Trading Air Emissions Rights and Using Wetlands Mitigation Bank Credits

Two amendments by the 1999 Virginia Legislature changed important rules for trading air permit emissions and for using wetlands mitigation bank credits. Both amendments add federal requirements to existing state requirements and will become effective July 1, 1999.

The air emissions trading program can benefit a business that discharges a large amount of one type of regulated emission but very little of another type. Under the trading program, a company that discharges too much of one type of substance might trade some of its unneeded allocation and in return receive an additional allocation for the regulated substance that it does discharge in quantity.

The amendments to the Virginia air emissions trading program authorize the State Air Pollution Control Board to establish an emissions trading program based upon emission caps. By adding federal requirements, the amendments reduce the trades that are available under current law. Currently, the Board is authorized to establish a voluntary, or open-market, emissions trading program, and the current program does not use emission caps. In comparison, the federal program allows states to use emissions trading to achieve reduction in air emissions, but those trades are subject to emission caps. The amendments also require that the trades satisfy federal requirements for, among other things, greenhouse gas reduction. These amendments could help hasten the U.S. Environmental Protection Agency's approval of Virginia's State Implementation Plan for air emissions control.

The amendments to the wetlands mitigation bank credits system grant new authorization for water pollution permit applicants who are required to compensate for adverse affects to wetlands. Under the amendments, permit applicants may use credits from wetlands mitigation banks owned by the permit applicant itself*an option not available under existing law.

A wetlands mitigation bank contains wetlands property that has been established by private property owners and approved under state and federal requirements. The wetlands bank property owners sell credits to permit applicants who need to compensate for wetlands they have damaged or propose to damage. It is one of several ways that permit applicants can use to mitigate adverse effects caused by development in or near wetlands. Other alternatives are establishment of mitigating wetlands on the affected property or on other property, the method most frequently used in western Virginia, or contribution to an approved wetlands foundation. In each case, the intent is to replace damaged wetlands or to make funds available for use in acquiring or creating wetlands.

The funds paid to wetlands mitigation bank owners are private commercial transactions, and prices are determined in the marketplace. Now, under the amendments, if a permit applicant chooses to use credits from an approved wetlands mitigation bank owned by the applicant itself, the costs of this form of wetlands compensation may be reduced.

The amendments also require that the mitigation bank program comply with additional state and federal laws, regulations, and guidance. Currently, the state law only requires compliance with federal guidance. Under the amendments, several additional conditions are included, such as a proscription against significant harm to water quality or fish and wildlife resources within the affected watershed.

The amendments for air emissions trading may be enforced under the federal Clean Air Act, while the wetlands mitigation amendments are covered by the federal Clean Water Act. In both cases, related state laws may also apply. While insurance can be purchased to cover many damages, the penalties imposed for the failure to comply with these new provisions could include civil penalties of $27,500 per violation per day and criminal penalties of imprisonment, fine, or both.

Accordingly, there are substantial incentives for care and compliance. Businesses conducting activities that could result in air emissions or wetlands alteration should consult their environmental advisors regarding these new Virginia requirements. While the wetlands mitigation credit amendments provide some new flexibility to that system, the amendments add restrictive elements to both programs that must be considered.

by William H. Hill, III