The role of nutrient credit trading for total maximum daily load compliance by the urban stormwater sector: Evidence from Virginia's Municipal Separate Storm Sewer Systems

Water quality credit trading has been advanced as a cost-effective means of achieving regulatory compliance. However, the volume of trading activity in operational programs is typically less than estimated by empirical analysis. The compliance behavior of Virginia Municipal Separate Storm Sewer Systems (MS4s) is studied in response to the Chesapeake Bay total maximum daily load (TMDL) to understand the circumstances in which trading is adopted, the extent to which trading is adopted, and the factors contributing to trading's use or nonuse. Results indicate that MS4s generally prefer to install their own pollutant control measures rather than trade. Many MS4s, however, rely on trade as a backup compliance option. MS4s favor bay compliance options that help meet other local management objectives (erosion control, infrastructure protection, and reductions toward local water quality objectives) and provide long term pollutant control benefits. Low cost term credits do not provide such benefits. For perpetual credits, MS4s use a variety of strategies to substantially reduce the cost differences between trade and nontrade compliance options.