Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-1 September 24, 2010

Appendix S. Offsetting New or Increased Loadings of Nitrogen, Phosphorus and Sediment 

to the Chesapeake Bay Watershed

As an assumption of the Chesapeake Bay TMDL, EPA expects Chesapeake Bay jurisdictions to 

account for and manage new or increased loadings of nitrogen, phosphorus, and sediment. Such 

loadings might be introduced by point and nonpoint sources as a result of future growth and 

development and land use changes.

As explained in Section 10.1, where the TMDL does not provide a specific allocation to 

accommodate new or increased loadings of nitrogen, phosphorus, or sediment, a jurisdiction may 

only accommodate such new or increased loadings through a mechanism allowing for 

quantifiable and accountable offsets of the new or increased load in an amount necessary to 

implement the TMDL and applicable WQS in the Chesapeake Bay and its tidal tributaries. 

Therefore, the Chesapeake Bay TMDL assumes and EPA expects the jurisdictions to 

accommodate any new or increased loadings of nitrogen, phosphorus, or sediment that do not 

have a specific allocation in the TMDL with appropriate offsets supported by credible and 

transparent offset programs subject to EPA and independent oversight. This appendix provides 

details of common elements on which EPA expects the jurisdictions to develop and implement 

those offset programs.

I. Source Documents

The common elements are based on, and consistent with, the following documents provided or 

made available to the jurisdictions:

National Guidance:

Water Quality Trading Policy, EPA, 2003 

(http://www.epa.gov/owow/watershed/trading/finalpolicy2003.pdf).

Water Quality Trading Toolkit for NPDES Permit Writers, EPA, 2007 

(http://www.epa.gov/owow/watershed/trading/WQTToolkit.html).

Regional/Chesapeake Bay Specific Documents:

Expectations Letter, EPA Region 3 to Principals’ Staff Committee, Nov. 4, 2009 

(http://www.epa.gov/reg3wapd/pdf/pdf_chesbay/

tmdl_implementation_letter_110409.pdf).

Federal Actions Letter, EPA Region 3 to Chesapeake Bay jurisdictions, Dec. 29, 2009 

(http://www.epa.gov/region3/chesapeake/bay_letter_1209.pdf).

A Guide for EPA’s Evaluation of Phase I Watershed Implementation Plans, EPA Region 

3, Apr. 2, 2010 

(http://archive.chesapeakebay.net/pubs/Guide_for_EPA_WIP_Evaluation_4-2-10.pdf).

Strategy for Protecting and Restoring the Chesapeake Bay Watershed, Federal 

Leadership Committee, May 12, 2010 

(http://executiveorder.chesapeakebay.net/category/Reports-Documents.aspx).
Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-2 September 24, 2010

II. Definitions

The terms used in this appendix are to be interpreted consistently with the above-listed source 

documents, unless specifically defined below.

1. Offset. For purposes of the Chesapeake Bay TMDL, means (n.) a reduction in the loading

of a pollutant of concern from a source or sources that is used to compensate for the 

loading of the pollutant of concern from a different point or nonpoint source in a manner 

consistent with meeting WQS; or (v.) compensating for the loading of a pollutant of 

concern from a point or nonpoint source with a reduction in the loading from a different 

source or sources, in a manner consistent with meeting WQS.

2. Credit. For purposes of the Chesapeake Bay TMDL, means a measured unit of nitrogen, 

phosphorus, or sediment pollutant reduction per unit of time at a location designated and 

standardized by the jurisdiction that can be generated, sold, or traded as part of an offset.

3. Offsets Baseline. For purposes of the Chesapeake Bay TMDL, means the amount of 

pollutant loading allowed by wasteload allocation (WLA) or load allocation (LA) that 

applies to individual credit generators in the absence of offsets. Sources generating 

credits are expected to first achieve their applicable offset baselines before credits may be 

generated.

4. New or Increased Loading of nitrogen, phosphorus or sediment. For purposes of the 

Chesapeake Bay TMDL means, for a point or nonpoint sources meeting its Chesapeake 

Bay TMDL WLA or LA as of the date of establishment or modification of the 

Chesapeake Bay TMDL, any nitrogen, phosphorus, or sediment loading from the point or 

nonpoint source in an amount greater than reflected by WLAs or LAs in the Chesapeake 

Bay TMDL; for a point or nonpoint sources not meeting its Chesapeake Bay TMDL 

WLA or LA as of the date of establishment or modification of the Chesapeake Bay 

TMDL, any nitrogen, phosphorus, or sediment loading from the point or nonpoint source 

in an amount greater than reflected by WLAs or LAs in the Chesapeake Bay TMDL, 

after the point in time the source begins meeting its WLA or LA. 

III. Common Elements

As an assumption of the Chesapeake Bay TMDL, EPA expects that new or increased loadings of 

nitrogen, phosphorus, and sediment in the Bay watershed that are not specifically accounted for 

in the TMDL’s WLA or LA will be offset by loading reductions from other sources and that any 

such offset credits will be generated under programs that are consistent with the common 

elements described below. These common elements are important to ensure that offsets are 

achieved through reliable pollution controls and that the goals of the Bay TMDL are met. EPA 

recognizes the value of offset programs that are consistent among the jurisdictions in order to 

support broader regional implementation.

1. Authority. That legal authority exists to authorize the new or increased loading of 

nitrogen, phosphorus, and sediment on the basis of offsetting reductions from 

another point or nonpoint source and to implement, monitor, and enforce such 

offsets.
Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-3 September 24, 2010

2. Offsets Baseline (for credit generators). That any point or nonpoint source 

generating a credit has implemented practices or met any reductions necessary to 

be consistent with the Chesapeake Bay TMDL allocations:

(a) For point sources generating credits, the TMDL assumes that the offsets 

baseline is the WQBEL included in that discharger’s permit consistent 

with the applicable WLA in the TMDL. For some point sources, that will 

be a numeric limitation; for others, it will be a suite of BMPs determined 

to be protective of WQS.

(b) For nonpoint sources generating credits, baseline options should be 

appropriately defined in terms of load, geographic scale, minimum 

practices, schedule of implementation and/or time needed to facilitate 

improved environmental compliance with WQS.

3. Minimum Controls (for credit users). That any point or nonpoint source using a 

credit has implemented certain minimum controls:

(a) For point sources using credits, that the discharger using a credit will meet 

on-site any relevant minimum technology-based standards or secondary 

treatment standards.

(b) For nonpoint sources using credits, that the source has met all federal, 

state, and local requirements applicable to nonpoint sources.

4. Eligibility. Inclusion in the basis and record for any offset, any other criteria that 

the jurisdiction will use to determine when a point source or nonpoint source may 

generate credits. Inclusion of a statement of eligibility of aggregators or third 

parties in generation, sale and purchase of offsets on behalf of others.

5. Credit Calculation and Verification: Ensuring that credits are quantified using 

appropriate metrics and are verified over time to ensure that they are producing 

the expected reductions, including

(a) Appropriately quantifying pollutant loading credits generated and ensuring 

that offsets acquired reflect load reductions equivalent to or greater than 

the new or increased loadings being offset, including:

i. Accounting for the equivalency of pollutants to compensate for 

changes in pollutant form, e.g., total nitrogen versus dissolved 

nitrogen;

ii. Accounting for uncertainty of source reductions due to factors such

as practice efficiencies related to the use of BMPs, a lack of 

required monitoring or reporting compared to other sources, and/or 

the lack of regulation of the source by federal, state and/or local 

regulations;

iii. Accounting for any distance between the generating and acquiring 

sources that could affect water quality including the potential for 

water chemistry variations and other delivery factors that may 

cause pollutant attenuation;
Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-4 September 24, 2010

iv. Accounting rules for inclusion of practices implemented through 

public cost-share incentives; and

v. Accounting for degradation in the effectiveness of a practice over 

the projected term of the practice.

(b) Validating that proposed activities to create reductions (e.g., treatment or 

BMP installation) are expected to generate the credits offered for offsets, 

including identifying the metrics and data used to quantify the offset/credit 

generated and the period for credits.

(c) Verifying that the credit was and continues to be generated, via 

monitoring, inspection, reporting, or some other mechanism, including 

articulating the frequency of on-site or other monitoring and who will 

conduct monitoring or inspections.

(d) Articulating whether third parties may verify and certify credits and 

offsets within and between jurisdictions.

6. Safeguards. Inclusion in the basis and record for any offset, safeguards to ensure 

that the entire delivered load is accounted for and that water quality will be 

protected, such as:

(a) Prohibiting the use of offsets where such use would cause or contribute to 

exceedances of WQS, TMDLs, WLAs or LAs in affected receiving 

waters, locally or elsewhere;

(b) Restricting the use or generation of offsets by an unpermitted point source 

or a source that is not in compliance with its NPDES permit or a 

jurisdiction equivalent, or other federal or state law or regulation;

(c) Protecting affected communities from disproportionate harm arising from 

offsets; and

(d) Ensuring temporal consistency between the period when a credit or offset 

is generated and when it is used.

7. Certification and Enforceability. Designating the process to be used and the 

institutional entity responsible for credit/offset program operation and 

certification, and ensuring the enforceability of Clean Water Act discharge 

permits and offset transactions, including:

(a) Requiring that any offsets, along with the enforceable water quality-based 

effluent limits (WQBELs) based on the applicable WLA (e.g., zero for 

new dischargers), will be included and recorded in the NPDES permit. 

(b) Estimating annually the increased pollutant loading from nonpoint sources 

and discharges from point sources that will not be permitted, acquiring

offsets needed to fully offset such increases, and recording these offsets in 

an appropriate instrument.

(c) Determining whether offsets may occur without reopening or modifying a 

NPDES permit to incorporate the offset transaction.
Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-5 September 24, 2010

(d) Ensuring that transactions can be enforced by the jurisdiction or otherwise 

insured by the jurisdiction, for example through a credit reserve insurance 

account, in the event of failure by the offset generator.

(e) Determining whether a civilly enforceable agreement exists between an 

offset generator and an offset user.

(f) Ensuring that an NPDES permittee remains accountable for meeting the 

WQBEL(s) in its permit.

8. Accountability and Tracking. Developing accountability and tracking system(s) 

that are holistic and focused on performance outcomes while providing maximum 

transparency, operational efficiency, and accessiblity to all interested parties. 

Such system(s) should demonstrate:

(a) An appropriate offset baseline is used to generate credits.

(b) The offset is quantified and verified according to standards established by 

the jurisdiction.

(c) The offset or credit is sold only once during the term of the credit.

(d) The nutrient delivery equivalency of the offset generated and the offset 

consumed both in terms of the equivalency of pollutants and appropriate 

attenuation.

(e) The locations(s) of the offset, including where the offset or credit is 

generated.

(f) Authentication of ownership.

(g) The NPDES permit number or other identification of the purchaser of the 

offset or credit.

(h) Documentation of agreements between parties to the offset transaction.

(i) Whether sufficient offsets will be acquired over the period of the new or 

increased loading.

(j) Compliance status of NPDES parties.

(k) The results of monitoring and verification for each offset.

(l) Time frames for regular review and evaluation of the offset program.

9. Nutrient-impaired Segments. In addition to the safeguards in 6 above, ensuring 

that offsets in nutrient-impaired water segments:

(a) Result in progress toward attainment of WQS in the impaired segment;

(b) Do not result in exceedances of WQS in the purchaser’s impaired 

segment; and

(c) Do not increase delivery loads in downstream impaired segments, do not 

violate WQS in any intermediary segments, and do not violate local WQS.
Draft Appendix S – Chesapeake Bay TMDL for Nutrients and Sediment

S-6 September 24, 2010

10. Credit Banking. The role of third parties in aggregation of credits and operation of 

credit banks should be specified. It is recommended that credit banking on a basin 

or interstate basis be authorized subject to meeting the elements noted above. 

Expectations concerning the necessary costs and reasonable expenses of banks 

that acquire and sell credits should be described.

EPA expects that the Chesapeake Bay jurisdictions also can use the additional offset program 

features discussed in Section 10.1.3 to build their offset programs for new or increased loadings 

of nitrogen, phosphorus, and sediment. Those include net improvement offsets, aggregated 

programmatic credits, and a reserve-offset hybrid.

In developing and implementing their offset programs, EPA encourages jurisdictions to consult 

with EPA to facilitate alignment with the Clean Water Act and the Chesapeake Bay TMDL. EPA 

intends to fulfill its various oversight responsibilities of these offset programs by conducting 

periodic audits and evaluations as detailed in Section 10.1.4. Where questions or concerns arise, 

EPA will use its oversight authorities to ensure that offsets and offset programs are fully 

consistent with the Clean Water Act and its implementing regulations.