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Nutrient Trading for the Chesapeake Bay

Maryland's Proposed Regulations Flawed

In December 2017, the Maryland Department of the Environment (MDE) published long-awaited rules for a water pollution trading market, which includes nutrients and sediment that flow into the Chesapeake Bay. As with other such pollution trading programs, the idea is to put market forces to work in reducing pollution.

The trading market would allow polluters covered by the program, including various businesses, individuals and public entities, to buy and sell credits for pollution reductions. For example, industrial facilities, wastewater treatment plants, or large agricultural operations that reduce pollution beyond required levels would be able to sell credits to other facilities or jurisdictions that exceed their pollution limits -- local sewer systems covered by permits for pollution carried in stormwater, for example. The purpose is to ensure that overall discharges are capped, while encouraging reductions where they can be achieved most cheaply. A properly structured trading program could induce some sources to reduce their pollution beyond what is required by law.

Unfortunately, according to an in-depth analysis by CPR’s Evan Isaacson and the Environment Integrity Project’s Abel Russ, Maryland’s rule-writers lost sight of the goal. They warn that “Trading programs are only a means to an end. The end is clean water, not establishing a high-volume trading market. If the rules governing a trading market are drawn poorly, they could actually facilitate an increase in pollution with each pollution credit traded.”

The report, Trading Away Clean Water Progress in Maryland, identifies three major failings in the state’s proposed regulations:

Hot Spots: The rules encourage the sale of credits in such a way that pollution will end up being concentrated in particular parts of the state. Often, these “hot spots” of pollution will affect the state’s most vulnerable communities.

Paper Credits: The rules allow wastewater treatment plants across the state to get credits for pollution reductions that not only aren’t new, but that have been in place for some time now. The resulting “pollution savings” is on paper only.

Unaccounted Uncertainty. One clear lesson from other trading markets is that, for a variety of reasons, real-world pollution reductions are sometimes smaller than projected. Most trading programs – and EPA guidance – account for that by requiring those buying credits to purchase credits for twice as much pollution as they need to reduce. Maryland ignored this best practice in its new regulations.

As Isaacson and Russ write, “The Chesapeake Bay will not be restored by shuffling pollution credits around or by concocting questionable accounting rules…. [T]he new nutrient trading policy proposed by the state’s Department of the Environment has several major flaws. If adopted, the policy would threaten … the potential for meeting the state’s pollution reduction goals under the Bay cleanup.”

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