Maryland’s ‘Water Quality Trading’ program is a sham. Can it be fixed?

Written by Ben Alexandro, Water Policy Director

The Hogan administration is using a complicated ‘water quality trading’ program to let Maryland counties pollute more than they are permitted to. 

For years the Hogan administration has been touting nutrient trading as a new market-based strategy that could help save the Chesapeake Bay. The administration said it would spur innovation like never before and be the new ingredient in the bay restoration plan that finally uses efficient and smart investments. The assertion is that this will lead to great new projects and filtering practices to save the Bay. Unfortunately, that is not at all how it is being used today.

Please let me explain: The most urban areas of Maryland now have expiring Clean Water Act permits which are supposed to require the treatment of pollution coming off of urban areas by the equivalent of restoring 20% of urban land surface to forest.  While some counties like Carroll were able to meet their goal legitimately, other counties like Baltimore (who got rid of their polluted runoff fee that financed their improvement projects and as a result cancelled a bunch of real projects in the works) couldn’t meet their goal. It is true that the requirements under the last permits were very ambitious.  But now, rather than the state issuing violations or legal settlements like they did for Montgomery County, Maryland Department of the Environment (MDE) is letting other counties quietly turn to ‘nutrient trading’ to magically smooth things over, in many cases, for free without actual reductions in pollution.

A False Fantasy:

As one of the authors of the Environmental Finance Center’s Maryland’s Chesapeake Bay Restoration Financing Strategy Final Report I am not usually an opponent of nutrient trading. In theory the idea is to create a ‘cap and trade’ program where you use the cap on how much an entity can pollute.  Then let them buy ‘credits’ created by separate pollution reduction projects offsite. The idea is through a competitive market for credits, Maryland can reduce more pollution for less cost. Currently, the most urban counties in Maryland have a federally mandated Clean Water Act permits that say how much polluted runoff must be reduced before the permit expires. MDE has already allowed Anne Arundel, Baltimore, and Prince George’s Counties to amend their expired permits meant to reduce polluted runoff to allow the county governments to ‘trade credits’ instead of reducing pollution themselves. MDE released that it will allow Harford County, Frederick County, and the State Highway Administrations to amend their permits as well. 

If functioning correctly, county governments, and other buyers, will invest money to incentivize creating new and more effective pollution reduction practices. The idea is that if there was a market for pollution reduction, a farmer doing something like planting forests near a stream could reduce twice the pollution for half the cost that a town or city could from ripping up concrete and asphalt to plant trees in the urban area.  So why not let the county pay the farmer to reduce pollution upstream and get more bang for your buck?

Critics might point out that a faulty trading program can lead to real world injustices. For example, a trading program done incorrectly could lead to pollution hotspots often in communities of color and underserved areas, which is simply racial and environmental injustice. Often low-income areas feel the most negative effects of concentrated pollution because polluters in those areas are the ones who buy ‘credits’ from elsewhere instead of cleaning up onsite. Critics also point out sloppy verification and enforcement issues in the trading regulations and that the MDE is chronically understaffed- potentially too understaffed to properly administer and police the program.  The Choose Clean Water Coalition, a coalition of over 230 organizations working towards clean water and a clean Chesapeake Bay do not have an official policy supporting nutrient trading. However, if trading is to occur, the Coalition attests these Twelve Principles are essential to ensure water quality is protected. While pollution hotspots, counterfeit credits, etc. are often issues in a poorly managed trading program, I think if MDE increases staff, follows these twelve principles and becomes truly committed to creating a well-regulated trading market with strong protections, these issues could be avoided and the administration’s dream of free markets incentivizing pollution reductions could be a reality.

The way the administration is running the program this far is poor to say the least. So far it seems to be simply a way to ‘cook the books’ and make it look like counties are reducing more pollution than they actually are. It is a convoluted way to let counties off the hook.

How is MDE letting counties off the hook?

With any new complex market-based initiative, the devil is in the details. Our devil: wastewater treatment plants. On all of Maryland’s water bills, there is a fee for the ‘BRF’- Bay Restoration Fund.  This money goes towards upgrading Maryland’s wastewater treatment plants in order to decrease the amount of pollution that enters our waters. Waste water treatment plants have made the water coming out of them cleaner thanks to these taxpayer funds. Now the state is saying plants upgraded using taxpayer money can be a part of the nutrient trading program by trading credits to Maryland counties. And because of where the state set the baseline to be able to generate credits, many wastewater plants owned by the counties can essentially give a county all the credit for nutrient trading they would ever need without doing anything new at all to actually reduce any more pollution. For example, Anne Arundel county’s wastewater treatment plant is able to suddenly create enough credits equal to the county converting over 4,000 acres of polluting industrial parking lots and other polluting land cover to forests. By using average flow numbers for 2019, I calculated that together the waste water treatment plants in Maryland could trade away over 500,000 pounds worth of credits potentially for free. That is more credits than every single permit in the state would need combined. 

Because of this loophole, most county owned sewage treatment plants have not invested a single dollar in pollution reduction projects, but may still get credits to sell in the nutrient trading program for reducing tens of thousands of pounds of nutrient pollution. If you really want to know how successful a program is, follow the money. If no money is invested, it means that there are no real new projects going into effect because of this program. If the counties are just doing a paper exercise, the price of a credit is effectively zero dollars. The price needs to be high enough to encourage farmers and others to put in place real practices above what they would already be doing. The trading program is also not incentivizing waste water treatment plants to create better pollution removal systems. They are generating credits based on money already invested years ago by you, the taxpayer. Right now, zero innovations are being funded through trading, and the market is in danger of crashing.

Confusing? That might be the point-

The whole system is incredibly complex and hard to follow.  I didn’t even go into detail about how the nitrogen parts per million baselines at the wastewater treatment plants further complicates this issue or how permits are actually based on percentage of impervious area treated instead of each pollutant directly, etc. I think that right now, nutrient trading is a purposely complex way to make it look like the counties are doing far better at reducing pollution then they really are.

Why would the Hogan Administration do this? 

We can agree that the trading program is complex and hard for the average Marylander to follow and understand. The Clean Water Act permits built to ensure counties reduce their polluted runoff are complicated too. Sound science-based policy often is complicated because the science behind it is complicated. A much simpler concept is a misleading term like the ‘Rain Tax.’ ‘Rain Tax’ was a rallying cry for this administration in the first election- they claimed that we could easily reduce the pollution we need to without counties using dedicated fees and funding that would pay for pollution-reducing projects. Saying that all the counties are doing great at reducing all the pollution they needed to without having to resort to polluted runoff fees, or as the administration called it in their empty political sloganeering, the ‘rain tax,’ is cheap, easy, and politically appealing.  In some ways it is smart- make the problem so complex that getting folks to understand the problem let alone rallying people to fight it requires advanced degrees years of environmental policy experience. But Maryland deserves better. And we will need to do much better at controlling urban runoff as climate change continues to create more frequent and dangerous flood events. Now is not the time for political gimmicks.

Can the trading program be fixed?

I believe MDE could fix it. MDE has claimed verbally in meetings that trades with waste water treatment plants are temporary and can only be used to buy the counties time.  MDE claims that counties will have to make up the pollution reduction with real projects in the next permit in addition to new levels of pollution reduction. However, we see no indication of this commitment in their written Watershed Implementation Plans they had to submit to the EPA earlier this summer or in the legally binding permits. We see some counties like Anne Arundel planning in their budgets to put in real projects later to make up for it and just ‘trading in time’ as they call it do buy them time, but others like Harford County are not planning on making up the gap with real projects budgeted in the future. 

Without a clear indication of what is coming in the next permit, supposedly coming out at the end of the year, it is hard, if not impossible, for counties to properly budget funds for pollution-reducing projects. None of the county budgets indicate that they expect they will need to spend real money in the future to buy real credits. Meanwhile, some counties are seeing this as an opportunity to cut budgets. For example, Frederick County has cut their budget for projects by $2 million and Montgomery County slashed theirs even further.

The Hogan administration needs to make it clear that this type of trading for free with their own wastewater treatment plants will not stand. MDE needs to clearly show it is not weakening clean water permits with loopholes. Trading needs to be for real new projects and include practices that effectively reduce pollution. MDE needs to make a commitment that it will create a real demand-driven, closely regulated market that incentivizes new and innovative projects, or they need to shut the program down.  

The frustrating part is that I still believe that if the state closed these loopholes, followed the Choose Clean Water Twelve Principles, and truly committed to the ideas behind the program, it really could be the market-based solution to efficiently reduce tens of thousands of pounds of pollution going into the Bay that we want it to be.  MDE could still fix this program. 

It is not my goal to criticize MDE for trying a creative new program, but I have given the program every benefit of the doubt. I have worked closely with MDE for months and testified at MDE hearings multiple times to air my concerns. While trading has improved in some areas, the fundamental flaws remain. If MDE truly wants to let counties off the hook on their commitment to reduce pollution, that is their purgative, (and we will continue to expose them for that) but why must the dream of the trading program be a casualty?  Allowing free trading of already completed upgrades to waste water treatment plants makes the program into what its worst critics have been claiming it was all along - A dangerous sham that will let polluters in Maryland continue to dirty our waters.  

Do you agree? Then send a comment into MDE.  Details on how to comment here:  https://mde.maryland.gov/programs/Water/StormwaterManagementProgram/Pages/storm_gen_permit.aspx