Abuse of the Neuse?
Water Pollution Credit Trading Could Affect Raleigh’s Drinking Water
From its headwaters near Roxboro and northern Orange County, the Neuse River begins
its 200-mile journey to the coast by flowing through the rolling hills of the Piedmont, pushing
freshwater past lush forests and meadows and placing it into Falls Lake, Raleigh’s primary
source of drinking water.
This bucolic scene is far more complicated, however. Each day the upper Neuse River is
forced to absorb millions of gallons of nutrient-rich wastewater from treatment plants and other
facilities that discharge within its 770 square miles of watershed. Luckily, the upstream waters
move swiftly and are able to assimilate nutrients like nitrogen and phosphorous fairly well before
continuing their journey toward the coast.
But now a potential deal allowing towns to swap water pollution credits may start
overworking the river’s recuperative powers upstream.
The town of Butner, north of Falls Lake, wants to purchase credits from lesser polluting
Pamlico County downstream. Such a deal would give Butner the right to discharge up to 137,000
pounds of nitrogen per year into the river, potentially threatening water quality in Falls Lake.
Much like federal air pollution credit programs introduced in the mid-1970s, waterway
pollution trading is a market-based system that allows groups of polluters to buy and trade
discharge allocations as credits under ceilings determined by regulators. The theory is that
market forces will ultimately determine the most cost-effective ways of reducing pollution.
Proponents of the deal between Butner and Pamlico County emphasize that water
pollution credit trading is permitted under the state’s pollution management strategy for the
Neuse. Critics, however, argue that the state’s strategy is designed to control excess nutrients in
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downstream estuaries, leaving upstream water bodies like Falls Lake without adequate
protection.
“The Neuse River management plan is totally focused on how excess nitrogen affects the
Neuse River estuary and not Falls Lake reservoir,” says Joe Rudeck, senior scientist at
Environmental Defense in Raleigh. “In general, reservoirs are the freshwater systems most
susceptible to nitrogen pollution.”
And the lake is already showing signs of being adversely affected by nitrogen-rich
effluent from its three largest dischargers -- Butner, Durham, and Hillsborough -- say officials
from the Division of Water Quality.
If Butner is allowed to purchase the credits, it will be the first occurrence of water
pollution credit trading along the Neuse, and critics worry that it could set a dangerous precedent
for other cities and towns looking to accommodate a growing population and remain within their
state-allocated permit limits for wastewater discharge.
An Ailing Waterway
After leaving Falls Lake, the river continues its 200-mile journey to the coast, slowing
down just north of New Bern and becoming shallow and brackish before converging with the
Albemarle-Pamlico Sound, the second largest estuary system in the United States.
The last 120 years or so have been a struggle for the 2-million-year-old river; its history
has been fraught with industrial and residential pollution, causing numerous algal blooms and
fish kills.
Low concentrations of algae are a natural part of both freshwater and brackish
ecosystems, but excessive levels of nitrogen trigger rapid algae growth. Too much of the
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plantlike organism causes microorganisms and bacteria responsible for breaking down algae to
work overtime, devouring dissolved oxygen and suffocating aquatic plants and animals.
Although run-off from urban and agricultural sources contributes significantly to nutrient
pollution in the Neuse, it is difficult to trace and control, therefore earning the name “non-point
source pollution.” As a consequence, much of the regulatory effort has been designed to control
wastewater effluent from the discharge pipes of municipal and industrial facilities, or “pointsource pollution.”
In late 1997, the EMC adopted the Neuse River Management Strategy, known as the
“Neuse Rules,” designed to reduce nitrogen input into the Neuse by 30 percent over five years.
The strategy put a collective nitrogen discharge limit of 2.8 million pounds on all point-source
polluters. Therefore, a city or town’s nitrogen discharge allocation is a fraction of the collective
discharge limit.
In an effort to reduce its nitrogen discharge into the lower Neuse Basin, Pamlico County
received several outside grants in 1997 and contracted with the Bay River Metropolitan
Sewerage District in Bayboro to pull its discharge pipes from the river and convert its
wastewater infrastructure to spray irrigation. So instead of discharging its 8,100-pound nitrogen
allocation into the Neuse River, Bay River now uses the nutrient rich water to irrigate nearby
fields.
Trading Discharge Allocations
Now that Bay River no longer uses its nitrogen discharge allocation, it is up for grabs by
bigger polluters. Butner wants to purchase this allocation from Bay River at a price of $2.5
million over the next 15 years and apply it upstream.
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But there’s a catch.
Given its upstream location, Butner will actually be able to discharge 10 times MORE
nitrogen than the 8,100 pounds it purchases from Bay River.
Because fast-flowing water upstream is able to assimilate nutrients more quickly,
polluters along the upper Neuse are given larger discharge allocations than polluters
downstream. This is known as the “transport factor,” says Mike Templeton, an engineer for the
Division of Water Quality.
Butner’s transport factor is 10 percent -- meaning that for every 10 pounds of nitrogen
discharged into the Neuse, only one pound is expected to reach downstream estuaries.
If Butner purchases Bay River’s entire discharge allocation of 8,100 pounds, the 10
percent transport factor will still apply. In other words, Butner will have bought an allocation of
81,000 pounds of nitrogen.
When added to Butner’s current discharge allocation of 56,000 pounds, the extra
allocations mean that the town would be allowed to discharge up to 137,000 pounds of nitrogen
per year into the Neuse River.
Skeptics of the deal point out that Butner’s transport factor is based on the amount of
nitrogen expected to reach downstream estuaries, and doesn’t adequately account for how excess
nitrogen will affect a closer water body like Falls Lake.
“The 10 percent factor doesn’t account for what happens in Falls Lake,” says Rudeck. “It
only focuses on what ends up in the estuary.”
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Growing Pains
Like many communities in the Triangle, Butner is experiencing rapid development and
population growth, forcing the once-small town to worry about exceeding its discharge limits in
the future.
In addition to an expanding population and a new federal prison, Butner is beginning to
take on more regional responsibilities for water and sewer utilities in Granville County, which
experienced an increase of more than 26 percent in new residents since 1990.
Even though the town has made some improvements to its water and sewer systems,
including an $8 million upgrade to its wastewater treatment plant in December 2000, increased
growth and development are forcing it to plan for the day when its discharges will exceed permit
limits.
Right now, Butner is in “good shape” when it comes to meeting its permit limits, says
Templeton of the DWQ. Templeton attended recent trading negotiations among Butner and Bay
River MSD. “They’re not trying to divert an immediate crisis. Butner is looking ahead to acquire
allocations where it can plan for future growth at a reasonable cost,” he says.
Recently, engineering experts hired by Butner said that all options for wastewater
management in the municipality had been explored, and credit trading was the only way to keep
pace with the area’s growth.
When asked to comment on its plan to purchase water pollution credits, the director of
Butner’s office of property and construction replied, “The trading mechanism and the permit to
the Neuse River Compliance Association that allows for trading was approved by US EPA and
the NC Environmental Management Commission.”
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Clean Water Act Concerns
Skepticism about water pollution credit trading made national headlines last year when the
U.S. Environmental Protection Agency (EPA) announced that the National Water Quality
Trading Policy would allow point-source polluters located in the same watersheds to swap
pollution credits under caps determined by states.
The EPA touted the cost-effectiveness of the policy, saying the credits would help industry
and municipalities save millions of dollars in their attempts to comply with the 1972 Clean
Water Act, which required that all discharge facilities obtain a permit with discharge limits based
on their current treatment technology and water quality in the receiving waterway.
The original goal of the Clean Water Act was to make all waterways in the United States fit
for swimming or fishing by 1983. But two decades later, the United States is still far from that
original goal, and many industrial and sewage facilities remain out of compliance with the
discharge standards identified in their permits.
More than 60 percent of major facilities in the United States violated their Clean Water Act
permits between January 2002 and June 2003, according to the U.S. Public Interest Research
Group – and North Carolina industries were among the worst offenders. The percentage of major
facilities in the state that violated their permits during that time puts North Carolina among the
top ten states for permit exceedence. The Tar Heel state also ranks among the top ten states for
the highest average permit exceedence from major facilities, and at least 100 of those incidents
surpassed discharge standards by 500 percent.
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“What’s to stop them?”
Currently, more than 400 point-source discharge permits are issued for the Neuse River
Basin, and estimates indicate that the river receives more than 100 million gallons of partially
treated wastewater per day.
Although point-source polluters along the Neuse River have made significant progress
toward the EMC’s 30 percent reduction goal for collective nitrogen discharge, some
environmentalists fear that water pollution credit trading could be a step backwards in cleaning
up the Neuse.
“It just doesn’t make sense to go through the trouble of removing nitrogen in one place
and putting it back somewhere else,” says Larry Baldwin, lower Neuse riverkeeper for the NRF.
Despite the hefty price tag, Baldwin says many citizens of Pamlico County are against selling
credits to Butner after the trouble and expense the county devoted to converting its wastewater
infrastructure.
“It would be discouraging to see a pipe with those credits go back in the river and be
allowed to discharge even more nitrogen,” says riverkeeper Naujoks.
But perhaps a bigger concern is that once the state allows Butner to increase its nitrogen
discharge, there isn’t much to prevent the town from one day discharging its maximum limit of
137,000 pounds of nitrogen per year.
“What’s to stop them?” asks Naujoks.
Although not much is stopping Butner from purchasing nutrient credits, the North
Carolina Clean Water Management Trust Fund will try to curb the number of credits the town
can buy from Pamlico County and the Bay River Metropolitan Sewerage District.
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The Trust Fund provided $1.65 million in grant money to Pamlico County for its 1997
conversion to spray-irrigation. Officials at the Trust Fund plan to subtract a certain number
credits equal to the percentage of funding they supplied for the project.
The Trust Fund does not officially disapprove of the proposed trading, but “we want to
make sure our contract with Pamlico County and Bay River Metropolitan Sewerage district is
complied with,” says Bill Holman, the Trust Fund’s executive director. He says that water
pollution credit trading is an “innovative” program and “worth a try.” “We’ll see what happens.”
Yet environmental groups maintain that the state’s current pollution management strategy
for the Neuse is inadequate if point-source polluters are allowed to begin swapping water
pollution credits. The state’s current focus on nutrient levels downstream estuaries will not be a
good barometer of the river’s health for communities relying on Falls Lake for freshwater.
“It would be prudent to consider what excess loads of nitrogen would to do Falls Lake
before it [the trading program] is approved,” says Rudeck of Environmental Defense.
In response, DWQ engineer Mike Templeton says that if future water quality monitoring
merits listing Falls Lake as being an impaired water body, or as not being able to meet state
standards for water quality, then the DWQ will have to determine “Falls Lake” allocations. In
other words, the DWQ would have to take a reactive stance and implement permit limits on
nitrogen discharge for point-source polluters upstream from Falls Lake.
Environmental groups say they aren’t against growth and development in communities
like Butner, but they are concerned that dischargers along the Neuse could view pollution credits
as a more attractive option than alternatives like reclaimed water or spray irrigation for meeting
permit limits.
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And that could mean future nutrient problems upstream, especially for freshwater
drinking sources like Falls Lake reservoir.
“Long-term, we’ve got to be concerned about excess nitrogen in Falls Lake,” says
Holman.
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SIDEBAR
Troubled Water: A Conservation Timeline of the Neuse River Basin
1887
 Legislation passed to “prevent the throwing of dead stock into the Neuse River and its
tributaries,” according to the North Carolina Department of Environment and Natural
Resources.
1951
 The State Stream Sanitation Act mandates surveys of statewide surface waters
1959
 Findings from the Neuse River Basin Survey Report highlight the poor quality of water
downstream from point discharge sites.
1979-1981
 State and university researchers investigate widespread algal blooms

Researchers conclude that reductions in phosphorous and nitrogen are necessary to
prevent algal blooms in the freshwater areas of the Neuse River.
1983

The Environmental Management Commission (EMC) classifies Falls Lake watershed as
Nutrient Sensitive Waters (NSW).
1988
 EMC classifies the remainder of the Neuse River Basin as NSW.
o The Division of Water Quality (DWQ) specifies that the Agricultural Cost Share
Program should control non-point nitrogen discharge.
 NC General Assembly adopts a statewide phosphorous detergent ban
1993
 Basinwide Management Plan for the Neuse River Basin completed by the DWQ.
o Plan notes the success of the phosphorous detergent ban, but recommends an
“accelerated schedule” for reduction of nitrogen from nonpoint sources.
1995
 Widespread fish kills occur in the Neuse River during July, September, and October.
1997
 Final set of rules for the Neuse River Management Strategy are adopted by the EMC on
December 11, 1997.
Source: NC DEHNR, Division of Soil and Water Conservation
(http://www.enr.state.nc.us/DSWC/pages/intitiative.html)
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