operational measures and minor capital improvements recommended by the engineering analysis, and through the addition of nutrient removal processes at two of the larger facilities. The Association purchased and banked credits for future use, but has not yet needed to use them. The current membership in the Association and price for offsets will continue through 2004.

Relation to TMDL: A TMDL is in place, having been developed during Phase I. An estuarine response model that was developed under Phase I was used to develop the TMDL.

Number of Potential Participants: There are fourteen members of the Association and enrollment will be opened to additional facilities after 1999. The Agricultural Cost Share Program works with multiple nonpoint sources.

Trading Ratios: The current cost of offsets includes a 2:1 ratio. The offset rate of $29/kg/yr is based on the estimated cost of the least cost-effective BMP typically implemented in the Tar-Pamlico Basin – $13/kg/yr, plus an additional $13 for a 2:1 ratio, plus a 10% fee for administrative costs.

Estimated Cost Savings: The offset rate is currently set at $29/kg for each kg over the association’s allocation. For comparison, costs for at-the-plant controls were estimated to be $11 - 13 million for 200,000 kg of reduction (approximately $55/kg – $65/kg). Additionally, a Great Lakes Trading Network report cites Malcolm Green (President of the Association) to the effect that the reductions achievable for $1 million from nonpoint sources would cost $7 million from point sources.

Available Written Information: Two North Carolina Department of Environment, Health and Natural Resources (now DENR) reports from 1995, and one each from 1997 and 1998.

Innovative Aspects: The State takes on the burden of arranging for and vouching for the nonpoint source load reductions via the Agriculture Cost-share Program. From the point of view of point sources, this sharply reduces the transaction costs and uncertainties of trading. Members of the Association jointly paid for the engineering study. New dischargers ornon-members wishing to expand must buy offsets from agricultural sources.

Obstacles: It was very complex to quantify the impacts of runoff from animal feeding operations. Imprecise language in the trading rule resulted in a controversy over the cost and duration of the credits that have been purchased.

Web Sites: Lower Tar: http://www.epa.gov/surf2/hucs/03020103/

Pamlico: http://www.epa.gov/surf2/hucs/03020104/

Contact: Rich Gannon, North Carolina DENR, (919) 733-5083, rich_gannon@h2o.enr.state.nc.us