Nitrogen Credit Trading – EPA Region 1 (State of Connecticut)
(Point Source to Point Source Trading)
Background & Problem:

Very low dissolved oxygen levels (< 2 mg/l) in Long Island Sound off the shore of
Connecticut due to excess nitrogen loading, mostly from point sources – see map below.

Western Long Island sound has the most problems; nitrogen sources in eastern Connecticut
have less impact per pound of nitrogen discharged than sources in western Connecticut
because of attenuation during transport through Long Island Sound.

A comprehensive water quality/hydrodynamic model (LIS-3) identified six nitrogen
management zones (see map above) based on drainage basin boundaries and political
jurisdictions; nitrogen reduction targets were developed for each zone.

A nitrogen TMDL was approved by EPA in 2001, which provided a total nitrogen (ammonia
nitrogen, organic nitrogen, nitrite, and nitrate) wasteload allocation; TMDL strategy is to
reduce overall nitrogen loading to Long Island Sound 58.5% by 2014 (based on 1990
loadings); TMDL goal is for D.O. levels of 5.0 mg/l in the Long Island Sound surface waters
and 3.5 mg/l in bottom waters.
Approach:

Connecticut Department of Environmental Protection (DEP) determined that the TMDL goal
would be achieved by reducing nitrogen loadings from 79 POTW’s; each is required to
achieve a 70% level of nitrogen reduction, despite possible different actual nitrogen
contribution (unequal distribution of responsibility versus impact).

State funding was available to finance construction of nitrogen removal at POTWs.

Nitrogen credit trading is defined as the sale of nitrogen credits (a pound of nitrogen)
created by a point source as a result of the reduction of nitrogen in excess of that source’s
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permit limits and the purchase of credits by a different point source to meet the reduction
limits of that source’s permit in lieu of providing additional treatment.

For trading equivalency, since nitrogen sources throughout the state of Connecticut have
different impacts on water quality, normalized exchange ratios were developed (like an
exchange rate for currency); all loadings are traded on the equivalent basis.

The state believed there could be significant cost saving through trading. Public Act No. 01180 was passed in 2001, establishing a framework for a Nitrogen Credit Exchange, directed
by the Nitrogen Credit Advisory Board.
Trading Program Elements (point source to point source):

The geographic area encompassed by the trading program is the state of Connecticut.

A general permit was issued to all 79 point sources, establishing annual nitrogen discharge
limits (annual mass loading), along with monitoring and reporting requirements.

Local water quality management objectives cannot be compromised by the trading activities.

For each facility to be in compliance with the general permit, the annual mass loading of
total nitrogen must be less than or equal to its discharge limit OR it must secure equivalent
nitrogen credits equal to the amount the facility exceeded the annual discharge limit in
accordance with the Nitrogen Credit Exchange.

Trades are to take place once a year; the DEP sets the price of an equivalent nitrogen credit
by March 31st of each year; facilities must purchase equivalent nitrogen credits by July 31st
of the same year. The price per pound discharged each day is expected to range between
$2.00 and $30.00 between 2002 and 2014.

Credits can be banked for no more than 1 year.

EXAMPLE – credits exchanged between New London (in eastern CT, needs to purchase
credits) & Norwalk (in western CT, has excess credits) in 2003. Assume the price per pound
of nitrogen is $2.00.
Zone
POTW
Equivalency
Factor
2002
Total Nitrogen (pounds/day)
2003
2004
2005
2006
2014
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New
London
0.18
770
717
6
Norwalk
1.00
1433
1333
653
1215
568
472
386
1057
878
718
Credits exchanged would apply a 0.18 exchange factor, e.g., if New London needed to
remove 100 pounds of nitrogen per day to meet their 717-pound/day limit, they would
need to buy 18 pounds of nitrogen per day of Norwalk’s excess.
Over the course of a year, New London would have to spend:
(100 pounds/day) * 0.18 * 365 days * $2.00/pound = $13,140
Benefits of the trade are that New London could use the exchange to defray the cost of
its own nitrogen removal project over the short run and that Norwalk recoups some of
the costs associated with excess nitrogen removal.
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