Maryland is moving ahead with plans to allow the buying and selling of “credits” for reducing nutrient and sediment pollution, though some environmental groups contend the state’s proposed regulations are seriously flawed.The credits could be used by county or municipal governments to avoid having to reduce stormwater runoff as much as currently required. (Dave Harp)

The state Department of the Environment on Dec. 8 formally proposed regulations for its water-quality trading program. The rules, published in the Maryland Register, come after years of study and debate over enlisting private enterprise in the long-running effort to restore the Chesapeake Bay. 

“These balanced regulations put a priority on environmental progress, transparency and accountability with multiple safeguards against hot spots or any other unacceptable outcome,” said Ben Grumbles, Maryland’s secretary of the environment. 

About a dozen states, including neighboring Pennsylvania and Virginia, have water-quality trading programs. More are developing or considering it, as the approach is encouraged by the U.S. Environmental Protection Agency.

Under the proposed Maryland trading rules, farmers, for example, could earn marketable credits by reducing more runoff from their land than is required. They could sell those credits through an exchange to a wastewater plant that needs to clean up its discharge, or to a community needing to curtail its stormwater pollution.

Proponents argue that such a market-based approach can restore the Bay more quickly and at a lower cost to the public than traditional government mandates and incentive programs. It also can help build a “restoration economy,” they say, by getting private, profit-making businesses to invest in pollution reduction projects.

But environmental groups say they’re concerned that the rules could make things worse instead of better. Two Washington, DC-based nonprofits, the Center for Progressive Reform and the Environmental Integrity Project, published a critique of the proposed Maryland rules that found three failings.

It warned that trading could produce local pollution hot spots, likely in the state’s most vulnerable communities. It also charged that the state would be permitting “paper” trades, crediting pollution reductions that had already been made. And, it said state officials weren’t building precautions into the trading rules to account for uncertainty in the effectiveness of some pollution-reduction measures.

The groups say they’re especially worried that trading over large areas, as the Maryland rules allow, could lead to localized water-quality problems — particularly if, for instance, a wastewater plant needing to curb its nutrient pollution paid for credits generated by a farm downstream or in an entirely different watershed.

The Maryland rules would allow trading within three broad regions in the state — the Potomac River watershed, the Patuxent River watershed, or a third region that encompasses all of the rivers on the Eastern and upper Western Shore, including the lower Susquehanna River.

“The larger they are, the more likely you are to get hot spots,” said Evan Isaacson, an analyst with the Center for Progressive Reform.

A credit for a nutrient reduction on an Eastern Shore farm that’s purchased by a Western Shore wastewater plant might help water quality in the middle of the Bay, critics say, but it would have little or no impact on conditions just downstream of the Western Shore sewage plant.

As originally proposed in October, the state’s rules would have allowed pilot projects in which pollution reduction credits could be generated in another state. MDE spokesman Jay Apperson said that has been dropped. And, several other clarifications and changes were made since the proposal was submitted to a legislative committee for review.

Environmentalists are also worried about the potential for trades that don’t yield any real reductions. The proposed rules would let wastewater plants get credits if they remove nutrients below a specified threshold. The state has already funded upgrades at 67 of its largest sewage facilities, and a number are now eligible to generate credits. Those could be used by county or municipal governments to avoid having to reduce stormwater runoff as much as currently required.

“If the credits are reductions that have already occurred at your wastewater treatment plant, that’s not a reduction at all,” Isaacson said. “You’re subsidizing additional pollution.”

Another concern is that while nutrient reductions at a wastewater treatment plant can be reliably measured, the same is not true for runoff controls installed on a farm or in a community stormwater system, where control practices vary in effectiveness and may yield different results in different locations.

The proposed regulation takes that uncertainty into account, at least partially. It requires wastewater plants buying credits generated by farm runoff controls to acquire two pounds’ worth of reduction for every pound of reduction needed, but it leaves it up to MDE’s discretion whether to waive that. And Abel Russ, a lawyer with the EIP, said that the 2-for-1 requirement is removed if the purchase is used to offset pollution from a stormwater system.

“In theory, these systems are supposed to help the efficiency of the overall Chesapeake Bay cleanup,” said Eric Schaeffer, director of the EIP and a former EPA enforcement official. “But in practice, we’ve found they are often poorly designed and can cause more harm than traditional enforcement of individual Clean Water Act permits.”

In a recent report, Schaeffer’s group charged that nutrient credit swaps in Virginia and Pennsylvania contribute to local pollution hot spots and lack clear documentation of transactions.

In Virginia, the report said, trading has hurt water quality in the Shenandoah River watershed. Even though the Shenandoah suffers from severe, nutrient-fed algae blooms, the state has allowed the Strasburg Sewage Treatment Plant to release 2,942 pounds of phosphorus — more than three times its permitted limit of that nutrient. Another sewage plant at Front Royal is allowed to discharge 9,146 pounds of phosphorus into the Shenandoah, more than twice its permitted limit.

The EIP report also contends that Pennsylvania’s trading program suffers from poor recordkeeping that keeps the public in the dark about transactions. Some of the commonwealth’s wastewater plants have bought credits that let them discharge more pollution than their permits allow. Meanwhile, plant operators have failed to report these credit purchases to EPA’s online enforcement database.

In Virginia, Allan Brockenbrough, who oversees nutrient trading for the state Department of Environmental Quality, said the excessive phosphorus discharges of the Strasburg and Front Royal sewage plants were offset by credits for nutrient reductions made upriver of the facilities. The agency annually posts on its website a report listing facilities engaged in nutrient credit purchases; there’s also another annual report that details nutrient credit needs of facilities across the state.

Neither online report, though, identifies the specific sources of the credits being used to offset excessive discharges.

In Pennsylvania, Deborah Klenotic, deputy communications director for the state Department of Environmental Protection, acknowledged that some wastewater plants had failed to report credit purchases to federal and state databases that track facilities’ compliance with their pollution discharge limits. But she said the number was relatively small, and credit buyers and generators are listed in an annual registry on the department’s website.