New Report: Three Fundamental Flaws in Maryland's Water Pollution Trading Regulations

On December 8, the Maryland Department of the Environment published its long-awaited nutrient trading regulations, capping more than two years of effort to develop a comprehensive environmental market intended to reduce the amount of nutrient and sediment pollution in the Chesapeake Bay. 

A trading market would allow people, companies, and governments required by law to reduce the amount of pollution they discharge to purchase "credits" for pollution reduction efforts undertaken by someone else. In theory, water pollution trading ensures overall discharges are capped over time and encourages reductions to happen where they can be achieved at the lowest cost. If done right, a trading program may provide an incentive for some to reduce pollution beyond what is required of them by law. 

Pollution trading has been credited with major achievements across the United States. But it is not a one-size-fits-all solution to environmental degradation. Much depends on the type of pollutants, how they are introduced into the environment, and where and how they cause harm. Trading has worked in the right circumstances. It is rightly credited with reducing the pollutants that cause acid rain, and it is seen as a useful tool in reducing climate-change-inducing greenhouse gases – in both cases because much of the pollution comes from power plants with smokestacks that can be monitored and controlled. But now Maryland is proposing to start a trading program with water pollution sources such as farm fields and parking lots, from which runoff is diffuse and difficult to measure. 

Today, the Center for Progressive Reform and the Environmental Integrity Project are releasing an analysis of Maryland's proposed nutrient trading program that highlights the three fundamental flaws that will prevent the new trading program from being a viable solution for Bay restoration. In fact, as we show, the trading program may ultimately create worsening water quality conditions if the following three issues are not addressed. 

Flaw #1: The regulations lack geographic restrictions to protect local communities and waters from "hot spots" of concentrated pollution. 

Local pollution hot spots are an inevitable consequence of water pollution trading programs generally but can be mitigated with the right rules. Unfortunately, Maryland's new regulations do not contain sufficiently protective rules for local waters. Instead, the regulations divide the state into just three excessively large trading zones that treat local water quality conditions across the state as if they're all the same. These oversized and artificial trading boundaries also discourage economic investment in stormwater management and other urban pollution reduction projects while encouraging local taxpayer dollars to be sent many miles away where they will do nothing to reduce nutrient, sediment, or the many forms of dangerous and toxic water pollution found in urban watersheds and communities. 

Flaw #2: The rules allow for "paper credits" not backed by real pollution reductions. 

Through Maryland's enormously successful Bay Restoration Fund, taxpayers have funded upgrades to dozens of wastewater treatment plants across the state. These upgrades have reduced pollution in the Bay by millions of pounds annually and are the primary reason for overall improvements in the Bay's water quality. But MDE's proposed regulations will allow these past pollution reductions to be counted as future Bay restoration progress by allowing credits to be given to some sewage treatment plants that don't do anything new or additional to reduce pollution. 

Flaw #3: The rules do not account for the substantial uncertainty about the effectiveness of evolving pollution-control practices. 

Low-cost pollution reduction projects – such as cover crops, stream buffers, and manure management programs – are supposed to be the primary source of credits in a nutrient trading market. But the actual pollution reductions delivered by these projects vary widely. For unmonitored "nonpoint" sources like agricultural land, research shows that pollution reductions in controlled settings are often significantly higher than results measured in the real world. This is why most trading programs – and EPA guidance – require a credit buyer to purchase credits for twice as much pollution as they need to reduce, if the credits are from a nonpoint source. This two-to-one "trading ratio" is incorporated in most trading program rules to ensure that the uncertainty associated with best management practices are fully accounted for.

Overall, Maryland's new nutrient trading program will certainly make it cheaper to meet clean water requirements under state law. But it may not lead to meaningful improvement in water quality unless the state makes changes to these regulations that at least address their three fundamental flaws. If the trading regulations are not strengthened, we may jeopardize our efforts to restore the Bay, promote investment in local restoration economies, and protect the health of local waters and communities.

To learn more about what is at stake, see our new report, Trading Away Clean Water Progress in Maryland.